Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair value of the identifiable net assets acquired and is not amortized. We perform an annual assessment of whether goodwill retains its value. This assessment is done more frequently if indicators of potential impairment exist. We performed our annual goodwill impairment review in the fourth quarter of 2023, 2022, and 2021.
For the year ended December 31, 2023, we performed a quantitative assessment for our Delaware Gathering reporting unit and a qualitative assessment for our other reporting units. Our 2023 testing of goodwill did not identify any impairments other than our Delaware Gathering reporting unit, which reported a goodwill impairment charge of $14.8 million. The impairment was primarily driven by the significant increases in interest rates and timing of system connections with our producer customers.
For the quantitative assessment, the discounted cash flow fair value estimate is based on known or knowable information at the measurement date. The significant assumptions that were used to develop the estimates of the fair values under the discounted cash flow method included management’s best estimates of the discount rate of 16% as well as estimates of future cash flows, which are impacted primarily by future volumes and EBITDA projections. Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the interim goodwill impairment test will prove to be an accurate prediction of the future. The fair value measurements for the individual reporting units represent Level 3 measurements.
We performed a qualitative assessment for the years ended December 31, 2022, and December 31, 2021. In 2022 and 2021, the annual impairment review resulted in the determination that no indicators of impairment of goodwill were present. Accumulated goodwill impairment was $14.8 million as of December 31, 2023. There was no accumulated goodwill impairment at December 31, 2022.
A summary of our goodwill by segment is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gathering and Processing | | Wholesale Marketing and Terminalling | | | | Storage and Transportation | | | | Total |
| Balance, | December 31, 2021 | | $ | 4,155 | | | $ | 7,499 | | | | | $ | 549 | | | | | $ | 12,203 | |
| Acquisition | | 14,848 | | | — | | | | | — | | | | | 14,848 | |
| | | | | | | | | | | | |
| Balance, | December 31, 2022 | | 19,003 | | | 7,499 | | | | | 549 | | | | | 27,051 | |
| Goodwill Impairment | | (14,848) | | | — | | | | | — | | | | | (14,848) | |
| Balance, | December 31, 2023 | | $ | 4,155 | | | $ | 7,499 | | | | | $ | 549 | | | | | $ | 12,203 | |
About Goodwill & Intangibles Disclosures
Goodwill and intangible asset disclosures reveal the premium paid in acquisitions and how management assesses whether that premium retains its value. Since goodwill is no longer amortized under US GAAP, the annual impairment test is the only mechanism that adjusts carrying values downward — making the assumptions behind that test critically important for investors.
Key signals: a history of goodwill impairments suggests management consistently overpays for acquisitions. Watch the gap between reporting unit fair value and carrying amount — when fair value exceeds carrying amount by less than 10-20%, a small decline in business performance could trigger a write-down. For finite-lived intangibles, examine useful life assumptions across customer relationships, technology, and trade names; aggressive estimates inflate near-term earnings. Compare total intangibles-to-total-assets ratios against peers to assess acquisition dependency. Rising goodwill as a percentage of equity can signal balance sheet fragility.