BP MIDSTREAM PARTNERS LP PREDECESSOR
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
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September 30, 2017
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December 31, 2016
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(in thousands of dollars)
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ASSETS
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Current assets
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|
|
|
|
|
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Accounts receivable - third parties
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$
|
101
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|
|
$
|
342
|
|
Accounts receivable - related parties
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17,839
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|
|
13,477
|
|
Allowance oil receivable (Note 3)
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3,266
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|
|
2,532
|
|
Prepaid expenses and other current assets
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44
|
|
|
—
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Total current assets
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|
21,250
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|
|
16,351
|
|
Property, plant and equipment, net (Note 4)
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70,013
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|
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71,235
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|
Total assets
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$
|
91,263
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|
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$
|
87,586
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|
|
|
|
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LIABILITIES
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Current liabilities
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Accounts payable - third parties
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$
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1,200
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|
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$
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1,048
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Accounts payable - related parties
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232
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|
|
146
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Accrued liabilities (Note 5)
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2,723
|
|
|
4,067
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Total current liabilities
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4,155
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5,261
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Long-term liabilities
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|
|
|
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Long-term portion of environmental remediation obligation
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2,720
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2,362
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Deferred tax liabilities
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6,242
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5,859
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Other long-term liabilities
|
|
—
|
|
|
162
|
|
Total noncurrent liabilities
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|
8,962
|
|
|
8,383
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Total liabilities
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|
13,117
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|
13,644
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Commitments and contingencies (Note 9)
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|
|
|
|
|
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|
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NET PARENT INVESTMENT
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Net parent investment
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78,146
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|
73,942
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Total liabilities and net parent investment
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$
|
91,263
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|
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$
|
87,586
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The accompanying notes are an integral part of the unaudited condensed combined financial statements.
BP MIDSTREAM PARTNERS LP PREDECESSOR
UNAUDITED CONDENSED COMBINED STATEMENTS OF OPERATIONS
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Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2017
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2016
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2017
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2016
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(in thousands of dollars)
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Revenue
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|
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|
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Third parties
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$
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238
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$
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1,249
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|
|
$
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1,712
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|
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$
|
3,512
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Related parties
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26,778
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22,092
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78,832
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78,025
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Total revenue
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27,016
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23,341
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80,544
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81,537
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Costs and expenses
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Operating expenses – third parties
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3,062
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|
1,902
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6,380
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|
5,569
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Operating expenses – related parties
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1,945
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|
|
1,480
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|
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5,812
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|
|
4,550
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Maintenance expenses – third parties
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|
1,362
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|
|
991
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2,651
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1,709
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Maintenance expenses – related parties
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|
65
|
|
|
103
|
|
|
257
|
|
|
330
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|
Gain from disposition of property, plant and equipment, net
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|
—
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|
|
—
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|
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(6
|
)
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|
—
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General and administrative – third parties
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|
12
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|
|
—
|
|
|
56
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|
|
7
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General and administrative – related parties
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1,210
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|
|
1,730
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|
|
3,571
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|
5,397
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Depreciation
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|
675
|
|
|
649
|
|
|
2,007
|
|
|
1,917
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|
Property and other taxes
|
|
113
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|
|
110
|
|
|
267
|
|
|
255
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|
Total costs and expenses
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|
8,444
|
|
|
6,965
|
|
|
20,995
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|
|
19,734
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|
Operating income
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18,572
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|
16,376
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|
|
59,549
|
|
|
61,803
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Other income (loss)
|
|
380
|
|
|
(246
|
)
|
|
(108
|
)
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|
285
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|
Income tax expense
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|
7,403
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|
6,309
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|
|
23,219
|
|
|
24,284
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Net income
|
|
$
|
11,549
|
|
|
$
|
9,821
|
|
|
$
|
36,222
|
|
|
$
|
37,804
|
|
The accompanying notes are an integral part of the unaudited condensed combined financial statements.
BP MIDSTREAM PARTNERS LP PREDECESSOR
UNAUDITED CONDENSED COMBINED STATEMENTS OF CHANGES IN
NET PARENT INVESTMENT
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Nine Months Ended September 30,
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2017
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|
2016
|
|
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(in thousands of dollars)
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Net parent investment
|
|
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|
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Balance, beginning of the period
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|
$
|
73,942
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|
|
$
|
74,258
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Net income
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|
36,222
|
|
|
37,804
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Net transfers to Parent
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|
(32,018
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)
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|
(39,113
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)
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Balance, end of the period
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|
$
|
78,146
|
|
|
$
|
72,949
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|
The accompanying notes are an integral part of the unaudited condensed combined financial statements.
BP MIDSTREAM PARTNERS LP PREDECESSOR
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
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Nine Months Ended September 30,
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2017
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|
2016
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(in thousands of dollars)
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Cash flows from operating activities
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|
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Net income
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$
|
36,222
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|
$
|
37,804
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Adjustments to reconcile net income to net cash provided by operating activities
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|
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|
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Depreciation
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|
2,007
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|
1,917
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Deferred income taxes
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|
383
|
|
|
797
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Stock-based compensation
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|
188
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|
|
177
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|
Loss (Gain) due to changes in fair value of allowance oil receivable
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|
108
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|
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(285
|
)
|
Gain from disposition of property, plant and equipment, net
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|
(6
|
)
|
|
—
|
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Changes in operating assets and liabilities
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|
|
|
|
|
|
Accounts receivable - third parties
|
|
241
|
|
|
62
|
|
Accounts receivable - related parties
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|
(4,362
|
)
|
|
1,307
|
|
Allowance oil receivable
|
|
(842
|
)
|
|
204
|
|
Prepaid expenses and other current assets
|
|
(44
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)
|
|
—
|
|
Accounts payable - third parties
|
|
152
|
|
|
99
|
|
Accounts payable - related parties
|
|
86
|
|
|
(36
|
)
|
Accrued liabilities
|
|
(66
|
)
|
|
(77
|
)
|
Long-term portion of environmental remediation obligation
|
|
358
|
|
|
(340
|
)
|
Other long-term liabilities
|
|
(162
|
)
|
|
—
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|
Net cash provided by operating activities
|
|
34,263
|
|
|
41,629
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Cash flows from investing activities
|
|
|
|
|
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Capital expenditures
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|
(2,063
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)
|
|
(2,339
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)
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Proceeds from disposition of property, plant and equipment, net
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|
6
|
|
|
—
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|
Net cash used in investing activities
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|
(2,057
|
)
|
|
(2,339
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)
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Cash flows from financing activities
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|
|
|
|
|
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Net transfers to Parent
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|
(32,206
|
)
|
|
(39,290
|
)
|
Net cash provided by financing activities
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|
(32,206
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)
|
|
(39,290
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)
|
Net change in cash and cash equivalents
|
|
—
|
|
|
—
|
|
Cash and cash equivalents at beginning of the period
|
|
—
|
|
|
—
|
|
Cash and cash equivalents at end of the period
|
|
$
|
—
|
|
|
$
|
—
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Non-cash investing transactions
|
|
|
|
|
|
|
Change in accrued capital expenditures
|
|
$
|
(1,278
|
)
|
|
$
|
(494
|
)
|
The accompanying notes are an integral part of the unaudited condensed combined financial statements.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
1. Business and Basis of Presentation
Business
BP Midstream Partners LP (either individually or together with its subsidiaries, as the context requires, the “Partnership”) is a Delaware limited partnership formed on May 22, 2017 by BP Pipelines (North America) Inc. (“BPPLNA”), an indirect wholly owned subsidiary of BP p.l.c. (“BP”), a “foreign private issuer” within the meaning of the Securities Exchange Act of 1934, as amended, to own, operate, develop and acquire pipelines and other midstream assets. On October 30, 2017 the Partnership completed its initial public offering (“IPO”) of common units representing limited partner interests. See
Note 2 - Initial Public Offering
for the discussion of the IPO.
BP Midstream Partners LP Predecessor consists of
three
pipeline businesses (as described in more detail below). Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” “Predecessor Assets,” “Predecessor,” or similar expressions for time periods prior to the IPO refer to BP Midstream Partners LP Predecessor. For time periods subsequent to the IPO, “we,” “our,” “us,” or similar expressions refer to the legal entity BP Midstream Partners LP.
The term “our Parent” refers to BPPLNA, any entity that wholly owns BPPLNA, indirectly or directly, including BP and BP America Inc. (“BPA”), an indirect wholly owned subsidiary of BP, and any entity that is wholly owned by the aforementioned entities, excluding BP Midstream Partners LP Predecessor. Our operations consist of
one
reportable segment. All of our operations are conducted in the United States, and all our long-lived assets are located in the United States.
The Predecessor Assets consist of the following
three
pipeline businesses:
|
|
•
|
BP Two Pipeline Company LLC, which owns the BP#2 crude oil pipeline system (“BP2”) comprising
12
miles of pipeline transporting crude oil from Griffith Station, Indiana, to BPA’s refinery in Whiting, Indiana (the “Whiting Refinery”). The BP2 pipeline has a capacity of approximately
475,000
barrels per day.
|
|
|
•
|
BP River Rouge Pipeline Company LLC, which owns the Whiting to River Rouge refined products pipeline system (“River Rouge”) comprising
244
miles of pipeline and related assets transporting refined petroleum products from the Whiting Refinery to the refined products terminal at River Rouge, Michigan. The River Rouge pipeline has a capacity of approximately
80,000
barrels per day.
|
|
|
•
|
BP D-B Pipeline Company LLC, which owns the Diamondback diluent pipeline system (“Diamondback”) comprising
42
miles of pipeline and related assets transporting diluent from Black Oak Junction, Indiana, to a third-party owned pipeline in Manhattan, Illinois. The Diamondback pipeline has a capacity of approximately
135,000
barrels per day.
|
Certain of BP Midstream Partners LP Predecessor’s businesses are subject to regulation by various authorities including, but not limited to the Federal Energy Regulatory Commission. Regulatory bodies exercise statutory authority over matters such as common carrier tariffs, construction, rates and ratemaking and agreements with customers.
Basis of Presentation
Our accompanying unaudited condensed combined financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations conform to the accounting principles contained in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, the single source of accounting principles generally accepted in the United States (“U.S. GAAP”). As permitted under the rules and regulations of the SEC, certain information and footnote disclosures normally included in the annual financial statements prepared in conformity with U.S. GAAP have been condensed or omitted from these condensed combined financial statements.
These financial statements were derived from the consolidated financial statements and accounting records of our Parent. These financial statements reflect the condensed combined historical results of operations, financial position and cash flows of the Predecessor as if such business had been a separate entity for all periods presented. For ease of reference, these financial statements are referred to as those of the Predecessor Assets. These condensed combined financial statements should be read in conjunction with the combined financial statements and related notes included in the prospectus of the Partnership dated October 25, 2017, as filed with the SEC on October 27, 2017 (the “Prospectus”).
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
These financial statements are presented as if the operations of the Predecessor Assets had been combined for all periods presented. The assets and liabilities in these condensed combined financial statements have been reflected on the historical cost basis, as immediately prior to the closing of the IPO, all of the assets and liabilities presented were transferred to the Partnership within our Parent’s consolidated group in a transaction under common control. All intercompany accounts and transactions within the Predecessor have been eliminated.
The accompanying condensed combined statements of operations also include expense allocations for certain functions historically performed by our Parent and not allocated to the Predecessor Assets, including allocations of general corporate expenses related to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee benefits, incentives, severance and environmental functional support. The portion of expenses that are specifically identifiable to the Predecessor Assets are directly recorded to the Predecessor, with the remainder allocated on the basis of headcount, throughput volumes, miles of pipe and other measures. Our management believes the assumptions underlying the financial statements, including the assumptions regarding the allocation of general corporate expenses from our Parent, are reasonable. Nevertheless, the financial statements may not include all of the expenses that would have been incurred, had we been a stand-alone company during the periods presented and may not reflect our financial position, results of operations and cash flows, had we been a stand-alone company during the periods presented. See
Note 6 - Related Party Transactions
.
Prior to the IPO, we did not own or maintain separate bank accounts. Our Parent uses a centralized approach to cash management and historically funded our operating and investing activities as needed within the boundaries of a documented funding agreement. Accordingly, cash held by our Parent at the corporate level was not allocated to us for any of the periods presented. We reflected the cash generated by our operations and expenses paid by our Parent on our behalf as a component of “Net parent investment” on our condensed combined balance sheets, and as a net distribution to our Parent in our condensed combined statements of cash flows. We have also not included any interest income on the net cash transfers to our Parent.
The financial statements as of and for the periods ended
September 30, 2017
and
2016
, included herein, are unaudited. These financial statements include all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of the results of operations, the condensed combined financial position of the Predecessor Assets and cash flows. Unless otherwise specified, all such adjustments are of a normal and recurring nature. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year.
Summary of Significant Accounting Policies
There have been no updates to our accounting policies disclosed in the Prospectus. Please refer to the footnotes to the audited annual combined financial statements included in the Prospectus for a summary of our significant accounting policies.
Recent Accounting Pronouncements
For additional information on accounting pronouncements issued prior to December 2016, refer to
Note 3 - Recent Accounting Pronouncements
in the notes to the audited combined financial statements included in the Prospectus.
In September 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-13 “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842).” This ASU delays the mandatory adoption of Topic 606 and Topic 842 for public business entities that otherwise would not meet the definition of a public business entity except for a requirement to include or the inclusion of its financial statements or financial information in another entity’s filing with the SEC. This ASU also revises the guidance related to performance-based incentive fees in Topic 605 and revises the guidance related to leases in Topics 840 and 842. The revisions to the lease guidance eliminate language specific to certain sale-leaseback arrangements, guarantees of lease residual assets and loans made by lessees to owner-lessors. Also included is an amendment to Topic 842 to retain the guidance in Topic 840 covering the impact of changes in tax rates on investments in leveraged leases. This guidance is effective immediately. We do not expect ASU 2017-13 to impact our condensed combined financial statements. However, we together with our Parent are currently evaluating the impact that the adoption of the other provisions under Topic 606 and 842 will have on our condensed combined financial statements and notes to the condensed combined financial statements.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
In January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250).” The amendments to Topic 250 included in this update expand required qualitative disclosures when registrants cannot reasonably estimate the impact that adoption of the ASUs related to revenue (ASU 2014-09), leases (ASU 2016-02) and credit losses (ASU 2016-13) will have on the financial statements. Such qualitative disclosures would include a comparison of the registrant’s new accounting policies, if determined, to current accounting policies, a description of the status of the registrant’s process to implement the new standard and a description of the significant implementation matters yet to be addressed by the registrant. Other than enhancements to the qualitative disclosures regarding future adoption of new ASUs, adoption of the provisions of this standard is not expected to have any impact on our condensed combined financial statements.
2. Initial Public Offering
I
nitial Public Offering
On October 30, 2017 (the “Completion Date”), the Partnership completed its initial public offering of
42,500,000
common units representing limited partner interests at a price to the public of
$18.00
per unit. Subsequent to the closing of the IPO, the underwriters partially exercised their over-allotment option and purchased
5,294,358
additional common units at
$18.00
per unit. A total of
47,794,358
common units were issued to the public unitholders in connection with the IPO. A registration statement on Form S-1, as amended through the time of its effectiveness, was filed by the Partnership with the SEC and was declared effective on October 25, 2017. On October 26, 2017, the Partnership's common units began trading on the New York Stock Exchange under the symbol “BPMP.”
Immediately prior to the consummation of the IPO on the Completion Date, BPPLNA contributed the following interests to the Partnership:
|
|
•
|
100.0%
ownership interest in the Predecessor Assets;
|
|
|
•
|
28.5%
ownership interest in Mars Oil Pipeline Company LLC; and
|
|
|
•
|
20.0%
managing member interest in Mardi Gras Transportation System Company LLC (“Mardi Gras”), pursuant to which the Partnership has the right to vote BPPLNA's and its affiliates’ retained ownership interest in each of Caesar Oil Pipeline Company LLC, Cleopatra Gas Gathering Company LLC, Proteus Oil Pipeline Company LLC and Endymion Oil Pipeline Company LLC (together, the “Mardi Gras Joint Ventures”).
|
In exchange for BPPLNA's contribution of such interests to the Partnership, BPPLNA, through its wholly owned subsidiary, BP Midstream Partners Holdings LLC (“BP Holdco”), and through BP Holdco's wholly owned subsidiary, BP Midstream Partners GP LLC (the “General Partner”), received:
|
|
•
|
4,581,177
common units and
52,375,535
subordinated units, representing an aggregate
54.4%
limited partner interest;
|
|
|
•
|
all of the non-economic general partner interest and our incentive distribution rights; and
|
|
|
•
|
a cash distribution of
$814.7 million
.
|
The Partnership received net proceeds of
$814.7 million
from the sale of
47,794,358
common units in the IPO, after deducting underwriting discounts and commissions, structuring fees and other offering expenses. The Partnership made a cash distribution of
$814.7 million
to BPPLNA.
Revolving Credit Facility Agreement
On October 30, 2017, the Partnership entered into a
$600.0 million
revolving credit facility agreement (the “credit facility”) with an affiliate of BP. The credit facility provides for certain covenants, including the requirement to maintain a consolidated leverage ratio, which is calculated as total indebtedness to consolidated EBITDA (as defined in the credit facility), not to exceed
5.0
to
1.0
, subject to a temporary increase in such ratio to
5.5
to
1.0
in connection with certain material acquisitions. In addition, the limited liability company agreement of the Partnership's General Partner requires the approval of BP Holdco prior to the incurrence of any indebtedness that would cause the Partnership's leverage ratio to exceed
4.5
to
1.0
.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
The credit facility also contains customary events of default, such as (i) nonpayment of principal when due, (ii) nonpayment of interest, fees or other amounts, (iii) breach of covenants, (iv) misrepresentation, (v) cross-payment default and cross-acceleration (in each case, to indebtedness in excess of
$75.0 million
) and (vi) insolvency. Additionally, the Partnership's revolving credit facility limits its ability to, among other things: (i) incur or guarantee additional debt, (ii) redeem or repurchase units or make distributions under certain circumstances; and (iii) incur certain liens or permit them to exist. Indebtedness under this facility bears interest at the
3
-month LIBOR plus
0.85%
. This facility includes customary fees, including a commitment fee of
0.10%
and a utilization fee of
0.20%
. As of
September 30, 2017
, there were
no
borrowings outstanding under the credit facility.
Omnibus Agreement
In connection with the IPO, the Partnership entered into an omnibus agreement with BPPLNA and certain of its affiliates, including the General Partner. This agreement addresses, among other things, (i) the Partnership's obligation to pay an annual fee, initially
$13.3 million
, for general and administrative services provided by BPPLNA and its affiliates, (ii) the Partnership's obligation to reimburse BPPLNA for personnel and other costs related to the direct operation, management and maintenance of the assets and (iii) the Partnership's obligation to reimburse BPPLNA for services and certain direct or allocated costs and expenses incurred by BPPLNA or its affiliates on behalf of the Partnership.
Pursuant to the omnibus agreement, BPPLNA will indemnify the Partnership and fund all of the costs of required remedial action for its known historical and legacy spills and releases and other environmental and litigation claims identified in the omnibus agreement. BPPLNA will also indemnify the Partnership with respect to subsidiaries for which it is the operator for certain title defects and for failures to obtain certain consents and permits necessary to conduct its business for one year following the closing of the IPO.
The omnibus agreement also addresses the Partnership's right of first offer to acquire BPPLNA's retained ownership interest in Mardi Gras and all of BPPLNA's interests in midstream pipeline systems and assets related thereto in the contiguous United States and offshore Gulf of Mexico that are owned by BPPLNA at the closing of the IPO.
Further, the omnibus agreement addresses the granting of a license from BPA to the Partnership with respect to use of certain BP trademarks and tradename.
Throughput and Deficiency Agreements
In connection with the IPO, the Partnership entered into throughput and deficiency agreements with BP Products North America Inc. (“BP Products”), an indirect wholly owned subsidiary of BP. These agreements include minimum volume commitments that initially support substantially all of the Partnership's aggregate revenue on BP2, River Rouge and Diamondback. Under these fee-based agreements, we will provide transportation services to BP Products, and BP Products will commit to pay the Partnership for minimum monthly volumes of crude oil, refined products and diluent, regardless of whether such volumes are physically shipped by BP Products through the Partnership pipelines during the term of the agreements. These agreements became effective on October 30, 2017, with an initial term ending December 31, 2020.
Long-Term Incentive Plan
Prior to the closing of the IPO, we adopted BP Midstream Partners LP 2017 Long Term Incentive Plan (the “Plan”). Awards under the Plan are available for eligible officers, directors, employees and consultants of the General Partner and its affiliates, who perform services for the Partnership. The Plan provides the Partnership with the flexibility to grant unit options, unit appreciation rights, restricted units, phantom units, unit awards, cash awards, performance awards, distribution equivalent rights, substitute awards and other unit-based awards. The maximum aggregate number of common units that may be issued pursuant to any and all awards under the Plan shall not exceed
5%
of our common and subordinated units outstanding upon the completion of the IPO, subject to adjustment due to (i) a subdivision or consolidation of the common units (by reclassification, split or reverse split or otherwise), (ii) a recapitalization, reclassification, or other change in our capital structure or (iii) any other reorganization, merger, combination, exchange, or other relevant change in capitalization of our equity, as provided under the Plan. Following the closing of the IPO, we granted a total number of
8,468
phantom units with an aggregate value on the date of grant of approximately
$150
to our independent directors. These phantom units will vest on the first anniversary of the date of grant but will not be settled until the second anniversary of the vesting date.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
3. Allowance Oil
Our tariff for crude oil transportation at BP2 includes a fixed loss allowance (“FLA”). An FLA factor per barrel, a fixed percentage, is a separate fee under the applicable crude oil tariff to cover evaporation and other loss in transit. In the three and
nine
months ended
September 30, 2017
and
2016
, all of our revenue at BP2 was generated from services to our Parent.
As crude oil is transported, we earn additional income that equals the applicable FLA factor multiplied by the volume transported by our Parent measured at the receipt location. We do not take physical possession of the allowance oil as a result of our services, but record the value of the volumes accumulated as a receivable from our Parent. We recognize the FLA income in Revenue - related parties in the condensed combined statements of operations during the periods when commodities are transported. The amount of revenue recognized is a product of the quantity transported, the applicable FLA factor and the estimated settlement price during the month the product is transported.
We cash settle allowance oil receivable with our Parent in the subsequent periods after the transportation service has been performed. The settlement price is a product of the quantity settled and the summation of the calendar-month average price of West Texas Intermediate (“WTI”) on the New York Mercantile Exchange and a differential provided by a trading company wholly owned by our Parent. The differential represents the difference in market price between WTI and the type of allowance oil to be settled and the difference in market price between the current month and the prior month.
We measure the embedded derivative along with the allowance oil receivable in their entirety at fair value because the economic characteristics and risks of the embedded derivative are clearly and closely related to the economic characteristics and risks of the host arrangement. We recognize the changes in fair value in earnings in Other income (loss) in the condensed combined statements of operations. The embedded derivative is not designated as a hedging instrument. Refer to
Note 7 - Fair Value Measurements
for further discussion.
As of
September 30, 2017
and
December 31, 2016
, allowance oil receivable, including the embedded derivative, was
$3,266
and
$2,532
, respectively, on the condensed combined balance sheets. In the three and
nine
months ended
September 30, 2017
, we recognized income of
$2,243
and
$6,240
, respectively, and a gain/(loss) due to changes in fair value of
$380
and
$(108)
, respectively, related to the FLA arrangement with our Parent. In the three and
nine
months ended
September 30, 2016
, we recognized income of
$1,333
and
$4,048
, respectively, and a (loss)/gain due to changes in fair value of
$(246)
and
$285
, respectively, related to the FLA arrangement with our Parent.
4. Property, Plant and Equipment
Our property, plant and equipment is recorded at its historical cost of construction or, upon acquisition, at either the fair value of the assets acquired or the cost to the entity that placed the asset in service. Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable
Lives
|
|
September 30, 2017
|
|
December 31, 2016
|
Land
|
|
—
|
|
|
$
|
155
|
|
|
$
|
155
|
|
Rights-of-way
|
|
—
|
|
|
1,380
|
|
|
1,380
|
|
Building and improvements
|
|
16 - 40 years
|
|
|
12,032
|
|
|
12,032
|
|
Pipeline and equipment
|
|
10 - 30 years
|
|
|
91,704
|
|
|
89,135
|
|
Other
|
|
4 - 23 years
|
|
|
509
|
|
|
509
|
|
Construction in progress
|
|
—
|
|
|
308
|
|
|
2,082
|
|
|
|
|
|
106,088
|
|
|
105,293
|
|
Less: Accumulated depreciation
|
|
|
|
(36,075
|
)
|
|
(34,058
|
)
|
Property, plant and equipment, net
|
|
|
|
$
|
70,013
|
|
|
$
|
71,235
|
|
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
In the three months ended
September 30, 2017
, we did not dispose any property, plant and equipment. In the
nine
months ended
September 30, 2017
, we recognized a
gain
of
$6
from disposition of property, plant and equipment. In the three and
nine
months ended
September 30, 2016
, we did not dispose of any property, plant and equipment. We determined that there were
no
impairments on our property, plant and equipment in the three and
nine
months ended
September 30, 2017
or
2016
.
5. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Current portion of environmental remediation obligation
|
|
$
|
1,645
|
|
|
$
|
1,310
|
|
Accrued non-capital project expenditures
|
|
607
|
|
|
935
|
|
Accrued property taxes
|
|
165
|
|
|
252
|
|
Accrued employee payroll and incentives
|
|
81
|
|
|
109
|
|
Accrued capital project expenditures
|
|
73
|
|
|
1,351
|
|
Other accrued liabilities
|
|
152
|
|
|
110
|
|
Accrued liabilities
|
|
$
|
2,723
|
|
|
$
|
4,067
|
|
6. Related Party Transactions
Related party transactions include transactions with our Parent and our Parent’s affiliates including those entities, in which our Parent has an ownership interest but does not have control. In addition to the fixed loss allowance arrangement discussed in
Note 3 - Allowance Oil
, we have entered into the following transactions with our related parties:
Cash Management Program
We participate in our Parent’s centralized cash management and funding system. Our working capital and capital expenditure requirements have historically been part of the corporate-wide cash management program for our Parent. As part of this program, our Parent maintained all cash generated by our operations, and cash required to meet our operating and investing needs was provided by our Parent as necessary within the boundaries of a documented funding agreement. Net cash generated from or used by our operations is reflected as a component of “Net parent investment” on the accompanying condensed combined balance sheets and as “Net transfers to Parent” on the accompanying condensed combined statements of cash flows. No interest income has been recognized on net cash kept by our Parent since, historically, we have not charged interest on intercompany balances.
Related Party Revenue and Expense
We provide crude oil, refined products and diluent transportation services to related parties and generate revenue through published tariffs. Our sales revenue from related parties was
$26,778
and
$78,832
for the three and
nine
months ended
September 30, 2017
, respectively, and
$22,092
and
$78,025
for the three and
nine
months ended
September 30, 2016
, respectively.
During the three and nine months ended September 30, 2017, we did not have long-term fee-based transportation agreements in place for volumes transported on any of our assets with related parties, other than a long-term transportation agreement at Diamondback which did not have a minimum volume commitment prior to July 1, 2017. During the three months ended
September 30, 2017
, we entered into a throughput and deficiency contract with BP Products for transporting diluent on the Diamondback pipeline under a joint tariff agreement with a third-party carrier. The throughput and deficiency contract contains a minimum volume requirement on BP Products for each of the twelve-month periods commencing on the effective date of July 1, 2017 and ending on June 30, 2020. In return, BP Products will receive a discounted incentive rate for each unit of diluent transported. During each of the twelve-month periods, BP Products will commit to pay us the discounted incentive rate for the minimum volumes, regardless of whether such volumes are physically shipped by BP Products through Diamondback.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
All employees performing services on behalf of our operations are employees of our Parent. Personnel and operating costs incurred by our Parent on our behalf were charged to us and included in either General and administrative expenses or Operating expenses in the accompanying condensed combined statements of operations, depending on the nature of the employee’s role in our operations. Our Parent also performs certain general corporate functions for us related to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee benefits, incentives, severance and environmental functional support. During the three and
nine
months ended
September 30, 2017
and
2016
, we were allocated operating and indirect general corporate expenses incurred by our Parent, which were included in Operating expenses - related parties and General and administrative - related parties in the accompanying condensed combined statements of operations.
We are covered by the insurance policies of our Parent. We were allocated insurance expense of
$925
and
$2,703
for the three and
nine
months ended
September 30, 2017
, respectively, and
$704
and
$2,111
for the three and
nine
months ended
September 30, 2016
, respectively. Insurance expense was included within Operating expenses - third parties in the accompanying condensed combined statements of operations.
During three and
nine
months ended
September 30, 2017
and
2016
, we were allocated the following amounts from our Parent, including the insurance expense discussed above, as well as the pension and retirement savings plans and share-based compensation discussed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Operating expenses - related parties
|
$
|
1,762
|
|
|
$
|
1,458
|
|
|
$
|
5,233
|
|
|
$
|
4,460
|
|
General and administrative - related parties
|
1,210
|
|
|
1,730
|
|
|
3,571
|
|
|
5,397
|
|
Total allocated operating and general corporate costs
|
$
|
2,972
|
|
|
$
|
3,188
|
|
|
$
|
8,804
|
|
|
$
|
9,857
|
|
These allocated operating and general corporate costs related primarily to the wages and benefits of our Parent’s employees that support our operations. Expenses incurred by our Parent on our behalf have been allocated to us on the basis of direct usage when identifiable. Where costs incurred by our Parent could not be determined to relate to us by specific identification, these costs were primarily allocated to us on the basis of headcount, throughput volumes, miles of pipe and other measures. The expense allocations have been determined on a basis that both we and our Parent consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented. The allocations may not, however, fully reflect the expenses we would have incurred as a separate, publicly traded company for the periods presented.
The following table shows related party expenses directly incurred by us that were included in the accompanying condensed combined statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Operating expenses - related parties
|
$
|
183
|
|
|
$
|
22
|
|
|
$
|
579
|
|
|
$
|
90
|
|
Maintenance expenses - related parties
|
65
|
|
|
103
|
|
|
257
|
|
|
330
|
|
Total directly related party expenses
|
$
|
248
|
|
|
$
|
125
|
|
|
$
|
836
|
|
|
$
|
420
|
|
Pension and Retirement Savings Plans
Employees who directly or indirectly support our operations participate in the pension, post-retirement health insurance, and defined contribution benefit plans sponsored by our Parent and include other subsidiaries of our Parent. Pension and defined contribution benefit plan expenses allocated to us were included in General and administrative - related parties or Operating expenses - related parties in the accompanying condensed combined statements of operations, depending on the nature of the employee’s role in our operations.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
Our pension and post-retirement health insurance costs were
$13
and
$43
within Operating expenses for the three and
nine
months ended
September 30, 2017
, respectively, and
$41
and
$142
within General and administrative for the same periods, respectively. Such costs were
$11
and
$36
within Operating expenses for the three and
nine
months ended
September 30, 2016
, respectively, and
$49
and
$151
within General and administrative for the same periods, respectively.
Our defined contribution benefit plan costs were
$19
and
$34
within Operating expenses for the three and
nine
months ended
September 30, 2017
, respectively, and
$59
and
$112
within General and administrative for the same periods, respectively. Such costs were
$8
and
$26
within Operating expenses for the three and
nine
months ended
September 30, 2016
, respectively, and
$35
and
$107
within General and administrative for the same periods, respectively.
Share-based Compensation
Our Parent operates share option plans and equity-settled employee share plans. These plans typically have a three-year performance or restricted period during which the units accrue net notional dividends, which are treated as having been reinvested. Leaving employment will normally preclude the conversion of units into shares, but special arrangements apply for participants that leave for qualifying reasons.
Certain Parent employees supporting our operations were historically granted these types of awards. These share-based compensation costs have been allocated to us as part of the cost allocations from our Parent. These costs were
$84
and
$188
for the three and
nine
months ended
September 30, 2017
, respectively, and
$60
and
$177
for the three and
nine
months ended
September 30, 2016
, respectively. Share-based compensation expense is included in General and administrative - related parties in the accompanying condensed combined statements of operations.
7. Fair Value Measurements
As discussed in
Note 3 - Allowance Oil
, we record allowance oil receivable and the embedded derivative in their entirety at fair value in the condensed combined balance sheets. We record the changes in the fair value in Other income (loss) in the condensed combined statements of operations. The fair value is measured based on the settlement price at the end of the period, representing the amount that we would have received if all allowance oil receivables on hand were settled with our Parent at that time.
At
September 30, 2017
and
December 31, 2016
, allowance oil receivable balances, including the embedded derivative, were classified as level 2 within the fair value hierarchy in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
December 31, 2016
|
Recurring fair value measures
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Allowance oil receivable
|
—
|
|
$
|
3,266
|
|
—
|
|
$
|
3,266
|
|
—
|
|
$
|
2,532
|
|
—
|
|
$
|
2,532
|
|
There were
no
transfers into, or out of, the three levels of the fair value hierarchy for the three and
nine
months ended
September 30, 2017
and
2016
, respectively.
8. Income Taxes
BP Midstream Partners LP Predecessor was not a standalone entity for income tax purposes and was included as part of BPA consolidated federal income tax returns. Our provision for income taxes was prepared on a separate return basis with consideration to the tax laws and rates applicable in the jurisdictions in which we operated and earned income.
BPA and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. These tax returns are subject to examination and possible challenge by the taxing authorities. Positions challenged by the taxing authorities may be settled or appealed by BPA. As a result, income tax uncertainties are recognized in BP Midstream Partners LP Predecessor’s combined financial statements in accordance with accounting for income taxes, when applicable. It is reasonably possible that changes to BP Midstream Partners LP Predecessor global unrecognized tax benefits could be significant; however, due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of such changes that may occur within the next twelve months cannot be made.
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
BP Midstream Partners LP Predecessor recorded income tax expense of
$7,403
and
$23,219
for the three and
nine
months ended
September 30, 2017
, respectively, and
$6,309
and
$24,284
for the three and
nine
months ended
September 30, 2016
, respectively. There are no uncertain tax positions recorded on BP Midstream Partners LP Predecessor at the end of the periods presented.
BP Midstream Partners LP will be a pass-through entity for federal income tax purposes and will not be subject to federal income taxes on future period financial results.
9. Commitments and Contingencies
Legal Proceedings
Our Parent and certain affiliates are named defendants in lawsuits and governmental proceedings that arise in the ordinary course of our 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.
Environmental Matters
We are subject to federal, state and local environmental laws and regulations. We record provisions for environmental liabilities based on management’s best estimates, using all information that is available at the time. 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 year in which they are probable and reasonably estimable.
During the third quarter of
2017
and
2016
, we increased our estimated provision for total remediation costs, which resulted in recognition of expenses of
$1,006
for the three and
nine
months ended
September 30, 2017
, and
$128
for the three and
nine
months ended
September 30, 2016
. We accrued
$4,365
and
$3,672
for environmental liabilities at
September 30, 2017
and
December 31, 2016
, respectively.
In 1964, River Rouge experienced a release from a flange failure. Extensive soil and groundwater assessment and remediation activities have been conducted under oversight from Michigan Department of Environmental Quality (“MDEQ”). At
September 30, 2017
and
December 31, 2016
, we accrued
$2,515
and
$1,700
, respectively, for environmental liabilities associated with this incident. Remediation effort for this incident is likely to continue for up to
20
years. During the
third
quarter of
2017
and
2016
, we increased our estimated provision for the remediation costs related to this incident, which resulted in recognition of expenses of
$989
for the three and
nine
months ended
September 30, 2017
and
$28
for the three and
nine
months ended
September 30, 2016
.
In 2010, River Rouge experienced a release of approximately
90,000
gallons of gasoline. Extensive soil and groundwater assessment and remediation activities have been conducted under oversight from MDEQ. At
September 30, 2017
and
December 31, 2016
, we accrued
$1,630
and
$1,620
, respectively, for environmental liabilities associated with this incident. Remediation effort for this incident is likely to continue for up to
10
years. During the third quarter of
2017
and
2016
, we increased our estimated provision for the remediation costs related to this incident, which resulted in recognition of expenses of
$99
for the three and
nine
months ended
September 30, 2017
and
$186
for the three and
nine
months ended
September 30, 2016
.
There were several other environmental issues, for which we have accrued
$220
and
$352
in environmental liabilities at
September 30, 2017
and
December 31, 2016
, respectively.
10. Subsequent Events
On the Completion Date, the Partnership completed its offering of
42,500,000
common units representing limited partner interests at a price to the public of
$18.00
per unit. Subsequent to the closing of the IPO, the underwriters partially exercised their over-
BP MIDSTREAM PARTNERS LP PREDECESSOR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands of dollars unless otherwise indicated)
allotment option and purchased
5,294,358
additional common units at
$18.00
per unit. A total of
47,794,358
common units were issued to the public unitholders in connection with the IPO.
On November 6, 2017, the Partnership withdrew
$15.0 million
under the credit facility to fund our working capital in the near term.
We have evaluated subsequent events through December 6, 2017, the date the condensed combined financial statements were issued. Based on this evaluation, it was determined that no subsequent events occurred, other than the items noted above, that require recognition or disclosure in the condensed combined financial statements.