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Item 1A. Risk Factors
Risk Factor Summary
Before you invest in our Common Units, you should carefully consider the risk factors referenced below and as more fully described in this section. If any of the risks referenced below and discussed under this section were to occur, our business, financial condition, results of operations, cash flows and ability to make cash distributions could be materially adversely affected.
Risks Related to Our Business
•Following the closing of the Chevron Merger, Chevron Corporation indirectly owns our General Partner. Chevron’s ownership of our General Partner may result in conflicts of interest.
•We derive a substantial portion of our revenue from Noble. If Noble changes its business strategy, alters its current drilling and development plan on our dedicated acreage, or otherwise significantly reduces the volumes of crude oil, natural gas, produced water or fresh water with respect to which we perform midstream services, our revenue would decline and our business, financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be materially and adversely affected.
•In the event any customer, including Noble, elects to sell acreage that is dedicated to us to a third party, the third party’s financial condition could be materially worse than the customer with whom we have contracted, and thus we could be subject to the nonpayment or nonperformance by the third party.
•We may not generate sufficient distributable cash flow to enable us to make quarterly distributions to our unitholders at our current distribution rate.
•Because of the natural decline in production from existing wells, our success, in part, depends on our ability to maintain or increase hydrocarbon throughput volumes on our midstream systems, which depends on our customers’ levels of development and completion activity on our dedicated acreage.
•Our midstream assets are currently primarily located in the DJ Basin in Colorado and the Delaware Basin in Texas, making us vulnerable to risks associated with operating in a limited geographic area.
•While we have been granted a right of first refusal to provide midstream services and purchase assets on certain acreage that Noble currently owns and on certain acreage that Noble acquires onshore in the U.S., portions of this acreage may be subject to preexisting dedications that may require Noble to use third parties for midstream services or we may not be able to economically accept such an offer from Noble.
•We may be unable to grow by acquiring midstream assets retained, acquired or developed by Noble and we may be unable to make attractive acquisitions or successfully integrate acquired businesses, assets or properties, all of which could limit our ability to increase our distributable cash flow.
•We may not be able to attract dedications of additional third-party volumes, in part because our industry is highly competitive, which could limit our ability to grow and increase our dependence on Noble. Further, increased competition from other companies that provide midstream services, or from alternative fuel sources, could have a negative impact on the demand for our services, which could adversely affect our financial results.
•To grow our business, we will be required to make substantial capital expenditures. If we are unable to obtain needed capital or financing on satisfactory terms, our ability to make cash distributions may be diminished or our financial leverage could increase.
•The amount of cash we have available for distribution to our unitholders depends primarily on our cash flow and not solely on our profitability, which may prevent us from making distributions, even during periods in which we record net income.
•Our business, including the rates of our regulated assets, our pipelines and our environmental and safety practices, are subject to regulation by multiple governmental agencies, which any such regulation could adversely impact our business, results of operations and financial condition.
•Our investments in joint ventures involve numerous risks that may affect the ability of such joint ventures to make distributions to us.
•Our exposure to commodity price risk may change over time and we cannot guarantee the terms of any existing or future agreements for our midstream services with our customers.
•Restrictions in our revolving credit facility and term loan credit facility, as well as debt we incur now or in the future, could adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
•Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. The occurrence of a significant accident or other event that is not fully insured could curtail our operations and have a material adverse effect on our ability to make cash distributions and, accordingly, the market price for our Common Units.
•We do not own in fee some of the land on which our pipelines and facilities are located, which could result in disruptions to our operations.
•Terrorist attacks, cyber incidents or cyber-attacks could have a material adverse effect on our business, financial condition or results of operations, and a cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.
•Events outside of our control, including a pandemic, epidemic or outbreak of an infectious disease, such as the recent global outbreak of COVID-19, political unrest and economic recessions occurring around the globe, could have a material adverse impact on our financial position, results of operations and cash flows.
•Our and our customers' operations are subject to a series of risks related to climate change and associated government action that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce the demand for the products and services we provide.
Risks Inherent in an Investment in Us
•There can be no assurances that we will enter into a definitive agreement with Chevron related to Chevron’s proposal to acquire all of our Common Units that it does not already own, or that we will complete any transaction contemplated by such an agreement.
•Our General Partner and its affiliates, including Noble, have conflicts of interest with us and our partnership agreement eliminates their default fiduciary duties to us and our unitholders and replaces them with contractual standards that may allow our General Partner and its affiliates to favor their own interests to our detriment and that of our unitholders, including with respect to business opportunities. Additionally, we have no control over the business decisions and operations of Noble, and Noble is under no obligation to adopt a business strategy that favors us.
•We expect to distribute a substantial portion of our cash available for distribution, which could limit our ability to grow and make acquisitions.
•Our partnership agreement provides limited voting rights to our unitholders, restricts the remedies available to unitholders and restricts the voting rights of certain unitholders owning 20% or more of our Common Units.
•Cost reimbursements and fees due to our General Partner and its affiliates for services provided will be substantial and will reduce the amount of cash we have available for distribution to unitholders. Furthermore, our General Partner’s discretion in establishing cash reserves may reduce the amount of cash we have available to distribute to unitholders.
•Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
•We may issue an unlimited number of additional partnership interests without unitholder approval, which would dilute unitholder interests. Noble may also sell Common Units in the public or private markets, which may adversely impact the trading price of our Common Units.
•Our General Partner has a call right that may require our unitholders to sell their Common Units at an undesirable time or price.
•Unitholders may have to repay distributions that were wrongfully distributed to them, and Common Units held by persons, who our General Partner determines are not “eligible holders” at the time of any requested certification in the future, may be subject to redemption.
•Our partnership agreement designates the Court of Chancery of the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our unitholders and provides that unitholders irrevocably waive the right to trial by jury in any claim, suit, action or proceeding under either state or federal laws, both of which may limit the legal recourses available to our unitholders.
Tax Risks
•Our tax treatment depends on our status as a partnership for federal income tax purposes, and not being subject to a material amount of entity-level taxation. Our cash available for distribution to unitholders may be substantially reduced if we become subject to entity-level taxation as a result of the Internal Revenue Service (“IRS”) treating us as a corporation or legislative, judicial or administrative changes, and may also be reduced by any audit adjustments if imposed directly on the partnership.
•Even if unitholders do not receive any cash distributions from us, unitholders will be required to pay taxes on their share of our taxable income. A unitholder’s share of our taxable income may be increased as a result of the IRS successfully contesting any of the federal income tax positions we take.
•Tax-exempt entities and non-U.S. unitholders face unique tax issues from owning our Common Units that may result in adverse tax consequences to them.
Risks Related to Our Business
Following the closing of the Chevron Merger, Chevron Corporation indirectly owns our General Partner. Chevron’s indirect ownership of our General Partner may result in conflicts of interest.
Following the closing of the Chevron Merger, the directors and officers of our General Partner and its affiliates have duties to manage our General Partner in a manner that is beneficial to Chevron, who is the indirect owner of our General Partner. At the same time, our General Partner has duties to manage us in a manner that is beneficial to our unitholders. Therefore, our General Partner’s duties to us may conflict with the duties of its officers and directors to Chevron. As a result of these conflicts of interest, our General Partner may favor the interests of Chevron or its owners or affiliates over the interest of our unitholders.
Now that the Chevron Merger has been completed, our future prospects will depend on Chevron’s growth strategy, midstream operational philosophy, and drilling program, including the level of drilling and completion activity by Chevron on acreage dedicated to us. Additional conflicts also may arise in the future associated with future business opportunities that are pursued by Chevron and us.
We derive a substantial portion of our revenue from Noble. If Noble changes its business strategy, alters its current drilling and development plan on our dedicated acreage, or otherwise significantly reduces the volumes of crude oil, natural gas, produced water or fresh water with respect to which we perform midstream services, our revenue would decline and our business, financial condition, results of operations, cash flows and ability to make distributions to our unitholders would be materially and adversely affected.
A substantial portion of our commercial agreements are with Noble or its affiliates. Accordingly, because we derive a substantial portion of our revenue from our commercial agreements with Noble, we are subject to the operational and business risks of Noble, the most significant of which include the following:
•a reduction in or slowing of Noble’s drilling and development plan on our dedicated acreage, which would directly and adversely impact demand for our midstream services;
•the volatility of crude oil, natural gas and NGL prices, which could have a negative effect on Noble’s drilling and development plan on our dedicated acreage or Noble’s ability to finance its operations and drilling and completion costs on our dedicated acreage;
•the availability of capital on an economic basis to fund Noble’s exploration and development activities;
•drilling and operating risks, including potential environmental liabilities, associated with Noble’s operations on our dedicated acreage;
•downstream processing and transportation capacity constraints and interruptions, including the failure of Noble to have sufficient contracted processing or transportation capacity; and
•adverse effects of increased or changed governmental and environmental regulation or enforcement of existing regulation.
In addition, we are indirectly subject to the business risks of Noble generally and other factors, including, among others:
•Noble’s financial condition, credit ratings, leverage, market reputation, liquidity and cash flows;
•Noble’s ability to maintain or replace its reserves;
•adverse effects of governmental and environmental regulation on Noble’s upstream operations; and
•losses from pending or future litigation.
Further, we have no control over Noble’s business decisions and operations, and Noble is under no obligation to adopt a business strategy that is favorable to us. Thus, we are subject to the risk of cancellation of planned development, breach of commitments with respect to future dedications; and other non-payment or non-performance by Noble, including with respect to our commercial agreements, which do not contain minimum volume commitments. Noble is currently conducting development drilling activities in both the DJ and Delaware Basins. A decrease in development drilling and completion activities on our dedicated acreage could result in lower throughput on our midstream infrastructure. Furthermore, we cannot predict the extent to which Noble’s businesses would be impacted if conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on Noble’s ability to execute its drilling and development plan on our dedicated acreage or to perform under our commercial agreements. Any material non-payment or non-performance by Noble under our commercial agreements would have a significant adverse impact on our business, financial condition, results of operations and cash flows and could therefore materially adversely affect our ability to make cash distributions to our unitholders. Our long-term commercial agreements with Noble carry initial terms for 15 years, and there is no guarantee that we will be able to renew or replace these agreements on equal or better terms, or at all, upon their expiration. Our ability to renew or replace our commercial agreements following their expiration at rates sufficient to maintain our current revenues and cash flows could be adversely affected by activities beyond our control, including the activities of our competitors and Noble.
In addition to our commercial agreements with Noble, we provide midstream services and crude oil sales for unaffiliated, non-investment grade third-party customers. We may engage in significant business with new third-party customers or enter into material commercial contracts with customers for which we do not have material commercial arrangements or commitments today and who may not have investment grade credit ratings. Each of the risks indicated above applies to our current third-party customers and to the extent we derive substantial income from or commit to capital projects to service new or existing customers, each of the risks indicated above would apply to such arrangements and customers.
In the event any customer, including Noble, elects to sell acreage that is dedicated to us to a third party, the third party’s financial condition could be materially worse than the customer with whom we have contracted, and thus we could be subject to the nonpayment or nonperformance by the third party.
The third party may be subject to its own operating and regulatory risks, which increases the risk that it may default on its obligations to us. Any material nonpayment or nonperformance by the third party could reduce our ability to make distributions to our unitholders.
We may not generate sufficient distributable cash flow to enable us to make quarterly distributions to our unitholders at our current distribution rate.
We may not generate sufficient distributable cash flow to enable us to make quarterly distributions at our current distribution rate. For example, in response to the unprecedented impact on our business from the significant decline in commodity prices and the COVID-19 outbreak, on March 25, 2020, the Board of Directors of our General Partner approved a 73% reduction of the quarterly distribution to $0.1875 per unit for the first quarter 2020. We maintained the reduced quarterly distribution for the second, third and fourth quarter 2020.
The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:
•the volumes of natural gas we gather or process, the volumes of crude oil we gather and sell, the volumes of produced water we collect, clean or dispose of, the volumes of fresh water we distribute and store, and the number of wells that have access to our crude oil treating facilities;
•our ability to construct new midstream assets that result in revenue increases while navigating regulatory, environmental, political, contractual, legal and economic risks;
•market prices of crude oil, natural gas and NGLs and their effect on our customers’ drilling and development plans on our dedicated acreage and the volumes of hydrocarbons that are produced on our dedicated acreage and for which we provide midstream services;
•our customers’ ability to fund their drilling and development plans on our dedicated acreage;
•the rate at which our customers develop acreage that is dedicated to us or whether our customers will decide to develop areas not dedicated to us;
•downstream processing and transportation capacity constraints and interruptions, including the failure of our customers to have sufficient contracted processing or transportation capacity or failure of our gathered volumes to meet quality requirements of such processing and transportation;
•the levels of our operating expenses, maintenance expenses and general and administrative expenses;
•regulatory action affecting: (i) the supply of, or demand for, crude oil, natural gas, NGLs and water, (ii) the rates we can charge for our midstream services, (iii) the terms upon which we are able to contract to provide our midstream services, (iv) our existing gathering and other commercial agreements or (v) our operating costs or our operating flexibility;
•the rates we charge third parties for our midstream services;
•prevailing economic conditions; and
•adverse weather conditions.
In addition, the actual amount of distributable cash flow that we generate will also depend on other factors, some of which are beyond our control, including:
•global or national health pandemics, epidemics or concerns, such as the recent COVID-19 outbreak, which has reduced and may further reduce demand for oil and natural gas and related products due to reduced global or national economic activity;
•limited production cuts and freezes implemented by OPEC members and other large oil producers such as Russia;
•the level and timing of our capital expenditures;
•our debt service requirements and other liabilities;
•our ability to borrow under our debt agreements to fund our capital expenditures and operating expenditures and to pay distributions;
•fluctuations in our working capital needs;
•restrictions on distributions contained in any of our debt agreements;
•the cost of acquisitions, if any;
•the fees and expenses of our General Partner and its affiliates (including Noble) that we are required to reimburse;
•the amount of cash reserves established by our General Partner; and
•other business risks affecting our cash levels.
Because of the natural decline in production from existing wells, our success, in part, depends on our ability to maintain or increase hydrocarbon throughput volumes on our midstream systems, which depends on our customers’ levels of development and completion activity on our dedicated acreage.
The level of crude oil and natural gas volumes handled by our midstream systems depends on the level of production from crude oil and natural gas wells dedicated to our midstream systems, which may be less than expected and which will naturally decline over time. In order to maintain or increase throughput levels on our midstream systems, we must obtain production from wells completed by Noble and any third-party customers on acreage dedicated to our midstream systems or execute agreements with other third parties in our areas of operation.
We have no control over Noble’s or other producers’ levels of development and completion activity in our areas of operation, the amount of reserves associated with wells connected to our systems or the rate at which production from a well declines. In addition, we have no control over Noble or other producers or their exploration and development decisions, which may be affected by, among other things:
•the availability and cost of capital;
•global or national health pandemics, endemics or concerns, such as the recent COVID-19 outbreak, which has reduced and may further reduce demand for oil and natural gas and related products due to reduced global or national economic activity;
•limited production cuts and freezes implemented by OPEC members and other large oil producers such as Russia;
•increased volatility of prevailing and projected crude oil, natural gas and NGL prices;
•demand for crude oil, natural gas and NGLs, which has been significantly depressed due to the global economic conditions;
•levels of reserves;
•geologic considerations;
•changes in the strategic importance our customers assign to development in the DJ Basin or the Delaware Basin as opposed to their other operations, which could adversely affect the financial and operational resources our customers are willing to devote to development of our dedicated acreage;
•increased levels of taxation related to the exploration and production of crude oil, natural gas and NGLs in our areas of operation;
•environmental or other governmental regulations, including the availability of permits, the regulation of hydraulic fracturing and a governmental determination that multiple facilities are to be treated as a single source for air permitting purposes; and
•the costs of producing crude oil, natural gas and NGLs and the availability and costs of drilling rigs and other equipment.
Producers, including Noble, are also subject to other risks enumerated herein. Due to these and other factors, even if reserves are known to exist in areas served by our midstream assets, producers, including Noble, may choose not to develop those reserves. If producers choose not to develop their reserves, or they choose to slow their development rate, in our areas of operation, utilization of our midstream systems will be below anticipated levels. Our inability to provide increased services resulting from reductions in development activity, coupled with the natural decline in production from our current dedicated acreage, would result in our inability to maintain the then-current levels of utilization of our midstream assets, which could materially adversely affect our business, financial condition, results of operations, cash flows and ability to make cash distributions.
Our midstream assets are currently primarily located in the DJ Basin in Colorado and the Delaware Basin in Texas, making us vulnerable to risks associated with operating in a limited geographic area.
As a result of this concentration, we will be disproportionately exposed to the impact of regional supply and demand factors, delays or interruptions of production from wells in these areas caused by governmental regulation, market limitations, water shortages, drought related conditions or other weather-related conditions or interruption of the processing or transportation of crude oil and natural gas. If any of these factors were to impact the DJ Basin or Delaware Basin more than other producing regions, our business, financial condition, results of operations and ability to make cash distributions could be adversely affected relative to other midstream companies that have a more geographically diversified asset portfolio.
While we have been granted a right of first refusal to provide midstream services on certain acreage that Noble currently owns and on certain acreage that Noble acquires onshore in the U.S., portions of this acreage may be subject to preexisting dedications that may require Noble to use third parties for midstream services.
Portions of this acreage may be subject to preexisting dedications, rights of first refusal, rights of first offer and other preexisting encumbrances that require Noble to use third parties for midstream services, and, as a result, Noble may be precluded from offering us the opportunity to provide these midstream services on this acreage. Because we do not have visibility as to which acreage Noble may acquire or divest, and what existing dedications, rights of first refusal, rights of first offer or other overriding rights may exist on such acreage, we are unable to predict the value, if any, of our ROFR to provide midstream services on Noble’s acreage onshore in the United States.
We may not be able to economically accept an offer from Noble for us to provide services or purchase assets with respect to which we have a right of first refusal.
Noble is required to offer us, prior to contracting for such opportunity with a third party, the opportunity to provide the midstream services covered by our commercial agreements, which include crude oil gathering, natural gas gathering, produced water gathering, fresh water services and crude oil treating, as well as services of a type provided at natural gas processing plants on certain acreage located in the United States that Noble currently owns or in the future acquires or develops. In addition, Noble is required to offer us, prior to contracting for such opportunity with a third party, the ownership interest in any midstream assets that are located on the acreage for which Noble has granted us a ROFR to provide services. The acreage and assets subject to this ROFR may be located in areas far from our existing infrastructure or may otherwise be undesirable in the context of our business. In addition, we can make no assurances that the terms at which Noble offers us the opportunity to provide these services or purchase these assets will be acceptable to us. Furthermore, another midstream service provider or third party may be willing to accept an offer from Noble that we are unwilling to accept. Our inability to take advantage of the opportunities with respect to such acreage or assets could adversely affect our growth strategy or our ability to maintain or increase our cash distribution level.
We may be unable to grow by acquiring midstream assets retained, acquired or developed by Noble, which could limit our ability to increase our distributable cash flow.
Part of our strategy for growing our business and increasing distributions to our unitholders is dependent upon our ability to make acquisitions that increase our distributable cash flow. Noble is under no obligation to offer to sell us additional assets, we are under no obligation to buy any additional assets from Noble and we do not know when or if Noble will decide to make any offers to sell assets to us.
We may be unable to make attractive acquisitions or successfully integrate acquired businesses, assets or properties, and any ability to do so may disrupt our business and hinder our ability to grow and an acquisition from Noble or a third party may reduce, rather than increase, our distributable cash flow or may disrupt our business.
We may not be able to identify attractive acquisition opportunities. Even if we do identify attractive acquisition opportunities, we may not be able to complete the acquisition or do so on commercially acceptable terms. No assurance can be given that we will be able to identify additional suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Any acquisition involves potential risks that may disrupt our business, including the following, among other things:
•mistaken assumptions about volumes or the timing of those volumes, revenues or costs, including synergies;
•an inability to successfully integrate the acquired assets or businesses;
•the assumption of unknown liabilities;
•exposure to potential lawsuits;
•limitations on rights to indemnity from the seller;
•the diversion of management’s and employees’ attention from other business concerns;
•unforeseen difficulties operating in new geographic areas; and
•customer or key employee losses at the acquired businesses.
We may not be able to attract dedications of additional third-party volumes, in part because our industry is highly competitive, which could limit our ability to grow and increase our dependence on Noble. Further, increased competition from other companies that provide midstream services, or from alternative fuel sources, could have a negative impact on the demand for our services, which could adversely affect our financial results.
Part of our long-term growth strategy includes continuing to diversify our customer base by identifying additional opportunities to offer services to third parties in our areas of operation. To date and over the near term, a substantial portion of our revenues have been and will continue to be earned from Noble relating to its operated wells on our dedicated acreage. Our ability to increase throughput on our midstream systems and any related revenue from third parties is subject to numerous factors beyond our control, including competition from third parties and the extent to which we have available capacity when requested by
third parties. Any lack of available capacity on our systems for third-party volumes will detrimentally affect our ability to compete effectively with third-party systems for crude oil and natural gas from reserves associated with acreage other than our then-current dedicated acreage. In addition, some of our competitors for third-party volumes have greater financial resources and access to larger supplies of crude oil and natural gas than those available to us, which could allow those competitors to price their services more aggressively than we do.
Our efforts to attract additional third parties as customers may be adversely affected by our relationship with Noble and the fact that a substantial majority of the capacity of our midstream systems will be necessary to service its production on our dedicated acreage and our desire to provide services pursuant to fee-based agreements. As a result, we may not have the capacity to provide services to additional third parties and/or potential third-party customers may prefer to obtain services pursuant to other forms of contractual arrangements under which we would be required to assume direct commodity exposure. In addition, potential third-party customers who are significant producers of crude oil and natural gas may develop their own midstream systems in lieu of using our systems. All of these competitive pressures could have a material adverse effect on our business, results of operations, financial condition, cash flows and ability to make cash distributions to our unitholders.
Further, hydrocarbon fuels compete with other forms of energy available to end-users, including electricity and coal. Increased demand for such other forms of energy at the expense of hydrocarbons could lead to a reduction in demand for our services.
All of these competitive pressures could make it more difficult for us to retain our existing customers or attract new customers as we seek to expand our business, which could have a material adverse effect on our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders. In addition, competition could intensify the negative impact of factors that decrease demand for natural gas in the markets served by our systems, such as adverse economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly increase the cost or limit the use of natural gas.
To grow our business, we will be required to make substantial capital expenditures. If we are unable to obtain needed capital or financing on satisfactory terms, our ability to make cash distributions may be diminished or our financial leverage could increase.
In order to grow our business, we will need to make substantial capital expenditures to fund growth capital expenditures, to purchase or construct new midstream systems, or to fulfill our commitments to service acreage committed to us by our customers. If we do not make sufficient or effective capital expenditures, we will be unable to grow our business and, as a result, we may be unable to maintain or raise the level of our future cash distributions over the long term. To fund our capital expenditures, we will be required to use cash from our operations, incur debt or sell additional Common Units or other equity securities. Using cash from our operations will reduce cash available for distribution to our unitholders. Our ability to obtain bank financing or our ability to access the capital markets for future equity or debt offerings may be limited by our financial condition at the time of any such financing or offering and the covenants in our existing debt agreements, as well as by general economic conditions, contingencies and uncertainties that are beyond our control. For example, the significant volatility in energy commodity prices in recent years combined with environmental, social and governance concerns about the oil and gas industry has led to negative investor sentiment and an adverse impact on the ability of companies in the oil and gas industry to seek financing and access the capital markets on favorable terms or at all. Also, due to our relationship with Noble, our ability to access the capital markets, or the pricing or other terms of any capital markets transactions, may be adversely affected by any impairment to the financial condition of Noble. Any material limitation on our ability to access capital as a result of such adverse changes to Noble could limit our ability to obtain future financing under favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes affecting Noble could negatively impact our unit price, limiting our ability to raise capital through equity issuances or debt financing, or could negatively affect our ability to engage in, expand or pursue our business activities, or could also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.
Even if we are successful in obtaining the necessary funds to support our growth plan, the terms of such financings could limit our ability to pay distributions to our unitholders. In addition, incurring additional debt may significantly increase our interest expense and financial leverage, and issuing additional limited partner interests may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain the then current distribution rate, which could materially decrease our ability to pay distributions at the then prevailing distribution rate. While we have historically received funding from Noble, none of Noble, our General Partner or any of their respective affiliates is committed to providing any direct or indirect financial support to fund our growth.
The amount of cash we have available for distribution to our unitholders depends primarily on our cash flow and not solely on our profitability, which may prevent us from making distributions, even during periods in which we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow and not solely on our profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record a net loss
for financial accounting purposes, and conversely, we might fail to make cash distributions during periods when we record net income for financial accounting purposes.
We are subject to regulation by multiple governmental agencies, which could adversely impact our business, results of operations and financial condition.
We are subject to regulation by multiple federal, state and local governmental agencies. Proposals and proceedings that affect the midstream industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions, agencies and courts. We cannot predict when or whether any such proposals or proceedings may become effective or the magnitude of the impact changes in laws and regulations may have on our business. However, additions to the regulatory burden on our industry can increase our cost of doing business and affect our profitability.
The rates of our regulated assets are subject to review and reporting by federal regulators, which could adversely affect our revenues.
Our crude oil gathering system servicing the East Pony IDP area transports crude oil in interstate commerce. In addition, the Black Diamond crude oil gathering system, Empire Pipeline crude oil gathering system and Green River crude oil gathering system, transport crude oil in interstate commerce.
Pipelines that transport crude oil in interstate commerce are, among other things, subject to rate regulation by the FERC, unless such rate requirements are waived. We have received a waiver of the FERC’s tariff requirements for all of these crude oil gathering systems listed above. These temporary waivers are subject to revocation in certain circumstances. We are required to inform the FERC of any change in circumstances upon which the waivers were granted. Should the circumstances change, the FERC could revoke the waiver, either at the request of other entities or on its own initiative. In the event that the FERC were to determine that these crude oil gathering systems no longer qualified for the waiver, we would likely be required to comply with the tariff and reporting requirements, including filing a tariff with the FERC and providing a cost justification for the applicable transportation rates, and providing service to all potential shippers, without undue discrimination. A revocation of the temporary waivers for these pipelines could adversely affect the results of our revenues.
We may be required to respond to requests for information from government agencies, including compliance audits conducted by the FERC.
The FERC’s ratemaking policies are subject to change and may impact the rates charged and revenues received on our FERC jurisdictional pipelines that have tariffs on file, including White Cliffs Pipeline, EPIC Y-Grade, EPIC Crude and the gathering systems listed above in the event the temporary waivers do not remain in effect, and any other natural gas or liquids pipeline that is determined to be under the jurisdiction of the FERC. The FERC’s establishment of a just and reasonable rate, including the determination of the oil pipeline index, is based on many components, and tax-related changes will affect two such components, the allowance for income taxes and the amount for accumulated deferred income taxes (“ADIT”). The FERC’s oil pipeline index is reviewed every five years. In addition, if any of our waivers are revoked, the FERC's Revised Policy Statement on the Treatment of Income Taxes may result in an adverse impact on our revenues associated with the transportation and storage if we are required to set and charge cost-based rates in the future, including indexed rates.
Federal and state legislative and regulatory initiatives relating to pipeline safety that require the use of new or more stringent safety controls or result in more stringent enforcement of applicable legal requirements could subject us to increased capital costs, operational delays and costs of operation.
The Pipeline Safety and Job Creation Act, is the most recent federal legislation to amend the NGPSA, and the HLPSA, which are pipeline safety laws, requiring increased safety measures for natural gas and hazardous liquids pipelines. Among other things, the Pipeline Safety and Job Creation Act directs the Secretary of Transportation to promulgate regulations relating to expanded integrity management requirements, automatic or remote-controlled valve use, excess flow valve use, leak detection system installation, material strength testing, and verification of the maximum allowable pressure of certain pipelines.
Changes to existing pipeline safety regulations may result in increased operating and compliance costs. For example, in October 2019, PHMSA published three final rules that create or expand reporting, inspection, maintenance, and other pipeline safety obligations. We are in the process of assessing the impact of these rules on our future costs of operations and revenue from operations.
PHMSA is working on two additional rules related to gas pipeline safety that are expected to modify pipeline repair criteria and extend regulatory safety requirements to certain gathering lines in rural areas. Additionally, as part of the Consolidated Appropriations Act of 2021, Congress reauthorized PHMSA through 2023 and directed the agency to move forward with several regulatory actions, including the “Pipeline Safety: Class Location Change Requirements” and the “Pipeline Safety: Safety of Gas Transmission and Gathering Pipelines” proposed rulemakings. Congress has also instructed PHMSA to issue final regulations that will require operators of non-rural gas gathering lines and new and existing transmission and distribution pipeline facilities to conduct certain leak detection and repair programs and to require facility inspection and maintenance plans
to align with those regulations. The adoption of these or other regulations requiring more comprehensive or stringent safety standards could require us to install new or modified safety controls, pursue additional capital projects, or conduct maintenance programs on an accelerated basis, any or all of which tasks could result in our incurring increased operating costs that could have a material adverse effect on our results of operations or financial position.
Our investments in joint ventures involve numerous risks that may affect the ability of such joint ventures to make distributions to us.
We conduct some of our operations through joint ventures in which we share control with our joint venture participants. Our joint venture participants may have economic, business or legal interests or goals that are inconsistent with ours, or those of the joint venture. Furthermore, our joint venture participants may be unable to meet their economic or other obligations, and we may be required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint venture interest, to adequately manage the risks associated with such joint ventures could have a material adverse effect on the financial condition or results of operations of our joint ventures and, in turn, our business and operations. In addition, should any of these risks materialize, it could have a material adverse effect on the ability of the joint venture to make future distributions to us.
Our exposure to commodity price risk may change over time and we cannot guarantee the terms of any existing or future agreements for our midstream services with our customers.
We currently generate the majority of our revenues pursuant to fee-based agreements under which we are paid based on volumetric fees, rather than the underlying value of the commodity. Consequently, our existing operations and cash flows have little direct exposure to commodity price risk. However, our customers are exposed to commodity price risk, and extended reduction in commodity prices could reduce the production volumes available for our midstream services in the future below expected levels.
Historically, crude oil, natural gas and NGL prices have been volatile and subject to wide fluctuations. For example, the significant decline in crude oil prices during 2020 has largely been attributable to the actions of Saudi Arabia and Russia, which have resulted in a substantial decrease in crude oil and natural gas prices, and the global outbreak of COVID-19, which has reduced demand for crude oil and natural gas because of significantly reduced global and national economic activity. While commodity prices have experienced some increased stability recently, we cannot predict whether or when commodity prices and economic activities will return to normalized levels. Although we intend to maintain fee-based pricing terms on both new contracts and existing contracts for which prices have not yet been set, our efforts to negotiate such terms may not be successful, which could have a materially adverse effect on our business.
Restrictions in our revolving credit facility and term loan credit facility could adversely affect our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.
Our revolving credit facility and term loan credit facility limit our ability to, among other things:
•incur or guarantee additional debt;
•redeem or repurchase units or make distributions under certain circumstances;
•make certain investments and acquisitions;
•incur certain liens or permit them to exist;
•enter into certain types of transactions with affiliates;
•merge or consolidate with another company; and
•transfer, sell or otherwise dispose of assets.
Our revolving credit facility and term loan credit facility also contain covenants requiring us to maintain certain financial ratios.
The provisions of our revolving credit facility and term loan credit facility may affect our ability to obtain future financing and to pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our revolving credit facility and term loan credit facility could result in a default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our unitholders could experience a partial or total loss of their investment. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.
Our contracts are subject to renewal risks.
We are a party to certain long term, fixed fee contracts with terms of various durations. As these contracts expire, we will have to negotiate extensions or renewals with existing suppliers and customers or enter into new contracts with other suppliers and customers. We may not be able to obtain new contracts on favorable commercial terms, if at all. We also may be unable to maintain the economic structure of a particular contract with an existing customer or maintain the overall mix of our contract portfolio. The extension or replacement of existing contracts depends on a number of factors beyond our control, including:
•the level of existing and new competition to provide services to our markets;
•the macroeconomic factors affecting our current and potential customers;
•the balance of supply and demand, on a short-term, seasonal and long-term basis, in our markets;
•the extent to which the customers in our markets are willing to contract on a long-term basis; and
•the effects of federal, state or local regulations on the contracting practices of our customers.
Our inability to renew our existing contracts on terms that are favorable or to successfully manage our overall contract mix over time may have a material adverse effect on our business, results of operations and financial condition.
Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. The occurrence of a significant accident or other event that is not fully insured could curtail our operations and have a material adverse effect on our ability to make cash distributions and, accordingly, the market price for our Common Units.
Our operations are subject to all of the hazards inherent in the gathering of crude oil, natural gas and produced water and the delivery and storage of fresh water, including:
•damage to, loss of availability of and delays in gaining access to pipelines, centralized gathering facilities, pump stations, related equipment and surrounding properties caused by design, installation, construction materials or operational flaws, natural disasters, acts of terrorism or acts of third parties;
•mechanical or structural failures at our or Noble’s facilities or at third-party facilities on which our customers’ or our operations are dependent, including electrical shortages, power disruptions and power grid failures;
•leaks of crude oil, natural gas, NGLs or produced water or losses of crude oil, natural gas, NGLs or produced water as a result of the malfunction of, or other disruptions associated with, equipment or facilities;
•unexpected business interruptions;
•curtailments of operations due to severe seasonal weather;
•riots, strikes, lockouts or other industrial disturbances;
•fires, ruptures and explosions; and
•other hazards that could also result in personal injury and loss of life, pollution and suspension of operations.
Any of these risks could adversely affect our ability to conduct operations or result in substantial loss to us as a result of claims for:
•injury or loss of life;
•damage to and destruction of property, natural resources and equipment;
•pollution and other environmental damage;
•regulatory investigations and penalties;
•suspension of our operations; and
•repair and remediation costs.
We may elect not to obtain insurance for any or all of these risks if we believe that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions.
We do not own in fee some of the land on which our pipelines and facilities are located, which could result in disruptions to our operations.
Our only interests in the land on which our pipeline and facilities are located are rights granted under surface use agreements, rights-of-way, surface leases or other easement rights, which may limit or restrict our rights or access to or use of the surface estates. Accommodating these competing rights of the surface owners may adversely affect our operations. In addition, we are subject to the possibility of more onerous terms or increased costs to retain necessary land use if we do not have valid rights-of-way, surface leases or other easement rights or if such usage rights lapse or terminate. We may obtain the rights to construct and operate our pipelines on land owned by third parties and governmental agencies for a specific period of time. Our loss of these rights, through our inability to renew rights-of-way, surface leases or other easement rights or otherwise, could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions.
Terrorist attacks or cyber-attacks could have a material adverse effect on our business, financial condition or results of operations.
Terrorist attacks or cyber-attacks may significantly affect the energy industry, including our operations and those of Noble and our other potential customers, as well as general economic conditions, consumer confidence and spending and market liquidity. Strategic targets, such as energy-related assets, may be at greater risk of future attacks than other targets in the United States. Our insurance may not protect us against such occurrences. Consequently, it is possible that any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations.
A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss.
The oil and gas industry has become increasingly dependent on digital technologies to conduct day-to-day operations including certain midstream activities. For example, software programs are used to manage gathering and transportation systems and for compliance reporting. The use of mobile communication devices has increased rapidly. Industrial control systems such as SCADA (supervisory control and data acquisition) now control large scale processes that can include multiple sites and long distances, such as oil and gas pipelines.
We depend on digital technology, including information systems and related infrastructure as well as cloud applications and services, to process and record financial and operating data and to communicate with our employees and business partners. Our business partners, including vendors, service providers, and financial institutions, are also dependent on digital technology. The technologies needed to conduct midstream activities make certain information the target of theft or misappropriation.
As dependence on digital technologies has increased, cyber incidents, including deliberate attacks or unintentional events, also has increased. A cyber attack could include gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption, or result in denial-of-service on websites. SCADA-based systems are potentially vulnerable to targeted cyber attacks due to their critical role in operations.
Our technologies, systems, networks, and those of our business partners may become the target of cyber attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of our business operations. In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period.
A cyber incident involving our information systems and related infrastructure, or that of our business partners, could disrupt our business plans and negatively impact our operations in the following ways, among others:
•a cyber attack on a vendor or service provider could result in supply chain disruptions which could delay or halt development of additional infrastructure, effectively delaying the start of cash flows from the project;
•a cyber attack on downstream pipelines could prevent us from delivering product at the tailgate of our facilities, resulting in a loss of revenues;
•a cyber attack on a communications network or power grid could cause operational disruption resulting in loss of revenues;
•a deliberate corruption of our financial or operational data could result in events of non-compliance which could lead to regulatory fines or penalties; and
•business interruptions could result in expensive remediation efforts, distraction of management, damage to our reputation, or a negative impact on the price of our units.
Our implementation of various controls and processes, including globally incorporating a risk-based cyber security framework, to monitor and mitigate security threats and to increase security for our information, facilities and infrastructure is costly and labor intensive. Moreover, there can be no assurance that such measures will be sufficient to prevent security breaches from occurring. As cyber threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities.
Events outside of our control, including a pandemic, epidemic or outbreak of an infectious disease, such as the recent global outbreak of COVID-19, political unrest and economic recessions occurring around the globe, could have a material adverse impact on our financial position, results of operations and cash flows.
The U.S. and other world economies are experiencing recessions due to the global outbreak of COVID-19, which began late in 2019. In March 2020, OPEC and non-OPEC producers failed to agree to production cuts, causing a significant drop in crude oil prices. Subsequently, certain of these producers agreed to long-term production cuts and, most recently, Saudi Arabia announced additional production costs in January 2021. While these production cuts could rebalance the market in the long-term, in the short-term, we do not believe they will be large enough to offset the sharp decrease in demand caused by COVID-19. Additionally, recent acts of protest and civil unrest related to the 2020 presidential election have caused economic and political disruption in the United States. These factors collectively have contributed to unprecedented negative global economic impacts, including a significant drop in hydrocarbon product demand, which may extend into the future.
Recessions would likely extend the time for the current oil markets to absorb excess supplies and rebalance inventory resulting in decreased demand for our midstream services for a number of future quarters. Our profitability will likely be significantly affected by this decreased demand and could lead to material impairments of our long-lived assets, intangible assets and equity method investments. Additionally, these factors could lead to further reductions in our distributions to unitholders or may cause us to fall out of compliance with the covenants in our revolving credit facility and term loans. The global outbreak of COVID-19 and impact of lower commodity prices could lead to disruptions in our supply network, including, among other things, storage and pipeline constraints brought on by overproduction and decreased demand from refiners.
Our future access to capital, as well as that of our partners and contractors, could be limited due to tightening capital markets that could delay or inhibit our capital projects.
The outbreak of COVID-19 could potentially further impact our workforce. The infection of key personnel, or the infection of a significant amount of our workforce, could have a material adverse impact on our business, financial condition and results of operations. Much of our workforce is working remotely until the risks of COVID-19 are reduced. Additionally, in response to reduced development and activity levels stemming from the commodity price environment, a number of our employees were placed on furlough or part-time work programs. A remote workforce combined with workforce reduction programs could introduce risks to achieving business objectives and/or the ability to maintain our controls and procedures. For example, the technology required for the transition to remote work increases our vulnerability to cybersecurity threats, including threats of unauthorized access to sensitive information or to render data or systems unusable, the impact of which may have material adverse effects on our business and operations. See “A cyber incident could result in information theft, data corruption, operational disruption and/or financial loss” above.
The impacts of COVID-19 and the significant drop in commodity prices has had an unprecedented impact on the global economy and our business. We are unable to predict all potential impacts to our business, the severity of such impacts or duration.
Increased regulation of hydraulic fracturing could result in reductions or delays in crude oil and natural gas production by our customers, which could reduce the throughput on our gathering and other midstream systems, which could adversely impact our revenues.
We do not conduct hydraulic fracturing operations, but substantially all of Noble’s crude oil and natural gas production on our dedicated acreage is developed from unconventional sources that require hydraulic fracturing as part of the completion process. The majority of our fresh water services business is related to the storage and transportation of water for use in hydraulic fracturing. Hydraulic fracturing is a well stimulation process that utilizes large volumes of water and sand combined with fracturing chemical additives that are pumped into a well at high pressure to crack open previously impenetrable rock to release hydrocarbons.
Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies. Some states and local governments, including those in which we operate, have adopted, and other states are considering adopting, regulations that could impose more stringent chemical disclosure or well construction requirements on hydraulic fracturing operations, or otherwise seek to ban some or all of these activities. For example, in Colorado, state ballot and other regulatory initiatives have been proposed from time to time to impose additional restrictions or bans on hydraulic fracturing or other facets of crude oil and natural gas exploration, production or related activities.
In 2019, Colorado adopted SB 181, which makes sweeping changes in Colorado oil and gas law, including, among other matters, requiring the COGCC to prioritize public health and environmental concerns in its decisions, instructing the COGCC to adopt rules to minimize emissions of methane and other air contaminants, and delegating considerable new authority to local governments to regulate surface impacts. In keeping with SB 181, the COGCC in November 2020 adopted revisions to several regulations to increase protections for public health, safety, welfare, wildlife, and environmental resources. Most significantly, these revisions establish more stringent setbacks (2,000 feet, instead of the prior 500-foot) on new oil and gas development and eliminate routine flaring and venting of natural gas at new and existing wells across the state, each subject to only limited exceptions. Some local communities have adopted, or are considering adopting, further restrictions for oil and gas activities, such as requiring greater setbacks.
Nevertheless, at this time, we are not aware of any significant changes to Noble’s or other third-party customers’ development plans. However, if additional regulatory measures are adopted, Noble and other third-party customers in Colorado could experience delays and/or curtailment in the permitting or pursuit of their exploration, development, or production activities.
Any new limitations or prohibitions on oil and gas exploration and production activities could result in decreased demand for our midstream services and have a material adverse effect on our cash flows, results of operations, financial condition, and liquidity. At the federal level, several agencies have asserted jurisdiction over certain aspects of the hydraulic fracturing process and the current U.S. Administration has announced plans to take certain actions to further regulate or constrain hydraulic fracturing operations. Certain environmental groups have also suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process. We cannot predict whether any such legislation will be enacted and if so, what its provisions would be. Additional levels of regulation and permits required through the adoption of new laws and regulations at the federal, state or local level could lead to delays, increased operating costs and process prohibitions that could reduce the volumes of crude oil and natural gas that move through our gathering systems and decrease demand for our water services, which in turn could materially adversely impact our revenues.
We, Noble or any third-party customers may incur significant liability under, or costs and expenditures to comply with, environmental and worker health and safety regulations, which are complex and subject to frequent change.
As an owner and operator of gathering systems, we are subject to various federal, state and local laws and regulations relating to the discharge of materials into, and protection of, the environment and worker health and safety. Numerous governmental authorities, such as the EPA and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring costly response actions. These laws and regulations may impose numerous obligations that are applicable to our and our customers’ operations, including the acquisition of permits to conduct regulated activities, the incurrence of capital or operating expenditures to limit or prevent releases of materials from our or our customers’ operations, the imposition of specific standards addressing worker protection, the imposition of certain restrictions on operations to prevent impacts to protected species, and the imposition of substantial liabilities and remedial obligations for pollution or contamination resulting from our and our customers’ operations. Failure to comply with these laws, regulations and permits may result in joint and several or strict liability or the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, or the issuance of injunctions or administrative orders limiting or preventing some or all of our operations. Private parties, including the owners of the properties through which our gathering systems pass, may also have the right to pursue legal actions to enforce compliance, as well as to seek damages for non-compliance, with environmental laws and regulations or for personal injury or property damage. We may not be able to recover all or any of these costs from insurance. In addition, we may experience a delay in obtaining or be unable to obtain required permits, which may cause us to lose potential and current customers, interrupt our operations or limit our growth and revenues, which in turn could affect the amount of cash we have available for distribution. We cannot provide any assurance that changes in or additions to public policy regarding the protection of the environment, worker health and safety, and impacts to hydraulic fracturing, permitting, and GHG emissions, will not have a significant impact on our operations and the amount of cash we have available for distribution. It is possible that our operations and those of our customers may be subject to greater environmental, health, and safety restrictions.
Our operations also pose risks of environmental liability due to leakage, migration, releases or spills to surface or subsurface soils, surface water or groundwater. Certain environmental laws impose strict as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. We may be required to remediate contaminated properties currently or formerly operated by us regardless of whether such contamination resulted from the conduct of others or from consequences of our own actions that were in compliance with all applicable laws at the time those actions were taken. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of our operations. Moreover, the trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, potentially resulting in increased costs of doing business and consequently affecting the amount of cash we have available for distribution. Such potential regulations, or litigation, could increase our operating costs, reduce our liquidity, delay or halt our operations or otherwise alter the way we conduct our business, which could in turn have a material adverse effect on our business, financial condition and results of operations. See Items 1. and 2. Business and Properties – Regulations.
Our and our customers’ operations are subject to a series of risks related to climate change and associated government action that could result in increased operating costs, limit the areas in which oil and natural gas production may occur, and reduce demand for the products and services we provide.
Climate change-related issues continue to attract considerable attention in the United States and in foreign countries. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions. As a result, our operations as well as the operations of our oil and natural gas exploration and production customers are subject to a series of regulatory, political, litigation, and financial risks associated with the production and processing of fossil fuels and emission of GHGs.
In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, various federal agencies, states, and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of GHG emissions. For more information, see our regulatory disclosure titled Climate Change and Air Quality Standards. Such actions could include limits on emissions and curtailment of the production of oil and gas, such as through the cessation of leasing public land for hydrocarbon development. For more information, see our regulatory disclosure titled Hydraulic Fracturing. Other actions that could be pursued include more restrictive requirements for the development of pipeline infrastructure or LNG export facilities. Separately, increased attention to climate change risks has increased the possibility of claims brought by public and private entities against oil and gas companies in connection with their GHG emissions. While courts have generally declined to assign direct liability for climate change to large sources of GHG emissions, new claims for damages and increased government scrutiny, especially from state and local governments, will likely continue. Moreover, to the extent societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to the company’s causation of or contribution to the asserted damage, or to other mitigating factors.
At the international level, the United Nations-sponsored “Paris Agreement” requires member states to individually determine and submit non-binding emissions reduction targets every five years after 2020. Although the United States had previously withdrawn from the Paris Agreement, an executive order was signed on January 20, 2021 recommitting the United States to the agreement. The impacts of this order, and any legislation or regulation that may be adopted as a result, are unclear at this time. However, new or more stringent legislation or regulations could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce demand for our services and products.
There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors. Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. A material reduction in the capital available to the fossil fuel industry could make it more difficult to secure funding for exploration, development, production, transportation, and processing activities, which could result in decreased demand for our midstream services. One or more of these developments could have a material adverse effect on our business, financial condition and results of operation.
Finally, it should be noted that many scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our operations or our customers’ exploration and production operations, which in turn could affect demand for our services. In addition, while our consideration of changing weather conditions and inclusion of safety factors in design covers the uncertainties that climate change and other events may potentially introduce, our ability to mitigate the adverse impacts of these events depends in part on the effectiveness of our facilities and our disaster preparedness and response and business continuity planning, which may not have considered or be prepared for every eventuality. See Items 1. and 2. Business and Properties – Regulations.
A change in the jurisdictional characterization of some of our assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our operating expenses to increase, limit the rates we charge for certain services and decrease the amount of cash we have available for distribution.
Section 1(b) of the Natural Gas Act of 1938 (“NGA”) exempts natural gas gathering facilities from regulation as a natural gas company by FERC under the NGA. Although the FERC has not made a formal determination with respect to the facilities we consider to be natural gas gathering pipelines, we believe that our natural gas gathering pipelines meet the traditional tests that the FERC has used to determine that a pipeline is a gathering pipeline and are therefore not subject to FERC jurisdiction. The distinction between FERC-regulated transmission services and federally unregulated gathering services, however, has been the subject of substantial litigation, and the FERC determines whether facilities are gathering facilities on a case-by-case basis, so the classification and regulation of our gathering facilities is subject to change based on future determinations by the FERC, the courts or Congress. If the FERC were to consider the status of an individual facility and determine that the facility or services provided by it are not exempt from FERC regulation under the NGA and that the facility provides interstate service, the rates for, and terms and conditions of, services provided by such facility would be subject to regulation by the FERC under the NGA or the Natural Gas Policy Act, or NGPA. Such regulation could decrease revenue, increase operating costs, and, depending upon the facility in question, adversely affect our results of operations and cash flows. In addition, if any of our facilities were found to have provided services or otherwise operated in violation of the NGA or NGPA, this could result in the imposition of substantial civil penalties, as well as a requirement to disgorge revenues collected for such services in excess of the maximum rates established by the FERC.
Subject to the foregoing, our natural gas gathering pipelines are exempt from the jurisdiction of the FERC under the NGA, but FERC regulation may indirectly impact gathering services. The FERC’s policies and practices across the range of its crude oil and natural gas regulatory activities, including, for example, its policies on interstate open access transportation, ratemaking, capacity release, and market center promotion may indirectly affect intrastate markets. In recent years, the FERC has pursued pro-competitive policies in its regulation of interstate crude oil and natural gas pipelines. However, we cannot assure that the FERC will continue to pursue this approach as it considers matters such as pipeline rates and rules and policies that may indirectly affect the natural gas gathering services.
Natural gas gathering may receive greater regulatory scrutiny at the state level. Therefore, our natural gas gathering operations could be adversely affected should they become subject to the application of state regulation of rates and services. Our gathering operations could also be subject to safety and operational regulations relating to the design, construction, testing, operation, replacement and maintenance of gathering facilities. We cannot predict what effect, if any, such changes might have on our operations, but we could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.
In addition, certain of our crude oil gathering pipelines do not provide interstate services and therefore are not subject to regulation by the FERC pursuant to the ICA. The distinction between FERC-regulated crude oil interstate pipeline transportation, on the one hand, and crude oil intrastate pipeline transportation, on the other hand, also is a fact-based determination. The classification and regulation of these crude oil gathering pipelines are subject to change based on changed circumstances on the pipeline or on future determinations by the FERC, federal courts, Congress or by regulatory commissions, courts or legislatures in the states in which our crude oil gathering pipelines are located. We cannot provide assurance that the FERC will not in the future, either at the request of other entities or on its own initiative, determine that some or all of our gathering pipeline systems and the services we provide on those systems are within the FERC’s jurisdiction. If it is determined that some or all of our crude oil gathering pipeline systems are subject to the FERC’s jurisdiction under the ICA, and are not otherwise exempt from any applicable regulatory requirements, the imposition of possible cost-of-service rates and common carrier requirements on those systems could adversely affect the results of our operations on and revenues associated with those systems.
Our asset inspection, maintenance or repair costs may increase in the future. In addition, there could be service interruptions due to unforeseen events or conditions or increased downtime associated with our pipelines that could have a material adverse effect on our business and results of operations.
Gathering systems, pipelines and facilities are generally long-lived assets, and construction and coating techniques have varied over time. Depending on the condition and results of inspections, some assets will require additional maintenance, which could result in increased expenditures in the future. Any significant increase in these expenditures could adversely affect our results of operations, financial position or cash flows, as well as our ability to make cash distributions to our unitholders.
It is difficult to predict future maintenance capital expenditures related to inspections and repairs. Additionally, there could be service interruptions associated with these maintenance capital expenditures or other unforeseen events. Similarly, laws and regulations may change which could also lead to increased maintenance capital expenditures. Any increase in these expenditures could adversely affect our results of operations, financial position, or cash flows which in turn could impact our ability to make cash distributions to our unitholders.
A shortage of equipment and skilled labor could reduce equipment availability and labor productivity and increase labor and equipment costs, which could have a material adverse effect on our business and results of operations.
Our gathering and other midstream services require special equipment and laborers who are skilled in multiple disciplines, such as equipment operators, mechanics and engineers, among others. If we experience shortages of necessary equipment or skilled labor in the future, our labor and equipment costs and overall productivity could be materially and adversely affected. If our equipment or labor prices increase or if we experience materially increased health and benefit costs for employees, our business and results of operations could be materially and adversely affected.
The loss of key personnel could adversely affect our ability to operate.
We depend on the services of a relatively small group of our General Partner’s senior management. We do not maintain, nor do we plan to obtain, any insurance against the loss of any of these individuals. The loss of the services of our General Partner’s senior management, including Robin H. Fielder, our Chief Executive Officer, Thomas W. Christensen, our Chief Financial Officer, John S. Reuwer, our Vice President of Business and Corporate Development, and Aaron G. Carlson, our General Counsel and Secretary, could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to make cash distributions.
We do not have any officers or employees and rely on officers of our General Partner and employees of Chevron.
We are managed and operated by the board of directors and executive officers of our General Partner. Our General Partner has no employees and relies on the employees of Chevron to conduct our business and activities.
Chevron conducts businesses and activities of its own in which we have no economic interest. As a result, there could be material competition for the time and effort of the officers and employees who provide services to both our General Partner and Chevron. If our General Partner and the officers and employees of Chevron do not devote sufficient attention to the management and operation of our business and activities, our business, financial condition, results of operations, cash flows and ability to make cash distributions could be materially adversely affected.
Debt we incur in the future may limit our flexibility to obtain financing and to pursue other business opportunities.
Our future level of debt could have important consequences to us, including the following:
•our ability to obtain additional financing, if necessary, for working capital, capital expenditures (including building additional gathering pipelines needed for required connections and building additional centralized gathering facilities pursuant to our gathering agreements) or other purposes may be impaired or such financing may not be available on favorable terms;
•our funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt;
•we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
•our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service any future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, investments or capital expenditures, selling assets or issuing equity. We may not be able to effect any of these actions on satisfactory terms or at all.
Increases in interest rates could adversely affect our business.
We have exposure to increases in interest rates. As of December 31, 2020, $710 million and $900 million were outstanding under our revolving credit facility and term loan credit facility, respectively. A 1.0% increase in our interest rates would have resulted in an estimated $16.7 million increase in interest expense for the year ended December 31, 2020. As a result, our results of operations, cash flows and financial condition and, as a further result, our ability to make cash distributions to our unitholders, could be adversely affected by significant increases in interest rates.
Risks Inherent in an Investment in Us
There can be no assurances that we will enter into a definitive agreement with Chevron related to Chevron’s proposal to acquire all of our Common Units that it does not already own, or that we will complete any transaction contemplated by such an agreement.
On February 4, 2021, the board of directors of our General Partner received a non-binding proposal (the “Proposal”) from Chevron Corporation, pursuant to which Chevron would acquire all our Common Units that Chevron and its affiliates do not already own. While the Conflicts Committee has been engaged by our General Partner to evaluate the Proposal and any potential transaction with Chevron related to the Proposal (the “Potential Transaction”), there can be no assurances that we will enter into a definitive agreement with Chevron related to any Potential Transaction. Furthermore, should we enter into a definitive agreement with Chevron, we anticipate that the consummation of any Potential Transaction will be subject to a number of conditions, and there can be no assurances that such conditions will be satisfied or waived or that any Potential Transaction will be completed in a timely manner or at all.
Our General Partner and its affiliates have conflicts of interest with us and our partnership agreement eliminates their default fiduciary duties to us and our unitholders and replaces them with contractual standards that may allow our General Partner and its affiliates to favor their own interests to our detriment and that of our unitholders. Additionally, we have no control over the business decisions and operations of Chevron, and Chevron is under no obligation to adopt a business strategy that favors us.
Chevron indirectly owns an aggregate 62.6% limited partner interest in us. In addition, Chevron, indirectly, owns our General Partner. Although our General Partner has a duty to manage us in a manner that is not adverse to the interests of our partnership, the directors and officers of our General Partner also have a duty to manage our General Partner in a manner that is in the best interests of its owner. Conflicts of interest may arise between Chevron and its affiliates, including our General Partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts, the General Partner may favor its own interests and the interests of its affiliates, including Chevron, over the interests of our common unitholders. These conflicts include, among others, the following situations:
•neither our partnership agreement nor any other agreement requires Chevron to pursue a business strategy that favors us or utilizes our assets, which could involve decisions by Chevron to increase or decrease crude oil or natural gas production on our dedicated acreage, pursue and grow particular markets or undertake acquisition opportunities for itself. Chevron’s directors and officers have a fiduciary duty to make these decisions in the best interests of the stockholders of Chevron;
•Chevron may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests;
•our partnership agreement replaces the fiduciary duties that would otherwise be owed by our General Partner with contractual standards governing its duties and limits our General Partner’s liabilities and the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty under applicable Delaware law;
•except in limited circumstances, our General Partner has the power and authority to conduct our business without unitholder approval;
•our General Partner will determine the amount and timing of, among other things, cash expenditures, borrowings and repayments of indebtedness, the issuance of additional partnership interests, the creation, increase or reduction in cash
reserves in any quarter and asset purchases and sales, each of which can affect the amount of cash that is available for distribution to unitholders;
•our General Partner will determine which costs incurred by it are reimbursable by us;
•our General Partner may cause us to borrow funds in order to permit the payment of cash distributions;
•our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;
•our General Partner intends to limit its liability regarding our contractual and other obligations;
•our General Partner may exercise its right to call and purchase all of the Common Units not owned by it and its affiliates if it and its affiliates own more than 80% of the Common Units;
•our General Partner controls the enforcement of obligations owed to us by our General Partner and its affiliates, including our gathering agreements with Noble, the ROFR and ROFO; and
•our General Partner decides whether to retain separate counsel, accountants or others to perform services for us.
Neither our partnership agreement nor our omnibus agreement will prohibit Chevron or any other affiliates of our General Partner from owning assets or engaging in businesses that compete directly or indirectly with us. Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our General Partner or any of its affiliates, including Chevron and executive officers and directors of our General Partner. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Consequently, Chevron and other affiliates of our General Partner may acquire, construct or dispose of additional midstream assets in the future without any obligation to offer us the opportunity to purchase any of those assets (except to the extent the ROFR or ROFO pertain to such assets). As a result, competition from Chevron and other affiliates of our General Partner could materially and adversely impact our results of operations and distributable cash flow. This may create actual and potential conflicts of interest between us and affiliates of our General Partner and result in less than favorable treatment of us and our unitholders.
We expect to distribute a substantial portion of our cash available for distribution, which could limit our ability to grow and make acquisitions.
We expect to distribute most of our available cash for distribution. As a result, we expect to rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our acquisitions and expansion capital expenditures. Therefore, to the extent we are unable to finance our growth externally, our cash distribution policy will significantly impair our ability to grow. In addition, our growth may not be as fast as that of businesses that reinvest their cash to expand ongoing operations. To the extent we issue additional partnership interests in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional partnership interests may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional partnership interests, including partnership interests ranking senior to our Common Units as to distributions or in liquidation or that have special voting rights and other rights, and our common unitholders will have no preemptive or other rights (solely as a result of their status as common unitholders) to purchase any such additional partnership interests. The incurrence of additional commercial bank borrowings or other debt to finance our growth strategy would result in increased interest expense, which, in turn, may reduce the amount of cash that we have available to distribute to our unitholders.
Our partnership agreement replaces our General Partner’s fiduciary duties to holders of our Common Units with contractual standards governing its duties.
Delaware law provides that a Delaware limited partnership may, in its partnership agreement, expand, restrict or eliminate the fiduciary duties otherwise owed by the general partner to limited partners and the partnership. As permitted by Delaware law, our partnership agreement contains provisions that eliminate the fiduciary standards to which our General Partner would otherwise be held by state fiduciary duty law and replaces those duties with several different contractual standards. For example, our partnership agreement permits our General Partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our General Partner, free of any duties to us and our unitholders. This entitles our General Partner to consider only the interests and factors that it desires and relieves it of any duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. By purchasing a common unit, a unitholder agrees to be bound by our partnership agreement and approves the elimination and replacement of fiduciary duties disclosed above.
Our partnership agreement restricts the remedies available to holders of our units and for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our General Partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:
•whenever our General Partner makes a determination or takes, or declines to take, any other action in its capacity as our General Partner, our General Partner is required to make such determination, or take or decline to take such other action, in good faith, meaning that it subjectively believed that the determination or the decision to take or decline to take such action was not adverse to the interests of our partnership, and will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity;
•our General Partner will not have any liability to us or our unitholders for decisions made in its capacity as a General Partner so long as it acted in good faith;
•our General Partner and its officers and directors will not be liable for monetary damages or otherwise to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our General Partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct or, in the case of a criminal matter, acted with knowledge that the conduct was criminal; and
•our General Partner will not be in breach of its obligations under our partnership agreement or its fiduciary duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is approved in accordance with, or otherwise meets the standards set forth in, our partnership agreement.
In connection with a situation involving a transaction with an affiliate or a conflict of interest, other than one where our General Partner is permitted to act in its sole discretion, our partnership agreement provides that any determination by our General Partner must be made in good faith. If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee, then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors of our General Partner acted in good faith and in any proceeding brought by or on behalf of any limited partner or the Partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our partnership agreement restricts the voting rights of certain unitholders owning 20% or more of our Common Units.
Unitholders’ voting rights are restricted by a provision of our partnership agreement providing that any person or group that owns 20% or more of any class of our units then outstanding, other than our General Partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our General Partner cannot vote on any matter.
Cost reimbursements and fees due to our General Partner and its affiliates for services provided will be substantial and will reduce the amount of cash we have available for distribution to unitholders.
Under our partnership agreement, we are required to reimburse our General Partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations. Except to the extent specified under our omnibus agreement and operational services and secondment agreement, our General Partner determines the amount of these expenses. Under the terms of the omnibus agreement, we will be required to reimburse Chevron for the provision of certain administrative support services to us. Under our operational services and secondment agreement, we will be required to reimburse Chevron for the provision of certain operation services and related management services in support of our operations. Our General Partner and its affiliates also may provide us other services for which we will be charged fees as determined by our General Partner. The costs and expenses for which we will reimburse our General Partner and its affiliates may include salary, bonus, incentive compensation and other amounts paid to persons who perform services for us or on our behalf and expenses allocated to our General Partner by its affiliates. The costs and expenses for which we are required to reimburse our General Partner and its affiliates are not subject to any caps or other limits. Payments to our General Partner and its affiliates will be substantial and will reduce the amount of cash we have available to distribute to unitholders.
Unitholders have very limited voting rights and, even if they are dissatisfied, they cannot remove our General Partner.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. For example, unlike holders of stock in a public corporation, unitholders will not have “say-on-pay” advisory voting rights. Unitholders did not elect our General Partner or the board of directors of our General Partner and will have no right to elect our General Partner or the board of directors of our General Partner on an annual or other continuing basis. The board of directors of our General Partner is chosen by its sole member, which is owned by Noble. Furthermore, if the unitholders are dissatisfied with the performance of our General Partner, they will have little ability to remove our General Partner. As a result of these limitations, the price at which our Common Units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
Our General Partner may not be removed unless such removal is both (i) for cause and (ii) approved by a vote of the holders of at least 66 2⁄3% of the outstanding units, including any units owned by our General Partner and its affiliates, voting together as a single class. “Cause” is narrowly defined under our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our General Partner liable to us or any limited partner for actual fraud or willful misconduct in its capacity as our General Partner. Chevron indirectly owns 62.6% of our total outstanding Common Units. As a result, our public unitholders do not have limited ability to remove our General Partner.
Furthermore, unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our General Partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of the board of directors of our General Partner cannot vote on any matter.
Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.
Our General Partner interest or the control of our General Partner may be transferred to a third party without unitholder consent.
Our General Partner may transfer its General Partner interest in us to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, there is no restriction in our partnership agreement on the ability of Chevron to transfer its membership interest in our General Partner to a third party. The new owner of our General Partner would then be in a position to replace the board of directors and officers of our General Partner with its own choices.
We may issue an unlimited number of additional partnership interests without unitholder approval, which would dilute unitholder interests.
At any time, we may issue an unlimited number of General Partner interests or limited partner interests of any type without the approval of our unitholders and our unitholders will have no preemptive or other rights (solely as a result of their status as unitholders) to purchase any such General Partner interests or limited partner interests. Further, there are no limitations in our partnership agreement on our ability to issue equity securities that rank equal or senior to our Common Units as to distributions or in liquidation or that have special voting rights and other rights. The issuance by us of additional Common Units or other equity securities of equal or senior rank will have the following effects:
•our unitholders’ proportionate ownership interest in us will decrease;
•the amount of cash we have available to distribute on each unit may decrease;
•the ratio of taxable income to distributions may increase;
•the relative voting strength of each previously outstanding unit may be diminished; and
•the market price of our Common Units may decline.
The issuance by us of additional General Partner interests may have the following effects, among others, if such General Partner interests are issued to a person who is not an affiliate of Chevron:
•management of our business may no longer reside solely with our current General Partner; and
•affiliates of the newly admitted General Partner may compete with us, and neither that General Partner nor such affiliates will have any obligation to present business opportunities to us except with respect to rights of first refusal contained in our omnibus agreement.
Our General Partner has a call right that may require our unitholders to sell their Common Units at an undesirable time or price.
If at any time our General Partner and its affiliates own more than 80% of our then-outstanding Common Units, our General Partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the Common Units held by unaffiliated persons at a price not less than their then current market price. As a result, our unitholders may be required to sell their Common Units at an undesirable time or price and may not receive any return on their investment. Our unitholders may also incur a tax liability upon a sale of their units. Our General Partner and its affiliates currently own approximately 62.6% of our Common Units (excluding any Common Units owned by the directors and executive officers of our General Partner and certain other individuals as selected by our General Partner under our directed unit program).
Unitholders may have to repay distributions that were wrongfully distributed to them.
Under certain circumstances, unitholders may have to repay amounts wrongfully distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a
period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
Chevron may sell units in the public or private markets, and such sales could have an adverse impact on the trading price of the Common Units.
Chevron indirectly owns 56,447,616 Common Units. The sale of these units in the public or private markets could have an adverse impact on the price of the Common Units or on any trading market that may develop.
Our General Partner’s discretion in establishing cash reserves may reduce the amount of cash we have available to distribute to unitholders.
Our partnership agreement permits the General Partner to reduce available cash by establishing cash reserves for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated future credit needs) to comply with applicable law or agreements to which we are a party, or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash we have available to distribute to unitholders.
Affiliates of our General Partner, including Noble, may compete with us, and neither our General Partner nor its affiliates have any obligation to present business opportunities to us except with respect to dedications contained in our commercial agreements and rights of first refusal and rights of first offer contained in our omnibus agreement.
None of our partnership agreement, our omnibus agreement, our commercial agreements or any other agreement in effect will prohibit Noble or any other affiliates of our General Partner from owning assets or engaging in businesses that compete directly or indirectly with us. Under the terms of our partnership agreement, the doctrine of corporate opportunity, or any analogous doctrine, will not apply to our General Partner or any of its affiliates, including Noble and executive officers and directors of our General Partner. Any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us except with respect to dedications contained in our commercial agreements and rights of first refusal and rights of first offer contained in our omnibus agreement. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. Consequently, Noble and other affiliates of our General Partner may acquire, construct or dispose of additional midstream assets in the future without any obligation to offer us the opportunity to purchase any of those assets. As a result, competition from Noble and other affiliates of our General Partner could materially and adversely impact our results of operations and distributable cash flow.
Units held by persons who our General Partner determines are not “eligible holders” at the time of any requested certification in the future may be subject to redemption.
As a result of certain laws and regulations to which we are or may in the future become subject, we may require owners of our Common Units to certify that they are both U.S. citizens and subject to U.S. federal income taxation on our income. Units held by persons who our General Partner determines are not “eligible holders” at the time of any requested certification in the future may be subject to redemption. “Eligible holders” are limited partners whose (or whose owners’) (i) U.S. federal income tax status or lack of proof of U.S. federal income tax status does not have and is not reasonably likely to have, as determined by our General Partner, a material adverse effect on the rates that can be charged to customers by us or our subsidiaries with respect to assets that are subject to regulation by the FERC or similar regulatory body and (ii) nationality, citizenship or other related status does not create and is not reasonably likely to create, as determined by our General Partner, a substantial risk of cancellation or forfeiture of any property in which we have an interest. The aggregate redemption price for redeemable interests will be an amount equal to the current market price (the date of determination of which will be the date fixed for redemption) of limited partner interests of the class to be so redeemed multiplied by the number of limited partner interests of each such class included among the redeemable interests. For these purposes, the “current market price” means, as of any date for any class of limited partner interests, the average of the daily closing prices per limited partner interest of such class for the 20 consecutive trading days immediately prior to such date. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our General Partner. The units held by any person the General Partner determines is not an eligible holder will not be entitled to voting rights.
Our partnership agreement designates the Court of Chancery of the State of Delaware as the exclusive forum for certain types of actions and proceedings that may be initiated by our unitholders, which would limit our unitholders’ ability to choose the judicial forum for disputes with us or our General Partner’s directors, officers or other employees. Our partnership agreement also provides that any unitholder bringing an unsuccessful action will be obligated to reimburse us for any costs we have incurred in connection with such unsuccessful action.
Our partnership agreement provides that, with certain limited exceptions, the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction) shall be the exclusive forum for any claims, suits, actions or proceedings (i) arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among our partners, or obligations or liabilities of our partners to us, or the rights or powers of, or restrictions on, our partners or us), (ii) brought in a derivative manner on our behalf, (iii) asserting a claim of breach of a duty owed by any of our, or our General Partner’s, directors, officers, or other employees, or owed by our General Partner, to us or our partners, (iv) asserting a claim against us arising pursuant to any provision of the Delaware Act or (v) asserting a claim against us governed by the internal affairs doctrine.
The exclusive forum provision would not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. To the extent that any such claims may be based upon federal law claims, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation or similar governing documents has been challenged in legal proceedings, and it is possible that a court could find the choice of forum provisions contained in our partnership agreement to be inapplicable or unenforceable, including with respect to claims arising under the U.S. federal securities laws. This exclusive forum provision may limit the ability of a limited partner to commence litigation in a forum that the limited partner prefers, or may require a limited partner to incur additional costs in order to commence litigation in Delaware, each of which may discourage such lawsuits against us or our General Partner’s directors or officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.
If any person brings any of the aforementioned claims, suits, actions or proceedings (including any claims, suits, actions or proceedings arising out of this offering) and such person does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought, then such person shall be obligated to reimburse us and our affiliates for all fees, costs and expenses of every kind and description, including but not limited to all reasonable attorneys’ fees and other litigation expenses, that the parties may incur in connection with such claim, suit, action or proceeding. In addition, our partnership agreement provides that each limited partner irrevocably waives the right to trial by jury in any such claim, suit, action or proceeding. However, such waiver of the right to trial by jury does not impact the ability of a limited partner to make a claim under either federal or state law. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other court) in connection with any such claims, suits, actions or proceedings. These provisions may have the effect of discouraging lawsuits against us and our General Partner’s directors and officers.
Our partnership agreement provides that unitholders irrevocably waive the right to trial by jury in any claim, suit, action or proceeding under either state or federal laws, including any claim under U.S. federal securities laws, which could result in less favorable outcomes to unitholders in any such action.
Our partnership agreement provides that unitholders irrevocably waive the right to trial by jury for any claims, suits, actions or proceedings under either state or federal laws, including any claim under U.S. federal securities laws. Regardless, such waiver of the right to trial by jury does not impact the ability of a unitholder to make a claim under either federal or state law. The waiver of the right to a jury trial is not intended to be deemed a waiver by a unitholder with respect to the Partnership’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder. If the Partnership or one of its unitholders opposed a jury trial demand based on the waiver, the applicable court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with applicable state and federal laws. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the U.S. federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of Delaware, which govern our partnership agreement.
If a unitholder brings a claim in connection with matters arising under our partnership agreement, including claims under U.S. federal securities laws, such unitholder may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits. If a lawsuit is brought by a unitholder under our partnership agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in a different outcome than a trial by jury, including results that could be less favorable to the unitholder(s) bringing such lawsuit.
Nasdaq does not require a publicly traded limited partnership like us to comply with certain of its corporate governance requirements.
Our Common Units are listed on Nasdaq. Because we are a publicly traded limited partnership, Nasdaq does not require us to have a majority of independent directors on our General Partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Additionally, any future issuance of additional Common Units or other securities, including to affiliates, will not be subject to Nasdaq’s shareholder approval rules that apply to a corporation. Accordingly, unitholders will not have the same protections afforded to certain corporations that are subject to all of Nasdaq’s corporate governance requirements.
If we are deemed an “investment company” under the Investment Company Act of 1940, it would adversely affect the price of our Common Units and could have a material adverse effect on our business.
If a sufficient amount of our assets, such as our ownership interests in other midstream ventures, now owned or in the future acquired, are deemed to be “investment securities” within the meaning of the Investment Company Act of 1940, or the Investment Company Act, we would either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or our contract rights to fall outside the definition of an investment company. In that event, it is possible that our ownership of these interests, combined with our assets acquired in the future, could result in our being required to register under the Investment Company Act if we were not successful in obtaining exemptive relief or otherwise modifying our organizational structure or applicable contract rights. Treatment of us as an investment company would prevent our qualification as a partnership for federal income tax purposes in which case we would be treated as a corporation for federal income tax purposes. As a result, we would pay federal income tax on our taxable income at the corporate tax rate, distributions to our unitholders would generally be taxed again as corporate distributions and none of our income, gains, losses or deductions would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to unitholders would be substantially reduced. Therefore, treatment of us as an investment company would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of our Common Units.
Moreover, registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase of additional interests in our midstream systems from Noble, restrict our ability to borrow funds or engage in other transactions involving leverage and require us to add additional directors who are independent of us or our affiliates. The occurrence of some or all of these events would adversely affect the price of our Common Units and could have a material adverse effect on our business.
Tax Risks
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes. If the IRS were to treat us as a corporation for U.S. federal income tax purposes, which would subject us to entity-level taxation, or if we were otherwise subjected to a material amount of entity-level taxation, then our distributable cash flow to our unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in the Common Units depends largely on our being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we would be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations and current Treasury Regulations, we believe that we satisfy the qualifying income requirement. However, no ruling has been or will be requested regarding our treatment as a partnership for U.S. federal income tax purposes. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate. Distributions to our unitholders would generally be taxed again as corporate distributions, and no income, gains, losses, deductions, or credits would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our distributable cash flow would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our Common Units.
At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of a material amount of any of these taxes in the jurisdictions in which we own assets or conduct business could substantially reduce the cash available for distribution to our unitholders.
The tax treatment of publicly traded partnerships or an investment in our Common Units could be subject to potential legislative, judicial or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our Common Units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. Members of Congress have frequently proposed and considered substantive changes to the existing U.S. federal income tax laws that would affect publicly traded partnerships, including proposals that would eliminate our ability to qualify for partnership tax treatment.
In addition, the Treasury Department has issued, and in the future may issue, regulations interpreting those laws that affect publicly traded partnerships. There can be no assurance that there will not be further changes to U.S. federal income tax laws or the Treasury Department’s interpretation of the qualifying income rules in a manner that could impact our ability to qualify as a partnership in the future.
Any modification to the U.S. federal income tax laws and interpretations thereof may or may not be retroactively applied and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any changes or other proposals will ultimately be enacted. Any future legislative changes could negatively impact the value of an investment in our Common Units.
You are urged to consult with your own tax advisor with respect to the status of regulatory or administrative developments and proposals and their potential effect on your investment in our Common Units.
Our unitholders’ share of our income is taxable to them for U.S. federal income tax purposes even if they do not receive any cash distributions from us.
Our unitholders are required to pay any U.S. federal income taxes and, in some cases, state and local income taxes, on their share of our taxable income, whether or not they receive cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.
If the IRS contests the U.S. federal income tax positions we take, the market for our Common Units may be adversely impacted and our cash available to our unitholders might be substantially reduced.
The IRS may adopt positions that differ from the positions we take, and the IRS’s positions may ultimately be sustained. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our Common Units and the price at which they trade. In addition, our costs of any contest between us and the IRS will be borne indirectly by our unitholders because the costs will reduce our distributable cash flow.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case our cash available for distribution to our unitholders might be substantially reduced.
Legislation applicable to partnership tax years beginning after 2017 alters the procedures for auditing large partnerships and for assessing and collecting taxes due (including penalties and interest) as a result of a partnership-level federal income tax audit. If the IRS makes an audit adjustment to our partnership tax return, to the extent possible under the new rules our General Partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS in the year in which the audit is completed or, if we are eligible, issue a revised information statement to each unitholder and former unitholder with respect to an audited and adjusted partnership tax return. Although our General Partner may elect to have our unitholders and former unitholders take such audit adjustment into account and pay any resulting taxes (including applicable penalties or interest) in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. If, as a result of any such adjustment, we make payments of taxes and any penalties and interest directly to the IRS in the year in which the audit is completed, cash available for distribution to our unitholders might be substantially reduced, in which case our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if the current unitholders did not own Common Units in us during the tax year under audit.
Tax-exempt entities face unique tax issues from owning our Common Units that may result in adverse tax consequences to them.
Investment in Common Units by tax-exempt entities, such as employee benefit plans and individual retirement accounts (“IRAs”), raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Tax exempt entities should consult a tax advisor before investing in our Common Units.
Tax gain or loss on the disposition of our Common Units could be more or less than expected.
If our unitholders sell Common Units, they will recognize a gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and their tax basis in those Common Units. Because distributions in excess of unitholders’ allocable share of our net taxable income decrease unitholders’ tax basis in their Common Units, the amount, if any, of such prior excess distributions with respect to the Common Units a unitholder sells will, in effect, become taxable income to the unitholder if it sells such Common Units at a price greater than its tax basis in those Common Units, even if the price received is less than its original cost. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its Common Units, a unitholder may incur a tax liability in excess of the amount of cash received from the sale.
Furthermore, a substantial portion of the amount realized on any sale of Common Units, whether or not representing gain, may be taxed as ordinary income due to potential recapture items, including depreciation recapture. Thus, a unitholder may recognize both ordinary income and capital loss from the sale of Common Units if the amount realized on a sale of the Common Units is less than the unitholder’s adjusted basis in Common Units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which a unitholder sells its units, such unitholder may recognize ordinary income from our allocations of income and gain to such unitholder prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.
Unitholders may be subject to limitations on their ability to deduct interest expense we incur.
In general, we are entitled to a deduction for interest paid or accrued on indebtedness properly allocable to our trade or business during our taxable year. However, subject to certain exemptions in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” discussed below), under the Tax Cuts and Jobs Act, for taxable years beginning after December 31, 2017, our deduction for “business interest” is limited to the sum of our business interest income and 30% of our “adjusted taxable income.” For the purposes of this limitation, our adjusted taxable income is computed without regard to any business interest expense or business interest income, and in the case of taxable years beginning before January 1, 2022, any deduction allowable for depreciation, amortization, or depletion to the extent such depreciation, amortization, or depletion is not capitalized into cost of goods sold with respect to inventory. If our “business interest” is subject to limitation under these rules, our unitholders will be limited in their ability to deduct their share of any interest expense that has been allocated to them. As a result, unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
For our 2020 taxable year, the CARES Act increases the 30% adjusted taxable income limitation to 50%, unless we elect not to apply such increase. For purposes of determining our 50% adjusted taxable income limitation, we may elect to substitute our 2020 adjusted taxable income with our 2019 adjusted taxable income, which may result in a greater business interest expense deduction. In addition, unitholders may treat 50% of any excess business interest allocated to them in 2019 as deductible in the 2020 taxable year without regard to the 2020 business interest expense limitations. The remaining 50% of such unitholder’s excess business interest is carried forward and subject to the same limitations as other taxable years.
If our “business interest” is subject to limitation under these rules, our unitholders will be limited in their ability to deduct their share of any interest expense that has been allocated to them. As a result, unitholders may be subject to limitation on their ability to deduct interest expense incurred by us.
Non-U.S. unitholders will be subject to U.S. federal income taxes and withholding with respect to their income and gain from owning our Common Units.
Non-U.S. unitholders are generally taxed and subject to income tax filing requirements by the United States on income effectively connected with a U.S. trade or business. Income allocated to our unitholders and any gain from the sale of our Common Units will generally be considered to be “effectively connected” with a U.S. trade or business. As a result, distributions to a non-U.S. unitholder will be subject to withholding at the highest applicable effective tax rate, and a non-U.S. unitholder who sells or otherwise disposes of a Common Unit will also be subject to U.S. federal income tax on the gain realized from the sale or disposition of that Common Unit.
Moreover, the transferee of an interest in a partnership that is engaged in a U.S. trade or business is generally required to withhold 10% of the “amount realized” by the transferor unless the transferor certifies that it is not a foreign person. While the determination of the partner’s “amount realized” generally includes any decrease of a partner’s share of the partnership’s liabilities, recently issued Treasury regulations provide that the “amount realized” on a transfer of an interest in a publicly traded partnership, such as our Common Units, will generally be the amount of gross proceeds paid to the broker effecting the applicable transfer on behalf of the transferor, and thus will be determined without regard to any decrease in that partner’s share of a publicly traded partnership’s liabilities. The Treasury regulations further provide that withholding on a transfer of an interest in a publicly traded partnership will not be imposed on a transfer that occurs prior to January 1, 2022, and after that date, if effected through a broker, the obligation to withhold is imposed on the transferor’s broker.
We treat each purchaser of Common Units as having the same tax benefits without regard to the actual Common Units purchased. The IRS may challenge this treatment, which could adversely affect the value of the Common Units.
Because we cannot match transferors and transferees of Common Units and because of other reasons, our depreciation and amortization positions may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to unitholders. It also could affect the timing of these tax benefits or the amount of gain from a unitholder’s sale of Common Units and could have a negative impact on the value of our Common Units or result in tax return audit adjustments.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our Common Units each month based upon the ownership of our Common Units on the first day of each month, instead of on the basis of the date a particular Common Unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction for U.S. federal income tax purposes between transferors and transferees of our Common Units each month based upon the ownership of our Common Units on the first day of each month, instead of on the basis of the date a particular Common Unit is transferred. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose Common Units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of Common Units) may be considered to have disposed of those Common Units. If so, the unitholder would no longer be treated for U.S. federal income tax purposes as a partner with respect to those Common Units during the period of the loan and may recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose Common Units are the subject of a securities loan may be considered to have disposed of the loaned Common Units, the unitholder may no longer be treated for U.S. federal income tax purposes as a partner with respect to those Common Units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan to the short seller, any of our income, gain, loss or deduction with respect to those Common Units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those Common Units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to consult a tax advisor to discuss whether it is advisable to modify any applicable brokerage account agreements to prohibit their brokers from loaning their Common Units.
As a result of investing in our Common Units, our unitholders will likely be subject to state and local taxes and return filing requirements in jurisdictions where we operate or own or acquire properties.
In addition to U.S. federal income taxes, our unitholders will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or control property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements. As we make acquisitions or expand our business, we may control assets or conduct business in additional states that impose a personal income tax. It is our unitholders’ responsibility to file all federal, state and local tax returns and pay any taxes due in these jurisdictions. Unitholders should consult with their own tax advisors regarding the filing of such tax returns, the payment of such taxes, and the deductibility of any taxes paid.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
We may become involved in various legal proceedings in the ordinary course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we will regularly assess the need for accounting recognition or disclosure of these contingencies. We will defend ourselves vigorously in all such matters.
Item 4. Mine Safety Disclosures
Not Applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Management of Noble Midstream Partners LP
We are managed by the directors and executive officers of our General Partner. Our General Partner is not elected by our unitholders and will not be subject to re-election by our unitholders in the future. Chevron indirectly owns all of the membership interests in our General Partner. Our unitholders are not entitled to elect the directors of our General Partner’s board of directors or to directly or indirectly participate in our management or operations.
In evaluating director candidates, Chevron will assess whether a candidate possesses the integrity, judgment, knowledge, experience, skill and expertise that are likely to enhance the ability of our board of directors to manage and direct our affairs and business, including, when applicable, to enhance the ability of committees of the board of directors of our General Partner to fulfill their duties.
Neither we nor our subsidiaries have any employees. Our General Partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations. While all of the employees that conduct our business are employed by our General Partner or its affiliates, in this Annual Report, we sometimes refer to these individuals as our employees.
Director Independence
As a publicly traded partnership, we qualify for, and are relying on, certain exemptions from Nasdaq corporate governance requirements, including:
•the requirement that a majority of the board of directors of our General Partner consist of independent directors;
•the requirement that the board of directors of our General Partner have a nominating/corporate governance committee that is composed entirely of independent directors; and
•the requirement that the board of directors of our General Partner have a compensation committee that is composed entirely of independent directors.
As a result of these exemptions, our General Partner’s board of directors is not comprised of a majority of independent directors. Our board of directors does not currently intend to establish a nominating/corporate governance committee or a compensation committee. Accordingly, unitholders will not have the same protections afforded to equityholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
We are, however, required to have an audit committee of at least three members, all of whom satisfy the independence and experience standards established by Nasdaq and the Exchange Act.
We have also established a standing conflicts committee, as permitted under our partnership agreement.
Committees of the Board of Directors
In addition to the audit committee and the conflicts committee, the board of directors of our General Partner may have such other committees as the board of directors shall determine from time to time.
Audit Committee
The audit committee of the board of directors of our General Partner assists the board of directors in its oversight of the integrity of our financial statements and our compliance with legal and regulatory requirements and partnership policies and controls. The audit committee has the sole authority to (1) retain and terminate our independent registered public accounting firm, (2) approve all auditing services and related fees and the terms thereof performed by our independent registered public accounting firm and (3) pre-approve any non-audit services and tax services to be rendered by our independent registered public accounting firm. We have adopted an Audit Committee charter which is available on our website.
The audit committee is also responsible for confirming the independence and objectivity of our independent registered public accounting firm. Our independent registered public accounting firm will be given unrestricted access to the audit committee and our management, as necessary. Ms. Hallie A. Vanderhider (Chairperson), Mr. Martin Salinas and Mr. Andrew Viens comprise the members of the audit committee. The board of directors of our General Partner determined that each of Ms. Vanderhider, Mr. Salinas and Mr. Viens satisfy the definition of audit committee financial expert for purposes of the SEC’s rules and is independent under the standards of Nasdaq.
While the audit committee of the board of directors of our General Partner oversees the Partnership’s financial reporting process on behalf of the board of directors, management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls. In fulfilling its oversight responsibilities, the audit committee reviews and discusses with management the audited financial statements contained in this Annual Report.
Conflicts Committee
In January 2017, we established a standing conflicts committee of the board of directors of our General Partner. The board of directors of our General Partner will delegate the conflicts committee authority, from time to time, to review, in accordance with the terms of our partnership agreement, specific matters that may involve a potential conflict of interest between our General Partner or any of its affiliates, on the one hand, and us or any of our subsidiaries or partners, on the other hand. The board of directors of our General Partner determines whether to refer a matter to the conflicts committee on a case-by-case basis.
The conflicts committee is comprised of three members of the board of directors of our General Partner. The members of the conflicts committee are Mr. Salinas (Chairperson), Ms. Vanderhider and Mr. Viens. The members of our conflicts committee may not be officers or employees of our General Partner or directors, officers, or employees of any of its affiliates, and must meet the independence and experience standards established by Nasdaq and the Exchange Act to serve on an audit committee of a board of directors.
In addition, the members of our conflicts committee may not own any interest in our General Partner or any interest in us or our subsidiaries other than Common Units or awards under our long-term incentive plan. If our General Partner seeks approval from the conflicts committee, then it will be presumed that, in making its decision, the conflicts committee acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership challenging such determination, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Board Leadership Structure
Although the chief executive officer of our General Partner currently does not also serve as the chairman of the board of directors of our General Partner, the board of directors of our General Partner has no policy with respect to the separation of the offices of chairman of the board of directors and chief executive officer. Instead, that relationship is defined and governed by the amended and restated limited liability company agreement of our General Partner, which permits the same person to hold both offices. Directors of the board of directors of our General Partner are designated or elected by Noble. Accordingly, unlike holders of common stock in a corporation, our unitholders will have only limited voting rights on matters affecting our business or governance, subject in all cases to any specific unitholder rights contained in our partnership agreement.
Board Role in Risk Oversight
Our corporate governance guidelines provide that the board of directors of our General Partner is responsible for reviewing the process for assessing the major risks facing us and the options for their mitigation. This responsibility is largely satisfied by our audit committee, which is responsible for reviewing and discussing with management and our independent registered public accounting firm our major risk exposures and the policies management has implemented to monitor such exposures, including our financial risk exposures and risk management policies.
Non-Management Executive Sessions and Unitholder Communications
During the fiscal year ended December 31, 2020, the non-management directors met four times in executive session. Ms. Vanderhider, as Chair of the Audit Committee, acted as presiding director in such sessions.
Unitholders and interested parties can communicate directly with non-management directors by mail in care of the General Counsel and Secretary at Noble Midstream Partners LP, 1001 Noble Energy Way, Houston, Texas 77070. Such communications should specify the intended recipient or recipients. Commercial solicitations or communications will not be forwarded.
Meetings and Other Information
During the fiscal year ended December 31, 2020, our board of directors had ten meetings and our audit committee had four meetings. All directors have access to members of management, and a substantial amount of information transfer and informal communication occurs between meetings. Each of our directors attended all of the meetings of the board of directors and audit committee on which such director served.
Our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Whistleblower Policy and Audit Committee Charter are available on our website (www.nblmidstream.com) under the Corporate Governance tab. Our Code of Business Conduct and Ethics applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. We intend to disclose any amendment to or waiver of our Code of Business Conduct and Ethics either on our website or in a current report on Form 8-K filed with the SEC.
Directors and Executive Officers
Directors are appointed by Noble, the sole member of our General Partner, and hold office until their successors have been appointed or qualified or until their earlier death, resignation, removal or disqualification. Executive officers are appointed by, and serve at the discretion of, the board of directors. The following table presents information for the directors and executive officers of our General Partner.
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Name
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Age
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Position with Our General Partner
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Robin H. Fielder
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40
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President, Chief Executive Officer and Director
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Colin E. Parfitt
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56
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Chairman of the Board of Directors
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Alana K. Knowles
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56
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Director
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Stephen W. Green
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63
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Director
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Andrei F.B. Behdjet
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48
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Director
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Hallie A. Vanderhider
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63
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Director
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Martin Salinas, Jr.
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49
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Director
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Andrew E. Viens
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66
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Director
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Thomas W. Christensen
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38
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Chief Financial Officer and Chief Accounting officer
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Aaron G. Carlson
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54
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General Counsel and Secretary
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Robin H. Fielder was appointed to the board of directors of our General Partner in August 2020. Ms. Fielder serves as President and Chief Executive Officer of our General Partner since October 2020 after serving as President and Chief Operating Officer of our General Partner since January 2020. She previously served as President, Chief Executive Officer and Director of the general partners of Western Midstream Operating LP (formerly Western Gas Partners LP) and Western Midstream Partners LP (formerly Western Gas Equity Partners LP) from January 2019 to August 2019, and as President and Director of the general partners from November 2018 to January 2019. Ms. Fielder also served as Senior Vice President, Midstream of Anadarko Petroleum Corporation (“Anadarko”) from November 2018 to August 2019. Prior to these positions, she served in positions of increasing responsibility at Anadarko, including Vice President, Investor Relations from September 2016 to November 2018, Midstream Corporate Planning Manager from December 2015 to September 2016, Director, Investor Relations from June 2014 to December 2015 and General Manager, Carthage/North Louisiana from June 2013 to June 2014. Prior to serving in these roles, Ms. Fielder held various exploration and operations engineering positions at Anadarko in both the U.S. onshore and the deepwater Gulf of Mexico. She holds a Bachelor of Science in Petroleum Engineering from Texas A&M University and is a registered Professional Engineer in the State of Texas and a member of the Society of Petroleum Engineers. We believe Ms. Fielder’s industry and financial experience provides the board of directors of our General Partner with valuable experience and insight.
Colin E. Parfitt was appointed as chairman of the board of directors of our General Partner in October 2020. Mr. Parfitt serves as Vice President of Midstream at Chevron Corporation, a position he has held since March 2019. Mr. Parfitt was President of Chevron Supply and Trading from June 2013 to February 2019. Mr. Parfitt joined Chevron in 1995 as Manager, Crude Oil Trading, with Chevron International Oil Company based in London. He earned a Bachelor’s Degree in Economics from the University of Exeter in England and a Master’s Degree in Business Administration from Henley Management College in England. We believe Mr. Parfitt’s extensive knowledge of the oil and gas industry and executive leadership experience provides the board of directors of our General Partner with valuable experience and insight.
Alana K. Knowles was appointed to the board of directors of our General Partner in October 2020. Ms. Knowles serves as Vice President of Finance, Downstream & Chemicals and Midstream, at Chevron Global Downstream LLC, a position she has held since October 1, 2020. She was Vice President – Finance for Downstream & Chemicals at Chevron Global Downstream LLC from February 2019 to September 2020. Prior roles more recently include Assistant Treasurer, Opco Financing for Chevron Corporation from June 2017 to January 2019, and Comptroller, Chevron Global Downstream & Chemicals from May 2015 to May 2017. Ms. Knowles began her career with Chevron in 1988, supporting North America Upstream in an accounting and finance capacity, followed by various positions of increasing responsibility, including Manager of the Money Markets Group in Corporate Treasury, Finance Manager at the Richmond, California Refinery, Manager of Investor Relations in Corporate Finance, Vice-President of Finance, Chevron Gas & Midstream. Ms. Knowles earned a Bachelor’s Degree in Business Administration from California State University Sacramento. We believe Ms. Knowles industry and financial experience provides the board of directors of our General Partner with valuable experience in our industry and financial and accounting matters.
Stephen W. Green was appointed to the board of directors of our General Partner in October 2020. Mr. Green serves as President of Chevron North America Exploration and Production Company, a position he has held since March 2019. Mr. Green served as President of Chevron Asia Pacific Exploration and Production from March 2016 until March 2019. Prior to that, Mr. Green served as Vice President of Policy, Government and Public Affairs for Chevron Corporation from March 2011
until March 2016. From 2008 to 2011, Mr. Green served as president of Chevron Indonesia and managing director of the Chevron IndoAsia Business Unit. Mr. Green joined Chevron in 2005, as a result of Chevron’s merger with Unocal Corporation and was Chief Executive Officer of Unocal Thailand, Ltd., and Vice President of International Energy Operations for Myanmar, Thailand and Vietnam. Mr. Green earned a Bachelor’s Degree in Engineering from Texas A&M University in 1980 and completed the Stanford Graduate School of Business Executive Program in 2003. We believe Mr. Green’s extensive knowledge of the oil and gas industry and executive leadership experience provides the board of directors of our General Partner with valuable experience and insight.
Andrei F.B. Behdjet was appointed to the board of directors of our General Partner in October 2020. Mr. Behdjet serves as Vice President and General Counsel of Chevron’s Downstream, Chemicals & Midstream businesses, a position he has held since July 2015. In addition to overseeing the legal support for Downstream, Chemicals and Midstream businesses, Mr. Behdjet is also responsible for Chevron’s Environmental & Safety and Intellectual Property legal practice groups. He is a member of Chevron’s Downstream & Chemicals Leadership Team, Midstream Leadership Team and Law Function Executive Committee. Prior to his current role, Mr. Behdjet was based in Singapore and was responsible for legal support for Chevron’s Downstream & Chemicals business in Asia, Africa and the Middle East. Before joining Chevron in 2002, Mr. Behdjet practiced at law firms in San Francisco and Palo Alto, where he specialized in corporate transactions, focusing on mergers & acquisitions and private company investments. He holds a law degree from the University of the Pacific and a bachelor’s degree in Business (Finance) from the California State University, Sacramento. We believe Mr. Behdjet’s industry and legal experience provides the board of directors of our General Partner with valuable experience in our strategic, risk and legal matters.
Hallie A. Vanderhider was appointed to the board of directors of our General Partner in September 2016 and serves as chair of the audit committee and a member of the conflicts committee. Ms. Vanderhider currently serves as Managing Director of SFC Energy Management since January 2016 and as a director of EQT Corporation and Oil States International, Inc. since July 2019. She previously served as Managing Partner of Catalyst Partners, from May 2013 to June 2018, and as the President and Chief Operating Officer of Black Stone Minerals Company, from October 2007 to May 2013. She joined Black Stone in 2003 and served as Executive Vice President and Chief Financial Officer until being appointed as the President and Chief Operating Officer in 2007. Ms. Vanderhider served as Chief Financial Officer of EnCap Investments and served in a variety of positions at Damson Oil Corp., including as Chief Accounting Officer. In addition, she served on, or is serving on, the following boards: Mississippi Resources, from August 2014 to February 2016; PetroLogistics GP, from April 2013 to July 2014; Bright Horizons, from October 2013 to January 2016; Grey Rock Energy Management, from August 2013 to present; Armor Energy, from May 2016 to present; Frostwood Energy, from May 2016 to present; and Greystone Petroleum, from May 2016 to December 2019. We believe that Ms. Vanderhider’s experience with master limited partnerships, the natural resource industry and financial statements provides the board of directors of our General Partner with valuable experience with respect to our industry and financial matters.
Martin Salinas, Jr. was appointed to the board of directors of our General Partner in October 2016 and is a member of the audit and conflicts committees. Mr. Salinas currently serves as a director of Green Plains Partners, which position he has held since July 2018. He previously served as Chief Executive Officer of Phase 4 Energy Partners from October 2015 to December 2016 and as Chief Financial Officer of Energy Transfer Partners, L.P. from June 2008 through April 2015. He joined Energy Transfer Partners, L.P. in 2004 and served as Controller and Vice-President of Finance until being appointed as Chief Financial Officer in 2008. In addition to serving as Chief Financial Officer for Energy Transfer Partners, Mr. Salinas also served as Sunoco Logistics, L.P.’s Chief Financial Officer and a member of the Board of Directors from October 2012 to April 2015 and as a member of the Board of Directors for Sunoco Partners, L.P. from March 2014 until April 2015. Prior to joining Energy Transfer Partners, L.P., Mr. Salinas worked at KPMG, LLP from September 1994 through August 2004 serving audit clients primarily in the Oil and Gas industry. We believe that Mr. Salinas’ prior experience as an auditor and chief financial officer provides the board of directors of our General Partner with valuable experience with respect to our accounting and financial matters.
Andrew E. Viens was appointed to the board of directors of our General Partner in June of 2017. Mr. Viens was President, Global Marketing, for Phillips 66 until April 15, 2015, when he retired. He has 36 years of experience in various roles throughout the oil and gas and downstream industries. Mr. Viens was also a director on the DCP Midstream board from July 2012 until his retirement in April 2015. Before joining Phillips 66 in May 2012, he had held the same role with ConocoPhillips since March 2010. He had served as President, U.S. Marketing since May 2009. Previously, he held the position of General Manager, Commercial Marine from March 2007 to April 2009. He was appointed Manager, Heavy Products Trading in October 2003 after working as General Manager, Business Optimization. Prior to his career with ConocoPhillips, Viens worked for Tosco, and from April 1999 to the Phillips Petroleum acquisition of Tosco and through the Conoco and Phillips merger, he served as Manager of Wholesale Marketing and Diversified Business. His Tosco career had started in 1997 when he moved to Tempe as Manager of Product Supply and Trading. We believe Mr. Viens’s extensive marketing and downstream experience provides the board of directors of our General Partner with valuable knowledge and insight.
Thomas W. Christensen was appointed Chief Financial Officer of our General Partner in September 2019 after serving as interim Chief Financial Officer since July 2019. Mr. Christensen previously held the position of Chief Accounting Officer of Noble Midstream from August 2016 to October 2019 and resumed the position in August 2020. He served as Corporate Finance Manager in Noble Energy’s Treasury group and joined Noble Energy upon its acquisition of Rosetta Resources in July 2015. While at Rosetta, Mr. Christensen served in positions of increasing responsibility, including most recently serving as its Assistant Controller overseeing SEC reporting, corporate accounting, income taxes and technical accounting matters. He began his career as an auditor in PricewaterhouseCoopers’s energy practice in Houston. Mr. Christensen is also a certified public accountant.
Aaron G. Carlson was appointed General Counsel and Secretary of our General Partner in June 2019. Mr. Carlson joined Noble Energy, Inc. in April 2003 after spending seven years in private practice. He served in roles of increasing responsibility within Noble Energy’s Legal Department, including Vice President, Deputy General Counsel and Corporate Secretary through May 2018, before serving in Noble Energy roles of Vice President of Land, Marketing and Production Reporting from May 2018 to July 2019 and Vice President of Land from July 2019 to July 2020.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities (collectively, “Insiders”) to file with the SEC initial reports of ownership and reports of changes in ownership of such equity securities. Insiders are also required to furnish us with copies of all Section 16(a) forms that they file. Such reports are accessible on or through our website at www.nblmidstream.com under the “SEC Filings” tab.
Based solely upon a review of the copies of Forms 3 and 4 furnished to us, or written representations from certain reporting persons that no Forms 5 were required, we believe that the Insiders complied with all filing requirements with respect to transactions in our equity securities during 2020.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Neither we nor our General Partner employ any of the individuals who serve as executive officers of our General Partner and are responsible for managing our business. We are managed by our General Partner; however, the executive officers of our General Partner are employees of Noble and, as described below, may provide additional services to Noble and its affiliates unrelated to our business. Because our General Partner’s executive officers are employed by Noble, compensation of our executive officers is set and paid by Noble under its compensation programs. While Noble and our General Partner have not entered into any employment agreements with any of its executive officers, we and our General Partner have entered into the Omnibus Agreement, dated as of September 20, 2016, as amended (the “Omnibus Agreement”), and the Operational Services and Secondment Agreement, dated as of September 20, 2016 (the “Operational Services Agreement”), in each case, with Noble. Pursuant to the terms of the Operational Services Agreement, we reimburse Noble for the portion of our Chief Executive Officer and Chief Operating Officer’s compensation that is attributable to the management of the operational aspects of our business. Pursuant to the terms of the Omnibus Agreement, we pay an annual fixed administrative fee to Noble, which covers the services provided to us by our other executive officers. Except with respect to awards that may be granted under the Noble Midstream Partners LP 2016 Long-Term Incentive Plan (the “LTIP”), our executive officers do not receive any separate compensation from us for their services to our business or as executive officers of our General Partner.
Named Executive Officers
For 2020, our Named Executive Officers (“Named Executive Officers” or “NEOs”) were:
•Robin H. Fielder, Chief Executive Officer and President;
•Thomas W. Christensen, Chief Financial Officer and Chief Accounting Officer;
•Aaron G. Carlson, General Counsel and Secretary;
•Brent J. Smolik, Former Chief Executive Officer and Chief Operating Officer; and
•Phillip S. Welborn, Former Chief Accounting Officer.
Ms. Fielder was appointed Chief Executive Officer and President in October 2020 succeeding Mr. Smolik. Ms. Fielder previously served as Chief Operating Officer and President of our General Partner from January 2020 to October 2020. During 2020, Ms. Fielder devoted substantially all of her time to managing our business and affairs.
Mr. Christensen was appointed Chief Accounting Officer in August 2020 effective with Mr. Welborn's resignation and has served as Chief Financial Officer of our General Partner since June 2019. Mr. Christensen devotes substantially all of his time to us and our General Partner.
Mr. Carlson was appointed as General Counsel and Secretary of our General Partner in June 2019. During 2020, Mr. Carlson devoted approximately 80% of his time to managing our business and affairs.
Mr. Smolik resigned from his position as Chief Executive Officer and Chief Operating Officer of our General Partner in October 2020 in connection with the Chevron Merger. Before his resignation, Mr. Smolik devoted approximately 25% of his time to managing our business and affairs. As a result of the Chevron Merger, Mr. Smolik’s employment was terminated following a change in control in November 2020.
Mr. Welborn resigned from his position as Chief Accounting Officer of our General Partner in August 2020 to assume a new role within Noble. Before his resignation, Mr. Welborn devoted substantially all of his time to us and our General Partner. During September 2020, Mr. Welborn resigned from Noble to pursue other opportunities.
In February 2021, the titles for Messrs. Carlson and Christensen were revised as follows: Mr. Carlson was appointed as Senior Vice President, General Counsel and Corporate Secretary, and Mr. Christensen was appointed as Senior Vice President, Chief Financial Officer and Chief Accounting Officer.
Resignations and Change of Control
In connection with Mr. Welborn’s resignation from Noble, all unvested equity awards were forfeited, he did not receive any cash severance payments and he was not eligible to receive a payout under Noble’s short-term incentive plan (the “STIP”). Additionally, all outstanding and exercisable stock options in Chevron held by Mr. Welborn will expire on the first anniversary of his resignation date.
As a result of Mr. Smolik’s termination of employment following a change in control in November 2020, Mr. Smolik received the following payments: (i) an amount in cash equal to his Annual Cash Compensation (as defined in the Executive COC Severance Plan) multiplied by 2.5, (ii) an amount in cash equal to his pro-rata target bonus for 2020, (iii) reimbursement for outplacement services up to $15,000, (iv) an amount in cash equal to the monthly cost of continuation
coverage for welfare benefit coverages, less his monthly premium multiplied by 30 months. All outstanding equity or equity-based awards held by Mr. Smolik vested in full (with any performance conditions deemed achieved at target). Additionally, all outstanding and exercisable stock options in Chevron held by Mr. Smolik will expire on the earliest to occur of (i) the expiration date of the stock option or (ii) the fifth anniversary of his resignation date. Further, Mr. Smolik’s unvested balance in his Noble 2005 Deferred Compensation Plan account was fully vested and will be paid out in accordance with the Noble 2005 Deferred Compensation Plan. The payments Mr. Smolik received in connection with his termination of employment are quantified below under “Potential Payments Upon Termination or a Change of Control – Resignations During Fiscal Year 2020.”
Elements of Compensation and Overview
Noble provides compensation to our executives in the form of base salaries, annual short-term cash incentive awards, long-term equity incentive awards and participation in various employee benefits plans and arrangements. Noble aims to balance at-risk or contingent compensation, provided in the form of annual short-term cash incentive awards and long-term equity incentive awards, with fixed compensation, provided in the form of a base salary. For 2020, a substantial portion of the target compensation of each of our Named Executive Officers was at-risk.
The following discussion sets forth a more detailed explanation of the elements of Noble’s compensation programs as they relate to our Named Executive Officers.
Base Salary
Base salary is designed to provide a competitive fixed rate of pay recognizing employees’ different levels of responsibility and performance. In setting an executive’s base salary, several factors are considered, including external market data, the executive’s role and responsibilities, and the executive’s skills, experience, expertise and performance. The table below sets forth the base salary as of December 31, 2020, other than with respect to Messrs. Smolik and Welborn, for which it provides the base salary of such Named Executive Officers as of their respective resignation dates. The amounts set forth below are pro-rated to reflect the portion of the Named Executive Officer expense allocated to us by Noble based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business, as described above under “Named Executive Officers.”
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Name
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Base Salary
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Robin H. Fielder
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$
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415,000
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Thomas W. Christensen
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250,000
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Aaron G. Carlson
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231,624
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Brent J. Smolik
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159,375
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Phillip S. Welborn
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190,000
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|
|
As mentioned above, Ms. Fielder was appointed Chief Executive Officer and President in October 2020. In connection with her appointment, her base salary, prior to the adjustment described above, was increased by 3.75%.
Short-Term Incentive Plan
Our Named Executive Officers are eligible to receive awards under the STIP. The STIP provides participants with an opportunity to earn performance-based annual cash bonus awards. Target annual bonus levels are established at or before the beginning of each year by Noble and are based on a percentage of the NEO’s base salary. The table below provides the annual bonus targets for the Named Executive Officers for 2020.
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Name
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Target (as a % of Base Salary)
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Robin H. Fielder
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65
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%
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Thomas W. Christensen
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35
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%
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Aaron G. Carlson
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45
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%
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Brent J. Smolik
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110
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%
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Phillip S. Welborn
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30
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%
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|
The 2020 STIP, as designed, was weighted 60% on quantitative measures and 40% on qualitative measures. The performance goals were designed to motivate performance and compensate employees for annual contributions. In connection with the acquisition of Noble by Chevron in October 2020, and pursuant to the Chevron Merger Agreement, the Noble Board amended the STIP to provide that each participant thereunder would receive a bonus for the 2020 plan year performance period through the closing of the Chevron Merger in an amount that is equal to the amount of such participant’s target bonus under the STIP for the 2020 plan year, pro-rated through the close of the Chevron Merger on October 5, 2020 (the “Closing Date”). For the period after the Closing Date and through December 31, 2020, the NEO’s STIP was based upon such participant’s target bonus under the STIP for the 2020 plan year, multiplied by the Chevron performance factor, and pro-rated for the post-closing period. For more information regarding the Chevron performance factor, including a discussion of the performance metrics on which it is based, read Chevron’s 2021 Proxy Statement (which is not, and shall not, be deemed to be incorporated by reference herein).
2020 STIP Payments
The cash payout under the STIP is expected to occur in March 2021, and the following table shows the final STIP payouts to our Named Executive Officers who are eligible for such payment, pro-rated to reflect the portion of the Named Executive Officer expense allocated to us by Noble based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business, as described above under “Named Executive Officers”:
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2020 STIP Payment
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Name
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Noble Portion
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Chevron Portion
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Robin H. Fielder
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$
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165,000
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$
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53,063
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Thomas W. Christensen
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67,308
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17,668
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Aaron G. Carlson
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84,632
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21,047
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Long-Term Equity-Based Compensation Awards
Our Named Executive Officers are eligible to receive awards under the LTIP and under Noble’s long-term equity compensation programs.
Time-Based Restricted Units
The board of directors of our General Partner grants time-based restricted units under our LTIP to provide a retention incentive to the Named Executive Officers and to align the interests of our Named Executive Officers with our unitholders.
In January 2020, Ms. Fielder and Messrs. Christensen, Carlson and Welborn received a grant of time-based restricted units under the LTIP. The restricted units will vest, subject to the conditions set forth in the applicable award agreements, as follows:
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Vesting Date
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Portion of the Restricted Units that Become Vested
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January 31, 2021
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1/3
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January 31, 2022
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1/3
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January 31, 2023
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1/3
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Noble Equity Compensation Awards
Under the Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan (the “1992 Plan”), as amended from time to time, and subsequently superseded and replaced by the Noble Energy, Inc. 2017 Long-Term Incentive Plan (the “2017 Plan”), as amended from time to time, our Named Executive Officers may receive grants of stock options, restricted stock, phantom units and performance share awards. Equity‑based awards under the 2017 Plan received by our Named Executive Officers in 2020 included time-based restricted shares, time-based phantom units, and performance share awards.
In January 2020, all of our Named Executive Officers received a grant of time-based restricted shares under the 2017 Plan. These time-based restricted shares also provide the award holder with the right to receive dividend equivalents equal to the dividends paid with respect to the number of shares of common stock subject to such restricted shares, which are also paid upon vesting. The time-based restricted shares will vest, subject to the terms set forth in the applicable award agreements, as follows:
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Vesting Date
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Portion of the Restricted Shares that Become Vested
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January 31, 2021
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1/3
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January 31, 2022
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1/3
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January 31, 2023
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1/3
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In January 2020, Ms. Fielder and Messrs. Smolik and Carlson received a grant of performance awards. These performance awards were scheduled to vest in full on the third anniversary of the grant date based on the achievement of certain performance metrics and subject to the executive’s continuous employment through the vesting date. These performance awards were later converted into time-based awards, as described below.
In January 2020, all of our Named Executive Officers received a grant of phantom units. Phantom units are the economic equivalent of one share of Noble stock. The phantom units also provide the award holder with the right to receive dividend equivalents equal to the dividends paid with respect to the number of shares of common stock subject to such phantom units, which are also paid upon vesting. The phantom units vest, subject to the terms set forth in the applicable award agreements, as follows:
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Vesting Date
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Portion of the Phantom Units that Become Vested
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January 31, 2021
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1/3
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January 31, 2022
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1/3
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January 31, 2023
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1/3
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The vesting period for long-term incentive awards awarded under the 1992 Plan and 2017 Plan is typically three years to ensure that these awards incentivize and reward longer-term performance. In connection with the closing of the Chevron Merger, the 1992 Plan and 2017 Plan were assumed by Chevron, and outstanding awards held by our Named Executive Officers were converted into comparable awards relating to our Chevron’s common stock, with performance conditions under the outstanding Noble performance share awards determined based on target performance, as required by the terms of the Chevron Merger Agreement. For more information regarding the awards made pursuant to the equity plans maintained by Noble and the types of awards granted thereunder, read Noble’s 2020 Proxy Statement filed on March 10, 2020.
Cash Retention Awards
In connection with the Chevron Merger and in light of the importance of preserving value and managing risk during the pendency of the transaction and in order to ensure successful integration, the Noble board of directors designed a pool of funds (the “Pool” or the “Retention, Recognition, and Integration Pool”) to achieve those goals, in an aggregate amount of $40,000,000 cash. The Compensation, Benefits, and Stock Option Committee of the Noble board of directors (the “Noble Compensation Committee”) was given authority to oversee the Pool and determine the recipients and allocations thereunder. Through a comprehensive evaluation process, the Noble Compensation Committee identified the employees necessary to retain and incentivize to ensure the continued successful operation of the business through the closing of the Chevron Merger, to mitigate risk and to achieve a successful integration with Chevron. The allocation made to each executive officer eligible to receive a retention award under this Pool is payable in two separate cash installments, with (i) 50% payable on the Closing Date, and (ii) 50% payable on the earlier to occur of (x) the date that is 90 days following the Closing Date, subject to the executive officer’s continued employment and efforts through such date, or (y) the date of such executive officer’s qualifying termination of employment following the Closing Date, which is defined as a termination by the employer without “Cause” (and not due to death, disability, or retirement) or a termination by the executive for “Good Reason.”
Under this Pool, our Named Executive Officers were awarded the following amounts, pro-rated to reflect the portion of the Named Executive Officer expense allocated to us by Noble based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business, as described above under “Named Executive Officers”:
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Name
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Retention Amount
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Robin H. Fielder
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$
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400,000
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Thomas W. Christensen
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75,000
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Aaron G. Carlson
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152,000
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Brent J. Smolik
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687,500
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Phillip S. Welborn
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125,000
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|
In connection with the consummation of the Chevron Merger, the Board appointed Ms. Fielder as President and CEO of the Company and provided her with a one-time $200,000 sign-on bonus.
Retirement and Additional Benefits
Our Named Executive Officers are also eligible to participate in the employee benefit plans and programs that Noble offers to its employees, subject to the terms and eligibility requirements of those plans. During 2020, our Named Executive Officers participated in Noble’s 401(k) plan. Noble provides dollar-for-dollar matching contributions up to 6% of a participant’s eligible compensation. In addition, Noble makes the following age-weighted contributions to the 401(k) plan for each participant, including the Named Executive Officers:
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Age of Participant
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Contribution Percentage (Below the Social Security Wage Base)
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Contribution Percentage (Above the Social Security Wage Base)
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Under 35
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4%
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8%
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At Least 35 but Under 48
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7%
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10%
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48 and Over
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9%
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12%
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In addition, Ms. Fielder and Messrs. Smolik and Carlson were eligible to participate in the Noble Energy, Inc. 2005 Deferred Compensation Plan (the “Noble 2005 Deferred Compensation Plan”) in 2020, under which participants may elect to defer portions of their salary and bonus and to receive certain matching, age-weighted and transition contributions that would have been made to Noble’s 401(k) plan, if the 401(k) plan had not been subject to the Internal Revenue Code of 1986, as amended (the “Code”), compensation and contribution limitations.
Post-Employment Compensation Programs
Noble maintains the Noble Energy, Inc. 2016 Change of Control Severance Plan (the “COC Severance Plan”) and the Noble Energy Inc. 2016 Change of Control Severance Plan for Executives (the “Executive COC Severance Plan,” and collectively with the COC Severance Plan, the “COC Plans”), in order to help mitigate possible disincentives to pursue value-added merger or acquisition transactions where post-transaction employment prospects may be uncertain. Ms. Fielder and Mr. Smolik participate in the Executive COC Severance Plan and Messrs. Christensen, Carlson and Welborn participate in the COC Severance Plan. The COC Plans provide for certain severance benefits upon an involuntary termination of employment within two years (and in certain circumstances, only one year) following a change of control of Noble. In 2020, Noble also maintained the 2016 Severance Benefit Plan, which provides for severance benefits to certain eligible employees, including our Named Executive Officers, upon their termination of employment in connection with a designated reduction in force. However, no Named Executive Officer became entitled to a benefit under this plan in 2020 or was eligible for a potential benefit under this plan in 2020 following the Chevron Merger.
Pursuant to the terms of the restricted unit awards held by our Named Executive Officers, upon an involuntary termination of employment following a change in control or upon the executive’s death or disability, the restricted units will accelerate and become fully vested. Additionally, the stock options granted to our Named Executive Officers by Noble become fully exercisable upon certain terminations of employment, and the restricted shares and phantom units will accelerate and become fully vested upon certain terminations of employment, with performance based on actual performance. However, in connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, all outstanding Noble equity awards were converted into comparable awards of Chevron with the performance shares converting into time-based awards based on the achievement of target performance.
See “Potential Payments Upon Termination or a Change of Control” below for more detail regarding the post-employment compensation arrangements covering our Named Executive Officers as of December 31, 2020.
Other Compensation Items
Tax and Accounting Implications
We account for equity compensation expense in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 718, which require us to estimate and record an expense for each award of equity compensation over the vesting period of the award. Accounting rules also require us to record cash compensation, such as the compensation reimbursed pursuant to our Operational Services Agreement, as an expense at the time the obligation is accrued. The board of directors of our General Partner has taken into account the tax implications to us in its decision to grant equity incentive awards in the form of restricted units, as opposed to options or unit appreciation rights.
Unit Ownership Guidelines
We maintain unit ownership guidelines for our officers and non-employee directors. We believe that these guidelines reinforce the alignment of the long‑term interests of our Named Executive Officers and unitholders and help discourage excessive risk-taking. Each Named Executive Officer is expected to hold Common Units with a value equal to at least their base salary. The Named Executive Officers have five years from the later of (i) the date of appointment and (ii) the date of our initial public offering to achieve compliance. Named Executive Officers who are not in compliance with the unit ownership guidelines will be required to retain 50% of any net units they subsequently acquire upon vesting until the required ownership multiple is achieved. As of February 5, 2021, all Named Executive Officers were in compliance with the guidelines or were within the permitted time frame to come into compliance with the guidelines.
Risk Assessment
We are managed and operated by the officers of our General Partner, and employees of Noble provide services to us through the Operational Services Agreement and the Omnibus Agreement. Other than with respect to equity incentive awards approved by the board pursuant to the LTIP, we do not have any compensation policies or practices that need to be assessed or evaluated for the effect on our operations. The board believes that the grant of equity incentive awards pursuant to the LTIP does not encourage excessive and unnecessary risk taking, and the level of risk that it does encourage is not reasonably likely to have a material adverse effect on us.
Compensation Committee Interlocks and Insider Participation
As a limited partnership, the board of directors of our General Partner is not required by the rules of Nasdaq to have a compensation committee. None of the executive officers of our General Partner serve on the board of directors or compensation committee of a company that has an executive officer that serves on the board of directors of our General Partner. No member of the board of directors of our General Partner is an executive officer of a company in which one of the executive officers of our General Partner serves as a member of the board of directors or compensation committee of that company.
Compensation Committee Report
The following report of the board on executive compensation shall not be deemed to be “soliciting material” or to be “filed” with the SEC nor shall this information be incorporated by reference into any future filing made with the SEC, whether made before or after the date hereof and irrespective of any general incorporation language in such filing.
We do not maintain a separate compensation committee. As a result, the board has reviewed and discussed with management the Compensation Discussion and Analysis set forth herein and, based on such review and discussions, determined that it be included in this Annual Report.
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Submitted by:
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Robin H. Fielder
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Colin E. Parfitt
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Alana K. Knowles
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Stephen W. Green
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Andrei F.B. Behdjet
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Hallie A. Vanderhider
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Martin Salinas, Jr.
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Andrew E. Viens
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Summary Compensation Table
The following summarizes the total compensation paid to our Named Executive Officers for their services to us during the fiscal years ending December 31, 2020, December 31, 2019, and December 31, 2018. Except as specifically noted, the amounts included in the table below reflect the portion of the expense allocated to us by Noble based on the percentage of each Named Executive Officer’s overall working time was devoted to our business for the applicable fiscal year, as described above under “Compensation Discussion and Analysis—Named Executive Officers” and in the footnotes below.
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Name and Principal Position
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Year
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Salary
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Bonus
(6)
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Stock Awards
(7)
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Option Awards
(8)
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Non-Equity Incentive Compensation (9)
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All Other Compensation (10)
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Total
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Robin H. Fielder (Chief Executive Officer and President) (1)
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2020
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$
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362,692
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$
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565,000
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|
$
|
999,959
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|
$
|
—
|
|
$
|
53,063
|
|
$
|
67,853
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|
$
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2,048,567
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Brent J. Smolik (Chief Executive Officer and Director) (2)
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2020
|
179,491
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|
687,500
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|
1,124,992
|
|
—
|
|
—
|
|
2,732,587
|
|
4,724,570
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2019
|
187,500
|
|
—
|
|
976,760
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|
153,749
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|
408,375
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|
54,471
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|
1,780,855
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Thomas W. Christensen (Chief Financial Officer) (3)
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2020
|
259,615
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|
104,808
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|
187,202
|
|
—
|
|
17,668
|
|
55,541
|
|
624,834
|
|
2019
|
221,366
|
|
—
|
|
339,698
|
|
—
|
|
174,150
|
|
59,434
|
|
794,648
|
|
2018
|
194,070
|
|
—
|
|
85,374
|
|
—
|
|
53,485
|
|
34,985
|
|
367,914
|
|
Aaron G. Carlson (General Counsel & Secretary) (4)
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2020
|
250,431
|
|
160,632
|
|
321,705
|
|
—
|
|
21,047
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|
62,628
|
|
816,443
|
|
2019
|
160,406
|
|
—
|
|
209,012
|
|
—
|
|
138,905
|
|
43,969
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|
552,292
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Philip S. Welborn (Chief Accounting Officer) (5)
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2020
|
157,207
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|
—
|
|
114,908
|
|
—
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|
—
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|
9,432
|
|
281,547
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2019
|
105,912
|
|
—
|
|
37,176
|
|
—
|
|
17,243
|
|
10,591
|
|
170,922
|
|
(1)Ms. Fielder was appointed Chief Executive Officer effective October 5, 2020. Prior to her appointment as Chief Executive Officer, Ms. Fielder served as President and Chief Operating Officer of our General Partner. Compensation reported for 2020 reflects amounts paid to Ms. Fielder in her roles both before and after her appointment as our Chief Executive Officer. Both before and after her appointment as Chief Executive Officer, Ms. Fielder devoted substantially all of her overall working time to our business in 2020. Therefore, the amounts disclosed for 2020 are reported in full, without any proration.
(2)Mr. Smolik served as Chief Executive Officer from August 2019 until his resignation in connection with the Chevron Merger in October 2020. Compensation presented for 2020 represents the period from January 2020 until his termination of employment in November 2020. Before his resignation, Mr. Smolik devoted approximately 25% of his overall working time to our business and the amounts reported for 2020 and 2019 are prorated to reflect this.
(3)Mr. Christensen devotes substantially all of his overall working time to our business. Therefore, the amounts disclosed for 2020, 2019 and 2018 are reported in full, without any proration.
(4)Mr. Carlson devoted approximately 80% and 50% of his overall working time to our business for 2020 and 2019, respectively, and the amounts reported are prorated to reflect this.
(5)Mr. Welborn served as our Chief Accounting Officer from October 2019 until his resignation in August 2020. Compensation presented for 2020 represents the period from January 2020 until his departure from Noble in September 2020. Prior to his resignation, Mr. Welborn devoted substantially all of his overall working time to our business. Therefore, the amounts reported for 2019 and the portion of 2020 prior to Mr. Welborn’s resignation are reported in full, without any proration.
(6)Amounts in this column reflect (i) the amount allocable to us of payments to the Named Executive Officers under the Noble STIP, which amounts were paid based on each individual’s target STIP opportunity, but pro-rated through the Closing Date and pursuant to the Chevron Merger Agreement in the following amounts: $165,000 to Ms. Fielder, $67,308 to Mr. Christensen, and $84,632 to Mr. Carlson, (ii) the payments to Ms. Fielder and Messrs. Smolik, Christensen and Carlson pursuant to the Retention, Recognition and Integration Pool and (iii) a one-time $200,000 sign-on bonus paid to Ms. Fielder in connection with her appointment as our Chief Executive Officer. The amounts of the retention awards earned in 2020 were as follows: $200,000 for Ms. Fielder, $687,500 for Mr. Smolik, $37,500 for Mr. Christensen and $76,000 for Mr. Carlson. Mr. Welborn was not eligible to receive a retention payment or a payment under the STIP in 2020 as a result of his resignation.
(7)The amounts in this column reflect the aggregate grant date fair value of phantom units and restricted stock awarded under the 2017 Plan and of restricted units awarded under our LTIP, each of which were computed in accordance with FASB ASC Topic 718.
(8)The amounts in this column reflect the aggregate grant date fair value of non-qualified stock options granted under the 2017 Plan computed in accordance with FASB ASC Topic 718.
(9)Reflects payments under the STIP based on the achievement of certain performance goals during the applicable fiscal year.
(10)All other compensation for 2020 includes the following payments and benefits:
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Name
|
401(k) Matching Contributions
|
401(k) Retirement Savings Contributions
|
Deferred Compensation Plan Registrant Contributions (a)
|
Accrued Dividends
|
Severance Payments
|
Total All Other Compensation
|
Robin H. Fielder
|
$
|
17,100
|
|
$
|
20,400
|
|
$
|
16,400
|
|
$
|
13,953
|
|
$
|
—
|
|
$
|
67,853
|
|
Brent J. Smolik
|
4,275
|
|
—
|
|
6,494
|
|
—
|
|
2,721,818
|
|
2,732,587
|
|
Thomas W. Christensen
|
15,577
|
|
21,831
|
|
—
|
|
18,133
|
|
—
|
|
55,541
|
|
Aaron G. Carlson
|
13,680
|
|
16,320
|
|
25,453
|
|
7,175
|
|
—
|
|
62,628
|
|
Phillip S. Welborn
|
9,432
|
|
—
|
|
—
|
|
—
|
|
—
|
|
9,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)The following amounts were credited to the following Named Executive Officer’s accounts under the Noble 2005 Deferred Compensation Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
Matching Contribution
|
Transition Contribution
|
Retirement Savings Contribution
|
Total Deferred Compensation Plan Registrant Contributions
|
Robin H. Fielder
|
2020
|
$
|
4,662
|
|
$
|
—
|
|
$
|
11,738
|
|
$
|
16,400
|
|
Brent J. Smolik
|
2020
|
6,494
|
|
—
|
|
—
|
|
6,494
|
|
Aaron G. Carlson
|
2020
|
—
|
|
15,026
|
|
10,427
|
|
25,453
|
|
|
|
|
|
|
|
Grants of Plan-Based Awards
The table below sets forth information regarding grants of plan-based awards made to our Named Executive Officers during 2020. Except for the restricted units granted under our LTIP, the number of securities and dollar amounts set forth in the table below reflect an allocation based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business during 2020, as described above under “Compensation Discussion and Analysis—Named Executive Officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Approval
Date
(1)
|
Grant
Date
(1)
|
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards (2)
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards (3)(4)
|
All Other
Stock
Awards:
Number of
Shares or
Units
(#)
|
|
|
Grant
Date
Fair
Value
of Stock
and
Option
Awards
(8)
|
Threshold
|
Target
|
Max
|
Threshold
(#)
|
Target
(#)
|
Max
(#)
|
Robin H. Fielder
|
1/28/2020
|
1/31/2020
|
$
|
—
|
|
$
|
269,750
|
|
$
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
$
|
—
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
12,645
|
|
25,290
|
|
50,580
|
|
—
|
|
|
|
|
|
499,983
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
12,645
|
|
(5)
|
|
|
|
249,992
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
11,160
|
|
(6)
|
|
|
|
249,984
|
|
Brent J. Smolik
|
1/28/2020
|
1/31/2020
|
—
|
|
175,313
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
—
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
14,226
|
|
28,452
|
|
56,904
|
|
—
|
|
|
|
|
|
562,496
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
14,226
|
|
(7)
|
|
|
|
281,248
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
14,226
|
|
(5)
|
|
|
|
281,248
|
|
Thomas W. Christensen
|
1/28/2020
|
1/31/2020
|
—
|
|
87,500
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
—
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,367
|
|
(7)
|
|
|
|
46,796
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,367
|
|
(5)
|
|
|
|
46,796
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,179
|
|
(6)
|
|
|
|
93,610
|
|
Aaron G. Carlson
|
1/28/2020
|
1/31/2020
|
—
|
|
104,231
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
—
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
2,441
|
|
4,882
|
|
9,764
|
|
—
|
|
|
|
|
|
96,517
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,254
|
|
(7)
|
|
|
|
64,339
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
4,068
|
|
(5)
|
|
|
|
80,424
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,590
|
|
(6)
|
|
|
|
80,425
|
|
Philip S. Welborn
|
1/28/2020
|
1/31/2020
|
—
|
|
57,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
—
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,453
|
|
(7)
|
|
|
|
28,726
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,453
|
|
(5)
|
|
|
|
28,726
|
|
1/28/2020
|
1/31/2020
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
2,565
|
|
(6)
|
|
|
|
57,456
|
|
(1)All grants were approved by our board or by Noble (or its board of directors or compensation committee), as applicable, on the approval date set forth above, but such grants became effective and were valued on the grant date set forth above.
(2)The amounts in this column represent the target payouts under Noble’s STIP. There are no threshold or maximum amounts under the STIP. In connection with the Chevron Merger, the amounts awarded under the STIP were paid out at target, pro-rated through the date of the Chevron Merger, and the amounts earned following the closing of the Chevron Merger were based on such participant’s target
bonus under the STIP for the 2020 plan year, multiplied by the Chevron performance factor, and pro-rated for the post-closing period. For more information, see the section entitled “Compensation Discussion and Analysis—Short-Term Incentive Plan” above.
(3)The amounts in these columns represent the amounts of Noble shares that were originally granted on each grant date. Certain outstanding Noble equity awards were converted on the Closing Date into awards relating to Chevron shares on the same terms and conditions in connection with the Chevron Merger. For every one share of Noble common stock, 0.1191 of a share of Chevron common stock was received (the “Conversion Ratio”).
(4)The amounts in these columns represent the threshold, target and maximum number of shares that may be issued in settlement of performance awards granted under the 2017 Plan. The performance awards were scheduled to vest January 31, 2023, based on relative achievement of the performance goals. However, in connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, these awards were converted into time-based restricted stock subject to the same vesting conditions, based on the target performance level and will vest, subject to the NEOs continuous employment through the vesting date. These time-based restricted shares held by Mr. Smolik were paid out in cash in November 2020 pursuant to the Executive COC Severance Plan.
(5)Represents phantom units awarded under the 2017 Plan. Phantom units are the economic equivalent of one share of Noble stock. However, after the Chevron Merger, such awards were converted into a comparable number of Chevron phantom units. The award will vest 1/3 on each of the first, second and third anniversaries date of the grant and will settle in cash, subject to the applicable Named Executive Officer’s continued employment through such vesting date. Dividends declared on shares underlying the phantom units are accrued during the three-year restricted period and will be paid upon vesting of the phantom units. The phantom units held by Mr. Smolik were all paid out in cash in November 2020 pursuant to the Executive COC Severance Plan. The phantom units held by Mr. Welborn were forfeited in connection with his resignation in September 2020.
(6)Represents grants of restricted units awarded under our LTIP. The restricted units will vest 1/3 on each of the first, second and third anniversaries of the date of grant. Distributions are accrued during the three-year restricted period and will be paid upon vesting of the restricted units. The restricted units held by Mr. Welborn were forfeited in connection with his resignation in 2020.
(7)Represents shares of restricted stock awarded under the 2017 Plan. The restricted shares will vest 1/3 on each of the first, second and third anniversaries of the date of grant. Dividends declared on shares of restricted stock are accrued during the three-year restricted period and will be paid upon vesting of the restricted shares. The restricted shares held by Mr. Smolik vested in full in November 2020 pursuant to the Executive COC Severance Plan. The restricted shares held by Mr. Welborn were forfeited in connection with his resignation in 2020.
(8)Reflects the aggregate grant date fair value of (i) phantom units, restricted stock and performance shares granted under Noble’s 2017 Plan and (ii) restricted units granted under our LTIP, in each case computed in accordance with FASB ASC Topic 718.
Outstanding Equity Awards at Fiscal Year-End
The table below sets forth information regarding stock options, restricted stock, performance share awards, phantom units and restricted units held by our Named Executive Officers as of December 31, 2020. Except for the restricted units granted under our LTIP, the number of securities set forth on the table below reflect Chevron awards outstanding after application of the Conversion Ratio and an allocation based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business during 2020, as described above under “Compensation Discussion and Analysis—Named Executive Officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1)(2)
|
Stock Awards (2)
|
Name
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
Option Exercise Price
|
Option Expiration Date
|
Number of Shares or Units of Stock Held That Have Not Vested (#)
|
Market Value of Shares or Units of Stock Held That Have Not Vested (18)
|
|
|
Robin H. Fielder
|
—
|
|
—
|
|
|
$
|
—
|
|
—
|
|
11,160
|
|
(3)
|
$
|
116,287
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,506
|
|
(4)
|
127,182
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
3,012
|
|
(5)
|
254,363
|
|
|
|
|
Brent J. Smolik
|
3,487
|
|
—
|
|
|
211.34
|
|
11/16/2025
|
—
|
|
(5)
|
—
|
|
|
|
|
2,419
|
|
—
|
|
|
188.00
|
|
11/16/2025
|
—
|
|
(5)
|
—
|
|
|
|
|
Thomas W. Christensen
|
211
|
|
—
|
|
|
265.75
|
|
2/1/2026
|
82
|
|
(6)
|
6,925
|
|
|
|
|
183
|
|
—
|
|
|
331.32
|
|
2/1/2027
|
376
|
|
(7)
|
3,918
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
133
|
|
(8)
|
11,232
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
95
|
|
(9)
|
8,023
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
3,781
|
|
(10)
|
39,398
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
1,484
|
|
(11)
|
15,463
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
3,636
|
|
(12)
|
37,887
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
282
|
|
(13)
|
23,815
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
282
|
|
(4)
|
23,815
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
4,179
|
|
(3)
|
43,545
|
|
|
|
|
Aaron G. Carlson
|
377
|
|
—
|
|
|
379.54
|
|
2/1/2021
|
130
|
|
(6)
|
11,012
|
|
|
|
|
472
|
|
—
|
|
|
427.46
|
|
2/1/2022
|
502
|
|
(15)
|
42,428
|
|
|
|
|
602
|
|
—
|
|
|
458.40
|
|
2/1/2023
|
335
|
|
(9)
|
28,308
|
|
|
|
|
326
|
|
—
|
|
|
523.35
|
|
1/31/2024
|
387
|
|
(13)
|
32,699
|
|
|
|
|
469
|
|
—
|
|
|
400.84
|
|
1/30/2025
|
485
|
|
(4)
|
40,941
|
|
|
|
|
450
|
|
—
|
|
|
265.75
|
|
2/1/2026
|
3,590
|
|
(3)
|
37,412
|
|
|
|
|
334
|
|
—
|
|
|
331.32
|
|
2/1/2027
|
559
|
|
(16)
|
47,224
|
|
|
|
|
330
|
|
165
|
|
(14)
|
259.37
|
|
2/1/2028
|
502
|
|
(17)
|
42,428
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
582
|
|
(5)
|
49,116
|
|
|
|
|
(1)The option awards in these columns were granted as options to purchase shares of Noble stock granted under the 1992 Plan or 2017 Plan. In connection with the Chevron Merger, these options were converted into options to purchase shares of Chevron stock, on the same terms and conditions as the awards outstanding prior to the Chevron Merger.
(2)With respect to awards originally granted by Noble, the amounts in these columns represent the number of awards relating to Chevron shares that were received after the application of the Conversion Ratio in connection with the Chevron Merger.
(3)One-third of these restricted units granted under our LTIP vested January 31, 2021; one-third of these restricted units will vest on each of January 31, 2022 and on January 31, 2023, subject to the applicable Named Executive Officer’s continued employment through the applicable vesting date.
(4)These phantom units granted under the 2017 Plan will settle in cash and became one-third vested on January 31, 2021; one-third of these phantom units will vest on each of January 31, 2022 and on January 31, 2023, subject to the applicable Named Executive Officer’s continued employment through the applicable vesting date.
(5)These awards represent former Noble performance awards that were scheduled to vest January 31, 2023, based on relative achievement of the performance goals. However, in connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, these awards were converted into time-based restricted stock awards subject to the same vesting conditions, based on the target performance level, and subject to the Named Executive Officer’s continuous employment through the vesting date. These shares remain subject to continued time-based vesting requirements through January 31, 2023 and are accordingly reported as outstanding time-based awards for purposes of this table. Any remaining shares that may become payable pursuant to the original performance-based restricted stock unit award were forfeited. These time-based restricted shares held by Mr. Smolik were paid out in cash in November 2020 pursuant to the Executive COC Severance Plan.
(6)100% of these restricted shares of Chevron granted under the 2017 Plan vested on January 31, 2021.
(7)100% of these restricted units granted under our LTIP vested on January 31, 2021.
(8)66% of these restricted shares of Chevron granted under the 2017 Plan vested on February 1, 2021 and the remainder of these restricted shares will vest on February 1, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(9)These phantom units granted under the 2017 Plan will settle in cash and 100% of these phantom units will vest on February 1, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(10)100% of these restricted units granted under our LTIP will vest on February 1, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(11)37% of these restricted units granted under our LTIP vested February 1, 2021 and the remainder of these restricted units will vest on February 1, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(12)100% of these restricted units granted under our LTIP will vest on August 5, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(13)One-third of these restricted shares of Chevron granted under the 2017 Plan vested January 31, 2021; one-third of these restricted shares will vest on each of January 31, 2022 and January 31, 2023, subject to the applicable Named Executive Officer’s continued employment through the applicable vesting date.
(14)100% of these options to purchase Chevron shares became exercisable on February 1, 2021.
(15)Two-thirds of these restricted shares of Chevron granted under the 2017 Plan vested February 1, 2021 and the remainder will vest on February 1, 2022, subject to the applicable Named Executive Officer’s continued employment through the vesting date.
(16)These awards represent former Noble performance awards that were schedule to vest on February 1, 2021, based on relative achievement of the performance goals. However, in connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, these awards were converted into time-based restricted stock awards subject to the same vesting conditions, based on the target performance level, and subject to the Named Executive Officers continuous employment through the vesting date. These shares remained subject to continued time-based vesting requirements through February 1, 2021 and are accordingly reported as outstanding time-based awards for purposes of this table. Any remaining shares that may have become payable pursuant to the original performance-based restricted stock unit award were forfeited.
(17)These awards represent former Noble performance awards that were schedule to vest on February 1, 2022, based on relative achievement of the performance goals. However, in connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, these awards were converted into time-based restricted stock awards subject to the same vesting conditions, based on the target performance level, and subject to the Named Executive Officers continuous employment through the vesting date. These shares remain subject to continued time-based vesting requirements through February 1, 2022 and are accordingly reported as outstanding time-based awards for purposes of this table. Any remaining shares that may have become payable pursuant to the original performance-based restricted stock unit award were forfeited.
(18)Amounts reported in these columns are calculated based on $10.42, the closing price of our common units on December 31, 2020, or $84.45 the closing price of Chevron stock on December 31, 2020, as applicable.
Option Exercises and Stock Vested
The table below sets forth information regarding the vesting of restricted stock and restricted unit awards during fiscal year 2020. No stock options were exercised by the Named Executive Officers during fiscal year 2020. Except for restricted units under our LTIP that vested during 2020, the number of securities set forth on the table below reflect an allocation based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business during 2020, as described above under “Compensation Discussion and Analysis—Named Executive Officers.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
Unit Awards
|
Name
|
Number of Shares Acquired on Vesting (#)
|
Value Realized on Vesting (5)
|
Number of Shares Acquired on Vesting (#)
|
Value Realized on Vesting (6)
|
Brent J. Smolik
|
4,578
|
|
(1)
|
$
|
90,507
|
|
—
|
|
|
|
$
|
—
|
|
15,007
|
|
(2)
|
1,335,000
|
|
|
|
|
|
Thomas W. Christensen
|
1,416
|
|
(3)
|
27,994
|
|
3,001
|
|
(4)
|
|
34,883
|
|
Aaron G. Carlson
|
5,326
|
|
(3)
|
131,629
|
|
—
|
|
|
|
—
|
|
(1)This amount represents Noble restricted stock awards granted on February 1, 2019 which vested on February 1, 2020.
(2)These amounts represent Chevron share amounts after application of the Conversion Ratio that related to restricted stock awards originally granted by Noble on November 16, 2018, February 1, 2019, January 31, 2020 and performance awards granted on February 1, 2019 all of which vested in November 2020 pursuant to the Executive COC Severance Plan.
(3)These amounts represent Noble restricted stock awards granted on February 1, 2017, February 1, 2018 and February 1, 2019, all of which vested on February 1, 2020.
(4)These amounts represent NBLX restricted unit awards granted on February 1, 2017, February 1, 2018 and February 1, 2019, all of which vested on February 1, 2020 and restricted unit awards granted on May 4, 2017 which vested on May 4, 2020.
(5)The value realized on the vesting of the restricted stock awards was calculated as the number of shares that vested (including Noble shares that were converted to Chevron shares or Chevron shares withheld for tax withholding purposes) multiplied by the closing price of Noble or Chevron common stock on the applicable vesting date. Dividends that accrued on shares of restricted stock that vested were paid in 2020 as follows: Mr. Smolik - $180,299; Mr. Christensen - $1,059; and Mr. Carlson - $5,190.
(6)The value realized on the vesting of the restricted unit awards was calculated as the number of units that vested (including NBLX units withheld for tax withholding purposes) multiplied by the closing price of NBLX common unit on the applicable vesting date. Distributions that accrued on restricted units that vested were paid in 2020 as follows: Mr. Christensen - $18,126.
Pension Benefits
Our Named Executive Officers do not participate in a defined benefit pension plan.
Nonqualified Deferred Compensation
The following table sets forth certain information with respect to contributions made to the Noble 2005 Deferred Compensation Plan by our Named Executive Officers during fiscal year 2020. The amounts set forth in the table below reflect an allocation based on the percentage of each Named Executive Officer’s overall working time that was devoted to our business during 2020, as described above under “Compensation Discussion and Analysis-Named Executive Officers.”
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|
|
|
|
|
|
|
|
Name
|
Executive Contributions in Last Fiscal Year (1)
|
Noble Contributions in Last Fiscal Year
|
|
Aggregate Earnings in Last Fiscal Year (4)
|
Aggregate Withdrawals/Distributions in Last Fiscal Year
|
Aggregate Balance at Last Fiscal Year End ($)
|
Robin H. Fielder
|
$
|
3,319
|
|
$
|
16,400
|
|
(2)
|
$
|
101
|
|
$
|
—
|
|
$
|
19,820
|
|
Brent J. Smolik
|
7,054
|
|
—
|
|
|
12,166
|
|
—
|
|
50,884
|
|
Aaron G. Carlson
|
—
|
|
25,453
|
|
(3)
|
39,564
|
|
—
|
|
427,752
|
|
(1)Ms. Fielder deferred 1% ($3,319) of base salary in 2020. Before his resignation in connection with the Chevron Merger, Mr. Smolik deferred 4% ($7,054) of base salary in 2020.
(2) Represents matching contributions and retirement savings contributions that could not be made to Noble's 401(k) Plan as a result of Internal Revenue Code limitations.
(3) Represents retirement savings contributions and transition contributions that could not be made to Noble's 401(k) Plan as a result of Internal Revenue Code limitations.
(4) Earnings are credited in accordance with the Named Executive Officer’s investment direction.
(5) All Named Executive Officers are 100% vested in these balances. Any unvested balances vested in connection with the Chevron Merger pursuant to the terms of the Noble 2005 Deferred Compensation Plan.
Noble’s matching contributions, retirement savings contributions and transition contributions credited to the Noble 2005 Deferred Compensation Plan accounts of our Named Executive Officers are each reflected in the “All Other Compensation” column of the Summary Compensation Table above.
Potential Payments Upon Termination or a Change of Control
While Noble maintained the Executive Severance Plan and the Severance Plan, which provide for certain severance payments following an involuntary termination, any participant of the COC Plans (including the Named Executive Officers) may not receive benefits under the Executive Severance Plan or the Severance Plan if the executive is eligible to receive benefits under another plan, such as the COC Plans. Thus, as a result of the Chevron Merger, as of December 31, 2020, our Named Executive Officers were only eligible to receive benefits under the COC Plans.
COC Severance Plan
In 2020, Messrs. Christensen, Carlson and Welborn participated in the COC Severance Plan.
Pursuant to the terms of the COC Severance Plan, upon the termination of a Named Executive Officer’s employment (i) by Noble within two years after a “change of control” of Noble, (ii) a resignation by such Named Executive Officer within two years after a change of control of Noble as a result of a material reduction in such Named Executive Officer’s base pay or target bonus opportunity, (iii) a resignation by such Named Executive Officer within two years after a change of control of Noble as a result of a significant reduction in the employee benefits and perquisites provided to such Named Executive Officer, or (iv) a resignation by such Named Executive Officer within one year after a change of control of Noble as a result of a relocation of such Named Executive Officer’s principal place of employment by more than 50 miles, such Named Executive Officer would receive the following benefits: (a) a lump sum severance payment equal to the greater of three weeks of base pay for every year of service or two weeks base pay for every $10,000 of base salary, (b) a lump sum severance payment equal to the greater of a pro-rata portion of such Named Executive Officer’s target bonus or a pro-rata average of the bonuses actually received by the Named Executive Officer for the three years immediately preceding the year in which the change of control occurs, and (c) continued medical, dental and vision benefits for a period of six months at a cost to the Named Executive Officer equal to the premium paid by similarly situated active employees.
As used in the COC Severance Plan, “change of control” generally means (a) the incumbent board members cease to constitute at least 51% of the board of directors of Noble, (b) a reorganization, merger or consolidation after which the pre-transaction stockholders do not own voting securities representing at least 51% of the combined voting power of the reorganized, merged or consolidated company, (c) liquidation or dissolution of Noble or sale of all or substantially all of the
stock or assets of Noble, or (d) any person becomes the beneficial owner of 25% or more of the outstanding Noble common stock or the voting securities of Noble.
Executive COC Severance Plan
In 2020, Ms. Fielder and Mr. Smolik participated in the Executive COC Severance Plan.
The Executive COC Severance Plan provides that if an executive officer incurs a Qualifying Termination, and the executive officer signs and does not revoke a general release of claims that includes certain confidentiality, non-solicitation and non-disparagement obligations, the executive officer will generally receive the following severance benefits: (i) an amount in cash equal to the executive officer’s Annual Cash Compensation (as defined below), multiplied by 2.5; (ii) an amount in cash equal to the executive officer’s pro-rata target bonus for the year of termination; (iii) reimbursement of outplacement services (up to a maximum of $15,000); (iv) an amount in cash equal to the monthly cost of continuation coverage for welfare benefit coverages (i.e., medical, dental, vision, and life insurance), less the monthly premium paid by similarly situated active employees of Noble for such coverages, multiplied by 30 months for a Senior Executive; and (v) accelerated vesting of outstanding equity or equity-based awards (with any performance conditions applicable to such awards deemed achieved at target and the exercise period of any stock option extended to the fifth anniversary of the date of termination or, if earlier, the original expiration date of such stock option). The foregoing severance benefits will generally be paid to an executive officer no later than 70 days after the date of the Qualifying Termination, provided that outplacement services will only be paid as reimbursement for reasonable fees actually incurred by the executive officer.
For purposes of the Executive COC Severance Plan, the terms below are generally defined as follows:
•“Annual Cash Compensation” means an executive officer’s (i) highest annualized salary during the period beginning immediately prior to a change of control and ending on the date of a Qualifying Termination, plus (ii) the greater of (x) the executive officer’s annual target bonus for the year of termination or (y) the average annual bonus paid or payable to the executive officer for the three-year period immediately preceding the change of control (or, if such executive officer was not employed for the full three-year period, then the average bonus shall be determined based on the number of years that the executive officer has been employed), annualizing the bonus during the executive officer’s year of hire if less than a full year.
•“Cause” means a determination that an executive officer has engaged in any action or omission that (i) constitutes gross negligence or willful misconduct in the performance of the executive officer’s duties, (ii) constitutes a material breach of any provision of any agreement between the executive officer and the executive officer’s employer, (iii) constitutes an act of theft, fraud, embezzlement, misappropriation, or willful breach of a fiduciary duty with respect to the executive officer’s employer, or (iv) results in the executive officer’s conviction of, plea of no contest to, or receipt of adjudicated probation or deferred adjudication in connection with a crime involving fraud, dishonesty, or moral turpitude, or any felony (or a crime of similar import in a foreign jurisdiction).
•“Good Reason” means any of the following actions taken within two years after a change of control without the prior consent of an executive officer: (i) a material diminution in (x) the executive officer’s authority, duties or responsibilities, (y) the authority, duties or responsibilities of the supervisor to whom the executive officer is required to report or (z) the budget over which the executive officer retains authority; (ii) a reduction in the executive officer’s total annual compensation, if such reduction is a material negative change in the executive officer’s employment relationship; (iii) a significant reduction in the level, or a significant increase in the cost to the executive officer, of the employee benefits and perquisites provided to the executive officer; or (iv) a requirement that the executive officer relocate to a principal place of employment that is more than 50 miles from the location where the executive officer was principally employed immediately prior to the change of control.
•“Qualifying Termination” means an executive officer’s termination of employment that occurs within two years following a change of control and which is (i) by the employer without Cause (and not due to retirement, death or disability) or (ii) by the executive officer for Good Reason.
STIP
Pursuant to the terms of the STIP, upon a termination of employment prior to the date the STIP is paid, all rights to such payment are forfeited; however, upon a termination of employment as a result of a Named Executive Officer’s death prior to the date the STIP is paid, a target amount of the STIP will be paid.
NBLX Restricted Units
Under each Named Executive Officer’s time-based restricted unit award agreements, if the Named Executive Officer’s employment is terminated (i) as a result of the Named Executive Officer’s death or “disability” or (ii) without “cause” following a “change of control” of us, all unvested restricted units held by the Named Executive Officer will become vested as of the date of such termination. If the Named Executive Officer’s employment is terminated for any other reason, all unvested restricted units held by the Named Executive Officer will be forfeited as of the date of such termination.
As used in the restricted unit award agreements and the LTIP:
•“Cause” generally means dishonesty, theft, embezzlement from us, willful violation of our rules pertaining to the conduct of employees, a willful felonious act, or the violation of any non-compete, non-solicitation or other confidentiality agreement with Noble, our General Partner or their affiliates.
•“Change of control” generally means (a) any person or group acquires 50% or more of the combined voting power of us or our General Partner, (b) liquidation of us, (c) sale by us or our General Partner of all of our or the General Partner’s assets, other than any sale to us, the General Partner, or an affiliate thereof, or (d) transaction resulting in a person other than our General Partner or an affiliate thereof being the sole General Partner of us.
•“Disability” generally means a physical or mental condition of a participant that would entitle him or her to payment of disability income payments under our, our General Partner’s or one of our affiliate’s long-term disability insurance policies or plans. If no such plan exists, then “disability” has the meaning set forth in Section 22(e)(3) of the Code.
Noble Restricted Stock, Phantom Units, and Stock Options
Under the terms of the 1992 Plan and the 2017 Plan, if a Named Executive Officer’s employment is terminated as a result of such Named Executive Officer’s death or “disability,” all restricted stock and phantom units will immediately vest. Further, upon a termination of a Named Executive Officer’s employment by Noble without “cause” or by the Named Executive Officer for “good reason,” in each case within 24-months following a change of control of Noble, all restricted stock and phantom units will immediately vest. If a Named Executive Officer’s employment is terminated for any other reason, all shares of restricted stock and phantom units will be immediately forfeited.
Under the terms of the 1992 Plan and the 2017 Plan, if a Named Executive Officer’s employment is terminated for cause, all options, whether or not exercisable, will immediately terminate. If a Named Executive Officer’s employment is terminated a result of such Named Executive Officer’s “retirement,” each exercisable option will remain exercisable through the earlier of the fifth anniversary of such retirement or the expiration of the option, and any unexercisable options will terminate on the date of such Named Executive Officer’s retirement. If a Named Executive Officer’s employment is terminated as a result of such Named Executive Officer’s death or disability, all options, whether or not exercisable, will become exercisable and remain exercisable through the earlier of the fifth anniversary of such death or disability or the expiration of the option. Further, upon a termination of a Named Executive Officer’s employment by Noble without cause or by the Named Executive Officer for good reason, in each case within 24-months following a change of control of Noble, all options will immediately become exercisable. Upon the termination of a Named Executive Officer’s employment for any other reason, exercisable options will remain exercisable through the earlier of the first anniversary of such termination or the expiration of the option.
As used in the 1992 Plan and 2017 Plan:
•“Cause” generally means (a) conviction of a felony or misdemeanor involving moral turpitude, (b) conduct involving a material misuse of funds or other property of Noble, (c) engagement in business activities which are in conflict with the business interests of Noble, (d) gross negligence or willful misconduct, (e) conduct that violates Noble’s safety rules or standards, or (f) material violation of Noble’s code of conduct.
•“Change of control” generally has the same meaning provided to such term in the COC Severance Plan.
•“Disability” generally means a physical or mental condition of a participant that would entitle him or her to payment of disability income payments under Noble’s long-term disability insurance policies or plans. If no such plan exists, then “disability” means a medically determinable physical or mental impairment that prevents the participant from performing his or her duties in a satisfactory manner and is expected either to result in death or to last for a continuous period of not less than 12 months.
•“Good reason” generally means a (a) material reduction in base compensation, (b) material change in the location of employment, (c) material reduction in authority, duties or responsibilities of the participant or the participant’s direct supervisor, or (d) material reduction in the budget over which the participant retains authority.
•“Retirement” generally means a termination of employment occurring after the participant attains at least 55 years of age and completes at least five years of credited service.
Noble 2005 Deferred Compensation Plan
Under the Noble 2005 Deferred Compensation Plan, if a Named Executive Officer is unvested in any portion of Noble’s contributions, such unvested amounts will accelerate upon such Named Executive Officer’s death, disability or involuntary termination or upon a change in control.
As used in the 2005 Deferred Compensation Plan:
•“Cause” generally means (a) conviction of a felony or misdemeanor involving moral turpitude, (b) conduct involving a material misuse of funds or other property of Noble, (c) engagement in business activities which are in conflict with the business interests of Noble, (d) gross negligence or willful misconduct, (e) conduct that violates Noble’s safety rules or standards, or (f) material violation of Noble’s code of conduct.
•“Permanent Disability” means the total and permanent incapacity of a Participant to perform the usual duties of his or her employment with an Employer or Affiliated Company as determined by the Committee. Such incapacity shall be deemed to exist when certified by a physician acceptable to the Committee.
•“Good reason” generally means a (a) material reduction in base compensation or bonus, (b) material change in the location of employment, or (c) material reduction in employee benefits or material increase in employee benefit costs.
•“Retirement” generally means a termination of employment occurring after the participant attains at least 55 years of age and completes at least five years of credited service or after the participant attains age 65.
Cash Retention Awards
As described above in the section entitled “Compensation Discussion and Analysis – Cash Retention Awards” the Noble board of directors granted awards to our Named Executive Officers under the Retention, Recognition, and Integration Pool. The retention awards under this Pool are payable in two separate cash installments. The first half of the awards under the Pool were paid in connection with the closing of the Chevron Merger. The second half of the awards is payable on the earlier to occur of (x) the date that is 90 days following the Closing Date, subject to the executive officer’s continued employment and efforts through such date, or (y) the date of such executive officer’s qualifying termination of employment following the Closing Date, which is defined as a termination by the employer without “Cause” (and not due to death, disability, or retirement) or a termination by the executive for “Good Reason.” As a result, if a Named Executive Officer experienced a qualifying termination of employment as of December 31, 2020, the second half of the awards under the Pool would have become payable.
The table below sets forth the value of benefits that would be received by each Named Executive Officer upon each applicable termination scenario, assuming such termination occurred on December 31, 2020. As a result of the Chevron Merger, none of the Named Executive Officers would have received severance benefits, other than due to Death or Disability, except in connection with a Change in Control.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Type of Payment or Benefit
|
Death
|
Disability
|
Change of Control of NBLX
(9)
|
Termination without Cause following a Change of Control of NBLX
|
Termination without Cause or Resignation for Good Reason following a Change of Control of Noble
(11)
|
Robin H. Fielder
|
Cash Severance
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,650,000
|
|
STIP Payments (1)
|
260,712
|
|
—
|
|
—
|
|
—
|
|
260,712
|
|
NBLX Restricted Units (2)
|
130,240
|
|
130,240
|
|
—
|
|
130,240
|
|
130,240
|
|
Chevron Restricted Stock (3)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Chevron Restricted Stock Units (4)
|
131,148
|
|
131,148
|
|
—
|
|
—
|
|
131,148
|
|
Chevron Restricted Stock (formerly Performance Share Awards) (5)
|
262,295
|
|
262,295
|
|
—
|
|
—
|
|
262,295
|
|
Chevron Stock Options (6)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Continued Medical Benefits (7)
|
—
|
|
—
|
|
—
|
|
—
|
|
12,239
|
|
Life Insurance (8)
|
830,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Retention Bonus (10)
|
—
|
|
—
|
|
—
|
|
—
|
|
200,000
|
|
Total
|
1,614,395
|
|
523,683
|
|
—
|
|
130,240
|
|
2,646,634
|
|
Thomas W. Christensen
|
Cash Severance
|
—
|
|
—
|
|
—
|
|
—
|
|
250,682
|
|
STIP Payments (1)
|
87,740
|
|
—
|
|
—
|
|
—
|
|
87,740
|
|
NBLX Restricted Units (2)
|
176,770
|
|
176,770
|
|
—
|
|
176,770
|
|
176,770
|
|
Chevron Restricted Stock (3)
|
44,425
|
|
44,425
|
|
—
|
|
—
|
|
44,425
|
|
Chevron Restricted Stock Units (4)
|
33,206
|
|
33,206
|
|
—
|
|
—
|
|
33,206
|
|
Chevron Restricted Stock (formerly Performance Share Awards) (5)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Chevron Stock Options (6)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Continued Medical Benefits (7)
|
—
|
|
—
|
|
—
|
|
—
|
|
12,017
|
|
Life Insurance (8)
|
500,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Retention Bonus (10)
|
—
|
|
—
|
|
250,000
|
|
—
|
|
37,500
|
|
Total
|
842,141
|
|
254,401
|
|
250,000
|
|
176,770
|
|
642,340
|
|
Aaron G. Carlson
|
Cash Severance
|
—
|
|
—
|
|
—
|
|
—
|
|
482,550
|
|
STIP Payments (1)
|
145,162
|
|
—
|
|
—
|
|
—
|
|
145,162
|
|
NBLX Restricted Units (2)
|
52,376
|
|
52,376
|
|
—
|
|
52,376
|
|
52,376
|
|
Chevron Restricted Stock (3)
|
114,742
|
|
114,742
|
|
—
|
|
—
|
|
114,742
|
|
Chevron Restricted Stock Units (4)
|
90,915
|
|
90,915
|
|
—
|
|
—
|
|
90,915
|
|
Chevron Restricted Stock (formerly Performance Share Awards) (5)
|
186,630
|
|
186,630
|
|
—
|
|
—
|
|
186,630
|
|
Chevron Stock Options (6)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Continued Medical Benefits (7)
|
—
|
|
—
|
|
—
|
|
—
|
|
13,809
|
|
Life Insurance (8)
|
644,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Retention Bonus (10)
|
—
|
|
—
|
|
—
|
|
—
|
|
76,000
|
|
Total
|
1,233,825
|
|
444,663
|
|
—
|
|
52,376
|
|
1,162,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Named Executive Officers would not be entitled to a STIP payment for 2020 in the event of their termination of employment on December 31, 2020, other than a termination in connection with the Chevron Merger or death.
(2)Amounts reported in this row are calculated based on $10.42, the closing price of our Common Units on December 31, 2020 and includes accrued distributions.
(3)Amounts reported in this row are calculated based on $84.45, the closing price of Chevron stock on December 31, 2020 and includes accrued dividends. All unvested shares of time-based restricted stock, including accrued dividends, will vest in the event of termination of employment as a result of a change of control, death or disability.
(4)Amounts reported in this row are calculated based on the difference between the applicable restricted stock units for which exercisability would be accelerated and $84.45, the closing price of Chevron stock on December 31, 2020. All unvested shares of time-based restricted stock units payable in cash, including accrued dividends, will vest in the event of termination of employment as a result of a change of control, death or disability.
(5)Amounts reported in this row are calculated based on $84.45, the closing price of Chevron stock on December 31, 2020 and includes accrued dividends. In connection with the Chevron Merger and pursuant to the Chevron Merger Agreement, all outstanding performance-based awards were converted into time-based restricted stock subject to the same vesting conditions, based on the target performance level, subject to the Named Executive Officers continuous employment through the vesting date. The remaining shares subject to the original performance-based restricted stock unit award were forfeited. All unvested time-based restricted share awards, including accrued dividends, will vest in full in the event of termination of employment as a result of death or disability. In the event of a termination of employment as a result of a change of control, all unvested time-based restricted share awards, including accrued dividends, will vest in full.
(6)Amounts reported in this row are calculated based on the difference between the applicable stock options for which exercisability would be accelerated and $84.45, the closing price of Chevron stock on December 31, 2020. Because the exercise price of the Chevron stock options held by Messrs. Christensen and Carlson each exceeded $84.45, no value is associated with the acceleration of exercisability of these options.
(7)Amounts reported in this row reflect the estimated cost to Chevron of providing continued medical, dental and vision benefits.
(8)Amounts in this row represent benefits paid pursuant to group term life insurance coverage provided by Chevron equal to two times base salary, capped at $1,000,000. Chevron’s group term life insurance coverage does not discriminate in scope, terms or operation, in favor of our Named Executive Officers, and it is available generally to all salaried employees.
(9)Mr. Christensen is a party to a cash retention award that vests upon the sale of the Partnership, so long as Mr. Christensen (i) remains employed through the date of such sale or was previously terminated without cause, (ii) satisfactorily performs his duties through the date of such sale and (iii) completes all related sale transition activities.
(10)Ms. Fielder and Messrs. Christensen and Carlson received a cash retention award in connection with the Chevron Merger. The second installment was earned 90 days after the Closing Date.
(11)Amounts in this column take into account the Change in Control of Noble that occurred in connection with the Chevron Merger.
Resignations During Fiscal Year 2020
As described above under “Compensation Discussion and Analysis – Resignations and Change of Control”, Mr. Welborn resigned from Noble in September 2020, and Mr. Smolik’s employment was terminated in November 2020. The descriptions therein of the amounts received by Messrs. Welborn and Smolik in connection with their respective resignations is incorporated into this description by reference. Mr. Welborn did not receive payments in connection with his resignation. The payments Mr. Smolik received in connection with termination of employment are quantified in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Severance
|
STIP Payments
|
Chevron Restricted Stock
|
Chevron Restricted Stock Units
|
Chevron Restricted Stock (formerly Performance Awards
|
Continued Medical/Dental/Vision/Basic Life Benefits
|
Retention Bonus
|
Total
|
$
|
1,193,904
|
|
$
|
181,387
|
|
$
|
591,784
|
|
$
|
199,226
|
|
$
|
543,990
|
|
$
|
11,527
|
|
$
|
343,750
|
|
$
|
3,065,568
|
|
Director Compensation
The officers of our General Partner or of Noble who also serve as directors of our General Partner do not receive additional compensation for their service as members of the board of directors of our General Partner. Directors of our General Partner who are not officers of our General Partner or of Noble (non-employee directors) receive cash and equity-based compensation for their services as directors of our General Partner. Our General Partner’s non-employee director compensation program consists of the following:
•an annual retainer of $60,000;
•an additional annual retainer of $20,000 for each of the chair of the audit committee and the chair of the conflicts committee, as applicable; and
•an annual equity-based award granted under the LTIP, having a value as of the grant date of approximately $120,000.
Non-employee directors also receive reimbursement for out-of-pocket expenses they incur in connection with attending meetings of the board of directors or its committees. Each director will be indemnified for his or her actions associated with being a director to the fullest extent permitted under Delaware law.
The following table provides information regarding the compensation earned by our non-employee directors during the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Fees Earned or Paid in Cash
|
Unit Awards (1)
|
Total
|
Hallie A. Vanderhider
|
$
|
80,000
|
|
$
|
120,000
|
|
$
|
200,000
|
|
Martin Salinas, Jr.
|
80,000
|
|
120,000
|
|
200,000
|
|
Andrew E. Viens
|
60,000
|
|
120,000
|
|
180,000
|
|
(1)Amounts reported in this column reflect the aggregate grant date fair value of the restricted units granted under our LTIP, computed in accordance with FASB ASC Topic 718.
CEO Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of Robin H. Fielder, our Chief Executive Officer, to the median annual total compensation of other employees providing services to us. As described in Items 1. and 2. Business and Properties - Employees, all of the employees required to conduct and support our operations are employed by Noble and are subject to the operational services and secondment agreement and omnibus agreement. Because the employees required to conduct and support our operations are employed by Noble, we are unable to calculate and provide a ratio of the median employee’s annual total compensation to the total annual compensation of Ms. Fielder.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
The following tables set forth, as of February 5, 2021, the beneficial ownership of Common Units of the Partnership and held by:
•each unitholder known by us to beneficially hold more than 5% of our outstanding units;
•each director of our General Partner;
•each named executive officer of our General Partner; and
•all of the directors and Named Executive Officers of our General Partner as a group.
In addition, our General Partner owns a non-economic General Partner interest in us.
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Unless indicated below, to our knowledge, the persons and entities named in the following tables have sole voting and sole investment power with respect to all units beneficially owned by them, subject to community property laws where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Common Units Beneficially Owned (1)
|
|
Percentage of Common Units Beneficially Owned
|
|
Noble Energy, Inc.
1001 Noble Energy Way
Houston, Texas 77070
|
|
56,447,616
|
|
|
62.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Based upon its Schedule 13D/A filed with the SEC on October 5, 2020, with respect to its beneficial ownership of our Common Units, Noble has sole voting and dispositive power with respect to 56,447,616 units.
|
|
|
|
|
|
|
|
|
Directors/Named Executive Officers
|
Total Common Units Beneficially Owned (1)
|
Percent of Total Outstanding
|
Robin H. Fielder
|
10,254
|
|
*
|
Colin E. Parfitt
|
—
|
|
*
|
Andrei F.B. Behdjet
|
—
|
|
*
|
Steve W. Green
|
—
|
|
*
|
Alana K. Knowles
|
—
|
|
*
|
Martin Salinas, Jr.
|
37,250
|
|
*
|
Hallie A. Vanderhider
|
28,500
|
|
*
|
Andrew E. Viens
|
27,967
|
|
*
|
Brent J. Smolik (2)
|
17,350
|
|
*
|
Thomas W. Christensen
|
20,157
|
|
*
|
Aaron G. Carlson
|
5,044
|
|
*
|
Phillip S. Welborn
|
—
|
|
*
|
All Directors and Executive Officers as a Group (14 persons)
|
146,522
|
|
*
|
*Less than 1%.
(1)None of the Common Units reported in this column are pledged as security.
(2)Includes 2,500 units held by trust.
The following table sets forth, as of February 5, 2021, the number of shares of Chevron common stock beneficially owned by each of the directors and named executive officers of our General Partner and all of the directors and named executive officers of our General Partner as a group. Amounts shown below include options that are currently exercisable or that may become exercisable within 60 days of February 5, 2021 and the shares underlying deferred stock units and the shares underlying restricted stock units that will be settled within 60 days of February 5, 2021. Unless otherwise indicated, the named person has the sole voting and dispositive powers with respect to the shares of Chevron common stock set forth opposite such person’s name.
|
|
|
|
|
|
|
|
|
Directors/Named Executive Officers
|
Total Shares of Common Stock Beneficially Owned
|
Percent of Total Outstanding
|
Robin H. Fielder
|
500
|
|
*
|
Colin E. Parfitt
|
253,745
|
|
*
|
Andrei F.B. Behdjet
|
155,563
|
|
*
|
Steve W. Green
|
496,737
|
|
*
|
Alana K. Knowles
|
78,228
|
|
*
|
Martin Salinas, Jr.
|
—
|
|
*
|
Hallie A. Vanderhider
|
2,334
|
|
*
|
Andrew E. Viens
|
—
|
|
*
|
Brent J. Smolik
|
48,546
|
|
*
|
Thomas W. Christensen
|
1,196
|
|
*
|
Aaron G. Carlson
|
7,602
|
|
*
|
Phillip S. Welborn
|
—
|
|
*
|
All Directors and Executive Officers as a Group (12 persons)
|
1,044,451
|
|
*
|
*Less than 1%.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Due to the acquisition by Chevron of Noble, our majority unitholder Chevron indirectly owns 56,447,616 Common Units which represents a 62.6% limited partner interest in us as of December 31, 2020. In addition, Chevron indirectly owns (and appoints all the directors of) our General Partner, which owns a non-economic General Partner interest in us.
Distributions and Payments to Our General Partner and Its Affiliates
The following summarizes the distributions and payments made, or to be made, by us to our General Partner and its affiliates. These distributions and payments were determined by and among affiliated entities and, consequently, are not the result of arm’s-length negotiations.
Distributions of available cash to Noble:
•We will generally make cash distributions to our unitholders pro rata, as holder of an aggregate 56,447,616 Common Units.
Payments to our General Partner and its affiliates:
•Under our partnership agreement, we are required to reimburse our General Partner and its affiliates for all costs and expenses that they incur on our behalf for managing and controlling our business and operations.
•Under our operational services and secondment agreement, we reimburse Noble for the secondment to our General Partner of certain employees who provide operational functions and all personnel in the operational chain of management.
•Under our omnibus agreement, we pay Noble a fixed fee for the cost of the general and administrative expenses that we anticipate to receive. In addition, to the extent Noble incurs direct, third-party out-of-pocket general and administrative costs for our exclusive benefit, we reimburse Noble for such amounts, and we are responsible for directly incurring certain other general and administrative expenses, such as our tax advisors who specialize in master limited partnerships, lawyers and accounting firms.
Withdrawal or removal of our General Partner:
•If our General Partner withdraws or is removed, its non-economic General Partner interest will either be sold to the new General Partner for cash or converted into Common Units, in each case for an amount equal to the fair market value of those interests.
Upon our liquidation, the partners, including our General Partner, will be entitled to receive liquidating distributions according to their respective capital account balances.
Agreements with our Affiliates
We have entered into various documents and agreements with Noble, as described in detail below. These agreements are not the result of arm’s-length negotiations. However, we believe that the terms of these agreements are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. For additional information, see below and refer to Item 8. Financial Statements and Supplementary Data – Note 3. Transactions with Affiliates to the consolidated financial statements in this Annual Report.
Omnibus Agreement
We entered into an omnibus agreement with Noble and our General Partner that addresses the following matters:
Payment of general and administrative support fee and reimbursement of expenses. We pay Noble a flat fee, initially in the amount of $6.9 million per year (payable in equal monthly installments), for the provision of certain general and administrative services for our benefit by Noble. Effective March 1, 2020, the flat fee was increased to $15.7 million. During February 2021, we completed the annual redetermination process and have established an annual rate of $18.0 million, effective March 1, 2021.
Once per year, Noble will submit a good faith estimate of the general and administrative services fee based on the services that Noble anticipates providing to us during the following year, and the board of directors of our General Partner will have the opportunity to review the proposed general and administrative fee for the upcoming year and submit disputes to Noble; provided, however, if Noble and the board of directors of our General Partner are unable to agree on the amount of the general and administrative fee for any year, Noble and the Partnership will submit their calculations of the fee to an independent auditing firm for review, which such determination will be final and binding on Noble and the Partnership with respect to all items included in the general and administrative fee.
Under the omnibus agreement, we will also reimburse Noble for all direct, third-party out-of-pocket costs incurred by Noble in providing these services for our exclusive benefit. This reimbursement will be in addition to our reimbursement of our General
Partner and its affiliates for certain costs and expenses incurred on our behalf for managing and controlling our business and operations as required by our partnership agreement.
If Noble ceases to control our General Partner, either party may terminate the omnibus agreement, provided that the indemnification obligations will remain in full force and effect in accordance with their terms.
Rights of First Refusal (“ROFR”). Under the omnibus agreement, Noble has granted us a ROFR on the right to provide midstream services on certain acreage described below and on the right to acquire certain midstream assets. The following table provides a summary of the ROFR assets, ROFR services and the net acreage covered by our ROFR, to the extent known as of December 31, 2020, granted to us by Noble.
|
|
|
|
|
|
|
|
|
|
|
|
Areas Served
|
NBLX ROFR Service
|
Current Status of Asset
|
ROFR Net Acreage
|
Eagle Ford Shale
|
Crude Oil Gathering
Natural Gas Gathering
Water Services
|
Operational
|
35,000
|
DJ Basin (other than already dedicated)
|
To the extent not already dedicated:
Crude Oil Gathering
Natural Gas Gathering
Water Services
|
N/A
|
37,000
|
Delaware Basin
|
Natural Gas Gathering
Fresh Water Services
|
Operational
|
92,000
|
Powder River and Green River Basins
|
Crude Oil Gathering
Natural Gas Gathering
Natural Gas Processing
Water Services
|
N/A
|
181,000
|
All future-acquired onshore acreage in the United States (outside of the Marcellus Shale)
|
Crude Oil Gathering
Natural Gas Gathering
Natural Gas Processing
Water Services
|
N/A
|
N/A
|
The consummation and timing of any acquisition by us of the assets or any provision of midstream services subject to the ROFR will depend upon, among other things, Noble’s decision to sell any of the assets subject to the ROFR or Noble’s decision to obtain midstream services in the acreage or areas subject to the ROFR and our ability to reach an agreement with Noble on price and other terms. Accordingly, we can provide no assurance whether, when or on what terms we will be able to successfully consummate any future acquisitions or expansions of our services pursuant to our ROFR. The ROFR contained in our omnibus agreement will terminate on the earlier of 15 years from the closing of the IPO, the date that Noble no longer controls our General Partner and on the written agreement of all parties.
Rights of First Offer (“ROFO”). Under the omnibus agreement, Noble has granted us a ROFO with respect to its retained interest in Gunnison River DevCo LP. Pursuant to our ROFO, before Noble can offer its retained interest in Gunnison River DevCo to any third party, Noble must allow us to make an offer to purchase the interest. We are under no obligation to purchase the retained interest, and Noble is only under an obligation to permit us to make an offer on the interest to the extent that Noble elects to sell these midstream assets to a third party. The ROFO contained in our omnibus agreement will terminate on the earlier of 15 years from the closing of the IPO, the date that Noble no longer controls our General Partner and on the written agreement of all parties.
Indemnification. Under the omnibus agreement, Noble will indemnify us, subject to certain deductibles, for (i) the consummation of the transactions contemplated by our contribution agreements or the assets contributed to us, other than environmental liabilities, that arise out of the ownership or operation of the assets prior to the closing of the IPO; (ii) events and conditions associated with any assets retained by Noble; (iii) litigation matters attributable to the ownership of the Contributed Assets prior to the closing of the IPO; (iv) the failure to have any consent, license, permit or approval necessary for us to own or operate the Contributed Assets in substantially the same manner as owned or operated by Noble prior to the IPO and (v) all tax liabilities attributable to the assets contributed to us arising prior to the closing of the IPO or otherwise related to Noble’s contribution of those assets to us in connection with the IPO. Noble will also indemnify us for failure to obtain certain consents, licenses and permits necessary to conduct our business. We will be subject to an aggregate deductible of $500,000 before we are entitled to indemnification (other than currently pending legal actions, which are not subject to a deductible).
We have agreed to indemnify Noble for events and conditions associated with the ownership or operation of our assets that occur after the closing of the IPO and for environmental liabilities related to our assets to the extent Noble is not required to
indemnify us as described above. There is no limit on the amount for which we will indemnify Noble under the omnibus agreement.
Operational Services and Secondment Agreement
We and our General Partner also entered into an operational services and secondment agreement with Noble. Under the secondment arrangement, certain of Noble’s operational, construction, design and management employees and contractors are seconded to our General Partner, the Partnership and the Partnership’s subsidiaries (collectively the “Partnership Parties”) to provide management, maintenance and operational functions with respect to our assets. During their period of secondment, the seconded personnel will be under the direct management and supervision of the Partnership Parties.
The Partnership Parties will reimburse Noble, on a monthly basis or at other intervals that Noble and the General Partner may agree to from time to time, for the cost of the seconded employees and contractors, including their wages and benefits, based on the percentage of the employee’s or contractor’s time spent working for the Partnership Parties. The operational services and secondment agreement has an initial term of 15 years and will automatically extend for successive renewal terms of one year each, unless terminated by either party upon at least 30 days’ prior written notice before the end of the initial term or any renewal term, or by the Partnership Parties’ termination notice stating the date of termination or reducing the level of services under the agreement at any time upon 30 days’ prior written notice.
Commercial Agreements
We have long-term agreements with Noble for the provision of midstream services. Each of our commercial agreements with Noble covering the DJ Basin acreage was originally entered into January 1, 2015 and expires in 2030. As our third-party customer took its interest in our commercial agreements by assignment from Noble, its dedication for crude oil and water-related services will expire in 2030. Each of our commercial agreements with Noble covering the Delaware Basin acreage was originally entered into in the summer of 2016 and expires in 2032. Upon the expiration of the initial term, each agreement will automatically renew for subsequent one-year periods unless terminated by either us or our customer no later than 90 days prior to the end of the initial term or any subsequent one-year term thereafter. Our commercial agreements are subject to existing dedications and provide generally that our dedications will run with the land and be binding on any transferee.
Insurance
Captive insurance entities controlled by Noble provided limited third-party liability, property and business interruption insurance to the Partnership at commercially competitive rates. The Partnership and Noble also utilize unaffiliated insurance carriers to provide third-party liability, property and business interruption insurance to provide insurance in addition to the coverage provided by the captive insurance companies. Additionally, director and officer insurance was acquired by the Partnership subsequent to the Chevron Merger.
Director Independence
Procedures for Review, Approval and Ratification of Related Person Transactions
The board of directors of our General Partner adopted a code of business conduct and ethics that provides that the board of directors of our General Partner or its authorized committee will review on at least a quarterly basis all transactions with related persons that are required to be disclosed under SEC rules and, when appropriate, initially authorize or ratify all such transactions.
If the board of directors of our General Partner or its authorized committee considers ratification of a transaction with a related person and determines not to so ratify, then the code of business conduct and ethics will provide that our management will make all reasonable efforts to cancel or annul the transaction.
The code of business conduct and ethics provides that, in determining whether or not to recommend the initial approval or ratification of a transaction with a related person, the board of directors of our General Partner or its authorized committee should consider all of the relevant facts and circumstances available, including (if applicable) but not limited to: (i) whether there is an appropriate business justification for the transaction; (ii) the benefits that accrue to us as a result of the transaction; (iii) the terms available to unrelated third parties entering into similar transactions; (iv) the impact of the transaction on a director’s independence (in the event the related person is a director, an immediate family member of a director or an entity in which a director or an immediate family member of a director is a partner, shareholder, member or executive officer); (v) the availability of other sources for comparable products or services; (vi) whether it is a single transaction or a series of ongoing, related transactions; and (vii) whether entering into the transaction would be consistent with the code of business conduct and ethics.
Item 14. Principal Accounting Fees and Services
The table below sets forth the aggregate fees and expenses for the years ended December 31, 2020 and December 31, 2019 for professional services performed by our independent registered public accounting firm KPMG LLP:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
(in thousands)
|
2020
|
|
2019
|
Audit Fees (1)
|
$
|
1,548
|
|
|
$
|
1,823
|
|
Audit-Related Fees
|
—
|
|
|
—
|
|
Tax Fees
|
—
|
|
|
—
|
|
All Other Fees
|
—
|
|
|
—
|
|
Total Fees
|
$
|
1,548
|
|
|
$
|
1,823
|
|
(1)Audit fees consist of the aggregate fees billed or expected to be billed for professional services rendered for (i) the audit of our annual financial statements included in our Annual Report and a review of our quarterly financial statements included in our Quarterly Reports on Form 10-Q, (ii) the audit of internal control over financial reporting, (iii) the filing of our registration statements for equity securities offerings, (iv) research necessary to comply with generally accepted accounting principles, and (v) other filings with the SEC, including consents, comfort letters, and comment letters.
Our audit committee of the board of directors of our General Partner has the sole authority to (1) retain and terminate our independent registered public accounting firm, (2) approve all auditing services and related fees and the terms thereof performed by our independent registered public accounting firm and (3) pre-approve any non-audit services and tax services to be rendered by our independent registered public accounting firm.
The audit committee has adopted a pre-approval policy with respect to services which may be performed by our independent registered public accounting firm. This policy lists specific audit-related and tax services as well as any other services that such firm is authorized to perform and sets out specific dollar limits for each specific service, which may not be exceeded without additional audit committee authorization. The audit committee receives quarterly reports on the status of expenditures pursuant to that pre-approval policy. The audit committee reviews the policy at least annually in order to approve services and limits for the current year. Any service that is not clearly enumerated in the policy must receive specific pre-approval by the audit committee. For the year ended December 31, 2020, the audit committee approved 100% of the services described above pursuant to the above policy.
As a result of the Chevron Merger and the impermissible services provided by KPMG and other member firms of the KPMG network to Chevron, KPMG notified the audit committee on October 8, 2020 that it will decline to stand for re-appointment as the Partnership’s independent accountant after the completion of the 2020 audit and professional engagement period.
The audit committee of the board of directors of our General Partner has approved the appointment of PricewaterhouseCoopers LLC as independent registered public accounting firm to conduct the audit of the Partnership’s consolidated financial statements for the year ended December 31, 2021.