OASIS MIDSTREAM PARTNERS LP The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year endedDecember 31, 2020 ("2020 Annual Report"), as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition or provide forecasts of future events. Words such as "may," "assume," "forecast," "position," "predict," "strategy," "expect," "intend," "plan," "estimate," "anticipate," "believe," "project," "budget," "potential," "continue" and other similar expressions are used to identify forward-looking statements. Forward-looking statements can be affected by the assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements discussed below and detailed under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Actual results may vary materially. Although forward-looking statements reflect our good faith beliefs at the time they are made, you are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and you should not consider the following list to be a complete statement of all potential risks and uncertainties. In addition, our forward-looking statements address the various risks and uncertainties associated with the extraordinary market environment and impacts resulting from the novel coronavirus 2019 ("COVID-19") pandemic and the related impacts on our businesses, operations, earnings and results. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include but are not limited to: •crude oil and natural gas realized prices; •developments in the global economy as well as the public health crisis related to the COVID-19 virus and resulting demand and supply for crude oil and natural gas; •uncertainty regarding the worldwide response to COVID-19, including the impact of new virus strains and the risk of renewed restrictions on various commercial and economic activities; such restrictions are designed to protect public health but also have the effect of significantly reducing demand for crude oil and natural gas; •uncertainty regarding the future actions of foreign oil producers and the related impacts such actions have on the balance between the supply of and demand for crude oil and natural gas and therefore the demand for midstream services; •uncertainty regarding the timing, pace and extent of an economic recovery in theU.S. and elsewhere, which in turn will likely affect demand for crude oil and natural gas and therefore the demand for the midstream services we provide and the commercial opportunities available to us; •an inability ofOasis Petroleum or our other customers to meet their operational and development plans on a timely basis or at all; •the execution of our business strategies; •the demand for and price of crude oil and natural gas, on an absolute basis and in comparison to the price of alternative and competing fuels; •the fees we charge, and the margins we realize, from our midstream services; •the cost of achieving organic growth in current and new markets; •our ability to make acquisitions of other midstream infrastructure assets or other assets that complement or diversify our operations; •our ability to make acquisitions of other assets on economically acceptable terms fromOasis Petroleum ; •our inability to perform our obligations under our contracts, whether due to non-performance by third parties, including our customers or other counterparties, market constraints, third-party constraints, legal constraints (including governmental orders or guidance), or other factors; •the lack of asset and geographic diversification; •the suspension, reduction or termination of our commercial agreements withOasis Petroleum ; •labor relations and government regulations; 15 -------------------------------------------------------------------------------- Table of Contents •competition and actions taken by third party producers, operators, processors and transporters; •outcomes of litigation and regulatory investigations, proceedings or inquiries; •the demand for, and the costs of developing and conducting, our midstream infrastructure services; •interruptions in service and fluctuations in tariff provisions of third party connecting pipelines; •general economic conditions; •the price and availability of equity and debt financing; •operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; •potential effects arising from cyber threats, terrorist attacks and any consequential or other hostilities; •interruption of our operations due to social, civil or political events or unrest; •changes in environmental, safety and other laws and regulations; •execution of our environmental, social and governance ("ESG") initiatives; •the effects of accounting pronouncements issued periodically during the periods covered by forward-looking statements; •changes in our tax status; •uncertainty regarding our future operating results; and •certain factors discussed elsewhere in this Quarterly Report on Form 10-Q, in our 2020 Annual Report and in our otherSEC filings. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by securities law. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Some of the key factors which could cause actual results to vary from our expectations include, but are not limited to, commodity price volatility, inflation, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in projecting future throughput volumes, cash flow and access to capital, the timing of development expenditures and the other risks described under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q. Overview We are a leading gathering and processing master limited partnership formed by our sponsor,Oasis Petroleum (Nasdaq:OAS ), to own, develop, operate and acquire a diversified portfolio of midstream assets inNorth America . We provide natural gas services (gathering, compression, processing and gas lift supply), crude oil services (gathering, terminaling and transportation) and water services (gathering and disposal of produced and flowback water and freshwater distribution) to our customers. We conduct our business through our wholly-owned subsidiaries:Bighorn DevCo LLC ("Bighorn DevCo"),Bobcat DevCo LLC ("Bobcat DevCo"),Beartooth DevCo LLC ("Beartooth DevCo") andPanther DevCo LLC ("Panther DevCo" and collectively with Bighorn DevCo, Bobcat DevCo and Beartooth DevCo, the "DevCos"). Our current assets are located in the heart of the oil-rich Williston and Permian Basins. In theWilliston Basin , our assets are integral to the crude oil and natural gas operations ofOasis Petroleum and are also strategically positioned to capture volumes from third party producers. In thePermian Basin , we provide crude oil gathering and produced and flowback water gathering and disposal services to third party producers. The substantial majority of our revenues are generated through long-term, fixed-fee contracts withOasis Petroleum for crude oil, natural gas and water-related midstream services. We are also party to a long-term transportation services agreement regulated by theFederal Energy Regulatory Commission (the "FERC") governing the transportation of crude oil via pipeline from theWild Basin area to Johnson's Corner. Our fixed-fee contracts minimize our direct exposure to commodity prices, and the amount of revenue we generate primarily depends on the volume of crude oil, natural gas and water for which we provide midstream services. We have increased our customer diversification by providing midstream services to third parties, but we are largely dependent onOasis Petroleum as our most significant customer.We expect to grow acquisitively through accretive, dropdown acquisitions, as well as organically asOasis Petroleum develops its acreage. We also expect to grow by increasing services provided to third party producers and by acquiring midstream assets from third parties. 16 -------------------------------------------------------------------------------- Table of Contents Recent Developments FERC Regulatory Matters OnMay 14, 2021 , theFERC issued a revised oil pricing index factor that used the Producer Price Index for Finished Goods plus an index level of 0.78%, resulting in a negative percent change for the index yearJuly 1, 2021 throughJune 30, 2022 , meaning that the ceiling level for certain of an oil pipelines' rates may decrease and, if the actual transportation rate would be above such ceiling level, the rate also must decrease to be equal to or less than the applicable ceiling. Bighorn DevCo's Johnson's Corner pipeline has not adjusted its rates in several years and its applicable rates remain below theFERC's adjusted ceiling level. Bighorn DevCo could increase its rates in future index years to equal the new ceiling level. TheFERC's final application of its indexing rate methodology for the next five-year term of index rates may impact our revenues associated with any transportation services we may provide pursuant to rates adjusted by theFERC oil pipeline index. Change in Board Chair OnApril 13, 2021 ,Daniel E. Brown was elected to serve on the board of directors ofOMP GP LLC (the "General Partner"). OnApril 29, 2021 ,Mr. Brown was elected by the board of directors of the General Partner to serve as Board Chair.Mr. Brown replacesDouglas E. Brooks , who was elected by the board of directors of the General Partner onJanuary 29, 2021 to serve as Board Chair on an interim basis. Acquisition of Remaining Interests in Bobcat DevCo and Beartooth DevCo OnMarch 30, 2021 , we consummated the transactions contemplated by the Contribution and Simplification Agreement (the "Contribution and Simplification Agreement"), dated as ofMarch 22, 2021 , by and among the Partnership,OMS Holdings LLC ("OMS Holdings "),Oasis Midstream Services LLC ("OMS"), the General Partner,OMP Operating LLC ("OMP Operating"),OMP DevCo Holdings Corp , Beartooth DevCo, Bobcat DevCo,OMS Holdings Merger Sub, LLC , a wholly-owned subsidiary ofOMS Holdings ("GP Merger Sub"), and for limited purposes set forth therein,Oasis Petroleum . Pursuant to the Contribution and Simplification Agreement, among other things, (a)Oasis Petroleum caused OMS to contribute to OMP Operating (i) its remaining 64.7% limited liability company interest in Bobcat DevCo and (ii) its remaining 30% limited liability company interest in Beartooth DevCo (the "Contributed Assets"), and the Partnership paid toOMS Holdings consideration of$512.5 million (together with the IDR Conversion Common Units, the "Total Consideration") composed of (x) a cash distribution of$231.5 million , sourced from the net proceeds of the offering of the Senior Notes (as defined below) and (y) 12,949,644 common units representing limited partner interests in the Partnership, (b) the Partnership and the General Partner caused the IDRs to be cancelled and converted into 1,850,356 common units representing limited partner interests in the Partnership (the "IDR Elimination" and such common units, the "IDR Conversion Common Units"), and (c) GP Merger Sub merged with and into the General Partner, with the General Partner surviving such merger (the "GP Merger") and, in connection with the GP Merger, Class A Units and ClassB Units representing membership interests in the General Partner were automatically converted into, and thereafter represented the right to receive, the IDR Conversion Common Units on a pro rata basis, and the IDR Conversion Common Units were distributed to the holders of such Class A Units and ClassB Units , such that following the GP Merger,OMS Holdings is the sole member of the General Partner (the foregoing clauses (a), (b) and (c), the "Simplification Transaction"). The Contribution and Simplification Agreement also implemented, among other things, a right of first refusal in favor of the Partnership with respect to midstream opportunities in the Painted Woods and City of Williston operating areas ofOasis Petroleum and the amendment and restatement of the (x) agreement of limited partnership of the Partnership and (y) limited liability company agreement of the General Partner to reflect the Simplification Transaction. The effective date of the Simplification Transaction wasJanuary 1, 2021 , and the closing date wasMarch 30, 2021 . Following the Simplification Transaction,Oasis Petroleum no longer owns any of the limited liability company interests of Bobcat DevCo or Beartooth DevCo. IDR Elimination In connection with the Simplification Transaction, all of our IDRs were cancelled and exchanged for 1,850,356 common units in accordance with the terms of the Contribution and Simplification Agreement. Additionally, the owners of the General Partner,OMS Holdings and holders of ClassB Units in the General Partner, received the common units issued in exchange for the IDR Elimination pursuant to the Contribution and Simplification Agreement. Subordinated Unit Conversion OnMarch 19, 2021 , the first business day following the payment of our distribution for the fourth quarter of 2020, the subordination period under our partnership agreement terminated in accordance with the terms thereof, and our 13,750,000 subordinated units representing limited partner interests, all of which were held byOMS Holdings , automatically converted into common units on a one-to-one basis. 17 -------------------------------------------------------------------------------- Table of Contents Permian Basin Midstream Assets OnJune 29, 2021 ,Oasis Petroleum completed the sale of its remaining upstream assets in thePermian Basin to a third party buyer. We retained our midstream assets in thePermian Basin through our ownership of Panther DevCo and provide all of our midstream services in thePermian Basin to third party producers. Our commercial agreements withOasis Petroleum in thePermian Basin were assigned to the buyer with no material changes to the contractual terms. We have successfully commenced crude oil and water services to the new operator, and we expect to benefit from incremental activity and increased diversification of our customer base. Redemption of Common Units fromOasis Petroleum OnJune 29, 2021 , we completed an underwritten public offering of 3,623,188 common units representing limited partnership interests at a price to the public of$24.00 per common unit (the "Equity Offering") and received net proceeds of$87.0 million after deducting underwriting discounts and commissions. We used the proceeds from the Equity Offering to redeem 3,623,188 common units held byOasis Petroleum for$87.0 million . Following such redemption,Oasis Petroleum owns approximately 70% of our outstanding common units. City of Williston Project DedicationOasis Petroleum has approved an acreage dedication to OMP in the City of Williston project area pursuant to which we will provide midstream services toOasis Petroleum for crude oil gathering, natural gas gathering and compression, and produced and flowback water gathering and disposal. In connection with the acreage dedication, we expect to spend approximately$4.0 million to$6.0 million of incremental capital in 2021, and we expect to commence services pursuant to the acreage dedication in the second half of 2022. We have revised our 2021 capital expenditures program, as discussed in "Liquidity and Capital Resources - 2021 Revised Capital Program" below. Market Conditions and COVID-19 Federal, state and local public health and governmental authorities have commenced programs to administer vaccines, and certain regions acrossthe United States have lifted restrictions that were imposed to contain the spread of COVID-19, resulting in improved global economic activity levels and higher energy demand. Despite improvements in market conditions, uncertainties related to COVID-19 remain, including the impact of new virus strains, the risk of renewed restrictions and the uncertainty of successful administration of effective treatments and vaccines. In response to the current economic environment and impacts of COVID-19, we have adjusted our business to expected lower levels of activity and operate in a sustainable and cost-efficient manner. In response to the outbreak of the COVID-19 pandemic in 2020, we adopted a work-from-home system for all office-based employees and deployed additional safety protocols at our operating sites in order to keep the field-based employees and contractors supporting our operations safe, while continuing operations running without material disruption. In 2021, we completed a phased return-to-office program, while continuing to follow enhanced safety standards, including enhanced daily cleaning in common spaces of office locations, restricting use of conference rooms and group gatherings, adherence to social distancing requirements and establishing training requirements and procedures. 18 -------------------------------------------------------------------------------- Table of Contents Recent Highlights: •Declared the quarterly cash distribution for the second quarter of 2021 of$0.56 per unit. •Net income was$35.2 million and net cash from operating activities was$58.6 million . •Adjusted EBITDA was$55.8 million and Distributable Cash Flow was$43.0 million . The following table summarizes the throughput volumes, operating income (loss), depreciation, amortization and impairment and capital expenditures of each of our DevCos for the periods presented. The amounts shown in the table below are presented on a gross basis. Three Months Ended Six Months Ended June 30, 2021 March 31, 2021 June 30, 2021 June 30, 2020 (In thousands, except throughput volumes) Bighorn DevCo Crude oil services volumes (MBopd) 25.6 27.6 26.6 35.0 Natural gas services volumes (MMscfpd) 191.5 205.7 198.6 198.8 Operating income$ 15,273 $ 16,867 $ 32,140 $ 10,259 Depreciation, amortization and impairment 2,610 2,505 5,115 26,941 Capital expenditures 474 120 594 5,302 Bobcat DevCo Crude oil services volumes (MBopd) 17.9 19.7 18.8 27.1 Natural gas services volumes (MMscfpd) 232.8 248.0 240.4 236.6 Water services volumes (MBowpd) 41.5 43.0 42.2 52.8 Operating income$ 22,513 $ 23,537 $ 46,050 $ 28,244 Depreciation, amortization and impairment 4,222 3,999 8,221 25,567 Capital expenditures 8,982 486 9,468 12,053 Beartooth DevCo Water services volumes (MBowpd) 84.9 71.3 78.1 93.5 Operating income (loss)$ 8,314 $
7,090
2,342 2,274 4,616 37,919
Capital expenditures(1) 32 (363) (331) (264)
Panther DevCo
Crude oil services volumes (MBopd) 9.4 9.1 9.2 8.3
Water services volumes (MBowpd) 29.7 28.5 29.1 40.4
Operating income (loss) $ 1,406 $ 1,151 $ 2,557 $ (29,708)
Depreciation, amortization and
impairment 236 202 438 33,634
Capital expenditures(1) 3,733 (59) 3,674 9,829
Oasis Midstream Partners LP
DevCo operating income (loss)
1,122 1,589 2,711 2,026
Operating income (loss) 46,384 47,056 93,440 (11,103)
Depreciation, amortization and
impairment 9,418 8,985 18,403 124,061
Equity-based compensation expenses 16 487 503 133
Capitalized interest - - - 317
Maintenance capital expenditures 2,109 302 2,411 2,336
Expansion capital expenditures(2) 11,112 231,391 242,503 24,584
Total capital expenditures 13,221 231,693 244,914 27,237
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(1) Negative amount reflects differences between the estimated capital expenditures accrued in a reporting period and actual capital expenditures recognized in a subsequent reporting period.
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(2) The six months ended June 30, 2021 includes $231.5 million related to the
cash distribution to Oasis Petroleum associated with the Simplification
Transaction composed of the following: (i) $229.0 million cash component of the
purchase price, (ii) upward adjustment to the purchase price of $10.1 million
related to the expanded project dedication to OMP in South Nesson, and (iii)
downward adjustment to the purchase price of $7.6 million related to activity
between the effective date of January 1, 2021 and the close date of March 30,
2021 .
Results of Operations
Revenues
We categorize our revenues as either service revenues or product sales to the
respective line items described below.
•Midstream services - Oasis Petroleum . We record service revenues for fee-based
arrangements with Oasis Petroleum for midstream services, including: (i) natural
gas gathering, compression, processing, gas lift supply and NGL storage
services; (ii) crude oil gathering, terminaling and transportation services; and
(iii) produced and flowback water gathering and disposal services.
•Midstream services - third parties. We record service revenues for fee-based
arrangements with third parties for crude oil and produced and flowback water
services provided to non-affiliated customers.
•Product sales - Oasis Petroleum . We record product sales to Oasis Petroleum for
the sale of crude oil and residue gas and NGLs to certain subsidiaries of Oasis
Petroleum , which we generate from purchase agreements with third parties. We
also record product sales to Oasis Petroleum for the supply and distribution of
freshwater to Oasis Petroleum .
•Product sales - third parties. We record product sales from third parties for
the supply and distribution of freshwater to non-affiliated customers.
The following table summarizes our revenues for the periods presented:
Three Months Ended Six Months Ended
June 30, 2021 March 31, 2021 Change June 30, 2021 June 30, 2020 Change
(In thousands)
Revenues
Midstream services - Oasis
Petroleum $ 65,064 $ 67,163 $ (2,099) $ 132,227 $ 138,939 $ (6,712)
Midstream services - third
parties 1,188 900 288 2,088 9,088 (7,000)
Product sales - Oasis
Petroleum 28,992 32,281 (3,289) 61,273 24,657 36,616
Product sales - third
parties 12 29 (17) 41 6 35
Total revenues $ 95,256 $ 100,373 $ (5,117) $ 195,629 $ 172,690 $ 22,939
Three months ended June 30, 2021 as compared to three months ended March 31,
2021
Total revenues. Total midstream revenues decreased $5.1 million to $95.3 million
during the three months ended June 30, 2021 as compared to the three months
ended March 31, 2021 . This decrease was driven by a $3.3 million decrease in
product sales and a $1.8 million decrease in service revenues.
Service revenues. The $1.8 million decrease in service revenues was driven by a
$1.5 million decrease in crude oil and natural gas service revenues due to a
decrease in natural gas throughput volumes from Oasis Petroleum in the Williston
Basin , coupled with a $0.3 million decrease in produced and flowback water
service revenues due to a $0.6 million decrease in revenues from Oasis Petroleum
primarily due to a decrease in gathering and injection volumes from Oasis
Petroleum , partially offset by a $0.3 million increase in revenues from third
parties.
Product sales. The $3.3 million decrease in product sales was driven by a $5.0
million decrease in natural gas product sales to Oasis Petroleum driven by a
decrease in residue gas and NGL prices and a reduction in volumes purchased from
third party producers, partially offset by a $1.7 million increase in freshwater
product sales due to an increase in freshwater deliveries to Oasis Petroleum for
well completions.
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Six months ended June 30, 2021 as compared to six months ended June 30, 2020
Total revenues. Total midstream revenues increased $22.9 million to $195.6
million during the six months ended June 30, 2021 as compared to the six months
ended June 30, 2020 . This increase was driven by a $36.7 million increase in
product sales, partially offset by $13.7 million decrease in service revenues.
Service revenues. The $13.7 million decrease in service revenues was driven by a
$7.3 million decrease in produced and flowback water service revenues due to a
$4.7 million decrease in revenues from Oasis Petroleum and a $2.6 million
decrease in revenues from third parties due to fewer volumes. In addition, there
was a $6.4 million decrease in crude oil and natural gas service revenues
primarily related to a decrease in crude oil and natural gas throughput volumes
in the Williston Basin .
Product sales. The $36.7 million increase in product sales was driven by a $38.8
million increase in natural gas product sales to Oasis Petroleum driven by an
increase in residue gas and NGL prices and an increase in volumes purchased from
third party producers, partially offset by a $2.2 million decrease in freshwater
product sales due to a decrease in freshwater deliveries to Oasis Petroleum for
well completions.
Operating expenses and other expenses
The following table summarizes our operating expenses and other expenses for the
periods presented:
Three Months Ended Six Months Ended
March 31,
June 30, 2021 2021 Change June 30, 2021 June 30, 2020 Change
(In thousands)Operating expenses Costs of product sales$ 19,152 $ 22,776 $ (3,624) $ 41,928 $ 10,647 $ 31,281 Operating and maintenance 12,220 13,106 (886) 25,326 31,348 (6,022) Depreciation and amortization 9,416 8,985 431 18,401 22,078 (3,677) Impairment 2 - 2 2 101,983 (101,981) General and administrative 8,082 8,450 (368) 16,532 17,737 (1,205) Total operating expenses 48,872 53,317 (4,445) 102,189 183,793 (81,604) Operating income (loss) 46,384 47,056 (672) 93,440 (11,103) 104,543 Other expenses Interest expense, net of capitalized interest (11,230) (4,061) (7,169) (15,291) (35,443) 20,152 Other expense - (69) 69 (69) (143) 74 Total other expenses (11,230) (4,130) (7,100) (15,360) (35,586) 20,226 Net income (loss) 35,154 42,926 (7,772) 78,080 (46,689) 124,769 Less: Net income attributable to non-controlling interests - 17,025 (17,025) 17,025 12,836
4,189
Net income (loss) attributable to Oasis Midstream Partners LP 35,154 25,901 9,253 61,055 (59,525)
120,580
Less: Net income attributable to General Partner - - - - 2,034
(2,034)
Net income (loss) attributable to limited partners$ 35,154 $ 25,901 $ 9,253 $ 61,055 $ (61,559) $ 122,614 Three months endedJune 30, 2021 as compared to three months endedMarch 31, 2021 Costs of product sales. Costs of product sales decreased$3.6 million to$19.2 million for the three months endedJune 30, 2021 as compared to the three months endedMarch 31, 2021 . The decrease was driven by a$4.0 million decrease in natural gas costs of product sales due primarily to a decrease in residue gas and NGL prices and a decrease in volumes purchased from third party producers, offset by a$0.4 million increase in freshwater costs of product sales due primarily to higher activity. Operating and maintenance. Operating and maintenance expenses decreased$0.9 million to$12.2 million for the three months endedJune 30, 2021 as compared to the three months endedMarch 31, 2021 . The decrease was driven by a$0.6 million decrease in natural gas operating and maintenance expenses due primarily to a reduction in repairs and maintenance, coupled with a$0.3 million decrease in produced and flowback water operating and maintenance expenses due primarily to lower activity. 21 -------------------------------------------------------------------------------- Table of Contents Depreciation and amortization. Depreciation and amortization expenses increased$0.4 million to$9.4 million for the three months endedJune 30, 2021 as compared to the three months endedMarch 31, 2021 . The increase was primarily a result of incremental capital spending on in-service assets. General and administrative ("G&A") expenses. G&A expenses decreased$0.4 million to$8.1 million for the three months endedJune 30, 2021 as compared to the three months endedMarch 31, 2021 . The decrease was primarily due to a reduction in equity-based compensation expenses associated with the immediate vesting of certain awards in the first quarter of 2021 in connection with the Simplification Transaction. Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, increased$7.2 million to$11.2 million for the three months endedJune 30, 2021 as compared to the three months endedMarch 31, 2021 . The increase was primarily due to an$8.9 million increase in interest expense related to the Senior Notes which were issued onMarch 30, 2021 . This increase was partially offset by a$1.7 million decrease in interest expense related to the Revolving Credit Facility due to the acceleration of$1.1 million of unamortized deferred financing costs in the first quarter of 2021, combined with a$0.9 million reduction in interest expense associated with fewer outstanding borrowings under the Revolving Credit Facility quarter over quarter. Six months endedJune 30, 2021 as compared to six months endedJune 30, 2020 Costs of product sales. Cost of product sales increased$31.3 million to$41.9 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The increase was primarily driven by a$33.3 million increase in natural gas costs of product sales due primarily to an increase in residue gas and NGL prices and an increase in volumes purchased from third party producers, partially offset by a$2.0 million decrease in freshwater costs of product sales due primarily to lower activity. Operating and maintenance. Operating and maintenance expenses decreased$6.0 million to$25.3 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The decrease was driven by a$3.1 million decrease in natural gas operating and maintenance expenses due primarily to a reduction in equipment rentals, coupled with a$2.7 million decrease in produced and flowback water operating and maintenance expenses due primarily to lower activity. Impairment. We recorded a de minimis impairment loss for the six months endedJune 30, 2021 . We recorded an impairment loss of$102.0 million for the six months endedJune 30, 2020 to adjust the carrying value of our property, plant and equipment to fair value due to lower forecasted throughput volumes. Depreciation and amortization. Depreciation and amortization expenses decreased$3.7 million to$18.4 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The decrease was driven by a reduction in the carrying value of assets following impairment charges taken in the first quarter of 2020. G&A expenses. G&A expenses decreased$1.2 million to$16.5 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The decrease was primarily a result of a reduction of$1.8 million in allocated charges fromOasis Petroleum for G&A services due to lower headcount, partially offset by a$0.4 million increase in equity-based compensation expenses associated with the immediate vesting of certain awards in the first quarter of 2021 in connection with the Simplification Transaction. Interest expense, net of capitalized interest. Interest expense, net of capitalized interest, decreased$20.2 million to$15.3 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . The decrease was primarily due to a specified default interest charge of$28.0 million recorded during the six months endedJune 30, 2020 which was subsequently waived in the fourth quarter of 2020. In addition, there was a decrease in interest expense related to the Revolving Credit Facility of$1.5 million due to fewer outstanding borrowings. These decreases were partially offset by an increase in interest expense of$9.1 million related to the Senior Notes. Liquidity and Capital Resources Our primary sources of liquidity during the period covered by this report have been from cash flows generated from operations, borrowings under the Revolving Credit Facility, the issuance of the Senior Notes (defined below) and our underwritten public offering of common units. We believe cash generated from these sources will be sufficient to meet our short-term working capital needs, long-term capital expenditure requirements and quarterly cash distributions. We expect to fund future expansion capital expenditures and acquisitions primarily through a combination of borrowings under the Revolving Credit Facility and, if necessary, the issuance of additional equity or debt securities. 22
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Table of Contents Our primary uses of cash have been for capital expenditures to develop our midstream infrastructure, dropdown acquisitions fromOasis Petroleum , distributions to our unitholders, the redemption of common units fromOasis Petroleum , interest payments associated with our long-term debt and payments associated with cash requirements for working capital. We expect our future cash requirements relating to working capital, maintenance capital expenditures and quarterly cash distributions to our unitholders will be funded from cash flows internally generated from our operations. Revolving credit facility. AtJune 30, 2021 , we had$450.0 million of commitments under the Revolving Credit Facility. The Revolving Credit Facility is available to fund working capital and to finance acquisitions and other capital expenditures. The Revolving Credit Facility does not mature until at leastSeptember 30, 2024 . AtJune 30, 2021 , we had$213.0 million of borrowings outstanding under the Revolving Credit Facility and$5.5 million of outstanding letters of credit, resulting in an unused borrowing capacity of$231.5 million . For the six months endedJune 30, 2021 and 2020, the weighted average interest rate incurred on borrowings under the Revolving Credit Facility was 2.3% and 2.9%, respectively. OnMarch 22, 2021 , we entered into the Fourth Amendment to the Revolving Credit Facility. See "Item 1. - Financial Statements (Unaudited) - Note 7 - Long-Term Debt" for more information. Senior unsecured notes. OnMarch 30, 2021 , we issued$450.0 million of 8.00% senior unsecured notes dueApril 1, 2029 (the "Senior Notes"). The Senior Notes were issued at par and resulted in net proceeds of$442.1 million . We used the net proceeds from the Senior Notes to: (i) make a distribution toOasis Petroleum of$231.5 million in connection with the Simplification Transaction, (ii) repay$204.0 million of outstanding principal borrowings and$0.5 million of accrued interest under the Revolving Credit Facility and (iii) pay approximately$6.1 million in fees and other expenses. See "Item 1. - Financial Statements (Unaudited) - Note 7 - Long-Term Debt" for more information. Equity offering and redemption of common units. OnJune 29, 2021 , we completed the Equity Offering and received net proceeds of$87.0 million after deducting underwriting discounts and commissions. We used the net proceeds from the Equity Offering to redeem 3,623,188 common units held byOasis Petroleum for$87.0 million . Following the redemption of common units,Oasis Petroleum owns approximately 70% of our outstanding common units. See "Item 1. - Financial Statements (Unaudited) - Note 10 - Partnership Equity and Distributions" for more information. Cash flows Our cash flows for the six months endedJune 30, 2021 and 2020 are presented below:
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