Note 1—
Business and Basis of Presentation
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context.
Description of the Business
We are a Delaware limited partnership formed in 2013 by Phillips 66 Company and Phillips 66 Partners GP LLC (our General Partner), both wholly owned subsidiaries of Phillips 66. On August 1, 2015, Phillips 66 Company transferred all of its limited partner interests in us and its
100
percent interest in our General Partner to its wholly owned subsidiary, Phillips 66 Project Development Inc. (Phillips 66 PDI). We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based crude oil, refined petroleum products and natural gas liquids (NGL) pipelines, terminals and other midstream assets.
Our assets consist of crude oil, refined petroleum products and NGL transportation, terminaling and storage systems, as well as an NGL fractionator. We conduct our operations through both wholly owned and joint venture operations. The majority of our wholly owned assets are associated with, and integral to the operation of,
nine
of Phillips 66’s owned or joint venture refineries.
We generate revenue primarily by providing fee-based transportation, terminaling, storage and NGL fractionation services to Phillips 66 and other customers. Our equity affiliates generate revenue primarily from transporting and terminaling NGL, refined petroleum products and crude oil. Since we do not own any of the NGL, crude oil and refined petroleum products we handle and do not engage in the trading of NGL, crude oil and refined petroleum products, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.
Basis of Presentation
We have acquired assets from Phillips 66 that were considered transfers of businesses between entities under common control. This required the transactions to be accounted for as if the transfers had occurred at the beginning of the transfer period, with prior periods retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of these acquired businesses prior to the effective date of each acquisition. We refer to these pre-acquisition operations as those of our “Predecessors.”
The combined financial statements of our Predecessors were derived from the accounting records of Phillips 66 and reflect the combined historical results of operations, financial position and cash flows of our Predecessors as if such businesses had been combined for all periods presented.
All intercompany transactions and accounts within our Predecessors have been eliminated. The assets and liabilities of our Predecessors in these financial statements have been reflected on a historical cost basis because the transfer of the Predecessors to us took place within the Phillips 66 consolidated group. The consolidated statement of income also includes expense allocations for certain functions performed by Phillips 66, including allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and procurement; and operational support services such as engineering and logistics. These allocations were based primarily on relative values of properties, plants and equipment and equity-method investments, or number of terminals and pipeline miles, and secondarily on activity-based cost allocations. Our management believes the assumptions underlying the allocation of expenses from Phillips 66 are reasonable. Nevertheless, the financial results of our Predecessors may not include all of the actual expenses that would have been incurred had our Predecessors been a stand-alone publicly traded partnership during the periods presented.
Note 2—
Summary of Significant Accounting Policies
Consolidation Principles and Investments
Our consolidated financial statements include the accounts of majority-owned subsidiaries. All intercompany transactions and accounts have been eliminated. The equity method is used to account for investments in affiliates in which we have the ability to exert significant influence over the affiliates’ operating and financial policies. Undivided interests in pipelines are consolidated on a proportionate basis.
Net Investment
In the consolidated balance sheet, “Net investment” represents Phillips 66’s historical investment in us, our accumulated net earnings after taxes, and the net effect of transactions with, and allocations from, Phillips 66.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as the disclosures of contingent assets and liabilities. Actual results could differ from these estimates.
Common Control Transactions
Businesses acquired from Phillips 66 and its subsidiaries are accounted for as common control transactions whereby the net assets acquired are combined with ours at their carrying value. Any difference between carrying value and recognized consideration is treated as a capital transaction. To the extent that such transactions require prior periods to be recast, historical net equity amounts prior to the transaction date are reflected in “Net Investment.” Cash consideration up to the carrying value of net assets acquired is presented as an investing activity in our consolidated statement of cash flows. Cash consideration in excess of the carrying value of net assets acquired is presented as a financing activity in our consolidated statement of cash flows.
Revenue Recognition
Revenue is recognized for NGL, crude oil and refined petroleum product pipeline transportation based on the delivery of actual volumes transported at contractual tariff rates. Revenue is recognized for NGL, crude oil and refined petroleum product terminaling, storage, and fractionation services as performed based on contractual rates related to throughput volumes, capacity or cost-plus-margin arrangements. A significant portion of our revenue is derived from Phillips 66.
Transportation contracts that are operating leases and include rentals with fixed escalation are recognized on a straight-line basis over the lease term. Any difference between the transportation fee recognized under the straight-line method and the transportation fee received in cash is deferred to the consolidated balance sheet as “Deferred rentals-related parties.” If the underlying transportation contract is amended to eliminate fixed escalation, the balance of deferred rentals is amortized over the remaining life of the contract.
Certain transportation services agreements, terminal services agreements and a fractionation service agreement with Phillips 66 are considered operating leases under GAAP. Revenues from these agreements are recorded within “Operating revenues—related parties” on our combined statement of income. See
Note 14—Leases
for additional information on these operating leases and
Note 20—Related Party Transactions
for additional information on our agreements with Phillips 66.
Billings to Phillips 66 for shortfall volumes under its quarterly minimum volume commitments are recorded as “Deferred revenues—related parties” in our combined balance sheet, as Phillips 66 has the right to make up the shortfall volumes in the following four quarters. The deferred revenue will be recognized at the earlier of when shortfall volumes are made up or when the make-up rights contractually expire.
At the time the Clemens Caverns commenced operations, the caverns had not reached total planned working capacity contracted under the storage agreement. During the build-out of the remaining capacity, a portion of the monthly storage fees is deferred. The deferred revenue is recognized over the remaining term of the agreement as additional storage capacity is placed into service.
Cash Equivalents
Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and will mature within 90 days or less from the date of acquisition. We carry these at cost plus accrued interest, which approximates fair value.
Imbalances
We do not purchase or produce NGL, crude oil or refined petroleum product inventories. We experience imbalances as a result of variances in meter readings and in other measurement methods, and volume fluctuations within our NGL, crude oil and refined products systems due to pressure and temperature changes. Certain of our transportation contracts provide for the shipper to pay a contractual loss allowance, which is valued using quoted market prices of the applicable commodity being shipped. These contractual loss allowances, which are received from the shipper irrespective of, and calculated independently from, actual volumetric gains or losses, are recorded as revenue. Any actual volumetric gains or losses are valued using quoted market prices of the applicable commodities and are recorded as decreases or increases to operating and maintenance expenses, respectively.
Fair Value Measurements
We measure assets and liabilities requiring fair value presentation or disclosure using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclose such amounts according to the quality of valuation inputs under the following hierarchy:
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Level 1:
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Quoted prices in an active market for identical assets or liabilities.
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Level 2:
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Observable inputs other than quoted prices included within Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs.
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Level 3:
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Unobservable inputs that are significant to the fair value of assets or liabilities.
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We classify the fair value of an asset or liability based on the lowest level of input significant to its measurement. A fair value initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement, or corroborating market data becomes available. Asset and liability fair values initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable.
The carrying amounts of our trade receivables and payables approximate fair values.
Nonrecurring Fair Value Measurements
Fair value measurements are applied with respect to our nonfinancial assets and liabilities measured on a nonrecurring basis, which consist primarily of asset retirement obligations. Nonrecurring fair value measurements are also applied, when applicable, to determine the fair value of our long-lived assets.
Properties, Plants and Equipment (PP&E)
PP&E is stated at cost. Costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Depreciation of PP&E is determined by the individual-unit-straight-line method or the group-straight-line method (for those individual units that are highly integrated with other units).
Capitalized Interest
Interest from external borrowings is capitalized on major projects with an expected construction period of six months or longer. Capitalized interest is added to the cost of the underlying asset’s PP&E and is amortized over the useful life of the asset.
Major Maintenance Activities
Costs for planned integrity management projects are expensed in the period incurred. These types of costs include inspection services, contractor repair services, materials and supplies, equipment rentals and labor costs.
Impairment of PP&E
PP&E used in operations are assessed for impairment whenever changes in facts and circumstances indicate a possible significant deterioration in the future cash flows expected to be generated by an asset group. If, upon review, the sum of the undiscounted pretax cash flows is less than the carrying value of the asset group, including applicable liabilities, then the carrying value is written down to estimated fair value and reported as impairments in the period in which the determination of the impairment is made. Individual assets are grouped for impairment purposes at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets—generally at the pipeline system, terminal level or fractionation system. Since there usually is a lack of quoted market prices for our long-lived assets, the fair value of potentially impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or based on a multiple of operating cash flow validated with historical market transactions of similar assets where possible.
The expected future cash flows used for impairment reviews and related fair value calculations are based on estimated future throughputs, tariffs and fees, operating costs and capital project decisions, considering all available evidence at the date of review.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in the acquisition of a business. Goodwill is not amortized, but rather is tested for impairment annually and when events or changes in circumstances indicate that the fair value of the reporting unit with goodwill has been reduced below carrying value. The majority of our goodwill was received through acquisitions from Phillips 66. In these common control transactions, the net assets acquired are recorded at Phillips 66’s historical carrying value, including any associated goodwill. We have
one
reporting unit with a goodwill balance for testing goodwill for impairment.
Asset Retirement Obligations and Environmental Costs
Fair values of legal obligations to abandon or remove long-lived assets are recorded in the period in which the obligation is incurred. When the liability is initially recorded, we capitalize this cost by increasing the carrying amount of the related PP&E. Over time, the liability is increased for the change in its present value, and the capitalized cost in PP&E is depreciated over the useful life of the related asset. Our estimate may change after initial recognition, in which case we record an adjustment to the liability and PP&E.
Environmental expenditures are expensed or capitalized, depending upon their future economic benefit. Expenditures relating to an existing condition caused by past operations, and those having no future economic benefit, are expensed.
Liabilities for environmental expenditures are recorded on an undiscounted basis (unless acquired in a purchase business combination) when environmental assessments or cleanups are probable and the costs can be reasonably estimated.
Impairment of Investments in Nonconsolidated Entities
Investments in nonconsolidated entities are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred. When indicators exist, the fair value is estimated and compared to the investment carrying value. If any impairment is judgmentally determined to be other than temporary, the carrying value of the investment is written down to fair value. The fair value of the impaired investment is based on quoted market prices, if available, or upon the present value of expected future cash flows using discount rates and other assumptions believed to be consistent with those used by principal market participants and a market analysis of comparable assets, if appropriate.
Income Taxes
We follow the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. Our operations are treated as a partnership for federal and state income tax purposes, with each partner being separately taxed on its share of the taxable income. Therefore, we have excluded income taxes from these consolidated financial statements, except for the income tax provision resulting from state laws that apply to entities organized as partnerships. Our tax provision is computed as if we were a stand-alone tax paying entity. Any interest related to income taxes would be included in interest and debt expense, and penalties would be included in operating and maintenance expenses.
Note 3—
Changes in Accounting Principles
Effective January 1, 2016, we early adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.” The new update simplified the presentation of deferred income taxes and required deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The classification was made at the taxpaying component level of an entity, after reflecting any offset of deferred tax liabilities, deferred tax assets and any related valuation allowances. We applied the amendments prospectively to all deferred tax liabilities and assets.
In June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities (VIE) Guidance in Topic 810,
Consolidation.” The new standard removed the definition of a development stage entity from the Master Glossary of the Accounting Standard Codification (ASC) and the related financial reporting requirements specific to development stage entities. This ASU is intended to reduce cost and complexity of financial reporting for entities that have not commenced planned principal operations. For financial reporting requirements other than the VIE guidance in ASC Topic 810, “Consolidation,” ASU No. 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2014. For the financial reporting requirements related to VIEs in ASC Topic 810, “Consolidation,” ASU No. 2014-10 was effective for annual and quarterly reporting periods of public entities beginning after December 15, 2015. We adopted the provisions of this ASU related to the financial reporting requirements other than the VIE guidance effective January 1, 2015. We adopted the remaining provisions effective January 1, 2016.
Note 4—
Acquisitions
2016 Acquisitions
During 2016, we and a co-venturer formed STACK Pipeline LLC (STACK Pipeline), a
50
/
50
joint venture. In addition, we acquired an additional
2.48
percent interest in Explorer Pipeline Company (Explorer). See
Note 5—Equity Investments
for information regarding our equity investments.
River Parish Acquisition
On November 17, 2016, we acquired a third party’s NGL logistics system in southeast Louisiana. We financed this transaction with cash and borrowings under our revolving credit facility. The acquired system includes a pipeline and storage caverns connecting multiple third-party fractionators, a petrochemical plant and several refineries, including the Phillips 66 Alliance Refinery. As of December 31, 2016, we provisionally recorded
$183 million
of PP&E.
Fractionator Acquisitions
Initial Fractionator Acquisition.
On February 17, 2016, we entered into a Contribution, Conveyance and Assumption Agreement (CCAA) with subsidiaries of Phillips 66 to acquire a
25 percent
controlling interest in Phillips 66 Sweeny Frac LLC (Sweeny Frac LLC) for total consideration of
$236 million
(the Initial Fractionator Acquisition). Total consideration consisted of the assumption of a
$212 million
note payable to a subsidiary of Phillips 66 and the issuance of
412,823
common units to Phillips 66 PDI and
8,425
general partner units to our General Partner to maintain its
2 percent
general partner interest. The Initial Fractionator Acquisition closed on March 1, 2016. Total transaction costs of
$1 million
were expensed as incurred.
Subsequent Fractionator Acquisition.
On May 4, 2016, we entered into a CCAA with subsidiaries of Phillips 66 to acquire the remaining
75 percent
interest in Sweeny Frac LLC and
100 percent
of the Standish Pipeline for total consideration of
$775 million
(the Subsequent Fractionator Acquisition). Total consideration consisted of the assumption of
$675 million
of notes payable to a subsidiary of Phillips 66 and the issuance of
1,400,922
common units to Phillips 66 PDI and
286,753
general partner units to our General Partner to maintain its
2 percent
general partner interest in us after also taking into account the public offering we completed on May 10, 2016. The Subsequent Fractionator Acquisition closed on May 10, 2016. Total transaction costs of
$1 million
were expensed as incurred.
Acquired Assets.
Through the Initial Fractionator Acquisition and Subsequent Fractionator Acquisition (collectively, the Fractionator Acquisitions), we acquired the following assets (the Acquired Fractionator Assets):
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•
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Sweeny NGL Fractionator.
The newly constructed NGL fractionator is located within Phillips 66's Sweeny refinery complex in Old Ocean, Texas. The NGL fractionator uses distillation to process a raw (Y-grade) NGL stream into its individual purity components, such as propane and butane.
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•
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Clemens Caverns.
The newly constructed underground salt dome NGL storage facility is located near Brazoria, Texas. The Clemens Caverns facilitate handling of Y-grade NGL for input into the Sweeny NGL Fractionator, as well as storage of purity NGL products produced by the fractionator.
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•
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Standish Pipeline.
The refined petroleum product pipeline extends from Phillips 66’s refinery in Ponca City, Oklahoma, to our terminal in Wichita, Kansas.
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Construction activities on the Sweeny NGL Fractionator and Clemens Caverns began in 2013. Commercial operations at the Sweeny NGL Fractionator commenced in December 2015, and commercial operations at the Clemens Caverns commenced in September 2015.
Eagle Acquisition
On October 11, 2016, we entered into a CCAA with subsidiaries of Phillips 66 for us to acquire certain pipeline and terminal assets supporting
four
Phillips 66-operated refineries (the Eagle Acquisition). The Eagle Acquisition closed on October 14, 2016. We paid Phillips 66 total consideration of
$1,305 million
, consisting of
$1,109 million
in cash and the issuance of
3,884,237
common units to Phillips 66 PDI and
208,783
general partner units to our General Partner to allow it to maintain its
2 percent
general partner ownership in us.
Acquired Assets.
Through the Eagle Acquisition, we acquired the following assets (the Acquired Eagle Assets):
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•
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Ponca Crude System
: A crude pipeline and terminal system that provides crude supply for Phillips 66’s Ponca City Refinery.
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•
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Ponca Products System
: A refined products and NGL pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Ponca City Refinery.
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•
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Billings Crude System
: A crude pipeline and terminal system that provides crude supply for Phillips 66’s Billings Refinery.
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•
|
Billings Products System
: A refined products pipeline and terminal system that provides product takeaway transportation services for Phillips 66’s Billings Refinery.
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|
•
|
Bayway Products System
: A refined products and NGL terminal system that provides storage services for Phillips 66’s Bayway Refinery.
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•
|
Borger Crude System:
A crude pipeline and terminal system that provides crude supply for the Phillips 66-operated and jointly owned Borger Refinery.
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•
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Borger Refinery Products System
: A refined products pipeline and terminal system that provides product takeaway transportation services for the Borger Refinery.
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In connection with the Fractionator Acquisitions and the Eagle Acquisition, we entered into commercial agreements with Phillips 66 and amended the omnibus and operational services agreements with Phillips 66. See
Note 20—
Related Party Transactions
for additional information on our commercial and support agreements with Phillips 66.
Common Control Transactions
The Fractionator Acquisitions and the Eagle Acquisition (collectively, the Acquisitions) were considered transfers of businesses between entities under common control, and therefore the related acquired assets were transferred at historical carrying value. The aggregate net book value of the Acquired Fractionator Assets and the Acquired Eagle Assets (collectively, the Acquired Assets), at the time of acquisition, was
$1,154 million
and
$990 million
, respectively. Because the Acquisitions were common control transactions in which we acquired businesses, our historical financial statements have been retrospectively adjusted to reflect the results of operations, financial position, and cash flows of the Acquired Assets as if we owned the Acquired Assets for all periods presented.
The following tables present our results of operations and financial position giving effect to the Acquisitions. In the 2016 consolidated statements of income and cash flows tables, the first column includes the consolidated results of the Acquired Assets after the effective date of each acquisition. In the 2015 and 2014 consolidated statements of income and cash flows table, as well as the 2015 consolidated balance sheet table, the first column represents our historical financial information prior to the retrospective adjustments for the Acquired Assets, as presented in our 2015 Form 10-K filing. The second and third columns in all tables present the retrospective adjustments made to our historical financial information for the Acquired Assets prior to the effective date of acquisition. The fourth column in all tables presents our consolidated financial information as retrospectively adjusted.
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Millions of Dollars
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|
December 31, 2016
|
Consolidated Statement of Income
|
Phillips 66
Partners LP
|
|
|
Acquired Fractionator Assets Predecessor
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|
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Acquired Eagle Assets Predecessor
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|
|
Consolidated
Results
|
|
Revenues and Other Income
|
|
|
|
|
|
|
|
Operating revenues—related parties
|
$
|
474
|
|
|
24
|
|
|
229
|
|
|
727
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|
Operating revenues—third parties
|
14
|
|
|
—
|
|
|
17
|
|
|
31
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|
Equity in earnings of affiliates
|
114
|
|
|
—
|
|
|
—
|
|
|
114
|
|
Other income
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total revenues and other income
|
603
|
|
|
24
|
|
|
246
|
|
|
873
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
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|
Operating and maintenance expenses
|
120
|
|
|
5
|
|
|
91
|
|
|
216
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|
Depreciation
|
62
|
|
|
5
|
|
|
29
|
|
|
96
|
|
General and administrative expenses
|
40
|
|
|
1
|
|
|
24
|
|
|
65
|
|
Taxes other than income taxes
|
19
|
|
|
2
|
|
|
12
|
|
|
33
|
|
Interest and debt expense
|
52
|
|
|
—
|
|
|
—
|
|
|
52
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|
Other expenses
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total costs and expenses
|
293
|
|
|
13
|
|
|
157
|
|
|
463
|
|
Income before income taxes
|
310
|
|
|
11
|
|
|
89
|
|
|
410
|
|
Provision for income taxes
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Net income
|
308
|
|
|
11
|
|
|
89
|
|
|
408
|
|
Less: Net income attributable to noncontrolling interests
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
Less: Net income attributable to Predecessors
|
—
|
|
|
18
|
|
|
89
|
|
|
107
|
|
Net income attributable to the Partnership
|
$
|
301
|
|
|
—
|
|
|
—
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2015
|
Consolidated Statement of Income
|
Phillips 66
Partners LP
(As Previously Reported)
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
(As Currently Reported)
|
|
Revenues and Other Income
|
|
|
|
|
|
|
|
|
Operating revenues—related parties
|
$
|
260
|
|
|
30
|
|
|
292
|
|
|
582
|
|
Operating revenues—third parties
|
5
|
|
|
—
|
|
|
25
|
|
|
30
|
|
Equity in earnings of affiliates
|
77
|
|
|
—
|
|
|
—
|
|
|
77
|
|
Other income
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Total revenues and other income
|
348
|
|
|
30
|
|
|
317
|
|
|
695
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
Operating and maintenance expenses
|
62
|
|
|
23
|
|
|
118
|
|
|
203
|
|
Depreciation
|
22
|
|
|
4
|
|
|
35
|
|
|
61
|
|
General and administrative expenses
|
27
|
|
|
5
|
|
|
31
|
|
|
63
|
|
Taxes other than income taxes
|
9
|
|
|
3
|
|
|
15
|
|
|
27
|
|
Interest and debt expense
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Other expenses
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total costs and expenses
|
154
|
|
|
35
|
|
|
200
|
|
|
389
|
|
Income (loss) before income taxes
|
194
|
|
|
(5
|
)
|
|
117
|
|
|
306
|
|
Provision for income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss)
|
194
|
|
|
(5
|
)
|
|
117
|
|
|
306
|
|
Less: Net income (loss) attributable to Predecessors
|
—
|
|
|
(5
|
)
|
|
117
|
|
|
112
|
|
Net income attributable to the Partnership
|
$
|
194
|
|
|
—
|
|
|
—
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2014
|
Consolidated Statement of Income
|
Phillips 66
Partners LP
(As Previously Reported)
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
(As Currently Reported)
|
|
Revenues and Other Income
|
|
|
|
|
|
|
|
|
Operating revenues—related parties
|
$
|
223
|
|
|
15
|
|
|
293
|
|
|
531
|
|
Operating revenues—third parties
|
6
|
|
|
—
|
|
|
18
|
|
|
24
|
|
Equity in earnings of affiliates
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total revenues and other income
|
229
|
|
|
15
|
|
|
311
|
|
|
555
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
Operating and maintenance expenses
|
53
|
|
|
2
|
|
|
129
|
|
|
184
|
|
Depreciation
|
16
|
|
|
1
|
|
|
29
|
|
|
46
|
|
General and administrative expenses
|
26
|
|
|
2
|
|
|
29
|
|
|
57
|
|
Taxes other than income taxes
|
4
|
|
|
—
|
|
|
12
|
|
|
16
|
|
Interest and debt expense
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
Other expenses
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total costs and expenses
|
104
|
|
|
5
|
|
|
200
|
|
|
309
|
|
Income before income taxes
|
125
|
|
|
10
|
|
|
111
|
|
|
246
|
|
Provision for income taxes
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net income
|
124
|
|
|
10
|
|
|
111
|
|
|
245
|
|
Less: Net income attributable to Predecessors
|
8
|
|
|
10
|
|
|
111
|
|
|
129
|
|
Net income attributable to the Partnership
|
$
|
116
|
|
|
—
|
|
|
—
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2015
|
Consolidated Balance Sheet
|
Phillips 66
Partners LP
(As Previously Reported)
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
(As Currently Reported)
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
48
|
|
|
2
|
|
|
—
|
|
|
50
|
|
Accounts receivable—related parties
|
22
|
|
|
—
|
|
|
—
|
|
|
22
|
|
Accounts receivable—third parties
|
3
|
|
|
—
|
|
|
4
|
|
|
7
|
|
Materials and supplies
|
2
|
|
|
2
|
|
|
4
|
|
|
8
|
|
Prepaid expenses
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Other current assets
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total Current Assets
|
77
|
|
|
6
|
|
|
8
|
|
|
91
|
|
Equity investments
|
945
|
|
|
—
|
|
|
—
|
|
|
945
|
|
Net properties, plants and equipment
|
492
|
|
|
1,152
|
|
|
793
|
|
|
2,437
|
|
Goodwill
|
3
|
|
|
—
|
|
|
179
|
|
|
182
|
|
Deferred rentals—related parties
|
6
|
|
|
—
|
|
|
—
|
|
|
6
|
|
Other assets
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Total Assets
|
$
|
1,524
|
|
|
1,158
|
|
|
980
|
|
|
3,662
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Accounts payable—related parties
|
$
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Accounts payable—third parties
|
9
|
|
|
58
|
|
|
15
|
|
|
82
|
|
Payroll and benefits payable
|
—
|
|
|
1
|
|
|
2
|
|
|
3
|
|
Accrued property and other taxes
|
5
|
|
|
3
|
|
|
6
|
|
|
14
|
|
Accrued interest
|
15
|
|
|
7
|
|
|
—
|
|
|
22
|
|
Deferred revenues—related parties
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Other current liabilities
|
1
|
|
|
—
|
|
|
3
|
|
|
4
|
|
Total Current Liabilities
|
38
|
|
|
69
|
|
|
26
|
|
|
133
|
|
Notes payable—related party
|
—
|
|
|
964
|
|
|
—
|
|
|
964
|
|
Long-term debt
|
1,091
|
|
|
—
|
|
|
—
|
|
|
1,091
|
|
Asset retirement obligations
|
3
|
|
|
1
|
|
|
7
|
|
|
11
|
|
Accrued environmental costs
|
1
|
|
|
—
|
|
|
3
|
|
|
4
|
|
Deferred income taxes
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Deferred revenues—related parties—long-term
|
1
|
|
|
10
|
|
|
3
|
|
|
14
|
|
Total Liabilities
|
1,134
|
|
|
1,044
|
|
|
40
|
|
|
2,218
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Net investment—Predecessors
|
—
|
|
|
114
|
|
|
940
|
|
|
1,054
|
|
Common unitholders—public (2015—24,138,750 units issued and outstanding; 2014—18,888,750 units issued and outstanding)
|
809
|
|
|
—
|
|
|
—
|
|
|
809
|
|
Common unitholder—Phillips 66 (2015—58,349,042 units issued and outstanding; 2014—20,938,948 units issued and outstanding)
|
233
|
|
|
—
|
|
|
—
|
|
|
233
|
|
General partner—Phillips 66 (2015—1,683,425 units issued and outstanding;
2014—1,531,518 units issued and outstanding)
|
(650
|
)
|
|
—
|
|
|
—
|
|
|
(650
|
)
|
Accumulated other comprehensive loss
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Total Equity
|
390
|
|
|
114
|
|
|
940
|
|
|
1,444
|
|
Total Liabilities and Equity
|
$
|
1,524
|
|
|
1,158
|
|
|
980
|
|
|
3,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2016
|
Consolidated Statement of Cash Flows
|
Phillips 66
Partners LP
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
Net income
|
$
|
308
|
|
|
11
|
|
|
89
|
|
|
408
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation
|
62
|
|
|
5
|
|
|
29
|
|
|
96
|
|
Deferred rentals
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Accrued environmental costs
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Unfunded equity losses
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Deferred revenues—long-term
|
9
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Other
|
—
|
|
|
6
|
|
|
(2
|
)
|
|
4
|
|
Working capital adjustments
|
|
|
|
|
—
|
|
|
|
Decrease (increase) in accounts receivable
|
(58
|
)
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
Decrease (increase) in materials and supplies
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Decrease (increase) in prepaid expenses and other current assets
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Increase (decrease) in accounts payable
|
16
|
|
|
1
|
|
|
2
|
|
|
19
|
|
Increase (decrease) in accrued interest
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Increase (decrease) in deferred revenues
|
10
|
|
|
—
|
|
|
—
|
|
|
10
|
|
Increase (decrease) in other accruals
|
(3
|
)
|
|
(1
|
)
|
|
5
|
|
|
1
|
|
Net Cash Provided by Operating Activities
|
347
|
|
|
22
|
|
|
123
|
|
|
492
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
Eagle acquisition
|
(990
|
)
|
|
—
|
|
|
—
|
|
|
(990
|
)
|
Cash capital expenditures and investments
|
(469
|
)
|
|
(36
|
)
|
|
(79
|
)
|
|
(584
|
)
|
Return of investment from equity affiliates
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
Net Cash Used in Investing Activities
|
(1,443
|
)
|
|
(36
|
)
|
|
(79
|
)
|
|
(1,558
|
)
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
Net contributions from (to) Phillips 66 to (from) Predecessors
|
—
|
|
|
89
|
|
|
(44
|
)
|
|
45
|
|
Acquisition of noncontrolling interest in Sweeny Frac LLC
|
(656
|
)
|
|
—
|
|
|
—
|
|
|
(656
|
)
|
Issuance of debt
|
2,090
|
|
|
28
|
|
|
—
|
|
|
2,118
|
|
Repayment of debt
|
(991
|
)
|
|
(105
|
)
|
|
—
|
|
|
(1,096
|
)
|
Issuance of common units
|
983
|
|
|
—
|
|
|
—
|
|
|
983
|
|
Offering costs
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Debt issuance costs
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Distributions to General Partner associated with acquisitions
|
(119
|
)
|
|
—
|
|
|
—
|
|
|
(119
|
)
|
Quarterly distributions to common unitholders—public
|
(64
|
)
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
Quarterly distributions to common unitholder—Phillips 66
|
(119
|
)
|
|
—
|
|
|
—
|
|
|
(119
|
)
|
Quarterly distributions to General Partner—Phillips 66
|
(76
|
)
|
|
—
|
|
|
—
|
|
|
(76
|
)
|
Other cash contributions from Phillips 66
|
24
|
|
|
—
|
|
|
—
|
|
|
24
|
|
Net Cash Provided by (Used in) Financing Activities
|
1,050
|
|
|
12
|
|
|
(44
|
)
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
(46
|
)
|
|
(2
|
)
|
|
—
|
|
|
(48
|
)
|
Cash and cash equivalents at beginning of period
|
48
|
|
|
2
|
|
|
—
|
|
|
50
|
|
Cash and Cash Equivalents at End of Period
|
$
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2015
|
Consolidated Statement of Cash Flows
|
Phillips 66
Partners LP
(As Previously Reported)
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
(As Currently Reported)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
194
|
|
|
(5
|
)
|
|
117
|
|
|
306
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation
|
22
|
|
|
4
|
|
|
35
|
|
|
61
|
|
Accrued environmental costs
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Deferred revenues
|
—
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Other
|
3
|
|
|
—
|
|
|
(2
|
)
|
|
1
|
|
Working capital adjustments
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
(2
|
)
|
|
—
|
|
|
3
|
|
|
1
|
|
Decrease (increase) in materials and supplies
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Decrease (increase) in prepaid expenses and other current assets
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Increase (decrease) in accounts payable
|
(8
|
)
|
|
5
|
|
|
(6
|
)
|
|
(9
|
)
|
Increase (decrease) in accrued interest
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
Increase (decrease) in deferred revenues
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Increase (decrease) in other accruals
|
3
|
|
|
3
|
|
|
1
|
|
|
7
|
|
Net Cash Provided by Operating Activities
|
230
|
|
|
14
|
|
|
148
|
|
|
392
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
Sand Hills/Southern Hills/Explorer equity investment acquisition
|
(734
|
)
|
|
—
|
|
|
—
|
|
|
(734
|
)
|
Cash capital expenditures and investments
|
(205
|
)
|
|
(668
|
)
|
|
(75
|
)
|
|
(948
|
)
|
Return of investment from equity affiliates
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
Other
|
(8
|
)
|
|
8
|
|
|
—
|
|
|
—
|
|
Net Cash Used in Investing Activities
|
(935
|
)
|
|
(660
|
)
|
|
(75
|
)
|
|
(1,670
|
)
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
Net contributions from (to) Phillips 66 to (from) Predecessors
|
—
|
|
|
27
|
|
|
(73
|
)
|
|
(46
|
)
|
Issuance of debt
|
1,169
|
|
|
612
|
|
|
—
|
|
|
1,781
|
|
Repayment of debt
|
(499
|
)
|
|
—
|
|
|
—
|
|
|
(499
|
)
|
Issuance of common units
|
396
|
|
|
—
|
|
|
—
|
|
|
396
|
|
Offering costs
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
Debt issuance costs
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Distributions to General Partner associated with acquisitions
|
(146
|
)
|
|
—
|
|
|
—
|
|
|
(146
|
)
|
Quarterly distributions to common unitholders—public
|
(35
|
)
|
|
—
|
|
|
—
|
|
|
(35
|
)
|
Quarterly distributions to common unitholder—Phillips 66
|
(63
|
)
|
|
—
|
|
|
—
|
|
|
(63
|
)
|
Quarterly distributions to subordinated unitholder—Phillips 66
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
Quarterly distributions to General Partner—Phillips 66
|
(30
|
)
|
|
—
|
|
|
—
|
|
|
(30
|
)
|
Net Cash Provided by (Used in) Financing Activities
|
745
|
|
|
639
|
|
|
(73
|
)
|
|
1,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
40
|
|
|
(7
|
)
|
|
—
|
|
|
33
|
|
Cash and cash equivalents at beginning of period
|
8
|
|
|
9
|
|
|
—
|
|
|
17
|
|
Cash and Cash Equivalents at End of Period
|
$
|
48
|
|
|
2
|
|
|
—
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2014
|
Consolidated Statement of Cash Flows
|
Phillips 66
Partners LP
(As Previously Reported)
|
|
|
Acquired Fractionator Assets Predecessor
|
|
|
Acquired Eagle Assets Predecessor
|
|
|
Consolidated
Results
(As Currently Reported)
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
Net income
|
$
|
124
|
|
|
10
|
|
|
111
|
|
|
245
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation
|
16
|
|
|
1
|
|
|
29
|
|
|
46
|
|
Deferred revenues—long-term
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Other
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Working capital adjustments
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable
|
(11
|
)
|
|
—
|
|
|
(3
|
)
|
|
(14
|
)
|
Increase (decrease) in accounts payable
|
9
|
|
|
—
|
|
|
3
|
|
|
12
|
|
Increase (decrease) in accrued interest
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Increase (decrease) in deferred revenues
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Increase (decrease) in other accruals
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Net Cash Provided by Operating Activities
|
142
|
|
|
12
|
|
|
142
|
|
|
296
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
Gold Line/Medford acquisition
|
(138
|
)
|
|
—
|
|
|
—
|
|
|
(138
|
)
|
Bayway/Ferndale/Cross-Channel acquisition
|
(28
|
)
|
|
—
|
|
|
—
|
|
|
(28
|
)
|
Cash capital expenditures and investments
|
(157
|
)
|
|
(384
|
)
|
|
(118
|
)
|
|
(659
|
)
|
Other
|
8
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
Net Cash Used in Investing Activities
|
(315
|
)
|
|
(392
|
)
|
|
(118
|
)
|
|
(825
|
)
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
Net contributions from (to) Phillips 66 to (from) Predecessors
|
81
|
|
|
37
|
|
|
(24
|
)
|
|
94
|
|
Project prefunding from Phillips 66
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Issuance of debt
|
28
|
|
|
352
|
|
|
—
|
|
|
380
|
|
Repayment of debt
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
Debt issuance costs
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Distributions to General Partner associated with acquisitions
|
(262
|
)
|
|
—
|
|
|
—
|
|
|
(262
|
)
|
Quarterly distributions to common unitholders—public
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
Quarterly distributions to common unitholder—Phillips 66
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
Quarterly distributions to subordinated unitholder—Phillips 66
|
(39
|
)
|
|
—
|
|
|
—
|
|
|
(39
|
)
|
Quarterly distributions to General Partner—Phillips 66
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
Other cash contributions from Phillips 66
|
4
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Net Cash Provided by (Used in) Financing Activities
|
(244
|
)
|
|
389
|
|
|
(24
|
)
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
(417
|
)
|
|
9
|
|
|
—
|
|
|
(408
|
)
|
Cash and cash equivalents at beginning of period
|
425
|
|
|
—
|
|
|
—
|
|
|
425
|
|
Cash and Cash Equivalents at End of Period
|
$
|
8
|
|
|
9
|
|
|
—
|
|
|
17
|
|
2015 Acquisitions
During 2015, we entered into agreements to acquire Phillips 66’s equity interests in DCP Sand Hills Pipeline, LLC (Sand Hills), DCP Southern Hills Pipeline, LLC (Southern Hills), Explorer and Bayou Bridge Pipeline, LLC (Bayou Bridge Pipeline). See
Note 5—Equity Investments
for information regarding our equity investments.
2014 Acquisitions
Gold Line/Medford Acquisition
In February 2014, we entered into
a CCAA
with subsidiaries of Phillips 66 to acquire the Gold Line/Medford Assets, which were operating as a business at the time of their acquisition, for total consideration of
$700 million
, consisting of
$400 million
in cash; the issuance of
3,530,595
common units to Phillips 66 Company and the issuance of
72,053
general partner units to our General Partner to maintain its
2 percent
general partner interest, with an aggregate fair value of the common and general partner units of
$140 million
; and the assumption by the Partnership of a five-year,
$160 million
note payable to a subsidiary of Phillips 66. The Gold Line/Medford Acquisition closed on February 28, 2014, with an effective date of March 1, 2014. Total transaction costs of
$2 million
associated with the Gold Line/Medford Acquisition were expensed as incurred.
Bayway/Ferndale/Cross-Channel Acquisition
In October 2014, we entered into a CCAA and a separate Purchase and Sale Agreement (PSA) with subsidiaries of Phillips 66 to acquire the Bayway and Ferndale rail racks, which were operating as businesses at the time of their acquisition, and the Cross-Channel Connector project, an organic growth project to substantially expand and redevelop a pipeline system at the Houston Ship Channel. Consideration under the CCAA was
$340 million
, consisting of
$28 million
in cash; the issuance of
1,066,412
common units to Phillips 66 Company and the issuance of
21,764
general partner units to our General Partner to maintain its
2 percent
general partner interest, with an aggregate fair value of the common and general partner units of
$68 million
; and the assumption by the Partnership of a five-year,
$244 million
note payable to a subsidiary of Phillips 66. Consideration under the PSA was
$7 million
, payable in cash and reflected as a payable to Phillips 66 at December 31, 2014. Both transactions comprising the Bayway/Ferndale/Cross-Channel Acquisition closed on December 1, 2014, with total estimated transaction costs of
$1 million
expensed as incurred.
Palermo Rail Terminal Project Acquisition
In December 2014, we entered into a PSA with a subsidiary of Phillips 66 to purchase real property, assets under construction and lease agreements associated with the rail terminal project for
$28 million
in cash. In addition, we entered into a Contribution Agreement with certain subsidiaries of Phillips 66 to acquire Phillips 66’s ownership interest in the rail terminal project, including permits, for total consideration of
$8 million
, consisting of the issuance of
13,129
common units to Phillips 66 Company and the issuance of
268
general partner units to our General Partner to maintain its
2 percent
general partner interest, and the assumption by the Partnership of a five-year,
$8 million
note payable to a subsidiary of Phillips 66. The acquisitions closed on December 5, 2014, and December 10, 2014.
Eagle Ford Gathering System Project Acquisition
In December 2014, we entered into a PSA with a subsidiary of Phillips 66 to acquire real property and assets under construction associated with the gathering system project for total consideration of
$12 million
.
$6 million
of the consideration was cash paid in December 2014, and
$6 million
was reflected as a payable to Phillips 66 at December 31, 2014. The acquisition closed on December 31, 2014.
In connection with the 2014 acquisitions, we entered into various commercial agreements with Phillips 66 and amended the omnibus agreement and the operational services agreement with Phillips 66. See
Note 20—Related Party Transactions
, for a summary of the terms of these agreements.
Because the Gold Line, Medford, Bayway and Ferndale acquisitions were considered transfers of businesses between entities under common control, these acquired businesses were transferred at historical carrying value under GAAP. The carrying value of the Gold Line/Medford Assets was
$138 million
as of February 28, 2014. The carrying value of the Bayway and Ferndale rail racks was
$143 million
as of November 30, 2014. The acquisitions of the Cross-Channel, Palermo and Eagle Ford organic growth projects represented transfers of assets between entities under common control. Accordingly, these assets were also transferred at historical carrying value of
$71 million
, but are included in the financial statements prospectively from the effective date of each acquisition.
Note 5—
Equity Investments
STACK Pipeline Joint Venture
On August 3, 2016, we and Plains All American Pipeline, L.P. (Plains) formed STACK Pipeline, which owns and operates a crude storage terminal and a common carrier pipeline that transports crude oil from the Sooner Trend, Anadarko Basin, Canadian and Kingfisher Counties play in northwestern Oklahoma to Cushing, Oklahoma. Plains contributed the terminal and pipeline in exchange for its
50 percent
interest in the joint venture. We contributed
$50 million
in cash, which was distributed to Plains, in exchange for our
50 percent
interest in the joint venture.
Bakken Joint Ventures
In January 2015, we closed on agreements with Paradigm Energy Partners, LLC (Paradigm) to form
two
joint ventures to develop midstream logistics infrastructure in North Dakota. At closing, we contributed our Palermo Rail Terminal project for a
70 percent
ownership interest in Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal), and
$5 million
in cash for a
50 percent
ownership interest in Paradigm Pipeline LLC (Paradigm Pipeline). We account for both joint ventures under the equity method of accounting due to governance provisions that require supermajority voting on all decisions that significantly impact the governance, management and economic performance of the joint ventures.
Sand Hills/Southern Hills/Explorer Pipeline Joint Ventures
In February 2015, we entered into a CCAA with subsidiaries of Phillips 66 to acquire
100 percent
of Phillips 66’s
one-third
equity interests in Sand Hills and Southern Hills and its
19.46 percent
equity interest in Explorer. The transaction closed on March 2, 2015. Total consideration for the transaction was
$1,010 million
consisting of
$880 million
in cash, funded by a portion of the proceeds from a public offering of unsecured senior notes (2015 Note Offering) and a public offering of common units (2015 Units Offering); in addition, we issued
1,587,376
common units to Phillips 66 Company and
139,538
general partner units to our General Partner to maintain its
2 percent
general partner interest. Total transaction costs of
$1 million
were expensed as incurred in general and administrative expenses.
On August 9, 2016, we acquired an additional
2.48 percent
equity interest in Explorer from a third party. The acquisition increased our interest in Explorer to
21.94 percent
.
Bayou Bridge Joint Venture Acquisition
In October 2015, we entered into a CCAA with Phillips 66 to acquire its
40 percent
interest in Bayou Bridge Pipeline, a joint venture in which Energy Transfer Partners and Sunoco Logistics Partners each hold a
30 percent
interest, with Sunoco Logistics serving as the operator. Bayou Bridge Pipeline began operations on the segment of its pipeline from Nederland, Texas, to Lake Charles, Louisiana, in April 2016. Development continues on the section from Lake Charles to St. James, Louisiana.
The transaction closed on December 1, 2015. Total consideration for the transaction was approximately
$70 million
, consisting of the assumption of a
$35 million
note payable to Phillips 66 that was immediately paid in full; the issuance of
606,056
common units to Phillips 66 PDI; and the issuance of
12,369
general partner units to our General Partner to maintain its
2 percent
general partner interest.
The acquisitions of interests in the Sand Hills, Southern Hills, Explorer and Bayou Bridge Pipeline joint ventures represented transfers of investments between entities under common control. Accordingly, these equity investments were transferred at historical carrying value, and are included in the financial statements prospectively from the effective date of each acquisition.
The following table summarizes our equity investments at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
Percentage Ownership
|
|
|
Carrying Value
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
Sand Hills
|
33.34
|
%
|
|
$
|
445
|
|
431
|
|
Southern Hills
|
33.34
|
|
|
212
|
|
213
|
|
Explorer*
|
21.94
|
|
|
126
|
|
102
|
|
Phillips 66 Partners Terminal
|
70.00
|
|
|
72
|
|
77
|
|
Paradigm Pipeline
|
50.00
|
|
|
117
|
|
52
|
|
Bayou Bridge Pipeline
|
40.00
|
|
|
115
|
|
70
|
|
STACK Pipeline
|
50.00
|
|
|
55
|
|
—
|
|
Total equity investments
|
|
|
$
|
1,142
|
|
945
|
|
*Percentage ownership was
19.46%
at December 31, 2015.
Southern Hills has a negative basis difference of
$96 million
, which originated when the pipeline, formerly known as Seaway Products, was sold by Phillips 66 to a related party. The negative basis difference represents a deferred gain and will be amortized over
45
years. Explorer has a positive basis difference of $
98 million
, which represents fair value adjustments attributable to ownership increases in the pipeline. The positive basis difference will be amortized over periods between
11
and
19
years. STACK Pipeline has a positive basis difference of
$42 million
which is due to the contributed assets being recorded at their historical book value. The positive basis difference is amortized over
45
years.
We use the equity method of accounting for our
70 percent
interest in Phillips 66 Partners Terminal due to the requirement for supermajority (
80 percent
) or unanimous consent of the owners on key governance issues pertaining to the joint venture.
Earnings from our equity investments for the years ended
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
2015
|
|
|
|
|
Sand Hills
|
$
|
62
|
|
48
|
|
Southern Hills
|
26
|
|
14
|
|
Explorer
|
23
|
|
15
|
|
Phillips 66 Partners Terminal
|
—
|
|
—
|
|
Paradigm Pipeline
|
(2
|
)
|
—
|
|
Bayou Bridge Pipeline
|
3
|
|
—
|
|
STACK Pipeline
|
2
|
|
—
|
|
Total equity in earnings of affiliates
|
$
|
114
|
|
77
|
|
Summarized 100 percent financial information, as of acquisition date, for all equity investments, combined, was as follows:
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
Revenues
|
$
|
840
|
|
596
|
|
—
|
|
Income before income taxes
|
494
|
|
322
|
|
—
|
|
Net income
|
408
|
|
321
|
|
—
|
|
Current assets
|
243
|
|
269
|
|
—
|
|
Noncurrent assets
|
3,437
|
|
3,106
|
|
—
|
|
Current liabilities
|
396
|
|
180
|
|
—
|
|
Noncurrent liabilities
|
231
|
|
446
|
|
—
|
|
Our share of income taxes incurred directly by equity investment companies is included in equity earnings of affiliates, and as such is not included in the provision for income taxes in our consolidated financial statements.
Distributions received from these affiliates were
$131 million
and
$89 million
in
2016
and 2015, respectively.
Note 6—
Major Customer and Concentration of Credit Risk
Phillips 66 accounted for
95 percent
,
94 percent
and
95 percent
of our total operating revenues for the years ended
December 31, 2016
,
2015
and
2014
, respectively. Through our wholly owned and joint venture operations, we provide crude oil, refined petroleum products and NGL pipeline transportation, terminaling and storage, and crude oil gathering, NGL fractionation and rail-unloading services to Phillips 66 and other related and third parties.
We are potentially exposed to concentration of credit risk primarily through our accounts receivable with Phillips 66. These receivables have payment terms of 30 days or less. We monitor the credit worthiness of Phillips 66, which has an investment grade credit rating, and we have no history of collectability issues with Phillips 66.
Note 7—
Properties, Plants and Equipment
Our investment in PP&E, with the associated accumulated depreciation, at December 31 was:
|
|
|
|
|
|
|
|
|
|
|
Estimated Useful Lives
|
|
Millions of Dollars
|
|
|
2016
|
|
|
2015*
|
|
|
|
|
|
|
|
Land
|
|
|
$
|
19
|
|
|
39
|
|
Buildings and improvements
|
3 to 30 years
|
|
88
|
|
|
51
|
|
Pipelines and related assets
†
|
10 to 45 years
|
|
1,335
|
|
|
1,097
|
|
Terminals and related assets
†
|
25 to 45 years
|
|
610
|
|
|
547
|
|
Rail racks and related assets
†
|
33 years
|
|
137
|
|
|
136
|
|
Fractionator and related assets
†
|
25 years
|
|
615
|
|
|
626
|
|
Caverns and related assets
†
|
25 to 45 years
|
|
569
|
|
|
277
|
|
Construction-in-progress
|
|
|
27
|
|
|
296
|
|
Gross PP&E
|
|
|
3,400
|
|
|
3,069
|
|
Less: Accumulated depreciation
|
|
|
725
|
|
|
632
|
|
Net PP&E
|
|
|
$
|
2,675
|
|
|
2,437
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
†
Assets for which we are the lessor. See
Note 14—Leases
.
Note 8—
Goodwill
The carrying amount of goodwill was as follows:
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
|
|
|
Beginning balance January 1
|
$
|
182
|
|
|
182
|
|
Goodwill assigned to acquisitions
|
3
|
|
|
—
|
|
Ending balance December 31
|
$
|
185
|
|
|
182
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
Note 9—
Asset Retirement Obligations and Accrued Environmental Costs
Asset retirement obligations and accrued environmental costs at December 31 were:
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
|
|
|
Asset retirement obligations
|
$
|
9
|
|
|
11
|
|
Accrued environmental costs
|
2
|
|
|
4
|
|
Total asset retirement obligations and accrued environmental costs
|
11
|
|
|
15
|
|
Asset retirement obligations and accrued environmental costs due within one year
|
—
|
|
|
—
|
|
Long-term asset retirement obligations and accrued environmental costs
|
$
|
11
|
|
|
15
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
Asset Retirement Obligations
We have asset retirement obligations we are required to perform under law or contract once an asset is permanently taken out of service. These obligations primarily relate to the abandonment or removal of certain pipelines. Most of these obligations are not expected to be paid until many years in the future.
During
2016
and
2015
, our overall asset retirement obligations changed as follows:
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
|
|
|
Balance at January 1
|
$
|
11
|
|
|
11
|
|
Accretion of discount
|
—
|
|
|
1
|
|
New obligations
|
—
|
|
|
—
|
|
Changes in estimates of existing obligations
|
(2
|
)
|
|
(1
|
)
|
Balance at December 31
|
$
|
9
|
|
|
11
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
We do not expect any short-term spending on asset retirement obligations and, as a result, there were
no
such current liabilities reported on the consolidated balance sheet at
December 31, 2016
and
2015
.
Accrued Environmental Costs
Pursuant to the terms of our amended omnibus agreement, Phillips 66 indemnifies us for the environmental liabilities associated with the assets contributed to us in connection with our Initial Public Offering (the Offering) and which arose prior to the closing of the Offering. Pursuant to the terms of various agreements under which we acquired assets from Phillips 66 since the Offering, Phillips 66 assumed the responsibility for environmental liabilities associated with the acquired assets arising prior to the effective date of each acquisition.
In April 2015, our pipeline that transports products from the Hartford Terminal to a dock on the Mississippi River experienced a diesel fuel release of approximately
800
barrels. The release was halted on the same day, and cleanup and remediation efforts followed. Costs recognized during 2015 associated with cleanup and remediation of the release were
$5 million
. We continue to work with the appropriate authorities and costs are subject to change if additional information regarding the extent of the environmental impact of the release becomes known. We carry property and third-party liability insurance, each in excess of
$5 million
self-insured retentions.
At December 31, 2016, we had
$2 million
of environmental accruals. In the future, we may be involved in additional environmental assessments, cleanups and proceedings.
Note 10—
Net Income Per Limited Partner Unit
Net income per unit applicable to common and subordinated units (for the period subordinated units were outstanding) is computed by dividing these limited partners’ respective interests in net income attributable to the Partnership by the weighted average number of common units and subordinated units, respectively, outstanding for the period. Because we have more than
one
class of participating securities, we use the two-class method to calculate the net income per unit applicable to the limited partners. The classes of participating securities as of
December 31, 2016
, included common units, general partner units and incentive distribution rights (IDRs). Basic and diluted net income per unit are the same because we do not have potentially dilutive instruments outstanding.
Net income earned by the Partnership is allocated between the limited partners and the General Partner (including the General Partner’s IDRs) in accordance with our partnership agreement. First, earnings are allocated based on actual cash distributions made to our unitholders, including those attributable to the General Partner’s IDRs. To the extent net income attributable to the Partnership exceeds or is less than cash distributions, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings.
When our financial statements are retrospectively adjusted after a dropdown transaction, the earnings of the acquired business, prior to the closing of the transaction, are allocated entirely to our General Partner and presented as net income (loss) attributable to Predecessors. The earnings per unit of our limited partners prior to the close of the transaction do not change as a result of the dropdown. After the closing of a dropdown transaction, the earnings of the acquired business are allocated in accordance with our partnership agreement as previously described.
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
Net income attributable to the Partnership
|
$
|
301
|
|
|
194
|
|
|
116
|
|
Less: General partner’s distributions declared (including IDRs)*
|
91
|
|
|
39
|
|
|
8
|
|
Limited partners’ distributions declared on common units*
|
205
|
|
|
123
|
|
|
48
|
|
Limited partner’s distributions declared on subordinated units*
|
—
|
|
|
13
|
|
|
43
|
|
Distributions less than net income attributable to the Partnership
|
$
|
5
|
|
|
19
|
|
|
17
|
|
*Distributions declared are attributable to the indicated periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
General Partner (including IDRs)
|
|
Limited Partners’ Common Units
|
|
Limited Partner’s Subordinated Units
|
|
Total
|
|
Net income attributable to the Partnership
(millions):
|
|
|
|
|
Distributions declared
|
$
|
91
|
|
205
|
|
—
|
|
296
|
|
Distributions less than net income attributable to the Partnership
|
1
|
|
4
|
|
—
|
|
5
|
|
Net income attributable to the Partnership
|
$
|
92
|
|
209
|
|
—
|
|
301
|
|
|
|
|
|
|
Weighted average units outstanding:
|
|
|
|
|
Basic
|
1,920,435
|
|
95,239,901
|
|
—
|
|
97,160,336
|
|
Diluted
|
1,920,435
|
|
95,239,901
|
|
—
|
|
97,160,336
|
|
|
|
|
|
|
Net income per limited partner unit
(dollars):
|
|
|
|
|
Basic
|
|
$
|
2.20
|
|
—
|
|
|
Diluted
|
|
2.20
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
General Partner (including IDRs)
|
|
Limited Partners’ Common Units
|
|
Limited Partner’s Subordinated Units
|
|
Total
|
|
Net income attributable to the Partnership
(millions):
|
|
|
|
|
Distributions declared
|
$
|
39
|
|
123
|
|
13
|
|
175
|
|
Distributions less than net income attributable to the Partnership
|
2
|
|
14
|
|
3
|
|
19
|
|
Net income attributable to the Partnership
|
$
|
41
|
|
137
|
|
16
|
|
194
|
|
|
|
|
|
|
Weighted average units outstanding:
|
|
|
|
|
Basic
|
1,649,169
|
|
68,173,891
|
|
12,736,051
|
|
82,559,111
|
|
Diluted
|
1,649,169
|
|
68,173,891
|
|
12,736,051
|
|
82,559,111
|
|
|
|
|
|
|
Net income per limited partner unit
(dollars):
|
|
|
|
|
Basic
|
|
$
|
2.02
|
|
1.24
|
|
|
Diluted
|
|
2.02
|
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014
|
|
General Partner (including IDRs)
|
|
Limited Partners’ Common Units
|
|
Limited Partner’s Subordinated Units
|
|
Total
|
|
Net income attributable to the Partnership
(millions):
|
|
|
|
|
Distributions declared
|
$
|
8
|
|
48
|
|
43
|
|
99
|
|
Distributions less than net income attributable to the Partnership
|
—
|
|
9
|
|
8
|
|
17
|
|
Net income attributable to the Partnership
|
$
|
8
|
|
57
|
|
51
|
|
116
|
|
|
|
|
|
|
Weighted average units outstanding:
|
|
|
|
|
Basic
|
1,499,704
|
|
38,268,371
|
|
35,217,112
|
|
74,985,187
|
|
Diluted
|
1,499,704
|
|
38,268,371
|
|
35,217,112
|
|
74,985,187
|
|
|
|
|
|
|
Net income per limited partner unit
(dollars):
|
|
|
|
|
Basic
|
|
$
|
1.48
|
|
1.45
|
|
|
Diluted
|
|
1.48
|
|
1.45
|
|
|
On
January 18, 2017
, the Board of Directors of our General Partner declared a quarterly cash distribution of
$0.5580
per limited partner unit which, combined with distributions to our General Partner, resulted in total distributions of
$88 million
attributable to the fourth quarter of
2016
. This distribution was paid
February 13, 2017
, to unitholders of record as of
January 31, 2017
.
Subordinated Unit Conversion
Following the May 12, 2015, payment of the cash distribution attributable to the first quarter of 2015, the requirements under the partnership agreement for the conversion of all subordinated units into common units were satisfied. As a result, in the second quarter of 2015, the
35,217,112
subordinated units held by Phillips 66 converted into common units on a one-for-one basis, and thereafter participate on terms equal with all other common units in distributions of available cash. The conversion of the subordinated units did not impact the amount of cash distributions paid by us or the total number of outstanding units.
Note 11—
Debt
Debt at
December 31, 2016
and
2015
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2016
|
|
Fair Value Hierarchy
|
|
Total Fair Value
|
|
Balance Sheet
Carrying Value
|
|
|
Level 1
|
|
Level 2*
|
|
Level 3
|
|
|
|
|
2.646% Senior Notes due 2020
|
$
|
—
|
|
298
|
|
—
|
|
|
298
|
|
300
|
|
3.605% Senior Notes due 2025
|
—
|
|
490
|
|
—
|
|
|
490
|
|
500
|
|
3.550% Senior Notes due 2026
|
—
|
|
483
|
|
—
|
|
|
483
|
|
500
|
|
4.680% Senior Notes due 2045
|
—
|
|
277
|
|
—
|
|
|
277
|
|
300
|
|
4.900% Senior Notes due 2046
|
—
|
|
599
|
|
—
|
|
|
599
|
|
625
|
|
Revolving credit facility at 1.98% at year-end 2016
|
—
|
|
210
|
|
—
|
|
|
210
|
|
210
|
|
Debt at face value
|
$
|
—
|
|
2,357
|
|
—
|
|
|
2,357
|
|
2,435
|
|
Net unamortized discounts and debt issuance costs
|
|
|
|
|
|
(24
|
)
|
Total debt
|
|
|
|
|
|
$
|
2,411
|
|
*The fair value was estimated using quoted market prices of comparable instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
December 31, 2015
|
|
Fair Value Hierarchy
|
|
Total Fair Value
|
|
Balance Sheet
Carrying Value
|
|
|
Level 1
|
|
Level 2*
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
2.646% Senior Notes due 2020
|
$
|
—
|
|
282
|
|
—
|
|
|
282
|
|
300
|
|
3.605% Senior Notes due 2025
|
—
|
|
432
|
|
—
|
|
|
432
|
|
500
|
|
4.680% Senior Notes due 2045
|
—
|
|
225
|
|
—
|
|
|
225
|
|
300
|
|
Notes payable to Phillips 66 due 2020 at 3.0%
|
—
|
|
961
|
|
—
|
|
|
961
|
|
964
|
|
Debt at face value
|
$
|
—
|
|
1,900
|
|
—
|
|
|
1,900
|
|
2,064
|
|
Net unamortized discounts and debt issuance costs
|
|
|
|
|
|
(9
|
)
|
Total debt
|
|
|
|
|
|
$
|
2,055
|
|
*The fair value was estimated using quoted market prices of comparable instruments.
Maturities of borrowings outstanding at December 31, 2016, inclusive of net unamortized discounts and debt issuance costs, for the five-year period ending 2021 were
$15 million
in 2017,
$298 million
in 2020 and
$195 million
in 2021, respectively.
2016 Senior Notes
On October 14, 2016, we closed on a notes offering (2016 Notes Offering) of
$1,125 million
aggregate principal amount of unsecured senior notes consisting of:
|
|
•
|
$500 million
of
3.55%
Senior Notes due October 1, 2026.
|
|
|
•
|
$625 million
of
4.90%
Senior Notes due October 1, 2046.
|
Total proceeds (net of underwriting discounts) received from the 2016 Notes Offering were
$1,111 million
. We utilized the net proceeds to fund the cash consideration for the Eagle Acquisition and for general partnership purposes.
2015 Senior Notes
On February 23, 2015, we closed on a notes offering (2015 Notes Offering) of
$1,100 million
aggregate principal amount of unsecured senior notes consisting of:
|
|
•
|
$300 million
of
2.646%
Senior Notes due February 15, 2020.
|
|
|
•
|
$500 million
of
3.605%
Senior Notes due February 15, 2025.
|
|
|
•
|
$300 million
of
4.680%
Senior Notes due February 15, 2045.
|
Total proceeds (net of underwriting discounts) received from the 2015 Notes Offering were
$1,092 million
. We utilized a portion of the net proceeds to partially fund the acquisition of the Sand Hills, Southern Hills and Explorer equity investments. In addition, the Partnership used a portion of the proceeds to repay
three
notes payable to a subsidiary of Phillips 66.
Revolving Credit Facility
At
December 31, 2016
, we had an aggregate of
$210 million
borrowed and outstanding under our revolving credit facility established by our Credit Agreement dated June 7, 2013 (the Credit Agreement), as subsequently amended in October 2016 (the Second Amendment). The Second Amendment increased the amount available under the Credit Agreement to
$750 million
and extended the termination date to October 3, 2021.
We have the option to increase the overall capacity of the Credit Agreement by up to an additional
$250 million
for a total of
$1 billion
, subject to, among other things, the consent of the existing lenders whose commitments will be increased or any additional lenders providing such additional capacity. We also have the option to extend the Credit Agreement for
two
additional
one
-year terms after October 3, 2021, subject to, among other things, the consent of the lenders holding the majority of the commitments and of each lender extending its commitment.
Outstanding borrowings under the Credit Agreement bear interest, at our option, at either: (a) the Eurodollar rate in effect from time to time plus the applicable margin; or (b) the base rate (as described in the Credit Agreement) plus the applicable margin. The pricing levels for the commitment fee and interest-rate margins are determined based on our credit ratings in effect from time to time. The Credit Agreement requires that the Partnership’s ratio of total debt to EBITDA for the prior four fiscal quarters must be no greater than
5.0
:1.0 as of the last day of each fiscal quarter (and
5.5
:1.0 during the period following certain specified acquisitions).
Notes Payable
On March 1, 2016, in connection with the Initial Fractionator Acquisition, we entered into an Assignment and Assumption of Note agreement with subsidiaries of Phillips 66, pursuant to which we assumed the obligations under a term promissory note (the Initial Note) with a
$212 million
principal balance. In August 2016, using proceeds from a unit offering, we repaid the note in its entirety.
On May 10, 2016, in connection with the Subsequent Fractionator Acquisition, we entered into
three
separate Assignment and Assumption of Note agreements with subsidiaries of Phillips 66, pursuant to which we assumed the obligations under
three
term promissory notes (the Subsequent Notes), each with a
$225 million
principal balance. Also on May 10, 2016, using proceeds from a unit offering, we repaid
two
of the Subsequent Notes in their entirety, and reduced the outstanding balance on the remaining Subsequent Note to
$19 million
, which was repaid on June 30, 2016.
Because the Initial Note and Subsequent Notes were held by entities we acquired in common control transactions, prior period debt balances have been recast as if we had held the notes since their inception in January 2014.
Note 12—
Equity
ATM Program
On June 6, 2016, we filed a prospectus supplement to the shelf registration statement for our continuous offering program that became effective with the Securities and Exchange Commission on May 13, 2016, related to the continuous issuance of up to an aggregate of
$250 million
of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our ATM Program). As of
December 31, 2016
, on a settlement-date basis, we issued an aggregate of
346,152
common units under our ATM Program, generating net proceeds of
$19 million
, after broker commissions. The net proceeds from sales under the ATM Program are used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
Common Unit Offerings
On August 12, 2016, we completed a public offering of
6,000,000
common units representing limited partner interests at a price of
$50.22
per common unit, for total proceeds (net of underwriting discounts and commissions) of
$299 million
. The net proceeds were used to repay the Initial Note assumed as part of the Initial Fractionator Acquisition, as well as other short-term borrowings incurred to fund our acquisition of an additional interest in Explorer and our contribution to the recently formed STACK Pipeline.
See
Note 4—Acquisitions
and
Note 11—Debt
for additional information.
On May 10, 2016, we completed a public offering, consisting of an aggregate of
12,650,000
common units representing limited partner interests at a price of
$52.40
per common unit. We received proceeds (net of underwriting discounts and commissions) of
$656 million
from the offering. We utilized the net proceeds to partially repay debt assumed as part of the Subsequent Fractionator Acquisition. See
Note 4—Acquisitions
and
Note 11—Debt
for additional information.
In February 2015, we completed the public offering of an aggregate of
5,250,000
common units representing limited partner interests at a price of
$75.50
per common unit (the 2015 Unit Offering). We received proceeds (net of underwriting discounts and commissions) of
$384 million
from the offering. We utilized a portion of the net proceeds to partially fund the acquisition of the Sand Hills, Southern Hills and Explorer equity investments and to repay amounts outstanding under our revolving credit facility. We used the remaining proceeds to fund expansion capital expenditures and for general partnership purposes. See
Note 5—Equity Investments
for additional information on the Sand Hills, Southern Hills and Explorer acquisition.
Note 13—
Contingencies
From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include any contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
At
December 31, 2016
, we had
$2 million
of environmental accruals. In the future, we may be involved in additional environmental assessments, cleanups and proceedings. See
Note 9—Asset Retirement Obligations and Accrued Environmental Costs
, for a summary of our accrued environmental liabilities.
Legal Proceedings
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and determines if adjustment of existing accruals, or establishment of new accruals, is required. As of
December 31, 2016
and
2015
, we did not have any material accrued contingent liabilities associated with litigation matters.
Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize a non-cash expense and an associated non-cash capital contribution from our General Partner, as these are considered liabilities paid for by a principal unitholder.
We have assumed, and have agreed to pay, discharge and perform as and when due, all liabilities arising out of or attributable to the ownership or operation of the assets, or other activities occurring in connection with and attributable to the ownership or operation of the assets, from and after the effective date of each acquisition.
Note 14—
Leases
Lessor
We have certain services agreements with Phillips 66 that are considered operating leases under GAAP. These agreements include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. Revenues from these agreements are recorded within “Operating revenues—related parties” on our consolidated statement of income.
As of
December 31, 2016
, future minimum payments to be received related to these agreements were estimated to be:
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
2017
|
$
|
556
|
|
2018
|
538
|
|
2019
|
506
|
|
2020
|
502
|
|
2021
|
494
|
|
Remaining years
|
1,848
|
|
Total
|
$
|
4,444
|
|
Lessee
We have operating lease agreements with Phillips 66 for the land underlying or associated with certain assets. Due to the economic infeasibility of canceling these leases, we consider them non-cancellable. For the year ended December 31, 2016, the operating leases rental expense was
$2 million
. The future minimum lease payments as of
December 31, 2016
, for the operating lease obligations were:
|
|
|
|
|
|
Millions of Dollars
|
|
|
|
2017
|
$
|
3
|
|
2018
|
3
|
|
2019
|
3
|
|
2020
|
3
|
|
2021
|
3
|
|
Remaining years
|
95
|
|
Total minimum lease payments
|
$
|
110
|
|
Note 15—
Employee Benefit Plans
Pension and Retirement Savings Plans
Neither we nor our subsidiaries have any employees. Our General Partner has the sole responsibility for providing the employees and other personnel necessary to conduct our operations. All of the employees that conduct our wholly owned businesses are employed by Phillips 66. Those employees participate in the pension, postretirement health insurance and defined contribution benefit plans sponsored by Phillips 66. Most employees of Phillips 66 who provide direct support to our operations do so under the provisions of the amended operational services agreement, which burdens labor charges with benefit costs. For those remaining Phillips 66 employees who directly support our business, their pension, postretirement health insurance and defined contribution benefit plan costs were included within the consolidated financial statements and do not have a material impact.
Note 16—
Unit-Based Compensation
The Board of Directors of our General Partner adopted the Phillips 66 Partners LP 2013 Incentive Compensation Plan (the ICP) in the third quarter of 2013. Awards under the ICP are available for officers, directors and employees of our General Partner or its affiliates, and any consultants or other individuals who perform services for the Partnership. The ICP allows for the grant of unit awards, restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights, profits interest units and other unit-based awards. The ICP limits the number of common units that may be delivered pursuant to awards to
2,500,000
, subject to proportionate adjustment in the event of unit splits and similar events.
From the closing of the Offering through
December 31, 2016
, we have only issued phantom units to non-employee directors under the ICP. A phantom unit entitles the recipient to receive cash equal to the fair market value of a common unit on the date the phantom unit is settled after the vesting period (settlement date), and to also receive a distribution equivalent each quarter between the grant date and the settlement date in an amount equal to any cash distributions paid on a common unit during that time. During the years ended
December 31, 2016
,
2015
, and
2014
, we granted a total of
4,880
,
2,343
and
4,161
phantom units, respectively, to
three
non-employee directors of the Partnership. On the grant date, phantom units awarded to non-employee directors become non-forfeitable; therefore, we immediately recognize expense equal to the grant-date fair value of the award. These phantom units do not convey voting rights.
Note 17—
Income Taxes
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income generally are borne by our partners through the allocation of taxable income. Our income tax provision results from state laws that apply to entities organized as partnerships. For us, this is primarily Texas.
Income taxes charged to income were:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
2014*
|
|
|
|
|
|
|
|
Current
|
$
|
2
|
|
|
—
|
|
|
1
|
|
Deferred
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
2
|
|
|
—
|
|
|
1
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
At
December 31, 2016
and
2015
, we had a deferred tax liability of
$2 million
and
$1 million
, respectively. The deferred tax liability was primarily associated with PP&E and equity investments. In conjunction with the Fractionator Acquisitions and Eagle Acquisition, a deferred tax liability of
$1 million
was recorded in the equity account of our General Partner.
Our effective tax rate was less than
one percent
for the years ended
December 31, 2016
,
2015
and
2014
.
As of
December 31, 2016
and
2015
, we had
no
liability reported for unrecognized tax benefits, and we did not have any interest or penalties related to income taxes for the years ended
December 31, 2016
,
2015
and
2014
. Texas tax returns for the years 2012 through 2016 are subject to examination.
Note 18—
Cash Flow Information
The 2016, 2015, and 2014 acquisitions had cash and noncash elements. The common and general partner units issued to Phillips 66 in the Eagle, Sand Hills/Southern Hills/Explorer, Bayway/Ferndale/Cross-Channel and Gold Line/Medford acquisitions were assigned
no
value, because the cash consideration and note payable assumption exceeded the historical net book value of the acquired assets for each acquisition. Accordingly, the units issued for these acquisitions had no impact on partner capital balances, other than changing ownership percentages.
Eagle Acquisition
We attributed
$990 million
of the total
$1,109 million
cash consideration paid to the historical book value of the assets acquired (an investing cash outflow). The remaining
$119 million
of excess cash consideration was deemed a distribution to our General Partner (a financing cash outflow).
Subsequent Fractionator Acquisition
The Subsequent Fractionator Acquisition had both cash and noncash elements. The historical book value of the net assets acquired was
$871 million
. Of this amount,
$656 million
was a financing cash outflow, representing the acquisition of the noncontrolling interest in Sweeny Frac LLC, through the repayment of a portion of the debt assumed in the transaction. The remaining debt financing balance of
$19 million
represented a noncash investing and financing activity. The remaining
$196 million
of book value was attributed to the common and general partner units issued (a noncash investing and financing activity).
Initial Fractionator Acquisition
The Initial Fractionator Acquisition was a noncash transaction. The historical book value of the net assets of our
25 percent
interest acquired was
$283 million
. Of this amount,
$212 million
was attributed to the note payable assumed (a noncash investing and financing activity). The remaining
$71 million
was attributed to the common and general partner units issued (a noncash investing and financing activity).
Bayou Bridge Joint Venture Acquisition
Total consideration paid for the transaction was approximately
$70 million
, consisting of the assumption of a
$35 million
note payable to Phillips 66 that was immediately paid in full (an investing cash outflow). The remaining
$35 million
of book value was attributed to the common and general partner units issued (a noncash investing and financing activity).
Sand Hills, Southern Hills and Explorer Acquisition
We attributed
$734 million
of the total
$880 million
cash consideration paid to the investment balance of the Sand Hills, Southern Hills and Explorer equity investments acquired (an investing cash outflow). The remaining
$146 million
of excess cash consideration was deemed a distribution to our General Partner (a financing cash outflow).
Eagle Ford Gathering System Project Acquisition
We paid consideration of
$12 million
for the Eagle Ford Gathering System project, the same as its historical book value. In December 2014,
$6 million
of the consideration was paid in cash (an investing cash outflow), and
$6 million
was reflected as a payable to Phillips 66 at December 31, 2014.
Palermo Rail Terminal Project Acquisition
The historical book value of the Palermo Rail Terminal project was
$42 million
. Cash consideration was
$28 million
, of which we paid
$27 million
in December 2014 (an investing cash outflow) and
$1 million
was reflected as a payable to Phillips 66 at December 31, 2014. Noncash consideration consisted of the assumption of a
$8 million
note payable (noncash investing and financing activities) and the issuance of common and general partner units to Phillips 66 with an aggregate allocated value of
$6 million
(a noncash financing activity).
Bayway/Ferndale/Cross-Channel Acquisition
The historical net book value of the assets acquired in the Bayway/Ferndale/Cross-Channel Acquisition was
$160 million
. Cash consideration was
$35 million
, of which we paid
$28 million
in December 2014 (an investing cash outflow) and
$7 million
was reflected as a payable to Phillips 66 at December 31, 2014. We attributed
$125 million
of the
$244 million
note payable assumed to the remaining historical book value of the net assets acquired (noncash investing and financing activities). The remaining
$119 million
of the note payable assumed was deemed a noncash
distribution to our General Partner (a noncash financing activity), which reduced our General Partner’s capital balance by that amount.
Gold Line/Medford Acquisition
We attributed
$138 million
of the total
$400 million
cash consideration paid to the historical book value of the assets acquired (an investing cash outflow). The remaining
$262 million
of excess cash consideration was deemed a distribution to our General Partner (a financing cash outflow). The assumption of the
$160 million
note payable was deemed a noncash distribution to our General Partner (a noncash financing activity). Together, the excess cash consideration and the assumption of the note payable resulted in a
$422 million
reduction in our General Partner’s capital balance.
Our capital expenditures and investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Capital Expenditures and Investments
|
|
|
|
|
|
Capital expenditures attributable to Predecessors*
|
$
|
96
|
|
|
690
|
|
|
707
|
|
Capital expenditures and investments attributable to the Partnership
|
461
|
|
|
205
|
|
|
66
|
|
Total capital expenditures and investments*
|
$
|
557
|
|
|
895
|
|
|
773
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
2014*
|
|
Capital Expenditures and Investments
|
|
|
|
|
|
Cash capital expenditures and investments
|
$
|
584
|
|
|
948
|
|
|
659
|
|
Change in capital expenditure accruals
|
(27
|
)
|
|
(53
|
)
|
|
114
|
|
Total capital expenditures and investments
|
$
|
557
|
|
|
895
|
|
|
773
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Other Noncash Investing and Financing Activities
|
|
|
|
|
|
Contributions of net assets into joint ventures
|
$
|
—
|
|
|
43
|
|
|
—
|
|
Certain liabilities of acquired assets retained by Phillips 66
(1)
|
50
|
|
|
—
|
|
|
15
|
|
|
|
|
|
|
|
Cash Payments
|
|
|
|
|
|
Interest and debt expense
|
$
|
40
|
|
|
18
|
|
|
3
|
|
(1)
Certain liabilities of the Acquired Assets were retained by Phillips 66, pursuant to the terms of various agreements under which we acquired assets from Phillips 66 since the Offering. See
Note 13—Contingencies
for additional information on these excluded liabilities associated with the Acquired Assets.
Note 19—
Other Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
2014*
|
|
Interest and Debt Expense
|
|
|
|
|
|
Incurred
|
|
|
|
|
|
Debt
|
$
|
56
|
|
|
65
|
|
|
12
|
|
Other
|
1
|
|
|
1
|
|
|
—
|
|
|
57
|
|
|
66
|
|
|
12
|
|
Capitalized
|
(5
|
)
|
|
(32
|
)
|
|
(7
|
)
|
Expensed
|
$
|
52
|
|
|
34
|
|
|
5
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
Co-venturer contractual make-whole payments
|
$
|
1
|
|
|
6
|
|
|
—
|
|
Total other income
|
$
|
1
|
|
|
6
|
|
|
—
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
Note 20—
Related Party Transactions
Commercial Agreements
In connection with the Offering and subsequent acquisitions from Phillips 66, we entered into multiple commercial agreements with Phillips 66, including transportation services agreements, terminal services agreements, storage services agreements, stevedoring services agreements, a fractionation service agreement and rail terminal services agreements. Under these long-term, fee-based agreements, we provide transportation, terminaling, storage, stevedoring, fractionation and rail terminal services to Phillips 66, and Phillips 66 commits to provide us with minimum quarterly throughput volumes of crude oil, NGL and refined petroleum products or minimum monthly service fees. Under our transportation and terminaling services agreements, if Phillips 66 fails to transport, throughput or store its minimum throughput volume during any quarter, then Phillips 66 will pay us a deficiency payment based on the calculation described in the agreement.
Amended Operational Services Agreement
Under our amended operational services agreement, we reimburse Phillips 66 for providing certain operational services to us in support of our pipelines, terminaling and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.
Amended Omnibus Agreement
The amended omnibus agreement addresses our payment of an annual operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities related to the assets we acquired in connection with the Offering, and the prefunding of certain projects by Phillips 66. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.
Tax Sharing Agreement
In connection with the Offering, we entered into a tax sharing agreement with Phillips 66 pursuant to which we will reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66 with respect to taxable periods including or beginning on or after the closing date of the Offering. The amount of any such reimbursement will be limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe
no
tax. We would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had
no
cash expense for that period.
Related Party Transactions
Significant related party transactions included in operating and maintenance expenses, general and administrative expenses and interest and debt expense were:
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
2016
|
|
|
2015*
|
|
|
2014*
|
|
|
|
|
|
|
|
Operating and maintenance expenses
|
$
|
122
|
|
|
95
|
|
|
77
|
|
General and administrative expenses
|
56
|
|
|
58
|
|
|
52
|
|
Interest and debt expense
|
3
|
|
|
2
|
|
|
5
|
|
Total
|
$
|
181
|
|
|
155
|
|
|
134
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
We pay Phillips 66 a monthly operational and administrative support fee under the terms of our amended omnibus agreement in the amount of
$7 million
. In prior periods, the monthly fee paid to Phillips 66 was
$1 million
from July 26, 2013 through February 28, 2014,
$2 million
from March 1, 2014, to March 1, 2015, and
$3 million
from March 2, 2015, to October 13, 2016, reflecting the growth in our operations.
The operational and administrative support fee is for the provision of certain services, including: executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; corporate engineering services, including asset integrity and regulatory services; logistical services; asset oversight, such as operational management and supervision; business development services; investor relations; tax matters; and public company reporting services. We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services being performed for our operations. Under our amended operational services agreement, we reimburse Phillips 66 for the provision of certain operational services to us in support of our pipelines, rail racks, fractionator, and terminaling and storage facilities. Additionally, we pay Phillips 66 for insurance services provided to us. Operating and maintenance expenses also include volumetric gain/loss associated with volumes transported by Phillips 66.
Note 21—
New Accounting Standards
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, “Intangibles—Goodwill and Other—Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Public business entities should apply the guidance in ASU No. 2017-04 for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the provisions of ASU No. 2017-04.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations: Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction does not involve acquisition of a business. If the screen is not met, then the amendment requires that to be considered a business, the operation must include at a minimum an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods
beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The amendments should be applied prospectively, and no disclosures are required at the effective date. We are currently evaluating the provisions of ASU No. 2017-01.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which clarifies the classification and presentation of changes in restricted cash. The amendment requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. Public business entities should apply the guidance in ASU No. 2016-18 on a retrospective basis for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. We do not expect the adoption of this ASU to have a material impact on our financial statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies the treatment of several cash flow categories. In addition, ASU No. 2016-15 clarifies that when cash receipts and cash payments have aspects of more than
one
class of cash flows and cannot be separated, classification will depend on the predominant source or use. Public business entities should apply the guidance in ASU No. 2016-15 on a retrospective basis for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. We are currently evaluating the provisions of ASU No. 2016-15 and assessing the impact on our financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under the previous GAAP. A contract represents a lease if a transfer of control occurs over identified PP&E for a period of time in exchange for consideration. Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases - financing and operating - which are substantially similar to capital and operating leases in the previous lease guidance. Under the new standard, recognition of assets and liabilities arising from operating leases will require recognition on the balance sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision will also affect net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new standard converged guidance on recognizing revenues in contracts with customers under GAAP and International Financial Reporting Standards. This ASU is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period.
Retrospective or modified retrospective application of the accounting standard is required. ASU No. 2014-09 was further amended in March 2016 by the provisions of ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” in April 2016 by the provisions of ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” in May 2016 by the provisions of ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and in December 2016 by the provisions of ASU No. 2016-20, “Technical Corrections to Topic 606, revenue from Contracts with Customers.” As part of our assessment work-to-date, we have formed an implementation work team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application. Our evaluation of this standard is ongoing.
|
|
|
|
|
|
Selected Quarterly Financial Data
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Millions of Dollars
|
|
Per Common Unit
|
|
Total Revenues
|
|
Income Before Income Taxes
|
|
Net Income
|
|
Net Income Attributable to the Partnership
|
|
Limited Partners’ Interest in Net Income Attributable to the Partnership
|
|
|
Net Income Attributable to the Partnership
|
|
Basic and Diluted
|
|
2016
|
|
|
|
|
|
|
|
First
|
$
|
204
|
|
94
|
|
94
|
|
52
|
|
36
|
|
|
0.44
|
|
Second
|
219
|
|
101
|
|
100
|
|
68
|
|
47
|
|
|
0.51
|
|
Third
|
222
|
|
112
|
|
112
|
|
83
|
|
57
|
|
|
0.57
|
|
Fourth
|
228
|
|
103
|
|
102
|
|
98
|
|
69
|
|
|
0.65
|
|
|
|
|
|
|
|
|
|
2015*
|
|
|
|
|
|
|
|
First
|
$
|
150
|
|
61
|
|
61
|
|
35
|
|
29
|
|
|
0.39
|
|
Second
|
168
|
|
72
|
|
72
|
|
42
|
|
33
|
|
|
0.50
|
|
Third
|
174
|
|
78
|
|
78
|
|
53
|
|
41
|
|
|
0.50
|
|
Fourth
|
203
|
|
95
|
|
95
|
|
64
|
|
50
|
|
|
0.61
|
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.