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Business Acquisitions | 9 Months Ended
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Sep. 30, 2015
Business Combinations [Abstract] |
Business Combinations | Note 8. Business Acquisition Acquisition of Eagle Ford Midstream Assets In June 2015, we announced the execution of definitive agreements to purchase all of the member interests in EFS Midstream from affiliates of Pioneer and Reliance for approximately $2.1 billion. The purchase price will be paid in two installments. The first installment of approximately $1.1 billion was paid at closing on July 8, 2015 and the final installment of $1.0 billion will be paid no later than the first anniversary of the closing date. The effective date of the acquisition was July 1, 2015. We funded the cash consideration for the first installment using proceeds from the issuance of short-term notes under our commercial paper program and cash on hand. EFS Midstream provides natural gas gathering, treating and compression and condensate gathering and processing services in the Eagle Ford Shale. The EFS Midstream system includes approximately 460 miles of natural gas and condensate gathering pipelines, ten central gathering plants, 780 million cubic feet per day (“MMcf/d”) of natural gas treating capacity and 119 thousand barrels per day (“MBPD”) of condensate stabilization capacity. Under terms of the associated agreements, Pioneer and Reliance have dedicated certain of their Eagle Ford Shale acreage to us under 20-year, fixed-fee gathering agreements that include minimum volume requirement for the first seven years. Pioneer and Reliance have also entered into related 20-year fee-based agreements with us for natural gas transportation and processing, NGL transportation and fractionation, and for processed condensate and crude oil transportation services. We account for business acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the effective date of the acquisition. We engaged an independent third party business valuation expert to assist us in estimating the fair values of the tangible and intangible assets of EFS Midstream. The following table summarizes the consideration paid in the EFS Midstream acquisition and the amounts of the assets acquired and liabilities assumed as of July 1, 2015:
Consideration: |  |  |
Cash |  | $ | 1,058.5 |
Accrued liability related to EFS Midstream acquisition |  |  | 997.7 |
Total consideration |  | $ | 2,056.2 |
Identifiable assets acquired in business combination: |  |  |  |
Current assets, including cash of $13.4 million |  | $ | 64.0 |
Property, plant and equipment |  |  | 636.0 |
Customer relationship intangible assets |  |  | 1,409.8 |
Total assets acquired |  |  | 2,109.8 |
Liabilities assumed in business combination: |  |  |  |
Current liabilities |  |  | (9.6 | )
Long-term debt |  |  | (125.0 | )
Other long-term liabilities |  |  | (1.3 | )
Total liabilities assumed |  |  | (135.9 | )
Total assets acquired less liabilities assumed |  |  | 1,973.9 |
Total consideration given for EFS Midstream |  |  | 2,056.2 |
Goodwill |  | $ | 82.3 |
The estimated fair value of the acquired property, plant and equipment was determined using the cost approach. Of the $636 million of fair value assigned to property, plant and equipment, $366 million was assigned to pipelines and rights of way, $112 million to processing equipment, $84 million to electrical and metering equipment, $42 million to pumps and compressors and $32 million to other assets. The estimated fair value of the acquired customer relationship intangible assets was determined using an income approach, specifically a discounted cash flow analysis. Of the total assets acquired, $1.41 billion, or 67%, was assigned to customer relationship intangible assets. In the context of EFS Midstream, a customer relationship intangible asset is broadly defined as a relationship between an asset network and the underlying production fields and producers (e.g., Pioneer and Reliance) supported by that network. The customer relationships we acquired in this transaction provide us with long-term access to the natural gas, NGL and condensate resources supported by the EFS Midstream assets. Infrastructure such as that owned by EFS Midstream requires a significant investment, both in terms of initial construction costs and ongoing maintenance, and is generally supported by long-term contracts with producers that establish a customer base. The level of expenditures involved in constructing such asset networks can create significant economic barriers to entry that effectively limit competition (i.e., akin to a franchise). The long-term nature of the underlying producer contracts and limited risk of competition ensure a long commercial relationship with existing producers. The discounted cash flow analysis used to estimate the fair value of the EFS Midstream customer relationships relied on Level 3 fair value inputs. Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date. With respect to the EFS Midstream customer relationships, the Level 3 inputs include long-range cash flow forecasts that extend for the estimated economic life of the hydrocarbon resource base served by the asset network, anticipated contract renewals and resource base depletion rates. A discount rate of 15% was applied to the resulting cash flows. We recorded $82.3 million of goodwill in connection with this transaction. In general, we attribute this goodwill to our ability to leverage the acquired business with our existing asset base to create future business opportunities. In connection with the agreements to acquire EFS Midstream, we are obligated to spend up to an aggregate of $270 million on specified midstream gathering assets for Pioneer and Reliance, if requested by these producers, over a ten year period. If constructed, these new assets would be owned by us and be a component of the EFS Midstream asset network. Our consolidated revenues and net income included $56.7 million and $23.8 million, respectively, from EFS Midstream for the three months ended September 30, 2015. Since the effective date of the EFS Midstream acquisition was July 1, 2015, our Unaudited Condensed Statements of Consolidated Operations do not include earnings from this business prior to this date. The following table presents selected unaudited pro forma earnings information for the nine months ended September 30, 2015 and 2014 as if the acquisition had been completed on January 1, 2014. This pro forma information was prepared using historical financial data for EFS Midstream and reflects certain estimates and assumptions made by our management. Our unaudited pro forma financial information is not necessarily indicative of what our consolidated financial results would have been for the periods presented had we acquired EFS Midstream on January 1, 2014.
|  | For the Three Months Ended September 30, 2014 |  |  | For the Nine Months Ended September 30, |
|  |  |  | 2015 |  |  | 2014 |
Pro forma earnings data: |  |  |  |  |  |  |  |  |
Revenues |  | $ | 12,388.7 |  |  | $ | 20,993.5 |  |  | $ | 37,927.5 |
Costs and expenses |  |  | 11,502.6 |  |  |  | 18,645.5 |  |  |  | 35,195.2 |
Operating income |  |  | 958.4 |  |  |  | 2,650.5 |  |  |  | 2,911.4 |
Net income |  |  | 715.3 |  |  |  | 1,900.9 |  |  |  | 2,195.5 |
Net income attributable to noncontrolling interests |  |  | 8.1 |  |  |  | 28.5 |  |  |  | 24.8 |
Net income attributable to limited partners |  |  | 707.2 |  |  |  | 1,872.4 |  |  |  | 2,170.7 |
Basic earnings per unit: |  |  |  |  |  |  |  |  |  |  |  |
As reported basic earnings per unit |  | $ | 0.38 |  |  | $ | 0.94 |  |  | $ | 1.16 |
Pro forma basic earnings per unit |  | $ | 0.38 |  |  | $ | 0.96 |  |  | $ | 1.18 |
Diluted earnings per unit: |  |  |  |  |  |  |  |  |  |  |  |
As reported diluted earnings per unit |  | $ | 0.37 |  |  | $ | 0.92 |  |  | $ | 1.13 |
Pro forma diluted earnings per unit |  | $ | 0.38 |  |  | $ | 0.94 |  |  | $ | 1.15 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1497-128463 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1490-128463 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1392-128463 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7008-128479 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1486-128463 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6927-128479 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4845-128472 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1500-128463 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 7 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1524-128463 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e7000-128479 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4922-128472 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4934-128472 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=56956791&loc=d3e4926-128472 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56956515&loc=d3e1383-128463 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35744584&loc=d3e6996-128479 + Details
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