NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
|
|
1.
|
ORGANIZATION AND BASIS OF PRESENTATION
|
Organization
Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer Equity, L.P. and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer Equity, L.P. on a stand-alone basis.
The consolidated financial statements of ETE presented herein include the results of operations of:
|
|
•
|
our controlled subsidiaries, ETP and Sunoco LP;
|
|
|
•
|
consolidated subsidiaries of our controlled subsidiaries and our wholly-owned subsidiaries that own general partner interests and IDR interests in ETP and Sunoco LP; and
|
|
|
•
|
our wholly-owned subsidiary, Lake Charles LNG.
|
Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company, joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities.
Business Operations
The Parent Company’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP and Sunoco LP and cash flows from the operations of Lake Charles LNG. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ETE’s subsidiaries. In order to understand the financial condition of the Parent Company on a stand-alone basis, see Note
14
for stand-alone financial information apart from that of the consolidated partnership information included herein.
Our financial statements reflect the following reportable business segments:
|
|
•
|
Investment in ETP, including the consolidated operations of ETP;
|
|
|
•
|
Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
|
|
|
•
|
Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
|
|
|
•
|
Corporate and Other, including the following:
|
|
|
•
|
activities of the Parent Company; and
|
|
|
•
|
the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
|
Basis of Presentation
The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended
December 31, 2015
. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.
Certain prior period amounts have been reclassified to conform to the
2016
presentation. These reclassifications had no impact on net income or total equity.
Use of Estimates
The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investments in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP or Sunoco LP (excluding transactions with the Parent Company) as capital transactions.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
(“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Partnership is currently evaluating the impact, if any, that adopting this new accounting standard will have on our revenue recognition policies.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02,
Consolidation (Topic 810): Amendments to the Consolidation Analysis
(“ASU 2015-02”), which changed the requirements for consolidations analysis. Under ASU 2015-02, reporting entities are required to evaluate whether they should consolidate certain legal entities. The Partnership adopted this standard on January 1, 2016, and the adoption did not impact the Partnership’s financial position or results of operations.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02
, Leases (Topic 842
) (“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Partnership is currently evaluating the impact, if any, that adopting this new standard will have on the consolidated financial statements and related disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09,
Stock Compensation (Topic 718)
(“ASU 2016-09”). The objective of the update is to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Partnership is currently evaluating the impact that it will have on the consolidated financial statements and related disclosures.
|
|
2.
|
ACQUISITIONS AND CONTRIBUTION TRANSACTIONS
|
WMB Merger
On June 24, 2016, the Delaware Court of Chancery issued an opinion finding that ETE was contractually entitled to terminate its Merger Agreement with WMB in the event Latham & Watkins LLP (“Latham”) were unable to deliver a required tax opinion on or prior to June 28, 2016. Latham advised ETE that it was unable to deliver the tax opinion as of June 28, 2016. Consistent with its rights and obligations under the merger agreement, ETE subsequently provided written notice terminating the merger agreement due to the failure of conditions under the merger agreement, including Latham’s inability to deliver the tax opinion, as well as the other bases detailed in ETE’s filings in the Delaware lawsuit referenced above.
WMB has appealed the decision by the Delaware Court of Chancery to the Delaware Supreme Court.
Sunoco Retail to Sunoco LP
In March 2016, ETP contributed to Sunoco LP its remaining
68.42%
interest in Sunoco, LLC and
100%
interest in the legacy Sunoco, Inc. retail business for
$2.23 billion
. Sunoco LP paid
$2.20 billion
in cash, including a working capital adjustment, and issued
5.7 million
Sunoco LP common units to Retail Holdings, a wholly-owned subsidiary of ETP. The transaction was effective January 1, 2016.
Other Sunoco LP Acquisitions
In August 2016, Sunoco LP acquired the fuels business from Emerge Energy Services LP for
$172 million
, including tax-deductible goodwill of
$78 million
and intangible assets of
$23 million
.
Additionally, during the nine months ended September 30, 2016, Sunoco LP made other acquisitions primarily consisting of convenience stores, totaling
$114 million
plus the value of inventory on hand at closing and increasing goodwill by
$44 million
.
In October 2016, Sunoco LP completed the acquisition of a convenience store, wholesale motor fuel distribution, and commercial fuels distribution business for approximately
$55 million
plus inventory on hand at closing, subject to closing adjustments.
PennTex Acquisition
On November 1, 2016, ETP acquired certain interests in PennTex from various parties for total consideration of approximately
$640 million
in ETP units and cash. Through this transaction, ETP acquired a controlling financial interest in PennTex, whose assets complement ETP’s existing midstream footprint in the region. The assets and liabilities assumed in this transaction will be recorded at fair value as of the acquisition date, and the initial measurement of fair value is not yet complete.
Sunoco Logistics’ Vitol Acquisition
In November 2016
, Sunoco Logistics
completed an acquisition from Vitol, Inc. (“Vitol”) of an integrated crude oil business in West Texas for
$760 million
plus working capital. The acquisition provides Sunoco Logistics with an approximately
2 million
barrel crude oil terminal in Midland, Texas, a crude oil gathering and mainline pipeline system in the Midland Basin, including a significant acreage dedication from an investment-grade Permian producer, and crude oil inventories related to Vitol's crude oil purchasing and marketing business in West Texas. The acquisition also included the purchase of a
50%
interest in SunVit Pipeline LLC ("SunVit"), which increased Sunoco Logistics' overall ownership of SunVit to
100%
.
The assets and liabilities acquired will be recorded at fair value as of the acquisition date, and the initial fair value measurements are not yet complete.
Sunoco Logistics’ Permian Express Partners
In November 2016, Sunoco Logistics announced its intent to form Permian Express Partners LLC ("PEP"), a strategic joint venture, with ExxonMobil Corp. Sunoco Logistics will contribute its Permian Express 1, Permian Express 2 and Permian Longview and Louisiana Access pipelines. ExxonMobil Corp will contribute its Longview to Louisiana and Pegasus pipelines; Hawkins gathering system; an idle pipeline in southern Oklahoma; and its Patoka, Illinois terminal. The closing of PEP will be subject to certain closing conditions, including regulatory approval, and is expected to be completed in the first quarter 2017. Upon closing, Sunoco Logistics' ownership percentage is expected to be approximately
85%
.
Sunoco Logistics will maintain a controlling financial and voting interest in PEP and will operate all of the assets contributed to the joint venture. As such, PEP will be reflected as a consolidated subsidiary of Sunoco Logistics.
|
|
3.
|
CASH AND CASH EQUIVALENTS
|
Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may by uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
Non-cash investing activities were as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
Accrued capital expenditures
|
$
|
1,001
|
|
|
$
|
966
|
|
Losses from subsidiary common unit issuances, net
|
(3
|
)
|
|
(483
|
)
|
NON-CASH FINANCING ACTIVITIES:
|
|
|
|
Contribution of property, plant and equipment from noncontrolling interest
|
$
|
—
|
|
|
$
|
34
|
|
|
|
4.
|
ADVANCES TO AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES
|
MEP
ETP evaluated its investment in MEP as of
September 30, 2016
for impairment based on FASB Accounting Standards Codification 323,
Investments - Equity Method and Joint Ventures.
Based on commercial discussions with current and potential shippers on MEP regarding the outlook for long-term transportation contract rates, ETP concluded that the fair value of its investment was other than temporarily impaired, resulting in non-cash impairment of
$308 million
, which was recorded in the three months ended September 30, 2016. The carrying value of the Partnership’s investment in MEP as of
September 30, 2016
and
December 31, 2015
was
$327 million
and
$660 million
, respectively.
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Natural gas and NGLs
|
$
|
684
|
|
|
$
|
415
|
|
Crude oil
|
590
|
|
|
424
|
|
Refined products
|
458
|
|
|
420
|
|
Other
|
368
|
|
|
377
|
|
Total inventories
|
$
|
2,100
|
|
|
$
|
1,636
|
|
We utilize commodity derivatives to manage price volatility associated with our natural gas inventories stored in our Bammel storage facility. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of
September 30, 2016
was
$42.55 billion
and
$41.24 billion
, respectively. As of
December 31, 2015
, the aggregate fair value and carrying amount of our consolidated debt obligations was
$33.22 billion
and
$36.97 billion
, respectively. The fair value of our consolidated debt obligations is Level 2 and Level 3 valuation based on the respective debt obligations’ observable inputs used for similar liabilities.
We have commodity derivatives, interest rate derivatives and embedded derivatives in the ETP Preferred Units that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange
of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. Derivatives related to the embedded derivatives in the preferred units are valued using a binomial lattice model. The market inputs utilized in the model include credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected value, and are considered Level 3. During the
nine months ended
September 30, 2016
,
no
transfers were made between any levels within the fair value hierarchy.
The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of
September 30, 2016
and
December 31, 2015
based on inputs used to derive their fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
September 30, 2016
|
|
Fair Value Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
18
|
|
|
$
|
—
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
Swing Swaps IFERC
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Fixed Swaps/Futures
|
24
|
|
|
24
|
|
|
—
|
|
|
—
|
|
Forward Physical Swaps
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Power:
|
|
|
|
|
|
|
|
Forwards
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Options — Puts
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Natural Gas Liquids – Forwards/Swaps
|
85
|
|
|
85
|
|
|
—
|
|
|
—
|
|
Refined Products — Futures
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Crude – Futures
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
Total commodity derivatives
|
143
|
|
|
132
|
|
|
11
|
|
|
—
|
|
Total assets
|
$
|
161
|
|
|
$
|
132
|
|
|
$
|
29
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(375
|
)
|
|
$
|
—
|
|
|
$
|
(375
|
)
|
|
$
|
—
|
|
Embedded derivatives in the ETP Preferred Units
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Commodity derivatives:
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Swing Swaps IFERC
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
Fixed Swaps/Futures
|
(36
|
)
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
Forward Physical Swaps
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Power:
|
|
|
|
|
|
|
|
Forwards
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
Options — Calls
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Natural Gas Liquids – Forwards/Swaps
|
(114
|
)
|
|
(114
|
)
|
|
—
|
|
|
—
|
|
Refined Products — Futures
|
(27
|
)
|
|
(27
|
)
|
|
—
|
|
|
—
|
|
Crude — Futures
|
(8
|
)
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
Total commodity derivatives
|
(200
|
)
|
|
(192
|
)
|
|
(8
|
)
|
|
—
|
|
Total liabilities
|
$
|
(576
|
)
|
|
$
|
(192
|
)
|
|
$
|
(383
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2015
|
|
Fair Value Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
16
|
|
|
16
|
|
|
—
|
|
|
—
|
|
Swing Swaps IFERC
|
10
|
|
|
2
|
|
|
8
|
|
|
—
|
|
Fixed Swaps/Futures
|
274
|
|
|
274
|
|
|
—
|
|
|
—
|
|
Forward Physical Contracts
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
Power:
|
|
|
|
|
|
|
|
Forwards
|
22
|
|
|
—
|
|
|
22
|
|
|
—
|
|
Futures
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Options — Calls
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Options — Puts
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Natural Gas Liquids — Forwards/Swaps
|
99
|
|
|
99
|
|
|
—
|
|
|
—
|
|
Refined Products — Futures
|
15
|
|
|
15
|
|
|
—
|
|
|
—
|
|
Crude - Futures
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
Total commodity derivatives
|
454
|
|
|
420
|
|
|
34
|
|
|
—
|
|
Total assets
|
$
|
454
|
|
|
$
|
420
|
|
|
$
|
34
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(171
|
)
|
|
$
|
—
|
|
|
$
|
(171
|
)
|
|
$
|
—
|
|
Embedded derivatives in the ETP Preferred Units
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Commodity derivatives:
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(16
|
)
|
|
(16
|
)
|
|
—
|
|
|
—
|
|
Swing Swaps IFERC
|
(12
|
)
|
|
(2
|
)
|
|
(10
|
)
|
|
—
|
|
Fixed Swaps/Futures
|
(203
|
)
|
|
(203
|
)
|
|
—
|
|
|
—
|
|
Power:
|
|
|
|
|
|
|
|
Forwards
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
Futures
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
Options — Calls
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Natural Gas Liquids — Forwards/Swaps
|
(89
|
)
|
|
(89
|
)
|
|
—
|
|
|
—
|
|
Refined Products — Futures
|
(6
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
Crude - Futures
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
Total commodity derivatives
|
(356
|
)
|
|
(324
|
)
|
|
(32
|
)
|
|
—
|
|
Total liabilities
|
$
|
(532
|
)
|
|
$
|
(324
|
)
|
|
$
|
(203
|
)
|
|
$
|
(5
|
)
|
The following table presents a reconciliation of the beginning and ending balances for our Level 3 financial instruments measured at fair value on a recurring basis using significant unobservable inputs for the
nine months ended
September 30, 2016
.
|
|
|
|
|
Balance, December 31, 2015
|
$
|
(5
|
)
|
Net unrealized gains included in other income (expense)
|
4
|
|
Balance, September 30, 2016
|
$
|
(1
|
)
|
|
|
7.
|
NET INCOME PER LIMITED PARTNER UNIT
|
A reconciliation of income and weighted average units used in computing basic and diluted income per unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net Income
|
$
|
41
|
|
|
$
|
238
|
|
|
$
|
801
|
|
|
$
|
1,231
|
|
Less: Income (loss) attributable to noncontrolling interest
|
(168
|
)
|
|
(55
|
)
|
|
39
|
|
|
356
|
|
Net Income, net of noncontrolling interest
|
209
|
|
|
293
|
|
|
762
|
|
|
875
|
|
Less: General Partner’s interest in income
|
—
|
|
|
1
|
|
|
2
|
|
|
2
|
|
Less: Convertible Unitholders’ interest in income
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Less: Class D Unitholder’s interest in income
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Income available to Limited Partners
|
$
|
207
|
|
|
$
|
291
|
|
|
$
|
757
|
|
|
$
|
871
|
|
Basic Income per Limited Partner Unit:
|
|
|
|
|
|
|
|
Weighted average limited partner units
|
1,045.5
|
|
|
1,052.5
|
|
|
1,045.0
|
|
|
1,068.9
|
|
Basic income per Limited Partner unit
|
$
|
0.20
|
|
|
$
|
0.28
|
|
|
$
|
0.72
|
|
|
$
|
0.81
|
|
Diluted Income per Limited Partner Unit:
|
|
|
|
|
|
|
|
Income available to Limited Partners
|
$
|
207
|
|
|
$
|
291
|
|
|
$
|
757
|
|
|
$
|
871
|
|
Dilutive effect of equity-based compensation of subsidiaries, distributions to Class D Unitholder and distributions to Convertible Unitholders
|
2
|
|
|
(1
|
)
|
|
3
|
|
|
(2
|
)
|
Diluted income available to Limited Partners
|
$
|
209
|
|
|
$
|
290
|
|
|
$
|
760
|
|
|
$
|
869
|
|
Weighted average limited partner units
|
1,045.5
|
|
|
1,052.5
|
|
|
1,045.0
|
|
|
1,068.9
|
|
Dilutive effect of unconverted unit awards and Convertible Units
|
55.2
|
|
|
1.6
|
|
|
26.3
|
|
|
1.6
|
|
Diluted weighted average limited partner units
|
1,100.7
|
|
|
1,054.1
|
|
|
1,071.3
|
|
|
1,070.5
|
|
Diluted income per Limited Partner unit
|
$
|
0.19
|
|
|
$
|
0.28
|
|
|
$
|
0.71
|
|
|
$
|
0.81
|
|
Parent Company Indebtedness
The Parent Company’s indebtedness, including its senior notes, senior secured term loan and senior secured revolving credit facility, is secured by all of its and certain of its subsidiaries’ tangible and intangible assets.
Revolving Credit Facility
The Parent Company’s revolving credit facility has a capacity of
$1.5 billion
. As of
September 30, 2016
, there were
$885 million
outstanding borrowings under the Parent Company Credit Facility and the amount available for future borrowings was
$615 million
.
Subsidiary Indebtedness
ETP Senior Notes
Subsequent to the Regency Merger in 2015, ETP assumed
$3.80 billion
total aggregate principal amount of Regency’s senior notes, which remained outstanding as of
September 30, 2016
. These notes were previously guaranteed by certain consolidated subsidiaries that had previously been consolidated by Regency. The subsidiary guarantees on all of these outstanding notes have been released.
Sunoco Logistics Senior Notes
Sunoco Logistics had
$175 million
of
6.125%
senior notes which matured and were repaid in May 2016, using borrowings under the
$2.50 billion
Sunoco Logistics Credit Facility.
In July 2016, Sunoco Logistics issued
$550 million
aggregate principal amount of
3.90%
senior notes due in July 2026. The net proceeds from this offering were used to repay outstanding credit facility borrowings and for general partnership purposes.
Sunoco LP Term Loan and Senior Notes
In March 2016, Sunoco LP entered into a term loan agreement which provides secured financing in an aggregate principal amount of up to
$2.035 billion
due 2019. As of
September 30, 2016
, Sunoco LP had
$1.2 billion
outstanding under the term loan. Amounts borrowed under the term loan bear interest at either LIBOR or base rate plus an applicable margin based on Sunoco LP’s election for each interest period. The proceeds were used to fund a portion of the ETP dropdown and to pay fees and expenses incurred in connection with the ETP dropdown and the term loan.
In April 2016, Sunoco LP issued
$800 million
aggregate principal amount of
6.25%
Senior Notes due 2021. The net proceeds of
$789 million
were used to repay a portion of the borrowings under its term loan facility.
ETP Credit Facility
The ETP Credit Facility allows for borrowings of up to
$3.75 billion
and expires in November 2019. The indebtedness under the ETP Credit Facility is unsecured, is not guaranteed by any of ETP’s subsidiaries and has equal rights to holders of its current and future unsecured debt. In September 2016, ETP initiated a commercial paper program under the borrowing limits established by the
$3.75 billion
ETP Credit Facility. As of
September 30, 2016
,
the ETP Credit Facility had
$1.58 billion
of outstanding borrowings, which included
$208 million
of commercial paper.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains a
$2.50 billion
unsecured revolving credit agreement (the “Sunoco Logistics Credit Facility”), which matures in March 2020. The Sunoco Logistics Credit Facility contains an accordion feature, under which the total aggregate commitment may be increased to
$3.25 billion
under certain conditions. As of
September 30, 2016
, the Sunoco Logistics Credit Facility had
$622 million
of outstanding borrowings, which included
$140 million
of commercial paper.
Sunoco LP Credit Facility
Sunoco LP maintains a
$1.50 billion
revolving credit facility (the “Sunoco LP Credit Facility”), which expires in September 2019. The Sunoco LP Credit Facility can be increased from time to time upon Sunoco LP’s written request, subject to certain conditions, up to an additional
$250 million
. As of
September 30, 2016
, the Sunoco LP Credit Facility had
$958 million
of outstanding borrowings and
$24 million
in standby letters of credit.
Bakken Financing
In August 2016, ETP, Sunoco Logistics and Phillips 66 announced the completion of the project-level financing of the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects (collectively, the “Bakken Pipeline”). The
$2.50 billion
credit facility is anticipated to provide substantially all of the remaining capital necessary to complete the projects. As of
September 30, 2016
,
$1.10 billion
was outstanding under this credit facility.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of
September 30, 2016
.
ETE
The changes in ETE common units and Convertible Units during the
nine months ended September 30,
2016
were as follows:
|
|
|
|
|
|
|
|
Number of Convertible Units
|
|
Number of Common Units
|
Outstanding at December 31, 2015
|
—
|
|
|
1,044.8
|
|
Issuance of Series A Convertible Preferred Units
|
329.3
|
|
|
—
|
|
Issuance of common units
|
—
|
|
|
2.2
|
|
Outstanding at September 30, 2016
|
329.3
|
|
|
1,047.0
|
|
Series A Convertible Preferred Units
On March 8, 2016, the Partnership completed a private offering of
329.3 million
Series A Convertible Preferred Units representing limited partner interests in the Partnership (the “Convertible Units”) to certain common unitholders (“Electing Unitholders”) who elected to participate in a plan to forgo a portion of their future potential cash distributions on common units participating in the plan for a period of up to nine fiscal quarters, commencing with distributions for the fiscal quarter ended March 31, 2016, and reinvest those distributions in the Convertible Units. With respect to each quarter for which the declaration date and record date occurs prior to the closing of the merger, or earlier termination of the merger agreement (the “WMB End Date”), each participating common unit will receive the same cash distribution as all other ETE common units up to
$0.11
per unit, which represents approximately
40%
of the per unit distribution paid with respect to ETE common units for the quarter ended December 31, 2015 (the “Preferred Distribution Amount”), and the holder of such participating common unit will forgo all cash distributions in excess of that amount (other than (i) any non-cash distribution or (ii) any cash distribution that is materially and substantially greater, on a per unit basis, than ETE’s most recent regular quarterly distribution, as determined by the ETE general partner (such distributions in clauses (i) and (ii), “Extraordinary Distributions”)). With respect to each quarter for which the declaration date and record date occurs after the WMB End Date, each participating common unit will forgo all distributions for each such quarter (other than Extraordinary Distributions), and each Convertible Unit will receive the Preferred Distribution Amount payable in cash prior to any distribution on ETE common units (other than Extraordinary Distributions). At the end of the plan period, which is expected to be May 18, 2018, the Convertible Units are expected to automatically convert into common units based on the Conversion Value (as defined and described below) of the Convertible Units and a conversion rate of
$6.56
.
The conversion value of each Convertible Unit (the “Conversion Value”) on the closing date of the offering is zero. The Conversion Value will increase each quarter in an amount equal to
$0.285
, which is the per unit amount of the cash distribution paid with respect to ETE common units for the quarter ended December 31, 2015 (the “Conversion Value Cap”), less the cash distribution actually paid with respect to each Convertible Unit for such quarter (or, if prior to the WMB End Date, each participating common unit). Any cash distributions in excess of
$0.285
per ETE common unit, and any Extraordinary Distributions, made with respect to any quarter during the plan period will be disregarded for purposes of calculating the Conversion Value. The Conversion Value will be reflected in the carrying amount of the Convertible Units until the conversion into common units at the end of the plan period. The Convertible Units had
$118 million
carrying value as of September 30, 2016.
ETE issued
329,299,267
Convertible Units to the Electing Unitholders at the closing of the offering, which represents the participation by common unitholders with respect to approximately
31.5%
of ETE’s total outstanding common units. ETE’s Chairman, Kelcy L. Warren, participated in the Plan with respect to substantially all of his common units, which represent approximately
18%
of ETE’s total outstanding common units, and was issued
187,313,942
Convertible Units. In addition, John McReynolds, a director of our general partner and President of our general partner; and Matthew S. Ramsey, a director of our general partner and the general partner of ETP and Sunoco LP and President of the general partner of ETP, participated in the Plan with respect to substantially all of their common units, and Marshall S. McCrea, III, a director of our general partner and the general partner of ETP and Sunoco Logistics and the Group Chief Operating Officer and Chief Commercial Officer of our general partner, participated in the Plan with respect to a substantial portion of his common units. The common units for which Messrs. McReynolds, Ramsey and McCrea elected to participate in the Plan collectively represent approximately
2.2%
of ETE’s total outstanding common units. ETE issued
21,382,155
Convertible Units to Mr. McReynolds,
51,317
Convertible Units to Mr. Ramsey and
1,112,728
Convertible Units to Mr. McCrea. Mr. Ray Davis, who owns an
18.8%
membership interest in our general partner, participated in the Plan with respect to substantially all of his ETE common units,
which represents approximately
6.9%
of ETE’s total outstanding common units, and was issued
72,042,486
Convertible Units. Other than Mr. Davis, no other Electing Unitholder owns a material amount of equity securities of ETE or its affiliates.
Repurchase Program
During the
nine months ended
September 30, 2016
, ETE did not repurchase any ETE common units under its current buyback program. As of
September 30, 2016
,
$936 million
remained available to repurchase under the current program.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investment in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP and Sunoco LP (excluding transactions with the Parent Company) as capital transactions. As a result of these transactions, during the nine months ended September 30, 2016, we recognized decreases in partners’ capital of
$3 million
.
ETP Common Unit Transactions
In July 2016, the Partnership entered into an equity distribution agreement with an aggregate offering price up to
$1.50 billion
.
During the
nine months ended September 30,
2016
, ETP received proceeds of
$646 million
, net of
$6 million
commissions, from the issuance of common units pursuant to equity distribution agreements, which were used for general partnership purposes. As of
September 30, 2016
, approximately
$1.18 billion
of ETP’s common units were available to be issued under an equity distribution agreement.
During the
nine months ended September 30,
2016
, distributions of
$148 million
were reinvested under ETP’s distribution reinvestment plan. As of
September 30, 2016
, a total of
6.8 million
common units remain available to be issued under the existing registration statement in connection with the distribution reinvestment plan.
Sunoco Logistics Common Unit Transactions
During the
nine months ended
September 30, 2016
, Sunoco Logistics received proceeds of
$744 million
, net of commissions of
$8 million
, from the issuance of Sunoco Logistics common units pursuant to equity distribution agreements, which were used for general partnership purposes.
In September 2016, Sunoco Logistics completed a public offering of
21 million
common units for proceeds of
$560 million
, net of
$7 million
in fees and commissions to managers. The net proceeds from this offering were used to partially fund the acquisition from Vitol, which closed in November 2016. In October 2016, an additional
3.2 million
common units were issued for proceeds of
$84 million
, less fees and commissions to managers of
$1 million
, related to the exercise of an option in connection with the September 2016 offering.
Sunoco LP Common Unit Transactions
In January 2016, Sunoco LP issued
16.4 million
Class C units representing limited partner interest consisting of (i)
5.2 million
Class C Units issued by Sunoco LP to Aloha Petroleum, Ltd as consideration for the contribution by Aloha to an indirect wholly-owned subsidiary, and (ii)
11.2 million
Class C Units that were issued by Sunoco LP to its indirect wholly-owned subsidiaries in exchange for all of the outstanding Class A Units held by such subsidiaries.
In March 2016, ETP contributed to Sunoco LP its remaining
68.42%
interest in Sunoco, LLC and
100%
interest in the legacy Sunoco, Inc. retail business for
$2.23 billion
. Sunoco LP paid
$2.20 billion
in cash, including a working capital adjustment, and issued
5.7 million
Sunoco LP common units to Retail Holdings, a wholly-owned subsidiary of ETP.
On March 31, 2016, Sunoco LP sold
2.3
million of Sunoco LP’s common units in a private placement to the Partnership.
In October 2016, Sunoco LP entered into an equity distribution agreement pursuant to which Sunoco LP may sell from time to time common units having aggregate offering prices of up to
$400 million
. Through November 7, 2016, Sunoco LP received net proceeds of
$7 million
from the issuance of
0.2 million
Sunoco LP common units pursuant to such equity distribution agreement. Sunoco LP intends to use the proceeds from any sales for general partnership purposes.
Bakken Equity Sale
On August 2, 2016, Bakken Holdings Company LLC, an entity in which ETP indirectly owns a
60%
membership interest and Sunoco Logistics indirectly owns a
40%
membership interest, agreed to sell a
49%
interest in its wholly-owned subsidiary, Bakken Pipeline Investments LLC, to MarEn Bakken Company LLC, an entity jointly owned by Marathon Petroleum Corporation and Enbridge Energy Partners, L.P. for
$2.00 billion
in cash. This transaction is expected to close in the fourth
quarter of 2016. Bakken Pipeline Investments LLC indirectly owns a
75%
interest in each of Dakota Access, LLC (“Dakota Access”) and Energy Transfer Crude Oil Company, LLC (“ETCO”). The remaining
25%
of each of Dakota Access and ETCO is owned by wholly-owned subsidiaries of Phillips 66. We will continue to consolidate Dakota Access and ETCO subsequent to this transaction.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
December 31, 2015
|
|
February 4, 2016
|
|
February 19, 2016
|
|
$
|
0.2850
|
|
March 31, 2016
|
|
May 6, 2016
|
|
May 19, 2016
|
|
0.2850
|
|
June 30, 2016
|
|
August 8, 2016
|
|
August 19, 2016
|
|
0.2850
|
|
September 30, 2015
|
|
November 7, 2016
|
|
November 18, 2016
|
|
0.2850
|
|
ETP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by ETP subsequent to
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
December 31, 2015
|
|
February 8, 2016
|
|
February 16, 2016
|
|
$
|
1.0550
|
|
March 31, 2016
|
|
May 6, 2016
|
|
May 16, 2016
|
|
1.0550
|
|
June 30, 2016
|
|
August 8, 2016
|
|
August 15, 2016
|
|
1.0550
|
|
September 30, 2016
|
|
November 7, 2016
|
|
November 14, 2016
|
|
1.0550
|
|
In July 2016, the Partnership agreed to relinquish an aggregate amount of
$720 million
in incentive distributions commencing with the quarter ended June 30, 2016 and ending with the quarter ending December 31, 2017, including a relinquishment of
$85 million
for the quarter ended September 30, 2016. In connection with the PennTex acquisition in November 2016, discussed in Note 2, the Partnership has agreed to a perpetual waiver of incentive distributions in the amount of
$33 million
annually.
The Partnership has also previously agreed to relinquish additional incentive distributions. In the aggregate, including relinquishment agreed to in July and November 2016, the Partnership has agreed to relinquish its right to the following amounts of incentive distributions in future periods, including distributions on Class I Units.
|
|
|
|
|
|
|
|
Total Year
|
2016 (remainder)
|
|
$
|
138
|
|
2017
|
|
626
|
|
2018
|
|
138
|
|
2019
|
|
128
|
|
Each year beyond 2019
|
|
33
|
|
Sunoco Logistics Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco Logistics subsequent to
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
December 31, 2015
|
|
February 8, 2016
|
|
February 12, 2016
|
|
$
|
0.4790
|
|
March 31, 2016
|
|
May 9, 2016
|
|
May 13, 2016
|
|
0.4890
|
|
June 30, 2016
|
|
August 8, 2016
|
|
August 12, 2016
|
|
0.5000
|
|
September 30, 2016
|
|
November 9, 2016
|
|
November 14, 2016
|
|
0.5100
|
|
In connection with the acquisition from Vitol, Sunoco Logistics’ general partner executed an amendment to its partnership agreement in September 2016 which provides for a reduction to the incentive distributions paid by Sunoco Logistics. The reductions will total
$60 million
over a two-year period, recognized ratably over eight quarters, beginning with the third
quarter 2016 cash distribution. The incentive distribution reduction will reduce the incentive distributions that ETP receives from Sunoco Logistics, as well as the amount of distributions that ETP pays on its Class H units.
Sunoco LP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco LP subsequent to
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
December 31, 2015
|
|
February 5, 2016
|
|
February 16, 2016
|
|
$
|
0.8013
|
|
March 31, 2016
|
|
May 6, 2016
|
|
May 16, 2016
|
|
0.8173
|
|
June 30, 2016
|
|
August 5, 2016
|
|
August 15, 2016
|
|
0.8255
|
|
September 30, 2016
|
|
November 7, 2016
|
|
November 15, 2016
|
|
0.8255
|
|
Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Available-for-sale securities
|
$
|
5
|
|
|
$
|
—
|
|
Foreign currency translation adjustment
|
(5
|
)
|
|
(4
|
)
|
Actuarial loss related to pensions and other postretirement benefits
|
5
|
|
|
8
|
|
Investments in unconsolidated affiliates, net
|
(9
|
)
|
|
—
|
|
Subtotal
|
(4
|
)
|
|
4
|
|
Amounts attributable to noncontrolling interest
|
4
|
|
|
(4
|
)
|
Total AOCI, net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
|
10.
|
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
|
Contingent Residual Support Agreement – AmeriGas
In connection with the closing of the contribution of its propane operations in January 2012, ETP agreed to provide contingent, residual support of
$1.55 billion
of intercompany borrowings made by AmeriGas and certain of its affiliates with maturities through 2022 from a finance subsidiary of AmeriGas that have maturity dates and repayment terms that mirror those of an equal principal amount of senior notes issued by this finance company subsidiary to third party purchasers. In June 2016, AmeriGas repurchased certain of its senior notes, which caused a reduction in the amount supported by ETP under the contingent residual support agreement. As of September 30, 2016, ETP continued to provide contingent, residual support of approximately
$1 billion
of borrowings.
ETP Retail Holdings Guarantee of Sunoco LP Notes
Retail Holdings has provided a limited contingent guarantee of collection, but not of payment, to Sunoco LP with respect to (i)
$800 million
principal amount of
6.375%
senior notes due 2023 issued by Sunoco LP, (ii)
$800 million
principal amount of
6.25%
senior notes due 2021 issued by Sunoco LP and (iii)
$2.035 billion
of borrowings outstanding under Sunoco LP’s Term Loan.
NGL Pipeline Regulation
ETP has interests in NGL pipelines located in Texas and New Mexico. ETP commenced the interstate transportation of NGLs in 2013, which is subject to the jurisdiction of the FERC under the Interstate Commerce Act (“ICA”) and the Energy Policy Act of 1992. Under the ICA, tariff rates must be just and reasonable and not unduly discriminatory and pipelines may not confer any undue preference. The tariff rates established for interstate services were based on a negotiated agreement; however, the FERC’s rate-making methodologies may limit ETP’s ability to set rates based on our actual costs, may delay or limit the use of rates that reflect increased costs and may subject us to potentially burdensome and expensive operational, reporting and other requirements. Any of the foregoing could adversely affect ETP’s business, revenues and cash flow.
FERC Audit
In March 2016, the FERC commenced an audit of Trunkline for the period from January 1, 2013 to present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations of the Uniform System of Accounts as prescribed by the FERC, and the FERC’s annual reporting requirements. The audit is ongoing.
Commitments
In the normal course of our business, we purchase, process and sell natural gas pursuant to long-term contracts and we enter into long-term transportation and storage agreements. Such contracts contain terms that are customary in the industry. We believe that the terms of these agreements are commercially reasonable and will not have a material adverse effect on our financial position or results of operations.
We have certain non-cancelable leases for property and equipment, which require fixed monthly rental payments and expire at various dates through
2058
. The table below reflects rental expense under these operating leases included in operating expenses in the accompanying statements of operations, which include contingent rentals, and rental expense recovered through related sublease rental income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Rental expense
(1)
|
$
|
55
|
|
|
$
|
43
|
|
|
$
|
163
|
|
|
$
|
149
|
|
Less: Sublease rental income
|
(6
|
)
|
|
(4
|
)
|
|
(18
|
)
|
|
(16
|
)
|
Rental expense, net
|
$
|
49
|
|
|
$
|
39
|
|
|
$
|
145
|
|
|
$
|
133
|
|
|
|
(1)
|
Includes contingent rentals totaling
$8 million
and
$9 million
for the
three months ended September 30,
2016
and
2015
, respectively, and
$17 million
and
$19 million
for the
nine months ended September 30,
2016
and
2015
, respectively.
|
Certain of our subsidiaries’ joint venture agreements require that they fund their proportionate shares of capital contributions to their unconsolidated affiliates. Such contributions will depend upon their unconsolidated affiliates’ capital requirements, such as for funding capital projects or repayment of long-term obligations.
Litigation and Contingencies
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. Natural gas and crude oil are flammable and combustible. Serious personal injury and significant property damage can arise in connection with their transportation, storage or use. In the ordinary course of business, we are sometimes threatened with or named as a defendant in various lawsuits seeking actual and punitive damages for product liability, personal injury and property damage. We maintain liability insurance with insurers in amounts and with coverage and deductibles management believes are reasonable and prudent, and which are generally accepted in the industry. However, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will remain adequate to protect us from material expenses related to product liability, personal injury or property damage in the future.
Mont Belvieu Incident
On June 26, 2016, a subsurface release of hydrocarbons and water, and a subsequent fire, occurred at Lone Star’s South Terminal. All employees and contractors were accounted for, and there were no injuries. The cause of the fire and evaluation of possible damages is currently under investigation.
MTBE Litigation
Sunoco, Inc. and/or Sunoco, Inc. (R&M), along with other refiners, manufacturers and sellers of gasoline, is a defendant in lawsuits alleging MTBE contamination of groundwater. The plaintiffs typically include water purveyors and municipalities responsible for supplying drinking water and governmental authorities. The plaintiffs primarily assert product liability claims and additional claims including nuisance, trespass, negligence, violation of environmental laws and deceptive business practices. The plaintiffs in all of the cases seek to recover compensatory damages, and in some cases also seek natural resource damages, injunctive relief, punitive damages and attorneys’ fees.
As of
September 30, 2016
,
Sunoco, Inc. is a defendant in
six
cases, including cases initiated by the States of New Jersey, Vermont, Pennsylvania, Rhode Island, and two others by the Commonwealth of Puerto Rico with the more recent Puerto Rico action being a companion case alleging damages for additional sites beyond those at issue in the initial Puerto Rico action.
Four
of these cases are venued in a multidistrict litigation proceeding in a New York federal court. The New Jersey, Puerto Rico, Vermont, and Pennsylvania cases assert natural resource damage claims.
Fact discovery has concluded with respect to an initial set of
19
sites each that will be the subject of the first trial phase in the New Jersey case and the initial Puerto Rico case. The initial set of
19
New Jersey trial sites are now pending before the United States District Judge for the District of New Jersey, the Hon. Freda L. Wolfson for the pre-trial and trial phases. Judge Wolfson then referred the case to United States Magistrate Judge for the District of New Jersey, the Hon. Lois H. Goodman. Judge Goodman conducted a status conference with all of the parties and inquired whether the parties will engage in a global mediation and instructed the parties to exchange possible mediator names. All parties agreed to participate in global settlement discussions in a global mediation forum before Hon. Garret Brown (Ret.), a Judicial Arbitration Mediation Service mediator. The remaining portion of the New Jersey case remains in the multidistrict litigation. The first mediation session with Judge Brown is scheduled for November 2 through November 3, 2016. It is reasonably possible that a loss may be realized; however, we are unable to estimate the possible loss or range of loss in excess of amounts accrued. Management believes that an adverse determination with respect to one or more of the MTBE cases could have a significant impact on results of operations during the period in which any said adverse determination occurs, but does not believe that any such adverse determination would have a material adverse effect on the Partnership’s consolidated financial position.
Regency Merger Litigation
Following the January 26, 2015 announcement of the Regency Merger, purported Regency unitholders filed lawsuits in state and federal courts in Dallas and Delaware asserting claims relating to the Regency Merger. All Regency Merger-related lawsuits have been dismissed, although one lawsuit remains pending on appeal. On June 10, 2015, Adrian Dieckman (“Dieckman”), a purported Regency unitholder, filed a class action complaint on behalf of Regency’s common unitholders in the Court of Chancery of the State of Delaware. The lawsuit alleges that the Regency Merger breached the Regency partnership agreement because Regency’s conflicts committee was not properly formed, and the Regency Merger was not approved in good faith. Defendants filed a motion to dismiss, and on March 29, 2016, the Delaware court granted Defendants’ motion and dismissed the lawsuit. On April 26, 2016, Dieckman filed his Notice of Appeal to the Supreme Court of Delaware. This appeal is styled Adrian Dieckman v. Regency GP LP, et al., No. 208, 2016, in the Supreme Court of the State of Delaware. Dieckman filed his Opening Brief on June 9, 2016, and Defendants’ filed their Answering Brief on July 29, 2016. On August 31, 2016, Dieckman filed his Reply Brief. Oral argument is scheduled for November 16, 2016, before the Delaware Supreme Court.
Jamie Welch Litigation
On March 10, 2016, Jamie Welch (“Welch”) filed an original petition against ETE and LE GP, LLC (“LE GP”) in Texas state court in Dallas. A confidential settlement was reached in August 2016. The court dismissed the matter with prejudice on September 6, 2016.
Enterprise Products Partners, L.P. and Enterprise Products Operating LLC Litigation
On January 27, 2014, a trial commenced between ETP against Enterprise Products Partners, L.P. and Enterprise Products Operating LLC (collectively, “Enterprise”) and Enbridge (US) Inc. Trial resulted in a verdict in favor of ETP against Enterprise that consisted of
$319 million
in compensatory damages and
$595 million
in disgorgement to ETP. The jury also found that ETP owed Enterprise approximately
$1 million
under a reimbursement agreement. On July 29, 2014, the trial court entered a final judgment in favor of ETP and awarded ETP
$536 million
, consisting of compensatory damages, disgorgement, and pre-judgment interest. The trial court also ordered that ETP shall be entitled to recover post-judgment interest and costs of court and that Enterprise is not entitled to any net recovery on its counterclaims. Enterprise has filed a notice of appeal with the Texas Court of Appeals, and briefing by Enterprise and ETP is complete. Oral argument was held on April 20, 2016. The Court of Appeals is taking the briefs under advisement. In accordance with GAAP, no amounts related to the original verdict or the July 29, 2014 final judgment will be recorded in our financial statements until the appeal process is completed.
Litigation Filed By or Against WMB
On April 6, 2016, WMB filed a complaint against ETE and LE GP in the Delaware Court of Chancery (the “First Delaware WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., C.A. No. 12168-VCG. WMB alleged that Defendants breached the merger agreement between WMB, ETE, and several of ETE’s affiliates (the “Merger Agreement”) by issuing ETE’s Series A Convertible Preferred Units. According to WMB, the issuance of Convertible Units (the “Issuance”) violates various contractual restrictions on ETE’s actions between the execution and
closing of the merger. WMB sought, among other things, to (a) rescind the Issuance and (b) invalidate an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the Issuance.
During a hearing on April 14, 2016, the Court granted WMB’s request to expedite the case and set a permanent injunction hearing for June 15, 2016.
On the same day that it filed the First Delaware WMB Litigation, WMB also filed a petition against Mr. Warren individually in the District Court of Dallas County, Texas (the “Texas WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Kelcy L. Warren, C.A. No. DC-16-03941. Mr. Warren sought dismissal of this lawsuit on the ground that WMB violated the Merger Agreement’s mandatory forum selection clause by filing the Texas WMB Litigation in Texas and not Delaware. On May 25, 2016, the Dallas court granted Mr. Warren’s motion and dismissed the Texas WMB Litigation without prejudice.
On May 3, 2016, ETE and LE GP filed an answer and counterclaim in the First Delaware WMB Litigation. The counterclaim asserts in general that WMB materially breached its obligations under the Merger Agreement by (a) blocking ETE’s attempts to complete a public offering of the Convertible Units, including, among other things, by declining to allow WMB’s independent registered public accounting firm to provide the auditor consent required to be included in the registration statement for a public offering and (b) bringing the Texas WMB Litigation against Mr. Warren in the District Court of Dallas County, Texas.
On May 13, 2016, WMB filed a second lawsuit in the Delaware Court of Chancery against ETE and LE GP and added Energy Transfer Corp LP, ETE Corp GP, LLC, and Energy Transfer Equity GP, LLC as additional defendants (the “Second Delaware WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., C.A. No. 12337-VCG. In general, WMB alleged that the defendants breached the Merger Agreement by (a) failing to use commercially reasonable efforts to obtain from Latham & Watkins LLP (“Latham”) the delivery of a tax opinion under Section 721 of the Tax Code (“721 Opinion”), a condition precedent to the closing of the merger, and (b) taking actions that allegedly delayed the SEC in declaring the Form S-4 filed in connection with the merger (the “Form S-4”) effective. WMB asked the Court, in general, to (a) issue a declaratory judgment that ETE breached the Merger Agreement, (b) enjoin ETE from terminating the Merger Agreement on the basis that it failed to obtain a 721 Opinion, (c) enjoin ETE from terminating the Merger Agreement on the basis that the transaction failed to close by the outside date, and (d) force ETE to close the merger or take various other affirmative actions. WMB sought to expedite the second lawsuit, and ETE agreed to expedite both Delaware actions.
ETE also filed an answer and counterclaim in the Second Delaware WMB Litigation. In addition to the counterclaims previously asserted, ETE asserted that WMB materially breached the Merger Agreement by, among other things, (a) modifying or qualifying the WMB board of directors’ recommendation to its stockholders regarding the merger, (b) failing to provide material information to ETE for inclusion in the Form S-4 related to the merger necessary to prevent the Form S-4 from being materially misleading, (c) failing to facilitate the financing of the merger, (d) failing to be reasonable with respect to its withholding of its consent to ETE’s offering of Series A Convertible Preferred Units, and (e) failing to use its reasonable best efforts to consummate the merger. ETE sought, among other things, a declaration that it could validly terminate the Merger Agreement after June 28, 2016 in the event that Latham was unable to deliver the 721 Opinion on or prior to June 28, 2016.
After expedited discovery and a two-day trial on June 20 and 21, 2016, the Court ruled in favor of ETE and issued a declaratory judgment that ETE could terminate the merger after June 28, 2016 because of Latham’s inability to provide the required 721 Opinion. The Court also denied WMB’s requests for injunctive relief. WMB filed a notice of appeal to the Supreme Court of Delaware on June 27, 2016. The appeal is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., No. 330, 2016. Briefing on Williams’ appeal is now complete, and the parties are waiting for the Delaware Supreme Court to schedule oral argument, which is likely to occur in December 2016 or early 2017.
Williams filed an amended complaint on September 16, 2016. In the amended complaint, Williams abandons its request for injunctive relief, including its request that the Court order the ETE Defendants to consummate the merger. Instead, Williams seeks a
$410 million
termination fee and additional damages of up to
$10 billion
based on the purported lost value of the merger consideration. These damages claims are based on the alleged breaches of the Merger Agreement detailed above, as well as new allegations that the ETE Defendants breached an additional representation and warranty in the Merger Agreement.
The ETE Defendants filed amended counterclaims and affirmative defenses on September 23, 2016. In the amended counterclaim, the ETE Defendants seek a
$1.48 billion
termination fee under the Merger Agreement and additional damages caused by Williams’ misconduct. These damages claims are based on the alleged breaches of the Merger Agreement detailed above, as well as new allegations that Williams breached the Merger Agreement by failing to disclose material information that was required to be disclosed in the Form S-4. The ETE Defendants are currently seeking discovery in support of their counterclaims. Williams has asked the Court to stay all discovery until the resolution of its appeal to the Delaware Supreme Court and a forthcoming motion to dismiss.
Litigation Relating to the WMB Merger
Between October 5, 2015, and December 24, 2015, purported WMB stockholders filed six putative class action lawsuits in the Delaware Court of Chancery challenging the merger. The suits are captioned
Greenwald et al. v. The Williams Companies, Inc., et al
., C.A. No. 11573-VCG;
Ozaki v. Armstrong et al
., C.A. No. 11574-VCG;
Blystone v. The Williams Companies, Inc., et al
., C.A. No. 11601-VCG;
Glener et al. v. The Williams Companies, Inc., et al
., C.A. No. 11606-VCG;
Amaitis et al. v. Armstrong et al
., C.A. No. 11809-VCG; and
State-Boston Retirement System et al. v. Armstrong et al
., C.A. No. 11844-VCG. The complaints assert various claims against the individual members of WMB’s board of directors; ETE, ETC, ETC GP, LE GP and ETE GP (the “ETE Defendants”); WMB; and others. On January 13, 2016, the Court consolidated these six actions into a new consolidated action captioned
In re The Williams Companies, Inc. Merger Litigation
, Consolidated C.A. No. 11844-VCG (the “Merger Litigation”). In its stipulated order, the Court dismissed without prejudice the ETE Defendants (among others) from the consolidated action.
On January 14, 2016, a purported WMB stockholder (“Bumgarner”) filed a putative class action lawsuit against WMB and ETE, captioned
Bumgarner v. The Williams Companies, Inc., et al
., Case No. 16-cv-26-GKF-FHM, in the United States District Court for the Northern District of Oklahoma. Bumgarner alleged that ETE and WMB violated Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”) by making allegedly false statements concerning the merger. As relief, the complaint sought an injunction against the proposed merger. On February 1, 2016, Bumgarner filed an amended complaint, making substantially the same allegations. On February 19, 2016, ETE and WMB moved to dismiss the amended complaint. Bumgarner moved for expedited discovery on April 21, 2016. On April 28, 2016, the Court granted the motion to dismiss and dismissed Bumgarner’s claims in their entirety with leave to amend. The Court also granted expedited proceedings. Bumgarner amended his complaint on May 12, 2016, and ETE and WMB again moved to dismiss. The Court granted the motion in part and denied it in part on May 26, 2016, and Bumgarner amended his complaint the same day. Following a motion to reconsider filed by ETE and WMB, the Court revised its Order on the motion to dismiss on June 3, 2016. Bumgarner filed a second motion for a preliminary injunction on June 10, 2016. On June 16, 2016, the parties reached a settlement agreement, and Bumgarner withdrew his motion for a preliminary injunction. Pursuant to the agreement, WMB issued a press release and agreed to provide an updated disclosure to its proxy statement in connection with the merger. WMB also agreed to pay Bumgarner’s attorney fees. On July 28, 2016, Bumgarner’s claim was dismissed with prejudice.
On January 19, 2016, The City of Birmingham Retirement and Relief System (“CBRRS”), a purported shareholder of WMB, filed a putative class action lawsuit against the members of WMB’s board of directors, WMB, ETE, ETC, ETC GP, LE GP, and ETE GP challenging the merger and the disclosures made in connection with the merger. The lawsuit was styled
City of Birmingham Retirement and Relief System v. Alan S. Armstrong, et al.
, C.A. No. 16-17-RGA, in the United States District Court for the District of Delaware. CBRRS alleged violations of Section 14(a) and 20(a) of the Exchange Act among other claims. CBRRS moved to expedite, and Defendants moved to dismiss the suit. The Court denied expedition. CBRRS voluntarily dismissed the suit on March 7, 2016.
Unitholder Litigation Relating to the Issuance
In April 2016, two purported ETE unitholders (the “Issuance Plaintiffs”) filed putative class action lawsuits against, Energy Transfer Equity, L.P. and LE GP, LLC, Kelcy Warren, John McReynolds, Marshall McCrea, Matthew Ramsey, Ted Collins, K. Rick Turner, William Williams, Ray Davis, and Richard Brannon in the Delaware Court of Chancery. These lawsuits have been consolidated as
In re Energy Transfer Equity, L.P. Unitholder Litigation
, Consolidated C.A. No. 12197-VCG, in the Court of Chancery of the State of Delaware. One of the Issuance Plaintiffs had initially filed an action to inspect the books and records of ETE on April 11, 2016 but voluntarily dismissed the books and records action on April 22, 2016.
The Issuance Plaintiffs allege that the Issuance breached various provisions of ETE’s limited partnership agreement. The Issuance Plaintiffs seek, among other things, preliminary and permanent injunctive relief that (a) prevents ETE from making distributions to the Convertible Units and (b) invalidates an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the issuance of Convertible Units.
Another purported ETE unitholder, Chester County Employees’ Retirement Fund, joined the consolidated action as an additional plaintiff of April 25, 2016.
On July 6, 2016, Bowood withdrew from the consolidated action. The parties engaged in discovery, and Plaintiffs filed a consolidated amended complaint on August 29, 2016. In addition to the injunctive relief described above, Plaintiffs seek class-wide damages allegedly resulting from the Convertible Unit issuance.
On September 28, 2016, Defendants and Plaintiffs filed cross-motions for partial summary judgment. A hearing on the parties’ motions is set for November 9, 2016.
Other Litigation and Contingencies
We or our subsidiaries are a party to various legal proceedings and/or regulatory proceedings incidental to our businesses. For each of these matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, the likelihood of an unfavorable outcome and the availability of insurance coverage. If we determine that an unfavorable outcome of a particular matter is probable and can be estimated, we accrue the contingent obligation, as well as any expected insurance recoverable amounts related to the contingency. As of
September 30, 2016
and
December 31, 2015
, accruals of approximately
$56 million
and
$40 million
, respectively, were reflected on our balance sheets related to these contingent obligations. As new information becomes available, our estimates may change. The impact of these changes may have a significant effect on our results of operations in a single period.
The outcome of these matters cannot be predicted with certainty and there can be no assurance that the outcome of a particular matter will not result in the payment of amounts that have not been accrued for the matter. Furthermore, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued.
No
amounts have been recorded in our
September 30, 2016
or
December 31, 2015
consolidated balance sheets for contingencies and current litigation, other than amounts disclosed herein.
Attorney General of the Commonwealth of Massachusetts v. New England Gas Company.
On July 7, 2011, the Massachusetts Attorney General (“AG”) filed a regulatory complaint with the Massachusetts Department of Public Utilities (“MDPU”) against New England Gas Company with respect to certain environmental cost recoveries. The AG is seeking a refund to New England Gas Company customers for alleged “excessive and imprudently incurred costs” related to legal fees associated with Southern Union’s environmental response activities. In the complaint, the AG requests that the MDPU initiate an investigation into the New England Gas Company’s collection and reconciliation of recoverable environmental costs including: (i) the prudence of any and all legal fees, totaling approximately
$19 million
, that were charged by the Kasowitz, Benson, Torres & Friedman firm and passed through the recovery mechanism since 2005, the year when a partner in the firm, the Southern Union former Vice Chairman, President and Chief Operating Officer, joined Southern Union’s management team; (ii) the prudence of any and all legal fees that were charged by the Bishop, London & Dodds firm and passed through the recovery mechanism since 2005, the period during which a member of the firm served as Southern Union’s Chief Ethics Officer; and (iii) the propriety and allocation of certain legal fees charged that were passed through the recovery mechanism that the AG contends only qualify for a lesser,
50%
, level of recovery. Southern Union has filed its answer denying the allegations and moved to dismiss the complaint, in part on a theory of collateral estoppel. The hearing officer has deferred consideration of Southern Union’s motion to dismiss. The AG’s motion to be reimbursed expert and consultant costs by Southern Union of up to
$150,000
was granted. By tariff, these costs are recoverable through rates charged to New England Gas Company customers. The hearing officer previously stayed discovery pending resolution of a dispute concerning the applicability of attorney-client privilege to legal billing invoices. The MDPU issued an interlocutory order on June 24, 2013 that lifted the stay, and discovery has resumed. Panhandle (as successor to Southern Union) believes it has complied with all applicable requirements regarding its filings for cost recovery and has not recorded any accrued liability; however, Panhandle will continue to assess its potential exposure for such cost recoveries as the matter progresses.
Compliance Orders from the New Mexico Environmental Department
Regency received a Notice of Violation from the New Mexico Environmental Department on September 23, 2015 for allegations of violations of New Mexico air regulations related to Jal #3. The Partnership has accrued
$250,000
related to the claims and will continue to assess its potential exposure to the allegations as the matter progresses.
Lone Star NGL Fractionators Notice of Enforcement
Lone Star NGL Fractionators received a Notice of Enforcement from the Texas Commission on Environmental Quality on August 28, 2015 for allegations of violations of Texas air regulations related to its Mont Belvieu Gas Plant. The Partnership has accrued
$50,000
related to this claim. As of September 2016, the Agreed Order is in the approval process with the Texas Commission on Environmental Quality and includes a
$21,000
Supplemental Environmental Project.
Environmental Matters
Our operations are subject to extensive federal, state and local environmental and safety laws and regulations that require expenditures to ensure compliance, including related to air emissions and wastewater discharges, at operating facilities and for remediation at current and former facilities as well as waste disposal sites. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent
in the business of transporting, storing, gathering, treating, compressing, blending and processing natural gas, natural gas liquids and other products. As a result, there can be no assurance that significant costs and liabilities will not be incurred. Costs of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with environmental laws and regulations and safety standards. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the issuance of injunctions and the filing of federally authorized citizen suits. Contingent losses related to all significant known environmental matters have been accrued and/or separately disclosed. However, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
Environmental exposures and liabilities are difficult to assess and estimate due to unknown factors such as the magnitude of possible contamination, the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental laws and regulations may change in the future. Although environmental costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
Based on information available at this time and reviews undertaken to identify potential exposure, we believe the amount reserved for environmental matters is adequate to cover the potential exposure for cleanup costs.
Environmental Remediation
Our subsidiaries are responsible for environmental remediation at certain sites, including the following:
|
|
•
|
Certain of our interstate pipelines conduct soil and groundwater remediation related to contamination from past uses of PCBs. PCB assessments are ongoing and, in some cases, our subsidiaries could potentially be held responsible for contamination caused by other parties.
|
|
|
•
|
Certain gathering and processing systems are responsible for soil and groundwater remediation related to releases of hydrocarbons.
|
|
|
•
|
Currently operating Sunoco, Inc. retail sites.
|
|
|
•
|
Legacy sites related to Sunoco, Inc., that are subject to environmental assessments include formerly owned terminals and other logistics assets, retail sites that Sunoco, Inc. no longer operates, closed and/or sold refineries and other formerly owned sites.
|
|
|
•
|
Sunoco, Inc. is potentially subject to joint and several liability for the costs of remediation at sites at which it ha
s been identified
as a potentially responsible party (“PRP”). As of
September 30, 2016
, Sunoco, Inc. had been named as a PRP at approximately
50
identified or potentially identifiable “Superfund” sites under federal and/or comparable state law. Sunoco, Inc. is usually one of a number of companies identified as a PRP at a site. Sunoco, Inc. has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon Sunoco, Inc.’s purported nexus to the sites, believes that its potential liability associated with such sites will not be significant.
|
To the extent estimable, expected remediation costs are included in the amounts recorded for environmental matters in our consolidated balance sheets. In some circumstances, future costs cannot be reasonably estimated because remediation activities are undertaken as claims are made by customers and former customers. To the extent that an environmental remediation obligation is recorded by a subsidiary that applies regulatory accounting policies, amounts that are expected to be recoverable through tariffs or rates are recorded as regulatory assets on our consolidated balance sheets.
The table below reflects the amounts of accrued liabilities recorded in our consolidated balance sheets related to environmental matters that are considered to be probable and reasonably estimable. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued. Except for matters discussed above, we do not have any material environmental matters assessed as reasonably possible that would require disclosure in our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Current
|
$
|
49
|
|
|
$
|
42
|
|
Non-current
|
313
|
|
|
326
|
|
Total environmental liabilities
|
$
|
362
|
|
|
$
|
368
|
|
In 2013, we established a wholly-owned captive insurance company to bear certain risks associated with environmental obligations related to certain sites that are no longer operating. The premiums paid to the captive insurance company include estimates for environmental claims that have been incurred but not reported, based on an actuarially determined fully developed
claims expense estimate. In such cases, we accrue losses attributable to unasserted claims based on the discounted estimates that are used to develop the premiums paid to the captive insurance company.
During the
three months ended September 30,
2016
and
2015
, Sunoco, Inc. and Sunoco LP collectively recorded
$12 million
and
$9 million
, respectively, of expenditures related to environmental cleanup programs. During the
nine months ended September 30,
2016
and
2015
, Sunoco, Inc. and Sunoco LP recorded
$31 million
and
$27 million
, respectively, of expenditures related to environmental cleanup programs.
On December 2, 2010, Sunoco, Inc. entered an Asset Sale and Purchase Agreement to sell the Toledo Refinery to Toledo Refining Company LLC (“TRC”) wherein Sunoco, Inc. retained certain liabilities associated with the pre-Closing time period. On January 2, 2013, USEPA issued a Finding of Violation (“FOV”) to TRC and, on September 30, 2013, EPA issued an NOV/FOV to TRC alleging Clean Air Act violations. To date, EPA has not issued an FOV or NOV/FOV to Sunoco, Inc. directly but some of EPA’s claims relate to the time period that Sunoco, Inc. operated the refinery. Specifically, EPA has claimed that the refinery flares were not operated in a manner consistent with good air pollution control practice for minimizing emissions and/or in conformance with their design, and that Sunoco, Inc. submitted semi-annual compliance reports in 2010 and 2011 that failed to include all of the information required by the regulations. EPA has proposed penalties in excess of
$200,000
to resolve the allegations and discussions continue between the parties. The timing or outcome of this matter cannot be reasonably determined at this time, however, we do not expect there to be a material impact to our results of operations, cash flows or financial position.
Our pipeline operations are subject to regulation by the U.S. Department of Transportation under the PHMSA, pursuant to which the PHMSA has established requirements relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities. Moreover, the PHMSA, through the Office of Pipeline Safety, has promulgated a rule requiring pipeline operators to develop integrity management programs to comprehensively evaluate their pipelines, and take measures to protect pipeline segments located in what the rule refers to as “high consequence areas.” Activities under these integrity management programs involve the performance of internal pipeline inspections, pressure testing or other effective means to assess the integrity of these regulated pipeline segments, and the regulations require prompt action to address integrity issues raised by the assessment and analysis. Integrity testing and assessment of all of these assets will continue, and the potential exists that results of such testing and assessment could cause us to incur future capital and operating expenditures for repairs or upgrades deemed necessary to ensure the continued safe and reliable operation of our pipelines; however, no estimate can be made at this time of the likely range of such expenditures.
In January 2012, Sunoco Logistics experienced a release on its products pipeline in Wellington, Ohio. In connection with this release, the PHMSA issued a Corrective Action Order under which Sunoco Logistics is obligated to follow specific requirements in the investigation of the release and the repair and reactivation of the pipeline. Sunoco Logistics also entered into an Order on Consent with the EPA regarding the environmental remediation of the release site. All requirements of the Order on Consent with the EPA have been fulfilled and the Order has been satisfied and closed. Sunoco Logistics has also received a "No Further Action" approval from the Ohio EPA for all soil and groundwater remediation requirements. In May 2016, Sunoco Logistics received a proposed penalty from the EPA and U.S. Department of Justice associated with this release, and continues to work with the involved parties to bring this matter to closure. The timing and outcome of this matter cannot be reasonably determined at this time. However, Sunoco Logistics does not expect there to be a material impact to its results of operations, cash flows or financial position.
In June 2016, the PHMSA issued Notices of Probable Violation ("NOPV") and a proposed compliance order (“PCO”) in connection with alleged violations on Sunoco Logistics’ Texas crude oil pipeline system. The proposed penalties are in excess of
$100,000
,
and Sunoco Logistics is currently in discussions with PHMSA to resolve these matters. The timing or outcome of these matters cannot be reasonably determined at this time, however, Sunoco Logistics does not expect there to be a material impact to its results of operations, cash flows, or financial position.
In July 2016, the PHMSA issued a NOPV and PCO in connection with inspection and maintenance activities related to a 2013 incident on Sunoco Logistics' crude oil pipeline near Wortham, Texas. The proposed penalties are in excess of
$100,000
,
and Sunoco Logistics is currently in discussions with PHMSA to resolve these matters. The timing or outcome of these matters cannot be reasonably determined at this time, however, Sunoco Logistics does not expect there to be a material impact to its results of operations, cash flows, or financial position.
Our operations are also subject to the requirements of the OSHA, and comparable state laws that regulate the protection of the health and safety of employees. In addition, OSHA’s hazardous communication standard requires that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens. We believe that our operations are in substantial compliance with the
OSHA requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.
|
|
11.
|
DERIVATIVE ASSETS AND LIABILITIES
|
Commodity Price Risk
We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, our subsidiaries utilize various exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at fair value in our consolidated balance sheets.
We use futures and basis swaps, designated as fair value hedges, to hedge our natural gas inventory stored in our Bammel storage facility. At hedge inception, we lock in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract. Changes in the spreads between the forward natural gas prices and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously unrealized gains or losses associated with these positions are realized.
We use futures, swaps and options to hedge the sales price of natural gas we retain for fees in our intrastate transportation and storage segment and operational gas sales on our interstate transportation and storage segment. These contracts are not designated as hedges for accounting purposes.
We use NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes we retain for fees in our midstream segment whereby our subsidiaries generally gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index price for the residue gas and NGL. These contracts are not designated as hedges for accounting purposes.
We use derivatives in our liquids transportation and services segment to manage our storage facilities and the purchase and sale of purity NGL. These contracts are not designated as hedges for accounting purposes.
Sunoco Logistics utilizes swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products and NGLs. These contracts are not designated as hedges for accounting purposes.
We use futures and swaps to achieve ratable pricing of crude oil purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in margins for certain refined products and to lock in the price of a portion of natural gas purchases or sales and transportation costs in our retail marketing segment. These contracts are not designated as hedges for accounting purposes.
We use financial commodity derivatives to take advantage of market opportunities in our trading activities which complement our transportation and storage segment’s operations and are netted in cost of products sold in our consolidated statements of operations. We also have trading and marketing activities related to power and natural gas in our all other segment which are also netted in cost of products sold. As a result of our trading activities and the use of derivative financial instruments in our transportation and storage segment, the degree of earnings volatility that can occur may be significant, favorably or unfavorably, from period to period. We attempt to manage this volatility through the use of daily position and profit and loss reports provided to our risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in our commodity risk management policy.
The following table details our outstanding commodity-related derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
|
Notional Volume
|
|
Maturity
|
|
Notional Volume
|
|
Maturity
|
Mark-to-Market Derivatives
|
|
|
|
|
|
|
|
(Trading)
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
Fixed Swaps/Futures
|
1,262,500
|
|
|
2016-2017
|
|
(602,500
|
)
|
|
2016-2017
|
Basis Swaps IFERC/NYMEX
(1)
|
60,102,500
|
|
|
2016-2017
|
|
(31,240,000
|
)
|
|
2016-2017
|
Power (Megawatt):
|
|
|
|
|
|
|
|
Forwards
|
419,824
|
|
|
2016-2017
|
|
357,092
|
|
|
2016-2017
|
Futures
|
99,247
|
|
|
2016-2017
|
|
(109,791
|
)
|
|
2016
|
Options — Puts
|
(536,400
|
)
|
|
2016
|
|
260,534
|
|
|
2016
|
Options — Calls
|
1,080,400
|
|
|
2016-2017
|
|
1,300,647
|
|
|
2016
|
Crude (Bbls):
|
|
|
|
|
|
|
|
Futures
|
(656,000
|
)
|
|
2016-2017
|
|
(591,000
|
)
|
|
2016-2017
|
(Non-Trading)
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
4,762,500
|
|
|
2016-2017
|
|
(6,522,500
|
)
|
|
2016-2017
|
Swing Swaps IFERC
|
13,072,500
|
|
|
2016-2017
|
|
71,340,000
|
|
|
2016-2017
|
Fixed Swaps/Futures
|
(35,962,500
|
)
|
|
2016-2018
|
|
(14,380,000
|
)
|
|
2016-2018
|
Forward Physical Contracts
|
(6,834,328
|
)
|
|
2016-2017
|
|
21,922,484
|
|
|
2016-2017
|
Natural Gas Liquid and Crude (Bbls) — Forwards/Swaps
|
(13,519,200
|
)
|
|
2016-2017
|
|
(8,146,800
|
)
|
|
2016-2018
|
Refined Products (Bbls) — Futures
|
(3,066,000
|
)
|
|
2016-2017
|
|
(1,289,000
|
)
|
|
2016-2017
|
Corn (Bushels) — Futures
|
2,155,000
|
|
|
2016
|
|
1,185,000
|
|
|
2016
|
Fair Value Hedging Derivatives
|
|
|
|
|
|
|
|
(Non-Trading)
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(30,620,000
|
)
|
|
2016-2017
|
|
(37,555,000
|
)
|
|
2016
|
Fixed Swaps/Futures
|
(30,620,000
|
)
|
|
2016-2017
|
|
(37,555,000
|
)
|
|
2016
|
Hedged Item — Inventory
|
30,620,000
|
|
|
2016-2017
|
|
37,555,000
|
|
|
2016
|
|
|
(1)
|
Includes aggregate amounts for open positions related to Houston Ship Channel, Waha Hub, NGPL TexOk, West Louisiana Zone and Henry Hub locations.
|
Interest Rate Risk
We are exposed to market risk for changes in interest rates. To maintain a cost effective capital structure, we borrow funds using a mix of fixed rate debt and floating rate debt. We also manage our interest rate exposures by utilizing interest rate swaps to achieve a desired mix of fixed and floating rate debt. We also utilize forward starting interest rate swaps to lock in the rate on a portion of anticipated debt issuances.
The following table summarizes our interest rate swaps outstanding none of which were designated as hedges for accounting purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount Outstanding
|
Term
|
|
Type
(1)
|
|
September 30, 2016
|
|
December 31, 2015
|
July 2016
(2)(4)
|
|
Forward-starting to pay a fixed rate of 3.80% and receive a floating rate
|
|
$
|
—
|
|
|
$
|
200
|
|
July 2017
(3)(4)
|
|
Forward-starting to pay a fixed rate of 3.90% and receive a floating rate
|
|
500
|
|
|
300
|
|
July 2018
(3)
|
|
Forward-starting to pay a fixed rate of 4.00% and receive a floating rate
|
|
200
|
|
|
200
|
|
December 2018
|
|
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.53%
|
|
1,200
|
|
|
1,200
|
|
March 2019
|
|
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.42%
|
|
300
|
|
|
300
|
|
July 2019
(3)
|
|
Forward-starting to pay a fixed rate of 3.25% and receive a floating rate
|
|
200
|
|
|
200
|
|
|
|
(1)
|
Floating rates are based on 3-month LIBOR.
|
|
|
(2)
|
Represents the effective date. These forward-starting swaps have a term of 10 and 30 years with a mandatory termination date the same as the effective date.
|
|
|
(3)
|
Represents the effective date. These forward-starting swaps have terms of 30 years with a mandatory termination date the same as the effective date.
|
|
|
(4)
|
ETP previously had outstanding forward starting interest rate swaps, which were scheduled to expire in July 2016, with a total notional value of
$200 million
. In June 2016, ETP extended the expiration of those swaps to July 2017.
|
Credit Risk
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss to the Partnership. Credit policies have been approved and implemented to govern ETP’s portfolio of counterparties with the objective of mitigating credit losses. These policies establish guidelines, controls and limits to manage credit risk within approved tolerances by mandating an appropriate evaluation of the financial condition of existing and potential counterparties, monitoring agency credit ratings, and by implementing credit practices that limit exposure according to the risk profiles of the counterparties. Furthermore, ETP may at times require collateral under certain circumstances to mitigate credit risk as necessary. ETP also implements the use of industry standard commercial agreements which allow for the netting of positive and negative exposures associated with transactions executed under a single commercial agreement. Additionally, ETP utilizes master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty or affiliated group of counterparties.
ETP’s counterparties consist of a diverse portfolio of customers across the energy industry, including petrochemical companies, commercial and industrials, oil and gas producers, motor fuel distributors, municipalities, utilities and midstream companies. ETP’s overall exposure may be affected positively or negatively by macroeconomic factors or regulatory changes that could impact its counterparties to one extent or another. Currently, management does not anticipate a material adverse effect in our financial position or results of operations as a consequence of counterparty non-performance.
ETP has maintenance margin deposits with certain counterparties in the OTC market, primarily independent system operators, and with clearing brokers. Payments on margin deposits are required when the value of a derivative exceeds our pre-established credit limit with the counterparty. Margin deposits are returned to ETP on or about the settlement date for non-exchange traded derivatives, and ETP exchanges margin calls on a daily basis for exchange traded transactions. Since the margin calls are made daily with the exchange brokers, the fair value of the financial derivative instruments are deemed current and netted in deposits paid to vendors within other current assets in the consolidated balance sheets.
For financial instruments, failure of a counterparty to perform on a contract could result in our inability to realize amounts that have been recorded on our consolidated balance sheets and recognized in net income or other comprehensive income.
Derivative Summary
The following table provides a summary of our derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
September 30, 2016
|
|
December 31, 2015
|
|
September 30, 2016
|
|
December 31, 2015
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
Commodity derivatives (margin deposits)
|
$
|
—
|
|
|
$
|
38
|
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
—
|
|
|
38
|
|
|
(2
|
)
|
|
(3
|
)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
Commodity derivatives (margin deposits)
|
$
|
115
|
|
|
$
|
353
|
|
|
$
|
(141
|
)
|
|
$
|
(306
|
)
|
Commodity derivatives
|
28
|
|
|
63
|
|
|
(57
|
)
|
|
(47
|
)
|
Interest rate derivatives
|
18
|
|
|
—
|
|
|
(375
|
)
|
|
(171
|
)
|
Embedded derivatives in the ETP Preferred Units
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(5
|
)
|
|
161
|
|
|
416
|
|
|
(574
|
)
|
|
(529
|
)
|
Total derivatives
|
$
|
161
|
|
|
$
|
454
|
|
|
$
|
(576
|
)
|
|
$
|
(532
|
)
|
The following table presents the fair value of our recognized derivative assets and liabilities on a gross basis and amounts offset on the consolidated balance sheets that are subject to enforceable master netting arrangements or similar arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
Balance Sheet Location
|
|
September 30, 2016
|
|
December 31, 2015
|
|
September 30, 2016
|
|
December 31, 2015
|
Derivatives without offsetting agreements
|
|
Derivative assets (liabilities)
|
|
$
|
18
|
|
|
$
|
—
|
|
|
$
|
(376
|
)
|
|
$
|
(176
|
)
|
Derivatives in offsetting agreements:
|
|
|
|
|
|
|
|
|
OTC contracts
|
|
Derivative assets (liabilities)
|
|
28
|
|
|
63
|
|
|
(57
|
)
|
|
(47
|
)
|
Broker cleared derivative contracts
|
|
Other current assets
|
|
115
|
|
|
391
|
|
|
(143
|
)
|
|
(309
|
)
|
Total gross derivatives
|
|
161
|
|
|
454
|
|
|
(576
|
)
|
|
(532
|
)
|
Less offsetting agreements:
|
|
|
|
|
|
|
|
|
Counterparty netting
|
|
Derivative assets (liabilities)
|
|
(3
|
)
|
|
(17
|
)
|
|
3
|
|
|
17
|
|
Payments on margin deposit
|
|
Other current assets
|
|
(115
|
)
|
|
(309
|
)
|
|
115
|
|
|
309
|
|
Total net derivatives
|
|
$
|
43
|
|
|
$
|
128
|
|
|
$
|
(458
|
)
|
|
$
|
(206
|
)
|
We disclose the non-exchange traded financial derivative instruments as price risk management assets and liabilities on our consolidated balance sheets at fair value with amounts classified as either current or long-term depending on the anticipated settlement date.
The following tables summarize the amounts recognized with respect to our derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Value Recognized in OCI on Derivatives
(Effective Portion)
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Total
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
Recognized in Income
on Derivatives
|
|
Amount of Gain/(Loss) Recognized in Income Representing Hedge Ineffectiveness and Amount Excluded from the Assessment of Effectiveness
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Derivatives in fair value hedging relationships (including hedged item):
|
|
|
|
|
|
|
|
Commodity derivatives
|
Cost of products sold
|
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
8
|
|
|
$
|
7
|
|
Total
|
|
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
8
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
Recognized in Income
on Derivatives
|
|
Amount of Gain/(Loss) Recognized in Income on Derivatives
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Commodity derivatives —Trading
|
Cost of products sold
|
|
$
|
(7
|
)
|
|
$
|
(2
|
)
|
|
$
|
(24
|
)
|
|
$
|
(10
|
)
|
Commodity derivatives —Non-trading
|
Cost of products sold
|
|
(16
|
)
|
|
48
|
|
|
(61
|
)
|
|
—
|
|
Interest rate derivatives
|
Gains (losses) on interest rate derivatives
|
|
(28
|
)
|
|
(64
|
)
|
|
(179
|
)
|
|
(14
|
)
|
Embedded derivatives
|
Other, net
|
|
8
|
|
|
6
|
|
|
4
|
|
|
10
|
|
Total
|
|
|
$
|
(43
|
)
|
|
$
|
(12
|
)
|
|
$
|
(260
|
)
|
|
$
|
(14
|
)
|
|
|
12.
|
RELATED PARTY TRANSACTIONS
|
The Parent Company has agreements with subsidiaries to provide or receive various management and general and administrative services. The Parent Company pays ETP to provide services on its behalf and on behalf of other subsidiaries of the Parent Company. The Parent Company receives management fees from certain of its subsidiaries, which include the reimbursement of various general and administrative services for expenses incurred by ETP on behalf of those subsidiaries. All such amounts have been eliminated in our consolidated financial statements.
In the ordinary course of business, our subsidiaries have related party transactions between each other which are generally based on transactions made at market-related rates. Our consolidated revenues and expenses reflect the elimination of all material intercompany transactions.
In addition, ETE recorded sales with affiliates of
$49 million
and
$45 million
during the
three months ended
September 30, 2016
and
2015
, respectively, and
$175 million
and
$251 million
during the
nine months ended
September 30, 2016
and
2015
, respectively.
13.
REPORTABLE SEGMENTS
Our financial statements reflect the following reportable business segments:
|
|
•
|
Investment in ETP, including the consolidated operations of ETP;
|
|
|
•
|
Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
|
|
|
•
|
Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
|
|
|
•
|
Corporate and Other, including the following:
|
|
|
•
|
activities of the Parent Company; and
|
|
|
•
|
the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
|
The Investment in Sunoco LP segment reflects the results of Sunoco LP and the legacy Sunoco, Inc. retail business for the periods presented. ETE’s consolidated results reflect the elimination of Sunoco, LLC, Susser and the legacy Sunoco, Inc. retail business for the periods during which those entities were included in the consolidated results of both ETP and Sunoco LP. In addition, subsequent to July 2015, ETP holds an equity method investment in Sunoco LP, the equity in earnings from which is also eliminated in ETE’s consolidated financial statements.
Related party transactions among our segments are generally based on transactions made at market-related rates. Consolidated revenues and expenses reflect the elimination of all material intercompany transactions.
We define Segment Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt, gain on deconsolidation and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Segment Adjusted EBITDA reflects amounts for unconsolidated affiliates based on the Partnership’s proportionate ownership and amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations. Based on the change in our reportable segments we have recast the presentation of our segment results for the prior years to be consistent with the current year presentation.
The following tables present financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Segment Adjusted EBITDA:
|
|
|
|
|
|
|
|
Investment in ETP
|
$
|
1,390
|
|
|
$
|
1,500
|
|
|
$
|
4,172
|
|
|
$
|
4,354
|
|
Investment in Sunoco LP
|
189
|
|
|
254
|
|
|
512
|
|
|
529
|
|
Investment in Lake Charles LNG
|
45
|
|
|
49
|
|
|
133
|
|
|
147
|
|
Corporate and Other
|
(37
|
)
|
|
(26
|
)
|
|
(142
|
)
|
|
(74
|
)
|
Adjustments and Eliminations
|
(83
|
)
|
|
(277
|
)
|
|
(208
|
)
|
|
(553
|
)
|
Total
|
1,504
|
|
|
1,500
|
|
|
4,467
|
|
|
4,403
|
|
Depreciation, depletion and amortization
|
(595
|
)
|
|
(524
|
)
|
|
(1,745
|
)
|
|
(1,531
|
)
|
Interest expense, net
|
(481
|
)
|
|
(442
|
)
|
|
(1,358
|
)
|
|
(1,221
|
)
|
Losses on interest rate derivatives
|
(28
|
)
|
|
(64
|
)
|
|
(179
|
)
|
|
(14
|
)
|
Non-cash unit-based compensation expense
|
(23
|
)
|
|
(20
|
)
|
|
(46
|
)
|
|
(68
|
)
|
Unrealized losses on commodity risk management activities
|
(21
|
)
|
|
46
|
|
|
(105
|
)
|
|
(73
|
)
|
Losses on extinguishments of debt
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(43
|
)
|
Inventory valuation adjustments
|
39
|
|
|
(228
|
)
|
|
207
|
|
|
(78
|
)
|
Equity in earnings of unconsolidated affiliates
|
49
|
|
|
110
|
|
|
205
|
|
|
284
|
|
Adjusted EBITDA related to unconsolidated affiliates
|
(157
|
)
|
|
(126
|
)
|
|
(503
|
)
|
|
(487
|
)
|
Impairment of investment in an unconsolidated affiliate
|
(308
|
)
|
|
—
|
|
|
(308
|
)
|
|
—
|
|
Other, net
|
4
|
|
|
33
|
|
|
44
|
|
|
52
|
|
Income before income tax expense (benefit)
|
$
|
(17
|
)
|
|
$
|
275
|
|
|
$
|
679
|
|
|
$
|
1,224
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
Assets:
|
|
|
|
Investment in ETP
|
$
|
67,927
|
|
|
$
|
65,173
|
|
Investment in Sunoco LP
|
8,997
|
|
|
8,842
|
|
Investment in Lake Charles LNG
|
1,472
|
|
|
1,369
|
|
Corporate and Other
|
698
|
|
|
638
|
|
Adjustments and Eliminations
|
(2,255
|
)
|
|
(4,833
|
)
|
Total assets
|
$
|
76,839
|
|
|
$
|
71,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
|
|
|
|
Investment in ETP:
|
|
|
|
|
|
|
|
Revenues from external customers
|
$
|
5,489
|
|
|
$
|
6,583
|
|
|
$
|
15,167
|
|
|
$
|
28,449
|
|
Intersegment revenues
|
42
|
|
|
18
|
|
|
134
|
|
|
18
|
|
|
5,531
|
|
|
6,601
|
|
|
15,301
|
|
|
28,467
|
|
Investment in Sunoco LP:
|
|
|
|
|
|
|
|
Revenues from external customers
|
4,136
|
|
|
4,907
|
|
|
11,386
|
|
|
14,384
|
|
Intersegment revenues
|
1
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
4,137
|
|
|
4,907
|
|
|
11,392
|
|
|
14,384
|
|
Investment in Lake Charles LNG:
|
|
|
|
|
|
|
|
Revenues from external customers
|
50
|
|
|
54
|
|
|
148
|
|
|
162
|
|
|
|
|
|
|
|
|
|
Adjustments and Eliminations
|
(43
|
)
|
|
(946
|
)
|
|
(140
|
)
|
|
(10,423
|
)
|
Total revenues
|
$
|
9,675
|
|
|
$
|
10,616
|
|
|
$
|
26,701
|
|
|
$
|
32,590
|
|
The following tables provide revenues, grouped by similar products and services, for our reportable segments. These amounts include intersegment revenues for transactions between ETP, Sunoco LP and Lake Charles LNG.
Investment in ETP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Intrastate Transportation and Storage
|
$
|
583
|
|
|
$
|
477
|
|
|
$
|
1,457
|
|
|
$
|
1,504
|
|
Interstate Transportation and Storage
|
231
|
|
|
245
|
|
|
714
|
|
|
755
|
|
Midstream
|
587
|
|
|
539
|
|
|
1,804
|
|
|
2,055
|
|
Liquids Transportation and Services
|
1,094
|
|
|
783
|
|
|
3,022
|
|
|
2,378
|
|
Investment in Sunoco Logistics
|
2,154
|
|
|
2,379
|
|
|
6,133
|
|
|
8,026
|
|
Retail Marketing
|
—
|
|
|
1,362
|
|
|
—
|
|
|
11,701
|
|
All Other
|
882
|
|
|
816
|
|
|
2,171
|
|
|
2,048
|
|
Total revenues
|
5,531
|
|
|
6,601
|
|
|
15,301
|
|
|
28,467
|
|
Less: Intersegment revenues
|
42
|
|
|
18
|
|
|
134
|
|
|
18
|
|
Revenues from external customers
|
$
|
5,489
|
|
|
$
|
6,583
|
|
|
$
|
15,167
|
|
|
$
|
28,449
|
|
Investment in Sunoco LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Retail operations
|
$
|
2,050
|
|
|
$
|
2,222
|
|
|
$
|
5,715
|
|
|
$
|
6,377
|
|
Wholesale operations
|
2,087
|
|
|
2,685
|
|
|
5,677
|
|
|
8,007
|
|
Total revenues
|
4,137
|
|
|
4,907
|
|
|
11,392
|
|
|
14,384
|
|
Less: Intersegment revenues
|
1
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Revenues from external customers
|
$
|
4,136
|
|
|
$
|
4,907
|
|
|
$
|
11,386
|
|
|
$
|
14,384
|
|
Investment in Lake Charles LNG
Lake Charles LNG’s revenues for all periods presented were related to LNG terminalling.
|
|
14.
|
SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
|
Following are the financial statements of the Parent Company, which are included to provide additional information with respect to the Parent Company’s financial position, results of operations and cash flows on a stand-alone basis:
BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
December 31, 2015
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
8
|
|
|
$
|
1
|
|
Accounts receivable from related companies
|
49
|
|
|
34
|
|
Other current assets
|
1
|
|
|
—
|
|
Total current assets
|
58
|
|
|
35
|
|
Property, plant and equipment, net
|
36
|
|
|
20
|
|
Advances to and investments in unconsolidated affiliates
|
5,069
|
|
|
5,764
|
|
Intangible assets, net
|
2
|
|
|
6
|
|
Goodwill
|
9
|
|
|
9
|
|
Other non-current assets, net
|
9
|
|
|
10
|
|
Total assets
|
$
|
5,183
|
|
|
$
|
5,844
|
|
LIABILITIES AND PARTNERS’ CAPITAL
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable to related companies
|
$
|
31
|
|
|
$
|
111
|
|
Interest payable
|
85
|
|
|
66
|
|
Accrued and other current liabilities
|
6
|
|
|
1
|
|
Total current liabilities
|
122
|
|
|
178
|
|
Long-term debt, less current maturities
|
6,365
|
|
|
6,332
|
|
Note payable to related company
|
396
|
|
|
265
|
|
Other non-current liabilities
|
3
|
|
|
1
|
|
Commitments and contingencies
|
|
|
|
Partners’ capital:
|
|
|
|
General Partner
|
(3
|
)
|
|
(2
|
)
|
Limited Partners:
|
|
|
|
Common Unitholders
|
(1,818
|
)
|
|
(952
|
)
|
Class D Units
|
—
|
|
|
22
|
|
Series A Convertible Preferred Units
|
118
|
|
|
—
|
|
Total partners’ deficit
|
(1,703
|
)
|
|
(932
|
)
|
Total liabilities and partners’ deficit
|
$
|
5,183
|
|
|
$
|
5,844
|
|
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(1)
|
$
|
(75
|
)
|
|
$
|
(24
|
)
|
|
$
|
(156
|
)
|
|
$
|
(81
|
)
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest expense, net
|
(81
|
)
|
|
(81
|
)
|
|
(244
|
)
|
|
(214
|
)
|
Equity in earnings of unconsolidated affiliates
|
367
|
|
|
403
|
|
|
1,166
|
|
|
1,174
|
|
Other, net
|
(2
|
)
|
|
(4
|
)
|
|
(4
|
)
|
|
(3
|
)
|
INCOME BEFORE INCOME TAXES
|
209
|
|
|
294
|
|
|
762
|
|
|
876
|
|
Income tax benefit
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
NET INCOME
|
209
|
|
|
293
|
|
|
762
|
|
|
875
|
|
General Partner’s interest in net income
|
—
|
|
|
1
|
|
|
2
|
|
|
2
|
|
Convertible Unitholders’ interest in income
|
2
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Class D Unitholder’s interest in net income
|
—
|
|
|
1
|
|
|
—
|
|
|
2
|
|
Limited Partners’ interest in net income
|
$
|
207
|
|
|
$
|
291
|
|
|
$
|
757
|
|
|
$
|
871
|
|
|
|
(1)
|
Includes management fees paid by ETE to ETP.
|
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2016
|
|
2015
|
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
|
$
|
718
|
|
|
$
|
874
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Cash paid for Bakken Pipeline Transaction
|
—
|
|
|
(817
|
)
|
Distributions from unconsolidated affiliates
|
—
|
|
|
4
|
|
Contributions to unconsolidated affiliate
|
(70
|
)
|
|
—
|
|
Capital expenditures
|
(15
|
)
|
|
(15
|
)
|
Net cash used in investing activities
|
(85
|
)
|
|
(828
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds from borrowings
|
180
|
|
|
3,672
|
|
Principal payments on debt
|
(155
|
)
|
|
(1,915
|
)
|
Proceeds from affiliate
|
129
|
|
|
129
|
|
Distributions to partners
|
(780
|
)
|
|
(790
|
)
|
Units repurchased under buyback program
|
—
|
|
|
(1,064
|
)
|
Debt issuance costs
|
—
|
|
|
(11
|
)
|
Net cash provided by (used in) financing activities
|
(626
|
)
|
|
21
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
7
|
|
|
67
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
1
|
|
|
2
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
8
|
|
|
$
|
69
|
|