Transactions with Related Parties
|9 Months Ended|
Sep. 30, 2018
|Related Party Transactions [Abstract]|
|Transactions with Related Parties||
Transactions with Related Parties
The Company is not entitled to compensation for its services as managing member of Rosehill Operating. The Company is entitled to reimbursement by Rosehill Operating for any costs, fees or expenses incurred on behalf of Rosehill Operating (including costs of securities offerings not borne directly by members, board of directors’ compensation and meeting costs, cost of periodic reports to its stockholders, litigation costs and damages arising from litigation, accounting and legal costs); provided that the Company will not be reimbursed for any of its income tax obligations.
Rosemore. Rosemore provided employee benefits and other administrative services to Rosehill Operating. During the three and nine months ended September 30, 2017, Rosemore incurred and Tema billed to Rosehill Operating approximately $3.1 million and $5.9 million, respectively, related to these services. Amounts incurred for employee benefits and other administrative services provided to Rosehill Operating by Rosemore prior to the Transaction were allocated to the Condensed Consolidated Statements of Operations as part of the carve-out financial statements – see “Cost Allocations” below. The costs incurred by Rosemore subsequent to the Transaction were billed to Rosehill Operating via the Transition Services Agreement (discussed under Transaction Service Agreement below) between Rosehill Operating and Tema. Rosemore did not provide these services to Rosehill Operating during the three and nine months ended September 30, 2018.
Transition Service Agreement. On April 27, 2017 in connection with the closing of the Transaction, the Company entered into a Transition Service Agreement (“TSA”) with Tema to provide certain services to each other following the closing of the Transaction. Pursuant to the terms, the Company agreed to provide to Tema (i) operation services for the assets excluded from the Transaction, (ii) divestment assistance, and (iii) office space to Gateway and Marketing (“Gateway”). Tema agreed to provide to the Company (i) human resources and benefits administration, (ii) information technology and telecommunications, (iii) general business insurance, and (iv) legal services. The TSA terminated on October 27, 2018. Rosehill Operating did not incur significant costs related to providing services to Tema under the TSA for the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2017, the Company incurred and billed costs of $0.2 million and $0.6 million, respectively, related to services provided to Tema under the TSA. The amounts due from Tema at September 30, 2018 and December 31, 2017 were less than $0.1 million.
Gateway Gathering and Marketing. A portion of Rosehill Operating’s oil, natural gas and NGLs are sold to Gateway, a subsidiary of Rosemore. For the three months ended September 30, 2018 and 2017, revenues from production sold to Gateway were approximately $56.7 million and $11.4 million, respectively and $181.2 million and $36.2 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018 and December 31, 2017, the related receivable due from Gateway was approximately $16.7 million and $13.6 million, respectively. For the three months ended September 30, 2018 and 2017, approximately $0.9 million and $0.3 million, respectively, and $2.5 million and $0.8 million for the nine months ended September 30, 2018 and 2017, respectively, was incurred related to a marketing and gathering agreement with Gateway. As of September 30, 2018, there was no payable due to Gateway related to the marketing and gathering agreement compared to a $0.2 million payable due to Gateway as of December 31, 2017.
Transaction expenses. Under the terms of the Transaction, the Company reimbursed Tema and Rosemore $1.6 million and $2.4 million, respectively, on April 27, 2017, for costs incurred in connection with the Transaction.
Distributions. The LLC Agreement requires Rosehill Operating to make a corresponding cash distribution to the Company at any time a dividend is to be paid by the Company to the holders of its Series A Preferred Stock and Series B Preferred Stock. The LLC Agreement allows for distributions to be made by Rosehill Operating to its members on a pro rata basis in accordance with the number of Rosehill Operating Common Units owned by each member out of funds legally available therefor. The Company expects Rosehill Operating may make distributions out of distributable cash periodically to the extent permitted by the Amended and Restated Credit Agreement and necessary to enable the Company to cover its operating expenses and other obligations, as well as to make dividend payments, if any, to the holders of its Class A Common Stock. In addition, the LLC Agreement generally requires Rosehill Operating to make (i) pro rata distributions (in accordance with the number of Rosehill Operating Common Units owned by each member) to its members, including the Company, in an amount at least sufficient to allow the Company to pay its taxes and satisfy its obligations under the Tax Receivable Agreement and (ii) tax advances, which will be repaid upon a redemption, in an amount sufficient to allow each of the members of Rosehill Operating to pay its respective taxes on such holder’s allocable share of Rosehill Operating’s taxable income after taking into account certain other distributions or payments received by the unitholder from Rosehill Operating or the Company.
Cost Allocations. For periods prior to the Transaction, Tema allocated certain overhead costs associated with general and administrative services, including insurance, professional fees, facilities, information services, human resources and other support departments related to Rosehill Operating. Also included in the cost allocations are costs associated with employees covered under Rosemore’s defined benefit plan and long-term incentive compensation plan. Employees of Rosehill Operating no longer participate in either employee benefit plan. Overhead costs allocated were $1.5 million for the nine months ended September 30, 2017. There were no overhead costs allocated subsequent to the Transaction. Where costs incurred related to Rosehill Operating’s assets in the periods prior to the Transaction could not be determined by specific identification, the costs were primarily allocated proportionately on a Boe basis. Management believes the allocations are a reasonable reflection of the utilization of services provided. However, the allocations may not fully reflect the expense that would have been incurred had Rosehill Operating’s assets been a stand-alone company during the three months ended March 31, 2017.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef