NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Except as noted within the context of each note disclosure, the dollar amounts presented in the tabular data within these note disclosures are stated in millions of dollars. The financial information for the three and six months ended June 30, 2017 has been retrospectively adjusted for the acquisition of businesses under common control (see Note 3 - Acquisitions and Divestiture).
1. Description of Business and Basis of Presentation
Shell Midstream Partners, L.P. (“we,” “us,” “our” or “the Partnership”) is a Delaware limited partnership formed by Shell on March 19, 2014 to own and operate pipeline and other midstream assets, including certain assets acquired from Shell Pipeline Company LP (“SPLC”) and its affiliates. We conduct our operations either through our wholly owned subsidiary Shell Midstream Operating LLC (“Operating Company”) or through direct ownership by the Partnership. Our general partner is Shell Midstream Partners GP LLC (“general partner”). References to “RDS”, “Shell” or “Parent” refer collectively to Royal Dutch Shell plc and its controlled affiliates, other than us, our subsidiaries and our general partner. Our common units trade on the New York Stock Exchange under the symbol “SHLX”.
Description of Business
We are a fee-based, growth-oriented master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. As of
June 30, 2018
, our assets include interests in entities that own crude oil and refined products pipelines and terminals that serve as key infrastructure to (i) transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and (ii) deliver refined products from those markets to major demand centers. Our assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.
The following table reflects our ownership, and Shell’s retained ownership as of
June 30, 2018
:
|
|
|
|
|
|
|
|
SHLX Ownership
|
|
Shell’s Retained Ownership
|
|
|
|
|
Pecten Midstream LLC (“Pecten”)
|
100.0
|
%
|
|
—
|
%
|
Sand Dollar Pipeline LLC (“Sand Dollar”)
|
100.0
|
%
|
|
—
|
%
|
Triton West LLC (“Triton”)
|
100.0
|
%
|
|
—
|
%
|
Zydeco Pipeline Company LLC (“Zydeco”)
|
92.5
|
%
|
|
7.5
|
%
|
Amberjack Pipeline Company LLC (“Amberjack”) – Series A/Series B
|
75.0% / 50.0%
|
|
|
—
|
%
|
Mars Oil Pipeline Company LLC (“Mars”)
|
71.5
|
%
|
|
—
|
%
|
Odyssey Pipeline L.L.C. (“Odyssey”)
|
71.0
|
%
|
|
—
|
%
|
Bengal Pipeline Company LLC (“Bengal”)
|
50.0
|
%
|
|
—
|
%
|
Crestwood Permian Basin LLC (“Permian Basin”)
|
50.0
|
%
|
|
—
|
%
|
LOCAP LLC (“LOCAP”)
|
41.48
|
%
|
|
—
|
%
|
Poseidon Oil Pipeline Company LLC (“Poseidon”)
|
36.0
|
%
|
|
—
|
%
|
Explorer Pipeline Company (“Explorer”)
|
12.62
|
%
|
|
25.97
|
%
|
Proteus Oil Pipeline Company, LLC (“Proteus”)
|
10.0
|
%
|
|
—
|
%
|
Endymion Oil Pipeline Company, LLC (“Endymion”)
|
10.0
|
%
|
|
—
|
%
|
Colonial Pipeline Company (“Colonial”)
|
6.0
|
%
|
|
10.12
|
%
|
Cleopatra Gas Gathering Company, LLC (“Cleopatra”)
|
1.0
|
%
|
|
—
|
%
|
We generate a substantial portion of our revenue under long-term agreements by charging fees for the transportation, terminaling and storage of crude oil and refined products through our pipelines and storage tanks, and generate income from our equity and cost method investments. Our operations consist of
one
reportable segment.
Basis of Presentation
Our unaudited condensed consolidated financial statements include all subsidiaries required to be consolidated under generally accepted accounting principles in the United States (“GAAP”). Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars. The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements. During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended
December 31, 2017
(our “2017 Annual Report”), filed with the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements for the
three and six
months ended
June 30, 2018
and
2017
include all adjustments we believe are necessary for a fair statement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature unless otherwise disclosed. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These unaudited condensed consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our 2017 Annual Report.
Our consolidated subsidiaries include Pecten, Sand Dollar, Triton, Zydeco, Odyssey and the Operating Company. Asset acquisitions of additional interests in previously consolidated subsidiaries and interests in cost and equity method investments are included in the financial statements prospectively from the effective date of each acquisition. In cases where these types of acquisitions are considered acquisitions of businesses under common control, the financial statements are retrospectively adjusted. As such, all financial results of interests acquired in the May 2017 Acquisition and the December 2017 Acquisition (as defined in
Note 3—Acquisitions and Divestiture
) have been retrospectively adjusted. For additional common control interests acquired of cost and equity method investments previously owned, only the incremental ownership interest has been retrospectively adjusted. Our unaudited condensed consolidated financial statements were derived from the financial statements and accounting records of SPLC and Shell for the periods prior to acquisition. Specifically, such businesses are reflected for the following periods prior to the effective date of such acquisitions by us:
|
|
•
|
May 2017 Acquisition for periods prior to May 10, 2017; and
|
|
|
•
|
December 2017 Acquisition for periods prior to December 1, 2017, including the effect of fully consolidating Odyssey.
|
Our unaudited condensed consolidated statements of income and cash flow for the periods ended June 30, 2017 consist of the combined results of the May 2017 Acquisition and the December 2017 Acquisition prior to the respective acquisition dates, and the consolidated activity of the Partnership. Our unaudited condensed consolidated statement of income excludes the results of these businesses from net income attributable to the Partnership for the periods indicated above by allocating these results to our Parent. See
Note 3 - Acquisitions and Divestiture
for definitions and additional information.
Summary of Significant Accounting Policies
The accounting policies are set forth in
Note 2—Summary of Significant Accounting Policies
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report. There have been no significant changes to these policies during the
six
months ended
June 30, 2018
, other than those noted below.
Recent Accounting Pronouncements
Standards Adopted as of January 1, 2018
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 to Topic 606, Revenue from Contracts with Customers, which superseded nearly all revenue recognition guidance in Topic 605, Revenue Recognition, under GAAP. We adopted the new standard utilizing the modified retrospective transition approach, effective January 1, 2018, by recognizing the cumulative effect of initially applying the standard for periods prior to January 1, 2018 to the opening balance of equity (deficit).
See
Note 2—Revenue Recognition
for additional information and disclosures required by the new standard.
In January 2017, the FASB issued ASU 2017-01 to Topic 805, Business Combinations, to clarify the definition of a business and to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update was effective for us as of January 1, 2018. There was no impact on our financial statements as a result of this adoption in relation to our acquisition during the second quarter.
In August 2016, the FASB issued ASU 2016-15 to Topic 230, Statement of Cash Flows, making changes to the classification of certain cash receipts and cash payments in order to reduce diversity in presentation. The update addresses eight specific cash flow issues, of which only one is applicable to our financial statements. The applicable update relates to distributions received from equity method investees and prescribes two options for presenting these cash flows: cumulative earnings approach or nature of the distribution approach. We will continue to apply the cumulative earnings approach, where distributions received are considered either returns on investment and classified as operating cash flows or returns of investment and classified as investing cash flows. The adoption of this update on January 1, 2018 did not have a material impact on our financial statements.
In January 2016, the FASB issued ASU 2016-01 to Topic 825, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Additionally, the update allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment, and requires additional disclosure around those investments. We have the following three equity investments which are accounted for under the cost method and which do not have readily determinable fair values:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Ownership
|
|
Amount
|
|
Ownership
|
|
Amount
|
Colonial
|
|
6.0
|
%
|
|
$
|
11.4
|
|
|
6.0
|
%
|
|
$
|
11.4
|
|
Explorer
|
|
12.62
|
%
|
|
48.6
|
|
|
12.62
|
%
|
|
48.6
|
|
Cleopatra
|
|
1.0
|
%
|
|
2.1
|
|
|
1.0
|
%
|
|
2.1
|
|
|
|
|
|
$
|
62.1
|
|
|
|
|
$
|
62.1
|
|
As of the adoption of this update on January 1, 2018, and as of June 30, 2018, we did not identify the occurrence of an observable price change or an identification of impairment for these three equity investments. Therefore, the adoption of this update on January 1, 2018 did not have a material impact on our financial statements.
Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02 to Topic 842, Leases, which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either a financing lease or operating lease with classification affecting the pattern of expense recognition in the condensed consolidated statements of income and presentation of cash flows in the condensed consolidated statements of cash flows. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this update modifies the classification criteria and the accounting for sales-type and direct financing leases. This update is effective on a modified retrospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We will adopt the new standard on January 1, 2019 and continue to assess its impact to our consolidated financial statements and related disclosures.
Currently, we plan to elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption. We will not reassess whether any contracts entered into prior to adoption are leases. In January 2018, the FASB issued ASU 2018-01 to provide an optional transition practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under existing guidance. We intend to elect this practical expedient. In July 2018, the FASB issued ASU 2018-11 which provides entities an optional transitional relief method that allows entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption. This update also provides an optional practical expedient for lessors to avoid separating lease and associated non-lease components within a contract if certain criteria are met. We are evaluating this most recent update and continue to evaluate all other available transition practical expedients offered in connection with the new standard.
As part of our implementation efforts to date, we have substantially completed the identification and aggregation of our lease contract population. We are reviewing these to determine the transition approach and assess the impact to our condensed consolidated financial statements upon adoption. We are also developing and starting to implement any necessary changes to existing processes and controls.
2. Revenue Recognition
Adoption of ASC Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, we adopted Topic 606 and all related ASU’s to this Topic (collectively, “the new revenue standard”) by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous GAAP. We recorded a non-cash cumulative effect transition adjustment to increase total opening equity (deficit) of
$4.5 million
, with the impact primarily due to the earlier recognition of revenue related to deficiency payments under minimum volume commitment contracts. Additionally, we recorded a non-cash cumulative effect transition adjustment related to our equity method investment for Mars which resulted in a total net decrease to total opening equity (deficit) of
$2.3 million
. See
Note 5 - Equity Method Investments
for additional information.
Revenue Recognition
The new revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
Our revenues are primarily generated from the transportation, terminaling and storage of crude oil, refinery gas and refined petroleum products through our pipelines, terminals and storage tanks. To identify the performance obligations, we considered all the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when each performance obligation is satisfied under the terms of the contract.
Each barrel of product transported or day of services provided is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on a measure of progress of volumes transported for transportation services contracts or number of days elapsed for storage and terminaling services contracts.
Product revenue related to allowance oil sales is recognized at the point in time when the control of the oil transfers to the customer.
For all performance obligations, payment is typically due in full within 30 days of the invoice date.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by service type and customer type:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
Transportation services revenue – third parties
|
|
$
|
54.7
|
|
|
$
|
87.0
|
|
Transportation services revenue – related parties
(1)
|
|
42.2
|
|
|
72.8
|
|
Total transportation services revenue
|
|
96.9
|
|
|
159.8
|
|
|
|
|
|
|
Storage services revenue – third parties
|
|
2.3
|
|
|
4.6
|
|
Storage services revenue – related parties
|
|
1.5
|
|
|
2.8
|
|
Total storage services revenue
|
|
3.8
|
|
|
7.4
|
|
|
|
|
|
|
Terminaling services revenue – third parties
|
|
—
|
|
|
—
|
|
Terminaling services revenue – related parties
|
|
11.4
|
|
|
22.8
|
|
Total terminaling services revenue
(2)
|
|
11.4
|
|
|
22.8
|
|
|
|
|
|
|
Product revenue – third parties
|
|
1.4
|
|
|
1.4
|
|
Product revenue – related parties
|
|
1.7
|
|
|
9.6
|
|
Total product revenue
(3)
|
|
3.1
|
|
|
11.0
|
|
|
|
|
|
|
Total Topic 606 revenue
|
|
115.2
|
|
|
201.0
|
|
Lease revenue
|
|
14.1
|
|
|
27.9
|
|
Total revenue
|
|
$
|
129.3
|
|
|
$
|
228.9
|
|
(1)
Transportation services revenue - related parties for the three and six months ended June 30, 2018 includes
$1.2 million
and
$2.4 million
, respectively, of the non-lease service component in our transportation services contracts.
(2)
Terminaling services revenue is entirely comprised of the non-lease service component in our terminaling services contracts.
(3)
Product
revenue is comprised of allowance oil sales.
Transportation services revenue
We have both long-term transportation contracts and month-to-month contracts for spot shippers that make nominations on our pipelines. Some of the long-term contracts entitle the customer to a specified amount of guaranteed capacity on the pipeline.
Transportation services are charged at a per barrel rate or other applicable unit of measure. We apply the allocation exception guidance for variable consideration related to market indexing for long-term transportation contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service which is consistent with the allocation objective. Except for guaranteed capacity payments as discussed below, transportation services are billed monthly as services are rendered.
Deferred revenue
Our transportation services agreements on Zydeco entitle the customer to a specified amount of guaranteed capacity on the pipeline. This capacity cannot be pro-rated even if the pipeline is oversubscribed. In exchange, the customer makes a specified monthly payment regardless of the volume transported. If the customer does not ship its full guaranteed volume in a given month, it makes the full monthly cash payment (i.e., deficiency payments) and it may ship the unused volume in a later month for no additional cash payment for up to 12 months, subject to availability on the pipeline. The cash payment received is recognized as deferred revenue, a contract liability under the new revenue standard. If there is insufficient capacity on the pipeline to allow the unused volume to be shipped, the customer forfeits its right to ship such unused volume. We do not refund any cash payments relating to unused volumes.
Deferred revenue under these arrangements was previously recognized into revenue once all contingencies or potential performance obligations associated with the related volumes had been satisfied or expired. Under the new revenue standard, we are required to estimate the likelihood that unused volumes will be shipped or forfeited at each reporting period based on additional data that becomes available and only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. In some cases, this estimate could result in the earlier recognition of revenue.
Storage and terminaling services revenue
Storage and terminaling services are provided under short-term and long-term contracts, with a fixed price per month for committed storage and terminaling capacity, or under a monthly spot-rate for uncommitted storage or terminaling. Storage and terminaling services are billed monthly as services are rendered.
Reimbursements from customers
Under certain transportation, terminaling and storage service contracts, we receive reimbursements from customers to recover costs of construction, maintenance or operating costs either under a tariff surcharge per volume shipped or under separate reimbursement payments. Because we consider these amounts as consideration from customers associated with ongoing services to be provided to customers, we defer these payments in deferred revenue and recognize amounts in revenue over the life of the associated revenue contract as performance obligations are satisfied under the contract. We consider these payments to be revenue because control of the long-lived assets does not transfer to our customer upon completion. Our financial statements were not materially impacted by adoption of the new revenue standard related to reimbursements from customers.
Lease revenue
Certain of our long-term transportation and terminaling services contracts are accounted for as operating leases under Topic 840. These agreements have both a lease component and an implied operation and maintenance service component. We allocate the arrangement consideration between the lease components that fall within the scope of Topic 840 and any non-lease service components within the scope of the new revenue standard based on the relative stand-alone selling price of each component. We estimate the stand-alone selling price of the lease and non-lease service components based on an analysis of service-related and lease-related costs for each contract, adjusted for a representative profit margin. The contracts have a minimum fixed monthly payment for both the lease and non-lease service components. We present the non-lease service components under the new revenue standard within Transportation, terminaling and storage services revenue in the unaudited condensed consolidated statement of income.
Product revenue
We generate revenue by selling accumulated allowance oil inventory to customers. Sale of allowance oil is recorded as revenue, with specific cost based on a weighted average price per barrel recorded as cost of product sold.
Our contracts and tariffs contain terms for the customer to reimburse us for losses from evaporation or other loss in transit in the form of allowance oil. We obtain control of the excess oil not lost during transportation, if any. Prior to the adoption of the new revenue standard, allowance oil received was recorded as revenue on a gross basis with the resulting actual gain or loss recorded in operations and maintenance expense. The subsequent sale of allowance oil, net of the product cost, was recorded as operations and maintenance expenses. Under the new revenue standard, we include the excess oil retained during the period, if any, as non-cash consideration and include this amount in the transaction price.
Joint tariff
Under the joint tariff agreement between Zydeco and LOCAP, revenues were historically recorded on a net basis as an agent prior to the adoption of the new revenue standard. However, subsequent to the adoption of the new revenue standard, because we control the transportation service before it is transferred to the customer, we are the principal and, therefore, record revenues from these agreements on a gross basis.
Impact of adoption
In accordance with the new revenue standard, the following tables summarize the impact of adoption on our unaudited condensed consolidated financial statements as of and for the
three and six
months ended
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
Unaudited Condensed Consolidated Statement of Income
|
|
As Reported Under Topic 606
|
|
Amounts Without Adoption of Topic 606
|
|
Effect of Change Increase/(Decrease)
|
Revenue
|
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
|
$
|
57.0
|
|
|
$
|
57.3
|
|
|
$
|
(0.3
|
)
|
Transportation, terminaling and storage services – related parties
|
|
55.1
|
|
|
43.7
|
|
|
11.4
|
|
Product revenue – third parties
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Product revenue – related parties
|
|
1.7
|
|
|
—
|
|
|
1.7
|
|
Lease revenue – related parties
|
|
14.1
|
|
|
26.6
|
|
|
(12.5
|
)
|
Costs and expenses
|
|
|
|
|
|
|
Cost of product sold – third parties
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Cost of product sold – related parties
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Operations and maintenance – third parties
|
|
24.9
|
|
|
25.7
|
|
|
(0.8
|
)
|
Operations and maintenance – related parties
|
|
13.3
|
|
|
11.6
|
|
|
1.7
|
|
Net income
|
|
115.4
|
|
|
116.7
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
Unaudited Condensed Consolidated Statement of Income
|
|
As Reported Under Topic 606
|
|
Amounts Without Adoption of Topic 606
|
|
Effect of Change Increase/(Decrease)
|
Revenue
|
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
|
$
|
91.6
|
|
|
$
|
90.9
|
|
|
$
|
0.7
|
|
Transportation, terminaling and storage services – related parties
|
|
98.4
|
|
|
75.8
|
|
|
22.6
|
|
Product revenue – third parties
|
|
1.4
|
|
|
—
|
|
|
1.4
|
|
Product revenue – related parties
|
|
9.6
|
|
|
—
|
|
|
9.6
|
|
Lease revenue – related parties
|
|
27.9
|
|
|
53.0
|
|
|
(25.1
|
)
|
Costs and expenses
|
|
|
|
|
|
|
Cost of product sold – third parties
|
|
1.2
|
|
|
—
|
|
|
1.2
|
|
Cost of product sold – related parties
|
|
7.7
|
|
|
—
|
|
|
7.7
|
|
Operations and maintenance – third parties
|
|
68.0
|
|
|
69.0
|
|
|
(1.0
|
)
|
Operations and maintenance – related parties
|
|
26.7
|
|
|
22.4
|
|
|
4.3
|
|
Net income
|
|
180.2
|
|
|
183.1
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
Unaudited Condensed Consolidated Balance Sheet
|
|
As Reported Under Topic 606
|
|
Amounts Without Adoption of Topic 606
|
|
Effect of Change Increase/(Decrease)
|
Deferred revenue – related party
|
|
$
|
6.7
|
|
|
$
|
8.3
|
|
|
$
|
(1.6
|
)
|
Contract Balances
We perform our obligations under a contract with a customer by providing services in exchange for consideration from the customer. The timing of our performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. Although we did not have any contract assets as of June 30, 2018, we recognize a contract asset when we transfer goods or services to a customer and contractually bill an amount which is less than the revenue allocated to the related performance obligation. We recognize deferred revenue (contract liability) when the
customer’s payment of consideration precedes our performance. The following table provides information about receivables and contract liabilities from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2018
|
|
June 30, 2018
|
Receivables from contracts with customers – third parties
|
|
$
|
17.2
|
|
|
$
|
19.7
|
|
Receivables from contracts with customers – related parties
|
|
18.8
|
|
|
17.3
|
|
Deferred revenue – third parties
|
|
5.5
|
|
|
4.8
|
|
Deferred revenue – related party
|
|
9.4
|
|
|
6.7
|
|
Significant changes in the deferred revenue balances with customers during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Transition Adjustment
|
|
Additions
(1)
|
|
Reductions
(2)
|
|
June 30, 2018
|
Deferred revenue – third parties
|
|
$
|
5.5
|
|
|
—
|
|
|
3.4
|
|
|
(4.1
|
)
|
|
$
|
4.8
|
|
Deferred revenue – related party
|
|
$
|
13.9
|
|
|
(4.5
|
)
|
|
1.5
|
|
|
(4.2
|
)
|
|
$
|
6.7
|
|
|
|
(1)
|
Contract liability additions resulted from deficiency payments from minimum volume commitment contracts.
|
|
|
(2)
|
Contract liability reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.
|
We currently have no assets recognized from the costs to obtain or fulfill a contract as of
June 30, 2018
.
Remaining Performance Obligations
As of
June 30, 2018
, contracts with remaining performance obligations primarily include minimum volume commitment contracts, long-term storage contracts and the service component of transportation and terminaling services contracts accounted for as operating leases.
The following table includes revenue expected to be recognized in the future related to performance obligations exceeding one year of their initial terms that are unsatisfied or partially unsatisfied as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022 and beyond
|
Revenue expected to be recognized on multi-year committed shipper transportation contracts in place as of June 30, 2018
(1)
|
|
$
|
642.0
|
|
|
$
|
102.2
|
|
|
$
|
64.3
|
|
|
$
|
50.1
|
|
|
$
|
49.8
|
|
|
$
|
375.6
|
|
Revenue expected to be recognized on other multi-year transportation service contracts in place as of June 30, 2018
(2)
|
|
47.7
|
|
|
2.7
|
|
|
5.4
|
|
|
5.4
|
|
|
5.4
|
|
|
28.8
|
|
Revenue expected to be recognized on multi-year storage service contracts in place as of June 30, 2018
|
|
6.0
|
|
|
2.0
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Revenue expected to be recognized on multi-year terminaling service contracts in place as of June 30, 2018
(2)
|
|
430.0
|
|
|
22.8
|
|
|
45.7
|
|
|
45.7
|
|
|
45.7
|
|
|
270.1
|
|
|
|
$
|
1,125.7
|
|
|
$
|
129.7
|
|
|
$
|
119.4
|
|
|
$
|
101.2
|
|
|
$
|
100.9
|
|
|
$
|
674.5
|
|
(1)
Excludes revenue deferred for deficiency payments.
(2)
Relates to the non-lease service components of certain of our long-term transportation and terminaling service contracts which are accounted for as operating leases.
As an exemption, we do not disclose the amount of remaining performance obligations for contracts with an original expected duration of one year or less or for variable consideration that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
3. Acquisitions and Divestiture
May 2018 Acquisition
On May 11, 2018, we acquired SPLC’s ownership interests in Amberjack Pipeline Company LLC, a Delaware limited liability company (“Amberjack”), which is comprised of
75%
of the issued and outstanding Series A membership interests of Amberjack and
50%
of the issued and outstanding Series B membership interests of Amberjack for
$1,220.0 million
(the “May 2018 Acquisition”). The May 2018 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 9, 2018 (the “May 2018 Purchase and Sale Agreement”) between us and SPLC, and is accounted for as a transaction between entities under common control on a prospective basis as an asset acquisition. We acquired historical carrying value of net assets under common control of
$481.6 million
which is included in Equity method investments in our unaudited condensed consolidated balance sheet. We recognized
$738.4 million
of consideration in excess of the historical carrying value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. We funded the May 2018 Acquisition with
$494.0 million
in borrowings under our
Five
Year Revolver due October 2019 (as defined in
Note 8—Related Party Debt
) and
$726.0 million
in borrowings under our
Five
Year Revolver due December 2022 (as defined in
Note 8—Related Party Debt
) with Shell Treasury Center (West) Inc. (“STCW”).
2017 Acquisitions
During 2017, we completed two acquisitions, as described below, that were considered transfers of businesses between entities under common control, and therefore the related acquired assets and liabilities were transferred at historical carrying value. Because these acquisitions were common control transactions in which we acquired businesses, our historical financial statements have been retrospectively adjusted as if we owned the acquired assets and liabilities for all periods presented.
December 2017 Acquisition
On December 1, 2017, we acquired a
100%
interest in Triton,
41.48%
of the issued and outstanding membership interest in LOCAP, an additional
22.9%
interest in Mars, an additional
22.0%
interest in Odyssey, and an additional
10.0%
interest in Explorer from SPLC and Equilon Enterprises LLC d/b/a Shell Oil Products US (“SOPUS”) for
$825.0 million
(the “December 2017 Acquisition”). The December 2017 Acquisition closed pursuant to a Purchase and Sale Agreement (the “December 2017 Purchase and Sale Agreement”) among the Operating Company, us, SPLC and SOPUS. SPLC and SOPUS are each wholly owned subsidiaries of Shell. We funded the cash consideration for the December 2017 Acquisition from
$825.0 million
in borrowings under the
Five
Year Revolver due December 2022 (as defined in
Note 8—Related Party Debt
) and the Five Year Fixed Facility (as defined in
Note 8—Related Party Debt)
.
May 2017 Acquisition
On May 10, 2017, we acquired a
100%
interest in Delta, Na Kika and Refinery Gas Pipeline for
$630.0 million
(the “May 2017 Acquisition”). As part of the May 2017 Acquisition, SPLC and Shell GOM Pipeline Company LP (“Shell GOM”) contributed all but the working capital of Delta and Na Kika to Pecten, and Shell Chemical LP (“Shell Chemical”) contributed all but the working capital of Refinery Gas Pipeline to Sand Dollar. The May 2017 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 4, 2017 (the “May 2017 Purchase and Sale Agreement”), among the Operating Company, us, Shell Chemical, Shell GOM and SPLC. Shell Chemical, Shell GOM and SPLC are each wholly owned subsidiaries of Shell. We funded the May 2017 Acquisition with
$50.0 million
of cash on hand,
$73.1 million
in borrowings under our
Five
Year Revolver due October 2019 (as defined in
Note 8—Related Party Debt
) and
$506.9 million
in borrowings under our
Five
Year Fixed Facility (as defined in
Note 8—Related Party Debt
).
Retrospective adjusted information tables
The following tables present our results of operations and of cash flows giving effect to the December 2017 Acquisition. This acquisition is accounted for as a transaction between entities under common control and was retrospectively adjusted for the period of our Parent’s ownership prior to the transaction. The historical financial statements already include the effect of retrospectively adjusting for the May 2017 Acquisition. The results of the December 2017 Acquisition prior to the closing date of the acquisition are included in the acquisition column and the consolidated results are included in “Consolidated Results” within the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
Shell Midstream Partners, L.P.
(1)
|
|
December 2017 Acquisition
(2)
|
|
Consolidated Results
|
Revenue
|
|
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
|
$
|
55.3
|
|
|
$
|
4.4
|
|
|
$
|
59.7
|
|
Transportation, terminaling and storage services – related parties
|
|
23.7
|
|
|
15.8
|
|
|
39.5
|
|
Lease revenue – related parties
|
|
7.8
|
|
|
5.4
|
|
|
13.2
|
|
Total revenue
|
|
86.8
|
|
|
25.6
|
|
|
112.4
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Operations and maintenance – third parties
|
|
22.9
|
|
|
3.6
|
|
|
26.5
|
|
Operations and maintenance – related parties
|
|
7.1
|
|
|
2.9
|
|
|
10.0
|
|
General and administrative – third parties
|
|
2.8
|
|
|
0.9
|
|
|
3.7
|
|
General and administrative – related parties
|
|
8.2
|
|
|
3.4
|
|
|
11.6
|
|
Depreciation, amortization and accretion
|
|
9.6
|
|
|
1.7
|
|
|
11.3
|
|
Property and other taxes
|
|
3.4
|
|
|
0.8
|
|
|
4.2
|
|
Total costs and expenses
|
|
54.0
|
|
|
13.3
|
|
|
67.3
|
|
Operating income
|
|
32.8
|
|
|
12.3
|
|
|
45.1
|
|
Income from equity method investments
|
|
37.2
|
|
|
7.5
|
|
|
44.7
|
|
Dividend income from cost investments
|
|
6.2
|
|
|
3.2
|
|
|
9.4
|
|
Investment and dividend income
|
|
43.4
|
|
|
10.7
|
|
|
54.1
|
|
Interest expense, net
|
|
7.5
|
|
|
—
|
|
|
7.5
|
|
Income before income taxes
|
|
68.7
|
|
|
23.0
|
|
|
91.7
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income
|
|
68.7
|
|
|
23.0
|
|
|
91.7
|
|
Less: Net income attributable to Parent
|
|
1.0
|
|
|
20.5
|
|
|
21.5
|
|
Less: Net income attributable to noncontrolling interests
|
|
2.2
|
|
|
2.5
|
|
|
4.7
|
|
Net income attributable to the Partnership
|
|
$
|
65.5
|
|
|
$
|
—
|
|
|
$
|
65.5
|
|
(1)
As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2017, including the effect of retrospectively adjusting for the May 2017 Acquisition.
(2)
Our Parents’ results of the December 2017 Acquisition for the three months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
Shell Midstream Partners, L.P.
(1)
|
|
December 2017 Acquisition
(2)
|
|
Consolidated Results
|
Revenue
|
|
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
|
$
|
110.8
|
|
|
$
|
8.1
|
|
|
$
|
118.9
|
|
Transportation, terminaling and storage services – related parties
|
|
52.6
|
|
|
31.3
|
|
|
83.9
|
|
Lease revenue – related parties
|
|
7.8
|
|
|
10.9
|
|
|
18.7
|
|
Total revenue
|
|
171.2
|
|
|
50.3
|
|
|
221.5
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Operations and maintenance – third parties
|
|
38.5
|
|
|
7.0
|
|
|
45.5
|
|
Operations and maintenance – related parties
|
|
18.2
|
|
|
5.5
|
|
|
23.7
|
|
General and administrative – third parties
|
|
4.6
|
|
|
1.1
|
|
|
5.7
|
|
General and administrative – related parties
|
|
16.6
|
|
|
7.1
|
|
|
23.7
|
|
Depreciation, amortization and accretion
|
|
19.1
|
|
|
3.5
|
|
|
22.6
|
|
Property and other taxes
|
|
7.6
|
|
|
1.5
|
|
|
9.1
|
|
Total costs and expenses
|
|
104.6
|
|
|
25.7
|
|
|
130.3
|
|
Operating income
|
|
66.6
|
|
|
24.6
|
|
|
91.2
|
|
Income from equity method investments
|
|
75.9
|
|
|
15.5
|
|
|
91.4
|
|
Dividend income from cost investments
|
|
13.5
|
|
|
6.0
|
|
|
19.5
|
|
Investment and dividend income
|
|
89.4
|
|
|
21.5
|
|
|
110.9
|
|
Interest expense, net
|
|
12.3
|
|
|
—
|
|
|
12.3
|
|
Income before income taxes
|
|
143.7
|
|
|
46.1
|
|
|
189.8
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income
|
|
143.7
|
|
|
46.1
|
|
|
189.8
|
|
Less: Net income attributable to Parent
|
|
3.0
|
|
|
41.0
|
|
|
44.0
|
|
Less: Net income attributable to noncontrolling interests
|
|
4.4
|
|
|
5.1
|
|
|
9.5
|
|
Net income attributable to the Partnership
|
|
$
|
136.3
|
|
|
$
|
—
|
|
|
$
|
136.3
|
|
(1)
As previously reported in our Quarterly Report on Form 10-Q for the six months ended June 30, 2017, including the effect of retrospectively adjusting for the May 2017 Acquisition.
(2)
Our Parents’ results of the December 2017 Acquisition for the six months ended June 30, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months Ended June 30, 2017
|
|
|
Shell Midstream Partners, L.P.
(1)
|
|
December 2017 Acquisition
(2)
|
|
Consolidated Results
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net income
|
|
$
|
143.7
|
|
|
$
|
46.1
|
|
|
$
|
189.8
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion
|
|
19.1
|
|
|
3.5
|
|
|
22.6
|
|
Non-cash interest expense
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Allowance oil reduction to net realizable value
|
|
0.3
|
|
|
—
|
|
|
0.3
|
|
Undistributed equity earnings
|
|
(1.5
|
)
|
|
(2.7
|
)
|
|
(4.2
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts receivable
|
|
(14.2
|
)
|
|
(0.3
|
)
|
|
(14.5
|
)
|
Allowance oil
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Prepaid expenses and other assets
|
|
1.8
|
|
|
0.1
|
|
|
1.9
|
|
Accounts payable
|
|
5.2
|
|
|
(0.6
|
)
|
|
4.6
|
|
Deferred revenue and other unearned income
|
|
10.4
|
|
|
—
|
|
|
10.4
|
|
Accrued liabilities
|
|
9.7
|
|
|
(1.3
|
)
|
|
8.4
|
|
Net cash provided by operating activities
|
|
175.3
|
|
|
44.8
|
|
|
220.1
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(20.9
|
)
|
|
(4.9
|
)
|
|
(25.8
|
)
|
Acquisitions from Parent
|
|
(210.6
|
)
|
|
—
|
|
|
(210.6
|
)
|
Purchase price adjustment
|
|
0.4
|
|
|
—
|
|
|
0.4
|
|
Return of investment
|
|
8.4
|
|
|
2.1
|
|
|
10.5
|
|
April 2017 Divestiture
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
Net cash used in investing activities
|
|
(221.9
|
)
|
|
(2.8
|
)
|
|
(224.7
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Net proceeds from public offerings
|
|
2.9
|
|
|
—
|
|
|
2.9
|
|
Borrowings under credit facility
|
|
580.0
|
|
|
—
|
|
|
580.0
|
|
Contributions from general partner
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
Proceeds from April 2017 Divestiture
|
|
20.2
|
|
|
—
|
|
|
20.2
|
|
Capital distributions to general partner
|
|
(419.4
|
)
|
|
—
|
|
|
(419.4
|
)
|
Distributions to noncontrolling interests
|
|
(6.6
|
)
|
|
(5.1
|
)
|
|
(11.7
|
)
|
Distributions to unitholders and general partner
|
|
(122.2
|
)
|
|
—
|
|
|
(122.2
|
)
|
Net distributions to Parent
|
|
(6.3
|
)
|
|
(36.9
|
)
|
|
(43.2
|
)
|
Other contributions from Parent
|
|
12.4
|
|
|
—
|
|
|
12.4
|
|
Credit facility issuance costs
|
|
(0.7
|
)
|
|
—
|
|
|
(0.7
|
)
|
Other
|
|
(0.3
|
)
|
|
—
|
|
|
(0.3
|
)
|
Net cash provided by (used in) financing activities
|
|
60.1
|
|
|
(42.0
|
)
|
|
18.1
|
|
Net increase in cash and cash equivalents
|
|
13.5
|
|
|
—
|
|
|
13.5
|
|
Cash and cash equivalents at beginning of the period
|
|
121.9
|
|
|
0.2
|
|
|
122.1
|
|
Cash and cash equivalents at end of the period
|
|
$
|
135.4
|
|
|
$
|
0.2
|
|
|
$
|
135.6
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
Non-cash investing and financing transactions
|
|
|
|
|
|
|
|
Distribution of working capital to Parent
|
|
$
|
(2.8
|
)
|
|
$
|
—
|
|
|
$
|
(2.8
|
)
|
Change in accrued capital expenditures
|
|
2.7
|
|
|
(0.9
|
)
|
|
1.8
|
|
Other non-cash contributions from Parent
|
|
1.1
|
|
|
—
|
|
|
1.1
|
|
(1)
As previously reported in our Quarterly Report on Form 10-Q for the six months ended June 30, 2017, including the effect of retrospectively adjusting for the May 2017 Acquisition.
(2)
Our Parents’ results of the December 2017 Acquisition for the six months ended June 30, 2017.
Divestiture
On April 28, 2017, Zydeco divested a small segment of its pipeline system (the “April 2017 Divestiture”) to SOPUS as part of the Motiva JV separation. The April 2017 Divestiture closed pursuant to a Pipeline Sale and Purchase Agreement (the “April 2017 Pipeline Sale and Purchase Agreement”) dated April 28, 2017 among Zydeco and SOPUS. We received
$21.0 million
in cash consideration for this sale, of which
$19.4 million
is attributable to the Partnership. The cash consideration represents
$0.8 million
for the book value of net assets divested and
$20.2 million
in excess proceeds received from our Parent. The April 2017 Pipeline Sale and Purchase Agreement contained customary representations and warranties and indemnification by SOPUS.
4. Related Party Transactions
Related party transactions include transactions with SPLC and Shell, including those entities in which Shell has an ownership interest but does not have control.
Acquisition Agreements
Refer to
Note 3—Acquisitions and Divestiture
for a description of applicable agreements. For a discussion of all other related party acquisition agreements, see
Note 4—Related Party Transactions
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report.
Omnibus Agreement
On November 3, 2014, we entered into an Omnibus Agreement with SPLC and our general partner concerning our payment of an annual general and administrative services fee to SPLC as well as our reimbursement of certain costs incurred by SPLC on our behalf. This agreement addresses the following matters:
|
|
•
|
our payment of an annual general and administrative fee of
$8.5 million
for the provision of certain services by SPLC;
|
|
|
•
|
our obligation to reimburse SPLC for certain direct or allocated costs and expenses incurred by SPLC on our behalf;
|
|
|
•
|
our obligation to reimburse SPLC for all expenses incurred by SPLC as a result of us becoming and continuing as a publicly traded entity; we will reimburse our general partner for these expenses to the extent the fees relating to such services are not included in the general and administrative fee; and
|
|
|
•
|
the granting of a license from Shell to us with respect to using certain Shell trademarks and trade names.
|
Under the Omnibus Agreement, SPLC indemnified us against certain enumerated risks. Of those two indemnity obligations, one expired in 2017 and one remains. Under the remaining indemnification, SPLC agreed to indemnify us against tax liabilities relating to our initial assets that are identified prior to the date that is
60
days after the expiration of the statute of limitations applicable to such liabilities. This obligation has no threshold or cap. We in turn agreed to indemnify SPLC against events and conditions associated with the ownership or operation of our initial assets (other than any liabilities against which SPLC is specifically required to indemnify us as described above).
During the
six
months ended
June 30, 2018
, neither we nor SPLC made any claims for indemnification under the Omnibus Agreement.
Tax Sharing Agreement
For a discussion of the Tax Sharing Agreement, see
Note 4—Related Party Transactions—Tax Sharing Agreement
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report.
Partnership Agreement
On February 26, 2018, Shell Midstream Partners GP LLC, the general partner of the Partnership, executed Amendment No. 1 to the Partnership’s Amended and Restated Agreement of Limited Partnership dated November 3, 2014 (the “Amendment”), in response to changes to the Internal Revenue Code enacted by the Bipartisan Budget Act of 2015 relating to partnership audit and adjustment procedures. The Amendment did not have a material effect on our unaudited condensed consolidated financial statements.
Noncontrolling Interests
For Zydeco, noncontrolling interest consists of SPLC’s
7.5%
retained ownership interest as of both
June 30, 2018
and
December 31, 2017
. For Odyssey, noncontrolling interest consists of GEL Offshore Pipeline LLC’s (“GEL”)
29.0%
retained ownership interest as of both
June 30, 2018
and
December 31, 2017
.
Other Related Party Balances
Other related party balances consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Accounts receivable
|
|
$
|
24.8
|
|
|
$
|
23.8
|
|
Prepaid expenses
|
|
4.9
|
|
|
11.9
|
|
Other assets
|
|
2.6
|
|
|
1.7
|
|
Accounts payable
(1)
|
|
12.6
|
|
|
11.6
|
|
Deferred revenue
|
|
6.7
|
|
|
13.9
|
|
Accrued liabilities
(2)
|
|
11.5
|
|
|
7.2
|
|
Debt payable
(3)
|
|
2,091.5
|
|
|
1,844.0
|
|
(1)
Accounts payable reflects amounts owed to SPLC for reimbursement of third party expenses incurred by SPLC for our benefit.
(2)
As of
June 30, 2018
, accrued liabilities reflects $
11.0 million
accrued interest and $
0.5 million
other accrued liabilities. As of December 31, 2017, accrued liabilities reflects $
6.6 million
accrued interest and $
0.6 million
other accrued liabilities.
(3)
Debt payable reflects borrowings outstanding after taking into account unamortized debt issuance costs of
$2.5 million
and
$2.9 million
as of
June 30, 2018
and
December 31, 2017
, respectively.
Related Party Credit Facilities
We have entered into
three
credit facilities with STCW: the
Five
Year Revolver due December 2022, the
Five
Year Revolver due October 2019 and the
Five
Year Fixed Facility. Zydeco has also entered into the Zydeco Revolver with STCW. For definitions and additional information regarding these credit facilities, see
Note 8—Related Party Debt
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report.
Related Party Revenues and Expenses
We provide crude oil transportation, terminaling and storage services to related parties, primarily under long-term contracts. We entered into these contracts in the normal course of our business. Related party revenues consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Transportation and terminaling services revenue – related parties
|
|
$
|
53.6
|
|
|
$
|
38.1
|
|
|
$
|
95.6
|
|
|
$
|
80.6
|
|
Product revenue – related parties
|
|
1.7
|
|
|
—
|
|
|
9.6
|
|
|
—
|
|
Storage services revenue – related parties
|
|
1.5
|
|
|
1.4
|
|
|
2.8
|
|
|
3.3
|
|
Lease revenue – related parties
|
|
14.1
|
|
|
13.2
|
|
|
27.9
|
|
|
18.7
|
|
Total revenue – related parties
|
|
$
|
70.9
|
|
|
$
|
52.7
|
|
|
$
|
135.9
|
|
|
$
|
102.6
|
|
We have certain transportation and terminaling services agreements with related parties that are considered operating leases under GAAP. Certain of these agreements were entered into for terms of
ten years
with the option to extend for
two
additional
five
year terms, and we have additional agreements with an initial term of
ten years
with the option to extend for up to
ten
additional
one
year terms. As of
June 30, 2018
, future minimum payments to be received under the
ten
-year contract term of these operating leases, which includes both the lease and non-lease service components of these leases, are estimated to be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than 1 year
|
|
Years 2 to 3
|
|
Years 4 to 5
|
|
More than 5 years
|
Operating leases
|
|
$
|
974.8
|
|
|
$
|
106.4
|
|
|
$
|
212.8
|
|
|
$
|
212.8
|
|
|
$
|
442.8
|
|
Beginning July 1, 2014, Zydeco entered into the Management Agreement with SPLC under which SPLC provides general management and administrative services to us. We no longer receive allocated corporate expenses from SPLC or Shell under this agreement. We will continue to receive direct and allocated field and regional expenses, including payroll expenses not covered under the Management Agreement. In addition, beginning October 1, 2015, Pecten entered into an operating and management agreement under which we receive direct and allocated field and regional expenses from SPLC. Beginning May 10, 2017, Sand Dollar entered into an operating and management agreement under which we receive direct and allocated expenses from SPLC. On December 1, 2017, our general partner, SPLC and Triton entered into an operating and administrative management agreement pursuant to which we receive direct and allocated expenses from our general partner. On December 1, 2017, our general partner, SPLC and Odyssey entered into an operating and administrative management agreement pursuant to which we receive direct and allocated expenses from our general partner. The expenses under these agreements are primarily allocated to us on the basis of headcount, labor or other measure. These expense allocations have been determined on a basis that both SPLC and we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented. For a discussion of these agreements, see
Note 4—Related Party Transactions
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report.
The majority of our insurance coverage is provided by a wholly owned subsidiary of Shell with the remaining coverage provided by third-party insurers. The related party portion of insurance expense for the
three and six
months ended
June 30, 2018
was
$3.7 million
and
$7.3 million
, respectively, and for the
three and six
months ended
June 30, 2017
was
$1.4 million
and
$3.4 million
, respectively.
The following table shows related party expenses, including personnel costs described above, incurred by Shell and SPLC on our behalf that are reflected in the accompanying unaudited condensed consolidated statements of income for the indicated periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Operations and maintenance – related parties
|
|
$
|
13.3
|
|
|
$
|
10.0
|
|
|
$
|
26.7
|
|
|
$
|
23.7
|
|
General and administrative – related parties
|
|
13.9
|
|
|
11.6
|
|
|
26.8
|
|
|
23.7
|
|
For a discussion of services performed by Shell on our behalf, see
Note 1 - Description of Business and Basis of Presentation - Basis of Presentation
in the
Notes to Consolidated Financial Statements
of our 2017 Annual Report. Pursuant to various operating and administrative management agreements described above, we are allocated indirect operating and general corporate expenses from Shell. Our allocated share of operating expenses, which are included within operations and maintenance – related parties, for the
three and six
months ended
June 30, 2018
were
$3.0 million
and
$7.4 million
, respectively, and for the three and six months ended
June 30, 2017
were
$3.4 million
and
$7.6 million
, respectively. Additionally, our allocated share of general corporate expenses, which are included within general and administrative expenses – related parties, during the
three and six
months ended
June 30, 2018
were
$8.3 million
and
$15.9 million
, respectively, and for the
three and six
months ended
June 30, 2017
were
$6.3 million
and
$13.5 million
, respectively. Included in these general and administrative expenses for the
three and six
months ended
June 30, 2018
are
$2.2 million
and
$4.3 million
, respectively, under the Management Agreement and
$2.1 million
and
$4.2 million
, respectively, under the Omnibus Agreement. Included in these general and administrative expenses for the
three and six
months ended
June 30, 2017
are
$2.0 million
and
$4.0 million
, respectively, under the Management Agreement and
$2.1 million
and
$4.2 million
, respectively, under the Omnibus Agreement.
Pension and Retirement Savings Plans
Employees who directly or indirectly support our operations participate in the pension, postretirement health and life insurance, and defined contribution benefit plans sponsored by Shell, which include other Shell subsidiaries. Our share of pension and postretirement health and life insurance costs for the
three and six
months ended
June 30, 2018
were
$1.7 million
and
$3.3 million
, respectively, and for the
three and six
months ended
June 30, 2017
were
$1.5 million
and
$3.1 million
, respectively. Our share of defined contribution benefit plan costs for both the
three and six
months ended
June 30, 2018
were
$0.7 million
and
$1.3 million
, respectively, and for the
three and six
months ended
June 30, 2017
were
$0.6 million
and
$1.2 million
, respectively. Pension and defined contribution benefit plan expenses are included in either general and administrative expenses
- related parties or operations and maintenance expenses - related parties in the accompanying unaudited condensed consolidated statements of income, depending on the nature of the employee’s role in our operations.
Equity and Cost Method Investments
We have equity and cost method investments in entities, including Colonial and Explorer, in which SPLC also owns interests. In some cases, we may be required to make capital contributions or other payments to these entities. See
Note 5 – Equity Method Investments
for additional details.
Reimbursements
The following table reflects reimbursements from our Parent for the
three and six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Cash received
(1)
|
|
$
|
4.8
|
|
|
$
|
6.8
|
|
|
$
|
5.9
|
|
|
$
|
9.4
|
|
Changes in receivable from Parent
(2)
|
|
(3.1
|
)
|
|
(2.7
|
)
|
|
0.2
|
|
|
1.1
|
|
Total reimbursements
(3)
|
|
$
|
1.7
|
|
|
$
|
4.1
|
|
|
$
|
6.1
|
|
|
$
|
10.5
|
|
(1)
These reimbursements are included in Other contributions from Parent in the accompanying consolidated statements of cash flows.
(2)
These reimbursements are included in Other non-cash contributions from Parent in the accompanying consolidated statements of cash flows.
(3)
These reimbursements are included in Other contributions from Parent in the accompanying consolidated statements of equity (deficit) and are exclusive of
$1.6 million
for the
six
months ended
June 30, 2018
related to contributions from Parent.
During the
three and six
months ended
June 30, 2018
, we filed claims for reimbursement from our Parent of
$1.7 million
and
$6.1 million
. This reflects our proportionate share of the Zydeco directional drill project costs and expenses. During the
three and six
months ended June 30, 2017, we filed claims for reimbursement from our parent of
$4.1 million
and
$10.5 million
, respectively. This reflects our proportionate share of Zydeco directional drill project costs and expenses of
$3.5 million
and
$9.9 million
, respectively. Additionally, this includes reimbursement for the Refinery Gas Pipeline gas to butane service conversion project of
$0.6 million
for both the three and six months ended June 30, 2017.
5. Equity Method Investments
For each of the following investments, we have the ability to exercise significant influence over these investments based on certain governance provisions and our participation in the significant activities and decisions that impact the management and economic performance of the investments.
Equity method investments comprise the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Ownership
|
|
Investment Amount
|
|
Ownership
|
|
Investment Amount
|
Amberjack – Series A / Series B
|
|
75.0% / 50.0%
|
|
$
|
465.7
|
|
|
—%
|
|
$
|
—
|
|
Mars
|
|
71.5%
|
|
168.9
|
|
|
71.5%
|
|
187.4
|
|
Bengal
|
|
50.0%
|
|
80.6
|
|
|
50.0%
|
|
79.7
|
|
Permian Basin
|
|
50.0%
|
|
61.5
|
|
|
50.0%
|
|
49.4
|
|
LOCAP
|
|
41.48%
|
|
8.4
|
|
|
41.48%
|
|
6.9
|
|
Poseidon
|
|
36.0%
|
|
—
|
|
|
36.0%
|
|
2.3
|
|
Proteus
|
|
10.0%
|
|
16.8
|
|
|
10.0%
|
|
17.4
|
|
Endymion
|
|
10.0%
|
|
19.0
|
|
|
10.0%
|
|
19.5
|
|
|
|
|
|
$
|
820.9
|
|
|
|
|
$
|
362.6
|
|
Unamortized differences in the basis of the initial investments and our interest in the separate net assets within the financial statements of the investees are amortized into net income over the remaining useful lives of the underlying assets. As of
June 30, 2018
and
December 31, 2017
, the unamortized basis differences included in our equity investments are
$42.2 million
and
$41.4 million
, respectively. For the
three and six
months ended
June 30, 2018
, the net amortization expense was
$0.9
million
and
$1.9 million
, respectively, and for the
three and six
months ended
June 30, 2017
, the net amortization expense was
$0.9 million
and
$1.9 million
, respectively.
During the first quarter of 2018, the investment amount for Poseidon was reduced to
zero
due to distributions received that were in excess of our investment balance and we, therefore, suspended the equity method of accounting. As we have no commitments to provide further financial support to Poseidon, we have recorded excess distributions of
$8.9 million
and
$9.6 million
, respectively, in Other income in our unaudited condensed consolidated statement of income for the three and six months ended June 30, 2018. Once our cumulative share of equity earnings becomes greater than the amount of distributions received, we will resume the equity method of accounting as long as the equity method investment balance remains greater than zero.
Our equity method investments balance was affected by the following during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
Six Months Ended June 30, 2018
|
|
|
Distributions Received
|
|
Income from Equity Investments
|
|
Distributions Received
|
|
Income from Equity Investments
|
|
Impact of Change in Accounting Policy
|
Amberjack
(1)
|
|
$
|
31.9
|
|
|
$
|
16.0
|
|
|
$
|
31.9
|
|
|
$
|
16.0
|
|
|
$
|
—
|
|
Mars
|
|
25.4
|
|
|
21.2
|
|
|
57.6
|
|
|
46.0
|
|
|
(6.9
|
)
|
Bengal
|
|
4.9
|
|
|
5.4
|
|
|
8.9
|
|
|
9.8
|
|
|
—
|
|
Poseidon
(2)
|
|
8.9
|
|
|
—
|
|
|
18.3
|
|
|
6.4
|
|
|
—
|
|
Other
(3)
|
|
6.3
|
|
|
5.8
|
|
|
11.8
|
|
|
10.4
|
|
|
—
|
|
|
|
$
|
77.4
|
|
|
$
|
48.4
|
|
|
$
|
128.5
|
|
|
$
|
88.6
|
|
|
$
|
(6.9
|
)
|
(1)
We acquired an interest in Amberjack in the May 2018 Acquisition. The acquisition of this interest has been accounted for prospectively.
(2)
As stated above, the equity method of accounting has been suspended for Poseidon and excess distributions are recorded as Other Income.
(3)
Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion. We acquired a
50.0%
interest in Permian Basin in October 2017 from a third party. The acquisition of this interest has been accounted for prospectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
Six Months Ended June 30, 2017
|
|
|
Distributions Received
|
|
Income from Equity Investments
|
|
Distributions Received
|
|
Income from Equity Investments
|
|
Purchase Price Adjustment
|
Mars
(1)
|
|
$
|
27.9
|
|
|
$
|
29.7
|
|
|
$
|
62.2
|
|
|
$
|
61.3
|
|
|
$
|
—
|
|
Bengal
|
|
4.6
|
|
|
5.4
|
|
|
9.3
|
|
|
10.7
|
|
|
—
|
|
Poseidon
|
|
9.3
|
|
|
6.4
|
|
|
19.3
|
|
|
13.2
|
|
|
—
|
|
Other
(2)
|
|
5.3
|
|
|
3.2
|
|
|
6.9
|
|
|
6.2
|
|
|
(0.4
|
)
|
|
|
$
|
47.1
|
|
|
$
|
44.7
|
|
|
$
|
97.7
|
|
|
$
|
91.4
|
|
|
$
|
(0.4
|
)
|
(1)
We acquired an additional
22.9%
interest in Mars in the December 2017 Acquisition. The financial information presented for the three and six months ended June 30, 2017 has been retrospectively adjusted for the incremental ownership acquired.
(2)
Included in Other is the activity associated with our investments in LOCAP, Proteus and Endymion. We acquired a
41.48%
interest in LOCAP in the December 2017 Acquisition. The financial information presented for the three and six months ended June 30, 2017 has been retrospectively adjusted for the ownership acquired.
See
Note 3 - Acquisitions and Divestiture
for additional information regarding the acquisitions of our equity investments. We acquired an additional
22.0%
interest in Odyssey on December 1, 2017, which is now being consolidated for all periods presented in these financial statements.
The adoption date of the new revenue standard for the majority of our equity method investments will follow the non-public business entity adoption date of January 1, 2019 for their stand-alone financial statements, with the exception of Mars and Permian Basin. As a result of adoption of the new revenue standard on January 1, 2018, we recognized our proportionate share of cumulative effect transition adjustments as a decrease to equity (deficit) in the amount of
$6.9 million
under the modified retrospective transition method, which was due to the Mars transition adjustment on its transportation and dedication agreements which resulted in a deferral of revenue.
Summarized Financial Information
The following tables present aggregated selected unaudited income statement data for our equity method investments (on a 100% basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
Amberjack
(1)
|
|
$
|
69.9
|
|
|
$
|
17.5
|
|
|
$
|
52.4
|
|
|
$
|
52.5
|
|
Mars
|
|
51.8
|
|
|
21.3
|
|
|
30.5
|
|
|
30.5
|
|
Bengal
|
|
18.1
|
|
|
7.4
|
|
|
10.7
|
|
|
10.7
|
|
Poseidon
|
|
27.3
|
|
|
7.9
|
|
|
19.4
|
|
|
17.4
|
|
Other
(2)
|
|
38.8
|
|
|
14.7
|
|
|
24.1
|
|
|
21.4
|
|
(1)
Although our interest in Amberjack was acquired on May 11, 2018, the financial results for the full three months ended June 30, 2018 is presented for comparability.
(2)
Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
Amberjack
(1)
|
|
$
|
132.0
|
|
|
$
|
36.2
|
|
|
$
|
95.8
|
|
|
$
|
95.9
|
|
Mars
|
|
109.0
|
|
|
43.0
|
|
|
66.0
|
|
|
66.0
|
|
Bengal
|
|
33.5
|
|
|
14.2
|
|
|
19.3
|
|
|
19.3
|
|
Poseidon
|
|
56.2
|
|
|
16.5
|
|
|
39.7
|
|
|
36.0
|
|
Other
(2)
|
|
75.4
|
|
|
30.2
|
|
|
45.2
|
|
|
40.2
|
|
(1)
Although our interest in Amberjack was acquired on May 11, 2018, the financial results for the full six months ended June 30, 2018 is presented for comparability.
(2)
Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
66.4
|
|
|
$
|
24.3
|
|
|
$
|
42.1
|
|
|
$
|
42.1
|
|
Bengal
|
|
18.1
|
|
|
7.1
|
|
|
11.0
|
|
|
10.9
|
|
Poseidon
|
|
28.5
|
|
|
8.5
|
|
|
20.0
|
|
|
18.6
|
|
Other
(1)
|
|
29.8
|
|
|
10.2
|
|
|
19.6
|
|
|
14.7
|
|
(1)
Included in Other is the activity associated with our investments in LOCAP, Proteus and Endymion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
131.3
|
|
|
$
|
44.2
|
|
|
$
|
87.1
|
|
|
$
|
87.1
|
|
Bengal
|
|
35.9
|
|
|
14.3
|
|
|
21.6
|
|
|
21.5
|
|
Poseidon
|
|
57.4
|
|
|
16.6
|
|
|
40.8
|
|
|
38.0
|
|
Other
(1)
|
|
58.8
|
|
|
20.0
|
|
|
38.8
|
|
|
29.8
|
|
(1)
Included in Other is the activity associated with our investments in LOCAP, Proteus and Endymion.
Capital Contributions
In accordance with the Member Interest Purchase Agreement entered into in conjunction with the acquisition of Permian Basin in October 2017, we will make capital contributions for our pro rata interest in Permian Basin to fund capital and other expenditures, as approved by supermajority (
75%
) vote of the members. We made capital contributions of
$14.0 million
in the second quarter of 2018.
6. Property, Plant and Equipment
Property, plant and equipment consist of the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable
Life
|
|
June 30, 2018
|
|
December 31, 2017
|
Land
|
|
—
|
|
|
$
|
8.2
|
|
|
$
|
8.2
|
|
Building and improvements
|
|
10 - 40 years
|
|
|
38.9
|
|
|
38.9
|
|
Pipeline and equipment
(1)
|
|
10 - 30 years
|
|
|
1,155.8
|
|
|
1,153.6
|
|
Other
|
|
5 - 25 years
|
|
|
17.8
|
|
|
17.8
|
|
|
|
|
|
1,220.7
|
|
|
1,218.5
|
|
Accumulated depreciation and amortization
(2)
|
|
|
|
(548.5
|
)
|
|
(526.1
|
)
|
|
|
|
|
672.2
|
|
|
692.4
|
|
Construction in progress
|
|
|
|
69.0
|
|
|
44.1
|
|
Property, plant and equipment, net
|
|
|
|
$
|
741.2
|
|
|
$
|
736.5
|
|
(1)
As of
June 30, 2018
and December 31, 2017, includes cost of
$357.9 million
and
$353.7 million
, respectively, related to assets under operating lease (as lessor), which commenced in
May 2017
and December 2017. As of both
June 30, 2018
and December 31, 2017, includes cost of
$22.8 million
related to assets under capital lease (as lessee).
(2)
As of
June 30, 2018
and December 31, 2017, includes accumulated depreciation of
$111.2 million
and
$104.7 million
, respectively, related to assets under operating lease (as lessor), which commenced in
May 2017
and December 2017. As of
June 30, 2018
and December 31, 2017, includes accumulated depreciation of
$3.7 million
and
$3.0 million
, respectively, related to assets under capital lease (as lessee).
Depreciation and amortization expense on property, plant and equipment for the
three and six
months ended
June 30, 2018
was
$11.4 million
and
$22.8 million
, respectively, and for the
three and six
months ended
June 30, 2017
was
$11.3 million
and
$22.6 million
, respectively. Depreciation and amortization expense is included in cost and expenses in the accompanying condensed consolidated statements of income. Depreciation and amortization expense on property, plant and equipment includes amounts pertaining to assets under operating (as lessor) and capital leases (as lessee).
7. Accrued Liabilities
–
Third Parties
Accrued liabilities – third parties consist of the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Transportation, project engineering
|
|
$
|
15.1
|
|
|
$
|
6.0
|
|
Property taxes
|
|
9.2
|
|
|
4.2
|
|
Other accrued liabilities
|
|
2.2
|
|
|
2.5
|
|
Total accrued liabilities
–
third parties
|
|
$
|
26.5
|
|
|
$
|
12.7
|
|
See
Note 4—Related Party Transactions
for a discussion of accrued liabilities – related parties.
8. Related Party Debt
Consolidated related party debt obligations comprise the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
|
Outstanding Balance
|
|
Total Capacity
|
|
Available Capacity
|
|
Outstanding Balance
|
|
Total Capacity
|
|
Available Capacity
|
Five Year Revolver due December 2022
|
|
$
|
1,000.0
|
|
|
$
|
1,000.0
|
|
|
$
|
—
|
|
|
$
|
1,000.0
|
|
|
$
|
1,000.0
|
|
|
$
|
—
|
|
Five Year Fixed Facility
|
|
600.0
|
|
|
600.0
|
|
|
—
|
|
|
600.0
|
|
|
600.0
|
|
|
—
|
|
Five Year Revolver due October 2019
(1)
|
|
494.0
|
|
|
760.0
|
|
|
266.0
|
|
|
246.9
|
|
|
760.0
|
|
|
513.1
|
|
Zydeco Revolver
|
|
—
|
|
|
30.0
|
|
|
30.0
|
|
|
—
|
|
|
30.0
|
|
|
30.0
|
|
Unamortized debt issuance costs
|
|
(2.5
|
)
|
|
n/a
|
|
|
n/a
|
|
|
(2.9
|
)
|
|
n/a
|
|
|
n/a
|
|
Debt payable – related party
|
|
$
|
2,091.5
|
|
|
$
|
2,390.0
|
|
|
$
|
296.0
|
|
|
$
|
1,844.0
|
|
|
$
|
2,390.0
|
|
|
$
|
543.1
|
|
(1) On August 1, 2018, the Partnership extended the maturity date. See
Note 13
–
Subsequent Events
for additional information.
For the
three and six
months ended
June 30, 2018
, interest and fee expenses associated with our borrowings were
$12.9 million
and
$22.9 million
, respectively, of which we paid
$7.4 million
and
$18.5 million
, respectively. For the
three and six
months ended
June 30, 2017
, interest and fee expenses associated with our borrowings were
$6.7 million
and
$10.7 million
, respectively, of which we paid
$4.0 million
and
$7.7 million
, respectively.
Borrowings under our revolving credit facilities approximate fair value as the interest rates are variable and reflective of market rates, which results in a Level 2 instrument. The fair value of our Loan Facility Agreement with STCW with a borrowing capacity of
$600.0 million
(the “
Five
Year Fixed Facility”) is estimated based on the published market prices for issuances of similar risk and tenor and is categorized as a Level 2 instrument. As of
June 30, 2018
, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was
$2,094.0 million
and
$2,088.5 million
, respectively. As of
December 31, 2017
, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was
$1,846.9 million
and
$1,858.4 million
, respectively.
On May 11, 2018, we funded the May 2018 Acquisition with
$494.0 million
in borrowings under our
five
year revolving credit facility with STCW due October 2019 (the “
Five
Year Revolver due October 2019”) and
$726.0 million
in borrowings under our five year credit facility due December 2022 (the “
Five
Year Revolver due December 2022”).
On February 6, 2018, we used net proceeds from sales of common units and from our general partner’s proportionate capital contribution to repay
$246.9 million
of borrowings outstanding under our Five Year Revolver due October 2019 and
$726.0 million
of borrowings outstanding under our Five Year Revolver due December 2022.
For additional information on our credit facilities, refer to
Note 8 – Related Party Debt
in the
Notes to Consolidated Financial Statements
in our 2017 Annual Report.
Borrowings and repayments under our credit facilities for the
six
months ended
June 30, 2018
and
2017
are disclosed in our unaudited condensed consolidated statements of cash flows. See
Note 3 – Acquisitions and Divestiture
for additional information regarding our use of borrowings. See
Note 9 – Equity (Deficit)
for additional information regarding the source of our repayments.
9. Equity (Deficit)
Our capital accounts are comprised of
2%
general partner interests and
98%
limited partner interests. The common units represent limited partner interests in us. The holders of common units, both public and SPLC, are entitled to participate in partnership distributions and have limited rights of ownership as provided for under our partnership agreement. Our general partner participates in our distributions and also currently holds incentive distribution rights (“IDR’s”) that entitle it to receive increasing percentages of the cash we distribute from operating surplus.
At-the-Market Program
On March 2, 2016, we commenced an “at-the-market” equity distribution program pursuant to which we may issue and sell common units for up to
$300.0 million
in gross proceeds.
During the
six
months ended
June 30, 2018
, we did not have any sales under this program.
During the quarter ended June 30, 2017, we completed the sale of
94,925
common units under this program for
$2.9 million
net proceeds (
$3.0 million
gross proceeds, or an average price of
$31.51
per common unit, less
$0.1 million
of transaction fees). In connection with the issuance of the common units, we issued
1,938
general partner units to our general partner for
$0.1 million
in order to maintain its
2%
general partner interest in us. We used proceeds from these sales of common units and from our general partner's proportionate capital contribution for general partnership purposes.
Public Offering and Private Placement
On February 6, 2018, we completed the sale of
25,000,000
common units in a registered public offering for
$673.3 million
net proceeds (
$680.0 million
gross proceeds, or
$27.20
per common unit, less
$6.0 million
of underwriter’s fees and
$0.7 million
of transaction fees). In connection with the issuance of common units, we issued
510,204
general partner units to our general partner for
$13.9 million
in order to maintain its
2%
general partner interest in us. On February 6, 2018, we also completed the sale of
11,029,412
common units in a private placement with Shell Midstream LP Holdings LLC, an indirect subsidiary of Shell, for an aggregate purchase price of
$300.0 million
, or
$27.20
per common unit. In connection with the issuance of the common units, we issued
225,091
general partner units to the general partner for
$6.1 million
in order to maintain its
2%
general partner interest in us.
We used net proceeds from sales of common units and from our general partner’s proportionate capital contribution to repay
$246.9 million
of borrowings outstanding under the
Five
Year Revolver due October 2019 and
$726.0 million
of borrowings outstanding under the
Five
Year Revolver due December 2022, as well as for general partnership purposes.
Units Outstanding
As of
June 30, 2018
, we had
223,811,781
common units outstanding, of which
123,832,233
were publicly owned. SPLC owned
99,979,548
common units, representing an aggregate
43.8%
limited partner interest in us, all of the incentive distribution rights, and
4,567,588
general partner units, representing a
2.0%
general partner interest in us.
The changes in the number of units outstanding from
December 31, 2017
through
June 30, 2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
|
|
SPLC
|
|
General
|
|
|
(in units)
|
|
Common
|
|
Common
|
|
Partner
|
|
Total
|
Balance as of December 31, 2017
|
|
98,832,233
|
|
|
88,950,136
|
|
|
3,832,293
|
|
|
191,614,662
|
|
Units issued in connection with equity offerings
|
|
25,000,000
|
|
|
11,029,412
|
|
|
735,295
|
|
|
36,764,707
|
|
Balance as of June 30, 2018
|
|
123,832,233
|
|
|
99,979,548
|
|
|
4,567,588
|
|
|
228,379,369
|
|
Expiration of Subordination Period
On February 15, 2017, all of the subordinated units converted into common units following the payment of the cash distribution for the fourth quarter of 2016. Each of our
67,475,068
outstanding subordinated units converted into
one
common unit. The converted units participated pro rata with the other common units in distributions of available cash. The conversion of the subordinated units did not impact the amount of cash distributions paid by us or the total number of outstanding units.
Distributions to our Unitholders
The following table details the distributions declared and/or paid for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Paid or
|
|
|
|
Public
|
|
SPLC
|
|
SPLC
|
|
General Partner
|
|
|
|
Distributions
per Limited
Partner Unit
|
to be Paid
|
|
Three Months Ended
|
|
Common
|
|
Common
|
|
Subordinated
|
|
IDR's
|
|
2%
|
|
Total
|
|
|
|
|
|
(in millions, except per unit amounts)
|
February 14, 2017
|
|
December 31, 2016
|
|
$
|
24.5
|
|
|
$
|
5.9
|
|
|
$
|
18.7
|
|
|
$
|
8.3
|
|
|
$
|
1.2
|
|
|
$
|
58.6
|
|
|
$
|
0.27700
|
|
May 12, 2017
|
|
March 31, 2017
|
|
25.7
|
|
|
25.9
|
|
|
—
|
|
|
10.7
|
|
|
1.3
|
|
|
63.6
|
|
|
0.29100
|
|
August 14, 2017
|
|
June 30, 2017
|
|
26.9
|
|
|
27.0
|
|
|
—
|
|
|
12.9
|
|
|
1.4
|
|
|
68.2
|
|
|
0.30410
|
|
November 14, 2017
|
|
September 30, 2017
|
|
31.4
|
|
|
28.3
|
|
|
—
|
|
|
16.2
|
|
|
1.5
|
|
|
77.4
|
|
|
0.31800
|
|
February 14, 2018
|
|
December 31, 2017
|
|
32.9
|
|
|
29.6
|
|
|
—
|
|
|
18.9
|
|
|
1.7
|
|
|
83.1
|
|
|
0.33300
|
|
May 15, 2018
|
|
March 31, 2018
|
|
43.1
|
|
|
34.8
|
|
|
—
|
|
|
25.7
|
|
|
2.1
|
|
|
105.7
|
|
|
0.34800
|
|
August 14, 2018
|
|
June 30, 2018
(1)
|
|
45.2
|
|
|
36.5
|
|
|
—
|
|
|
29.4
|
|
|
2.3
|
|
|
113.4
|
|
|
0.36500
|
|
(1)
For more information see
Note 13
—
Subsequent Events
.
Distributions to Noncontrolling Interests
Distributions to SPLC for its noncontrolling interest in Zydeco for both the
three and six
months ended
June 30, 2018
were
$2.9 million
, and for the
three and six
months ended
June 30, 2017
were
$3.4 million
and
$6.6 million
, respectively. Distributions to GEL for its noncontrolling interest in Odyssey for the
three and six
months ended
June 30, 2018
were
$1.8 million
and
$3.7 million
, respectively, and for the
three and six
months ended
June 30, 2017
were
$2.6 million
and
$5.1 million
, respectively. See
Note 4—Related Party Transactions
for additional details.
10. Net Income Per Limited Partner Unit
Net income per unit applicable to common limited partner units, and to subordinated limited partner units in periods prior to the expiration of the subordination period, is computed by dividing the respective limited partners’ interest in net income attributable to the Partnership for the period by the weighted average number of common units and subordinated units, respectively, outstanding for the period. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, general partner units and IDR’s. Basic and diluted net income per unit are the same because we do not have any potentially dilutive units outstanding for the period presented.
Our net income includes earnings related to businesses acquired through transactions between entities under common control for periods prior to their acquisition by us. We have allocated these pre-acquisition earnings to our general partner.
The following tables show the allocation of net income attributable to the Partnership to arrive at net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net income
|
|
$
|
115.4
|
|
|
$
|
91.7
|
|
|
$
|
180.2
|
|
|
$
|
189.8
|
|
Less:
|
|
|
|
|
|
|
|
|
Net income attributable to Parent
|
|
—
|
|
|
21.5
|
|
|
—
|
|
|
44.0
|
|
Net income attributable to noncontrolling interests
|
|
4.7
|
|
|
4.7
|
|
|
5.5
|
|
|
9.5
|
|
Net income attributable to the Partnership
|
|
110.7
|
|
|
65.5
|
|
|
174.7
|
|
|
136.3
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
General Partner’s distribution declared
|
|
31.7
|
|
|
14.3
|
|
|
59.5
|
|
|
26.3
|
|
Limited Partners’ distribution declared on common units
|
|
81.7
|
|
|
53.9
|
|
|
159.6
|
|
|
105.5
|
|
Income (less than) / in excess of distributions
|
|
$
|
(2.7
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
(44.4
|
)
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
|
|
General Partner
|
|
Limited Partners
’
Common Units
|
|
Total
|
|
|
(in millions of dollars, except per unit data)
|
Distributions declared
|
|
$
|
31.7
|
|
|
$
|
81.7
|
|
|
$
|
113.4
|
|
Distributions in excess of income
|
|
(0.1
|
)
|
|
(2.6
|
)
|
|
(2.7
|
)
|
Net income attributable to the Partnership
|
|
$
|
31.6
|
|
|
$
|
79.1
|
|
|
$
|
110.7
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
223.8
|
|
|
|
Net income per Limited Partner Unit (in dollars):
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
|
|
General Partner
|
|
Limited Partners
’
Common Units
|
|
Total
|
|
|
(in millions of dollars, except per unit data)
|
Distributions declared
|
|
$
|
59.5
|
|
|
$
|
159.6
|
|
|
$
|
219.1
|
|
Distributions in excess of income
|
|
(0.9
|
)
|
|
(43.5
|
)
|
|
(44.4
|
)
|
Net income attributable to the Partnership
|
|
$
|
58.6
|
|
|
$
|
116.1
|
|
|
$
|
174.7
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
216.7
|
|
|
|
Net income per Limited Partner Unit (in dollars):
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
$
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
|
|
General Partner
|
|
Limited Partners
’
Common Units
|
|
Total
|
|
|
(in millions of dollars, except per unit data)
|
Distributions declared
|
|
$
|
14.3
|
|
|
$
|
53.9
|
|
|
$
|
68.2
|
|
Income in excess of distributions
|
|
—
|
|
|
(2.7
|
)
|
|
(2.7
|
)
|
Net income attributable to the Partnership
|
|
$
|
14.3
|
|
|
$
|
51.2
|
|
|
$
|
65.5
|
|
Weighted average units outstanding (in millions)
(1)
:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
177.4
|
|
|
|
|
Net income per Limited Partner Unit (in dollars):
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
$
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
|
|
General Partner
|
|
Limited Partners
’
Common Units
|
|
Total
|
|
|
(in millions of dollars, except per unit data)
|
Distributions declared
|
|
$
|
26.3
|
|
|
$
|
105.5
|
|
|
$
|
131.8
|
|
Income in excess of distributions
|
|
0.1
|
|
|
4.4
|
|
|
4.5
|
|
Net income attributable to the Partnership
|
|
$
|
26.4
|
|
|
$
|
109.9
|
|
|
$
|
136.3
|
|
Weighted average units outstanding (in millions)
(1)
:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
177.3
|
|
|
|
Net income per Limited Partner Unit (in dollars):
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
|
|
$
|
0.62
|
|
|
|
|
(1)
The subordinated units converted into common units on February 15, 2017 and were considered outstanding common units for the entire period with respect to the weighted average number of units outstanding.
11. Income Taxes
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income are generally borne by our partners through the allocation of taxable income. Our income tax expense results from partnership activity in the state of Texas, as conducted by Zydeco, Sand Dollar and Triton. Income tax expense for both the
three and six
months ended
June 30, 2018
and 2017 was immaterial.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law by President Trump. The TCJA makes broad and complex changes to the Internal Revenue Code of 1986, including, but not limited to, (1) creating a new deduction on certain pass-through income to individual partners; (2) repealing the partnership technical termination rule; (3) creating new limitations on certain deductions and credits, including interest expense deductions; and (4) reducing the highest marginal U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. With the exception of the operations of Colonial, Explorer and LOCAP, which are treated as corporations for federal income tax purposes, the operations of the Partnership are not subject to federal income tax, and therefore, we believe the TCJA will not have a material impact to the Partnership for 2018.
12. Commitments and Contingencies
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations. We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are probable and reasonably estimable.
As of both
June 30, 2018
and
December 31, 2017
, we had
$0.3 million
of accrued liabilities associated with environmental clean-up costs. This accrued liability relates to a Consent Decree issued in 1998 by the State of Washington Department of Ecology with respect to our products terminal located in Seattle, Washington. The costs relate to ongoing groundwater compliance monitoring and other remedial activities.
Legal Proceedings
We are named defendants in lawsuits and governmental proceedings that arise in the ordinary course of business. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we do not expect that the ultimate resolution of these matters will have a material adverse effect on our financial position, operating results, or cash flows.
Indemnification
Under our Omnibus Agreement, certain environmental liabilities, tax liabilities, litigation and other matters attributable to the ownership or operation of our assets prior to the IPO are indemnified by SPLC. Other than tax liabilities for which the statute of limitations has not expired, the obligations of SPLC under the Omnibus Agreement expired prior to 2018. See
Note 4 - Related Party Transactions
for additional information.
Minimum Throughput
On September 1, 2016, the in-service date of the capital lease for the Port Neches storage tanks, a joint tariff agreement with a third party became effective and requires monthly payments of approximately
$0.4 million
. The tariff will be reviewed annually and the rate updated based on the Federal Energy Regulatory Commission (“FERC”) indexing adjustment effective July 1 of each year. Effective July 1, 2018, there was an approximately
4.4%
increase to this rate based on FERC indexing adjustment. The initial term of the agreement is
ten years
with automatic
one year
renewal terms with the option to cancel prior to each renewal period.
Other Commitments
We hold cancelable easements or rights-of-way arrangements from landowners permitting the use of land for the construction and operation of our pipeline systems. Obligations under these easements are not material to the results of our operations.
Leases
We have an operating lease for land, lease of platform space, tie-in agreement and a capital lease for storage tanks. See
Note 9 –Leases
in the
Notes to Consolidated Financial Statements
in our 2017 Annual Report for additional information relating to our lease obligations
.
13. Subsequent Events
We have evaluated events that have occurred after
June 30, 2018
through the issuance of these unaudited condensed consolidated financial statements. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the unaudited condensed consolidated financial statements and accompanying notes.
Distribution
On
July 25, 2018
, the Board declared a cash distribution of
$0.365
per limited partner unit for the three months ended
June 30, 2018
. The distribution will be paid on
August 14, 2018
to unitholders of record as of
August 6, 2018
.
Credit Facility Agreements
On July 31, 2018, we entered into a
seven
-year fixed rate credit facility with STCW with a borrowing capacity of
$600.0 million
(the “
Seven
Year Fixed Facility”). We incurred an issuance fee of
$1.3 million
, which will be paid on or about August 7, 2018. The
Seven
Year Fixed Facility bears an interest rate of
4.06%
per annum and matures on July 31, 2025. The
Seven
Year Fixed Facility contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the maturity date of amounts borrowed under the
Seven
Year Fixed Facility. The
Seven
Year
Fixed Facility was fully drawn on August 1, 2018 and the borrowings were used to partially repay borrowings under the
Five
Year Revolver due December 2022.
On August 1, 2018, we amended and restated the Five Year Revolver due October 2019 such that the facility will now mature on July 31, 2023 (the “Five Year Revolver due July 2023”). The Five Year Revolver due July 2023 will still bear interest at LIBOR plus a margin. There is no issuance fee associated with this amendment. All other material terms and conditions of the Five Year Revolver due July 2023 remain unchanged.