NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
|
|
|
|
1.
|
ORGANIZATION AND BASIS OF PRESENTATION
|
Organization
Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer Equity, L.P. and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer Equity, L.P. on a stand-alone basis.
In April 2017, Energy Transfer Partners, L.P. (“ETP”) merged with a subsidiary of Sunoco Logistics Partners L.P., at which time ETP changed its name from “Energy Transfer Partners, L.P.” to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” Additional information related to the merger is included in Note 2 below.
Energy Transfer, LP is a wholly-owned subsidiary of Energy Transfer Partners, L.P.
For purposes of maintaining clarity, the following references are used herein:
|
|
|
|
•
|
References to “ETP” refer to the entity named Energy Transfer Partners, L.P. prior to the close of the merger and Energy Transfer, LP subsequent to the close of the merger;
|
|
|
|
|
•
|
References to “Sunoco Logistics” refer to the entity named Sunoco Logistics Partners L.P. prior to the close of the merger; and
|
|
|
|
|
•
|
References to “Post-Merger ETP” refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the close of the merger.
|
The consolidated financial statements of ETE presented herein include the results of operations of:
|
|
|
|
•
|
our controlled subsidiaries, ETP and Sunoco LP;
|
|
|
|
|
•
|
consolidated subsidiaries of our controlled subsidiaries and our wholly-owned subsidiaries that own general partner interests and IDR interests in ETP and Sunoco LP; and
|
|
|
|
|
•
|
our wholly-owned subsidiary, Lake Charles LNG.
|
Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company, joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities.
Business Operations
The Parent Company’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP and Sunoco LP and cash flows from the operations of Lake Charles LNG. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ETE’s subsidiaries. In order to understand the financial condition of the Parent Company on a stand-alone basis, see Note
14
for stand-alone financial information apart from that of the consolidated partnership information included herein.
Our financial statements reflect the following reportable business segments:
|
|
|
|
•
|
Investment in ETP, including the consolidated operations of ETP;
|
|
|
|
|
•
|
Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
|
|
|
|
|
•
|
Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
|
|
|
|
|
•
|
Corporate and Other, including the following:
|
|
|
|
|
•
|
activities of the Parent Company; and
|
|
|
|
|
•
|
the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
|
Basis of Presentation
The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended
December 31, 2016
. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.
Certain prior period amounts have been reclassified to conform to the
2017
presentation. These reclassifications had no impact on net income or total equity.
Use of Estimates
The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investments in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP or Sunoco LP (excluding transactions with the Parent Company) as capital transactions.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09,
Revenue
from Contracts with Customers (Topic 606)
(“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catchup transition method). The Partnership expects to adopt ASU 2014-09 in the first quarter of 2018 and will apply the cumulative catchup transition method.
We are in the process of evaluating our revenue contracts by segment and fee type to determine the potential impact of adopting the new standards. At this point in our evaluation process, we have determined that the timing and/or amount of revenue that we recognize on certain contracts may be impacted by the adoption of the new standard; however, we are still in the process of quantifying these impacts and cannot say whether or not they would be material to our financial statements. In addition, we are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard. We continue to monitor additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing our conclusions on specific interpretative issues to other peers in our industry, to the extent that such information is available to us.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases (Topic 842)
(“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Partnership is currently evaluating the impact that adopting this new standard will have on the consolidated financial statements and related disclosures.
On January 1, 2017, the Partnership adopted Accounting Standards Update No. 2016-09,
Stock Compensation (Topic 718)
(“ASU 2016-09”). The objective of the update is to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of this standard did not have a material impact on the Partnership’s consolidated financial statements and related disclosures.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16,
Income Taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory
(“ASU 2016-16”), which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Partnership is currently evaluating the impact that adoption of this standard will have on the consolidated financial statements and related disclosures.
On January 1, 2017, the Partnership adopted Accounting Standards Update No. 2016-17,
Consolidation (Topic 810): Interests Held Through Related Parties That Are Under Common Control
(“ASU 2016-17”), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under the amendments, a single decision maker is required to include indirect interests on a proportionate basis consistent with indirect interests held through other related parties. The adoption of this standard did not have an impact on the Partnership’s consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04 “
Intangibles-Goodwill and other (Topic 350): Simplifying the test for goodwill impairment.
” The amendments in this update remove the second step of the two-step test currently required by Topic 350. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect that our adoption of this standard will change our approach for testing goodwill for impairment; however, this standard requires prospective application and therefore will only impact periods subsequent to adoption.
|
|
|
|
2.
|
ACQUISITIONS AND DIVESTURES
|
ETP and Sunoco Logistics Merger
In April 2017, ETP and Sunoco Logistics completed the previously announced merger transaction in which Sunoco Logistics acquired ETP in a unit-for-unit transaction.
Under the terms of the transaction, ETP unitholders received
1.5
common units of Sunoco Logistics for each common unit of ETP they owned.
Under the terms of the merger agreement, Sunoco Logistics’ general partner was merged with and into ETP GP, with ETP GP surviving as an indirect wholly-owned subsidiary of ETE.
Based on the ETP units outstanding at the closing of the merger, Sunoco Logistics issued approximately
845 million
Sunoco Logistics common units to ETP unitholders. The outstanding ETP Class E units, Class G units, Class I units and Class K units at the effective time of the merger were converted into an equal number of newly created classes of Sunoco Logistics units, with the same rights, preferences, privileges, duties and obligations as such classes of ETP units had immediately prior to the closing of the merger. Additionally, the outstanding Sunoco Logistics common units and Sunoco Logistics Class B units owned by ETP at the effective time of the merger were cancelled.
Prior to the merger of ETP and Sunoco Logistics, ETE owned
18.4 million
ETP common units (representing
3.3%
of the total outstanding ETP common units),
81 million
ETP Class H units and
100
ETP Class I units. In connection with the merger, the ETP Class H units were cancelled, and ETE now owns
27.5 million
Post-Merger ETP common units (representing
2.5%
of the total outstanding Post-Merger ETP common units) and
100
Post-Merger ETP Class I units. The Post-Merger ETP Class I units have the same rights, privileges, duties and obligations as those historically associated with the ETP Class I units.
Sunoco Logistics’ Permian Express Partners
In February 2017, Sunoco Logistics formed Permian Express Partners LLC ("PEP"), a strategic joint venture, with ExxonMobil Corp. Sunoco Logistics contributed its Permian Express 1, Permian Express 2 and Permian Longview and Louisiana Access pipelines. ExxonMobil Corp. contributed its Longview to Louisiana and Pegasus pipelines; Hawkins gathering system; an idle pipeline in southern Oklahoma; and its Patoka, Illinois terminal. Sunoco Logistics’ ownership percentage is approximately
85%
.
Upon commencement of operations on the Bakken Pipeline, Sunoco Logistics will contribute its investment in the
project, with a corresponding increase in its ownership percentage in PEP. Sunoco Logistics maintains a controlling financial and voting interest in PEP and is the operator of all of the assets. As such, PEP is reflected as a consolidated subsidiary of Sunoco Logistics and accordingly is reflected as a consolidated subsidiary of the Partnership. ExxonMobil Corp.’s interest is reflected as noncontrolling interest in the consolidated balance sheets.
Sunoco Logistics' intangible assets increased
$547 million
attributable to customer relationships that were recorded in connection with the formation of PEP.
Bakken Equity Sale
In February 2017, Bakken Holdings Company LLC, an entity in which ETP indirectly owns a
60%
membership interest and Sunoco Logistics indirectly owns a
40%
membership interest, sold a
49%
interest in its wholly-owned subsidiary, Bakken Pipeline Investments LLC, to MarEn Bakken Company LLC, an entity jointly owned by Marathon Petroleum Corporation and Enbridge Energy Partners, L.P. for
$2.00 billion
in cash. Bakken Pipeline Investments LLC indirectly owns a
75%
interest in each of Dakota Access, LLC (“Dakota Access”) and Energy Transfer Crude Oil Company, LLC (“ETCO”). The remaining
25%
of each of Dakota Access and ETCO is owned by wholly-owned subsidiaries of Phillips 66. ETP continues to consolidate Dakota Access and ETCO subsequent to this transaction. Upon closing, ETP and Sunoco Logistics collectively own a
38.25%
interest in the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects (collectively, the "Bakken Pipeline"), and MarEn Bakken Company owns
36.75%
and Phillips 66 owns
25.00%
in the Bakken Pipeline.
Sunoco LP Convenience Store Sale
On April 6, 2017, Sunoco LP entered into a definitive asset purchase agreement for the sale of a portfolio of approximately
1,100
Sunoco LP operated retail fuel outlets in 19 geographic regions, together with ancillary businesses and related assets, including the Laredo Taco Company, to 7-Eleven, Inc. for an aggregate purchase price of
$3.3 billion
(the “7-Eleven Transaction”) . The transaction is expected to close in the second half of 2017.
|
|
|
|
3.
|
CASH AND CASH EQUIVALENTS
|
Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may by uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
Non-cash investing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
Accrued capital expenditures
|
$
|
833
|
|
|
$
|
829
|
|
|
Losses from subsidiary common unit issuances, net
|
(52
|
)
|
|
(12
|
)
|
|
NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
Contribution of property, plant and equipment from noncontrolling interest
|
$
|
988
|
|
|
$
|
—
|
|
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Natural gas and NGLs
|
$
|
474
|
|
|
$
|
699
|
|
|
Crude oil
|
784
|
|
|
683
|
|
|
Refined products
|
455
|
|
|
540
|
|
|
Other
|
352
|
|
|
369
|
|
|
Total inventories
|
$
|
2,065
|
|
|
$
|
2,291
|
|
ETP utilizes commodity derivatives to manage price volatility associated with its natural gas inventories stored in our Bammel storage facility. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of
March 31, 2017
was
$44.34 billion
and
$42.98 billion
, respectively. As of
December 31, 2016
, the aggregate fair value and carrying amount of our consolidated debt obligations was
$45.05 billion
and
$43.80 billion
, respectively. The fair value of our consolidated debt obligations is Level 2 valuation based on the respective debt obligations’ observable inputs used for similar liabilities.
We have commodity derivatives, interest rate derivatives and embedded derivatives in the ETP Preferred Units that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. Derivatives related to the embedded derivatives in the preferred units at December 31, 2016 were valued using a binomial lattice model. The market inputs utilized in the model included credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected value, and are considered Level 3. During the
three months ended
March 31, 2017
,
no
transfers were made between any levels within the fair value hierarchy.
The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of
March 31, 2017
and
December 31, 2016
based on inputs used to derive their fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
March 31, 2017
|
|
|
Fair Value Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
7
|
|
|
7
|
|
|
—
|
|
|
—
|
|
|
Fixed Swaps/Futures
|
30
|
|
|
30
|
|
|
—
|
|
|
—
|
|
|
Forward Physical Swaps
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Power:
|
|
|
|
|
|
|
|
|
Forwards
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
Options — Calls
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Natural Gas Liquids – Forwards/Swaps
|
91
|
|
|
91
|
|
|
—
|
|
|
—
|
|
|
Refined Products — Futures
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Crude – Futures
|
12
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
Total commodity derivatives
|
154
|
|
|
143
|
|
|
11
|
|
|
—
|
|
|
Total assets
|
$
|
154
|
|
|
$
|
143
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(188
|
)
|
|
$
|
—
|
|
|
$
|
(188
|
)
|
|
$
|
—
|
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(10
|
)
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
Swing Swaps IFERC
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
Fixed Swaps/Futures
|
(42
|
)
|
|
(42
|
)
|
|
—
|
|
|
—
|
|
|
Power:
|
|
|
|
|
|
|
|
|
Forwards
|
(8
|
)
|
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
Natural Gas Liquids – Forwards/Swaps
|
(88
|
)
|
|
(88
|
)
|
|
—
|
|
|
—
|
|
|
Refined Products — Futures
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
Crude — Futures
|
(9
|
)
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
Total commodity derivatives
|
(163
|
)
|
|
(154
|
)
|
|
(9
|
)
|
|
—
|
|
|
Total liabilities
|
$
|
(351
|
)
|
|
$
|
(154
|
)
|
|
$
|
(197
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at
December 31, 2016
|
|
|
Fair Value Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
14
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
Swing Swaps IFERC
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Fixed Swaps/Futures
|
96
|
|
|
96
|
|
|
—
|
|
|
—
|
|
|
Forward Physical Contracts
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Power:
|
|
|
|
|
|
|
|
|
Forwards
|
4
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
Futures
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Options — Calls
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Natural Gas Liquids — Forwards/Swaps
|
233
|
|
|
233
|
|
|
—
|
|
|
—
|
|
|
Refined Products — Futures
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Crude - Futures
|
9
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
Total commodity derivatives
|
363
|
|
|
356
|
|
|
7
|
|
|
—
|
|
|
Total assets
|
$
|
363
|
|
|
$
|
356
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Interest rate derivatives
|
$
|
(193
|
)
|
|
$
|
—
|
|
|
$
|
(193
|
)
|
|
$
|
—
|
|
|
Embedded derivatives in the ETP Preferred Units
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
Commodity derivatives:
|
|
|
|
|
|
|
|
|
Natural Gas:
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(11
|
)
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|
Swing Swaps IFERC
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
Fixed Swaps/Futures
|
(149
|
)
|
|
(149
|
)
|
|
—
|
|
|
—
|
|
|
Power:
|
|
|
|
|
|
|
|
|
Forwards
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
Futures
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
Natural Gas Liquids — Forwards/Swaps
|
(273
|
)
|
|
(273
|
)
|
|
—
|
|
|
—
|
|
|
Refined Products — Futures
|
(23
|
)
|
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
Crude - Futures
|
(13
|
)
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
|
Total commodity derivatives
|
(478
|
)
|
|
(470
|
)
|
|
(8
|
)
|
|
—
|
|
|
Total liabilities
|
$
|
(672
|
)
|
|
$
|
(470
|
)
|
|
$
|
(201
|
)
|
|
$
|
(1
|
)
|
|
|
|
|
6.
|
NET INCOME PER LIMITED PARTNER UNIT
|
A reconciliation of income and weighted average units used in computing basic and diluted income per unit is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Net Income
|
$
|
290
|
|
|
$
|
336
|
|
|
Less: Income attributable to noncontrolling interest
|
51
|
|
|
24
|
|
|
Net Income, net of noncontrolling interest
|
239
|
|
|
312
|
|
|
Less: General Partner’s interest in income
|
1
|
|
|
1
|
|
|
Less: Convertible Unitholders’ interest in income
|
6
|
|
|
—
|
|
|
Income available to Limited Partners
|
$
|
232
|
|
|
$
|
311
|
|
|
Basic Income per Limited Partner Unit:
|
|
|
|
|
Weighted average limited partner units
|
1,075.2
|
|
|
1,044.8
|
|
|
Basic income per Limited Partner unit
|
$
|
0.22
|
|
|
$
|
0.30
|
|
|
Diluted Income per Limited Partner Unit:
|
|
|
|
|
Income available to Limited Partners
|
$
|
232
|
|
|
$
|
311
|
|
|
Dilutive effect of equity-based compensation of subsidiaries and distributions to Convertible Unitholders
|
6
|
|
|
—
|
|
|
Diluted income available to Limited Partners
|
$
|
238
|
|
|
$
|
311
|
|
|
Weighted average limited partner units
|
1,075.2
|
|
|
1,044.8
|
|
|
Dilutive effect of unconverted unit awards and Convertible Units
|
63.8
|
|
|
—
|
|
|
Diluted weighted average limited partner units
|
1,139.0
|
|
|
1,044.8
|
|
|
Diluted income per Limited Partner unit
|
$
|
0.21
|
|
|
$
|
0.30
|
|
Parent Company Indebtedness
The Parent Company’s indebtedness, including its senior notes, senior secured term loan and senior secured revolving credit facility, is secured by all of its and certain of its subsidiaries’ tangible and intangible assets.
ETE Term Loan Facility
On February 2, 2017, the Partnership entered into a Senior Secured Term Loan Agreement (the “Term Credit Agreement”) with Credit Suisse AG, Cayman Islands Branch, as administrative agent, and the other lenders party thereto. The Term Credit Agreement has a scheduled maturity date of February 2, 2024, with an option for the Parent Company to extend the term subject to the terms and conditions set forth therein. The Term Credit Agreement contains an accordion feature, under which the total commitments may be increased, subject to the terms thereof.
Pursuant to the Term Credit Agreement, the Term Lenders have provided senior secured financing in an aggregate principal amount of
$2.2 billion
(the “Term Loan Facility”). The Parent Company is not required to make any amortization payments with respect to the term loans under the Term Credit Agreement.
Under certain circumstances and subject to certain reinvestment rights, the Parent Company is required to prepay the term loan in connection with dispositions of (a) IDRs in (i) prior to the consummation of the MLP Merger, ETP , and (ii) upon and after the consummation of the MLP Merger, Sunoco Logistics; or (b) equity interests of any person which owns, directly or indirectly, IDRs in (i) prior to the consummation of the MLP Merger, ETP, and (ii) upon and after the consummation of the MLP Merger, Sunoco Logistics, in each case, with a percentage ranging from 50% to 75% of such net proceeds in excess of $50 million.
Under the Term Credit Agreement, the obligations of the Parent Company are secured by a lien on substantially all of the Parent Company’s and certain of its subsidiaries’ tangible and intangible assets including (i) approximately 18.4 million common units representing limited partner interests in ETP and approximately 81.0 million Class H units of ETP owned by the Partnership; and (ii) the Partnership’s 100% equity interest in Energy Transfer Partners, L.L.C. and Energy Transfer Partners GP, L.P., through which the Partnership indirectly holds all of the outstanding general partnership interests and IDRs
in, immediately prior to the consummation of the MLP Merger, ETP and, immediately after the consummation of the MLP Merger, Sunoco Logistics.
The Term Loan Facility initially is not guaranteed by any of the Partnership’s subsidiaries.
Interest accrues on advances at a LIBOR rate or a base rate, based on the election of the Parent Company for each interest period, plus an applicable margin. The applicable margin for LIBOR rate loans is
2.75%
and the applicable margin for base rate loans is
1.75%
. Proceeds of the borrowings under the Term Credit Agreement were used to refinance amounts outstanding under the Parent Company’s existing term loan facilities and to pay transaction fees and expenses related to the Term Loan Facility and other transactions incidental thereto.
Revolving Credit Facility
On March 24, 2017, the Parent Company entered into a Credit Agreement (the “Revolver Credit Agreement”) with Credit Suisse AG, Cayman Islands Branch as administrative agent and the other lenders party thereto (the “Revolver Lenders”). The Revolver Credit Agreement has a scheduled maturity date of March 24, 2022 and includes an option for the Parent Company to extend the term, in each case subject to the terms and conditions set forth therein. Pursuant to the Revolver Credit Agreement, the Revolver Lenders have committed to provide advances up to an aggregate principal amount of
$1.5 billion
at any one time outstanding, and the Parent Company has the option to request increases in the aggregate commitments by up to
$500 million
in additional commitments. As part of the aggregate commitments under the facility, the Revolver Credit Agreement provides for letters of credit to be issued at the request of the Parent Company in an aggregate amount not to exceed a
$150 million
sublimit. Under the Revolver Credit Agreement, the obligations of the Partnership are secured by a lien on substantially all of the Partnership’s and certain of its subsidiaries’ tangible and intangible assets.
Interest accrues on advances at a LIBOR rate or a base rate, based on the election of the Parent Company for each interest period, plus an applicable margin. The issuing fees for letters of credit are also based on an applicable margin. The applicable margin used in connection with interest rates and fees is based on the then applicable leverage ratio of the Parent Company. The applicable margin for LIBOR rate loans and letter of credit fees ranges from
1.75%
to
2.50%
and the applicable margin for base rate loans ranges from
0.75%
to
1.50%
. The Parent Company will also pay a commitment fee based on its leverage ratio on the actual daily unused amount of the aggregate commitments. As of
March 31, 2017
, there were
$1.15 billion
outstanding borrowings under the Parent Company revolver credit facility and the amount available for future borrowings was
$351 million
.
Subsidiary Indebtedness
ETP as Co-Obligor of Sunoco, Inc. Debt
In connection with previous transactions, ETP became a co-obligor on Sunoco, Inc.’s existing senior notes and debentures. Obligations totaling
$400 million
matured and were repaid in January 2017 and the remaining balance was
$65 million
as of
March 31, 2017
.
ETP Senior Notes
In January 2017, ETP issued
$600 million
aggregate principal amount of
4.20%
senior notes due April 2027 and
$900 million
aggregate principal amount of
5.30%
senior notes due April 2047.
ETP used the
$1.48 billion
net proceeds from the offering to refinance current maturities and to repay borrowings outstanding under the ETP Credit Facility.
Sunoco LP Term Loan
Sunoco LP has a term loan agreement which provides secured financing in an aggregate principal amount of up to
$2.035 billion
due 2019. In January 2017, Sunoco LP entered into a limited waiver to its term loan, under which the agents and lenders party thereto waived and deemed remedied the miscalculations of Sunoco LP’s leverage ratio as set forth in its previously delivered compliance certificates and the resulting failure to pay incremental interest owed under the term loan. As of March 31, 2017, the balance on the term loan was
$1.2 billion
.
ETP Credit Facility
The ETP Credit Facility allows for borrowings of up to
$3.75 billion
and matures in November 2019. The indebtedness under the ETP Credit Facility is unsecured, is not guaranteed by any of the Partnership’s subsidiaries and has equal rights to holders of our current and future unsecured debt. In September 2016, the Partnership initiated a commercial paper program under the borrowing limits established by the
$3.75 billion
ETP Credit Facility.
As of
March 31, 2017
,
the ETP Credit Facility had
$389 million
of outstanding borrowings, all of which was
commercial paper.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains a
$2.50 billion
unsecured revolving credit facility (the “Sunoco Logistics Credit Facility”), which matures in March 2020. The Sunoco Logistics Credit Facility contains an accordion feature, under which the total aggregate commitment may be increased to
$3.25 billion
under certain conditions.
As of
March 31, 2017
,
the Sunoco Logistics Credit Facility had
$740 million
of outstanding borrowings, which included
$128 million
of commercial paper.
In December 2016, Sunoco Logistics entered into an agreement for a 364-day maturity credit facility ("364-Day Credit Facility"), due to mature in December 2017, with a total lending capacity of
$1.00 billion
,
including a
$630 million
term loan. The terms of the 364-Day Credit Facility are similar to those of the
$2.50 billion
Sunoco Logistics Credit Facility, including limitations on the creation of indebtedness, liens and financial covenants. In connection with Sunoco Logistics’ merger with ETP, the 364-Day Credit Facility is expected to be terminated and repaid in the second quarter of 2017.
Sunoco LP Credit Facility
Sunoco LP maintains a
$1.50 billion
revolving credit agreement, which was amended in April 2015 from the initially committed amount of
$1.25 billion
and matures in September 2019. In January 2017, Sunoco LP entered into a limited waiver to its revolving credit facility, under which the agents and lenders party thereto waived and deemed remedied the miscalculations of Sunoco LP’s leverage ratio as set forth in its previously delivered compliance certificates and the resulting failure to pay incremental interest owed under the revolving credit facility. As of
March 31, 2017
, the Sunoco LP credit facility had
$761 million
of outstanding borrowings and
$21 million
in standby letters of credit. The unused availability on the revolver at March 31, 2017 was
$718 million
.
Bakken Credit Facility
In August 2016, ETP, Sunoco Logistics and Phillips 66 completed project-level financing of the Bakken Pipeline. The
$2.50 billion
credit facility is anticipated to provide substantially all of the remaining capital necessary to complete the projects. As of
March 31, 2017
,
$2.50 billion
was outstanding under this credit facility.
PennTex Revolving Credit Facility
PennTex maintains a
$275 million
revolving credit commitment (the “PennTex Revolving Credit Facility”) that is expandable up to
$400 million
under certain conditions and matures in December 2019. As of
March 31, 2017
,
PennTex Revolving Credit Facility had
$157 million
of outstanding borrowings.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of
March 31, 2017
.
8.
REDEEMABLE PREFERRED UNITS
In January 2017, ETP repurchased all of its
1.9 million
outstanding Series A Preferred Units for cash in the aggregate amount of
$53 million
.
9.
EQUITY
ETE
The changes in ETE common units and Convertible Units during the
three months ended March 31,
2017
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of Convertible Units
|
|
Number of Common Units
|
|
Outstanding at December 31, 2016
|
329.3
|
|
|
1,046.9
|
|
|
Issuance of common units
|
—
|
|
|
32.2
|
|
|
Outstanding at March 31, 2017
|
329.3
|
|
|
1,079.1
|
|
ETE Equity Distribution Agreement
In March 2017, the Partnership entered into an equity distribution agreement with an aggregate offering price up to
$1 billion
. There was no activity under the distribution agreements for the
three months ended
March 31, 2017
.
Series A Convertible Preferred Units
As of March 31, 2017, The Partnership had
329.3 million
Series A Convertible Preferred Units outstanding with a carrying value of
$245 million
.
ETE January 2017 Private Placement and ETP Unit Purchase
In January 2017, ETE issued
32.2 million
common units representing limited partner interests in the Partnership to certain institutional investors in a private transaction for gross proceeds of approximately
$580 million
, which ETE used to purchase
15.8 million
newly issued ETP common units for approximately
$568 million
.
Repurchase Program
During the
three months ended
March 31, 2017
, ETE did not repurchase any ETE common units under its current buyback program. As of
March 31, 2017
,
$936 million
remained available to repurchase under the current program.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investment in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP and Sunoco LP (excluding transactions with the Parent Company) as capital transactions. As a result of these transactions, during the three months ended March 31, 2017, we recognized decreases in partners’ capital of
$52 million
.
ETP Common Unit Transactions
During the
three months ended March 31,
2017
, ETP received proceeds of
$194 million
, net of
$2 million
commissions, from the issuance of common units pursuant to an equity distribution agreement, which were used for general partnership purposes. In connection with the merger of ETP and Sunoco Logistics in April 2017, the equity distribution agreement was terminated.
During the
three months ended March 31,
2017
, distributions of
$71 million
were reinvested under ETP’s distribution reinvestment plan. In connection with the merger of ETP and Sunoco Logistics in April 2017, the distribution reinvestment plan was terminated.
Sunoco Logistics Common Unit Transactions
There was no activity under the Sunoco Logistics equity distribution agreement for the
three months ended
March 31, 2017
.
Sunoco LP Common Unit Transactions
During the
three months ended March 31,
2017
, Sunoco LP received net proceeds of
$33 million
from the issuance of
1.3 million
Sunoco LP common units pursuant to its equity distribution agreement. Sunoco LP intends to use the proceeds from any sales for general partnership purposes. As of March 31, 2017,
$295 million
of Sunoco LP’s common units remained available to be issued under the equity distribution agreement.
Sunoco LP Series A Preferred Units
On March 30, 2017, the Partnership purchased Sunoco LP’s
12.0 million
series A preferred units representing limited partner interests in Sunoco LP in a private placement transaction for an aggregate purchase price of
$300 million
.
The distribution rate of Sunoco LP Series A Preferred Units is 10.00%, per annum, of the $25.00 liquidation preference per unit until March 30, 2022, at which point the distribution rate will become a floating rate of 8.00% plus three-month LIBOR of the liquidation preference.
Bakken Equity Sale
As discussed in Note 2, in February 2017, Bakken Holdings Company LLC sold a
49%
interest in its wholly-owned subsidiary, Bakken Pipeline Investments LLC, for
$2.00 billion
in cash. ETP continues to consolidate Dakota Access and ETCO subsequent to this transaction. As a result of the sale, ETP recorded a deemed contribution of
$1.26 billion
during the three months ended March 31, 2017, representing the difference between proceeds from the sale and the proportionate share of the book value of the subsidiary, which was allocated to noncontrolling interest.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
|
December 31, 2016 (1)
|
|
February 7, 2017
|
|
February 21, 2017
|
|
$
|
0.2850
|
|
|
March 31, 2017 (1)
|
|
May 10, 2017
|
|
May 19, 2017
|
|
0.2850
|
|
|
|
|
|
(1)
|
Certain common unitholders elected to participate in a plan pursuant to which those unitholders elected to forego their cash distributions on all or a portion of their common units for a period of up to nine quarters commencing with the distribution for the quarter ended March 31, 2016 and, in lieu of receiving cash distributions on these common units for each such quarter, each said unitholder received Convertible Units (on a one-for-one basis for each common unit as to which the participating unitholder elected be subject to this plan) that entitled them to receive a cash distribution of up to
$0.11
per Convertible Unit.
|
Our distributions declared with respect to our Convertible Units subsequent to
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
|
December 31, 2016
|
|
February 7, 2017
|
|
February 21, 2017
|
|
$
|
0.1100
|
|
|
March 31, 2017
|
|
May 10, 2017
|
|
May 19, 2017
|
|
0.1100
|
|
ETP and Sunoco Logistics Quarterly Distributions of Available Cash
Following the merger of ETP and Sunoco Logistics in April 2017, the Post-Merger ETP partnership agreement contains distribution provisions consistent with those of Sunoco Logistics prior to the merger.
For the quarter ended
December 31, 2016
,
ETP and Sunoco Logistics paid distributions on
February 14, 2017
of
$1.0550
and
$0.52
,
respectively, per common unit. For the quarter ended
March 31, 2017
,
Post-Merger ETP declared a distribution of
$0.5350
per common unit, payable on
May 15, 2017
to unitholders of record on
May 10, 2017
.
ETE has agreed to relinquish its right to the following amounts of incentive distributions from the Post-Merger ETP in future periods:
|
|
|
|
|
|
|
|
|
|
|
Total Year
|
|
2017 (remainder)
|
|
$
|
499
|
|
|
2018
|
|
153
|
|
|
2019
|
|
128
|
|
|
Each year beyond 2019
|
|
33
|
|
PennTex Quarterly Distributions of Available Cash
PennTex is required by its partnership agreement to distribute a minimum quarterly distribution of
$0.2750
per unit at the end of each quarter. Following are distributions declared and/or paid by PennTex subsequent to December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
|
December 31, 2016
|
|
February 7, 2017
|
|
February 14, 2017
|
|
$
|
0.2950
|
|
|
March 31, 2017
|
|
May 5, 2017
|
|
May 12, 2017
|
|
0.2950
|
|
Sunoco LP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco LP subsequent to
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Record Date
|
|
Payment Date
|
|
Rate
|
|
December 31, 2016
|
|
February 13, 2017
|
|
February 21, 2017
|
|
$
|
0.8255
|
|
|
March 31, 2017
|
|
May 9, 2017
|
|
May 16, 2017
|
|
0.8255
|
|
Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Available-for-sale securities
|
$
|
4
|
|
|
$
|
2
|
|
|
Foreign currency translation adjustment
|
(5
|
)
|
|
(5
|
)
|
|
Actuarial loss related to pensions and other postretirement benefits
|
5
|
|
|
7
|
|
|
Investments in unconsolidated affiliates, net
|
4
|
|
|
4
|
|
|
Subtotal
|
8
|
|
|
8
|
|
|
Amounts attributable to noncontrolling interest
|
(8
|
)
|
|
(8
|
)
|
|
Total AOCI, net of tax
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
10.
|
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
|
Contingent Residual Support Agreement – AmeriGas
In connection with the closing of the contribution of its propane operations in January 2012, ETP agreed to provide contingent residual support of
$1.55 billion
of intercompany borrowings made by AmeriGas and certain of its affiliates with maturities through 2022 from a finance subsidiary of AmeriGas that have maturity dates and repayment terms that mirror those of an equal principal amount of senior notes issued by this finance company subsidiary to third-party purchases. In 2016, AmeriGas repurchased certain of its senior notes, which caused a reduction in the amount supported by ETP under the contingent residual support agreement. In February 2017, AmeriGas repurchased a portion of its
7.00%
senior notes, which reduced the remaining amount supported by ETP to
$102 million
. In March 2017, AmeriGas issued a notice of redemption for the remaining outstanding
7.00%
senior notes, which senior notes will be redeemed in May 2017.
NGL Pipeline Regulation
ETP has interests in NGL pipelines located in Texas and New Mexico. ETP commenced the interstate transportation of NGLs in 2013, which is subject to the jurisdiction of the FERC under the Interstate Commerce Act (“ICA”) and the Energy Policy Act of 1992. Under the ICA, tariff rates must be just and reasonable and not unduly discriminatory and pipelines may not confer any undue preference. The tariff rates established for interstate services were based on a negotiated agreement; however, the FERC’s rate-making methodologies may limit ETP’s ability to set rates based on our actual costs, may delay or limit the use of rates that reflect increased costs and may subject us to potentially burdensome and expensive operational, reporting and other requirements. Any of the foregoing could adversely affect ETP’s business, revenues and cash flow.
FERC Audit
In March 2016, the FERC commenced an audit of Trunkline for the period from January 1, 2013 to present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations of the Uniform System of Accounts as prescribed by the FERC, and the FERC’s annual reporting requirements. The audit is ongoing.
Commitments
In the normal course of our business, we purchase, process and sell natural gas pursuant to long-term contracts and we enter into long-term transportation and storage agreements. Such contracts contain terms that are customary in the industry. We believe that the terms of these agreements are commercially reasonable and will not have a material adverse effect on our financial position or results of operations.
We have certain non-cancelable leases for property and equipment, which require fixed monthly rental payments and expire at various dates through
2034
. The table below reflects rental expense under these operating leases included in operating expenses in the accompanying statements of operations, which include contingent rentals, and rental expense recovered through related sublease rental income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Rental expense
(1)
|
$
|
54
|
|
|
$
|
51
|
|
|
Less: Sublease rental income
|
(6
|
)
|
|
(7
|
)
|
|
Rental expense, net
|
$
|
48
|
|
|
$
|
44
|
|
|
|
|
|
(1)
|
Includes contingent rentals totaling
$5 million
and
$16 million
for the
three months ended March 31,
2017
and
2016
, respectively.
|
Certain of our subsidiaries’ joint venture agreements require that they fund their proportionate shares of capital contributions to their unconsolidated affiliates. Such contributions will depend upon their unconsolidated affiliates’ capital requirements, such as for funding capital projects or repayment of long-term obligations.
Litigation and Contingencies
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. Natural gas and crude oil are flammable and combustible. Serious personal injury and significant property damage can arise in connection with their transportation, storage or use. In the ordinary course of business, we are sometimes threatened with or named as a defendant in various lawsuits seeking actual and punitive damages for product liability, personal injury and property damage. We maintain liability insurance with insurers in amounts and with coverage and deductibles management believes are reasonable and prudent, and which are generally accepted in the industry. However, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will remain adequate to protect us from material expenses related to product liability, personal injury or property damage in the future.
Dakota Access Pipeline
During the summer of 2016, individuals affiliated with, or sympathetic to, the Standing Rock Sioux Tribe (the “SRST”) began gathering near a construction site on the Dakota Access pipeline project in North Dakota to protest the development of the pipeline project. Some of the protesters eventually trespassed on to the construction site, tampered with equipment, and disrupted construction activity at the site. In response to the protests, Dakota Access filed a lawsuit in federal court in North Dakota to restrain protestors from disrupting construction and also requested a temporary restraining order (“TRO”) against the Chairman of the SRST and the protestors. The U.S. District Court granted and later dissolved a TRO enjoining protest activity. The protestors have moved to dismiss the lawsuit and Dakota Access has responded. The court’s decision is still pending.
In the meantime, on July 25, 2016, the U.S. Army Corps of Engineers (“USACE”) issued permits to Dakota Access consistent with environmental and historic preservation statutes for the pipeline to make two crossings of the Missouri River in North Dakota, including a crossing of the Missouri River at Lake Oahe. As explained below, after significant delay the USACE also issued easements to allow the pipeline to cross land owned by the USACE adjacent to the Missouri River in two locations. Also in July, the SRST filed a lawsuit in the U.S. District Court for the District of Columbia against the USACE challenging the legality of the permits issued for the construction of the Dakota Access pipeline across those waterways and claiming violations of the National Historic Preservation Act (“NHPA”). The SRST also sought a preliminary injunction to rescind the USACE permits while the case is pending. Dakota Access moved to intervene in the case and that motion was granted by the Court. The SRST soon added a request for an emergency TRO to stop construction on the pipeline project. On September 9, 2016, the Court denied SRST’s motion for a preliminary injunction, rendering the TRO request moot.
After the September 9 ruling, the Department of the Army, the Department of Justice, and the Department of the Interior released a joint statement stating that the USACE would not grant the easement for the land adjacent to Lake Oahe until the Army completed a review to determine whether it was necessary to reconsider the USACE’s decision under various federal statutes relevant to the pipeline approval. The SRST appealed the denial of the preliminary injunction to the U.S. Court of Appeals for the D.C. Circuit and filed an emergency motion in the U.S. District Court for an injunction pending the appeal District Court. The U.S. District Court denied the emergency motion for an injunction pending the appeal. The D.C. Circuit
then denied the SRST’s application for an injunction pending appeal and later dismissed SRST’s appeal of the order denying the preliminary injunction motion. The SRST filed an amended complaint and added claims based on treaties between the tribes and the United States and statues governing the use of government property.
In December 2016, the Department of the Army announced that, although its prior actions complied with the law, it intended to conduct further environmental review of the crossing at Lake Oahe. In February 2017, in response to a presidential memorandum, the Department of the Army decided that no further environmental review was necessary and delivered an easement to Dakota Access allowing the pipeline to cross Lake Oahe. Almost immediately, the Cheyenne River Sioux Tribe (“CRST”), which had intervened in the lawsuit in August 2016, moved for a preliminary injunction and TRO to block construction. These motions raised, for the first time, claims based on the religious rights of the tribe. The district court denied the TRO and preliminary injunction. The CRST appealed and requested an injunction pending appeal in both the district court and the D.C. Circuit. Both courts denied the CRST’s request for an injunction pending appeal. CRST has filed a motion with the D.C. Circuit for the purpose of voluntarily seeking dismissal of its appeal of its claim related to its religious rights.
The SRST and the CRST have sought leave to amend their complaints to incorporate their religious freedom and other claims and have moved for summary judgment on their claims against the government based on treaty rights and the National Environmental Policy Act. Dakota Access has also moved for summary judgment with respect to these claims. The district court is still considering these motions. Briefing is ongoing.
In addition, the Oglala and Yankton Sioux tribes have filed related lawsuits in an effort to prevent construction of the Dakota Access pipeline project. These lawsuits have been consolidated into the action initiated by the SRST.
Construction of the pipeline is now complete. While we believe that the pending lawsuits are unlikely to block operation of the pipeline, we cannot assure this outcome. We cannot determine when or how these lawsuits will be resolved or the impact they may have on the Dakota Access project.
Mont Belvieu Incident
On June 26, 2016, a hydrocarbon storage well located on another operator’s facility adjacent to Lone Star NGL Mont Belvieu’s (Lone Star) facilities in Mont Belvieu, Texas experienced an over-pressurization resulting in a subsurface release. The subsurface release caused a fire at Lone Star’s South Terminal (CMB) and damage to Lone Star’s storage well operations at its South and North Terminals. Normal operations have resumed at the facilities with the exception of one of Lone Star’s storage wells. Lone Star is still quantifying the extent of its incurred and ongoing damages.
MTBE Litigation
Sunoco, Inc. and/or Sunoco, Inc. (R&M), along with other refiners, manufacturers and sellers of gasoline, are defendants in lawsuits alleging MTBE contamination of groundwater. The plaintiffs typically included are governmental authorities. The plaintiffs primarily assert product liability claims and additional claims including nuisance, trespass, negligence, violation of environmental laws and deceptive business practices. The plaintiffs in all of the cases seek to recover compensatory damages, and in some cases also seek natural resource damages, injunctive relief, punitive damages and attorneys’ fees.
As of
March 31, 2017
,
Sunoco, Inc. is a defendant in
six
cases, including cases initiated by the States of New Jersey, Vermont, Pennsylvania, Rhode Island, and two others by the Commonwealth of Puerto Rico with the more recent Puerto Rico action being a companion case alleging damages for additional sites beyond those at issue in the initial Puerto Rico action.
Four
of these cases are venued in a multidistrict litigation proceeding in a New York federal court. The New Jersey, Puerto Rico, Vermont, and Pennsylvania plaintiffs assert natural resource damage claims.
Fact discovery has concluded with respect to an initial set of
9
sites each that will be the subject of the first trial phase in the New Jersey case and the initial Puerto Rico case. The initial set of
9
New Jersey trial sites are now pending before the United States District Judge for the District of New Jersey, the Hon. Freda L. Wolfson for the pre-trial and trial phases. Judge Wolfson then referred the case to United States Magistrate Judge for the District of New Jersey, the Hon. Lois H. Goodman. Judge Goodman conducted a status conference with all of the parties and inquired whether the parties will engage in a global mediation and instructed the parties to exchange possible mediator names. All parties agreed to participate in global settlement discussions in a global mediation forum before Hon. Garrett Brown (Ret.), a Judicial Arbitration Mediation Service mediator. The remaining portion of the New Jersey case remains in the multidistrict litigation. Sunoco, Inc. and Sunoco, Inc. (R&M) participated in mediation with Judge Brown on November 2 through November 3, 2016 and on November 30, 2016. In early 2017, Sunoco, Inc. and Sunoco, Inc. (R&M) and two other co-defendants reached a settlement in principle with the State of New Jersey, subject to the parties agreeing on the terms and conditions of a Settlement and Release agreement, among other things. It is reasonably possible that a loss may be realized in the remaining cases; however, we are unable to estimate the
possible loss or range of loss in excess of amounts accrued. Management believes that an adverse determination with respect to one or more of the MTBE cases could have a significant impact on results of operations during the period in which any said adverse determination occurs, but does not believe that any such adverse determination would have a material adverse effect on the Partnership’s consolidated financial position.
Regency Merger Litigation
Following the January 26, 2015 announcement of the Regency Merger, purported Regency unitholders filed lawsuits in state and federal courts in Dallas and Delaware asserting claims relating to the Regency Merger. All Regency Merger-related lawsuits have been dismissed, although one lawsuit remains pending on appeal. On June 10, 2015, Adrian Dieckman (“Dieckman”), a purported Regency unitholder, filed a class action complaint on behalf of Regency’s common unitholders in the Court of Chancery of the State of Delaware. The lawsuit alleges that the Regency Merger breached the Regency partnership agreement because Regency’s conflicts committee was not properly formed, and the Regency Merger was not approved in good faith. Defendants filed a motion to dismiss, and on March 29, 2016, the Delaware court granted Defendants’ motion and dismissed the lawsuit. On April 26, 2016, Dieckman filed his Notice of Appeal to the Supreme Court of Delaware. This appeal is styled Adrian Dieckman v. Regency GP LP, et al., No. 208, 2016, in the Supreme Court of the State of Delaware. Dieckman filed his Opening Brief on June 9, 2016, and Defendants’ filed their Answering Brief on July 29, 2016. On August 31, 2016, Dieckman filed his Reply Brief. Oral argument was held on November 16, 2016 before the Delaware Supreme Court. On January 20, 2017, The Delaware Supreme Court issued an order reversing the judgment of the Court of Chancery that dismissed Counts I and II of Dieckman’s Complaint. On February 21, 2017, Regency and the other Defendants filed their respective Motions to Dismiss the Chancery Court matter.
Enterprise Products Partners, L.P. and Enterprise Products Operating LLC Litigation
On January 27, 2014, a trial commenced between ETP against Enterprise Products Partners, L.P. and Enterprise Products Operating LLC (collectively, “Enterprise”) and Enbridge (US) Inc. Trial resulted in a verdict in favor of ETP against Enterprise that consisted of
$319 million
in compensatory damages and
$595 million
in disgorgement to ETP. The jury also found that ETP owed Enterprise approximately
$1 million
under a reimbursement agreement. On July 29, 2014, the trial court entered a final judgment in favor of ETP and awarded ETP
$536 million
, consisting of compensatory damages, disgorgement, and pre-judgment interest. The trial court also ordered that ETP shall be entitled to recover post-judgment interest and costs of court and that Enterprise is not entitled to any net recovery on its counterclaims. Enterprise has filed a notice of appeal with the Texas Court of Appeals, and briefing by Enterprise and ETP is complete. Oral argument was held on April 20, 2016. The Court of Appeals is taking the briefs under advisement. In accordance with GAAP, no amounts related to the original verdict or the July 29, 2014 final judgment will be recorded in our financial statements until the appeal process is completed.
Sunoco Logistics Merger Litigation
Between January 6, 2017 and February 8, 2017, seven purported ETP common unitholders (“Plaintiffs”) separately filed seven putative unitholder class action lawsuits challenging the merger and the disclosures made in connection with the merger. Since then, two of the Plaintiffs have non-suited their claims. The lawsuits remaining are styled (a)
Shure v. Energy Transfer Partners, L.P. et al.
, Case No. 1:17-cv-00044-UNA, in the United States District Court for the District of Delaware (the “
Shure
Lawsuit”); (b)
Verlin v. Energy Transfer Partners, L.P. et al.
, Case No. 1:17-cv-00045-UNA, in the United States District Court for the District of Delaware (the “
Verlin
Lawsuit”); (c)
Duany v. Energy Transfer Partners, L.P. et al.
, Case No. 1:17-cv-00058-UNA, in the United States District Court for the District of Delaware (the “
Duany
Lawsuit”); (d)
Epstein v. Energy Transfer Partners, L.P. et. al.
, Case No, 1:17-cv-00069, in the United States District Court for the District of Delaware (the “
Epstein
Lawsuit”) and (e)
Sgnilek v. Energy Transfer Partners, L.P. et al.
, Case No. 1:17-cv-00141, in the United States District Court for the District of Delaware (the “
Sgnilek
Lawsuit” and collectively with the
Shure
Lawsuit,
Verlin
Lawsuit,
Duany
Lawsuit, and
Epstein
Lawsuit, the “Lawsuits”). The
Duany
Lawsuit and
Epstein
Lawsuit are filed against ETP, ETP GP, ETP GP, LLC, ETE, and the members of the ETP Board. The
Shure
Lawsuit and
Verlin
Lawsuit are filed against ETP, ETP GP, the members of the ETP Board, ETE, Sunoco Logistics, and Sunoco Logistics GP. The
Sgnilek
Lawsuit is filed against ETP, ETP GP, ETP GP LLC, ETE, the members of the ETP Board, Sunoco Logistics and Sunoco Logistics GP (collectively “Defendants”).
Plaintiffs allege causes of action challenging the merger and the preliminary joint proxy statement/prospectus filed in connection with the merger. According to Plaintiffs, the preliminary joint proxy statement/prospectus is allegedly misleading because, among other things, it fails to disclose certain information concerning, in general, (a) the background and process that led to the merger; (b) ETE’s, ETP’s, and Sunoco Logistics’ financial projections; (c) the financial analysis and fairness opinion provided by Barclays; and (d) alleged conflicts of interest concerning Barclays, ETE, and certain officers and directors of ETP and ETE. Based on these allegations, and in general, Plaintiffs allege that (i) Defendants have violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder and (ii) the members of the ETP Board have violated Section 20(a) of the Exchange Act. Plaintiffs in the
Shure
Lawsuit and
Verlin
Lawsuit also allege that Sunoco Logistics has violated
Section 20(a) of the Exchange Act. Plaintiffs also assert, in general, that the terms of the merger (including, among other terms, the merger consideration) are unfair to ETP common unitholders and resulted from an unfair and conflicted process. Based on these allegations, the
Sgnilek
Lawsuit alleges that (a) the ETP Board, ETP GP, ETP GP LLC, ETP, and ETE have breached the covenant of good faith and/or fiduciary duties, and (b) Sunoco Logistics and Sunoco Logistics GP have aided and abetted those alleged breaches.
Based on these allegations, Plaintiffs seek to enjoin Defendants from proceeding with or consummating the merger unless and until Defendants disclose the allegedly omitted information summarized above. The
Sgnilek
Lawsuit also seeks to enjoin Defendants from proceeding with or consummating the merger unless and until the ETP Board adopts and implements processes to obtain the best possible terms for ETP common unitholders. To the extent that the merger is consummated before injunctive relief is granted, Plaintiffs seek to have the merger rescinded. Plaintiffs also seek damages and reimbursement of attorneys’ fees.
Defendants’ dates to answer, move to dismiss, or otherwise respond to the Lawsuits have not yet been set. Defendants cannot predict the outcome of these or any other lawsuits that might be filed subsequent to the date of the filing of this quarterly report, nor can Defendants predict the amount of time and expense that will be required to resolve such litigation. Defendants believe the Lawsuits are without merit and intend to defend vigorously against the Lawsuits and any other actions challenging the merger.
Litigation Filed By or Against WMB
On April 6, 2016, WMB filed a complaint against ETE and LE GP in the Delaware Court of Chancery (the “First Delaware WMB Litigation”). This lawsuit is styled
The Williams Companies, Inc. v. Energy Transfer Equity, L.P.
, C.A. No. 12168-VCG. WMB alleged that Defendants breached the merger agreement between WMB, ETE, and several of ETE’s affiliates (the “Merger Agreement”) by issuing ETE’s Series A Convertible Preferred Units. According to WMB, the issuance of Convertible Units (the “Issuance”) violates various contractual restrictions on ETE’s actions between the execution and closing of the merger. WMB sought, among other things, to (a) rescind the Issuance and (b) invalidate an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the Issuance.
On May 3, 2016, ETE and LE GP filed an answer and counterclaim in the First Delaware WMB Litigation. The counterclaim asserts in general that WMB materially breached its obligations under the Merger Agreement by (a) blocking ETE’s attempts to complete a public offering of the Convertible Units, including, among other things, by declining to allow WMB’s independent registered public accounting firm to provide the auditor consent required to be included in the registration statement for a public offering and (b) bringing the Texas WMB Litigation against Mr. Warren in the District Court of Dallas County, Texas.
On May 13, 2016, WMB filed a second lawsuit in the Delaware Court of Chancery against ETE and LE GP and added Energy Transfer Corp LP, ETE Corp GP, LLC, and Energy Transfer Equity GP, LLC as additional defendants (the “Second Delaware WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., C.A. No. 12337-VCG. In general, WMB alleged that the defendants breached the Merger Agreement by (a) failing to use commercially reasonable efforts to obtain from Latham & Watkins LLP (“Latham”) the delivery of a tax opinion under Section 721 of the Tax Code (“721 Opinion”), a condition precedent to the closing of the merger, and (b) taking actions that allegedly delayed the SEC in declaring the Form S-4 filed in connection with the merger (the “Form S-4”) effective. WMB asked the Court, in general, to (a) issue a declaratory judgment that ETE breached the Merger Agreement, (b) enjoin ETE from terminating the Merger Agreement on the basis that it failed to obtain a 721 Opinion, (c) enjoin ETE from terminating the Merger Agreement on the basis that the transaction failed to close by the outside date, and (d) force ETE to close the merger or take various other affirmative actions. WMB sought to expedite the second lawsuit, and ETE agreed to expedite both Delaware actions.
ETE also filed an answer and counterclaim in the Second Delaware WMB Litigation. In addition to the counterclaims previously asserted, ETE asserted that WMB materially breached the Merger Agreement by, among other things, (a) modifying or qualifying the WMB board of directors’ recommendation to its stockholders regarding the merger, (b) failing to provide material information to ETE for inclusion in the Form S-4 related to the merger necessary to prevent the Form S-4 from being materially misleading, (c) failing to facilitate the financing of the merger, (d) failing to be reasonable with respect to its withholding of its consent to ETE’s offering of Series A Convertible Preferred Units, and (e) failing to use its reasonable best efforts to consummate the merger. ETE sought, among other things, a declaration that it could validly terminate the Merger Agreement after June 28, 2016 in the event that Latham was unable to deliver the 721 Opinion on or prior to June 28, 2016.
After expedited discovery and a two-day trial on June 20 and 21, 2016, the Court ruled in favor of ETE and issued a declaratory judgment that ETE could terminate the merger after June 28, 2016 because of Latham’s inability to provide the required 721 Opinion. The Court also denied WMB’s requests for injunctive relief. WMB filed a notice of appeal to the Supreme Court of Delaware on June 27, 2016. The appeal is styled
The Williams Companies, Inc. v. Energy Transfer Equity, L.P.
, No. 330, 2016.
Williams filed an amended complaint on September 16, 2016. In the amended complaint, Williams abandons its request for injunctive relief, including its request that the Court order the ETE Defendants to consummate the merger. Instead, Williams seeks a
$410 million
termination fee and additional damages of up to
$10 billion
based on the purported lost value of the merger consideration. These damages claims are based on the alleged breaches of the Merger Agreement detailed above, as well as new allegations that the ETE Defendants breached an additional representation and warranty in the Merger Agreement.
The ETE Defendants filed amended counterclaims and affirmative defenses on September 23, 2016. In the amended counterclaim, the ETE Defendants seek a
$1.48 billion
termination fee under the Merger Agreement and additional damages caused by Williams’ misconduct. These damages claims are based on the alleged breaches of the Merger Agreement detailed above, as well as new allegations that Williams breached the Merger Agreement by failing to disclose material information that was required to be disclosed in the Form S-4. On September 29, 2016, Williams filed a motion to dismiss the ETE Defendants’ amended counterclaims and to strike certain of the ETE Defendants’ affirmative defenses. Following briefing by the parties on Williams’ motion, the Delaware Court of Chancery held oral arguments on November 30, 2016. The parties are awaiting the Court’s decision.
On January 11, 2017, the Delaware Supreme Court held oral arguments on Williams’ appeal of the June 2016 trial. The Delaware Supreme Court affirmed the Court of Chancery on March 23, 2017 and denied Williams’ motion for reargument on April 5, 2017.
The parties are currently engaging in discovery in connection with their amended claims and counterclaims.
Unitholder Litigation Relating to the Issuance
In April 2016, two purported ETE unitholders (the “Issuance Plaintiffs”) filed putative class action lawsuits against ETE, LE GP, Kelcy Warren, John McReynolds, Marshall McCrea, Matthew Ramsey, Ted Collins, K. Rick Turner, William Williams, Ray Davis, and Richard Brannon in the Delaware Court of Chancery. These lawsuits have been consolidated as
In re Energy Transfer Equity, L.P. Unitholder Litigation
, Consolidated C.A. No. 12197-VCG, in the Court of Chancery of the State of Delaware. Another purported ETE unitholder, Chester County Employees’ Retirement Fund, joined the consolidated action as an additional plaintiff of April 25, 2016.
The Issuance Plaintiffs allege that the Issuance breached various provisions of ETE’s limited partnership agreement. The Issuance Plaintiffs seek, among other things, preliminary and permanent injunctive relief that (a) prevents ETE from making distributions to the Convertible Units and (b) invalidates an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the issuance of Convertible Units.
The parties engaged in discovery, and Plaintiffs’ filed a consolidated amended complaint on August 29, 2016. In addition to the injunctive relief described above, Plaintiffs seek class-wide damages allegedly resulting from the Issuance.
On September 28, 2016, Defendants and Plaintiffs filed cross-motions for partial summary judgment. The Court held a hearing on the parties’ motions on November 9, 2016. On February 28, 2017, the Court denied both motions for partial summary judgment. The parties are continuing to engage in discovery.
Other Litigation and Contingencies
We or our subsidiaries are a party to various legal proceedings and/or regulatory proceedings incidental to our businesses. For each of these matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, the likelihood of an unfavorable outcome and the availability of insurance coverage. If we determine that an unfavorable outcome of a particular matter is probable and can be estimated, we accrue the contingent obligation, as well as any expected insurance recoverable amounts related to the contingency. As of
March 31, 2017
and
December 31, 2016
, accruals of approximately
$94 million
and
$77 million
, respectively, were reflected on our consolidated balance sheets related to these contingent obligations. As new information becomes available, our estimates may change. The impact of these changes may have a significant effect on our results of operations in a single period.
The outcome of these matters cannot be predicted with certainty and there can be no assurance that the outcome of a particular matter will not result in the payment of amounts that have not been accrued for the matter. Furthermore, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued.
No
amounts have been recorded in our
March 31, 2017
or
December 31, 2016
consolidated balance sheets for contingencies and current litigation, other than amounts disclosed herein.
Environmental Matters
Our operations are subject to extensive federal, state and local environmental and safety laws and regulations that require expenditures to ensure compliance, including related to air emissions and wastewater discharges, at operating facilities and for remediation at current and former facilities as well as waste disposal sites. Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in the business of transporting, storing, gathering, treating, compressing, blending and processing natural gas, natural gas liquids and other products. As a result, there can be no assurance that significant costs and liabilities will not be incurred. Costs of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with environmental laws and regulations and safety standards. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the issuance of injunctions and the filing of federally authorized citizen suits. Contingent losses related to all significant known environmental matters have been accrued and/or separately disclosed. However, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
Environmental exposures and liabilities are difficult to assess and estimate due to unknown factors such as the magnitude of possible contamination, the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental laws and regulations may change in the future. Although environmental costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
Based on information available at this time and reviews undertaken to identify potential exposure, we believe the amount reserved for environmental matters is adequate to cover the potential exposure for cleanup costs.
Environmental Remediation
Our subsidiaries are responsible for environmental remediation at certain sites, including the following:
|
|
|
|
•
|
Certain of our interstate pipelines conduct soil and groundwater remediation related to contamination from past uses of PCBs. PCB assessments are ongoing and, in some cases, our subsidiaries could potentially be held responsible for contamination caused by other parties.
|
|
|
|
|
•
|
Certain gathering and processing systems are responsible for soil and groundwater remediation related to releases of hydrocarbons.
|
|
|
|
|
•
|
Currently operating Sunoco, Inc. retail sites.
|
|
|
|
|
•
|
Legacy sites related to Sunoco, Inc. that are subject to environmental assessments, including formerly owned terminals and other logistics assets, retail sites that Sunoco, Inc. no longer operates, closed and/or sold refineries and other formerly owned sites.
|
|
|
|
|
•
|
Sunoco, Inc. is potentially subject to joint and several liability for the costs of remediation at sites at which it ha
s been identified as a “potentially responsible party” (“PRP”). As of
March 31, 2017
,
Sunoco, Inc. had been named as a PRP a
t approximately
50
identified or potentially identifiable “Superfund” sites under federal and/or comparable state law. Sunoco, Inc. is usually one of a number of companies identified as a PRP at a site. Sunoco, Inc. has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon Sunoco, Inc.’s purported nexus to the sites, believes that its potential liability associated with such sites will not be significant.
|
To the extent estimable, expected remediation costs are included in the amounts recorded for environmental matters in our consolidated balance sheets. In some circumstances, future costs cannot be reasonably estimated because remediation activities are undertaken as claims are made by customers and former customers. To the extent that an environmental remediation obligation is recorded by a subsidiary that applies regulatory accounting policies, amounts that are expected to be recoverable through tariffs or rates are recorded as regulatory assets on our consolidated balance sheets.
The table below reflects the amounts of accrued liabilities recorded in our consolidated balance sheets related to environmental matters that are considered to be probable and reasonably estimable. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued. Except for matters discussed above, we do not have any material environmental matters assessed as reasonably possible that would require disclosure in our consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Current
|
$
|
32
|
|
|
$
|
31
|
|
|
Non-current
|
321
|
|
|
318
|
|
|
Total environmental liabilities
|
$
|
353
|
|
|
$
|
349
|
|
In 2013, we established a wholly-owned captive insurance company to bear certain risks associated with environmental obligations related to certain sites that are no longer operating. The premiums paid to the captive insurance company include estimates for environmental claims that have been incurred but not reported, based on an actuarially determined fully developed claims expense estimate. In such cases, we accrue losses attributable to unasserted claims based on the discounted estimates that are used to develop the premiums paid to the captive insurance company.
During the
three months ended March 31,
2017
and
2016
, the Partnership recorded
$4 million
and
$8 million
, respectively, of expenditures related to environmental cleanup programs.
On December 2, 2010, Sunoco, Inc. entered an Asset Sale and Purchase Agreement to sell the Toledo Refinery to Toledo Refining Company LLC (TRC) wherein Sunoco, Inc. retained certain liabilities associated with the pre-Closing time period. On January 2, 2013, USEPA issued a Finding of Violation (FOV) to TRC and, on September 30, 2013, EPA issued a Notice of Violation (“NOV”)/FOV to TRC alleging Clean Air Act violations. To date, EPA has not issued an FOV or NOV/FOV to Sunoco, Inc. directly but some of EPA’s claims relate to the time period that Sunoco, Inc. operated the refinery. Specifically, EPA has claimed that the refinery flares were not operated in a manner consistent with good air pollution control practice for minimizing emissions and/or in conformance with their design, and that Sunoco, Inc. submitted semi-annual compliance reports in 2010 and 2011 and EPA that failed to include all of the information required by the regulations. EPA has proposed penalties in excess of
$200,000
to resolve the allegations and discussions continue between the parties. The timing or outcome of this matter cannot be reasonably determined at this time, however, we do not expect there to be a material impact to its results of operations, cash flows or financial position.
In September 2016, EPA issued an NOV related to well monitoring procedures at Sunoco Logistics’ Inkster terminal located near Detroit, Michigan. Penalties of approximately
$0.1 million
were assessed in connection with the NOV, which Sunoco Logistics paid in March 2017, to close out this matter.
In December 2016, Sunoco Logistics received multiple NOVs from the Delaware County Regional Water Quality Control Authority (“DELCORA”) in connection with a discharge at its Marcus Hook Industrial Complex (“MHIC”) in July 2016. Sunoco Logistics also entered in a Consent Order and Agreement from the Pennsylvania Department of Environmental Protection (“PADEP”) related to its tank inspection plan at MHIC. These actions propose penalties in excess of
$0.1 million
, and Sunoco Logistics is currently in discussions with the PADEP and DELCORA to resolve these matters. The timing or outcome of these matters cannot be reasonably determined at this time, however, Sunoco Logistics does not expect there to be a material impact to its results of operations, cash flows, or financial position.
Our operations are also subject to the requirements of the OSHA, and comparable state laws that regulate the protection of the health and safety of employees. In addition, OSHA’s hazardous communication standard requires that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens. We believe that our past costs for OSHA required activities, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances have not had a material adverse effect on our results of operations but there is no assurance that such costs will not be material in the future.
|
|
|
|
11.
|
DERIVATIVE ASSETS AND LIABILITIES
|
Commodity Price Risk
We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, our subsidiaries utilize various exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at fair value in our consolidated balance sheets.
We use futures and basis swaps, designated as fair value hedges, to hedge our natural gas inventory stored in our Bammel storage facility. At hedge inception, we lock in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract. Changes in the spreads between the forward natural gas prices and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously unrealized gains or losses associated with these positions are realized.
We use futures, swaps and options to hedge the sales price of natural gas we retain for fees in our intrastate transportation and storage segment and operational gas sales on our interstate transportation and storage segment. These contracts are not designated as hedges for accounting purposes.
We use NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes we retain for fees in our midstream segment whereby our subsidiaries generally gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index price for the residue gas and NGL. These contracts are not designated as hedges for accounting purposes.
We use derivatives in our liquids transportation and services segment to manage our storage facilities and the purchase and sale of purity NGL. These contracts are not designated as hedges for accounting purposes.
Sunoco Logistics utilizes swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products and NGLs. These contracts are not designated as hedges for accounting purposes.
We use futures and swaps to achieve ratable pricing of crude oil purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in margins for certain refined products and to lock in the price of a portion of natural gas purchases or sales and transportation costs in our retail marketing segment. These contracts are not designated as hedges for accounting purposes.
We use financial commodity derivatives to take advantage of market opportunities in our trading activities which complement our transportation and storage segment’s operations and are netted in cost of products sold in our consolidated statements of operations. We also have trading and marketing activities related to power and natural gas in our all other segment which are also netted in cost of products sold. As a result of our trading activities and the use of derivative financial instruments in our transportation and storage segment, the degree of earnings volatility that can occur may be significant, favorably or unfavorably, from period to period. We attempt to manage this volatility through the use of daily position and profit and loss reports provided to our risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in our commodity risk management policy.
The following table details our outstanding commodity-related derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Notional Volume
|
|
Maturity
|
|
Notional Volume
|
|
Maturity
|
|
Mark-to-Market Derivatives
|
|
|
|
|
|
|
|
|
(Trading)
|
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
|
Fixed Swaps/Futures
|
80,000
|
|
|
2017
|
|
(682,500
|
)
|
|
2017
|
|
Basis Swaps IFERC/NYMEX
(1)
|
8,372,500
|
|
|
2017
|
|
2,242,500
|
|
|
2017
|
|
Power (Megawatt):
|
|
|
|
|
|
|
|
|
Forwards
|
225,480
|
|
|
2017-2018
|
|
391,880
|
|
|
2017-2018
|
|
Futures
|
(58,000
|
)
|
|
2017-2018
|
|
109,564
|
|
|
2017-2018
|
|
Options — Puts
|
67,200
|
|
|
2017
|
|
(50,400
|
)
|
|
2017
|
|
Options — Calls
|
447,200
|
|
|
2017
|
|
186,400
|
|
|
2017
|
|
Crude (Bbls):
|
|
|
|
|
|
|
|
|
Futures
|
(1,418,000
|
)
|
|
2017
|
|
(617,000
|
)
|
|
2017
|
|
(Non-Trading)
|
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(5,247,500
|
)
|
|
2017-2018
|
|
10,750,000
|
|
|
2017-2018
|
|
Swing Swaps IFERC
|
(12,185,000
|
)
|
|
2017
|
|
(5,662,500
|
)
|
|
2017
|
|
Fixed Swaps/Futures
|
(51,102,500
|
)
|
|
2017-2019
|
|
(52,652,500
|
)
|
|
2017-2019
|
|
Forward Physical Contracts
|
16,763,209
|
|
|
2017
|
|
(22,492,489
|
)
|
|
2017
|
|
Natural Gas Liquid and Crude (Bbls) — Forwards/Swaps
|
(1,827,400
|
)
|
|
2017
|
|
(5,786,627
|
)
|
|
2017
|
|
Refined Products (Bbls) — Futures
|
(1,492,000
|
)
|
|
2017
|
|
(3,144,000
|
)
|
|
2017
|
|
Corn (Bushels) — Futures
|
(730,000
|
)
|
|
2017
|
|
1,580,000
|
|
|
2017
|
|
Fair Value Hedging Derivatives
|
|
|
|
|
|
|
|
|
(Non-Trading)
|
|
|
|
|
|
|
|
|
Natural Gas (MMBtu):
|
|
|
|
|
|
|
|
|
Basis Swaps IFERC/NYMEX
|
(13,877,500
|
)
|
|
2017
|
|
(36,370,000
|
)
|
|
2017
|
|
Fixed Swaps/Futures
|
(13,877,500
|
)
|
|
2017
|
|
(36,370,000
|
)
|
|
2017
|
|
Hedged Item — Inventory
|
13,877,500
|
|
|
2017
|
|
36,370,000
|
|
|
2017
|
|
|
|
|
(1)
|
Includes aggregate amounts for open positions related to Houston Ship Channel, Waha Hub, NGPL TexOk, West Louisiana Zone and Henry Hub locations.
|
Interest Rate Risk
We are exposed to market risk for changes in interest rates. To maintain a cost effective capital structure, we borrow funds using a mix of fixed rate debt and variable rate debt. We also manage our interest rate exposure by utilizing interest rate swaps to achieve a desired mix of fixed and variable rate debt. We also utilize forward starting interest rate swaps to lock in the rate on a portion of anticipated debt issuances.
The following table summarizes our interest rate swaps outstanding none of which were designated as hedges for accounting purposes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount Outstanding
|
|
Term
|
|
Type
(1)
|
|
March 31, 2017
|
|
December 31, 2016
|
|
July 2017
(2)
|
|
Forward-starting to pay a fixed rate of 3.90% and receive a floating rate
|
|
$
|
500
|
|
|
$
|
500
|
|
|
July 2018
(2)
|
|
Forward-starting to pay a fixed rate of 4.00% and receive a floating rate
|
|
200
|
|
|
200
|
|
|
July 2019
(2)
|
|
Forward-starting to pay a fixed rate of 3.25% and receive a floating rate
|
|
200
|
|
|
200
|
|
|
December 2018
|
|
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.53%
|
|
1,200
|
|
|
1,200
|
|
|
March 2019
|
|
Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.42%
|
|
300
|
|
|
300
|
|
|
|
|
|
(1)
|
Floating rates are based on 3-month LIBOR.
|
|
|
|
|
(2)
|
Represents the effective date. These forward-starting swaps have a term of 30 years with a mandatory termination date the same as the effective date.
|
Credit Risk
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss to the Partnership. Credit policies have been approved and implemented to govern ETP’s portfolio of counterparties with the objective of mitigating credit losses. These policies establish guidelines, controls and limits to manage credit risk within approved tolerances by mandating an appropriate evaluation of the financial condition of existing and potential counterparties, monitoring agency credit ratings, and by implementing credit practices that limit exposure according to the risk profiles of the counterparties. Furthermore, ETP may at times require collateral under certain circumstances to mitigate credit risk as necessary. ETP also implements the use of industry standard commercial agreements which allow for the netting of positive and negative exposures associated with transactions executed under a single commercial agreement. Additionally, ETP utilizes master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty or affiliated group of counterparties.
ETP’s counterparties consist of a diverse portfolio of customers across the energy industry, including petrochemical companies, commercial and industrials, oil and gas producers, motor fuel distributors, municipalities, utilities and midstream companies. ETP’s overall exposure may be affected positively or negatively by macroeconomic factors or regulatory changes that could impact its counterparties to one extent or another. Currently, management does not anticipate a material adverse effect in our financial position or results of operations as a consequence of counterparty non-performance.
ETP has maintenance margin deposits with certain counterparties in the OTC market, primarily independent system operators, and with clearing brokers. Payments on margin deposits are required when the value of a derivative exceeds our pre-established credit limit with the counterparty. Margin deposits are returned to ETP on or about the settlement date for non-exchange traded derivatives, and ETP exchanges margin calls on a daily basis for exchange traded transactions. Since the margin calls are made daily with the exchange brokers, the fair value of the financial derivative instruments are deemed current and netted in deposits paid to vendors within other current assets in the consolidated balance sheets.
For financial instruments, failure of a counterparty to perform on a contract could result in our inability to realize amounts that have been recorded on our consolidated balance sheets and recognized in net income or other comprehensive income.
Derivative Summary
The following table provides a summary of our derivative assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Instruments
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Commodity derivatives (margin deposits)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(4
|
)
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
Commodity derivatives (margin deposits)
|
$
|
139
|
|
|
$
|
338
|
|
|
$
|
(145
|
)
|
|
$
|
(416
|
)
|
|
Commodity derivatives
|
15
|
|
|
25
|
|
|
(16
|
)
|
|
(58
|
)
|
|
Interest rate derivatives
|
—
|
|
|
—
|
|
|
(188
|
)
|
|
(193
|
)
|
|
Embedded derivatives in the ETP Preferred Units
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
154
|
|
|
363
|
|
|
(349
|
)
|
|
(668
|
)
|
|
Total derivatives
|
$
|
154
|
|
|
$
|
363
|
|
|
$
|
(351
|
)
|
|
$
|
(672
|
)
|
The following table presents the fair value of our recognized derivative assets and liabilities on a gross basis and amounts offset on the consolidated balance sheets that are subject to enforceable master netting arrangements or similar arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
|
|
Balance Sheet Location
|
|
March 31, 2017
|
|
December 31, 2016
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Derivatives without offsetting agreements
|
|
Derivative assets (liabilities)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(188
|
)
|
|
$
|
(194
|
)
|
|
Derivatives in offsetting agreements:
|
|
|
|
|
|
|
|
|
|
OTC contracts
|
|
Derivative assets (liabilities)
|
|
15
|
|
|
25
|
|
|
(16
|
)
|
|
(58
|
)
|
|
Broker cleared derivative contracts
|
|
Other current assets
|
|
139
|
|
|
338
|
|
|
(147
|
)
|
|
(420
|
)
|
|
Total gross derivatives
|
|
154
|
|
|
363
|
|
|
(351
|
)
|
|
(672
|
)
|
|
Less offsetting agreements:
|
|
|
|
|
|
|
|
|
|
Counterparty netting
|
|
Derivative assets (liabilities)
|
|
(6
|
)
|
|
(4
|
)
|
|
6
|
|
|
4
|
|
|
Payments on margin deposit
|
|
Other current assets
|
|
(133
|
)
|
|
(338
|
)
|
|
133
|
|
|
338
|
|
|
Total net derivatives
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
(212
|
)
|
|
$
|
(330
|
)
|
We disclose the non-exchange traded financial derivative instruments as price risk management assets and liabilities on our consolidated balance sheets at fair value with amounts classified as either current or long-term depending on the anticipated settlement date.
The following tables summarize the amounts recognized with respect to our derivative financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
Recognized in Income
on Derivatives
|
|
Amount of Gain/(Loss) Recognized in Income Representing Hedge Ineffectiveness and Amount Excluded from the Assessment of Effectiveness
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
Derivatives in fair value hedging relationships (including hedged item):
|
|
|
|
|
Commodity derivatives
|
Cost of products sold
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
Total
|
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
Recognized in Income
on Derivatives
|
|
Amount of Gain/(Loss) Recognized in Income on Derivatives
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2017
|
|
2016
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Commodity derivatives —Trading
|
Cost of products sold
|
|
$
|
11
|
|
|
$
|
(9
|
)
|
|
Commodity derivatives —Non-trading
|
Cost of products sold
|
|
2
|
|
|
8
|
|
|
Interest rate derivatives
|
Gains (losses) on interest rate derivatives
|
|
5
|
|
|
(70
|
)
|
|
Embedded derivatives
|
Other, net
|
|
1
|
|
|
—
|
|
|
Total
|
|
|
$
|
19
|
|
|
$
|
(71
|
)
|
|
|
|
|
12.
|
RELATED PARTY TRANSACTIONS
|
ETP previously had agreements with the Parent Company to provide services on its behalf and the behalf of other subsidiaries of the Parent Company, which included the reimbursement of various general and administrative services for expenses incurred by ETP on behalf of those subsidiaries. These agreements have subsequently expired.
In the ordinary course of business, our subsidiaries have related party transactions between each other which are generally based on transactions made at market-related rates. Our consolidated revenues and expenses reflect the elimination of all material intercompany transactions.
In addition, ETE recorded sales with affiliates of
$50 million
and
$81 million
during the
three months ended
March 31, 2017
and
2016
, respectively.
13.
REPORTABLE SEGMENTS
Our financial statements reflect the following reportable business segments:
|
|
|
|
•
|
Investment in ETP, including the consolidated operations of ETP;
|
|
|
|
|
•
|
Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
|
|
|
|
|
•
|
Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
|
|
|
|
|
•
|
Corporate and Other, including the following:
|
|
|
|
|
•
|
activities of the Parent Company; and
|
|
|
|
|
•
|
the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
|
The Investment in Sunoco LP segment reflects the results of Sunoco LP and the legacy Sunoco, Inc. retail business for the periods presented.
Related party transactions among our segments are generally based on transactions made at market-related rates. Consolidated revenues and expenses reflect the elimination of all material intercompany transactions.
We define Segment Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt, gain on deconsolidation and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Segment Adjusted EBITDA reflects amounts for unconsolidated affiliates based on the Partnership’s proportionate ownership and amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations.
The following tables present financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Segment Adjusted EBITDA:
|
|
|
|
|
Investment in ETP
|
$
|
1,414
|
|
|
$
|
1,412
|
|
|
Investment in Sunoco LP
|
155
|
|
|
159
|
|
|
Investment in Lake Charles LNG
|
44
|
|
|
44
|
|
|
Corporate and Other
|
(13
|
)
|
|
(37
|
)
|
|
Adjustments and Eliminations
|
(54
|
)
|
|
(57
|
)
|
|
Total
|
1,546
|
|
|
1,521
|
|
|
Depreciation, depletion and amortization
|
(661
|
)
|
|
(562
|
)
|
|
Interest expense, net
|
(486
|
)
|
|
(427
|
)
|
|
Unrealized gains (losses) on interest rate derivatives
|
5
|
|
|
(70
|
)
|
|
Non-cash unit-based compensation expense
|
(27
|
)
|
|
(1
|
)
|
|
Unrealized gains (losses) on commodity risk management activities
|
69
|
|
|
(60
|
)
|
|
Losses on extinguishments of debt
|
(25
|
)
|
|
—
|
|
|
Inventory valuation adjustments
|
(12
|
)
|
|
(13
|
)
|
|
Equity in earnings of unconsolidated affiliates
|
87
|
|
|
61
|
|
|
Adjusted EBITDA related to unconsolidated affiliates
|
(185
|
)
|
|
(162
|
)
|
|
Other, net
|
14
|
|
|
(6
|
)
|
|
Income before income tax expense (benefit)
|
$
|
325
|
|
|
$
|
281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Assets:
|
|
|
|
|
Investment in ETP
|
$
|
72,437
|
|
|
$
|
70,191
|
|
|
Investment in Sunoco LP
|
8,454
|
|
|
8,701
|
|
|
Investment in Lake Charles LNG
|
1,540
|
|
|
1,508
|
|
|
Corporate and Other
|
660
|
|
|
711
|
|
|
Adjustments and Eliminations
|
(2,094
|
)
|
|
(2,100
|
)
|
|
Total assets
|
$
|
80,997
|
|
|
$
|
79,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Revenues:
|
|
|
|
|
Investment in ETP:
|
|
|
|
|
Revenues from external customers
|
$
|
6,807
|
|
|
$
|
4,434
|
|
|
Intersegment revenues
|
88
|
|
|
47
|
|
|
|
6,895
|
|
|
4,481
|
|
|
Investment in Sunoco LP:
|
|
|
|
|
Revenues from external customers
|
4,391
|
|
|
3,212
|
|
|
Intersegment revenues
|
3
|
|
|
3
|
|
|
|
4,394
|
|
|
3,215
|
|
|
Investment in Lake Charles LNG:
|
|
|
|
|
Revenues from external customers
|
49
|
|
|
49
|
|
|
|
|
|
|
|
Adjustments and Eliminations
|
(91
|
)
|
|
(50
|
)
|
|
Total revenues
|
$
|
11,247
|
|
|
$
|
7,695
|
|
The following tables provide revenues, grouped by similar products and services, for our reportable segments. These amounts include intersegment revenues for transactions between ETP, Sunoco LP and Lake Charles LNG.
Investment in ETP
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Intrastate Transportation and Storage
|
$
|
768
|
|
|
$
|
446
|
|
|
Interstate Transportation and Storage
|
231
|
|
|
254
|
|
|
Midstream
|
565
|
|
|
527
|
|
|
Liquids Transportation and Services
|
1,508
|
|
|
829
|
|
|
Investment in Sunoco Logistics
|
3,185
|
|
|
1,729
|
|
|
All Other
|
638
|
|
|
696
|
|
|
Total revenues
|
6,895
|
|
|
4,481
|
|
|
Less: Intersegment revenues
|
88
|
|
|
47
|
|
|
Revenues from external customers
|
$
|
6,807
|
|
|
$
|
4,434
|
|
Investment in Sunoco LP
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Retail operations
|
$
|
2,098
|
|
|
$
|
1,675
|
|
|
Wholesale operations
|
2,296
|
|
|
1,540
|
|
|
Total revenues
|
4,394
|
|
|
3,215
|
|
|
Less: Intersegment revenues
|
3
|
|
|
3
|
|
|
Revenues from external customers
|
$
|
4,391
|
|
|
$
|
3,212
|
|
Investment in Lake Charles LNG
Lake Charles LNG’s revenues for all periods presented were related to LNG terminalling.
|
|
|
|
14.
|
SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
|
Following are the financial statements of the Parent Company, which are included to provide additional information with respect to the Parent Company’s financial position, results of operations and cash flows on a stand-alone basis:
BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
3
|
|
|
$
|
2
|
|
|
Accounts receivable, net
|
2
|
|
|
—
|
|
|
Accounts receivable from related companies
|
57
|
|
|
55
|
|
|
Total current assets
|
62
|
|
|
57
|
|
|
Property, plant and equipment, net
|
35
|
|
|
36
|
|
|
Advances to and investments in unconsolidated affiliates
|
5,940
|
|
|
5,088
|
|
|
Intangible assets, net
|
—
|
|
|
1
|
|
|
Goodwill
|
9
|
|
|
9
|
|
|
Other non-current assets, net
|
19
|
|
|
10
|
|
|
Total assets
|
$
|
6,065
|
|
|
$
|
5,201
|
|
|
LIABILITIES AND PARTNERS’ CAPITAL
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable
|
$
|
—
|
|
|
$
|
1
|
|
|
Accounts payable to related companies
|
3
|
|
|
22
|
|
|
Interest payable
|
80
|
|
|
66
|
|
|
Accrued and other current liabilities
|
3
|
|
|
3
|
|
|
Total current liabilities
|
86
|
|
|
92
|
|
|
Long-term debt, less current maturities
|
6,639
|
|
|
6,358
|
|
|
Long-term notes payable – related companies
|
485
|
|
|
443
|
|
|
Other non-current liabilities
|
2
|
|
|
2
|
|
|
Commitments and contingencies
|
|
|
|
|
Partners’ capital:
|
|
|
|
|
General Partner
|
(3
|
)
|
|
(3
|
)
|
|
Limited Partners:
|
|
|
|
|
Common Unitholders
|
(1,389
|
)
|
|
(1,871
|
)
|
|
Series A Convertible Preferred Units
|
245
|
|
|
180
|
|
|
Total partners’ capital (deficit)
|
(1,147
|
)
|
|
(1,694
|
)
|
|
Total liabilities and equity
|
$
|
6,065
|
|
|
$
|
5,201
|
|
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(1)
|
$
|
(13
|
)
|
|
$
|
(37
|
)
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
Interest expense, net
|
(83
|
)
|
|
(81
|
)
|
|
Equity in earnings of unconsolidated affiliates
|
361
|
|
|
430
|
|
|
Losses on extinguishments of debt
|
(25
|
)
|
|
—
|
|
|
Other, net
|
(1
|
)
|
|
—
|
|
|
NET INCOME
|
239
|
|
|
312
|
|
|
General Partner’s interest in net income
|
1
|
|
|
1
|
|
|
Convertible Unitholders’ interest in income
|
6
|
|
|
—
|
|
|
Limited Partners’ interest in net income
|
$
|
232
|
|
|
$
|
311
|
|
|
|
|
|
(1)
|
Includes management fees paid by ETE to ETP, which management fees will no longer be paid subsequent to March 31, 2017.
|
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
|
$
|
251
|
|
|
$
|
223
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
Contributions to unconsolidated affiliate
|
(860
|
)
|
|
(65
|
)
|
|
Capital expenditures
|
—
|
|
|
(7
|
)
|
|
Net cash used in investing activities
|
(860
|
)
|
|
(72
|
)
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
Proceeds from borrowings
|
2,017
|
|
|
105
|
|
|
Principal payments on debt
|
(1,733
|
)
|
|
—
|
|
|
Proceeds from affiliate
|
43
|
|
|
50
|
|
|
Distributions to partners
|
(251
|
)
|
|
(299
|
)
|
|
Units issued for cash
|
568
|
|
|
—
|
|
|
Debt issuance costs
|
(34
|
)
|
|
—
|
|
|
Net cash provided by (used in) financing activities
|
610
|
|
|
(144
|
)
|
|
INCREASE IN CASH AND CASH EQUIVALENTS
|
1
|
|
|
7
|
|
|
CASH AND CASH EQUIVALENTS, beginning of period
|
2
|
|
|
1
|
|
|
CASH AND CASH EQUIVALENTS, end of period
|
$
|
3
|
|
|
$
|
8
|
|