GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
The Company closed a business combination transaction on February 22, 2022, refer to the Transaction in Note 3—Business Combination in the Notes to our Consolidated Financial Statements in this Form 10-K. The Transaction was accounted for as a reverse merger pursuant to ASC 805. In connection with the Transaction, the Company recorded excess of the purchase price over net assets acquired as goodwill. The Company recorded goodwill of $5.1 million in the Midstream Logistics segment as of December 31, 2022. Goodwill is tested at least annually as of November 30 of each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce fair value of a reporting unit below its carrying value. Company’s management assesses whether there have been events or circumstances that trigger the fair value of the reporting unit to be lower than its net carrying value since consummation of the Transaction and concluded that goodwill was not impaired as of December 31, 2022.
Intangible Assets
Intangible assets, net are comprised of the following:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2022 | | 2021 |
| | | | |
| | (In thousands) |
| Customer contracts | | $ | 1,137,831 | | | $ | 1,135,963 | |
| Right of way assets | | 127,539 | | | 99,345 | |
| Less accumulated amortization | | (569,981) | | | (449,259) | |
| Total amortizable intangible assets, net | | $ | 695,389 | | | $ | 786,049 | |
The fair value of acquired customer contracts was capitalized as a result of acquiring favorable customer contracts as of the closing dates of certain past acquisitions and is being amortized using a straight-line method over the remaining term of the customer contracts, which range from one to twenty years. Right-of-way assets relate primarily to underground pipeline easements and have a useful life of ten years and are amortized using the straight-line method. The right of way agreements are generally for an initial term of ten years with an option to renew for an additional ten years at agreed upon renewal rates based on certain indices or up to 130% of the original consideration paid.
At December 31, 2022, remaining weighted average amortization periods for customer contracts and right of way assets were approximately 7.53 years and 7.07 years, respectively. Overall remaining weighted average amortization period for the intangible assets as of December 31, 2022 was approximately 7.47 years.
The Company recorded $120.7 million, $136.8 million and $126.4 million of amortization expense for the years ended December 31, 2022, 2021, and 2020, respectively. There was no impairment recognized on intangible assets for the years ended December 31, 2022, 2021 and 2020, respectively.
Estimated aggregate amortization expense for the remaining unamortized balance in years is as following:
| | | | | |
| Fiscal Year | Amount |
| (In thousands) |
| 2023 | $ | 119,321 | |
| 2024 | 118,538 | |
| 2025 | 117,709 | |
| 2026 | 111,400 | |
| 2027 | 77,441 | |
| Thereafter | 150,980 | |
| Total | $ | 695,389 | |
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.