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Acquisitions
 6 Months Ended
Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract]  
Acquisitions Acquisitions
Delaware Gathering (formerly 3 Bear)
We completed the Delaware Gathering Acquisition on June 1, 2022, in which we acquired crude oil and natural gas gathering, processing, and transportation and storage operations, as well as water disposal and recycling operations, located in the Delaware Basin of New Mexico. The purchase price for the Delaware Gathering Acquisition was $628.3 million. The Delaware Gathering Acquisition was financed through a combination of cash on hand and borrowings under the DKL Credit Facility.
For the three and six months ended June 30, 2023, we incurred no incremental direct acquisition and integration costs. For the three and six months ended June 30, 2022, we incurred $6.2 million and $6.4 million, respectively, in incremental direct acquisition and integration costs that principally consist of legal, advisory and other professional fees. Such costs are included in general and administrative expenses in the accompanying condensed consolidated statements of income for these periods.
The Delaware Gathering Acquisition was accounted for using the acquisition method of accounting, whereby the purchase price was allocated to the tangible and intangible assets acquired and the liabilities assumed based on their fair values. The excess of the consideration paid over the fair value of the net assets acquired was recorded as goodwill.
Determination of Purchase Price
The table below presents the purchase price (in thousands):
Base purchase price:$624,700 
Add: closing net working capital (as defined in the 3 Bear Purchase Agreement)
3,600 
Less: closing indebtedness (as defined in the 3 Bear Purchase Agreement)
(80,618)
Cash paid for the adjusted purchase price547,682 
Cash paid to payoff 3 Bear credit agreement (as defined in the 3 Bear Purchase Agreement)80,618 
Purchase price$628,300 
Purchase Price Allocation
The following table summarizes the final fair values of assets acquired and liabilities assumed in the Delaware Gathering Acquisition as of June 1, 2022 (in thousands):
Assets acquired:
Cash and cash equivalents$2,678 
Accounts receivables, net28,859 
Inventories1,836 
Other current assets986 
Property, plant and equipment382,799 
Operating lease right-of-use assets7,427 
Goodwill14,848 
Customer relationship intangible, net210,000 
Rights-of-way13,490 
Other non-current assets500
Total assets acquired663,423 
Liabilities assumed:
Accounts payable8,020 
Accrued expenses and other current liabilities22,382 
Current portion of operating lease liabilities1,029 
Asset retirement obligations2,261 
Operating lease liabilities, net of current portion1,431 
Total liabilities assumed35,123 
Fair value of net assets acquired$628,300 
The fair value of property, plant and equipment was based on the combination of the cost and market approaches. Key assumptions in the cost approach include determining the replacement cost by evaluating recently published data and adjusting replacement cost for physical deterioration, functional and economic obsolescence. We used the market approach to measure the value of certain assets through an analysis of recent sales or offerings of comparable properties.
The fair value of customer relationships was based on the income approach. Key assumptions in the income approach include projected revenue attributable to customer relationships, attrition rate, operating margins and discount rates.
The fair values discussed above were based on significant inputs that are not observable in the market and, therefore, represent Level 3 measurements.
The fair values of all other current assets and payables were equivalent to their carrying values due to their short-term nature.
The goodwill recognized in the Delaware Gathering Acquisition is primarily attributable to enhancing our third party revenues, further diversification of our customer and product mix, expanding our footprint into the Delaware basin and bolstering our Environmental, Social and Governance ("ESG") optionality through furthering carbon capture opportunities and greenhouse gas reduction projects currently underway. This goodwill is deductible for income tax purposes. Goodwill related to the Delaware Gathering Acquisition is included in the Gathering and Processing segment.
Unaudited Pro Forma Financial Information
The following table summarizes the unaudited pro forma financial information of the Partnership assuming the Delaware Gathering Acquisition had occurred on January 1, 2021. The unaudited pro forma financial information has been adjusted to give effect to certain pro forma adjustments that are directly related to the Delaware Gathering Acquisition based on available information and certain assumptions that management believes are factually supportable. The most significant pro forma adjustments relate to (i) incremental interest expense and amortization of deferred financing costs associated with revolving credit facility borrowings incurred in connection with the Delaware Gathering Acquisition, (ii) incremental depreciation resulting from the estimated fair values of acquired property, plant and equipment, (iii) incremental amortization resulting from the estimated fair value of the acquired customer relationship intangibles, (iv) accounting policy alignment and (v) transaction costs. The unaudited pro forma financial information excludes any expected cost savings or other synergies as a result of the Delaware Gathering Acquisition. The unaudited pro forma financial information is not necessarily indicative of the results of operations that would have been achieved had the Delaware Gathering Acquisition been effective as of the date presented, nor is it indicative of future operating results of the combined company. Actual results may differ significantly from the unaudited pro forma financial information.
(in thousands, except per unit data)Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Net sales$314,909 $571,849 
Net income attributable to partners$35,511 $65,392 
Net income per limited partner unit:
Basic income per unit$0.82 $1.50 
Diluted income per unit$0.82 $1.50