UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
FORM 8-K
  _____________________________________________
  Current Report
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 2017
_____________________________________________
MPLX LP
(Exact name of registrant as specified in its charter)
_____________________________________________
 
 
 
 
 
Delaware
 
001-35714
 
27-0005456
(State or other jurisdiction
of incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
200 E. Hardin Street
Findlay, Ohio
 
45840
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code:
(419) 421-2414
(Former name or former address, if changed since last report.)
  _____________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 






Item 1.01
Entry into a Material Definitive Agreement.

On September 1, 2017, MPLX LP (the “Partnership”) entered into a Membership Interests and Shares Contributions Agreement (the “Contributions Agreement”) with MPLX GP LLC (the “General Partner”), MPLX Logistics Holdings LLC (“MPLX Logistics”), MPLX Holdings Inc. (“MPLX Holdings”) and MPC Investment LLC (“MPC Investment”), each a wholly-owned subsidiary of Marathon Petroleum Corporation (“MPC”), whereby the Partnership agreed to acquire certain ownership interests in joint venture entities indirectly held by MPC. Pursuant to the Contributions Agreement, MPC Investment agreed to contribute: all of the membership interests of Lincoln Pipeline LLC, which holds a 35 percent interest in Illinois Extension Pipeline Company, L.L.C.; all of the membership interests of MPL Louisiana Holdings LLC, which holds a 40.7 percent interest in LOOP LLC; a 58.52 percent interest in LOCAP LLC; and a 24.51 percent interest in Explorer Pipeline Company, through a series of intercompany contributions to the Partnership for approximately $420 million in cash and equity consideration valued at approximately $630 million (collectively, the “Transaction”).

In connection with the closing of the Transaction on September 1, 2017, the Partnership issued (i) 13,719,017 common units representing limited partner interests in the Partnership (“Common Units”) to the General Partner, (ii) 3,350,893 Common Units to MPLX Logistics and (iii) 1,441,224 Common Units to MPLX Holdings. The Partnership also issued 377,778 general partner units to the General Partner in order to maintain its two percent general partner interest in the Partnership.

The Contributions Agreement contains customary representations and warranties as well as customary indemnification obligations among the parties. The foregoing description of the Contributions Agreement is not complete and is qualified in its entirety by reference to the full text of the Contributions Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.

The conflicts committee and the board of directors of the General Partner approved the terms of the Contributions Agreement on behalf of the Partnership. The conflicts committee, which is comprised of independent members of the board of directors of the General Partner, retained independent legal and financial advisors to assist it in evaluating and negotiating the Transaction.

Relationships
The General Partner manages the Partnership’s operations and activities through the General Partner’s officers and directors. Each of MPLX Logistics, MPLX Holdings, MPC Investment and the General Partner are wholly-owned subsidiaries of MPC. As a result, certain individuals serve as officers and/or directors of one or more of such entities. After giving effect to the Transaction, MPC holds, indirectly through its subsidiaries, 118,090,823 Common Units, representing approximately 29 percent of the Common Units issued and outstanding as of September 1, 2017. Through its ownership of the General Partner, MPC also indirectly owns all of the Partnership’s incentive distribution rights as well as 8,306,911 general partner units, representing a two percent general partner interest in the Partnership as of September 1, 2017.

Item 2.01
Completion of Acquisition or Disposition of Assets.
The Transaction closed on September 1, 2017. The description of the Transaction contained in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

Item 3.02
Unregistered Sales of Equity Securities.

The description in Item 1.01 above of the Partnership’s issuance of Common Units and general partner units in connection with the Transaction is incorporated into this Item 3.02 by reference, insofar as such information relates to the sale of unregistered equity securities. The sale and issuance of the Common Units and general partner units in connection with the Transaction is exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

Item 9.01
Financial Statements and Exhibits.
(a)
Financial Statements of businesses acquired





The audited consolidated financial statements of Explorer Pipeline Company and its subsidiary as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 are incorporated herein by reference to Exhibit 99.1 of this Current Report on Form 8-K.
The unaudited condensed consolidated financial statements of Explorer Pipeline Company and its subsidiary as of June 30, 2017 and December 31, 2016 and for the six months ended June 30, 2017 and 2016 are incorporated herein by reference to Exhibit 99.2 of this Current Report on Form 8-K.
The audited financial statements of Illinois Extension Pipeline Company, L.L.C. as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 are incorporated herein by reference to Exhibit 99.3 of this Current Report on Form 8-K.
The unaudited financial statements of Illinois Extension Pipeline Company, L.L.C. as of June 30, 2017 and December 31, 2016 and for the six months ended June 30, 2017 and 2016 are incorporated herein by reference to Exhibit 99.4 of this Current Report on Form 8-K.
The audited financial statements of LOOP LLC as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 are incorporated herein by reference to Exhibit 99.5 of this Current Report on Form 8-K.
The unaudited condensed financial statements of LOOP LLC as of June 30, 2017 and December 31, 2016 and for the six months ended June 30, 2017 and 2016 are incorporated herein by reference to Exhibit 99.6 of this Current Report on Form 8-K.
The audited financial statements of LOCAP LLC as of December 31, 2016 and 2015 and for the years ended December 31, 2016, 2015 and 2014 are incorporated herein by reference to Exhibit 99.7 of this Current Report on Form 8-K.
The unaudited condensed financial statements of LOCAP LLC as of June 30, 2017 and December 31, 2016 and for the six months ended June 30, 2017 and 2016 are incorporated herein by reference to Exhibit 99.8 of this Current Report on Form 8-K.
(b)
Pro forma financial information
The MPLX LP unaudited pro forma consolidated financial statements of income for the years ended December 31, 2016, 2015 and 2014 and the six months ended June 30, 2017 and the unaudited pro forma consolidated balance sheet as of June 30, 2017 are incorporated herein by reference to Exhibit 99.9 of this Current Report on Form 8-K.
(d)
Exhibits.

Exhibit Number
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 











SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
MPLX LP
 
 
 
 
 
 
 
By:
 
MPLX GP LLC, its General Partner
 
 
 
 
 
 
 
 
Date: September 1, 2017
By:
 
/s/ Pamela K.M. Beall
 
 
 
Name: Pamela K.M. Beall
 
 
 
Title: Executive Vice President and Chief Financial Officer





Index to Exhibits


 
Exhibit Number
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 








Exhibit 2.1

EXECUTION COPY
MEMBERSHIP INTERESTS AND SHARES CONTRIBUTIONS AGREEMENT
among
MPLX LOGISTICS HOLDINGS LLC,
MPLX HOLDINGS INC.,
MPLX GP LLC,
MPLX LP,
and,
MPC INVESTMENT LLC
Dated September 1, 2017






MEMBERSHIP INTERESTS AND SHARES CONTRIBUTIONS AGREEMENT
THIS MEMBERSHIP INTERESTS AND SHARES CONTRIBUTIONS AGREEMENT (the “ Agreement ”) is entered into on September 1, 2017, by and among MPLX Logistics Holdings LLC, a Delaware limited liability company (“ Logistics ”), MPLX Holdings Inc., a Delaware corporation (“ Holdings ”), MPLX GP LLC, a Delaware limited liability company (“ MPLX GP ”), MPLX LP, a Delaware limited partnership (“ MPLX ”), and MPC Investment LLC, a Delaware limited liability company (“ MPCI ” and, collectively with Logistics, Holdings, MPLX GP and MPLX, the “ Parties ” and each individually a “ Party ”).
WITNESS:
WHEREAS , MPCI is the owner and holder of record of 100% of the outstanding limited liability company membership interests in MPL Louisiana Holdings LLC, a Delaware limited liability company (“ Louisiana ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to Logistics, which is a wholly owned subsidiary of MPCI, limited liability company membership interests in Louisiana representing 17.74% of the total outstanding limited liability company membership interests of Louisiana (the “ Logistics Louisiana Membership Interests ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to Holdings, which is a wholly owned subsidiary of MPCI, limited liability company membership interests in Louisiana representing 7.63% of the total outstanding limited liability company membership interests of Louisiana (the “ Holdings Louisiana Membership Interests ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to MPLX GP, which is a wholly owned subsidiary of MPCI, limited liability company membership interests in Louisiana, representing 74.63% of the total outstanding limited liability company membership interests of Louisiana (the “ MPLX GP Louisiana Membership Interests ”);
WHEREAS , MPCI is the owner and holder of record of 100% of the outstanding limited liability company membership interests in Lincoln Pipeline LLC, a Delaware limited liability company (“ Lincoln ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to Logistics limited liability company membership interests in Lincoln representing 17.74%of the total outstanding limited liability company membership interests of Lincoln (the “ Logistics Lincoln Membership Interests ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to Holdings limited liability company membership interests in Lincoln representing 7.63% of the total

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outstanding limited liability company membership interests of Lincoln (the “ Holdings Lincoln Membership Interests ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute to MPLX GP limited liability company membership interest in Lincoln, representing 74.63% of the total outstanding limited liability company membership interests of Lincoln (the “ MPLX GP Lincoln Membership Interests ”);
WHEREAS , MPCI is the owner and holder of record of 5,372 shares of common stock (the “ Explorer Shares ”) of Explorer Pipeline Company, a Delaware corporation (“ Explorer ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 953 Explorer Shares to Logistics (the “ Logistics Explorer Shares ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 410 Explorer Shares to Holdings (the “ Holdings Explorer Shares ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 4,009 Explorer Shares to MPLX GP (the “ MPLX GP Explorer Shares ”);
WHEREAS , MPCI is the owner and holder of record of 58.52 shares of ownership interest (the “ LOCAP Shares ”) in LOCAP LLC, a Delaware limited liability company (“ LOCAP ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 10.38 LOCAP Shares to Logistics (the “ Logistics LOCAP Shares ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 4.47 LOCAP Shares to Holdings (the “ Holdings LOCAP Shares ”);
WHEREAS , immediately prior to the Effective Time, MPCI will contribute 43.67 LOCAP Shares to MPLX GP (the “MPLX GP LOCAP Shares”);
WHEREAS , on or about the Closing Date, MPLX will borrow money, a portion of which is equal to or in excess of the Cash Consideration (as defined herein), and, to the extent borrowed in advance of the Closing Date, MPLX has deposited and traced such amounts in specific accounts since the borrowing (the “ Partnership Debt ”);
WHEREAS , Logistics is willing and desires to contribute to MPLX and MPLX is willing to accept from Logistics, the Logistics Shares and the Logistics Membership Interests on the terms and conditions set out below;
WHEREAS , Holdings is willing and desires to contribute to MPLX and MPLX is willing to accept from Holdings, the Holdings Shares and the Holdings Membership Interests on the terms and conditions set out below;
WHEREAS , MPLX GP is willing and desires to contribute to MPLX and MPLX is willing to and accepts from MPLX GP, the MPLX GP Shares and the MPLX GP Membership Interests on the terms and conditions set out below; and
WHEREAS , the Parties are willing to make the representations, warranties and covenants and to provide the consideration described in this Agreement.

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NOW, THEREFORE , in consideration of the promises and mutual representations, warranties and covenants in this Agreement, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1      Capitalized terms used in this Agreement have the meanings and are subject to the rules of construction set forth in Appendix A .
ARTICLE II
CONTRIBUTIONS
Section 2.1      MPCI Contributions to Logistics . Immediately prior to the Effective Time and further subject to the terms and conditions provided for in this Agreement, MPCI agrees to contribute the Logistics Shares and the Logistics Membership Interests to Logistics.
Section 2.2      MPCI Contributions to Holdings . Immediately prior to the Effective Time and further subject to the terms and conditions provided for in this Agreement, MPCI agrees to contribute the Holdings Shares and the Holdings Membership Interests to Holdings.
Section 2.3      MPCI Contributions to MPLX GP . Immediately prior to the Effective Time and further subject to the terms and conditions provided for in this Agreement, MPCI agrees to contribute the MPLX GP Shares and MPLX GP Membership Interests to MPLX GP.
Section 2.4      Contribution of the Logistics Membership Interests and Logistics Shares to MPLX . Subject to the terms and conditions provided for in this Agreement, at the Effective Time, Logistics shall contribute, grant, bargain, convey, assign, transfer, set over and deliver to MPLX, its successors and assigns, for its and their own use forever, all of Logistics’ right, title and interest in and to the Logistics Shares and the Logistics Membership Interests.
Section 2.5      Contribution of the Holdings Membership Interests and Holdings Shares to MPLX . Subject to the terms and conditions provided for in this Agreement, at the Effective Time, Holdings shall contribute, grant, bargain, convey, assign, transfer, set over and deliver to MPLX, its successors and assigns, for its and their own use forever, all of Holdings’ right, title and interest in and to the Holdings Shares and the Holdings Membership Interests.
Section 2.6      Contribution of the MPLX GP Membership Interests and MPLX GP Shares to MPLX . Subject to the terms and conditions provided for in this Agreement, at the Effective Time, MPLX GP shall contribute, grant, bargain, convey, assign, transfer, set over and deliver to MPLX, its successors and assigns, for its and their own use forever, all of MPLX GP’s right, title and interest in and to the MPLX GP Shares and the MPLX GP Membership Interests.
ARTICLE III
CONSIDERATION
Section 3.1      Logistics Consideration . In consideration of the contribution by Logistics described in Section 2.4 and subject to the terms and conditions provided for in this Agreement, MPLX (a) agrees to issue to Logistics 3,350,893 Common Units (the “ Logistics Issued Units ”),

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such Logistics Issued Units to be issued in accordance with Section 13.9 , and (b) shall distribute to Logistics at the Closing in accordance with Section 13.3 $74,508,000 funded from the Partnership Debt (the “ Logistics Cash Consideration ”) in exchange for the Logistics Shares and the Logistics Membership Interests. For the avoidance of doubt, the foregoing number of Common Units was determined by dividing $111,762,000 by the simple average of the ten day trading volume weighted average NYSE price of a Common Unit for the ten trading days ending at market close on August 31, 2017.
Section 3.2      Holdings Consideration . In consideration of the contribution by Holdings described in Section 2.5 and subject to the terms and conditions provided for in this Agreement, MPLX (a) agrees to issue to Holdings 1,441,224 Common Units (the “ Holdings Issued Units ”), such Holdings Issued Units to be issued in accordance with Section 13.9, and (b) shall distribute to Holdings at the Closing in accordance with Section 13.3 $32,046,000 funded from the Partnership Debt (the “ Holdings Cash Consideration ”) in exchange for the Holdings Shares and the Holdings Membership Interests. For the avoidance of doubt, the foregoing number of Common Units was determined by dividing $48,069,000 by the simple average of the ten day trading volume weighted average NYSE price of a Common Unit for the ten trading days ending at market close on August 31, 2017.
Section 3.3      MPLX GP Consideration . In consideration of the contribution by MPLX GP described in Section 2.6 and subject to the terms and conditions provided for in this Agreement, MPLX (a) agrees to issue to MPLX GP 377,778 GP Units (the “ MPLX GP Issued GP Units ”) and 13,719,017 Common Units (the “ MPLX GP Issued Common Units ” and, collectively with the MPLX GP Issued GP Units, the “ MPLX GP Issued Units ” and, together with the Logistics Issued Units and Holdings Issued Units, the “ Issued Units ”), such MPLX GP Issued Units to be issued in accordance with Section 13.9 and (b) distribute to MPLX GP at the Closing $313,446,000 funded from the Partnership Debt (the “ MPLX GP Cash Consideration ”) in exchange for the MPLX GP Shares and the MPLX GP Membership Interests. For the avoidance of doubt, (i) the foregoing number of GP Units was determined by dividing $12,600,000 by the simple average of the ten day trading volume weighted average NYSE price of a Common Unit for the ten trading days ending at market close on August 31, 2017; and (ii) the foregoing number of Common Units was determined by dividing $457,569,000 by the simple average of the ten day trading volume weighted average NYSE price of a Common Unit for the ten trading days ending at market close on August 31, 2017.
ARTICLE IV
INDEMNIFICATION
Section 4.1      Indemnification by MPCI, Logistics, Holdings and MPLX GP .
(a)      Subject to Section 4.3 , from and after the Closing Date, each of MPCI, Logistics, Holdings and MPLX GP shall, jointly and severally, indemnify, defend and hold harmless MPLX, and any other of MPLX’s Affiliates and its and their respective directors, members, officers, employees, and representatives (the “ MPLX Indemnitees ”), from and against any losses, liabilities, liens, encumbrances, costs, damages, deficiencies, diminution in value, judgments, demands, suits, assessments, charges, fines, penalties, or expenses (including reasonable attorneys’ fees and other costs of litigation) (“ Losses ”) actually suffered or incurred

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by any of them resulting from, related to, or arising out of (i) the breach of any representation or warranty of MPCI, Logistics, Holdings or MPLX GP contained in this Agreement, in any Exhibit or Appendix to this Agreement, or in any document, instrument, agreement or certificate delivered under this Agreement; (ii) the breach of any covenant or agreement of MPCI, Logistics, Holdings or MPLX GP contained in this Agreement, in any Exhibit or Appendix to this Agreement, or in any document, instrument, agreement or certificate delivered under this Agreement; or (iii) any Excluded Liabilities.
(b)      [RESERVED]
(c)      Solely for the purpose of indemnification pursuant to Section 4.1(a)(i) , the representations and warranties of each of MPCI, Logistics, Holdings and MPLX GP in this Agreement shall be deemed to have been made without regard to any materiality or Material Adverse Effect qualifiers.
Section 4.2      Indemnification by MPLX . Subject to Section 4.3 , from and after the Closing Date, MPLX will indemnify, defend and hold harmless MPCI, Logistics, Holdings, MPLX GP, each of their respective Affiliates and each of their respective Affiliates’ directors, members, officers, employees, and representatives (the “ MPCI Indemnitees ”), from and against any Losses actually suffered or incurred by any of them resulting from, related to, or arising out of (i) the breach of any representation, warranty or covenant of MPLX contained in this Agreement, in any Exhibit or Appendix to this Agreement, or in any document, instrument, agreement or certificate delivered under this Agreement, (ii) any Assumed Liabilities, or (iii) the MPC License Guaranty, but only 80% of such Losses.
Section 4.3      Limitations on Indemnities .
(a)      Subject to the limitations and other provisions of this Agreement, the representations and warranties of the Parties hereto contained in this Agreement and the covenants and agreements of the Parties hereto contained herein required to be fully performed on or before the Closing shall survive for a period of two (2) years from the Closing Date, except for (i) the representations and warranties contained in Sections 5.1 , 5.2 , 5.6 , 5.8 , 7.1 , 7.2 , 7.3 , 7.5 , 7.6 , 8.1 , 8.2 , 8.3 , 8.5 , 8.6 , 10.1 , 10.2 , 10.3 , 10.5 , 10.6 and 10.7 (collectively, the “ Fundamental Representations ”), which shall survive for a period of four (4) years from the Closing Date; and (ii) the representations and warranties contained in Section 5.9 (Environmental Matters), which shall survive for a period of six (6) years from the Closing Date; and (iii) the representations and warranties contained in Section 5.10 (Taxes), which shall survive until the date that is sixty (60) days after the expiration of the applicable statutes of limitations (including all periods of extension and tolling). Each covenant and agreement of the Parties in this Agreement which by its terms requires performance after the Closing Date shall survive the Closing and shall remain in full force and effect until such covenant or agreement is fully performed. If a notice of a claim for indemnification under this ARTICLE IV has been timely given in accordance with this Agreement prior to the expiration of the applicable survival period for the applicable representation, warranty or covenant, then the applicable representation, warranty or covenant shall survive as to such claim, until such claim has been finally resolved.

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(b)      To the extent the MPLX Indemnitees are entitled to indemnification for Losses pursuant to Section 4.1(a)(i) (but not including Losses for breaches of Fundamental Representations or the representations and warranties contained in Section 5.10 ), MPCI, Logistics, Holdings and MPLX GP shall not be liable for those Losses unless the aggregate amount of such Losses exceeds the Deductible, and then only to the extent of any such excess; provided , however , that the aggregate liability to the MPLX Indemnitees pursuant to such Sections (but not including Losses for breaches of Fundamental Representations or the representations and warranties contained in Section 5.10 ) shall not exceed the Cap. The maximum aggregate liability of MPCI, Logistics, Holdings and MPLX GP for Losses under Section 4.1 shall be the Total Value.
(c)      NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, NO PARTY HERETO SHALL BE ENTITLED TO RECOVER FROM ANY OTHER PARTY HERETO ANY AMOUNT IN RESPECT OF EXEMPLARY, PUNITIVE, REMOTE OR SPECULATIVE DAMAGES, EXCEPT, IN EACH CASE, TO THE EXTENT SUCH DAMAGES ARE FINALLY AND JUDICIALLY DETERMINED AND PAID TO AN UNAFFILIATED THIRD PARTY. ALL RELEASES, DISCLAIMERS, LIMITATIONS ON LIABILITY AND INDEMNITIES IN THIS AGREEMENT, INCLUDING THOSE IN THIS ARTICLE IV , SHALL APPLY EVEN IN THE EVENT OF THE SOLE, JOINT, AND/OR CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE, STRICT LIABILITY OR FAULT OF THE PARTY WHOSE LIABILITY IS RELEASED, DISCLAIMED, LIMITED OR INDEMNIFIED (EXCLUDING GROSS NEGLIGENCE, FRAUD OR WILLFUL MISCONDUCT).
Section 4.4      Indemnification Procedures . A MPCI Indemnitee or MPLX Indemnitee, as the case may be (for purposes of this Section 4.4 , an “ Indemnified Party ”), shall give the indemnifying party under Section 4.1 or Section 4.2 , as applicable (for purposes of this Section 4.4 , an “ Indemnifying Party ”), prompt written notice of any matter which it has determined has given or could give rise to a right of indemnification under this Agreement that does not involve a third party, stating the amount of the Loss, if known, and method of computation thereof, containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises; provided , however , that the failure to provide such notice shall not release the Indemnifying Party from its obligations under this ARTICLE IV except to the extent the Indemnifying Party is prejudiced by such failure; provided, further , that any MPLX Indemnitee may give notice of any claim for indemnification under this ARTICLE IV solely to MPCI, as representative of Logistics, Holdings and/or MPLX GP. With respect to a claim for indemnification involving a claim by a third party, the procedures with respect to indemnification shall be governed by the terms of Exhibit 1 .
Section 4.5      Tax Indemnification . With the exception of a breach or inaccuracy of the representations and warranties of MPCI contained in Section 5.10 , nothing in this ARTICLE IV shall apply to liability with respect to Taxes, the liability with respect to which shall be as set forth in ARTICLE XI .
Section 4.6      Additional Matters . The representations, warranties and covenants of an Indemnifying Party, and an Indemnified Party’s right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or on behalf of

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such Indemnified Party or by reason of the fact that such Indemnified Party or any of its Affiliates, advisors or representatives knew or should have known that any such representation or warranty is, was or might be inaccurate.
Section 4.7      Exclusive Remedy . From and after Closing, no party shall have liability under this Agreement or the transactions contemplated hereby except as is provided in this Article IV other than claims or causes of action arising from fraud or willful misconduct.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MPCI
MPCI represents and warrants as of the date hereof as follows:
Section 5.1      Organization and Existence .
(a)      MPCI is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to conduct business in each jurisdiction where the nature of its business or the ownership of its properties require it to be qualified, except where the failure to be so qualified would not constitute a Material Adverse Effect.
(b)      Each of the Contributed Entities has been duly organized and is validly existing in good standing under the laws of the State of Delaware, with full limited liability company power and authority to own, lease and operate the properties and assets it now owns, leases and operates and to carry on its business as and where such properties and assets are now owned or held and such business is now conducted. Each Contributed Entity is duly qualified to transact business and is in good standing as a foreign entity in each other jurisdiction in which such qualification is required for the conduct of its business, except where the failure to so qualify or to be in good standing does not or if continued would not have a Material Adverse Effect. MPCI has delivered to MPLX correct and complete copies of each Contributed Entity’s respective Organizational Documents. None of MPCI nor any Contributed Entity is, or at Closing will be, in breach or default under the terms of any of Organizational Document to which it is a party.
(c)      Each of the Contributed Entities is a holding company formed for the sole purpose of owning the JV Interests that it owns and, since its respective date of formation, has not conducted any business (other than its ownership of the JV Interests that it owns). None of the Contributed Entities has incurred any indebtedness or owns any assets other than the JV Interests that it currently owns.
(d)      Each of LOOP, LOCAP and IEPC is a limited liability company organized and in good standing under the laws of the State of Delaware. Explorer is a corporation organized and in good standing under the laws of the State of Delaware. To the Knowledge of MPCI, each Joint Venture Company is qualified to transact business and is in good standing as a foreign entity in each other jurisdiction in which such qualification is required for the conduct of its business, except where the failure to so qualify or to be in good standing does not or if continued would not have a Material Adverse Effect. MPCI has delivered to MPLX correct and complete copies of each Joint Venture Company’s respective Organizational Documents. To the

8



Knowledge of MPCI, no Joint Venture Company is in breach or default under the terms of any of Organizational Document to which it is a party.
Section 5.2      Authority and Action . MPCI has the limited liability company power and authority to enter into this Agreement and each agreement and instrument to be executed and delivered by MPCI pursuant hereto and to perform all of its obligations and consummate the transactions contemplated hereby and thereby. MPCI has taken all necessary and appropriate limited liability company actions to authorize, execute and deliver this Agreement and each agreement and instrument to be executed and delivered by MPCI pursuant hereto and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each agreement and instrument to be executed and delivered by MPCI pursuant hereto will be when so executed and delivered, duly and validly executed and delivered by MPCI and this Agreement is, and each agreement and instrument to be executed and delivered by MPCI pursuant hereto will be when so executed and delivered, a valid and binding obligation of MPCI enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.
Section 5.3      Consents . No consent, approval, license, permit, order, waiver, or authorization of, or registration, declaration, or filing with, any Governmental Authority or other person or entity is required to be obtained or made by or with respect to MPCI, any Contributed Entity, the Contributed Interests or any of the Joint Venture Companies in connection with:
(a)      the execution, delivery, and performance of this Agreement (or any related instrument or agreement), or the consummation of the transactions contemplated hereby and thereby;
(b)      the enforcement against MPCI of its obligations hereunder and thereunder; or
(c)      following the Closing, the ownership by MPLX of the Contributed Interests;
except, in each case, as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPLX or its Subsidiaries, or as required under the HSR Act.
Section 5.4      No Violation . The execution and delivery of this Agreement (or any related instrument or agreement to be executed and delivered) by MPCI does not, or when executed will not, and the consummation of the transactions contemplated hereby or thereby and the performance by MPCI of the obligations that it is obligated to perform hereunder or thereunder do not, and at the Closing will not:
(a)      conflict with or result in a breach of any of the provisions of any Organizational Documents of MPCI, any of the Contributed Entities or any of the Joint Venture Companies, or result in an alteration of any of the management rights or obligations of MPCI or its Affiliates existing prior to the Closing of any Joint Venture Company;
(b)      result in the creation, violation or acceleration of, or afford any person the right to obtain or accelerate any obligation or indebtedness under, any Lien on the Contributed Interests

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or on property or assets of MPCI, any Contributed Entity or, to the Knowledge of MPCI, any Joint Venture Company, under any indenture, mortgage, lien, agreement, contract, commitment or instrument;
(c)      conflict with any municipal, state or federal ordinance, law (including common law), rule, regulation, judgment, order, writ, injunction, or decree applicable to MPCI, any of the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company; or
(d)      conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any Material Contract, consent, authorization or approval under, any indenture, mortgage, lien or agreement, contract, commitment or instrument to which MPCI, any Contributed Entity or, to the Knowledge of MPCI, any Joint Venture Company is a party or by which any of them is bound or to which any of the Contributed Interests are subject;
except, in the case of clauses (b), (c) and (d), as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPLX or its Subsidiaries and except for such as will have been cured at or prior to the Closing.
Section 5.5      Information .
(a)      To the best of MPCI’s Knowledge, this Agreement (and all related documents) does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements herein not misleading and MPCI has not intentionally withheld disclosure from the Conflicts Committee of any fact that would constitute a Material Adverse Effect.
(b)      The projections and budgets (the “ Financial and Operational Information ”) provided to the Conflicts Committee (including those provided to the Financial Advisor) as part of the Conflicts Committee’s review in connection with this Agreement have a reasonable basis, were prepared in good faith and are consistent with MPCI’s (and its applicable Affiliates’) management’s current expectations, which it believes are reasonable. The other financial and operational information provided to the Financial Advisor as part of its review of the proposed transaction for the Conflicts Committee is derived from and is consistent in all material respects with MPCI’s (and its applicable Affiliates’) books and records.
Section 5.6      Brokers . Neither MPCI nor any of its Affiliates has incurred any liability, contingent or otherwise, for any brokerage fee, commission or financial advisory fee in connection with the transactions contemplated by this Agreement.
Section 5.7      Laws and Regulations; Litigation . There are no pending or, to MPCI’s Knowledge, threatened claims, fines, actions, suits, demands, investigations or proceedings or any arbitration or binding dispute resolution proceeding (collectively, “ Litigation ”) against any of MPCI, the Contributed Entities or, to MPCI’s Knowledge, the Joint Venture Companies, or against or affecting the Contributed Interests or the ownership of the Contributed Interests (other than Litigation under any Environmental Law, which is the subject of Section 5.9 ) that (i) would individually, or in the aggregate, have a Material Adverse Effect or (ii) seek any material

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injunctive relief with respect to the Contributed Interests. Except as would not, individually or in the aggregate, have a Material Adverse Effect, (x) none of Logistics, Holdings, MPLX GP, the Contributed Entities or, to MPCI’s Knowledge, the Joint Venture Companies is in violation of or in default under any municipal, state or federal ordinance, law (including common law), rule or regulation or under any order (other than Environmental Laws, which are the subject of Section 5.9 ) of any Governmental Authority and (y) there is no Litigation (other than Litigation under any Environmental Law, which is the subject of Section 5.9 ) pending or, to the MPCI’s Knowledge, threatened against or affecting Logistics, Holdings, MPLX GP, the Contributed Entities, the Contributed Interests, MPCI’s ownership of the Contributed Interests or, to MPCI’s Knowledge, the Joint Venture Companies, at law or in equity, by or before any Governmental Authority having jurisdiction over any of MPCI, the Contributed Entities or the Joint Venture Companies. Except as would not, individually or in the aggregate, have a Material Adverse Effect, no Litigation is pending or, to MPCI’s Knowledge, threatened to which MPCI or any of its Affiliates is or may become a party that questions or involves the validity or enforceability of any of its respective obligations under this Agreement or seeks to prevent or delay, or damages in connection with, the consummation of the transactions contemplated hereby.
Section 5.8      Membership Interests and Shares .
(a)      The Membership Interests constitute 100% of the limited liability company interests in the Contributed Entities, and were duly authorized and validly issued and are fully paid and non-assessable. The Explorer Shares constitute a 24.51% equity interest in Explorer and were duly authorized and validly issued and are fully paid and non-assessable. The LOCAP Shares constitute a 58.52% ownership interest in LOCAP and were duly authorized and validly issued and are fully paid and non-assessable. None of the Contributed Interests, the Explorer Shares or the LOCAP Shares (i) are, except as set forth in the Organizational Documents of the Contributed Entities, LOCAP or Explorer, subject to or (ii) were issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of local, state or federal law applicable to such Contributed Interests, the Organizational Documents of the Contributed Entities, LOCAP or Explorer, or any contract, arrangement or agreement to which MPCI, the Contributed Entities, LOCAP, Explorer or any of their respective Subsidiaries is a party or to which it or any of their respective properties or assets is otherwise bound.
(b)      Immediately prior to the Pre-Effective Time Transactions, MPCI has good and valid record and beneficial title to the Contributed Interests, free and clear of any and all Liens, and, except as provided or created by the limited liability company agreement or other Organizational Documents of any Contributed Entity, LOCAP or Explorer, the 1933 Act or applicable state securities laws, the Contributed Interests are free and clear of any restrictions on transfer, Taxes, or claims. Except as set forth in the Organizational Documents of MPCI, Logistics, Holdings, MPLX GP, the Contributed Entities, LOCAP or Explorer, there are no options, warrants, purchase rights, contracts, commitments or other securities exercisable or exchangeable for any equity interests of the Contributed Entities or, to the Knowledge of MPCI, LOCAP or Explorer, any other commitments or agreements of MPCI, the Contributed Entities or any of their respective Affiliates, or to the Knowledge of MPCI, LOCAP or Explorer providing for the issuance of additional equity interests in the Contributed Entities, LOCAP or Explorer, or for the repurchase or redemption of the Contributed Interests, or any agreements of any kind

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which may obligate any Contributed Entity or LOCAP or Explorer to issue, purchase, register for sale, redeem or otherwise acquire any of its equity interests. Immediately following the Pre-Effective Time Transactions and prior to the Contributions, (i) Logistics will have good and valid record and beneficial title to the Logistics Membership Interests, (ii) Holdings will have good and valid record and beneficial title to the Holdings Shares and the Holdings Membership Interests, and (iii) MPLX GP will have good and valid record and beneficial title to the MPLX GP Membership Interests. Immediately following the Contributions, MPLX will have good and valid record and beneficial title to such Contributed Interests, free and clear of any Liens.
(c)      The Contributed Entities have good and valid record and beneficial title to the JV Interests, free and clear of any and all Liens, and, except as provided or created by the Organizational Documents of any Joint Venture Company, the 1933 Act or applicable state securities laws, the JV Interests are free and clear of any restrictions on transfer, Taxes, or claims. To the Knowledge of MPCI and except as set forth in the Organizational Documents of any Joint Venture Company, there are no options, warrants, purchase rights, Contracts, commitments or other securities exercisable or exchangeable for any equity interests of the Joint Venture Companies, any other commitments or agreements providing for the issuance of additional equity interests in any Joint Venture Company, or for the repurchase or redemption of any of the JV Interests, or any agreements of any kind which may obligate any Joint Venture Company to issue, purchase, register for sale, redeem or otherwise acquire any of its equity interests.
(d)      Lincoln owns a direct 35% limited liability company interest in IEPC (the “ IEPC Interest ”) and Louisiana owns a direct 40.7% limited liability company interest in LOOP (the “ LOOP Interest ”). Such limited liability company interests were duly authorized and validly issued and are fully paid. None of such limited liability company interests (i) are, except as set forth in the Organizational Documents of LOOP or IECP, subject to or (ii) were issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of local or state law applicable to such limited liability company interest, the Organizational Documents of LOOP or IEPC, or any contract, arrangement or agreement to which MPCI, any Contributed Entity, any Joint Venture Company, or any of their respective Subsidiaries is a party or to which it or any of their respective properties or assets is otherwise bound. Since its formation, neither Lincoln nor Louisiana has conducted any business other than the ownership of the IEPC Interest and the LOOP Interest, respectively.
Section 5.9      Environmental Matters . Except as would not, individually or in the aggregate, have a Material Adverse Effect:
(a)      the Contributed Entities and, to MPCI’s Knowledge, the Joint Venture Companies are operated in compliance with Environmental Laws;
(b)      none of the Contributed Entities or, to MPCI’s Knowledge, the Joint Venture Companies is the subject of any outstanding administrative or judicial order of judgment, agreement or arbitration award from any Governmental Authority under any Environmental Law and requiring remediation or the payment of a fine or penalty;

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(c)      neither the Contributed Entities, nor, to MPCI’s Knowledge, the Joint Venture Companies are subject to any pending Litigation under any Environmental Law with respect to the operation of the business of the Contributed Entities and Joint Venture Companies, as applicable, with respect to which the Contributed Entities or Joint Venture Companies have been contacted in writing by or on behalf of the plaintiff or claimant; and
(d)      neither the Contributed Entities nor, to MPCI’s Knowledge, the Joint Venture Companies have any liability in connection with the release into the environment of any Hazardous Material.
Section 5.10      Taxes .
(a)      All material Tax Returns that are required to be filed by or with respect to the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company on or prior to the Closing Date (taking into account any valid extension of time within which to file) have been or will be timely filed on or prior to the Closing Date and all such Tax Returns are or will be true, correct and complete in all material respects.
(b)      All material Taxes due and payable by or with respect to the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company (whether or not shown on any Tax Return) have been fully paid, and all deficiencies asserted or assessments made with respect to such Tax Returns have been paid in full or properly accrued.
(c)      No Tax Proceeding of or with respect to the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company is currently pending or has been proposed in writing or has been threatened that constitutes a Material Adverse Effect.
(d)      No waivers or extensions of statutes of limitations have been given or requested in writing with respect to any amount of Taxes of or with respect to the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company or any Tax Returns of or with respect the Contributed Entities or, to the Knowledge of MPCI, any Joint Venture Company.
(e)      Since the date of their formation, for U.S. federal income Tax purposes, each Contributed Entity has been classified as an entity that is disregarded as being separate from its owner.
(f)      None of the Contributed Entities or any of the Joint Venture Companies is a party to a Tax allocation or sharing agreement or similar arrangement.
Section 5.11      Financial Statements .
(a)      MPCI has made available to MPLX the Joint Venture Companies Financial Statements.
(b)      To Knowledge of MPCI, the Joint Venture Companies Financial Statements fairly present in all material respects the financial condition of the applicable Joint Venture Company at the dates specified and the results of operations of the applicable Joint Venture company for

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the periods specified in accordance with U.S. generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby.
Section 5.12      Material Contracts .
(a)      To the Knowledge of MPCI, each Material Contract is, and at Closing will be, in full force and effect, and no party thereto is in breach or default thereunder and no event has occurred that upon receipt of notice or lapse of time or both would constitute any breach or default thereunder, except for such breaches or defaults as would not, individually or in the aggregate, constitute a Material Adverse Effect. To the Knowledge of MPCI, no Joint Venture Company has given or received from any third party any notice of any action or intent to terminate or amend in any material respect any Material Contract.
(b)      The Organizational Documents, as provided to MPLX, of each of MPCI, the Contributed Entities, and, to the Knowledge of MPCI, the Joint Venture Companies, are, and at the Closing will be, in full force and effect and have not been modified in any manner.
Section 5.13      No Adverse Changes . To the Knowledge of MPCI, except as set forth on Schedule 5.13 , since December 31, 2016:
(a)      there has not been a Material Adverse Effect;
(b)      the Joint Venture Companies have been operated and maintained in the ordinary course of business consistent with past practices;
(c)      except in the ordinary course consistent with past practices, none of the Joint Venture Companies has sold, transferred or disposed of any assets;
(d)      there has not been any material damage or destruction to any material assets of the Joint Venture Companies other than such damage or destruction that has been repaired;
(e)      none of the Joint Venture Companies has changed any accounting method or practice that is inconsistent with past practice in a way that would materially and adversely affect its business;
(f)      none of the Joint Venture Companies has liquidated, dissolved, recapitalized or otherwise wound up itself or its business; and
(g)      none of the Joint Venture Companies has agreed to do any of the foregoing.
Section 5.14      Employees; Plans . The Contributed Entities do not have and have never had, any employees, independent contractors, or consultants. The Contributed Entities do not currently and have never maintained or contributed to any Plan or been a participating employer in any Plan. Neither Contributed Entity has any liability, contingent or otherwise, with respect to any Plan. Permits Each of the Contributed Entities and, to the Knowledge of MPCI, each of the Joint Venture Companies possesses and is in material compliance with all material Permits required by law, necessary for the conduct of its business and the ownership and operation of its

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assets, except as would not, individually or in the aggregate, constitute a Material Adverse Effect.
Section 5.15      Insurance . All insurance policies, if any, carried by or maintained for the benefit of the Contributed Entities and, to the Knowledge of MPCI, any Joint Venture Company (the “ Insurance Policies ”) are in full force and effect, and, to the Knowledge of MPCI, the parties thereto are not in breach or default thereunder.
Section 5.16      Disclaimer of Warranties . Except as expressly set forth in this ARTICLE V or in any agreement or instrument to be executed by MPCI in connection with the transactions contemplated hereby, MPCI makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing), including, without limitation, any opinion, information or advice that may have been provided by any officer, shareholder, director, employee, agent or consultant of MPCI or its Affiliates. EXCEPT AS SPECIFICALLY REPRESENTED AND WARRANTED IN THIS ARTICLE V , THE CONTRIBUTION OF THE MEMBERSHIP INTERESTS IS ON AN “AS IS” BASIS, AND MPCI DISCLAIMS ANY WARRANTY OF MERCHANTABILITY AND ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE VI
[Intentionally Left Blank]
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF LOGISTICS
Logistics represents and warrants as of the date hereof as follows:
Section 7.1      Logistics Membership Interests and Logistics Shares . Immediately before its contribution of such interests to MPLX, Logistics will own the Logistics Membership Interests and Logistics Shares free and clear of all Liens except as set forth in the Logistics Organizational Documents and except for restrictions on transfer under applicable federal and state securities laws. As of the Effective Time, the Logistics Membership Interests and Logistics Shares will be validly issued, fully paid, and non-assessable.
Section 7.2      Organization . Logistics is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires it to be qualified, except to the extent that the failure to be so qualified would not have a Material Adverse Effect. Logistics has the limited liability company power to conduct its business as presently conducted and to own and hold the properties used in connection therewith.
Section 7.3      Authority and Action . Logistics has the limited liability company power and authority to enter into this Agreement and each agreement and instrument to be executed and delivered by Logistics pursuant hereto and to perform all of its obligations and consummate the transactions contemplated hereby and thereby. Logistics has taken all necessary and appropriate

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limited liability company actions to authorize, execute and deliver this Agreement and each agreement and instrument to be executed and delivered by Logistics pursuant hereto and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each agreement and instrument to be executed and delivered by Logistics pursuant hereto will be when so executed and delivered, duly and validly executed and delivered by Logistics and constitutes or when so executed will constitute a valid and binding obligation of Logistics, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.
Section 7.4      No Violation . The execution and delivery of this Agreement (or any related instrument or agreement to be executed and delivered) by Logistics does not, or when executed will not, and the consummation of the transactions contemplated hereby or thereby and the performance by Logistics of the obligations that it is obligated to perform hereunder or thereunder do not, and at the Closing will not:
(a)      conflict with or result in a breach of any of the provisions of any Organizational Documents of Logistics, Lincoln or a Joint Venture Company;
(b)      result in the creation, violation or acceleration of, or afford any person the right to obtain or accelerate any obligation or indebtedness under, any Lien on the Logistics Membership Interests, Logistics Shares or on property or assets of Logistics, Lincoln, Louisiana or, to the Knowledge of Logistics, any of IEPC, LOOP, LOCAP, or Explorer under any indenture, mortgage, lien, agreement, contract, commitment or instrument;
(c)      conflict with any municipal, state or federal ordinance, law (including common law), rule, regulation, judgment, order, writ, injunction, or decree applicable to Logistics, Lincoln, Louisiana or, to the Knowledge of Logistics, IEPC, LOOP, LOCAP or Explorer; or
(d)      conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any Material Contract, consent, authorization or approval under, any indenture, mortgage, lien or agreement, contract, commitment or instrument to which Logistics, Lincoln, Louisiana or, to the Knowledge of Logistics, IEPC, LOOP, LOCAP or Explorer is a party or by which any of them is bound or to which any of the Logistics Membership Interests or Logistics Shares are subject;
except, in the case of clauses (b), (c) and (d), as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPLX or its Subsidiaries and except for such as will have been cured at or prior to the Closing.
Section 7.5      Common Units .
(a)      Logistics understands that the Common Units to be issued to it pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and neither MPLX nor any of its Affiliates has any obligation to register the Common Units under the 1933 Act or to register or qualify the offer or sale of the Common

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Units with any state on the basis that the offering is exempt from registration under the 1933 Act and the rules and regulations promulgated thereunder. Logistics further acknowledges that the Common Units cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state securities laws or unless an exemption from registration or qualification is then available. As such, Logistics further agrees that it will not sell, assign, or transfer any Common Units unless such Common Units are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to Logistics. Logistics understands that there may not be a public market for the Common Units and represents that it can afford to hold such Common Units for an indefinite period of time.
(b)      Logistics is acquiring the Common Units as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 7.6      Disclaimer of Warranties . Except as expressly set forth in this ARTICLE VII or in any agreement or instrument to be executed by Logistics in connection with the transactions contemplated hereby, Logistics makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing), including, without limitation, any opinion, information or advice that may have been provided by any officer, shareholder, director, employee, agent or consultant of Logistics, or its Affiliates.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF HOLDINGS
Holdings represents and warrants as of the date hereof as follows:
Section 8.1      Holdings Membership Interests and Holdings Shares . Immediately before its contribution of such interests to MPLX, Holdings will own the Holdings Membership Interests and the Holdings Shares free and clear of all Liens except as set forth in the Holdings Organizational Documents and except for restrictions on transfer under applicable federal and state securities laws. As of the Effective Time, the Holdings Membership Interests and the Holdings Shares will be validly issued, fully paid, and non-assessable.
Section 8.2      Organization . Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires it to be qualified, except to the extent that the failure to be so qualified would not have a Material Adverse Effect. Holdings has the corporate power to conduct its business as presently conducted and to own and hold the properties used in connection therewith.
Section 8.3      Authority and Action . Holdings has the corporate power and authority to enter into this Agreement and each agreement and instrument to be executed and delivered by Holdings pursuant hereto and to perform all of its obligations and consummate the transactions contemplated hereby and thereby. Holdings has taken all necessary and appropriate corporate

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actions to authorize, execute and deliver this Agreement and each agreement and instrument to be executed and delivered by Holdings pursuant hereto and to consummate the transactions contemplated hereby or thereby. This Agreement has been, and each agreement and instrument to be executed and delivered by Holdings pursuant hereto will be when so executed and delivered, duly and validly executed and delivered by Holdings and constitutes or when so executed will constitute a valid and binding obligation of Holdings, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.
Section 8.4      No Violation . The execution and delivery of this Agreement (or any related instrument or agreement to be executed and delivered) by Holdings does not, or when executed will not, and the consummation of the transactions contemplated hereby or thereby and the performance by Holdings of the obligations that it is obligated to perform hereunder or thereunder do not, and at the Closing will not:
(a)      conflict with or result in a breach of any of the provisions of any Organizational Documents of Holdings, Lincoln, Louisiana, or a Joint Venture Company;
(b)      result in the creation, violation or acceleration of, or afford any person the right to obtain or accelerate any obligation or indebtedness under, any Lien on the Holdings Shares or the Holdings Membership Interests or on property or assets of Holdings, Louisiana, Lincoln or, to the Knowledge of Holdings, any of Explorer, LOCAP or LOOP, under any indenture, mortgage, lien, agreement, contract, commitment or instrument;
(c)      conflict with any municipal, state or federal ordinance, law (including common law), rule, regulation, judgment, order, writ, injunction, or decree applicable to Holdings, Louisiana, Lincoln or, to the Knowledge of Holdings, any of Explorer, LOCAP or LOOP; or
(d)      conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any Material Contract, consent, authorization or approval under, any indenture, mortgage, lien or agreement, contract, commitment or instrument to which Holdings, Louisiana, Lincoln or, to the Knowledge of Holdings, any of Explorer, LOCAP or LOOP is a party or by which any of them is bound or to which any of the Holdings Shares or the Holdings Membership Interests are subject;
except, in the case of clauses (b), (c) and (d), as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPLX or its Subsidiaries and except for such as will have been cured at or prior to the Closing.
Section 8.5      Common Units .
(a)      Holdings understands that the Common Units to be issued to it pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and neither MPLX nor any of its Affiliates has any obligation to register the Common Units under the 1933 Act or to register or qualify the offer or sale of the Common Units with any state on the basis that the offering is exempt from registration under the 1933 Act

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and the rules and regulations promulgated thereunder. Holdings further acknowledges that the Common Units cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state securities laws or unless an exemption from registration or qualification is then available. As such, Holdings further agrees that it will not sell, assign, or transfer any Common Units unless such Common Units are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to Holdings. Holdings understands that there may not be a public market for the Common Units and represents that it can afford to hold such Common Units for an indefinite period of time.
(b)      Holdings is acquiring the Common Units as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 8.6      Disclaimer of Warranties . Except as expressly set forth in this ARTICLE VIII or in any agreement or instrument to be executed by Holdings in connection with the transactions contemplated hereby, Holdings makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing), including, without limitation, any opinion, information or advice that may have been provided by any officer, shareholder, director, employee, agent or consultant of Holdings, or its Affiliates.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES OF MPLX
MPLX represents and warrants as of the date hereof as follows:
Section 9.1      Issued Units . The issuance of the Issued Units pursuant to this Agreement have been duly authorized and approved by all necessary limited partnership actions, and the Issued Units, when issued, will be validly issued, fully paid and non-assessable (except as such non-assessability may be affected by Sections 17-303, 17-607 or 17-804 of the Delaware Revised Uniform Limited Partnership Act, as amended).
Section 9.2      Organization . MPLX is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires it to be qualified, except to the extent that the failure to be so qualified would not have a Material Adverse Effect. MPLX has the limited partnership power to conduct its business as presently conducted and to own and hold the properties used in connection therewith.
Section 9.3      Authority and Action . MPLX has the limited partnership power and authority to enter into this Agreement and each agreement and instrument to be executed and delivered by MPLX pursuant hereto and to perform all of its obligations and consummate the transactions contemplated hereby and thereby. MPLX has taken all necessary and appropriate limited partnership actions to authorize, execute and deliver this Agreement and each agreement and instrument to be executed and delivered by MPLX pursuant hereto and to consummate the

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transactions contemplated hereby or thereby. This Agreement has been, and each agreement and instrument to be executed and delivered by Holdings pursuant hereto will be when so executed and delivered, duly and validly executed and delivered by MPLX and constitutes or when so executed will constitute a valid and binding obligation of MPLX, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.
Section 9.4      No Violation . The execution and delivery of this Agreement (or any related instrument or agreement) by MPLX does not, or when executed will not, and the consummation of the transactions contemplated hereby or thereby and the performance by MPLX of the obligations that it is obligated to perform hereunder or thereunder do not, and at the Closing will not:
(a)      conflict with or result in a breach of any of the provisions of any Organizational Documents of MPLX;
(b)      result in the creation, violation or acceleration of, or afford any person the right to obtain or accelerate any obligation or indebtedness under, any Lien on the partnership interests of MPLX or on property or assets of MPLX, under any indenture, mortgage, lien, agreement, contract, commitment or instrument;
(c)      conflict with any municipal, state or federal ordinance, law (including common law), rule, regulation, judgment, order, writ, injunction, or decree applicable to MPLX; or
(d)      conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any Material Contract, consent, authorization or approval under, any indenture, mortgage, lien or agreement, contract, commitment or instrument to which MPLX is a party or by which any of them is bound or to which any of the partnership interests of MPLX are subject;
except, in the case of clauses (b), (c) and (d), as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPCI or its Affiliates and except for such as will have been cured at or prior to the Closing.
Section 9.5      Logistics Membership Interests and Logistics Shares .
(a)      MPLX understands that the Logistics Membership Interests and the Logistics Shares to be contributed pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and Logistics has no obligation to register the Logistics Membership Interests or the Logistics Shares under the 1933 Act or to register or qualify the offer or sale of the Logistics Membership Interests or the Logistics Shares with any state on the basis that the offering is exempt from registration under the 1933 Act and the rules and regulations promulgated thereunder. MPLX further acknowledges that the Logistics Membership Interests and the Logistics Shares cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state

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securities laws or unless an exemption from registration or qualification is then available. As such, MPLX further agrees that it will not sell, assign, or transfer any Logistics Membership Interests or Logistics Shares unless such Logistics Membership Interests or the Logistics Shares are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to MPLX. MPLX understands that there is not, nor is there likely to be, a public market for the Logistics Membership Interests or the Logistics Shares and represents that it can afford to hold such Logistics Membership Interests and the Logistics Shares for an indefinite period of time.
(b)      MPLX is acquiring the Logistics Membership Interests and the Logistics Shares as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 9.6      Holdings Membership Interests and Shares .
(a)      MPLX understands that the Holdings Membership Interests and the Holdings Shares to be contributed pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and Holdings has no obligation to register the Holdings Membership Interests or the Holdings Shares under the 1933 Act or to register or qualify the offer or sale of the Holdings Membership Interests or the Holdings Shares with any state on the basis that the offering is exempt from registration under the 1933 Act and the rules and regulations promulgated thereunder. MPLX further acknowledges that the Holdings Membership Interests and the Holdings Shares cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state securities laws or unless an exemption from registration or qualification is then available. As such, MPLX further agrees that it will not sell, assign, or transfer any Holdings Membership Interests or the Holdings Shares unless such Holdings Membership Interests or the Holdings Shares are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to MPLX. MPLX understands that there is not, nor is there likely to be, a public market for the Holdings Membership Interests or the Holdings Shares and represents that it can afford to hold such Holdings Membership Interests and the Holdings Shares for an indefinite period of time.
(b)      MPLX is acquiring the Holdings Membership Interests and Holdings Shares as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 9.7      MPLX GP Membership Interests and MPLX GP Shares .
(a)      MPLX understands that the MPLX GP Membership Interests and MPLX GP Shares to be contributed pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and MPLX GP has no obligation to register the MPLX GP Membership Interests or MPLX GP Shares under the 1933 Act or to

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register or qualify the offer or sale of the MPLX GP Membership Interests or MPLX GP Shares with any state on the basis that the offering is exempt from registration under the 1933 Act and the rules and regulations promulgated thereunder. MPLX further acknowledges that the MPLX GP Membership Interests and MPLX GP Shares cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state securities laws or unless an exemption from registration or qualification is then available. As such, MPLX further agrees that it will not sell, assign or transfer any MPLX GP Membership Interests or MPLX GP Shares unless such MPLX GP Membership Interests or MPLX GP Shares are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to MPLX. MPLX understands that there is not, nor is there likely to be, a public market for the MPLX GP Membership Interests and MPLX GP Shares and represents that it can afford to hold such MPLX GP Membership Interests and MPLX GP Shares for an indefinite period of time.
(b)      MPLX is acquiring the MPLX GP Membership Interests and MPLX GP Shares as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 9.8      Disclaimer of Warranties . Except as expressly set forth in this ARTICLE IX or in any agreement or instrument to be executed by MLX in connection with the transactions contemplated hereby, MPLX makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing), including, without limitation, any opinion, information or advice that may have been provided by any officer, shareholder, director, employee, agent or consultant of MPLX, or its Affiliates.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF MPLX GP
MPLX GP represents and warrants as of the date hereof as follows:
Section 10.1      MPLX GP Membership Interests and MPLX GP Shares . Assuming the accuracy of the representations and warranties of MPCI set forth in Section 5.8(b) . as of the Closing, MPLX GP will own the MPLX GP Membership Interests and MPLX GP Shares free and clear of all Liens except as provided or created by the MPLX GP Organizational and except for restrictions on transfer under applicable federal or state securities laws. As of the Closing, the MPLX GP Membership Interests and MPLX GP Shares will be validly issued, fully paid, and non-assessable.
Section 10.2      Organization . MPLX GP is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in each jurisdiction where the nature of its business or the ownership of its properties requires it to be qualified, except to the extent that the failure to be so qualified would not have a Material Adverse Effect. MPLX GP has the limited liability company power to conduct its business as presently conducted and to own and hold the properties used in connection therewith.

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Section 10.3      Authority and Action . MPLX GP has the limited liability company power and authority to enter into this Agreement and each agreement and instrument to be executed and delivered by MPLX GP pursuant hereto and to perform all of its obligations and consummate the transactions contemplated hereby and thereby. MPLX GP taken all necessary and appropriate limited liability company actions to authorize, execute and deliver this Agreement and each agreement and instrument to be executed and delivered by MPLX GP pursuant hereto and to consummate the transactions contemplated hereby or thereby. This Agreement has been, and each agreement and instrument to be executed and delivered by MPLX GP pursuant hereto will be when so executed and delivered, duly and validly executed and delivered by MPLX GP and constitutes or when so executed will constitute a valid and binding obligation of MPLX GP, enforceable in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity.
Section 10.4      No Violation . The execution and delivery of this Agreement (or any related instrument or agreement to be executed and delivered) by MPLX GP does not, or when executed will not, and the consummation of the transactions contemplated hereby or thereby and the performance by MPLX GP of the obligations that it is obligated to perform hereunder or thereunder do not, and at the Closing will not:
(a)      conflict with or result in a breach of any of the provisions of any Organizational Documents of MPLX GP, Lincoln, Louisiana or a Joint Venture Company;
(b)      result in the creation, violation or acceleration of, or afford any person the right to obtain or accelerate any obligation or indebtedness under, any Lien on the MPLX GP Membership Interests or MPLX GP Shares or on property or assets of MPLX GP, Lincoln, Louisiana or, to the Knowledge of MPLX GP, a Joint Venture Company, under any indenture, mortgage, lien, agreement, contract, commitment or instrument;
(c)      conflict with any municipal, state or federal ordinance, law (including common law), rule, regulation, judgment, order, writ, injunction, or decree applicable to MPLX GP, Lincoln, Louisiana or, to the Knowledge of MPLX GP, a Joint Venture Company; or
(d)      conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both) or accelerate or permit the acceleration of the performance required by, or require any Material Contract, consent, authorization or approval under, any indenture, mortgage, lien or agreement, contract, commitment or instrument to which MPLX GP, Lincoln, Louisiana or, to the Knowledge of MPLX GP, a Joint Venture Company is a party or by which any of them is bound or to which any of the MPLX GP Membership Interests are subject;
except, in the case of clauses (b), (c) and (d), as would not have, individually or in the aggregate, a Material Adverse Effect or result in any material loss, cost or liability of MPCI or its Affiliates and except for such as will have been cured at or prior to the Closing.


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Section 10.5      GP Units .
(a)      MPLX GP understands that the MPLX GP Issued Units to be issued to it pursuant to this Agreement will not, when so issued, be registered under the 1933 Act, or under any applicable state securities laws, and neither MPLX nor any of its Affiliates has any obligation to register any of the MPLX GP Issued Units under the 1933 Act or to register or qualify the offer or sale of the GP Units with any state on the basis that the offering is exempt from registration under the 1933 Act and the rules and regulations promulgated thereunder. MPLX GP further acknowledges that the MPLX GP Issued Common Units cannot be sold, assigned, or otherwise transferred unless subsequently registered under the 1933 Act and under applicable state securities laws or unless an exemption from registration or qualification is then available. As such, MPLX GP further agrees that it will not sell, assign, or transfer any MPLX GP Issued Common Units unless such MPLX GP Issued Common Units are registered under the 1933 Act and qualified under applicable state securities laws or unless an exemption from such registration or qualification is then available in the reasonable opinion of counsel to MPLX GP. MPLX GP understands that there may not be a public market for the MPLX GP Issued Common Units and represents that it can afford to hold such GP Units for an indefinite period of time.
(b)      MPLX GP is acquiring the MPLX GP Issued Units as contemplated herein for its own account and for its purposes only, with no intention of assigning any participation or interest therein, and not with a view to, or in connection with, making a distribution thereof in violation of federal or state securities laws.
Section 10.6      [Intentionally Omitted].
Section 10.7      Disclaimer of Warranties . Except as expressly set forth in this ARTICLE X or in any agreement or instrument to be executed by MPLX GP in connection with the transactions contemplated hereby, MPLX GP makes no representations or warranties whatsoever and disclaims all liability and responsibility for any other representation, warranty, statement or information made or communicated (orally or in writing), including, without limitation, any opinion, information or advice that may have been provided by any officer, shareholder, director, employee, agent or consultant of MPLX GP, or its Affiliates.
ARTICLE XI
COVENANTS
Section 11.1      Distributions and Dividends .
(a)      To the extent that MPLX or any of its Subsidiaries receives dividends or distributions of cash from LOOP, IEPC or Explorer related to activities in the third quarter of 2017, such distributions shall be prorated on a daily basis between MPCI and MPLX, with MPLX retaining the prorated portion of such distributions for the period beginning on the Closing Date through September 30, 2017. The prorated portion of such distributions for the period beginning July 1, 2017 up to, but not including, the Closing Date shall be promptly paid by MPLX to MPCI. Similarly, to the extent that MPCI or any of its Subsidiaries receives dividends or distributions of cash from LOOP, IEPC or Explorer related to activities in the third quarter of 2017, such distributions shall be prorated on a daily basis between MPCI and MPLX,

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with MPCI retaining the prorated portion of such distributions for the period beginning on July 1, 2017 and ending on, but not including the Closing Date. The prorated portion of such distributions for the period beginning on the closing date up to, and including, September 30, 2017 shall be promptly paid by MPCI to MPLX.
(b)      To the extent that MPLX or any of its Subsidiaries receives distributions of cash from LOCAP related to activities in the second half of 2017, such distributions shall be prorated on a daily basis between MPCI and MPLX, with MPLX retaining the prorated portion of such distributions for the period beginning on the Closing Date through December 31, 2017. The prorated portion of such distributions for the period beginning July 1, 2017 up to, but not including, the Closing Date shall be promptly paid by MPLX to MPCI. Similarly, to the extent that MPCI or any of its Subsidiaries receives distributions of cash from LOCAP related to activities in the second half of 2017, such distributions shall be prorated on a daily basis between MPCI and MPLX, with MPCI retaining the prorated portion of such distributions for the period beginning on July 1, 2017 through, but not including, the Closing Date. The prorated portion of such distributions for the period beginning on and including the Closing Date through and including December 31, 2017 shall be promptly paid by MPCI to MPLX.
Section 11.2      LOOP Inventory Sale Distribution . To the extent MPLX or any of its Subsidiaries receives any distribution of cash from LOOP related to the sale of the LOOP Hydrocarbon Inventory, such amounts shall be promptly paid by MPLX to MPCI.
Section 11.3      Prorating Distributions on Common Units . The Parties hereto acknowledge and agree that the quarterly distribution to be paid on the Common Units to be issued by MPLX in connection with the Closing and comprising the Logistics Issued Units, Holdings Units or MPLX GP Issued Common Units for the calendar quarter ending September 30, 2017 shall be reduced to be an amount per such Common Unit equal to the product of the amount declared by MPLX as the distribution per Common Unit for such quarter times a fraction, which fraction is 30/92. In addition, the amount distributed in respect of the calendar quarter ending September 30, 2017 shall give effect to the reduced amount so distributed in respect of such quarter in respect of the Logistics Issued Units, Holdings Units and MPLX GP Issued Common Units. The Parties agree to assure the fungibility of the Logistics Issued Units, Holdings Units and MPLX GP Issued Common Units under Section 6.1(d)(x) of the MPLX Partnership Agreement notwithstanding the effect of the first sentence of this Section 11.3.
Section 11.4      Further Assurances . In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents evidencing MPLX’s ownership of the Explorer Shares and LOCAP Shares) as the other Parties reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor).
Section 11.5      Tax Covenants .
(a)      The Parties agree that the income related to the Contributed Entities’ respective interests in LOOP and IEPC for all tax periods (or any portion thereof) up to and including the Closing Date will be reflected on the federal income Tax Return of MPCI and that MPCI shall

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bear the liability and indemnify MPLX for any Taxes associated with the ownership of such interests. The Parties further agree that the income related to the Contributed Entities’ respective interests in LOOP and IEPC for all tax periods (or any portion thereof) after the Closing Date will be reflected on the federal income Tax Return of MPLX and that MPLX shall bear the liability and indemnify MPCI for any Taxes associated with the ownership of such interests.
(b)      The Parties shall cooperate fully, and cause their Affiliates to cooperate fully, as and to the extent reasonably requested by the other Party regarding access to, the retention and (upon the other Party’s request) the provision of records and information which are reasonably relevant to any Tax Return or Tax Proceeding, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. MPLX and MPCI will use their respective commercially reasonable efforts to retain
all books and records with respect to Tax matters pertinent to the Contributed Entities’ respective interests in LOOP and IEPC and relating to any taxable period beginning before the Closing Date until the later of six years after the Closing Date or the expiration of the applicable statute of limitations of the respective taxable periods (including any extensions thereof), and to abide by all record retention agreements entered into with any Tax Authority. MPLX and MPCI each agree, upon request, to use their respective commercially reasonable efforts to obtain any certificate or other document from any Tax Authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed with respect to the transactions contemplated by this Agreement.
(c)      All sales, use, controlling interest, transfer, filing, recordation, registration and similar Taxes arising from or associated with the transactions contemplated by this Agreement other than Taxes based on income or net worth ( “Transaction Taxes” ), shall be borne fifty percent (50%) by MPLX and fifty percent (50%) by MPCI. To the extent under applicable law, the transferee is responsible for filing Tax Returns in respect of Transaction Taxes, MPCI shall prepare and file all such Tax Returns. The Parties shall provide such certificates and other information and otherwise cooperate.
Section 11.6      Tax Treatment of the Transaction . The Parties acknowledge and agree that for U.S. federal income tax purposes (and to the extent permitted for state and local income Tax purposes) to treat and report the transactions contemplated under this Agreement as follows:
(a)      with respect to the Logistics Issued Units issued to Logistics in exchange for the Logistics Membership Interests and Logistics Shares, as a contribution to MPLX of the Logistics Membership Interests and Logistics Shares under Section 721 of the Code;
(b)      with respect to the Holdings Issued Units issued to Holdings in exchange for the Holdings Membership Interests and the Holdings Shares, as a contribution to MPLX of the Holdings Membership Interests and the Holdings Shares under Section 721 of the Code;
(c)      with respect to the MPLX GP Issued Units issued to MPLX GP in exchange for the MPLX GP Membership Interests and MPLX GP Shares, as a contribution to MPLX of the MPLX GP Membership Interests and MPLX GP Shares under Section 721 of the Code; and

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(d)      with respect to the distributions of the Cash Consideration made from the proceeds of the Partnership Debt, as distributions under Section 731 of the Code that, together with the corresponding contributions, (i) qualify to the maximum extent possible as a “debt-financed transfer” under Section 1.707-5(b) of the Treasury Regulations; (ii) in excess of the amount described in clause (i) hereof, as reimbursement, to the maximum extent possible, for capital expenditures, as described in Section 1.707-4(d) of the Treasury Regulations; and (iii) in excess of the amount described in clauses (i) and (ii) hereof, as the proceeds of a sale of the corresponding assets by MPLX GP or Logistics, as applicable, to MPLX to the extent any other exception to the “disguised sale” rules under Section 707 of the Code and the Treasury Regulations thereunder are inapplicable.
The Parties agree to act at all times in manner consistent with the U.S. federal income tax treatment as set forth in this Section 11.5 , including disclosing the distribution of the Cash Consideration in accordance with the requirements of Section 1.707-3(c)(2) of the Treasury Regulations.
Section 11.7      Conflicts . In the event of a conflict between the provisions of this Article XI and any other provision of this Agreement, the provisions of this Article XI shall control.
ARTICLE XII
FURTHER ASSURANCES
Section 12.1      Each of the Parties, from time to time, upon the reasonable request of another, shall execute, acknowledge or deliver or cause to be executed, acknowledged or delivered in proper form, such instruments, documents, certifications and further assurances and take such further action as may be necessary or appropriate to carry out the purposes of this Agreement and the transactions contemplated hereunder.
ARTICLE XIII
CLOSING
The Closing of this Agreement shall be conducted as follows, with the performance of the Parties to be mutually dependent, and all transfers deemed to have taken place simultaneously:
Section 13.1      Closing . The Closing of the transactions contemplated by this Agreement shall occur on September 1, 2017, (the “ Closing Date ”). The transactions contemplated by this Agreement shall be effective as of the Effective Time.
Section 13.2      Deliveries by Logistics to MPLX . At Closing, Logistics shall deliver to MPLX:
(a)      a Contribution and Assumption Agreement substantially in the form of Exhibit 2 , duly executed by Logistics;
(b)      appropriate resolutions and other similar documents of Logistics, to fully implement this Agreement;

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(c)      a properly executed certificate of Logistics certifying that Logistics is not a “foreign person” within the meaning of Section 1445 of the Code;
(d)      an amended and restated Lincoln LLC Agreement substantially in the form of Exhibit 5 admitting MPLX Operations LLC as the sole member of Lincoln, duly executed by Logistics; and
(e)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.3      Deliveries by MPLX to Logistics . At Closing, MPLX shall deliver to Logistics:
(a)      the Logistics Cash Consideration,
(b)      a Contribution and Assumption Agreement substantially in the form of Exhibit 2 , duly executed by MPLX;
(c)      appropriate resolutions and other similar documents of MPLX, to fully implement this Agreement; and
(d)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.4      Deliveries by Holdings to MPLX . At Closing, Holdings shall deliver to MPLX:
(a)      a Contribution and Assumption Agreement in the form of Exhibit 3 for the Holdings Membership Interests, duly executed by Holdings;
(b)      stock powers, duly executed in blank, transferring the Explorer Shares to MPLX;
(c)      appropriate resolutions and other similar documents of Holdings, to fully implement this Agreement;
(d)      a properly executed certificate of Holdings certifying that Holdings is not a “foreign person” within the meaning of Section 1445 of the Code;
(e)      an amended and restated Louisiana LLC Agreement substantially in the form of Exhibit 6 admitting MPLX Operations LLC as the sole member of Louisiana, duly executed by Holdings; and
(f)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.5      Deliveries by MPLX to Holdings . At Closing, MPLX shall deliver to Holdings:
(a)      the Holdings Cash Consideration;

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(b)      a Contribution and Assumption Agreement substantially in the form of Exhibit 3 , duly executed by MPLX;
(c)      appropriate resolutions and other similar documents of MPLX, to fully implement this Agreement; and
(d)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.6      Deliveries by MPLX GP to MPLX . At Closing, MPLX GP shall deliver to MPLX:
(a)      a Contribution and Assumption Agreement substantially in the form of Exhibit 4 , duly executed by MPLX GP;
(b)      appropriate resolutions and other similar documents of MPLX GP, to fully implement this Agreement;
(c)      a properly executed certificate of MPLX GP certifying that MPLX GP is not a “foreign person” within the meaning of Section 1445 of the Code; and
(d)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.7      Deliveries by MPLX to MPLX GP . At Closing, MPLX shall deliver to MPLX GP:
(a)      the MPLX GP Cash Consideration,
(b)      a Contribution and Assumption Agreement substantially in the form of Exhibit 4 , duly executed by MPLX;
(c)      appropriate resolutions and other similar documents of MPLX, to fully implement this Agreement; and
(d)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.8      Deliveries by MPCI to MPLX . At Closing, MPCI shall deliver to MPLX:
(a)      a Distribution and Assumption Agreement substantially in the form of Exhibit M1A , duly executed by each of MPCI and MPL, transferring the Lincoln Membership Interests to MPCI prior to the Pre-Effective Time Transactions;
(b)      a Distribution and Assumption Agreement substantially in the form of Exhibit M1B , duly executed by each of MPCI and MPL, transferring the Louisiana Membership Interests to MPCI prior to the Pre-Effective Time Transactions;

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(c)      a Distribution and Assumption Agreement substantially in the form of Exhibit S1 , duly executed by each of MPL and Hardin Street Holdings LLC, a Delaware limited liability company, transferring the LOCAP Shares to MPL prior to the Pre-Effective Time Transactions;
(d)      a Distribution and Assumption Agreement substantially in the form of Exhibit S2 , duly executed by each of MPCI and MPL, transferring the LOCAP Shares and the Explorer Shares to MPCI prior to the Pre-Effective Time Transactions;
(e)      a Contribution and Assumption Agreement substantially in the form of Exhibit M2B , duly executed by each of Logistics and MPCI, evidencing the transaction contemplated by Section 2.1 ;
(f)      a Contribution and Assumption Agreement substantially in the form of Exhibit S3 , duly executed by each of Holdings and MPCI, evidencing the transaction contemplated by Section 2.2 ;
(g)      a Contribution and Assumption Agreement substantially in the form of Exhibit M2A , duly executed by each of MPLX GP and MPCI, evidencing the transaction contemplated by Section 2.3 ;
(h)      appropriate resolutions and other similar documents of MPCI, to fully implement this Agreement; and
(i)      each other document or instrument specified in or as may be reasonably required by this Agreement.
Section 13.9      Issuance of Issued Units . No later than the fifth (5 th ) business day following the Closing, MPLX shall issue (a) the Logistics Issued Units and deliver to Logistics evidence (reasonably satisfactory to Logistics) of such number of Common Units (b) the Holdings Issued Units and deliver to Holdings evidence (reasonably satisfactory to Holdings) of such number of Common Units, and (c) the MPLX GP Issued Units and deliver to MPLX GP evidence (reasonably satisfactory to MPLX GP) of such number of GP Units and Common Units.
ARTICLE XIV
MISCELLANEOUS
Section 14.1      Assigns . This Agreement shall be binding upon and shall inure to the benefit of the respective Parties and their permitted successors and assigns. A Party’s rights under this Agreement may not be assigned without the prior written consent of all other Parties, which consent may be withheld for any reason. Any purported assignment in violation of the foregoing shall be void ab initio .
Section 14.2      Entire Understanding , Headings and Amendment .
(a)      This entire Agreement and the attached Annexes, Exhibits and Disclosure Schedules and all documents to be executed and delivered pursuant hereto constitute the entire understanding among the Parties, and supersede all previous agreements of any sort. Article

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headings are included only for purposes of convenience and shall not be construed as a part of this Agreement or in any way affecting the meaning of the provisions of this Agreement or its interpretation.
(b)      This Agreement may not be amended or modified orally and no amendment or modification shall be valid unless in writing and signed by the Parties; provided , any such amendment or modification must be approved by the Conflicts Committee.
Section 14.3      Rights of Third Parties . This Agreement shall not be construed to create any lien or encumbrance on the Logistics Membership Interests, the Holdings Membership Interests, the MPLX GP Membership Interests, the Holdings Shares or any Common Units or GP Units or to create any express or implied rights in any persons other than the Parties, except as expressly provided with respect to the MPLX Indemnitees and the MPCI Indemnities in ARTICLE IV .
Section 14.4      Notices . All notices shall be in writing and shall be delivered or sent by first-class mail, postage prepaid, overnight courier or by means of electronic transmission. Any notice sent shall be addressed as follows:
(a)      If to MPCI:
MPC Investment LLC
539 South Main Street
Findlay, Ohio 45840
Attn: President
With copy (which shall not constitute notice) to:
Marathon Petroleum Company LP
539 South Main Street
Findlay, Ohio 45840
Attn: General Counsel
(b)      If to MPLX:
MPLX LP
c/o MPLX GP LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: President
With copies (which shall not constitute notice) to:
MPLX GP LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: General Counsel

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MPLX GP LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: Conflicts Committee Chairman
(c)      If to Logistics:
MPLX Logistics Holdings LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: President
With copy (which shall not constitute notice) to:
Marathon Petroleum Company LP
539 South Main Street
Findlay, Ohio 45840
Attn: General Counsel
(d)      If to Holdings:
MPLX Holdings Inc.
539 South Main Street
Findlay, Ohio 45840
Attn: President
With copy (which shall not constitute notice) to:
Marathon Petroleum Company LP
539 South Main Street
Findlay, Ohio 45840
Attn: General Counsel
(e)      If to MPLX GP:
MPLX GP LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: President
With copy (which shall not constitute notice) to:
MPLX GP LLC
200 East Hardin Street
Findlay, Ohio 45840
Attn: General Counsel

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Any notice required hereunder shall be effective when sent if given in the manner set forth above.
Section 14.5      Choice of Law; Mediation; Submission to Jurisdiction .
(a)      This Agreement shall be subject to and governed by the laws of the State of Delaware, excluding any conflicts-of-law rule or principle that might refer the construction or interpretation of this Agreement to the laws of another state. EACH OF THE PARTIES AGREES THAT THIS AGREEMENT INVOLVES AT LEAST U.S. $100,000.00 AND THAT THIS AGREEMENT HAS BEEN ENTERED INTO IN EXPRESS RELIANCE UPON 6 Del. C. § 2708. EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY AGREES (i) TO BE SUBJECT TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE AND OF THE FEDERAL COURTS SITTING IN THE STATE OF DELAWARE, AND (ii) TO THE EXTENT SUCH PARTY IS NOT OTHERWISE SUBJECT TO SERVICE OF PROCESS IN THE STATE OF DELAWARE, TO APPOINT AND MAINTAIN AN AGENT IN THE STATE OF DELAWARE AS SUCH PARTY’S AGENT FOR ACCEPTANCE OF LEGAL PROCESS AND TO NOTIFY THE OTHER PARTIES OF THE NAME AND ADDRESS OF SUCH AGENT.
(b)      If the Parties cannot resolve any dispute or claim arising under this Agreement, then no earlier than ten (10) days nor more than sixty (60) days following written notice to the other Parties, any Party to such dispute or claim may initiate mandatory, non-binding mediation hereunder by giving a notice of mediation (a “ Mediation Notice ”) to the other Parties. In connection with any mediation pursuant to this Section 14.5(b) , the mediator shall be jointly appointed by the Parties and the mediation shall be conducted in Findlay, Ohio unless otherwise agreed by the Parties. All costs and expenses of the mediator appointed pursuant to this Section 14.5(b) shall be shared equally and paid by the Parties. The then-current Model ADR Procedures for Mediation of Business Disputes of the Center for Public Resources, Inc., either as written or as modified by mutual agreement of the Parties, shall govern any mediation pursuant to this Section 14.5(b) . In the mediation, each Party shall be represented by one or more senior representatives who shall have authority to resolve any disputes. If a dispute or claim has not been resolved within thirty (30) days after the receipt of the Mediation Notice by a Party, then any Party may refer the resolution of the dispute or claim to litigation.
(c)      Subject to Section 14.5(b) , each Party agrees that it shall bring any action or proceeding in respect of any claim arising out of or related to this Agreement, whether in tort or contract or at law or in equity, exclusively in any federal or state courts located in Delaware and (i) waives any objection to laying venue in any such action or proceeding in such courts; (ii) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over it; and (iii) agrees that, to the fullest extent permitted by law, service of process upon it may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to it at its address specified in Section 14.4 . The foregoing consents to jurisdiction and service of process shall not constitute general consents to service of process in the State of Delaware for any purpose except as provided herein and shall not be deemed to confer rights on any person other than the Parties.

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Section 14.6      Time of the Essence . Time is of the essence in the performance of this Agreement in all respects. If the date specified herein for giving any notice or taking any action is not a business day (or if the period during which any notice is required to be given or any taken expires on a date which is not a business day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a business day.
Section 14.7      Waiver and Severability .
(a)      No waiver, either express or implied, by any Party hereto of any term or condition of this Agreement or right to enforcement thereof shall be effective, unless such waiver is in writing and signed by all Parties. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way adversely affect the rights of the Parties granting such waiver in any other respect or at any other time. The failure of any Party to exercise any rights or privileges under this Agreement shall not be construed as a waiver of any such rights or privileges under this Agreement. The rights and remedies provided in this Agreement are cumulative and, except as otherwise expressly provided in this Agreement, none is exclusive of any other or of any rights or remedies that any Party may hereunder or otherwise have at law or in equity.
(b)      Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
Section 14.8      Costs and Expenses . Except as otherwise specifically provided in this Agreement, each Party will bear its own costs and expenses in connection with this Agreement and the transactions contemplated hereby.
Section 14.9      Counterpart Execution . This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one agreement.
[ Signature page follows .]

34




IN WITNESS WHEREOF , each of the Parties has caused this Agreement to be executed the day and year first above written.
MPC Investment LLC
 
 
By:
/s/ Gary R. Heminger
 
Gary R. Heminger
 
Chief Executive Officer

 
 
 
 
MPLX Logistics Holdings LLC

 
 
By:
/s/ Timothy T. Griffith
 
Timothy T. Griffith
 
Vice President

 
 
 
 
MPLX Holdings Inc.

 
 
By:
/s/ Timothy T. Griffith
 
Timothy T. Griffith
 
Vice President

 
 
 
 
MPLX LP
By:
MPLX GP LLC, its General Partner

 
 
By:
/s/ Michael J. Hennigan
 
Michael J. Hennigan
 
President

 
 
 
 
MPLX GP LLC

 
 
By:
/s/ Michael J. Hennigan
 
Michael J. Hennigan
 
President

 
 


35



APPENDIX A
DEFINITION OF TERMS
Introductory Note--Construction. Whenever the context requires, the gender of all words used in the Agreement includes the masculine, feminine and neuter and terms defined in the singular have the corresponding meanings in the plural, and vice versa. Except as the Agreement otherwise specifies, all references herein to any law, are references to that law (and any rules and regulations promulgated thereunder), as the same may have been amended. The word “includes” or “including” means “including, but not limited to,” unless the context otherwise requires. The words “shall” and “will” are used interchangeably and have the same meaning. The words “this Agreement,” “hereof,” “hereby,” “herein,” “hereunder” and similar terms in the Agreement refer to the relevant agreement as a whole and not any particular Section or Article in which such words appear. If a word or phrase is defined, its other grammatical forms have a corresponding meaning. Whenever the Agreement refers to a number of days, such number shall refer to calendar days unless business days are specified. Time periods within or following which any payment is to be made or an act is to be done shall be calculated by excluding the day on which the time period commences and including the day on which the time period ends. Unless specifically provided for in this Agreement, the term “or” shall not be deemed to be exclusive. References to a person are also to its successors and/or permitted assigns, if any. All exhibits and annexes attached to this Agreement constitute a part of this Agreement and are incorporated herein for all purposes. All references to currency in this Agreement shall be to, and all payments required under this Agreement shall be paid in, lawful currency of the United States.
Definitions .
1933 Act ” means the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder.
Affiliate ” means, as to any specified entity, any other entity that, directly or indirectly through one or more intermediaries or otherwise, controls, is controlled by or is under common control with the specified entity. For purposes of this definition, “control” of an entity means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such entity, whether by contract or otherwise. Notwithstanding anything herein to the contrary, for the purposes of this Agreement, (a) MPLX and its subsidiaries shall be deemed not to be “Affiliates” of MPC, MPCI, Logistics, Holdings, MPLX GP or any of their other Affiliates, and (b) MPC, MPCI, Logistics and MPLX GP and their respective subsidiaries shall not be deemed “Affiliates” of MPLX and its subsidiaries.
Agreement ” has the meaning set forth in the preamble.
Assumed Liabilities ” means the liabilities arising out of or attributable to the ownership of the Contributed Interests or other activities occurring in connection with and attributable to the ownership of the Contributed Interests to the extent and only to the extent arising from and after the Effective Time.
Cap ” means the amount equal to twenty percent (20%) of the Total Value.




Cash Consideration ” means the Logistics Cash Consideration plus the Holdings Cash Consideration plus the MPLX GP Cash Consideration which equals a total of $420,000,000.
Closing ” means the consummation of the transactions contemplated by this Agreement.
Closing Date ” has the meaning set forth in Section 13.1 .
Code ” means the United States Internal Revenue Code of 1986, as amended.
Commercially Reasonable Efforts ” means efforts which are commercially reasonable under the relevant circumstances to enable a Party, directly or indirectly, to satisfy a condition to or otherwise assist in the consummation of a desired result and which do not require the performing Party to expend funds or assume obligations other than expenditures and obligations which are customary and reasonable in nature and amount in the context of a series of related transactions similar to the contemplated transactions.
Common Unit ” has the meaning set forth in the MPLX Partnership Agreement.
Conflicts Committee ” means the Conflicts Committee of the Board of Directors of MPLX GP LLC, the general partner of MPLX.
Contract ” means any contract, commitment, instrument, undertaking, lease, note, mortgage, indenture, settlement, Permit, or other legally binding agreement.
Contributed Entities ” means Louisiana and Lincoln.
Contributed Interests ” means collectively the Logistics Membership Interests, the Holdings Membership Interests, the Holdings Shares and the MPLX GP Membership Interests.
Contributions ” means the transactions described in Sections 2.4 , 2.5 and 2.6 of this Agreement.
Deductible ” means the amount equal to one half of one percent (0.5%) of the Total Value.
Effective Time ” means 12:01 am local time in Findlay, Ohio on the Closing Date.
Environmental Laws ” means any and all applicable federal, state or local law or statute, or regulations promulgated thereunder, together with any amendments thereto and all substitutions thereof, concerning the environment, preservation or reclamation of natural resources, natural resource damages, human health and safety, prevention or control of spills or pollution, or to the management (including without limitation generation, treatment, storage, transportation, arrangement for transport, disposal, arrangement for disposal or other handling), release or threatened release of Hazardous Substances, including without limitation, the Clean Water Act, also known as the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et. seq., the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et. seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et. seq., the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et. seq., the Superfund Amendment and Reauthorization Act of 1986,




Public Law 99- 499, 100 Stat. 1613, the Emergency Planning and Community Right to Know Act, 42 U.S.C. § 1101 et. seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et. seq., the Occupational Safety and Health Act, as amended, 29 U.S.C. § 655 and § 657, the Clean Air Act, 42 U.S.C, § 7401 et. seq., the Safe Drinking Water Act, 42 U.S.C. § 300f to § 300j-26, the Hazardous Materials Transportation Authorization Act of 1994, 49 U.S.C. § 5101 et. seq., the Atomic Energy Act of 1954 as amended, 42 U.S.C. §§ 2014, 2021(d), 2022, 2111, 2113 and 2114.
Equity Interest ” means capital stock, voting securities, partnership or membership interests or units (whether general or limited), and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of the issuing entity.
Excluded Liabilities ” means the liabilities arising out of or attributable to the ownership of the Contributed Interests or other activities occurring in connection with and attributable to the ownership of the Contributed Interests prior to the Effective Time.
Explorer ” has the meaning set forth in the recitals.
Explorer Shareholders’ Agreement ” means that certain Shareholders Agreement, dated January 1, 2016, between EXPL Pipeline Investment LLC, MPL Investment LLC, Phillips 66 Partners Holdings LLC, Shell Pipeline Company LP, Sunoco Pipeline, L.P. and Explorer Pipeline Company, as amended to date.
Explorer Shares ” has the meaning set forth in the recitals.
Financial Advisor ” means Jefferies LLC, the financial advisor to the Conflicts Committee.
Fundamental Representations ” has the meaning set forth in Section 4.3(a) .
Governmental Authority ” means any federal, state, local, foreign, multi-national, supra-national, national, regional or other governmental agency, authority, administrative agency, regulatory body, commission, board, bureau, agency, officer, official, instrumentality, court or arbitral tribunal having governmental or quasi-governmental powers or any other instrumentality or political subdivision thereof; provided , however , that such term shall not include any entity or organization that is engaged in industrial or commercial operations and is wholly or partly owned by any government, to the extent that such entity or organization is acting in a commercial capacity.
GP Unit ” means “General Partner Unit” as such term is defined in the MPLX Partnership Agreement.
Hazardous Substance ” means any substance, material or waste designated, regulated or classified as a hazardous waste, hazardous substance, hazardous material, pollutant, contaminant or toxic substance under any Environmental Law.
Holdings ” has the meaning set forth in the preamble.




Holdings Cash Consideration ” has the meaning set forth in Section 3.2 .
Holdings Explorer Shares ” has the meaning set forth in the recitals.
Holdings Lincoln Membership Interest ” has the meaning set forth in the recitals.
Holdings LOCAP Shares ” has the meaning set forth in the recitals.
Holdings Louisiana Membership Interest ” has the meaning set forth in the recitals.
Holdings Issued Units ” has the meaning set forth in Section 3.2 .
Holdings Membership Interests ” means the Holdings Lincoln Membership Interests and the Holdings Louisiana Membership Interests.
Holdings Shares ” means collectively the Holdings Explorer Shares and the Holdings LOCAP Shares.
HSR Act ” means the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and the rules and regulations promulgated thereunder.
IEPC ” means Illinois Extension Pipeline Company, L.L.C., a Delaware limited liability company.
IEPC Interest ” has the meaning set forth in Section 5.8(d) .
Indemnified Party ” has the meaning set forth in Section 4.4 .
Indemnifying Party ” has the meaning set forth in Section 4.4 .
Insurance Policies ” has the meaning set forth in Section 5.16 .
Issued Units ” has the meaning set forth in Section 3.3 .
Joint Venture Companies ” means LOOP, LOCAP, Explorer and IEPC.
Joint Venture Companies Financial Statements ” means (i) the audited combined balance sheets as of December 31, 2014, 2015 and 2016 and combined statements of income, cash flows and equity for the years ended December 31, 2014, 2015 and 2016 for each Joint Venture Company and, (ii) the unaudited financial statements for each Joint Venture Company dated March 31, 2017 and June 30, 2017.
JV Interests ” means collectively the LOOP Interest and the IEPC Interest.
Knowledge ” means, with respect to MPCI, the Knowledge of (i) in the case of LOOP, John Swearingen, (ii) in the case of LOCAP, Shawn Lyon, (iii) in the case of Explorer, David Murphy and (iv) in the case of IEPC, David Murphy.




Liens ” means any security interest, lien, deed of trust, mortgage, pledge, charge, claim, restriction, easement, encumbrance or other similar interest or right.
Lincoln ” has the meaning set forth in the recitals.
Lincoln LLC Agreement ” means the Lincoln Pipeline LLC Limited Liability Company Agreement dated March 26, 2014.
Lincoln Membership Interests ” means 100% of the limited liability company membership interests of Lincoln.
Litigation ” has the meaning set forth in Section 5.9 .
LLC Agreements ” means collectively the Louisiana LLC Agreement and the Lincoln LLC Agreement.
LOCAP ” has the meaning set forth in the recitals.
LOCAP Shares ” has the meaning set forth in the recitals.
Logistics ” has the meaning set forth in the preamble.
Logistics Cash Consideration ” has the meaning set forth in Section 3.1 .
Logistics Issued Units ” has the meaning set forth in Section 3.1 .
Logistics Explorer Shares ” has the meaning set forth in the recitals.
Logistics LOCAP Shares ” has the meaning set forth in the recitals.
Logistics Membership Interests ” means the Logistics Lincoln Membership Interests and the Logistics Louisiana Membership Interests.
Logistics Shares ” means the Logistics Explorer Shares and the Logistics LOCAP Shares.
LOOP ” means LOOP LLC, a Delaware limited liability company.
LOOP Hydrocarbon Inventory ” means the approximately 800,000 bbls of hydrocarbon inventory counted by LOOP in 2016 and, being sold by LOOP through the end of 2017 or thereafter, if such sales extend beyond 2017.
LOOP Interest ” has the meaning set forth in Section 5.8(d) .
Losses ” has the meaning set forth in Section 4.1(a) .
Louisiana ” has the meaning set forth in the recitals.




Louisiana LLC Agreement ” means the MPL Louisiana Holdings LLC Limited Liability Company Agreement dated March 27, 2012.
Louisiana Membership Interests ” means 100% of the limited liability company interest of Louisiana.
Material Adverse Effect ” means any change, circumstance, effect or condition that is, or could reasonably be expected to be, individually or in the aggregate, materially adverse to (i) the business, financial condition, assets, liabilities or results of operations of the Contributed Entities or the Joint Venture Companies taken as a whole; or (ii) any Party’s ability to enter into or perform its obligations under this Agreement or to consummate the transactions contemplated hereby; provided, that the term “Material Adverse Effect” shall not include:
(a)    any fact, change, effect, condition or event that:
(i)    generally affects economic conditions in any of the markets or geographical areas in which the Joint Venture Companies operate;
(ii)    generally affects economic conditions or the financial, banking, currency or capital markets in general (whether in the United States or any other country or in any international market), including changes in (1) general financial or market conditions, (2) currency exchange rates or currency fluctuations, (3) prevailing interest rates or credit markets, and (4) the price of commodities or raw materials used in the businesses of the Joint Venture Companies;
(iii)    generally affect the industries in which the Joint Venture Companies operate; or
(iv)    result from national or international political or social actions or conditions, including the engagement by any country in hostilities, whether commenced before or after the date hereof, and whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack;
(b)    changes in Law, GAAP or other applicable accounting standards or interpretations thereof;
(c)    any failure to meet internal projections, public estimates or expectations with respect to the Joint Venture Companies (it being understood that the underlying causes of any such failure may be taken into consideration in determining whether a Material Adverse Effect has occurred); or
(d)    the announcement of, or the taking of any action contemplated by, this Agreement and the other agreements contemplated hereby; provided , however , that facts, changes, affects, conditions or events referred to in clauses (a)(i), (a)(ii), (a)(iii), (a)(iv) and (b) above shall be considered for purposes of determining whether there has been or would reasonably be expected to be a Material Adverse Effect if and only to the extent such facts, changes, affects, conditions or events have had or would reasonably be expected to have a disproportionate effect on the Joint Venture Companies as compared to other companies operating in similar businesses.




Material Contract ” means
(a)    any Contract relating to the ownership, use or operation of the assets of any of the Joint Venture Companies that, as of the date hereof, is reasonably expected to provide for revenues to or require commitments from any Joint Venture Company in an amount greater than $15,000,000 during any calendar year, and
(b)    any other contract affecting the ownership, use or operation of any of the Joint Venture Companies, including but not limited to any limited liability company agreement, shareholders’ agreement or operating agreement, the loss of which could, indirectly or in the aggregate, have a Material Adverse Effect.
Mediation Notice ” has the meaning set forth in Section 14.5(b) .
Membership Interests ” means collectively the Logistics Membership Interests, the Holdings Membership Interests and the MPLX GP Membership Interests.
MPC ” means Marathon Petroleum Corporation.
MPC License Guaranty” means that certain Guaranty Agreement executed by MPC on October 10, 2012 in support of the License Agreement dated January 17, 1977.
MPC Tax Group ” means the affiliated group of corporations within the meaning of Section 1504 of the Code which files a consolidated United States federal income Tax Return and as to which Marathon Petroleum Corporation, a Delaware corporation, is the common parent, and, in the case of any combined or unitary Tax Return, the group of corporations filing such Tax Return that includes MPCI.
MPL ” means MPL Investment LLC, a Delaware limited liability company.
MPLX ” has the meaning set forth in the preamble.
MPLX GP ” has the meaning set forth in the preamble.
MPLX GP Cash Consideration ” has the meaning set forth in Section 3.3 .
MPLX GP Issued Common Units ” has the meaning set forth in Section 3.3 .
MPLX GP Issued GP Units ” has the meaning set forth in Section 3.3 .
MPLX GP Issued Units ” has the meaning set forth in Section 3.3 .
MPLX GP Lincoln Membership Interest ” has the meaning set forth in the recitals.
MPLX GP Louisiana Membership Interest ” has the meaning set forth in the recitals.
MPLX GP Membership Interests ” means the MPLX GP Lincoln Membership Interests and the MPLX GP Louisiana Membership Interests.




MPLX GP Shares ” means the MPLX GP Explorer Shares and the MPLX GP LOCAP Shares.
MPLX Indemnitees ” has the meaning set forth in Section 4.1(a) .
MPLX Partnership Agreement ” means the Third Amended and Restated Agreement of Limited Partnership of MPLX dated October 31, 2016, including any and all amendments thereof.
NYSE ” means the New York Stock Exchange.
Organizational Document ” means, with respect to any entity, the legal organizational and governing documents of such entity, including the certificate of incorporation, certificate of formation, certificate of limited partnership, bylaws, limited liability company agreement, operating agreement, agreement of limited partnership and shareholders’ agreement, in each case, as currently in effect.
Parties ” and “ Party ” have the meaning set forth in the preamble.
Partnership Debt ” has the meaning set forth in the recitals.
Permit ” means permits, licenses, certificates, orders, approvals, authorization, grants, consents, concessions, warrants, franchises and similar rights and privileges.
Person ” means any natural person, corporation, general partnership, limited partnership, limited liability company, unlimited liability corporation, proprietorship, other business organization, trust, union, association or Governmental Authority.
Plan ” means, whether written or oral, each “employee benefit plan” within the meaning of Section 3(3) of ERISA (including “multiemployer plans” within the meaning of Section 3(37) of ERISA) and any and all employment, deferred compensation, change in control, severance, termination, loan, employee benefit, retention, bonus, pension, profit sharing, savings, retirement, welfare, incentive compensation, stock or equity-based compensation, stock purchase, stock appreciation, collective bargaining, fringe benefit, vacation, paid time off, sick leave or other similar agreements, plans, programs, policies, understandings or arrangements.
Pre-Effective Time Transactions ” means the transactions described in Sections 2.1 , 2.2 and 2.3 of this Agreement.
Release ” means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping or disposing of any Hazardous Substance into the environment.
Subsidiary ” means, with respect to any Person, (a) a corporation of which more than 50% of the voting power of shares entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, at the date of determination, buy such Person, by one or more Subsidiaries of such Person or a combination thereof, (b) a partnership (whether general or limited) in which such




Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the general partner interests of such partnership is owned, directly or indirectly, at the date of determination, by such Person, by one or more Subsidiaries of such Person, or a combination thereof; or (c) any other Person (other than a corporation or a partnership) in which such Person, one or more subsidiaries of such Person, or a combination thereof, directly or indirectly, at the date of determination, has (i) at least a majority ownership interest or (ii) the power to elect or direct the election of a majority of the directors or other governing body of such Person.
Tax ” means (i) any and all federal, state, provincial, county, local or foreign taxes or levies of any kind and any and all other like assessments, customs, duties, imposts, charges or fees, including income, gross receipts, ad valorem, value added, excise, real property, personal property, escheat, asset, sales, use, franchise, license, payroll, transaction, capital, capital gains, net worth, withholding, estimated, social security, utility, workers’ compensation, severance, disability, wage, employment, production, unemployment compensation, occupation, premium, windfall profits, transfer, gains, alternative or add-on minimum, stamp, documentary, recapture, business license, business organization, environmental, profits, lease, or other taxes or other charges imposed by or on behalf or payable to any Governmental Authority including tax liabilities arising under Treasury Regulation Section 1.1502-6 and any similar provisions from federal, state, local or foreign applicable law, together with any interest, fines, penalties, assessments, or additions resulting from, attributable to, or incurred in connection with any of the foregoing (whether or not disputed) and (ii) any transferee or other secondary or non-primary liability or other obligations with respect to any item in clause (i) above, whether such liability or obligation arises by assumption, operation of law, contract, indemnity, guarantee, as a successor or otherwise.
Tax Authority ” means any Governmental Authority having jurisdiction over the payment or reporting of any Tax.
Tax Proceeding ” means any action, audit, litigation or other proceeding for assessment or collection of Taxes.
Tax Return ” means any report, statement, form, return or other document or information required to be supplied to a Tax Authority in connection with Taxes.
Third Party Claim ” has the meaning set forth in Exhibit 1 .
Transaction Taxes ” has the meaning set forth in Section 11.5(d) .
Total Value ” means $1.05 billion.





Exhibit 1

(a) If any third party institutes any legal proceedings or asserts any claim or demand in respect of which indemnification is available under Section 4.1 or Section 4.2 of this Agreement, as applicable (a “ Third Party Claim ”), the Indemnified Party shall promptly give written notice of the assertion of the Third Party Claim to the Indemnifying Party; provided , however , that failure of the Indemnified Party to so notify the Indemnifying Party shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect to such claim, except to the extent the Indemnifying Party is prejudiced by such failure.

(b) Subject to the provisions of this Exhibit 1 , the Indemnifying Party shall have the right, at its sole expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the Indemnified Party, and to defend against, negotiate, settle or otherwise deal with any Third Party Claim which relates to any Losses with respect to which it is subject to an indemnification obligation under this Agreement; provided that, in order to defend against, negotiate, settle or otherwise deal with any such Third Party Claim, the Indemnifying Party must first acknowledge in writing to the Indemnified Party its unqualified obligation to indemnify the Indemnified Party under this Agreement and provide to the Indemnified Party reasonable evidence that the Indemnifying Party has reasonably sufficient financial resources to enable it to fulfill its obligations under Article 4 and this Exhibit 1 . Notwithstanding the immediately preceding sentence, the Indemnifying Party shall not have the right to defend against, negotiate, settle or otherwise deal with any Third Party Claim:

(i) if the Indemnified Party reasonably and in good faith believes that the Third Party Claim would reasonably be likely to be materially detrimental to the reputation, customer or supplier relations or future business prospects of the Indemnified Party or any of its Affiliates;

(ii) unless the Third Party Claim is solely for monetary damages (except where any non-monetary relief being sought is merely incidental to a primary claim for monetary damages on the part of the Indemnified Party);

(iii) if the Third Party Claim involves criminal allegations; or

(iv) if the Indemnifying Party fails to prosecute or defend, actively and diligently, the Third Party Claim.

(c)      If the Indemnifying Party elects to defend against, negotiate, settle or otherwise deal with any Third Party Claim, it shall within five (5) days of the Indemnified Party’s written notice of the assertion of such Third Party Claim (or sooner if the nature of the Third Party Claim so requires) notify the Indemnified Party of its intent to do so; provided that the Indemnifying Party must conduct its defense of the Third Party Claim actively and diligently thereafter in order to preserve its rights in this regard. If the Indemnifying Party elects not to defend against, negotiate, settle or otherwise deal with any Third Party




Claim; fails to notify the Indemnified Party of its election timely as provided in this Agreement; or contests its obligation to indemnify the Indemnified Party for Losses relating to such Third Party Claim under this Agreement, then the Indemnified Party may defend against, negotiate, settle or otherwise deal with such Third Party Claim. If the Indemnified Party defends any Third Party Claim, then the Indemnifying Party shall reimburse the Indemnified Party for the expenses of defending such Third Party Claim upon submission of periodic bills. If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnified Party may participate, at his or its own expense, in the defense of such Third Party Claim; provided , however , that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if (i) so requested by the Indemnifying Party to participate or (ii) in the reasonable opinion of counsel to the Indemnified Party a conflict or potential conflict exists between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable. Each party shall provide reasonable access to each other party to such documents and information as may reasonably be requested in connection with the defense, negotiation or settlement of any Third Party Claim; provided , however , that nothing in this Agreement shall require any party to disclose any documents, materials or other information that is subject to attorney-client privilege. Notwithstanding anything in this Exhibit 1 to the contrary, the Indemnifying Party shall not enter into any settlement of any Third Party Claim without the written consent of the Indemnified Party if such settlement (i) would create any liability of the Indemnified Party for which the Indemnified Party is not entitled to indemnification under this Agreement, (ii) would provide for any injunctive relief or other non-monetary obligation affecting the Indemnified Party, or (iii) does not include an unconditional release of the Indemnified Party from all liability and obligation in respect of the Third Party Claim.

(d)      After any final decision, judgment or award is rendered by a Governmental Authority of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement is consummated, or the Indemnified Party and the Indemnifying Party have arrived at a mutually binding agreement, in each case with respect to a Third Party Claim, the Indemnified Party shall forward to the Indemnifying Party notice of any sums due and owing by the Indemnifying Party pursuant to this Agreement with respect to such matter, and the Indemnifying Party shall pay all of such remaining sums so due and owing to the Indemnified Party by wire transfer of immediately available funds within five (5) business days after the date of such notice.






Exhibit 2

CONTRIBUTION AND ASSUMPTION AGREEMENT

This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPLX Logistics Holdings LLC, a Delaware limited liability company (“ Logistics ”), and MPLX LP, a Delaware limited partnership (“ MPLX ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which Logistics and MPLX are among the parties to such agreement (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.

In accordance with Section 2.4 of the Contribution Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, Logistics hereby contributes, assigns, transfers, conveys and delivers the Logistics Membership Interests and Logistics Shares to MPLX, free and clear of all liens other than as set forth in the Contributed Entities’ or Joint Venture Companies’ Organizational Documents and other than restrictions on transfer under applicable federal and state securities laws, and MPLX hereby unconditionally and absolutely acquires, accepts and assumes from Logistics the Logistics Membership Interests and Logistics Shares.

To have and to hold the Logistics Membership Interests and Logistics Shares unto MPLX, its successors and assigns, forever.

Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Logistics, MPLX and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by Logistics and MPLX.
In Witness Whereof, the parties have executed this Agreement as of the date set forth above.
MPLX Logistics Holdings LLC
 
MPLX LP
 
 
 
By:
MPLX GP LLC, its General Partner
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Timothy T. Griffith
 
Name:
Michael J. Hennigan
 
 
 
 
 
Title:
Vice President
 
Title:
President




Exhibit 3
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPLX Holdings Inc., a Delaware corporation (“ Holdings ”), and MPLX LP, a Delaware limited partnership (“ MPLX ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which Holdings and MPLX are among the parties to such agreement (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.
In accordance with Section 2.5 of the Contribution Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, Holdings hereby contributes, assigns, transfers, conveys and delivers the Holdings Membership Interests and Holdings Shares to MPLX, free and clear of all liens other than as set forth in the Contributed Entities’ and Joint Venture Companies’ Organizational Documents and other than restrictions on transfer under applicable federal and state securities laws, and MPLX hereby unconditionally and absolutely acquires, accepts and assumes from Holdings the Holdings Membership Interests and Holdings Shares.
To have and to hold the Holdings Membership Interests and Holdings Shares unto MPLX, its successors and assigns, forever.
Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Holdings, MPLX and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by Holdings and MPLX.
In Witness Whereof, the parties have executed this Agreement as of the date set forth above.
MPLX Holdings Inc.
 
MPLX LP
 
 
 
By:
MPLX GP LLC, its General Partner
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Timothy T. Griffith
 
Name:
Michael J. Hennigan
 
 
 
 
 
Title:
Vice President
 
Title:
President





Exhibit 4
CONTRIBUTION AND ASSUMPTION AGREEMENT
This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPLX GP LLC, a Delaware limited liability company (“ MPLX GP ”), and MPLX LP, a Delaware limited partnership (“ MPLX ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which MPLX GP and MPLX are among the parties to such agreement (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.
In accordance with Section 2.6 of the Contributions Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPLX GP hereby contributes, assigns, transfers, conveys and delivers the MPLX GP Membership Interests and MPLX GP Shares to MPLX, free and clear of all liens other than as set forth in the MPLX GP Organizational Documents and other than restrictions on transfer under applicable federal and state securities laws, and MPLX hereby unconditionally and absolutely acquires, accepts and assumes from MPLX GP the MPLX GP Membership Interests and MPLX GP Shares.
To have and to hold the MPLX GP Membership Interests and MPLX GP Shares unto MPLX, its successors and assigns, forever.
Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.
This Agreement shall be binding upon, inure to the benefit of, and be enforceable by MPLX GP, MPLX and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by MPLX GP and MPLX.
In Witness Whereof, the parties have executed this Agreement as of the date set forth above.

MPLX GP LLC
 
MPLX LP
 
 
 
By:
MPLX GP LLC, its General Partner
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Michael J. Hennigan
 
Name:
Michael J. Hennigan
 
 
 
 
 
Title:
President
 
Title:
President
 
 
 
 
 
 
 
 
 
 







EXHIBIT 5









LINCOLN PIPELINE LLC


AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT


Dated as of September 1, 2017





AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
LINCOLN PIPELINE LLC
This Amended and Restated Limited Liability Company Agreement (the “ Agreement ”), dated as of September 1, 2017, is entered into by MPLX OPERATIONS LLC, a Delaware limited liability company (the “ Member ”), as the sole Member of LINCOLN PIPELINE LLC, the limited liability company to be governed by this Agreement (the “ Company ”). The definition of “ Member ” shall also include any additional or successor member or members as reflected on Exhibit A attached hereto.
RECITALS:
WHEREAS, the Company was heretofore formed by its member as a limited liability company under the Delaware Limited Liability Company Act ( 6 Del.C. § 18-101, et seq .), by filing the Certificate of Formation with the Office of the Secretary of State of Delaware, effective 5:24 p.m. EDT on March 26, 2014; and

WHEREAS,     The Member determined it is appropriate to adopt an Amended and Restated Limited Liability Company Agreement of the Company as described herein.
NOW, THEREFORE, the undersigned does hereby amend and restate the Limited Liability Company Agreement as follows and intends such amendment to be effective as of September 1, 2017.
ARTICLE I
ORGANIZATION
Section 1.1      Formation of Company; Term . The Company is a limited liability company governed by this Agreement and the Delaware Limited Liability Company Act as set forth in Title 6, Chapter 18 of the Delaware Code, as amended or amended and restated from time to time after the date of this Agreement (the “ Act ”). The Company is an entity separate from the Member, created by the execution and filing with the Secretary of State of the State of Delaware of a Certificate of Formation for the Company. Unless sooner dissolved and liquidated by action of the Member, the Company is to continue in perpetuity.
Section 1.2      Name . The name of the Company is     LINCOLN PIPELINE LLC.
Section 1.3      Purpose of the Company; Business . The purpose of the Company is to engage in and carry on any lawful business, purpose or activity for which limited liability companies may be formed under the Act and to perform all things necessary or incidental to or connected with or growing out of those activities in accordance with this Agreement.




Section 1.4      Principal Place of Business, Office, and Agent . The principal place of business and mailing address of the Company, and the office where the records required by the Act are maintained, is 200 East Hardin Street, Findlay, Ohio 45840 or at such other location selected, from time to time, by the Member. The registered office of the Company in Delaware is the office of the Company’s statutory agent. The Company’s statutory agent in Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The Member may, from time to time, change the statutory agent or the principal place of business of the Company, without reflecting the change in this Agreement.
Section 1.5      Fictitious Business Name Statement; Other Certificates . The Member will, from time to time, register the Company as a foreign limited liability company and file fictitious or trade name statements or certificates in those jurisdictions and offices as the Member considers necessary or appropriate. The Company may do business under any fictitious business names approved by the Member. The Member will, from time to time, file or cause to be filed certificates of amendment, certificates of cancellation, or other certificates as the Member reasonably considers necessary or appropriate under the Act or under the law of any jurisdiction in which the Company is doing business to establish and continue the Company as a limited liability company.
ARTICLE II
CAPITALIZATION; ECONOMICS
Section 2.1      Capital . Upon the formation of the Company, the Member contributed $1,000 in cash to the capital of the Company. The Member is not obligated to make additional contributions to the capital of the Company except as the Member may otherwise expressly agree to in writing.
Section 2.2      Capital Accounts; Allocations . All items of income, gain, loss, and deduction will be allocated to the Member. The Company will keep a record of the Member’s contributions to the Company, the Company’s income, gains, losses, and deductions, and its distributions to the Member.
Section 2.3      Interest . The Member is not to be paid interest on its capital contribution(s) to the Company.
Section 2.4      Distributions . All distributions of the Company shall be allocated solely to the Member. Subject to the limitations set forth in the Act, prior to the winding-up and liquidation of the Company, the Member may, in its discretion, direct the Company to make distributions of cash or other property to the Member. Once the Member becomes entitled to receive a distribution, it will have the status of, and be entitled to all remedies available to, a creditor of the Company with respect to the distribution.
Section 2.5      Tax Status . For federal income tax purposes, the Company is intended to be treated as (i) an entity whose existence apart from its owner is disregarded (commonly known as a “disregarded entity”) for any period in which it has only one Member and (ii) as a partnership for any period in which it has more than one Member.




ARTICLE III
MANAGEMENT BY MEMBER
Section 3.1      Authority of the Member . The business and affairs of the Company shall be managed by the Member (acting directly or through the Officers). No Member may sell, assign, pledge, or otherwise transfer or encumber all or any parts of its interest in the Company (collectively referred to as “transfer”), and no transferee shall be admitted as a Member without the prior written consent of all other Member(s) and without appropriate amendments to Exhibit A attached hereto to reflect the change in ownership of membership interest in the Company. Any purported transfer in violation of this Section 3.1 shall be null and void and shall not be recognized by the Company.
The Member may appoint by written designation an individual to act as the member’s representative (the “ Member Representative ”) to exercise all rights and authority of the Member under this Agreement or otherwise with respect to the management of the business and affairs of the Company. The Member Representative may be removed or replaced at any time by written action of the Member. The designated Member Representative is set forth on Exhibit A, which may be revised from time to time to reflect the designated Member Representative.
Section 3.2      Delegation . Subject to Section 3.3 and without limiting the power and authority of the Member to manage the business and affairs of the Company pursuant to the Act and this Agreement, the Member hereby delegates to the officers of the Company (the “ Officers ”) the full authority to conduct the business of the Company and to execute and deliver any and all agreements, instruments, certificates, applications, tax returns or other governmental or regulatory filings or other documents on behalf of and in the name of the Company as such Officers, or any of them, deem to be necessary or desirable in connection with the conduct of the Company’s business.
Section 3.3      Powers Reserved for the Member . Notwithstanding Section 3.2 , the written approval of the Member is required for:
(a)          any amendment to, restatement of, or other modification to the Certificate of Formation of the Company or this Agreement;
(b)          the admission of a new Member or the issuance of any membership interest of the Company;
(c)          the merger or consolidation of the Company with and into another entity or the conversion of the Company into another form of entity;
(d)          the dissolution, winding up or liquidation of the business or affairs of the Company;
(e)          the sale of all or substantially all of the assets and properties of the Company; or
(f)          the appointment, removal or replacement of any Officer.






Section 3.4      Officers of the Company
(a)    The Company will have a President, one or more Vice Presidents, a Treasurer and a Secretary, all as appointed by the Member. The Company may have such additional Officers, including one or more Assistant Treasurers and Assistant Secretaries, as are appointed, from time to time, by the Member.
(b)    Each Officer serves until the earlier of his or her death, resignation, or removal. An Officer may be removed at any time by the Member. Any Officer may resign at any time by delivering his or her written resignation to the Member.
Section 3.5      Standard of Care .
(a)    The Member and each Officer, in the performance of his or her duties, are entitled to rely in good faith on information, opinions, reports, or other statements, including financial statements, books of account, and other financial data prepared or presented by one or more Officers or employees of the Company, legal counsel, accountants or any other person as to matters in which the person relying on such information, opinions, reports or other statements reasonably believes are within the preparing or presenting person’s professional or expert competence.
(b)    Each Officer is to perform his or her duties as an officer of the Company in good faith, in a manner he or she reasonably believes to be in or not opposed to the best interests of the Company.
Section 3.6      Exculpation and Indemnification .
(a)    Neither the Member nor any Officer (each, a “ Covered Person ”) shall be liable to the Company, or any person claiming by or through the Company, for any loss, liability or damage incurred by the Company or such claiming person by reason of any act or omission performed or omitted by the Covered Person in good faith on behalf of the Company, except that a Covered Person may be liable for any such loss, liability or damage incurred by the Company or such claiming person by reason of such Covered Person’s knowing violation of the law or intentional misconduct.
(b)    To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, judgment, fine, penalty, damages, amounts paid in settlement, and actual out-of-pocket expenses incurred by such Covered Person in connection with any claim, demand, action, suit, investigation or other proceeding asserted by a third party against such Covered Person by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company in good faith and in a manner in which the Covered Person reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding, in which the Covered Person had no reasonable cause to believe his, her or its conduct was unlawful.




(c)    To the fullest extent permitted by applicable law, the Company shall from time to time advance to each Covered Person any and all expenses (including reasonable legal fees) incurred by a Covered Person in the defense of any claim, demand, action, suit, investigation or other proceeding asserted against such Covered Person by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company; provided , however , that as a condition precedent to the advancement of any expenses, the Covered Person shall agree in writing to repay any such advances if and when it is finally determined that the Covered Person is not entitled to be indemnified for such expenses as authorized in this Section 3.6 .
(d)    To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this Agreement or any approval or authorization granted by the Company or any other Covered Person. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Member to replace such other duties and liabilities of such Covered Person.
(e)    Nothing in this Section 3.6 , express or implied, is intended or shall be construed (i) to give any Person other than a Covered Person any legal or equitable right, remedy or claim under or in respect of this Section 3.6 or any provision contained herein, (ii) to limit the power or authority of the Company under the Act to indemnify, hold harmless or advance expenses to any Covered Person, employee, agent or other person acting on behalf of the Company from and against any claims or demands whatsoever or (iii) to preclude any rights to indemnification or advancement of expenses that a Covered Person may have from any other person or entity, including the Member or any direct or indirect parent entity of the Member, with respect to any act or omission taken on behalf of the Company.
ARTICLE IV
GENERAL
Section 4.1      Dissolution and Liquidation . To the extent that this Agreement may limit the events and occurrences that would otherwise cause the dissolution or liquidation of a limited liability company under the Act, the Company will only be dissolved or liquidated upon the affirmative consent of the Member. In the event of liquidation or dissolution, the Company shall first pay or make provision to pay all its obligations as required by the Act or other applicable law and any assets remaining shall be distributed to the Member.
Section 4.2      Liability to Third Parties . The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member or Officer of the Company shall be obligated personally for any such debts, obligations or liabilities solely by reason of being a Member or Officer of the Company.




Section 4.3      Whole Agreement . This Agreement constitutes the limited liability company agreement of the Company as contemplated under the Act and supersedes any limited liability company agreement previously made or entered into with respect to the Company.
Section 4.4      Governing Law . This Agreement is intended to be governed by and construed under the laws of the State of Delaware.
Section 4.5      Construction . The headings contained in this Agreement are for reference purposes only and do not affect the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement, whether used in the masculine, feminine, or neuter gender, include all other genders. Unless otherwise specifically stated, references to Sections or Articles refer to the Sections and Articles of this Agreement.
* * *
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed as of the date first above written.

MPLX OPERATIONS LLC
 
 
 
 
By:
 
Pamela K.M. Beall
President
 
 
 
 
 
 
 
 





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
LINCOLN PIPELINE LLC
Member

Effective Date
Ownership of Membership Interest
MPL Investment LLC
03/26/2014
100%


Designated Member Representative
Pamela K.M. Beall

    




EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
LINCOLN PIPELINE LLC

Member

Effective Date
Ownership of Membership Interest
MPC Investment LLC
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
LINCOLN PIPELINE LLC

Member

Effective Date
Ownership of Membership Interest
MPLX GP LLC
09/01/2017
74.63%
MPLX Logistics Holdings LLC
09/01/2017
17.74%
MPLX Holdings Inc.
09/01/2017
7.63%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
LINCOLN PIPELINE LLC

Member

Effective Date
Ownership of Membership Interest
MPLX LP
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
LINCOLN PIPELINE LLC

Member

Effective Date
Ownership of Membership Interest
MPLX Operations LLC
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall


    





EXHIBIT 6








MPL LOUISIANA HOLDINGS LLC


AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT


Dated as of September 1, 2017


    



AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
MPL LOUISIANA HOLDINGS LLC
This Amended and Restated Limited Liability Company Agreement (the “ Agreement ”), dated as of September 1, 2017, is entered into by MPLX OPERATIONS LLC, a Delaware limited liability company (the “ Member ”), as the sole Member of MPL LOUISIANA HOLDINGS LLC, the limited liability company to be governed by this Agreement (the “ Company ”). The definition of “ Member ” shall also include any additional or successor member or members as reflected on Exhibit A attached hereto.
RECITALS:
WHEREAS, the Company was heretofore formed by its member as a limited liability company under the Delaware Limited Liability Company Act ( 6 Del.C. § 18-101, et seq .), by filing the Certificate of Formation with the Office of the Secretary of State of Delaware, effective 10:37 a.m. EDT on March 27, 2012; and

WHEREAS,     The Member determined it is appropriate to adopt an Amended and Restated Limited Liability Company Agreement of the Company as described herein.
NOW, THEREFORE, the undersigned does hereby amend and restate the Limited Liability Company Agreement as follows and intends such amendment to be effective as of September 1, 2017.
ARTICLE I
ORGANIZATION
Section 1.1      Formation of Company; Term . The Company is a limited liability company governed by this Agreement and the Delaware Limited Liability Company Act as set forth in Title 6, Chapter 18 of the Delaware Code, as amended or amended and restated from time to time after the date of this Agreement (the “ Act ”). The Company is an entity separate from the Member, created by the execution and filing with the Secretary of State of the State of Delaware of a Certificate of Formation for the Company. Unless sooner dissolved and liquidated by action of the Member, the Company is to continue in perpetuity.
Section 1.2      Name . The name of the Company is      MPL LOUISIANA HOLDINGS LLC.
Section 1.3      Purpose of the Company; Business . The purpose of the Company is to engage in and carry on any lawful business, purpose or activity for which limited liability companies may be formed under the Act and to perform all things necessary or incidental to or connected with or growing out of those activities in accordance with this Agreement.

    




Section 1.4      Principal Place of Business, Office, and Agent . The principal place of business and mailing address of the Company, and the office where the records required by the Act are maintained, is 200 East Hardin Street, Findlay, Ohio 45840 or at such other location selected, from time to time, by the Member. The registered office of the Company in Delaware is the office of the Company’s statutory agent. The Company’s statutory agent in Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The Member may, from time to time, change the statutory agent or the principal place of business of the Company, without reflecting the change in this Agreement.
Section 1.5      Fictitious Business Name Statement; Other Certificates . The Member will, from time to time, register the Company as a foreign limited liability company and file fictitious or trade name statements or certificates in those jurisdictions and offices as the Member considers necessary or appropriate. The Company may do business under any fictitious business names approved by the Member. The Member will, from time to time, file or cause to be filed certificates of amendment, certificates of cancellation, or other certificates as the Member reasonably considers necessary or appropriate under the Act or under the law of any jurisdiction in which the Company is doing business to establish and continue the Company as a limited liability company.
ARTICLE II
CAPITALIZATION; ECONOMICS
Section 2.1      Capital . Upon the formation of the Company, the Member contributed $1,000 in cash to the capital of the Company. The Member is not obligated to make additional contributions to the capital of the Company except as the Member may otherwise expressly agree to in writing.
Section 2.2      Capital Accounts; Allocations . All items of income, gain, loss, and deduction will be allocated to the Member. The Company will keep a record of the Member’s contributions to the Company, the Company’s income, gains, losses, and deductions, and its distributions to the Member.
Section 2.3      Interest . The Member is not to be paid interest on its capital contribution(s) to the Company.
Section 2.4      Distributions . All distributions of the Company shall be allocated solely to the Member. Subject to the limitations set forth in the Act, prior to the winding-up and liquidation of the Company, the Member may, in its discretion, direct the Company to make distributions of cash or other property to the Member. Once the Member becomes entitled to receive a distribution, it will have the status of, and be entitled to all remedies available to, a creditor of the Company with respect to the distribution.
Section 2.5      Tax Status . For federal income tax purposes, the Company is intended to be treated as (i) an entity whose existence apart from its owner is disregarded (commonly known as a “disregarded entity”) for any period in which it has only one Member and (ii) as a partnership for any period in which it has more than one Member.

    




ARTICLE III
MANAGEMENT BY MEMBER
Section 3.1      Authority of the Member . The business and affairs of the Company shall be managed by the Member (acting directly or through the Officers). No Member may sell, assign, pledge, or otherwise transfer or encumber all or any parts of its interest in the Company (collectively referred to as “transfer”), and no transferee shall be admitted as a Member without the prior written consent of all other Member(s) and without appropriate amendments to Exhibit A attached hereto to reflect the change in ownership of membership interest in the Company. Any purported transfer in violation of this Section 3.1 shall be null and void and shall not be recognized by the Company.
The Member may appoint by written designation an individual to act as the member’s representative (the “ Member Representative ”) to exercise all rights and authority of the Member under this Agreement or otherwise with respect to the management of the business and affairs of the Company. The Member Representative may be removed or replaced at any time by written action of the Member. The designated Member Representative is set forth on Exhibit A, which may be revised from time to time to reflect the designated Member Representative.
Section 3.2      Delegation . Subject to Section 3.3 and without limiting the power and authority of the Member to manage the business and affairs of the Company pursuant to the Act and this Agreement, the Member hereby delegates to the officers of the Company (the “ Officers ”) the full authority to conduct the business of the Company and to execute and deliver any and all agreements, instruments, certificates, applications, tax returns or other governmental or regulatory filings or other documents on behalf of and in the name of the Company as such Officers, or any of them, deem to be necessary or desirable in connection with the conduct of the Company’s business.
Section 3.3      Powers Reserved for the Member . Notwithstanding Section 3.2 , the written approval of the Member is required for:
(a)          any amendment to, restatement of, or other modification to the Certificate of Formation of the Company or this Agreement;
(b)          the admission of a new Member or the issuance of any membership interest of the Company;
(c)          the merger or consolidation of the Company with and into another entity or the conversion of the Company into another form of entity;
(d)          the dissolution, winding up or liquidation of the business or affairs of the Company;
(e)          the sale of all or substantially all of the assets and properties of the Company; or
(f)          the appointment, removal or replacement of any Officer.


    




Section3.4      Officers of the Company
(a)    The Company will have a President, one or more Vice Presidents, a Treasurer and a Secretary, all as appointed by the Member. The Company may have such additional Officers, including one or more Assistant Treasurers and Assistant Secretaries, as are appointed, from time to time, by the Member.
(b)    Each Officer serves until the earlier of his or her death, resignation, or removal. An Officer may be removed at any time by the Member. Any Officer may resign at any time by delivering his or her written resignation to the Member.
Section 3.5      Standard of Care .
(a)    The Member and each Officer, in the performance of his or her duties, are entitled to rely in good faith on information, opinions, reports, or other statements, including financial statements, books of account, and other financial data prepared or presented by one or more Officers or employees of the Company, legal counsel, accountants or any other person as to matters in which the person relying on such information, opinions, reports or other statements reasonably believes are within the preparing or presenting person’s professional or expert competence.
(b)    Each Officer is to perform his or her duties as an officer of the Company in good faith, in a manner he or she reasonably believes to be in or not opposed to the best interests of the Company.
Section 3.6      Exculpation and Indemnification .
(a)    Neither the Member nor any Officer (each, a “ Covered Person ”) shall be liable to the Company, or any person claiming by or through the Company, for any loss, liability or damage incurred by the Company or such claiming person by reason of any act or omission performed or omitted by the Covered Person in good faith on behalf of the Company, except that a Covered Person may be liable for any such loss, liability or damage incurred by the Company or such claiming person by reason of such Covered Person’s knowing violation of the law or intentional misconduct.
(b)    To the fullest extent permitted by applicable law, a Covered Person shall be entitled to indemnification from the Company for any loss, judgment, fine, penalty, damages, amounts paid in settlement, and actual out-of-pocket expenses incurred by such Covered Person in connection with any claim, demand, action, suit, investigation or other proceeding asserted by a third party against such Covered Person by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company in good faith and in a manner in which the Covered Person reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding, in which the Covered Person had no reasonable cause to believe his, her or its conduct was unlawful.
(c)    To the fullest extent permitted by applicable law, the Company shall from time to time advance to each Covered Person any and all expenses (including reasonable legal fees) incurred by a Covered Person in the defense of any claim, demand, action, suit, investigation or

    




other proceeding asserted against such Covered Person by reason of any act or omission performed or omitted by such Covered Person on behalf of the Company; provided , however , that as a condition precedent to the advancement of any expenses, the Covered Person shall agree in writing to repay any such advances if and when it is finally determined that the Covered Person is not entitled to be indemnified for such expenses as authorized in this Section 3.6 .
(d)    To the extent that, at law or in equity, a Covered Person has duties (including fiduciary duties) and liabilities relating thereto to the Company or to any other Covered Person, a Covered Person acting under this Agreement shall not be liable to the Company or to any other Covered Person for its good faith reliance on the provisions of this Agreement or any approval or authorization granted by the Company or any other Covered Person. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Member to replace such other duties and liabilities of such Covered Person.
(e)    Nothing in this Section 3.6 , express or implied, is intended or shall be construed (i) to give any Person other than a Covered Person any legal or equitable right, remedy or claim under or in respect of this Section 3.6 or any provision contained herein, (ii) to limit the power or authority of the Company under the Act to indemnify, hold harmless or advance expenses to any Covered Person, employee, agent or other person acting on behalf of the Company from and against any claims or demands whatsoever or (iii) to preclude any rights to indemnification or advancement of expenses that a Covered Person may have from any other person or entity, including the Member or any direct or indirect parent entity of the Member, with respect to any act or omission taken on behalf of the Company.
ARTICLE IV
GENERAL
Section 4.1      Dissolution and Liquidation . To the extent that this Agreement may limit the events and occurrences that would otherwise cause the dissolution or liquidation of a limited liability company under the Act, the Company will only be dissolved or liquidated upon the affirmative consent of the Member. In the event of liquidation or dissolution, the Company shall first pay or make provision to pay all its obligations as required by the Act or other applicable law and any assets remaining shall be distributed to the Member.
Section 4.2      Liability to Third Parties . The debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member or Officer of the Company shall be obligated personally for any such debts, obligations or liabilities solely by reason of being a Member or Officer of the Company.
Section 4.3      Whole Agreement . This Agreement constitutes the limited liability company agreement of the Company as contemplated under the Act and supersedes any limited liability company agreement previously made or entered into with respect to the Company.
Section 4.4      Governing Law . This Agreement is intended to be governed by and construed under the laws of the State of Delaware.

    




Section 4.5      Construction . The headings contained in this Agreement are for reference purposes only and do not affect the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement, whether used in the masculine, feminine, or neuter gender, include all other genders. Unless otherwise specifically stated, references to Sections or Articles refer to the Sections and Articles of this Agreement.
* * *
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be duly executed as of the date first above written.

MPLX OPERATIONS LLC
 
 
 
 
By:
 
Pamela K.M. Beall
President
 
 
 
 
 
 
 
 


    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
Marathon Pipe Line LLC
03/27/2012
100%


Designated Member Representative
Garry L. Peiffer

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
MPL Investment LLC
10/31/2012
100%


Designated Member Representative
Garry L. Peiffer
Pamela K.M. Beall (effective 01/01/2014)



    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
MPC Investment LLC
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
MPLX GP LLC
09/01/2017
74.63%
MPLX Logistics Holdings LLC
09/01/2017
17.74%
MPLX Holdings Inc.
09/01/2017
7.63%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
MPLX LP
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall

    





EXHIBIT A
to the
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
of
MPL LOUISIANA HOLDINGS LLC

Member

Effective Date
Ownership of Membership Interest
MPLX Operations LLC
09/01/2017
100%


Designated Member Representative
Pamela K.M. Beall


    




Exhibit S1


DISTRIBUTION AND ASSUMPTION AGREEMENT

This Distribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between Hardin Street Holdings LLC, a Delaware limited liability company (“ Hardin ”) and MPL Investment LLC, a Delaware limited liability company (“ MPL ”).

WHEREAS , Hardin desires to distribute to MPL all of its rights, title and interest in 58.52 shares of ownership interest in LOCAP LLC, a Delaware limited liability company (the “LOCAP Shares”).

NOW THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is acknowledged, Hardin hereby distributes, assigns, transfers, conveys and delivers the LOCAP Shares to MPL and MPL hereby unconditionally and absolutely acquires, accepts and assumes from Hardin the LOCAP Shares.

To have and to hold the LOCAP Shares unto MPL, its successors and assigns, forever.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Hardin, MPL and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by Hardin and MPL.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

Hardin Street Holdings LLC
 
MPL Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Timothy T. Griffith
 
Name:
Donald C. Templin
 
 
 
 
 
Title:
Vice President
 
Title:
President


    



EXHIBIT S2


DISTRIBUTION AND ASSUMPTION AGREEMENT

This Distribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPL Investment LLC a Delaware limited liability company (“ MPL ”) and MPC Investment LLC, a Delaware limited liability company (“ MPCI ”).

WHEREAS, MPL desires to distribute to MPCI all of its rights, title and interest in 58.52 shares of ownership interest in LOCAP LLC, a Delaware limited liability company (the ‘LOCAP Shares”) and 5,372 shares of common stock of Explorer Pipeline Company, a Delaware corporation (the “Explorer Shares”).

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPL hereby distributes, assigns, transfers, conveys and delivers the LOCAP Shares and Explorer Shares to MPCI and MPCI hereby unconditionally and absolutely acquires, accepts and assumes from MPL the LOCAP Shares and Explorer Shares.

To have and to hold the LOCAP Shares and Explorer Shares unto MPCI, its successors and assigns, forever.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by MPL, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by MPL and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

MPL Investment LLC
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Donald C. Templin
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
President
 
Title:
Chief Executive Officer



    



EXHIBIT S3


CONTRIBUTION AND ASSUMPTION AGREEMENT

This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPC Investment LLC, a Delaware limited liability company (“ MPCI ”) and MPLX Holdings Inc., a Delaware corporation (“ Holdings ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which Holdings and MPCI are parties (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.

In accordance with Section 2.2 of the Contribution Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPCI hereby contributes, assigns, transfers, conveys and delivers the Holdings Shares and Holdings Membership Interests to Holdings, free and clear of all liens, other than as set forth in the Contributed Entities’ and Joint Venture Companies’ Organizational Documents, and other than restrictions on transfer under applicable federal and state securities laws, and Holdings hereby unconditionally and absolutely acquires, accepts and assumes from MPCI the Holdings Shares and Holdings Membership Interests.

To have and to hold the Holdings Shares and Holdings Membership Interests unto Holdings, its successors and assigns, forever.

Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Holdings, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by Holdings and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.
MPLX Holdings Inc.
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Timothy T. Griffith
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
Vice President
 
Title:
Chief Executive Officer

    



EXHIBIT M1A


DISTRIBUTION AND ASSUMPTION AGREEMENT

This Distribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPL Investment LLC a Delaware limited liability company (“ MPL ”) and MPC Investment LLC, a Delaware limited liability company (“ MPCI ”).

WHEREAS, MPL desires to distribute to MPCI all of its rights, title and interest in 100% of the outstanding limited liability company membership interest in Lincoln Pipeline LLC, a Delaware limited liability company (the “Lincoln Membership Interests”).

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPL hereby distributes, assigns, transfers, conveys and delivers the Lincoln Membership Interests to MPCI and MPCI hereby unconditionally and absolutely acquires, accepts and assumes from MPL the Lincoln Membership Interests.

To have and to hold the Lincoln Membership Interests unto MPCI, its successors and assigns, forever.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by MPL, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by MPL and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

MPL Investment LLC
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Donald C. Templin
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
President
 
Title:
Chief Executive Officer



    



EXHIBIT M1B


DISTRIBUTION AND ASSUMPTION AGREEMENT

This Distribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPL Investment LLC a Delaware limited liability company (“ MPL ”) and MPC Investment LLC, a Delaware limited liability company (“ MPCI ”).

WHEREAS, MPL desires to distribute to MPCI all of its rights, title and interest in 100% of the outstanding limited liability company membership interests in MPL Louisiana Holdings LLC, a Delaware limited liability company (the “Louisiana Membership Interests”).

NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPL hereby distributes, assigns, transfers, conveys and delivers the Louisiana Membership Interests to MPCI and MPCI hereby unconditionally and absolutely acquires, accepts and assumes from MPL the Louisiana Membership Interests.

To have and to hold the Louisiana Membership Interests unto MPCI, its successors and assigns, forever.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by MPL, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by MPL and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

MPL Investment LLC
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Donald C. Templin
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
President
 
Title:
Chief Executive Officer



    



EXHIBIT M2A


CONTRIBUTION AND ASSUMPTION AGREEMENT

This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPC Investment LLC, a Delaware limited liability company (“ MPCI ”) and MPLX GP LLC, a Delaware limited liability company (“ MPLX GP ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which MPLX GP and MPCI are parties (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.

In accordance with Section 2.3 of the Contribution Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPCI hereby contributes, assigns, transfers, conveys and delivers the MPLX GP Membership Interests and MPLX GP Shares to MPLX GP, free and clear of all liens, other than as set forth in the Contributed Entities’ or Joint Venture Companies’ Organizational Documents and other than restrictions on transfer under applicable federal and state securities laws, and MPLX GP hereby unconditionally and absolutely acquires, accepts and assumes from MPCI the MPLX GP Membership Interests and MPLX GP Shares.

To have and to hold the MPLX GP Membership Interests and MPLX GP Shares unto MPLX GP, its successors and assigns, forever.

Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by MPLX GP, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by MPLX GP and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

MPLX GP LLC
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Michael J. Hennigan
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
President
 
Title:
Chief Executive Officer






EXHIBIT M2B


CONTRIBUTION AND ASSUMPTION AGREEMENT

This Contribution and Assumption Agreement (this “ Agreement ”) is entered into as of September 1, 2017, by and between MPC Investment LLC, a Delaware limited liability company (“ MPCI ”) and MPLX Logistics Holdings LLC, a Delaware limited liability company (“ Logistics ”), pursuant to that certain Membership Interests and Shares Contributions Agreement, dated September 1, 2017, to which Logistics and MPCI are parties (the “ Contributions Agreement ”). Capitalized terms used and not defined herein have the meanings given to such terms in the Contributions Agreement.

In accordance with Section 2.1 of the Contribution Agreement, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, MPCI hereby contributes, assigns, transfers, conveys and delivers the Logistics Membership Interests and Logistics Shares to Logistics, free and clear of all liens, other than as set forth in the Contributed Entities’ and Joint Venture Companies’ Organizational Documents and other than restrictions on transfer under applicable federal and state securities laws, and Logistics hereby unconditionally and absolutely acquires, accepts and assumes from MPCI the Logistics Membership Interests and Logistics Shares.

To have and to hold the Logistics Membership Interests and Logistics Shares unto Logistics, its successors and assigns, forever.

Notwithstanding anything herein to the contrary, nothing herein shall in any way vary the covenants, agreements, representations and warranties of any of the parties set forth in the Contributions Agreement. If there is a conflict between the provisions of the Contributions Agreement and the provisions of this Agreement, the provisions of the Contributions Agreement shall control.

This Agreement shall be binding upon, inure to the benefit of, and be enforceable by Logistics, MPCI and their respective successors and assigns. This Agreement may not be amended except by an instrument in writing authorized and signed by Logistics and MPCI.

In witness whereof, the parties have executed this Agreement as of the date set forth above.

MPLX Logistics Holdings LLC
 
MPC Investment LLC
 
 
 
 
 
By:
 
 
By:
 
 
 
 
 
 
Name:
Timothy T. Griffith
 
Name:
Gary R. Heminger
 
 
 
 
 
Title:
Vice President
 
Title:
Chief Executive Officer


    



SCHEDULE 5.13
Adverse Changes

None

    


Exhibit 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (File No. 333-200621, File No. 333-203067, File No. 333-211397, File No. 333-219795 and File No. 333-220267) and Form S-8 (No. 333-184707) of MPLX LP our report dated February 10, 2017 relating to the financial statements of LOCAP LLC, which appears in this Current Report on Form 8‑K of MPLX LP.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
September 1, 2017





Exhibit 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (File No. 333-200621, File No. 333-203067, File No. 333-211397, File No. 333-219795 and File No. 333-220267) and Form S-8 (No. 333-184707) of MPLX LP our report dated February 10, 2017 relating to the financial statements of LOOP LLC, which appears in this Current Report on Form 8‑K of MPLX LP.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
September 1, 2017






Exhibit 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS  
We hereby consent to the incorporation by reference in the Registration Statement on Forms S-3 (File No. 333-203067, File No. 333-200621, File No. 333-211397, File No. 333-219795 and File No. 333-220267) and S-8 (No. 333-184707) of MPLX LP of our report dated March 27, 2017 relating to the financial statements of Illinois Extension Pipeline Company, L.L.C., which appears in this Current Report on Form 8‑K of MPLX LP.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
August 31, 2017  







Exhibit 23.4

Consent of Independent Auditors

The Owners of LOCAP LLC:

We consent to the incorporation by reference in the registration statements (333-200621, 333-203067, 333-211397, 333-219795 and 333-220267) on Form S-3 and registration statement (333-184707) on Form S-8 of MPLX LP of our report dated February 17, 2016, with respect to the balance sheet of LOCAP LLC as of December 31, 2015, and the related statements of income and members’ equity, and cash flows for each of the years in the two-year period ended December 31, 2015, which report appears in this Form 8-K of MPLX LP filed September 1, 2017.


 
 
 
 
 
/s/ KPMG LLP

New Orleans, Louisiana
September 1, 2017

 
 






Exhibit 23.5

Consent of Independent Auditors


The Owners of LOOP LLC:

We consent to the incorporation by reference in the registration statements (333-200621, 333-203067, 333-211397, 333-219795 and 333-220267) on Form S-3 and registration statement (333-184707) on Form S-8 of MPLX LP of our report dated March 31, 2016, with respect to the balance sheet of LOOP LLC as of December 31, 2015, and the related statements of income, comprehensive income, changes in members’ equity, and cash flows for each of the years in the two-year period ended December 31, 2015, which report appears in this Form 8-K of MPLX LP filed September 1, 2017.

 
 
 
 
 
/s/ KPMG LLP

New Orleans, Louisiana
September 1, 2017
 
 





Exhibit 23.6

Consent of Independent Auditors
We consent to the incorporation by reference in the registration statements on Forms S-3 (File No. 333-200621, File No. 333-203067, File No. 333-211397, File No. 333-219795 and File No. 333-220267) and Form S-8 (No. 333-184707) of MPLX LP of our report dated February 13, 2015, with respect to the consolidated statements of income and retained earnings, comprehensive income, and cash flows of Explorer Pipeline Company for the year ended December 31, 2014, included herein, which report appears in the Current Report on Form 8-K of MPLX LP dated September 1, 2017.

 
 
 
 
 
/s/ KPMG LLP

Tulsa, Oklahoma
August 31, 2017
 
 






Exhibit 23.7

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated February 27, 2017, with respect to the consolidated financial statements of Explorer Pipeline Company included in the Current Report on Form 8-K of MPLX LP dated September 1, 2017. We consent to the incorporation by reference of said report in the Registration Statements of MPLX LP on Forms S-3 (File No. 333-200621, File No. 333-203067, File No. 333-211397, File No. 333-219795 and File No. 333-220267) and on Form S-8 (File No. 333-184707).

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma
September 1, 2017




REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Explorer Pipeline Company

We have audited the accompanying consolidated financial statements of Explorer Pipeline Company and its subsidiary, which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of income and retained earnings, comprehensive income, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Explorer Pipeline Company and its subsidiary as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of matter
As discussed in Note 1 to the consolidated financial statements, the Company adopted new accounting guidance in 2016, related to the accounting for deferred loan costs. Our opinion is not modified with respect to this matter.

/s/GRANT THORNTON LLP

Tulsa, Oklahoma
February 27, 2017





Independent Auditors’ Report

The Board of Directors and Stockholders
Explorer Pipeline Company:

We have audited the accompanying consolidated financial statements of Explorer Pipeline Company and its subsidiary, which comprise the consolidated statements of income and retained earnings, comprehensive income, and cash flows for the year ended December 31, 2014, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of the operations and the cash flows of Explorer Pipeline Company and its subsidiary for the year ended December 31, 2014, in accordance with U.S. generally accepted accounting principles.

/s/KPMG LLP

Tulsa, Oklahoma
February 13, 2015





EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Consolidated balance sheets

December 31, 2016 and 2015
Assets
2016
 
2015
Current assets:
 
 
 
Cash and cash equivalents
$
18,596,386

 
$
31,693,635

Accounts receivable - trade
45,440,008

 
44,882,065

Accounts receivable - affiliates
5,259,765

 
5,293,526

Income tax receivable
13,385,645

 
9,604,140

Unbilled revenue - trade
4,494,284

 
3,906,289

Unbilled revenue - affiliates
626,021

 
537,459

Warehouse stock inventory
13,682,895

 
11,225,399

Other current assets
19,491,762

 
10,464,295

Total current assets
120,976,766

 
117,606,808

Property, plant and equipment, at cost (note 3)
959,383,249

 
928,742,103

Accumulated depreciation
(434,118,872
)
 
(410,293,827
)
Net property, plant and equipment
525,264,377

 
518,448,276

Other non-current assets
15,045,230

 
25,509,495

Total assets
$
661,286,373

 
$
661,564,579

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable - trade
$
18,578,657

 
$
21,550,271

Accounts payable - affiliates
4,292,186

 
4,957,700

Income tax payable
316,502

 
1,099,150

Interest payable
3,903,184

 
4,309,790

Other current liabilities
18,741,112

 
11,913,313

Current maturities of long-term debt
264,804,047

 
14,768,571

Total current liabilities
310,635,688

 
58,598,795

 
 
 
 
Long-term debt, less current maturities (note 4)
100,849,303

 
365,653,351

Deferred interest income
384,354

 
1,043,214

Deferred income taxes, net
86,932,491

 
83,830,386

Other non-current liabilities
22,690,347

 
35,836,994

Commitments and contingencies (note 8)
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $1 par value per share; 21,920 authorized and
 
 
 
issued as of December 31, 2016 and 2015
21,920

 
21,920

Accumulated other comprehensive loss
(4,696,953
)
 
(5,352,971
)
Retained earnings
144,469,223

 
121,932,890

Total stockholders' equity
139,794,190

 
116,601,839

Total liabilities and stockholders' equity
$
661,286,373

 
$
661,564,579



See accompanying notes to consolidated financial statements.


3



EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Consolidated statements of income and retained earnings

Years ended December 31, 2016, 2015 and 2014


 
2016
 
2015
 
2014
Revenues:
 
 
 
 
 
Transportation revenue
$
402,546,501

 
$
360,146,341

 
$
326,360,450

Allowance oil revenue
6,563,733

 
7,171,371

 
11,663,270

Storage revenue
2,282,060

 
3,755,430

 
1,741,029

Blending revenue
4,563,596

 
2,452,352

 

Other income
4,294,321

 
4,213,803

 
2,700,323

Total revenues
420,250,211

 
377,739,297

 
342,465,072

Operating expenses:
 
 
 
 
 
Operations and maintenance
104,500,254

 
104,501,207

 
120,521,479

General and administrative
36,485,058

 
36,542,516

 
35,949,800

Taxes, other than income taxes
10,423,214

 
10,615,306

 
9,289,983

Depreciation
24,149,067

 
22,061,965

 
22,348,409

Interest expense
20,611,708

 
19,674,013

 
21,008,791

Total operating expenses
196,169,301

 
193,395,007

 
209,118,462

Miscellaneous charges and credits
4,448,553

 

 

Income before income taxes
228,529,463

 
184,344,290

 
133,346,610

Income taxes: (note 5)
 
 
 
 
 
Current income taxes
81,062,559

 
63,235,256

 
47,162,926

Deferred income taxes
2,573,131

 
3,988,336

 
1,526,232

Total income taxes
83,635,690

 
67,223,592

 
48,689,158

Net income
144,893,773

 
117,120,698

 
84,657,452

Retained earnings, beginning of year
121,932,890

 
119,234,592

 
91,393,780

Retained earnings, available
266,826,663

 
236,355,290

 
176,051,232

Less: dividends paid
(122,357,440
)
 
(114,422,400
)
 
(56,816,640
)
Retained earnings, end of year
$
144,469,223

 
$
121,932,890

 
$
119,234,592






See accompanying notes to consolidated financial statements.


4



EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Consolidated statements of comprehensive income

Years ended December 31, 2016, 2015 and 2014

 
2016
 
2015
 
2014
Net income
$
144,893,773

 
$
117,120,698

 
$
84,657,452

Other comprehensive gain (loss), net of tax:
 
 
 
 
 
Pension and other postretirement benefits
656,018

 
3,627,804

 
(4,481,751
)
Comprehensive income
$
145,549,791

 
$
120,748,502

 
$
80,175,701




See accompanying notes to consolidated financial statements.


5



EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Consolidated statements of cash flows

Years ended December 31, 2016, 2015 and 2014
 
2016
 
2015
 
2014
Cash from operating activities
 
 
 
 
 
Net income
$
144,893,773

 
$
117,120,698

 
$
84,657,452

Reconciliation of net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation
24,149,067

 
22,061,966

 
22,348,409

Amortization of debt issuance cost
345,065

 
365,237

 
375,993

Gain on the sale of assets
(117,883
)
 

 

Deferred income taxes
2,573,131

 
3,988,336

 
1,526,232

Pension plan expense
2,785,216

 
2,748,892

 
2,562,713

Post retirement medical plan expense
564,542

 
942,863

 
741,646

Changes in assets & liabilities:
 
 
 
 
 
(Increase) decrease in accounts receivable
(1,200,739
)
 
6,929,119

 
(3,739,297
)
(Increase) in inventories
(2,457,496
)
 
(968,055
)
 
(1,098,806
)
(Increase) in income taxes
(4,564,153
)
 
(4,359,339
)
 
5,347,649

(Increase) decrease in other assets
1,436,798

 
(9,599,865
)
 
6,618,289

Increase (decrease) in accounts payable & accrued liabilities
9,266,155

 
(16,061,903
)
 
(19,673,796
)
Minimum pension liability - employer contributions
1,285,000

 
1,621,000

 
1,160,000

Increase (decrease) in other liabilities
(17,255,273
)
 
2,373,069

 
1,966,976

Net cash provided by operating activities
161,703,203

 
127,162,018

 
102,793,460

 
 
 
 
 
 
Cash from investing activities:
 
 
 
 
 
Purchases of property and equipment
(41,207,746
)
 
(60,569,387
)
 
(48,206,323
)
Proceeds from sale of property and equipment
3,878,371

 
119,946

 
123,442

Net cash used in investing activities
(37,329,375
)
 
(60,449,441
)
 
(48,082,881
)
Cash from financing activities:
 
 
 
 
 
Proceeds from borrowings

 
63,000,000

 
12,000,000

Payments on debt
(15,113,637
)
 
(16,363,636
)
 
(16,363,636
)
Dividends paid
(122,357,440
)
 
(114,422,400
)
 
(56,816,640
)
Net cash used in financing activities
(137,471,077
)
 
(67,786,036
)
 
(61,180,276
)
Net decrease in cash and cash equivalents
(13,097,249
)
 
(1,073,459
)
 
(6,469,697
)
Cash and cash equivalents, beginning of period
31,693,635

 
32,767,094

 
39,236,791

Cash and cash equivalents, end of period
$
18,596,386

 
$
31,693,635

 
$
32,767,094

Supplemental cash flows:
 
 
 
 
 
Capitalized interest
$
443,881

 
$
600,547

 
$

Capital expenditures included in accrued and accounts payable
$
1,260,969

 
$
7,743,059

 
$
2,248,709

Cash paid for interest
$
20,165,306

 
$
19,866,197

 
$
21,275,369

Cash paid for income taxes
$
93,337,294

 
$
67,880,968

 
$
41,627,274

 
 
 
 
 
 
Impact of pension accounting:
 
 
 
 
 
Decrease in other current liabilities and other non-current liabilities
$
1,184,992

 
$
5,804,487

 
$
7,170,802

Decrease to accumulated other comprehensive loss
$
656,018

 
$
3,627,804

 
$
4,481,751

Decrease to deferred income tax liability
$
528,974

 
$
2,176,683

 
$
2,689,051

See accompanying notes to consolidated financial statements.

6

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements

December 31, 2016, 2015 and 2014



1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of Business

Explorer Pipeline Company and subsidiary (the “Company”) owns and operates an approximate 1,830 mile common carrier pipeline that primarily transports gasoline, diesel, diluent and jet fuel from the Gulf Coast refining complex to the Midwest United States. Through connections with other refined petroleum pipelines, the Company serves more than seventy cites in sixteen states. The Company is dependent upon continued refined products demand in the population centers it serves, and the availability of petroleum products supplied by its customers. Approximately 15%, 17% and 19% of the Company’s operating revenues were derived from its affiliates in 2016, 2015 and 2014, respectively. The Company had approximately 60 non-affiliate customers in 2016, 2015 and 2014. Operating revenues include revenues from 13, 12 and 10 significant non-affiliates for approximately 59%, 55% and 51% of operating revenues in 2016, 2015 and 2014, respectively. The Company is dependent upon continued demand in the population centers it serves for petroleum products and availability of products to its customers.

The pipeline operations of the Company are subject to the regulatory authority of the Federal Energy Regulatory Commission (“FERC”) as to rate filings, accounting and other matters.

b. Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, Explorer Pipeline Services Company. All significant intercompany balances and transactions have been eliminated in consolidation.

c. Retrospective Adjustments and Reclassifications

Certain reclassifications have been made to the 2015 amounts in order to conform to the 2016 presentation and for the retrospective application resulting from the early adoption of Accounting Standards Update (“ASU”) No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost”. The retrospective application of ASU 2015-03 resulted in $1.4 million of net deferred loan costs directly related to the Company’s unsecured senior notes being reclassified from a noncurrent asset to a direct deduction from the respective carrying amount of the related senior notes at December 31, 2015.

Other certain prior period amounts have been reclassified to conform to the 2016 presentation. These reclassifications had no impact on the balance sheet, net income or cash flows.

d. Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.

The Company’s cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has cash balances on deposit with one bank at December 31, 2016, which exceed the balance insured by the FDIC in the aggregate amount of approximately $21.7 million.
e.     Transportation Revenue

Transportation revenue is recorded at delivery, with the exception of year-end when one half of the revenue on shipments in transit is accrued.

f.     Warehouse Stock Inventory

Warehouse stock inventory, which primarily consists of critical spare parts, is stated at the lower of average cost or market.

g. Property, Plant and Equipment

Property, plant and equipment are stated at cost, including direct labor incurred in connection with the construction of pipeline assets. Retirements and sales of property, plant and equipment are charged to accumulated depreciation as prescribed by FERC. Depreciation is calculated using the straight line method at rates approved by FERC. These rates range from 2.25% to 20.00% per annum.

h. Impairments

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company did not recognize any impairment expense in 2016, 2015 or 2014.

i. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In December 2015, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes,” which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The Company early adopted the ASU retrospectively for the year ended December 31, 2016, which had no impact on the consolidated financial statements.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The tax years 2012 through 2016 remain subject to examination by the major tax jurisdictions.

7

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

j. Pension and Other Postretirement Plans

The Company has a defined benefit pension plan covering all employees employed prior to January 1, 2007. The benefits are based on years of service and employee compensation. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company also sponsors a defined benefit healthcare plan for all eligible retired employees and their eligible dependents.

The Company records annual amounts relating to its pension and postretirement plans based on calculations that incorporate actuarial and various other assumptions, including discount rates, mortality, assumed rates of return, compensation increases, turnover rates and healthcare cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The net periodic costs are recognized as retirees and their eligible dependents render the actions necessary to earn the postretirement benefits.

k. Environmental Remediation Contingencies

Liabilities for environmental remediation contingencies, environmental remediation costs arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. The costs for a specific clean-up site are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments for that site are fixed or reliably determinable based upon information derived from the remediation plan for that site. Recoveries from third parties that are probable of realization are separately recorded, and are not offset against the related environmental liability.

Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of a remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries for environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. The discounted and undiscounted amount of the environmental remediation obligations net of insurance receivable is $5,351,327 and $5,772,681, respectively, as of December 31, 2016, and $5,745,911 and $6,847,169, respectively, as of December 31, 2015. The discount rate used was 5.49% and 5.38% at December 31, 2016 and 2015, respectively. The discounted liability is reflected in other current liabilities and other non-current liabilities on the consolidated balance sheet. The insurance receivable is reflected in other current assets and other non-current assets on the consolidated balance sheet.

l. Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. These estimates include depreciation periods for property, plant and equipment, pension and postretirement benefit obligations and environmental remediation contingencies.


8

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

m. Asset Retirement Obligation

The Company is obligated by contractual or regulatory requirements to remove certain pipeline assets and/or perform other remediation of sites where such assets are located upon the retirement of those assets. The Company will record an asset retirement obligation for pipeline assets in the periods in which settlement dates are reasonably determinable.

n. Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments”, which is intended to provide guidance for cash flow statement classification. The guidance provides for settlement of zero coupon debt instruments that are insignificant in relation to the effective interest rate of the borrower; for contingent consideration payments made after a business combination; for proceeds from the settlement of corporate-owned life insurance policies; for beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The Company is required to apply the guidance for the annual period beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that this new guidance will have on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” methodology for recognizing credit losses with an “expected loss” methodology. This new methodology requires that a financial asset measured at amortized cost be presented at the net amount expected to be collected. This standard is intended to provide more timely decision-useful information about the expected credit losses on financial instruments. This guidance is effective for the Company for fiscal years beginning after December 15, 2020, and early adoption is allowed as early as fiscal years beginning after December 15, 2018. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”; which is intended to provide guidance for lessees that will be required to recognize various conditions for all leases (with the exception of short-term leases) at the commencement. The guidance provides that a lease liability which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is required to apply the guidance for the annual period beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that this new guidance will have on the consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for the Company for annual reporting periods beginning after December 15, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting periods presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). As additional guidance and practical expedients are issued by the FASB and industry groups, the Company continues to evaluate the impact that this new standard will have on the consolidated financial statements.


9

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

2 - COMPANY OWNERSHIP

The Company’s stockholders at December 31, 2016 and 2015 is as follows:

 
2016
 
2015
Shares
 
Percentage
 
Shares
 
Percentage
EXPL Pipeline Investment LLC

 

 
1,490
 
6.80
%
Phillips 66 Partners Holdings LLC
4,809
 
21.94
%
 
4,265
 
19.45
%
Shell Pipeline Company LP
7,885
 
35.97
%
 
7,885
 
35.97
%
Shell Midstream Partners, L.P.
575
 
2.62
%
 

 

MPL Investment LLC
5,372
 
24.51
%
 
5,372
 
24.51
%
Sunoco Pipeline L.P.
3,279
 
14.96
%
 
2,908
 
13.27
%
Total shares authorized and issued
21,920
 
100.00
%
 
21,920
 
100.00
%


Effective March 2, 2015, shares previously held by Phillips 66 Pipeline (2,386) and Phillips 66 Company (1,879) were assigned in whole to Phillips 66 Partners Holdings LLC. Effective August 9, 2016, shares previously held by EXPL Pipeline Investment LLC (1,490) were surrendered for purchase and were acquired by Phillips 66 Partners Holdings LLC (544), Sunoco Pipeline LP (371) and Shell Midstream Partners LP (575).

3 - PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment by class of asset as of December 31, 2016 and 2015 is as follows:

 
2016
 
2015
Land
$
7,539,036

 
$
9,822,408

Right-of-way
26,161,459

 
23,200,719

Line pipe and fittings
478,297,504

 
385,655,662

Buildings
19,784,720

 
19,163,011

Tanks, pumping and station equipment
370,230,120

 
350,175,808

Office furniture, vehicles and other
38,176,984

 
36,333,585

Noncarrier property
277,306

 
277,306

Construction in progress
18,916,120

 
104,113,604

 
$
959,383,249

 
$
928,742,103



Total depreciation of property, plant and equipment for 2016, 2015 and 2014 was $24,149,067, $22,061,965 and $22,348,409, respectively. The Company capitalized interest of $443,881, $600,547 and $0 in the years ended December 31, 2016, 2015 and 2014, respectively.




EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

4 - DEBT

The Company has a $100,000,000 Revolving Credit agreement and a $75,000,000 Advancing Term loan facility with Bank of Oklahoma, JP Morgan Chase, BANCFIRST and US Bank, executed August 21, 2014, which matures August 21, 2019. Previously the Company had a commercial paper program supported by the Revolving Credit agreement which was suspended and corresponding ratings by Moody’s and Standard and Poor’s were withdrawn effective October 4, 2016 and August 29, 2016, respectively. There was $71,250,000 and $75,000,000 outstanding on the Advancing Term loan as of December 31, 2016 and 2015, respectively. There were no amounts outstanding under the Revolving Credit agreement at December 31, 2016 and 2015.

In April 2015, the FASB issued ASU No. 2015-03, “Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability. The Company adopted the ASU for the year ended December 31, 2016. The deferred debt costs related to the Company’s credit facility remain classified as a noncurrent asset due to the revolving nature of that facility. Deferred debt costs are being amortized over the lives of the respective terms. Amortization of deferred debt issuance costs was $345,065, $365,237 and $375,993 for 2016, 2015 and 2014, respectively, and is reflected in interest expense on the consolidated statements of income and retained earnings.

The Company also has debt outstanding under the Series K, L and O unsecured notes. The Series O note will mature in October 2017, the Company is planning for the complete refinance of the $250,000,000 at or before the maturity date. The Series K and Series L notes will mature in July 2017 and July 2022, respectively. Required annual principal payments are as follows as of December 31, 2016:
 
K
 
L
 
O
 
Advancing Term
 
Total
2017
$
4,545,455

 
$
6,818,181

 
$
250,000,000

 
3,750,000

 
$
265,113,636

2018

 
6,818,182

 

 
3,750,000

 
10,568,182

2019

 
6,818,182

 

 
63,750,000

 
70,568,182

2020

 
6,818,182

 

 

 
6,818,182

2021

 
6,818,182

 

 

 
6,818,182

Thereafter

 
6,818,182

 

 

 
6,818,182

Less deferred debt issuance cost
(10,683
)
 
(907,319
)
 
(133,194
)
 

 
(1,051,195
)
 
$
4,534,772

 
$
40,001,772

 
$
249,866,806

 
$
71,250,000

 
$
365,653,351

 
 
 
 
 
 
 
 
 
 
Less current maturities:
4,534,772

 
6,652,469

 
249,866,806

 
3,750,000

 
264,804,047

Long-term debt
$

 
$
33,349,303

 
$

 
$
67,500,000

 
$
100,849,303


The notes have certain restrictive financial debt covenants, the most significant of which are a leverage ratio and a coverage ratio. The Company was in compliance with all restrictive financial debt covenants as of December 31, 2016 and 2015.


11

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

At December 31, 2016 and 2015, the Company had letters of credit outstanding of approximately $3,925,000 and $3,675,000, respectively, related to insurance company requirements, current projects and remediation projects. All letters of credit outstanding reduced the amount available on the revolving line of credit.

5 - INCOME TAXES

Income tax expense for the years ended December 31, 2016, 2015 and 2014 consists of:

 
2016
 
2015
 
2014
Current:
 
 
 
 
 
Federal
$
76,013,004

 
$
58,384,443

 
$
43,379,628

State
5,049,555

 
4,850,813

 
3,783,298

 
81,062,559

 
63,235,256

 
47,162,926

Deferred:
       
 
 
 
 
 
Federal
2,367,135

 
3,799,726

 
1,410,099

State
205,996

 
188,610

 
116,133

 
2,573,131

 
3,988,336

 
1,526,232

 
$
83,635,690

 
$
67,223,592

 
$
48,689,158



Temporary differences between the consolidated financial statement carrying amounts and tax basis of property, plant and equipment (principally, differences in depreciation), certain accrued liabilities and pension and other postretirement benefit plan liabilities contributed to substantially all of the net deferred tax liability at December 31, 2016, 2015 and 2014.

6 - PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company has a defined benefit pension plan covering all employees employed prior to January 1, 2007. The benefits are based on years of service and employee’s compensation.

In addition to the defined benefit pension plan, the Company makes available postretirement medical benefits to all eligible retired employees and their eligible dependents. For the year ended December 31, 2016, participants under the age of 65 were eligible to receive reimbursement through a Health Reimbursement Account for eligible premium expenses associated with health insurance enrollment. For the 2016 Plan Year, eligible retirees were eligible for up to $400 per month of eligibility and eligible retirees plus eligible dependents were eligible for up to $1,100 per month of eligibility. Upon reaching age 65, participants pay all of any Part D Prescription Plan and 30% of the fully insured rate for the cost of medical benefits.

In September 2015, the Company’s board of directors approved to amend the Company’s postretirement plan to no longer include life benefits. In November 2015, the plan was amended and became effective January 1, 2016. Due to this change being approved prior to December 31, 2015, the accrued benefit cost was adjusted and the prior service cost of $4,474,046 at December 31, 2015 is being amortized from accumulated other comprehensive loss into net periodic benefit cost over 5.5 years.

12

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

The following is a schedule by year of amortization from accumulated other comprehensive loss into net periodic benefit cost as of December 31, 2016:

2017
$
813,463

2018
813,463

2019
813,463

2020
813,463

2021
406,731


For the years ending December 31, 2016 and 2015, the plan was contributory and participants under age 65 paid approximately 35% of the cost of medical benefits. Upon reaching age 65, participants paid 30% of the cost of medical benefits. In addition, for the year ending December 31, 2015, participants under age 65 paid approximately 30% of the active premium for the face amount of life benefits. Upon reaching age 65, the Company paid the full cost of life benefits.

The measurement date used to determine pension and other postretirement benefit obligations and plan assets for the pension plan and the postretirement benefit plan is December 31.

The following table sets forth the plans’ benefit obligations, fair value of plan assets, and funded status at December 31, 2016 and 2015:

 
Pension Benefits
 
Postretirement Benefits
2016
 
2015
 
2016
 
2015
Projected benefit obligation
$
(39,101,234
)
 
$
(35,762,241
)
 
$
(9,855,769
)
 
$
(11,286,975
)
Fair value of plan assets
33,503,641

 
30,995,776

 

 

Funded status
$
(5,597,593
)
 
$
(4,766,465
)
 
$
(9,855,769
)
 
$
(11,286,975
)
Accrued benefit cost
$
(5,597,593
)
 
$
(4,766,465
)
 
$
(9,855,769
)
 
$
(11,286,975
)


Accrued benefit cost is reflected in other current and other non-current liabilities on the consolidated balance sheet.

Accumulated other comprehensive loss is $4,696,953 and $5,352,971 related to the plans at December 31, 2016 and 2015, respectively. This amount is primarily comprised of net actuarial loss of $11,024,344 and $12,988,918 at December 31, 2016 and 2015, respectively.

The accumulated benefit obligation for the pension plan was $34,748,456 and $31,403,451 at December 31, 2016 and 2015, respectively.
Net periodic benefit cost (gain) recognized and other changes in plan assets and benefit obligations recognized in accumulated other comprehensive income (loss) in 2016 and 2015 were:
    

 
Pension benefits
 
Postretirement benefits
 
2016
 
2015
 
2016
 
2015
Net periodic benefit cost (gain) recognized
$
2,088,009

 
$
2,199,310

 
$
(16,762
)
 
$
1,354,783

Other changes in plan assets and benefit obligations:
 
 
 
 
 
 
 
Net actuarial loss/(gain)
1,162,605

 
774,064

 
(1,995,748
)
 
(1,525,444
)
Amortization of net (loss)/gain
(1,134,486
)
 
(1,220,024
)
 
3,055

 
(33,880
)
Prior service cost

 

 

 
(4,474,046
)
Amortization of prior service cost

 

 
813,463

 

Curtailment

 

 

 
(151,922
)
Total recognized in accumulated other
comprehensive income (loss)
28,119

 
(445,960
)
 
(1,179,230
)
 
(6,185,292
)
Total recognized in net periodic benefit
cost and accumulated other comprehensive income (loss)
$
2,116,128

 
$
1,753,350

 
$
(1,195,992
)
 
$
(4,830,509
)

The net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $961,000. The prior service credit for the defined benefit postretirement plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $813,463.

Weighted average assumptions used to determine benefit obligations at December 31, 2016 and 2015 were as follows:

 
Pension benefits
 
Postretirement benefits
2016
 
2015
 
2016
 
2015
Discount rate
3.80
%
 
3.91
%
 
4.09
%
 
4.30
%
Rate of compensation increase
3.00
%
 
3.00
%
 
3.00
%
 
3.00
%

Weighted average assumptions used to determine net periodic benefit cost for the years ended December 31, 2016 and 2015 were as follows:

 
Pension benefits
 
Postretirement benefits
2016
 
2015
 
2016
 
2015
Discount rate

3.91
%
 
3.64
%
 
4.30
%
 
3.94
%
Expected long-term rate of return on plan assets
6.00
%
 
6.00
%
 

 

Rate of compensation increase
3.00
%
 
3.00
%
 
3.00
%
 
3.00
%

The Company’s overall expected long-term rate of return on assets is 6.00%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based exclusively on historical returns, without adjustments.

13

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

For measurement purposes, a 6.75% annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2016, decreasing to an ultimate 5% trend in 2023.

The following table summarizes benefit costs, benefits paid and employer contributions for the years ended December 31, 2016, 2015 and 2014:
 
Pension benefits
 
Postretirement benefits
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Benefit cost
$
2,088,009

 
$
2,199,310

 
$
1,808,664

 
$
(16,762
)
 
$
1,354,783

 
$
1,153,777

Benefits paid
1,441,697

 
2,582,378

 
1,529,838

 
235,214

 
378,040

 
395,338

Employer contributions
1,285,000

 
1,621,000

 
1,160,000

 
235,214

 
378,040

 
395,338


a.     Plan Assets

The asset allocations of the Company’s pension benefits at December 31, 2016 and 2015 measurement dates were as follows:
 
Pension benefits - Plan assets
 
 
 
Fair value measurements at December 31, 2016
 
 
 
Quoted prices in active markets for identical assets
 
Significant observable inputs
 
Significant unobservable inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Asset category:

 
 
 
 
 
 
 
Cash
$
8,414,878

 
$
8,414,878

 
$

 
$

Mutual funds:
 
 
 
 
 
 
 
U.S. equity
14,925,145

 
14,925,145

 

 

International equity
1,688,918

 
1,688,918

 

 

Bond funds
8,474,700

 
8,474,700

 

 

Total
$
33,503,641

 
$
33,503,641

 
$

 
$

    
 
Pension benefits - Plan assets
 
 
 
Fair value measurements at December 31, 2015
 
 
 
Quoted prices in active markets for identical assets
 
Significant observable inputs
 
Significant unobservable inputs
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Asset category:

 
 
 
 
 
 
 
Cash
$
7,672,283

 
$
7,672,283

 
$

 
$

Mutual funds:
 
 
 
 
 
 
 
U.S. equity
14,094,995

 
14,094,995

 

 

International equity
1,567,436

 
1,567,436

 

 

Bond funds
7,661,062

 
7,661,062

 

 

Total
$
30,995,776

 
$
30,995,776

 
$

 
$


 
Plan assets
 
December 31,
 
2016
 
2015
Asset category:
 
 
 
Cash
25.1
%
 
24.8
%
Equity securities
49.6
%
 
50.5
%
Debt securities
25.3
%
 
24.7
%
Total
100.0
%
 
100.0
%

The Company’s investment policies and strategies for the pension plan use target allocations for the individual asset categories. The Company’s investment goals are to maximize returns subject to specific risk management policies. Its risk management policies permit investments in mutual funds, and prohibit direct investments in debt and equity securities and derivative financial instruments. The Company addresses diversification by the use of mutual fund investments whose underlying investments are in domestic and international fixed income securities and domestic and international equity securities. These mutual funds are readily marketable and can be sold to fund benefit payment obligations as they become payable.

b. Cash Flows

The Company’s funding policy is to contribute annually no less than the minimum requirement under the
Employee Retirement Income Security Act of 1974. Pursuant to this policy, the Company expects to contribute $3,553,754 and $259,918 to its pension plan and postretirement benefit plan, respectively in 2017.

The expected benefits are based on the same assumptions used to measure the Company’s benefit obligations at December 31, 2016 and include estimated future employee service. The aggregate pension and postretirement benefits expected to be paid in the future years are:

2017
$
3,813,672

2018
2,960,674

2019
2,893,371

2020
3,450,844

2021
3,514,755

Thereafter
16,853,018



The Company also has a contributory thrift plan which is available to substantially all employees. The Company matches employee contributions up to 6% of the employee’s base salary. In addition, a separate 401(k) plan went into effect January 1, 2007 for all employees hired subsequently. Total contributions by the Company to the two plans were approximately $1,717,231, $1,768,443 and $1,485,135 for 2016, 2015 and 2014, respectively.

7 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is subject to the risk of fluctuation in interest rates in the normal course of business. The Company manages interest rate risk through the use of fixed rate debt, floating rate debt and, at times, interest rate swaps. The Company does not speculate using derivative instruments.

The Company had one interest rate swap agreement, which was designated a fair value hedge. The interest rate swap was redeemed during 2013. The interest rate under the swap reset semiannually based on the six-month

14

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

LIBOR at the reset date. The amount remaining to be realized in earnings related to the interest rate swap was $384,354 at December 31, 2016 and is included in other non-current assets on the balance sheet.

8 - COMMITMENTS AND CONTINGENCIES

The Company leases pipeline right-of-way and office premises and equipment. All of the Company’s leases are classified as operating leases.

The following is a schedule by year of minimum future rentals on operating leases for office premises, equipment and right-of-way commitments as of December 31, 2016:

2017
$
4,605,450

2018
4,628,453

2019
4,652,492

2020
4,675,516

2021
4,699,577

Thereafter
9,046,768



The Company has entered into both cancelable and non-cancelable leases for pipeline right-of-way. All right- of-way leases are essentially future lease commitments since they relate to the operation of the pipeline and are necessary for its continued operation. The annual rental payments for these leases were approximately
$445,323, $384,999 and $428,635 for December 31, 2016, 2015 and 2014, respectively. Total rental expense
was approximately $4,547,659, $4,812,871 and $4,302,356 for the years ended December 31, 2016, 2015 and 2014, respectively, and is reflected in general and administrative expenses on the consolidated statements of income and retained earnings. It is expected that, in the normal course of business, leases that expire will be renewed or replaced by other leases; thus, it is anticipated that future annual rental expense will not be substantially less than the amount shown for 2016.

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

9 - FAIR VALUE MEASUREMENTS AND THE FAIR VALUE OPTION

a. Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, receivables from affiliates, interest and other receivables, other current assets, accounts payable, accrued expenses and other current liabilities, and accrued interest approximate fair value because of the short maturity of these instruments. The estimated fair value of the Company’s Series K, L and O unsecured notes and advancing term note at December 31, 2016 and 2015 was $382,459,096 and $411,282,180, respectively. The carrying amount of these notes was $366,704,546 and $381,818,182 at December 31, 2016 and 2015, respectively.

The fair values of the financial instruments discussed above represent management’s best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction

15

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Notes to consolidated financial statements - continued

December 31, 2016, 2015 and 2014

between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances.

The fair value of the Company’s long-term debt is measured using quoted offered side prices when quoted market prices are available. If quoted market prices are not available, the fair value is determined by discounting the future cash flows of each instrument at rates that reflect, among other things, market interest rates and the Company’s credit standing. In determining an appropriate spread to reflect its credit standing, the Company considers credit default swap spreads, bond yields of other long term debt offered by the Company and interest rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers as well as other banks that regularly compete to provide financing to the Company.

b. Fair Value Hierarchy

The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The consolidated financial statements as of and for the years ended December 31, 2016 and 2015 do not include any nonrecurring fair value measurements relating to assets or liabilities.

10 - RELATED PARTIES

In the normal course of business, the Company has transactions with its affiliates. Approximately 15%, 17% and 19% of the Company’s operating revenues were derived from its affiliates in 2016, 2015 and 2014, respectively.

11 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through February 27, 2017, the date these financial statements were available to be issued. No subsequent events were identified requiring recognition or disclosure in the accompanying consolidated financial statements.

16
EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Condensed consolidated balance sheets

(unaudited)
 
 June 30,
 
 December 31,
 
2017
 
2016
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
20,470,083

 
$
18,596,386

Accounts receivable - trade
43,359,262

 
45,440,008

Accounts receivable - affiliates
4,268,561

 
5,259,765

Income tax receivable
28,012,051

 
13,385,645

Unbilled revenue - trade
4,688,464

 
4,494,284

Unbilled revenue - affiliates
431,842

 
626,021

Warehouse stock inventory
13,565,946

 
13,682,895

Other current assets
19,613,748

 
19,491,762

Total current assets
134,409,957

 
120,976,766

Property, plant and equipment, at cost (note 3)
973,371,888

 
959,383,249

Accumulated depreciation
(446,684,898
)
 
(434,118,872
)
 Net property, plant and equipment
526,686,990

 
525,264,377

Other non-current assets
14,995,678

 
15,045,230

Total assets
$
676,092,625

 
$
661,286,373

Liabilities and Stockholders’ Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable - trade
$
16,356,790

 
$
18,578,657

Accounts payable - affiliates
1,507,605

 
4,292,186

Income tax payable

 
316,502

Interest payable
3,900,120

 
3,903,184

Other current liabilities
23,608,013

 
18,741,112

Current maturities of long-term debt
264,893,723

 
264,804,047

Total current liabilities
310,266,251

 
310,635,688

Long-term debt, less current maturities (note 4)
99,057,159

 
100,849,303

Deferred interest income
54,924

 
384,354

Deferred income taxes, net
96,957,371

 
86,932,491

Other non-current liabilities
22,737,476

 
22,690,347

Commitments and contingencies (note 6)
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $1 par value per share; 21,920 authorized and
 
 
 
issued as of June 30, 2017 and December 31, 2016
21,920

 
21,920

Accumulated other comprehensive loss
(4,696,953
)
 
(4,696,953
)
Retained earnings
151,694,477

 
144,469,223

Total stockholders' equity
147,019,444

 
139,794,190

Total liabilities and stockholders' equity
$
676,092,625

 
$
661,286,373




See accompanying notes to condensed consolidated financial statements.

1

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Condensed consolidated statements of income and retained earnings

(unaudited)


 
Six months ended
 
June 30, 2017
 
June 30, 2016
Revenues:
 
 
 
Transportation revenue
$ 189,377,519
 
$ 195,879,117
Allowance oil revenue
3,531,144
 
2,865,872
Storage revenue
1,525,500
 
1,254,560
Blending revenue
1,907,222
 
1,449,545
Other income
1,880,372
 
2,239,987
Total revenues
198,221,757
 
203,689,081
Operating expenses:
 
 
 
Operations and maintenance
43,793,900
 
49,972,523
General and administrative
19,146,203
 
18,703,932
Taxes, other than income taxes
6,004,775
 
5,697,051
Depreciation
12,818,278
 
11,564,976
Interest expense
10,150,493
 
10,383,262
Total operating expenses
91,913,649
 
96,321,744
Income before income taxes
106,308,108
 
107,367,337
Income taxes:
 
 
 
Current income taxes (note 5)
 29,062,934
 
38,243,802
Deferred income taxes (note 5)
10,024,880
 
1,213,955
Total income taxes
39,087,814
 
39,457,757
Net income
67,220,294
 
67,909,580
Retained earnings, beginning of period
144,469,223
 
121,932,890
Retained earnings, available
211,689,517
 
189,842,470
Less: dividends paid
(59,995,040)
 
(55,391,840)
Retained earnings, end of period
$ 151,694,477
 
$ 134,450,630










See accompanying notes to condensed consolidated financial statements.


2

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Condensed consolidated statements of comprehensive income

(unaudited)



 
Six Months Ended
June 30,
 
2017
 
2016
Net income
$
67,220,294

 
$
67,909,580

Other comprehensive gain, net of tax:
 
 
 
Pension and other postretirement benefits

 

Comprehensive income
$
67,220,294

 
$
67,909,580





























See accompanying notes to condensed consolidated financial statements.


3

EXPLORER PIPELINE COMPANY AND SUBSIDIARY

Condensed consolidated statements of cash flows

(unaudited)


 
 Six Months Ended
 
June 30,
Cash from operating activities
2017
 
2016
Net income
$
67,220,294

 
$
67,909,580

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation
12,818,278

 
11,564,976

Amortization of debt issuance cost
172,532

 
172,532

Deferred income taxes
10,024,880

 
1,213,955

Changes in assets & liabilities:
 
 
 
(Increase) decrease in accounts receivable
3,071,949

 
(12,647,655
)
(Increase) decrease in inventories
116,949

 
(341,188
)
(Increase) decrease in income taxes
(14,942,908
)
 
2,346,579

(Increase) decrease in other assets
(72,434
)
 
699,145

Increase (decrease) in accounts payable & accrued liabilities
(142,611
)
 
2,136,390

Increase (decrease) in other liabilities
(282,301
)
 
1,019,840

Net cash provided by operating activities
77,984,628

 
74,074,154

 
 
 
 
Cash from investing activities:
 
 
 
Purchases of property and equipment
(14,551,460
)
 
(22,130,210
)
Proceeds from sale of property and equipment
310,569

 
447,506

Net cash used in investing activities
(14,240,891
)
 
(21,682,704
)
Cash from financing activities:
 
 
 
Payments on debt
(1,875,000
)
 
(1,875,000
)
Dividends paid
(59,995,040
)
 
(55,391,840
)
Net cash used in financing activities
(61,870,040
)
 
(57,266,840
)
Net increase (decrease) in cash and cash equivalents
1,873,697

 
(4,875,390
)
Cash and cash equivalents, beginning of period
18,596,386

 
31,693,635

Cash and cash equivalents, end of period
$
20,470,083

 
$
26,818,245

 
 
 
 
Supplemental cash flows:
 
 
 
Capitalized interest
$

 
$
443,881

Capital expenditures included in accrued and accounts payable
$
380,832

 
$
1,885,825

Cash paid for interest
$
8,119,269

 
$
7,793,290

Cash paid for income taxes
$
27,528,170

 
$
6,572,858








See accompanying notes to condensed consolidated financial statements.


4

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Description of Business

Explorer Pipeline Company and subsidiary (the “Company”) owns and operates an approximate 1,830 mile common carrier pipeline that primarily transports gasoline, diesel, diluent and jet fuel from the Gulf Coast refining complex to the Midwest United States. Through connections with other refined petroleum pipelines, the Company serves more than seventy cites in sixteen states. The Company is dependent upon continued refined products demand in the population centers it serves, and the availability of petroleum products supplied by its customers. Approximately 7% and 16% of the Company’s operating revenues were derived from its affiliates for the six months ended June 30, 2017 and 2016, respectively. The Company had approximately 60 non-affiliate customers for the six months ended June 30, 2017 and 2016. Operating revenues include revenues from 13 significant non-affiliates for approximately 64% and 56% of operating revenues for the six months ended June 30, 2017 and 2016, respectively. The Company is dependent upon continued demand in the population centers it serves for petroleum products and availability of products to its customers.

The pipeline operations of the Company are subject to the regulatory authority of the Federal Energy Regulatory Commission (“FERC”) as to rate filings, accounting and other matters.

b. Principles of Consolidation

The condensed consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, Explorer Pipeline Services Company. All significant intercompany balances and transactions have been eliminated in consolidation.

c. Interim Financial Statements

The accompanying condensed consolidated financial statements of the Company have not been audited by the Company’s independent certified public accountants, except that the condensed consolidated balance sheet at December 31, 2016 is derived from the audited consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly the Company’s consolidated financial statements. All such adjustments are of normal, recurring nature. In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

Certain disclosures have been condensed in or omitted from these consolidated financial statements. Accordingly, these condensed notes to the consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2016.

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ from those estimates. These estimates include depreciation periods for property, plant and equipment, pension and postretirement benefit obligations and environmental remediation contingencies.


5

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


d. Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with original maturities of three months or less to be cash equivalents.

The Company’s cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has cash balances on deposit with one bank as of June 30, 2017, which exceed the balance insured by the FDIC in the aggregate amount of approximately $20.2 million.

e. Transportation Revenue

Transportation revenue is recorded at delivery, with the exception of period-end when one half of the revenue on shipments in transit is accrued.

f.     Warehouse Stock Inventory

Warehouse stock inventory, which primarily consists of critical spare parts, is stated at the lower of average cost or market.

g.     Property, Plant and Equipment

Property, plant and equipment are stated at cost, including direct labor incurred in connection with the construction of pipeline assets. Retirements and sales of property, plant and equipment are charged to accumulated depreciation as prescribed by FERC. Depreciation is calculated using the straight line method at rates approved by FERC. These rates range from 2.25% to 20.00% per annum.

h. Impairments

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company did not recognize any impairment expense for the six months ended June 30, 2017.

i. Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.


6

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The tax years 2012 through 2016 remain subject to examination by the major tax jurisdictions.
j. Pension and Other Postretirement Plans

The Company has a defined benefit pension plan covering all employees employed prior to January 1, 2007. The benefits are based on years of service and employee compensation. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company also sponsors a defined benefit healthcare plan for all eligible retired employees and their eligible dependents.

The Company records annual amounts, at December 31 of each respective year, relating to its pension and postretirement plans based on calculations that incorporate actuarial and various other assumptions, including discount rates, mortality, assumed rates of return, compensation increases, turnover rates and healthcare cost trend rates. The Company reviews its assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when it is appropriate to do so. The effect of modifications to those assumptions is recorded in accumulated other comprehensive income and amortized to net periodic cost over future periods using the corridor method. The Company believes that the assumptions utilized in recording its obligations under its plans are reasonable based on its experience and market conditions. The net periodic costs are recognized as retirees and their eligible dependents render the actions necessary to earn the postretirement benefits.

k. Environmental Remediation Contingencies

Liabilities for environmental remediation contingencies, environmental remediation costs arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. The costs for a specific clean-up site are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments for that site are fixed or reliably determinable based upon information derived from the remediation plan for that site. Recoveries from third parties that are probable of realization are separately recorded, and are not offset against the related environmental liability.

Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of a remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Recoveries for environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. The discounted liability is reflected in other current liabilities and other non-current liabilities on the consolidated balance sheet. The insurance receivable is reflected in other current assets and other non-current assets on the consolidated balance sheet.

l. Asset Retirement Obligation

The Company is obligated by contractual or regulatory requirements to remove certain pipeline assets and/or perform other remediation of sites where such assets are located upon the retirement of those assets. The Company will record an asset retirement obligation for pipeline assets in the periods in which settlement dates are reasonably determinable.

7

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


m. Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230); Classification of Certain Cash Receipts and Cash Payments”, which is intended to provide guidance for cash flow statement classification. The guidance provides for settlement of zero coupon debt instruments that are insignificant in relation to the effective interest rate of the borrower; for contingent consideration payments made after a business combination; for proceeds from the settlement of corporate-owned life insurance policies; for beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. The Company is required to apply the guidance for the annual period beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that this new guidance will have on the consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” methodology for recognizing credit losses with an “expected loss” methodology. This new methodology requires that a financial asset measured at amortized cost be presented at the net amount expected to be collected. This standard is intended to provide more timely decision-useful information about the expected credit losses on financial instruments. This guidance is effective for the Company for fiscal years beginning after December 15, 2020, and early adoption is allowed as early as fiscal years beginning after December 15, 2018. The Company does not believe this new guidance will have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”; which is intended to provide guidance for lessees that will be required to recognize various conditions for all leases (with the exception of short-term leases) at the commencement. The guidance provides that a lease liability which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The Company is required to apply the guidance for the annual period beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact that this new guidance will have on the consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for the Company for annual reporting periods beginning after December 15, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting periods presented (the full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). As additional guidance and practical expedients are issued by the FASB and industry groups, the Company continues to evaluate the impact that this new standard will have on the consolidated financial statements.






8

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


2 - COMPANY OWNERSHIP

 
The Company’s stockholders at June 30, 2017:
 
 
 
 
 
 
 
 
 
 
Shares
 
Percentage
 
Phillips 66 Partners Holdings LLC
4,809

 
21.94
%
 
Shell Pipeline Company LP
7,885

 
35.97
%
 
Shell Midstream Partners, L.P.
575

 
2.62
%
 
MPL Investment LLC
5,372

 
24.51
%
 
Sunoco Pipeline L.P.
3,279

 
14.96
%
 
Total shares authorized and issued
21,920

 
100.00
%

3 - PROPERTY, PLANT AND EQUIPMENT

A summary of property, plant and equipment by class of asset as of June 30, 2017 and December 31, 2016 is as follows:
 
June 30,
 
December 31,
 
2017
 
2016
Land
$
7,539,036

 
$
7,539,036

Right-of-way
26,193,442

 
26,161,459

Line pipe and fittings
482,430,205

 
478,297,504

Buildings
19,822,122

 
19,784,720

Tanks, pumping and station equipment
375,802,171

 
370,230,120

Office furniture, vehicles and other
39,573,034

 
38,176,984

Noncarrier property
277,306

 
277,306

Construction in progress
21,734,572

 
18,916,120

 
$
973,371,888

 
$
959,383,249


Total depreciation of property, plant and equipment for the six months ended June 30, 2017 and 2016 was $12,818,278 and $11,564,976, respectively. The Company capitalized interest of $0 and $443,881 for the six months ended June 30, 2017 and 2016, respectively.

4 - DEBT

The Company has a $100,000,000 Revolving Credit agreement and a $75,000,000 Advancing Term loan facility with Bank of Oklahoma, JP Morgan Chase, BANCFIRST and US Bank, executed August 21, 2014, which matures August 21, 2019. Previously the Company had a commercial paper program supported by the Revolving Credit agreement which was suspended and corresponding ratings by Moody’s and Standard and Poor’s were withdrawn effective October 4, 2016 and August 29, 2016, respectively. There was $69,375,000 and $71,250,000 outstanding on the Advancing Term loan as of June 30, 2017 and December 31, 2016, respectively. There were no amounts outstanding under the Revolving Credit agreement at June 30, 2017 and December 31, 2016.


9

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


In April 2015, the FASB issued ASU No. 2015-03, “Interest–Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability. The Company adopted the ASU for the year ended December 15, 2016. The deferred debt costs related to the Company’s credit facility remain classified as a noncurrent asset due to the revolving nature of that facility. Deferred debt costs are being amortized over the lives of the respective terms. Amortization of deferred debt issuance costs was $172,532 and $172,532 for six months ended June 30, 2017 and 2016, respectively, and is reflected in interest expense on the consolidated statements of income and retained earnings.

The Company also has debt outstanding under the Series K, L and O unsecured notes. The Series O note will mature in October 2017. The Company has reached agreement with issuers for the complete refinance of the $250,000,000 at or before the maturity date. The $250,000,000 non-amortizing senior note will be funded on October 26, 2017 and will mature on October 29, 2027 and has an interest rate of 3.76%. The leverage covenant of 5.00x is consistent with the Company’s 2007 Notes Purchase Agreement and the Revolving Credit Facility. The Series K note matured in July 2017 and was paid off. The Series L note will mature in July 2022. Required annual principal payments are as follows as of June 30, 2017:

 
K
 
L
 
O
 
Advancing
Term
 
Total
2017
$
4,545,455

 
$
6,818,181

 
$
250,000,000

 
$
1,875,000

 
$
263,238,636

2018

 
6,818,182

 

 
3,750,000

 
10,568,182

2019

 
6,818,182

 

 
63,750,000

 
70,568,182

2020

 
6,818,182

 

 

 
6,818,182

2021

 
6,818,182

 

 

 
6,818,182

Thereafter

 
6,818,182

 

 

 
6,818,182

Less deferred debt issuance cost
(881
)
 
(824,463
)
 
(53,320
)
 

 
(878,664
)
 
$
4,544,574

 
$
40,084,628

 
$
249,946,680

 
$
69,375,000

 
$
363,950,882

 
 
 
 
 
 
 
 
 
 
Less current maturities:
4,544,574

 
6,652,469

 
249,946,680

 
3,750,000

 
264,893,723

Long-term debt
$

 
$
33,432,159

 
$

 
$
65,625,000

 
$
99,057,159


The notes have certain restrictive financial debt covenants, the most significant of which are a leverage ratio and a coverage ratio. The Company was in compliance with all restrictive financial debt covenants as of June 30, 2017 and December 31, 2016.

At June 30, 2017 and December 31, 2016, the Company had letters of credit outstanding of approximately $1,425,000 and $3,925,000, respectively, related to insurance company requirements, current projects and remediation projects. All letters of credit outstanding reduced the amount available on the revolving line of
credit.

5 - INCOME TAXES

The effective income tax rates were 35% for both the six months ended June 30, 2017 and 2016. Total income tax expenses for the six months ended June 30, 2017 and 2016 differed from amounts computed by

10

EXPLORER PIPELINE COMPANY AND SUBSIDIARY
Notes to condensed consolidated financial statements - continued

June 30, 2017 and 2016

(unaudited)


applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the impact of permanent differences between book and taxable income.

6 - COMMITMENTS AND CONTINGENCIES

The Company leases pipeline right-of-way and office premises and equipment. All of the Company’s leases are classified as operating leases.

The Company has entered into both cancelable and non-cancelable leases for pipeline right-of-way. All right- of-way leases are essentially future lease commitments since they relate to the operation of the pipeline and are necessary for its continued operation.

The rental payments for these right-of way leases were approximately $223,000 for the six months ended June 30, 2017 and 2016. Total rental expense was approximately $2,303,000 and $2,420,000 for the six months ended June 30, 2017 and 2016, respectively and is reflected in general and administrative expenses on the consolidated statements of income and retained earnings.

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

7 - RELATED PARTIES

In the normal course of business, the Company has transactions with its affiliates. Approximately 7% and 16% of the Company’s operating revenues were derived from its affiliates for the six months ended June 30, 2017 and 2016, respectively.

8 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through September 1, 2017 the date these financial statements were available to be issued. No subsequent events other than those previously disclosed were identified requiring recognition or disclosure in the accompanying condensed consolidated financial statements.

11

ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
FINANCIAL STATEMENTS

As of the years ended December 31, 2016 and 2015
and for the three years ended December 31, 2016




ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
TABLE OF CONTENTS


 
Page(s)
Report of Independent Auditors  .....................................................................................................................
1
Financial Statements
 
Statements of Income (Loss) ...............................................................................................................................
2
Statements of Cash Flows....................................................................................................................................
3
Statements of Financial Position .........................................................................................................................
4
Statements of Members’ Equity ..........................................................................................................................
5
Notes to Financial Statements .............................................................................................................................
6







Report of Independent Auditors

To Management of Illinois Extension Pipeline Company, L.L.C.:

We have audited the accompanying financial statements of Illinois Extension Pipeline Company, L.L.C., which comprise the statements of financial position as of December 31, 2016 and 2015, and the related statements of income, members’ equity and cash flows for each of the three years in the period ended December 31, 2016.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Illinois Extension Pipeline Company, L.L.C. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in accordance with accounting principles generally accepted in the United States of America.
 
Emphasis of Matter

As discussed in Note 7 to the financial statements, the Company has entered into significant transactions with Marathon Petroleum Company, L.P., a related party. Our opinion is not modified with respect to this matter.

/s/ PricewaterhouseCoopers LLP

Houston, TX
March 27, 2017











1



ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF INCOME (LOSS)





 
For the year ended December 31,
 
2016
 
2015
 
2014
 
(in thousands)
Operating revenues:
 
 
 
 
 
Operating revenue - affiliate................................
$
109,988

 
$
3,972

 
$

Operating revenue................................................
4,940

 

 

 
114,928

 
3,972

 

Operating expenses :
 
 
 
 
 
Operating and administrative..............................
$
2,059

 
$
207

 
$
8

Operating and administrative - affiliate..............
9,346

 
1,077

 

Depreciation and amortization............................
28,352

 
1,496

 

 
39,757

 
2,780

 
8

Net income (loss )....................................................
$
75,171

 
$
1,192

 
$
(8
)

























The accompanying notes are an integral part of these financial statements.

2



ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF CASH FLOWS



 
For the year ended December 31,
 
2016
 
2015
 
2014
 
(in thousands)
Cash provided by (used in) operating activities:
 
 
 
 
 
Net income (loss).......................................................................
$
75,171

 
$
1,192

 
$
(8
)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization ..............................................
28,352

 
1,496

 

Loss on sale of asset ..............................................................
294

 

 

Changes in operating assets and liabilities:
 
 
 
 
 
Receivables, trade and other..............................................
(1,055
)
 

 

Due from affiliates ............................................................
(4,297
)
 
(3,972
)
 

Other current assets ..........................................................
(105
)
 

 

Other assets .......................................................................
(1,103
)
 

 

Due to affiliates ................................................................
1,244

 
76

 

Accounts payable and other ..............................................
404

 

 

Deferred revenue...............................................................
2,886

 

 

Property and other taxes payable.......................................
(1,505
)
 

 

Net cash provided by (used in) operating activities ........................
100,286

 
(1,208
)
 
(8
)
Cash used in investing activities:
 
 
 
 
 
Additions to property, plant and equipment (Note 8).................
(138,492
)
 
(462,971
)
 
(169,500
)
Proceeds from sale of asset.........................................................
665

 

 

Other.............................................................................................
39

 
(37
)
 

Net cash used in investing activities ...............................................
(137,788
)
 
(463,008
)
 
(169,500
)
Cash provided by financing activities:
 
 
 
 
 
Borrowings from affiliates .........................................................

 

 
84,710

Repayments to affiliates .............................................................

 

 
(116,005
)
Contributions by members .........................................................
92,889

 
420,482

 
305,588

Distributions to members ...........................................................
(88,920
)
 

 

Net cash provided by financing activities .......................................
3,969

 
420,482

 
274,293

 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents .....................
(33,533
)
 
(43,734
)
 
104,785

Cash and cash equivalents at beginning of period...........................
61,051

 
104,785

 

Cash and cash equivalents at end of period.....................................
$
27,518

 
$
61,051

 
$
104,785





The accompanying notes are an integral part of these financial statements.

3



ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF FINANCIAL POSITION





 
As of December 31,
 
2016
 
2015
 
(in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents ...............................................................
$
27,518

 
$
61,051

Receivables, trade and other.............................................................
1,055

 

Due from affiliates (Note 7)..............................................................
9,758

 
5,461

Other current assets ..........................................................................
123

 
57

 
38,454

 
66,569

Property, plant and equipment, net (Note 4)............................................
812,894

 
790,649

Other assets .............................................................................................
1,103

 

 
$
852,451

 
$
857,218

LIABILITIES AND MEMBERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Due to affiliates (Note 7)..................................................................
$
1,320

 
$
33,453

Accounts payable and other (Note 5)...............................................
3,407

 
56,562

Property and other taxes payable......................................................
439

 
1,944

 
5,166

 
91,959

Deferred Revenue...................................................................................
1,880

 

Deferred Revenue - affiliate...................................................................
1,006

 

 
8,052

 
91,959

Members' equity (856,958,838 units and 764,070,051 units as of
 
 
 
December 31, 2016 and December 31, 2015, respectively)...................
844,399

 
765,259

 
$
852,451

 
$
857,218
















The accompanying notes are an integral part of these financial statements.

4



ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF MEMBERS' EQUITY




 
Enbridge Energy Company, Inc. (65%)
 
Lincoln Pipeline LLC (35%)
 
Total Members' Equity
 
(in thousands; except units)
Balance at December 31, 2013.................
$
38,005

 

 
$
38,005

Contributions (Note 7)..............................
185,332

 
120,256

 
305,588

Net loss................................................
(7
)
 
(1
)
 
(8
)
Balance at December 31, 2014.................
$
223,330

 
$
120,255

 
$
343,585

 
 
 
 
 
 
Balance at December 31, 2014.................
$
223,330

 
120,255

 
$
343,585

Contributions (Note 7)..............................
273,314

 
147,168

 
420,482

Net income................................................
775

 
417

 
1,192

Balance at December 31, 2015.................
$
497,419

 
$
267,840

 
$
765,259

 
 
 
 
 
 
Balance at December 31, 2015.................
$
497,419

 
267,840

 
$
765,259

Contributions (Note 7)..............................
60,378

 
32,511

 
92,889

Distributions (Note 7)...............................
(57,798
)
 
(31,122
)
 
(88,920
)
Net income................................................
48,861

 
26,310

 
75,171

Balance at December 31, 2016.................
$
548,860

 
$
295,539

 
$
844,399

 
 
 
 
 
 
Units at December 31, 2016......................
557,023,245

 
299,935,593

 
 






















The accompanying notes are an integral part of these financial statements.

5



ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS


1.    LIMITED LIABILITY COMPANY ORGANIZATION AND NATURE OF OPERATIONS

Illinois Extension Pipeline Company, L.L.C., referred to herein as we, us, our, or the Company, was formed under the name Enbridge Pipelines (Illinois), L.L.C. on December 15, 2006, the date of inception, for the primary purpose of building and operating a 168-mile, 24-inch diameter oil pipeline from Flanagan, Illinois to Patoka, Illinois. The pipeline system has an initial capacity of 300,000 barrels per day, or Bpd, as well as additional tankage and two pump stations, referred to herein as the Southern Access Extension. The project was placed into service in December 2015.

On July 10, 2014, Enbridge Energy Company, Inc., or Enbridge, and Lincoln Pipeline LLC, or Lincoln, a subsidiary of Marathon Petroleum Company, L.P, executed an agreement, or the Agreement, effective July 1, 2014, which amended and restated the original agreement and admitted Lincoln as a member. Enbridge and Lincoln, collectively referred to herein as the Members, hold a 65% and a 35% ownership interest in us, respectively.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

We prepare our financial statements in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. Our preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. We regularly evaluate these estimates utilizing historical experience, consultation with experts and other methods we consider reasonable in the circumstances. Nevertheless, actual results may differ significantly from these estimates. We record the effect of any revisions to these estimates in our financial statements in the period in which the facts that give rise to the revision become known.

Revenue Recognition

Our revenues are primarily derived from interstate transportation of crude oil and liquid petroleum under tariffs regulated by the Federal Energy Regulatory Commission. The tariffs established for our state pipeline specify the amounts to be paid by shippers for transportation services we provide between receipt and delivery locations and the general terms and conditions of transportation services on the respective pipeline systems. We recognize revenue upon delivery of products to our customers, when pricing is determinable, collectability is reasonably assured and there is evidence of an arrangement. We generally do not own the crude oil and liquid petroleum that we transport, and therefore, we do not assume significant direct commodity price risk. All long-term ship-or-pay contracts contain make-up rights. Make-up rights are granted when minimum volume commitments are not utilized during the period but under certain circumstances can be used to offset overages in future periods, subject to expiration periods. We recognize revenue associated with make-up rights at the earlier of when the make-up volume is shipped, the make-up right expires, or when it is determined that the likelihood that the shipper will utilize the make-up right is remote.

Cash and Cash Equivalents

Cash equivalents are defined as all highly marketable securities with original maturities of three months or less when purchased. The carrying value of cash and cash equivalents approximates fair value because of the short term to maturity of these investments.

Allowance for Doubtful Accounts

Our accounts receivable are primarily from shipments of crude oil. To mitigate credit risks related to our accounts receivable, we have in place a rigorous credit review process. We closely monitor market conditions in order to make a determination with respect to the amount, if any, of credit to be extended to any given customer and the form and amount of financial performance assurances we require. Such financial assurances are commonly provided to us in the form of standby letters of credit, “parental” guarantees or advance cash payments.

6



We establish provisions for losses on accounts receivable when we determine that we will not collect all or part of an outstanding balance. Collectability is reviewed regularly and an allowance is established or adjusted, as necessary, using the specific identification method. On the basis of our specific identification method, we did not have a provision for losses on accounts receivable as of December 31, 2016 and 2015.

Property, Plant and Equipment

We record property, plant and equipment at its original cost. We capitalize expenditures which have a useful life greater than one year for: (1) assets purchased or constructed; (2) existing assets that are replaced, improved, or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements, other than land, costing less than the minimum rule, in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. During construction, we capitalize direct costs, such as labor and materials, and other costs, such as direct overhead. Prior to the execution of the Agreement, we also capitalized the interest on borrowings. The interest cost we incurred was directly offset by the amount of interest we capitalized on our outstanding construction costs.

We depreciate property, plant and equipment on a straight-line basis over the lesser of its estimated useful life or the estimated remaining lives of the crude oil reserves in the regions the assets serve. Our determination of the useful lives of property, plant and equipment requires us to make various assumptions, including the supply of and demand for hydrocarbons in the markets served by our assets, normal wear and tear of the facilities, and the extent and frequency of maintenance programs. We routinely utilize consultants and other experts to assist us in this process.

Impairment

We evaluate the recoverability of our property, plant and equipment when events or circumstances such as economic obsolescence, the business climate, legal and other factors indicate we may not recover the carrying amount of the assets. We continually monitor our businesses, the market and business environments to identify indicators that could suggest an asset may not be recoverable. We evaluate the asset for recoverability by estimating the undiscounted future cash flows expected to be derived from operating the asset as a going concern. These cash flow estimates require us to make projections and assumptions for many years into the future for pricing, demand, competition, operating cost, contract renewals and other factors.

If an asset’s carrying value exceeds the sum of its estimated undiscounted future cash flows, we recognize a non-cash impairment loss equal to the excess of the asset’s carrying amount over its fair value. No impairment charges were recognized during the years ended December 31, 2016, 2015 and 2014.

Asset Retirement Obligations

Some of our assets have contractual or regulatory obligations to perform remediation when the assets are abandoned. These assets, with regular maintenance, will continue to be in service for many years to come. It is not possible to predict when demand for our services will cease and we do not believe that such demand will cease for the foreseeable future. Accordingly, we believe the date when these assets will be abandoned is indeterminate. As a result, we cannot reasonably estimate the fair value of the associated asset retirement obligations. We will record asset retirement obligations in the period in which sufficient information becomes available for us to reasonably determine the settlement dates.

Commitments, Contingencies and Environmental Liabilities

We recognize liabilities for other commitments and contingencies when, after fully analyzing the available information, we determine it is either probable that an asset has been impaired, or that a liability has been incurred and the amount of impairment or loss can be reasonably estimated. When a range of probable loss can be estimated, we accrue the most likely amount, or if no amount is more likely than another, we accrue the minimum of the range of probable loss. We expense legal costs associated with loss contingencies as such costs are incurred.


7



We expense or capitalize, as appropriate, expenditures for ongoing compliance with environmental regulations that relate to past or current operations. We expense amounts we incur for remediation of existing environmental contamination caused by past operations that do not benefit future periods by preventing or eliminating future contamination. We record liabilities for environmental matters when assessments indicate that remediation efforts are probable, and the costs can be reasonably estimated. Estimates of environmental liabilities are based on currently available facts, existing technology and presently enacted laws and regulations taking into consideration the likely effects of inflation and other factors. These amounts also consider prior experience in remediating contaminated sites, other companies' clean-up experience and data released by government organizations. Our estimates are subject to revision in future periods based on actual costs or new information and are recorded at their undiscounted amounts. We always have the potential of incurring additional costs in connection with environmental liabilities due to variations in any or all of the categories described above, including modified or revised requirements from regulatory agencies, in addition to fines and penalties, as well as expenditures associated with litigation and settlement of claims. We evaluate recoveries from insurance coverage separately from the liability and, when recovery is probable, we record and report an asset separately from the associated liability in our financial statements. For the years ended December 31, 2016 and 2015, we do not have any outstanding liability and have not recorded any expenses related to environmental or other contingencies.

Income Taxes

We are not a taxable entity for United States federal income tax or state income tax purposes in the state we operate and as a result there were no income taxes paid for the years ended December 31, 2016, 2015 and 2014. Taxes on our net income generally are borne by our Members through the allocation of taxable income.

Allocation of Net Profits and Losses

We allocate net profits and losses in accordance with our Agreement, which are based on each Member’s interest.

3. CHANGES IN ACCOUNTING POLICY

Future Accounting Policy Changes

Revenues from Contracts with Customers

Since May 2014, ASU Nos. 2014-09, 2015-14, 2016-08, 2016-10 and 2016-12 were issued with the intent of significantly enhancing consistency and comparability of revenue recognition practices across entities and industries. The new standard establishes a single, principles-based five-step model to be applied to all contracts with customers and introduces new and enhanced disclosure requirements. The standard is effective January 1, 2019 for non-public entities with a calendar year end. Early adoption for non-public entities is permitted as of January 1, 2018, which is the effective date of the standard for public entities. We plan to adopt the new standard effective January 1, 2018. The new revenue standard permits either a full retrospective method of adoption with restatement of all prior periods presented, or a modified retrospective method with the cumulative effect of applying the new standard recognized as an adjustment to opening retained earnings in the period of adoption. We are currently assessing which transition method to use.

We reviewed a sample of our revenue contracts in order to evaluate the effect of the new standard on our revenue recognition practices. While we have not yet completed our assessment, we tentatively do not expect these changes to have a material impact on our net income. We are also developing processes to generate the disclosures required under the new standard.

8



4.    PROPERTY, PLANT AND EQUIPMENT

Our property, plant and equipment is comprised of the following:

 
Depreciation
Rates
 
December 31,
2016
 
December 31,
2015
(in thousands )
Land......................................................................
 
$
316

 
$
1,077

Rights-of-way......................................................
3.33%
 
96,656
 
30,899
Pipeline and other................................................
3.33%
 
743,722
 
758,995
Vehicles, office furniture and equipment.............
20.00%
 
388
 
257
Construction in progress .....................................
 
 
1,660
 
917
Total property, plant and equipment.............
 
 
842,742
 
792,145
Accumulated depreciation...................................
 
 
(29,848)
 
(1,496)
Property, plant and equipment, net...............
 
 
$
812,894

 
$
790,649


On April 19, 2016, we sold two tracts of land located in Macon County, Illinois with a carrying amount of $1.0 million to Tri-State Holdings, LLC, or Tri-State, a wholly-owned subsidiary of Enbridge and Enbridge Energy Partners, L.P., or EEP, for $0.7 million. For more information, refer to Note 7. Related Party Transactions .

5.    ACCOUNTS PAYABLE AND OTHER

Our accounts payable and other is comprised of the following:
 
December 31,
2016
 
December 31,
2015
 
 
Accounts payable.......................................................................
$
624

 
$
6,557

Accrued payables ......................................................................
1,290

 
17,055

Contractor Hold..........................................................................
1,493

 
32,950

Accounts payable and other........................................................
$
3,407

 
$
56,562


6.    COMMITMENTS AND CONTINGENCIES

Future Minimum Commitments

At December 31, 2016 and 2015, we had outstanding commitments of $0.4 million and $47.0 million, respectively, related to purchases for construction of the Southern Access Extension. We anticipate that expenditures to be incurred in 2017 will be funded by capital contributions from our Members.

7.    RELATED PARTY TRANSACTIONS

Operating and Administrative – Affiliate

We do not directly employ any of the individuals responsible for managing or operating our business, nor do we have any directors. Enbridge and its affiliates provide management and we obtain managerial, administrative, operational and workforce related services from affiliates of Enbridge pursuant to service agreements among affiliates of Enbridge and us. Pursuant to these service agreements, we have agreed to reimburse affiliates of Enbridge for the cost of managerial, administrative, operational and director services they provide to us. Where directly attributable, the cost of all compensation, benefits expenses and employer expenses for these employees are charged directly by Enbridge to the Company.

9




The affiliate amounts incurred by us for services received pursuant to the operating and services agreements are reflected in “Operating and administrative – affiliate” on our statements of income (loss).

Affiliate Receivables

Our accompanying statements of financial position include $9.8 million of affiliate receivables at December 31, 2016. Substantially all of the balance is related to transportation services we provided to Marathon Petroleum Company, L.P. There were $5.5 million of affiliate receivables at December 31, 2015. Approximately $4.0 million of the balance related to transportation services provided to Marathon Petroleum Company, L.P., with the remaining balance related to other affiliate transactions with Enbridge. For the years ended December 31, 2016 and 2015, $110.0 million and $4.0 million, respectively, of our revenues were derived from Marathon Petroleum Company, L.P.

Affiliate Payables

Our accompanying statements of financial position include affiliate payables of $1.3 million and $33.5 million at December 31, 2016 and 2015, respectively. Our affiliate payables are primarily with Enbridge (U.S.) Inc. for reimbursement of construction and operating costs paid by Enbridge (U.S.) Inc. on our behalf.

On July 10, 2014, we entered into an operating, construction and management agreement with Enbridge Services (CMO) L.L.C. whereby we pay a construction fee equal to 2 percent of the quarterly capitalized costs incurred in the preceding quarter plus reimbursement of expenses. At December 31, 2016 and 2015, we have affiliate payables of $0.2 million and $2.0 million, respectively, with Enbridge Services (CMO) L.L.C. related to this agreement.

Land Sale to Tri-State

On April 19, 2016, we sold two tracts of land located in Macon County, Illinois with a carrying amount of $1.0 million to Tri-State, a wholly-owned subsidiary of Enbridge and EEP, for $0.7 million. The loss on disposal of $0.3 million for the year ended December 31, 2016, is included in "Operating and administrative - affiliate" expense on our statements of income (loss).

Lease and Storage Services Agreement

We have an agreement with EEP, pursuant to which we built two storage tanks at EEP’s storage facility in Flanagan, Illinois. EEP leases the tanks from us and operates them. We will pay EEP operating fees for the operation of the tanks. For the years ended December 31, 2016, 2015 and 2014, we paid no operating fees to EEP.

Member Contributions

For the years ended December 31, 2016, 2015 and 2014, contributions from all Members totaled approximately$92.9 million, $420.5 million and $305.6 million, respectively. The proceeds from capital contributions were used to finance the construction costs related to the Southern Access Extension.

Member Distributions

For the year ended December 31, 2016, distributions to Members totaled approximately $88.9 million. For the year ended December 31, 2015 and 2014, there were no distributions to Members.

All available cash, less cash reserves, is distributed to Members in proportion to their respective Members’ interests on a quarterly basis.


10



8.    SUPPLEMENTAL CASH FLOWS INFORMATION

The following table provides supplemental cash flow information for the “Cash flows from investing activities” section of the statements of cash flows. The following is a reconciliation of additions to property, plant and equipment to total capital expenditures:
 
For the year ended December 31,
 
2016
 
2015
 
2014
 
(in thousands)
Total capital expenditures ...................................................
$
51,556

 
$
484,003

 
$
216,972

Decrease (Increase) in construction payables .....................
86,936

 
(21,032
)
 
(47,472
)
Cash used for additions to property, plant and equipment...
$
138,492

 
$
462,971

 
$
169,500


9.    SUBSEQUENT EVENTS

We have evaluated events subsequent to December 31, 2016 through March 27, 2017, the date the financial statements were available to be issued and did not identify any events that would require disclosure to the footnotes to our financial statements other than those listed below.

Member Distributions

Since December 31, 2016, we paid cash distributions of $4.6 million and $2.5 million to Enbridge and Lincoln, respectively.

11






















ILLINOIS EXTENSION PIPELINE COMPANY , L.L.C.
UNAUDITED FINANCIAL STATEMENTS

June 30, 2017




ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
TABLE OF CONTENTS


Page(s)

Financial Statements

Statements of Income for the Six Months Ended June 30, 2017 and 2016................................................................. 1

Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 .......................................................... 2

Statements of Financial Position at June 30, 2017 and December 31, 2016................................................................ 3

Statement of Members’ Equity for the Six Months Ended June 30, 2017................................................................... 4

Notes to Financial Statements ..................................................................................................................................... 5




ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF INCOME




 
For the six months ended June 30,
 
2017
 
2016
 
(unaudited; in thousands)
Operating revenues:
 
 
 
Operating revenue.............................................................................
$
4,692

 
$
2,636

Operating revenue - affiliate.............................................................
47,163

 
55,995

 
51,855

 
58,631

Operating expenses:
 
 
 
Operating and administrative............................................................
$
1,068

 
$
3,291

Operating and administrative - affiliate............................................
4,124

 
4,632

Depreciation and amortization..........................................................
14,237

 
13,925

Physical oil (gains) losses.................................................................
(1,317
)
 
(1,160
)
 
18,112

 
20,688

Net income...............................................................................................
$
33,743

 
$
37,943
































The accompanying notes are an integral part of these financial statements.


1


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF CASH FLOWS



 
For the six months ended
 June 30,
 
2017
 
2016
 
(unaudited; in thousands)
Cash provided by operating activities:
 
 
 
Net income.........................................................................................................
$
33,743

 
$
37,943

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization......................................................................
14,237

 
13,925

Changes in operating assets and liabilities:
 
 
 
Receivables, trade and other.....................................................................
465

 
(722
)
Due from affiliates ...................................................................................
2,111

 
(7,593
)
Other current assets .................................................................................
(434
)
 
(313
)
Other assets .............................................................................................
(3,786
)
 
(1,103
)
Due to affiliates .......................................................................................
5

 
1,563

Accounts payable and other ....................................................................
73

 
1,101

Property and other taxes payable.............................................................
188

 
554

Deferred revenue......................................................................................
(1,305
)
 
1,787

Net cash provided by operating activities ..............................................................
45,297

 
47,142

Cash used in investing activities:
 
 
 
Additions to property, plant and equipment (Note 7)........................................
(5,780
)
 
(87,933
)
Other...................................................................................................................
(12
)
 
(13
)
Net cash used in investing activities ......................................................................
(5,792
)
 
(87,946
)
Cash (used in) provided by financing activities:
 
 
 
Contributions by members ................................................................................
9,964

 
68,042

Distributions to members ..................................................................................
(32,760
)
 
(16,145
)
Net cash (used in) provided by financing activities ...............................................
(22,796
)
 
51,897

 
 
 
 
Net increase in cash and cash equivalents .............................................................
16,709

 
11,093

Cash and cash equivalents at beginning of period..................................................
27,518

 
61,051

Cash and cash equivalents at end of period............................................................
$
44,227

 
$
72,144






The accompanying notes are an integral part of these financial statements.


2


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENTS OF FINANCIAL POSITION




 
June 30,
 
December 31,
 
2017
 
2016
 
(unaudited; in thousands)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents ................................................................
$
44,227

 
$
27,518

Receivables, trade and other..............................................................
590

 
1,055

Due from affiliates (Note 6)..............................................................
7,647

 
9,758

Other current assets ..........................................................................
569

 
123

 
53,033

 
38,454

Property, plant and equipment, net...........................................................
802,135

 
812,894

Other assets ..............................................................................................
4,889

 
1,103

 
$
860,057

 
$
852,451

LIABILITIES AND MEMBERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Due to affiliates (Note 6)...................................................................
$
1,325

 
$
1,320

Accounts payable and other (Note 4)................................................
1,178

 
3,407

Property and other taxes payable.......................................................
627

 
439

 
3,130

 
5,166

Deferred Revenue.....................................................................................
575

 
1,880

Deferred Revenue - affiliate.....................................................................
1,006

 
1,006

 
4,711

 
8,052

Members' equity (866,923,985 units and 856,958,838 units as of
 
 
 
June 30, 2017 and December 31, 2016, respectively)..............................
855,346

 
844,399

 
$
860,057

 
$
852,451














The accompanying notes are an integral part of these financial statements.


3


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
STATEMENT OF MEMBERS' EQUITY




 
Enbridge Energy Company, Inc. (65% )
 
Lincoln
Pipeline LLC (35% )
 
Total Members' Equity
;
(unaudited; in thousands; except units)
 
 
 
 
 
 
Balance at December 31, 2016..................................
$
548,859

 
295,540

 
$
844,399

Contributions (Note 6)...............................................
6,477

 
3,487

 
9,964

Distributions (Note 6)................................................
(21,294
)
 
(11,466
)
 
(32,760
)
Net income.................................................................
21,933

 
11,810

 
33,743

Balance at June 30, 2017...........................................
$
555,975

 
$
299,371

 
$
855,346

 
 
 
 
 
 
Units at June 30, 2017................................................
563,500,591

 
303,423,394

 
 





















The accompanying notes are an integral part of these financial statements.


4


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS

1.    LIMITED LIABILITY COMPANY ORGANIZATION AND NATURE OF OPERATIONS

Illinois Extension Pipeline Company, L.L.C., referred to herein as we, us, our, or the Company, was formed under the name Enbridge Pipelines (Illinois), L.L.C. on December 15, 2006, the date of inception, for the primary purpose of building and operating a 168-mile, 24-inch diameter oil pipeline from Flanagan, Illinois to Patoka, Illinois. The pipeline system has an initial capacity of 300,000 barrels per day, or Bpd, as well as additional tankage and two pump stations, referred to herein as the Southern Access Extension. The project was placed into service in December 2015.

On July 10, 2014, Enbridge Energy Company, Inc., or Enbridge, and Lincoln Pipeline LLC, or Lincoln, a subsidiary of Marathon Petroleum Company, L.P, executed an agreement, or the Agreement, effective July 1, 2014, which amended and restated the original agreement and admitted Lincoln as a member. Enbridge and Lincoln, collectively referred to herein as the Members, hold a 65% and a 35% ownership interest in us, respectively.

2.    BASIS OF PRESENTATION

We have prepared the accompanying unaudited interim financial statements in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. Our results of operations for the six months ended June 30, 2017 are not necessarily indicative of results expected for the full year of 2017. In the opinion of the management, the accompanying unaudited financial statements as of June 30, 2017 and for the six months ended June 30, 2017 include all adjustments consisting of normal recurring accruals necessary for fair presentation. We derived our statement of financial position as of December 31, 2016 from the audited financial statements for the fiscal year ended December 31, 2016. Our unaudited interim financial statements should be read in conjunction with our audited financial statements and notes thereto for the fiscal year ended December 31, 2016.

3.    CHANGES IN ACCOUNTING POLICY

Future Accounting Policy Changes

Revenues from Contracts with Customers

ASU 2014-09 was issued in 2014 with the intent of significantly enhancing consistency and comparability of revenue recognition practices across entities and industries. The new standard establishes a single, principles-based five-step model to be applied to all contracts with customers and introduces new and enhanced disclosure requirements. The standard is effective January 1, 2018. The new revenue standard permits either a full retrospective method of adoption with restatement of all prior periods presented, or a modified retrospective method with the cumulative effect of applying the new standard recognized as an adjustment to opening retained earnings in the period of adoption. We have tentatively decided to adopt the new revenue standard using the modified retrospective method.

We have reviewed a sample of our revenue contracts in order to evaluate the effect of the new standard on our revenue recognition practices. Based on the our initial assessment, estimates of variable consideration which will be required under the new standard for certain contracts may result in changes to the pattern or timing of revenue recognition for those contracts. While we have not yet completed the assessment, we do not expect these changes to have a material impact on revenues or earnings (loss).




5


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS

4.    ACCOUNTS PAYABLE AND OTHER

Our accounts payable and other is comprised of the following:
 
June 30,
2017
 
December 31,
2016
 
 
Accounts payable.......................................................................
$
554

 
$
624

Accrued payables ......................................................................
0

 
1,290

Contractor Hold..........................................................................
478

 
1,493

Other...........................................................................................
146

 
0

Accounts payable and other........................................................
$
1,178

 
$
3,407


5.    COMMITMENTS AND CONTINGENCIES

Future Minimum Commitments

At June 30, 2017, we had outstanding commitments of $4.4 million related to purchases for construction of the Southern Access Extension. We anticipate that expenditures to be incurred in the second part of 2017 will be funded by capital contributions from our Members.


6.    RELATED PARTY TRANSACTIONS

Operating and Administrative – Affiliate

We do not directly employ any of the individuals responsible for managing or operating our business, nor do we have any directors. Enbridge and its affiliates provide management and we obtain managerial, administrative, operational and workforce related services from affiliates of Enbridge pursuant to service agreements among affiliates of Enbridge and us. Pursuant to these service agreements, we have agreed to reimburse affiliates of Enbridge for the cost of managerial, administrative, operational and director services they provide to us. Where directly attributable, the cost of all compensation, benefits expenses and employer expenses for these employees are charged directly by Enbridge to the Company.

The affiliate amounts incurred by us for services received pursuant to the operating and services agreements are reflected in “Operating and administrative – affiliate” on our statements of income.

Affiliate Receivables

Our accompanying statements of financial position include $7.6 million of affiliate receivables at June 30, 2017. Substantially all of the balance is related to transportation services we provided to Marathon Petroleum Company, L.P. There were $9.8 million of affiliate receivables at December 31, 2016. Substantially all of the balance is related to transportation services provided to Marathon Petroleum Company, L.P., with the remaining balance related to other affiliate transactions with Enbridge. For the six months ended June 30, 2017 and 2016, $47.2 million and $56.0 million, respectively, of our revenues were derived from Marathon Petroleum Company, L.P.

Affiliate Payables

Our accompanying statements of financial position include affiliate payables of $1.3 million at June 30, 2017 and December 31, 2016. Our affiliate payables are primarily with Enbridge (U.S.) Inc. for reimbursement of construction and operating costs paid by Enbridge (U.S.) Inc. on our behalf.



6


ILLINOIS EXTENSION PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS


On July 10, 2014, we entered into an operating, construction and management agreement with Enbridge Services (CMO) L.L.C. whereby we pay a construction fee equal to 2 percent of the quarterly capitalized costs incurred in the preceding quarter plus reimbursement of expenses. At June 30, 2017 and December 31, 2016, we have affiliate payables of $0.1 million and $0.2 million, respectively, with Enbridge Services (CMO) L.L.C. related to this agreement.

Lease and Storage Services Agreement

We have an agreement with EEP, pursuant to which we built two storage tanks at EEP’s storage facility in Flanagan, Illinois. EEP leases the tanks from us and operates them. We will pay EEP operating fees for the operation of the tanks. For six months ended June 30, 2017 and 2016, we paid no operating fees to EEP.

Member Contributions

For six months ended June 30, 2017 and 2016, contributions from all Members totaled approximately $10.0 million and $68.0 million, respectively. The proceeds from capital contributions were used to finance the construction costs related to the Southern Access Extension.

Member Distributions

For the six months ended June 30, 2017 and 2016, distributions to Members totaled approximately $32.8 and $16.1 million, respectively.

All available cash, less cash reserves, is distributed to Members in proportion to their respective Members’ interests on a quarterly basis.

7.    SUPPLEMENTAL CASH FLOWS INFORMATION

The following table provides supplemental cash flow information for the “Cash flows from investing activities” section of the statements of cash flows. The following is a reconciliation of additions to property, plant and equipment to total capital expenditures:
 
For the six months ended June 30,
 
2017
 
2016
 
(in thousands)
Total capital expenditures ...................................................................
$
3,478

 
$
30,548

Decrease in construction payables ...................................................
2,302

 
57,385

Cash used in additions to property, plant and equipment...........
$
5,780

 
$
87,933


8.    SUBSEQUENT EVENTS

We have evaluated events subsequent to June 30, 2017 through August 31, 2017, the date the financial statements were available to be issued and did not identify any events that would require disclosure in the footnotes to our financial statements other than those listed below.

Member Distributions

Since June 30, 2017, we paid cash distributions of $12.6 million and $6.8 million to Enbridge and Lincoln, respectively.


7


LOOP LLC
Financial Statements
Years Ended December 31, 2016, 2015 and 2014




LOOP LLC
Index
Years Ended December 31, 2016, 2015 and 2014








Page(s)


Report of Independent Auditors for the year ended December 31, 2016 ............................................. 1

Report of Independent Auditors for the years ended December 31, 2015 and 2014 ........................... 2

Financial Statements

Balance Sheets ............................................................................................................................................ 3

Statements of Income .................................................................................................................................. 4

Statements of Comprehensive Income ........................................................................................................ 5

Statements of Changes in Members’ Equity................................................................................................. 6

Statements of Cash Flows ........................................................................................................................... 7

Notes to Financial Statements ............................................................................................................... 8–23







Report of Independent Auditors


To the Management of LOOP LLC

We have audited the accompanying financial statements of LOOP LLC, which comprise the balance sheet as of December 31, 2016, and the related statements of income, of comprehensive income, of members’ equity and of cash flows for the year then ended.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LOOP LLC as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

The financial statements of the Company as of December 31, 2015 and for the years ended December 21, 2015 and 2014 were audited by other auditors whose report, dated March 31, 2016, expressed an unmodified opinion on those statements.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana
February 10, 2017




1





Independent Auditors’ Report


The Owners of LOOP LLC:

We have audited the accompanying financial statements of LOOP LLC, which comprise the balance sheet as of December 31, 2015, and the related statements of income, comprehensive income, changes in members’ equity, and cash flows for the two-year period ended December 31, 2015, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of LOOP LLC as of December 31, 2015, and the results of its operations and its cash flows for the two-year period ended December 31, 2015 in accordance with U.S. generally accepted accounting principles.


/s/KPMG LLP

New Orleans, Louisiana
March 31, 2016






2

LOOP LLC
Balance Sheets
Years Ended December 31, 2016 and 2015





 
 
2016
 
2015
Assets
 
 
 
 
Current Assets
 
 
 
 
Cash and cash equivalents
 
$
27,438,056

 
$
53,042,282

Receivables from affiliates
 
11,002,371

 
14,340,359

Receivables from nonaffiliates
 
10,595,533

 
13,418,007

Materials and supplies
 
15,189,596

 
13,940,778

Prepayments
 
6,159,982

 
5,802,124

Restricted cash
 
8,384,000

 
5,009,500

Oil inventory
 
37,902,796

 

Total Current Assets
 
116,672,334

 
105,553,050

Property plant and equipment net of accumulated depreciation and amortization
 
754,871,328

 
685,406,041

Construction in progress
 
56,256,759

 
62,719,793

Net property, plant and equipment
 
811,128,087

 
748,125,834

Other assets
 
153,319

 
14,807,871

Total Assets
 
$
927,953,740

 
$
868,486,755

Liabilities and Members' Equity
 
 
 
 
Current Liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
25,124,185

 
$
27,094,242

Deferred revenue
 
6,523,000

 

Interest payable
 
1,290,742

 
1,243,624

Current maturities of long-term debt
 
94,710,000

 
20,000,000

Total current liabilities
 
127,647,927

 
48,337,866

Noncurrent Liabilities
 
 
 
 
Long-term debt
 
270,016,077

 
364,437,592

Pension and benefits
 
40,226,441

 
37,649,546

Asset retirement obligation
 
18,919,413

 
17,611,260

Deferred revenue
 
1,643,674

 
5,350,636

Other
 
5,378,504

 
5,413,168

Total noncurrent liabilities
 
336,184,109


430,462,202

Members' Equity
 
464,121,704

 
389,686,687

Total Liabilities and Members' Equity
 
$
927,953,740


$
868,486,755

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



The accompanying notes are an integral part of these condensed financial statements.


3

LOOP LLC
Statements of Income
Years Ended December 31, 2016, 2015 and 2014




 
 
2016
 
2015
 
2014
Operating revenues
 
 
 
 
 
 
Offloading
 
$
94,391,083

 
$
91,010,164

 
$
87,784,531

Pipeline receipts
 
49,406,559

 
46,024,132

 
33,480,004

Tank storage fees
 
45,230,000

 
43,533,710

 
44,066,946

Cavern storage fees
 
44,304,189

 
48,249,665

 
28,739,812

Storage futures trading
 
19,378,786

 
3,007,402

 

Port fees, blending, and incidental
 
9,453,065

 
12,333,534

 
8,948,670

Allowance oil
 
13,344,569

 
14,453,266

 
33,195,997

Management fees
 
4,380,061

 
4,218,293

 
4,152,899

Total operating revenues ( Affiliate revenue was approximately $119,209,000, $113,014,000 and $143,814,000 in 2016, 2015 and 2014, respectively )
 
279,888,312

 
262,830,166

 
240,368,859

Operating expenses
 
 
 
 
 
 
Salaries and wages
 
26,857,529

 
24,592,556

 
23,499,388

Materials and supplies
 
5,375,485

 
4,534,446

 
3,733,475

Outside services
 
58,970,356

 
53,413,194

 
52,510,528

Fuel and power
 
8,794,552

 
11,909,762

 
13,827,559

Maintenance materials
 
5,413,496

 
5,366,958

 
3,654,797

Rentals
 
12,389,556

 
12,607,372

 
12,107,650

Oil loss allowance
 
(9,229,377
)
 
15,372,917

 
1,059,908

Depreciation, amortization, and accretion
 
26,285,324

 
28,122,716

 
20,386,227

Pension and benefits
 
9,870,247

 
10,110,959

 
8,680,372

Insurance and uninsured losses
 
1,988,686

 
1,787,234

 
1,496,051

Taxes - other than income
 
4,578,235

 
4,477,876

 
4,417,421

Total operating expenses (Affiliate expense was approximately $1,606,000, $0 and $0 in 2016, 2015 and 2014, respectively)
 
151,294,089

 
172,295,990

 
145,373,376

Income from operations
 
128,594,223


90,534,176


94,995,483

Interest and other
 
 
 
 
 
 
Other income
 
2,206,185

 
2,405,433

 
1,866,513

Interest income
 
123,041

 
55,331

 
65,217

Interest expense
 
(5,038,509
)
 
(5,946,343
)
 
(6,586,849
)
Net interest expense and other
 
(2,709,283
)
 
(3,485,579
)
 
(4,655,119
)
Net income
 
$
125,884,940

 
$
87,048,597

 
$
90,340,364

 
 
 
 
 
 
 



The accompanying notes are an integral part of these condensed financial statements.


4

LOOP LLC
Statements of Comprehensive Income
Years Ended December 31, 2016, 2015 and 2014






 
 
2016
 
2015
 
2014
Net income
 
$
125,884,940

 
$
87,048,597

 
$
90,340,364

Other comprehensive income
 
 
 
 
 
 
Pension and postretirement benefits adjustments
 
(1,449,923
)
 
6,067,118

 
(13,252,754
)
Comprehensive income
 
$
124,435,017

 
$
93,115,715

 
$
77,087,610
































The accompanying notes are an integral part of these condensed financial statements.


5

LOOP LLC
Statements of Changes in Members’ Equity
Years Ended December 31, 2016, 2015 and 2014


 
 
2016
 
2015
 
2014
Members' equity
 
 
 
 
 
 
Balances at beginning of year
 
$
419,664,718

 
$
391,616,121

 
$
357,775,757

Net income
 
125,884,940

 
87,048,597

 
90,340,364

Members' distributions
 
(50,000,000
)
 
(59,000,000
)
 
(56,500,000
)
Balances at end of year
 
495,549,658

 
419,664,718

 
391,616,121

 
 
 
 
 
 
 
Accumulated other comprehensive loss
 
 
 
 
 
 
Defined benefit pension and other postretirement plans
 
 
 
 
 
 
Balances at beginning of year
 
(29,978,031
)
 
(36,045,149
)
 
(22,792,395
)
Other comprehensive income (loss)
 
(1,449,923
)
 
6,067,118

 
(13,252,754
)
Balances at end of year
 
(31,427,954
)
 
(29,978,031
)
 
(36,045,149
)
Members' equity, end of year
 
$
464,121,704

 
$
389,686,687

 
$
355,570,972

 
 
 
 
 
 
 


























The accompanying notes are an integral part of these condensed financial statements.


6

LOOP LLC
Statements of Cash Flows
Years Ended December 31, 2016, 2015 and 2014



 
 
2016
 
2015
 
2014
Cash flows from operating activities
 
 
 
 
 
 
Net income
 
$
125,884,940

 
$
87,048,597

 
$
90,340,364

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
 
 
Depreciation amortization and accretion
 
26,285,324

 
28,122,716

 
20,386,227

Inventory valuation write-down
 

 
10,910,935

 
3,557,572

Pension and benefits
 
2,576,895

 
(4,046,454
)
 
(13,776,700
)
Changes in operating assets and liabilities
 
 
 
 
 
 
Receivables from affiliates
 
3,337,988

 
(2,548,393
)
 
(4,519,830
)
Receivables from nonaffiliates
 
2,822,474

 
(1,365,534
)
 
(1,522,759
)
Materials and supplies
 
(1,248,818
)
 
2,895,062

 
(1,138,522
)
Prepayments
 
(357,858
)
 
(10,748
)
 
(448,380
)
Other assets
 
(110,604
)
 

 
(1,568,623
)
Oil inventory
 
(23,137,641
)
 
(9,835,119
)
 
8,336,961

Deferred revenue
 
2,816,038

 
2,090,194

 
1,337,342

Other noncurrent liabilities
 
(1,196,102
)
 
5,476,232

 
13,372,416

Accounts payable, accrued expenses and other
 
1,686,918

 
4,905,112

 
(535,666
)
Interest payable
 
47,118

 
(72,634
)
 
(259,578
)
Net cash provided by operating activities
 
139,406,672

 
123,569,966

 
113,560,824

Cash flows from investing activities
 
 
 
 
 
 
Capital expenditures
 
(91,636,398
)
 
(60,722,577
)
 
(29,502,110
)
Increase in restricted cash
 
(3,374,500
)
 
(5,009,500
)
 

Net cash used in investing activities
 
(95,010,898
)
 
(65,732,077
)
 
(29,502,110
)
Cash flows from financing activities
 
 
 
 
 
 
Members' distributions
 
(50,000,000
)
 
(59,000,000
)
 
(56,500,000
)
Payments on long-term debt
 
(20,000,000
)
 
(10,000,000
)
 
(30,000,000
)
Net cash used in financing activities
 
(70,000,000
)
 
(69,000,000
)
 
(86,500,000
)
Net decrease in cash and cash equivalents
 
(25,604,226
)
 
(11,162,111
)
 
(2,441,286
)
Cash and cash equivalents
 
 
 
 
 
 
Beginning of year
 
53,042,282

 
64,204,393

 
66,645,679

End of year
 
$
27,438,056

 
$
53,042,282

 
$
64,204,393

Noncash transactions
 
 
 
 
 
 
Capital expenditures in accounts payable and accrued expenses, net
 
$
(3,656,971
)
 
$
1,243,655

 
$
2,695,787

 
 
 
 
 
 
 




The accompanying notes are an integral part of these condensed financial statements.

7

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014



1.    Organization, Operations and Ownership

Organization and Operations
LOOP LLC (LOOP), headquartered in Covington, Louisiana, owns and operates midstream crude oil infrastructure, including a deep water oil port offshore of Louisiana, pipelines, and onshore storage facilities. The deep water oil port offloads crude oil from crude carrying marine vessels destined for onshore storage and pipeline transport to the LOCAP LLC (LOCAP), an affiliate pipeline system, and other connecting carriers for onward delivery to refineries on the United States of America’s (U.S.) Gulf Coast and the Midwest regions. Additionally, LOOP receives and stores oil for onward transport from various other pipeline connections, and manages the operations of LOCAP. LOOP also offers future period cavern storage capacity through auction, providing market participants with the right to store barrels of LOOP Sour Crude at one of their onshore storage facilities for a specific calendar month.

Ownership
Under the Limited Liability Company Agreement and the First Stage Throughput and Deficiency Agreement (T&D), as amended, each owner, as listed below, is obligated in accordance with its ownership percentage to ship oil through LOOP’s midstream crude oil infrastructure in quantities sufficient for LOOP to pay certain of its expenses and obligations, including LOOP’s long-term debt secured by the T&D, or to make cash payments to LOOP for which they receive credit for future throughput. At December 31, 2016, 2015 and 2014 the ownership of LOOP and the associated T&D obligations were as follows:

 
 
Ownership
 
T&D Obligation
Marathon Petroleum Company LP
 
10.0
%
 
50.7
%
MPL Louisiana Holdings LLC
 
40.7

 
*

Valero Terminaling and Distribution Company
 
3.2

 
3.2

Shell Oil Company
 
19.5

 
46.1

Shell Pipeline Company LP
 
26.6

 
**

 
 
100.0
%
 
100.0
%
* The T&D obligor is Marathon Petroleum Company LP
** The T&D obligor is Shell Oil Company
 
 
 
 
 

2.    Summary of Significant Accounting Policies

Basis of Accounting

LOOP maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the U.S.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition
LOOP recognizes revenue for services as services are rendered, when there is evidence of an arrangement, the price is fixed or determined, and collection of the resulting receivables is reasonably assured.


8

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


Allowance Oil Revenue, Oil Loss Allowance, and Oil Inventory
In accordance with the terms and conditions of service with its customers, LOOP withholds one-tenth of one percent of the oil transported (adjusted for sediment and water content) and records as Allowance oil revenue and Oil inventory. An Oil loss allowance is recorded based on an estimated loss percentage. Oil inventory is stated at the lower of cost or current market value. Cost is determined based on average cost. Lower of cost or current market price adjustments of $0, $10,911,000 and $3,558,000 were recorded in 2016, 2015 and 2014, respectively. Revenue of $7,125,050 was recorded in 2014 resulting from the sale of crude oil. Oil inventory was reclassified to current assets in 2016 as LOOP anticipates selling this inventory in 2017.

LOOP drains and measures all oil physically stored in its caverns, tanks, and line-fill to obtain a comprehensive physical inventory measurement approximately twice every five years. Any difference between oil measured compared to Oil inventory is recorded in the period of measurement. LOOP recorded favorable oil measurements totaling $9,594,718 and $13,650,105 in 2016 and 2014, respectively, resulting from the inventory measurement completed in those years. This amount is included within Oil loss allowance.

Cash and Cash Equivalents
LOOP considers all highly liquid debt instruments with maturities of three months or less at the date of purchase to be cash equivalents. LOOP maintains its cash and cash equivalents at financial institutions. The balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes this risk is not significant.

Receivables
LOOP extends credit to customers and other parties in the normal course of business. LOOP regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts, if needed. In evaluating the level of established reserves, LOOP makes judgments regarding the customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required through a charge to operations in the period in which that determination was made. There was no allowance as of December 31, 2016, 2015 and 2014.

Materials and Supplies
Materials and supplies, which consists of spare parts, diesel fuel and other supplies, are stated at cost (average cost method for spare parts and supplies and first-in, first-out method for diesel fuel). LOOP assesses the realizability of its inventories based upon specific usage and future utility. An Operating expense is recorded to reduce the value of material and supplies when factors such as excess or obsolete inventory are identified.

Restricted Cash
The Chicago Mercantile Exchange (CME) requires a cash margin to be posted in an account as security for outstanding futures contracts related to the sale of LOOP Sour Crude Storage Cavern Capacity Contracts (CAC). The margins are released each month following the expiration of the CME settled futures contracts.

Property, Plant, and Equipment
Property, plant and equipment include costs of assets constructed, purchased or leased under a capital lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in operations.

Depreciation is primarily on the units-of-throughput (UTD) basis, based upon estimated total facility throughput. LOOP’s periodically reassesses remaining total facility throughput and adjusts depreciation rates according to revised estimates.


9

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


LOOP evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the net carrying amount of the asset group may not be recoverable. Recoverability of assets is measured by a comparison of the net carrying amount of the asset group to future undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized.

Interest is capitalized in connection with the construction of assets. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.

Deferred Revenue
Deferred revenue results primarily from the sale of LOOP Sour Storage CACs for future delivery and is recognized as income after services are provided, or at the expiration date of the contract.

Taxes
As a Delaware limited liability company, LOOP has elected to be taxed as a partnership. Therefore, no provision for federal or state income taxes has been made in the accompanying financial statements.

Asset Retirement Obligation
LOOP records obligations associated with the retirement of long-lived assets at fair values in the period incurred. The fair value of the obligation is also recorded to the related asset’s carrying amount. Accretion of the liability is recognized as an operating expense and the capitalized cost is amortized over the estimated useful life of the asset on a straight line basis. LOOP revises their estimates of asset retirement obligations as information about material changes to the liability becomes known. Revisions are recorded as adjustments to existing liabilities and to the carrying amount of the related assets. Revisions occurring at or near the end of an asset’s useful life may result in impairments or losses and could materially impact earnings. LOOP’s asset retirement obligations relate to the decommissioning of pipelines, facilities and structures.

Fair Value
LOOP has a number of financial instruments, none of which are held for trading purposes. The reported amounts of certain of LOOP’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities.

Fair value is determined on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the use of market-based information is suggested over entity specific information and a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date is established.

Pension and Other Postretirement Plans
Under authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. As required, LOOP recognizes a balance sheet asset or liability for their pension and other postretirement benefit (“OPEB”) plans equal to the plan’s funded status as of the measurement date. The primary assumptions are as follows:

Discount Rate—The discount rate is used in calculating the present value of benefits, which is based on projections of benefit payments to be made in the future.

Expected Return on Plan Assets—The future return on plan assets are projected based on prior performance and future expectations for the types of investments held by the plans, as well as the expected long-term allocation of plan assets for these investments. These projected returns reduce the net benefit costs recorded currently.

10

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014



Rate of Compensation Increase—For salary-related plans, employees’ annual pay increases are projected, which are used to project employees’ pension benefits at retirement.

Mortality Assumptions—Assumptions about life expectancy of plan participants are used in the measurement of related plan obligations.

Actuarial gains and losses and the remaining components of pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, are recognized annually as a component of accumulated comprehensive loss in owners’ equity and whenever a plan is determined to qualify for a re-measurement during a fiscal year. The market-related value of assets equals the actual market value as of the date of measurement.

In selecting the discount rate, LOOP considers expected benefit payments. The discount rates for each plan were calculated as the single-equivalent rate that provided for the same plan liability that resulted from the application of a corporate bond yield-curve to the projected benefit payments expected to be paid from each plan. The corporate bond yield-curve is derived from a wide universe of high quality bonds. LOOP believes the selected discount rate is determined using preferred methodology under authoritative accounting guidance and accurately reflect market conditions as of the December 31, 2016, 2015 and 2014 measurement dates.

In estimating the expected return on plan assets, LOOP considers past performance and future expectations for the types of investments held by the plan as well as the expected long-term allocation of plan assets to these investments. In projecting the rate of compensation increase, LOOP considers past experience in light of movements in inflation rates.

In October 2014, the Society of Actuaries (“SOA”) published updated mortality tables which reflect increased life expectancy. LOOP revised the mortality assumptions to incorporate the new set of mortality tables issued by the SOA for purposes of measuring their pension and OPEB obligations at December 31, 2014. Further, the SOA released an updated Mortality Improvement Scale, MP-2015, on October 8, 2015. The updated improvement scale incorporates two additional years of mortality data and reflects a trend toward somewhat smaller improvements in longevity. In addition, the SOA released a set of factors to adjust the RP-2014 Mortality Tables to base year 2006. LOOP revised the mortality assumptions to incorporate these updated mortality improvements for purposes of measuring U.S. pension and OPEB obligations at December 31, 2015.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 related to recognition of revenue based upon an entity’s contracts with customers to transfer goods or services. Under the new standard update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2019. LOOP is currently evaluating the impact of this accounting standard update on the financial statements.

In April 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The pronouncement is effective for annual reporting periods beginning after December 15, 2015. This accounting guidance was effective for LOOP beginning in 2016. The adoption of ASU 2015-03 was applied retrospectively and resulted in a reclassification of debt issuance costs from Other assets to Long-term debt of approximately $1,944,000 and $2,232,000 on the balance sheets of December 31, 2016 and 2015, respectively.

In May 2015, the FASB issued accounting guidance for which investments measured at net asset value per share (or its equivalent) using the practical expedient should no longer be categorized within the fair value hierarchy. This guidance was adopted in 2016 and is to be applied on a retrospective basis. LOOP adopted the ASU provision in these financial statements.


11

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. Changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, entities that are not public business entities will no longer be required to disclose the fair value of financial instruments carried at amortized cost. The new guidance will be effective for private companies beginning in 2019, except for a certain provision in the standard that is early adoptable. LOOP early adopted the ASU provision permitting the omission of fair value disclosures for financial instruments at amortized cost in these financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. The new guidance will be effective in 2020 for private companies, with early adoption permitted. LOOP has not yet determined the potential effects on the financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash equivalents. The new guidance will be effective in 2018 for private companies, with early adoption permitted. LOOP has not yet determined the potential effects on the financial statements.


3.    Property, Plant, and Equipment

As of December 31, 2016 and 2015, gross property, plant, and equipment consisted of the following:
(in thousands)
 
2016
 
2015
Land, leases, and rights of way
 
$
13,362

 
$
13,362

Buildings
 
77,755

 
75,089

Equipment and communications systems
 
33,499

 
31,538

Storage caverns and tanks
 
610,191

 
546,747

Delivery equipment
 
795,476

 
773,382

Furniture, fixtures, and other
 
29,864

 
29,810

Construction in progress
 
56,257

 
62,720

Total property, plant, and equipment
 
$
1,616,404

 
$
1,532,648

Accumulated depreciation
 
805,276

 
784,522

Net property, plant, and equipment
 
$
811,128

 
$
748,126


Total assets depreciated under the straight-line method have an original cost of approximately $163,521,000 and $167,367,000 at December 31, 2016 and 2015, respectively, and are depreciated over useful lives ranging from 5 to 25 years, with the exception of the Northpark headquarters, which is depreciated over 50 years. The remaining assets are depreciated under the UTD method. At current throughput levels, the remaining depreciable life is approximately 22 years as of December 31, 2016. Interest capitalized was approximately $1,680,000 and $449,000 in 2016 and 2015, respectively.

12

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


Asset Retirement Obligations
The following table reconciles the beginning and ending aggregate recorded amount of the asset retirement obligations as of December 31, 2016 and 2015:
(in thousands)
 
Asset Retirement Obligation
December 31, 2014
 
$
6,901

Change in estimate
 
8,569

Accretion expense
 
2,141

December 31, 2015
 
17,611

Change in estimate
 

Accretion expense
 
1,308

December 31, 2016
 
$
18,919



13

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


4.    Long-Term Debt and Financing Arrangements

The Louisiana Offshore Terminal Authority (the Authority) issued Deepwater Port Revenue Bonds
(the Bonds) for the benefit of LOOP as indicated below:

(in thousands)
Series
 
Maturity Date
 
Average Interest Rates for 2016
 
Date of Mandatory Put
 
Outstanding as of December 31, 2016
1997A
 
September 1, 2017
 
1.10
%
 
N/A
 
$
24,710

1999
 
October 1, 2019
 
*

 
N/A
 
24,605

2001
 
October 1, 2021
 
*

 
N/A
 
23,255

2003D
 
September 1, 2023
 
*

 
N/A
 
22,520

2007A
 
September 1, 2027
 
0.86
%
 
N/A
 
81,020

2007B1A1
 
October 1, 2037
 
*

 
N/A
 
20,000

2007B1A2
 
October 1, 2037
 
*

 
N/A
 
20,000

2007B1B
 
October 1, 2037
 
*

 
N/A
 
20,000

2007B2A1
 
October 1, 2037
 
1.7
%
 
October 1, 2019
 
30,000

2007B2A2
 
October 1, 2037
 
*

 
N/A
 
10,000

2007B2B
 
October 1, 2037
 
*

 
N/A
 
20,000

2010A
 
October 1, 2018
 
3.95
%
 
October 1, 2018
 
22,980

2010B-1
 
October 1, 2040
 
2.2
%
 
October 1, 2017
 
70,000

2010B-2
 
October 1, 2040
 
*

 
N/A
 
30,000

2012
 
October 1, 2020
 
*

 
N/A
 
22,345

2013A
 
September 1, 2033
 
0.97
%
 
N/A
 
56,550

2013B
 
September 1, 2033
 
1.18
%
 
N/A
 
43,450

2013C
 
September 1, 2034
 
0.97
%
 
N/A
 
37,960

 
 
 
 
 
 
 
 
$
579,395

 
 
*Less Treasury bonds held by LOOP
 
 
 
(212,725
)
 
 
Total debt
 
 
 
$
366,670

 
 
Less amount due within one year
 
 
 
(94,710
)
 
 
Less issuance costs
 
 
 
(1,944
)
 
 
 
 
Total long-term debt
 
$
270,016


Concurrent with the issuance of the Bonds, the Authority placed the proceeds with a trustee in exchange for promissory notes issued by LOOP. The promissory notes are pledged by the Authority to the trustee as security for the Bonds which are collateralized by assignment of certain of LOOP’s rights to receive payments under the T&D except for Series 1999, 2001, 2003D, 2007B 2010A, and 2010B-1&2 Bonds. The Series 1999, 2001, 2007B, and 2010A, B-1&2 Bonds were issued on an unsecured basis. The rights to receive payments under the T&D for the Series 2003D Bonds were released in 2009 as the Series 2003D Bonds are held as Treasury Bonds.


14

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


The terms of the promissory notes require future payments to the trustee for principal payments and/or payments into a sinking fund of the following amounts:
(in thousands)
 
Annual Amount
 
Years
 
 
 
2017
 
$
94,710

*
2018
 
22,980

 
2019
 

 
2020
 

 
Thereafter
 
248,980

 
 
 
$
366,670

 

* The 2017 amount includes $70 million in Series 2010B1 Bonds that mature in 2040; however, are to be remarketed on October 1, 2017, thus are classified as a current liability. Series 1997A Bonds mature on September 1, 2017 and are also classified current.

The Series 1997A, 1999, 2001, 2003D, 2007A, 2007B1A1, 2007B1B, 2007B2A2, 2007B2B, 2007B1B2, 2010B-2, and Series 2013A, B, and C Bonds are redeemable by LOOP, in whole or in part, on any interest payment date at a redemption price equal to the principal amount of the Bonds plus accrued interest. These Bonds are redeemable on any interest payment date after the applicable no-call period (measured from the fixed rate conversion date, as defined in the Bond documents) with a premium of 1% for 1997A, 2007A,2007B1A1,2007B1B, 2007B2A2, 2007B2B, 2007B1B2, and 2013A, B, and C Bonds should they be converted to a multiannual (the interest rate is fixed for a period of one or more years, as defined in the Bond documents) or Fixed Rate Mode, as defined in the Bond documents.

All Bonds are redeemable by LOOP if any extraordinary event as described in the indenture occurs. Interest on the Series 1997A, 1999, 2001, 2003D, 2007A, 2007B1B, 2007B2A2, 2007B2B, 2007B1B2, 2010B-2, and 2013A, B, and C Bonds is variable and is calculated and paid as described in the indenture. Interest payment dates for the Series 2007B and 2010A, B-1&2 Bonds are April 1 and October 1 of each year.

The Series 1997A, 1999, 2001, 2003D, 2007A, 2007B1B, 2007B2B, 2007B1B2, 2007B2A2, 2010B-2, and 2013 A, B, and C Bonds may be redeemed at the option of the bondholders on any remarketing date, as defined in the indenture, in which case, replacement Bonds are to be sold by the Remarketing Agent. For Series 1997A and 2013B any principal payments required prior to maturity would first be supported by an irrevocable letter of credit, and if not remarketed by the maturity of the irrevocable letter of credit, by the T&D. Any principal payments required prior to maturity on the Series 2007A and 2013A and C would be supported by the T&D. The Series 1999, 2001, 2003D, 2007B1A1, 2007B1B, 2007B2A2, 2007B2B, 2007B1B2, 2010B-2, and 2012 Bonds which are held as Treasury Bonds are not supported by the T&D.

LOOP currently has two irrevocable letters of credit securing outstanding or contingent obligations. The first letter of credit with a commitment of approximately $25,116,000 provides security for the Series 1997A Bonds and expires on March 31, 2018. The second letter of credit with a commitment of approximately $44,164,000 provides security for the Series 2013B Bonds and expires on August 31, 2019. LOOP also has a $50,000,000 committed line of credit for general corporate purposes. The line of credit expires on December 31, 2017. There were no amounts outstanding on the line of credit at December 31, 2016 and 2015. The credit facilities mentioned above are collateralized by the assignment of certain of LOOP’s rights to receive payments under the T&D (Note 1).

Cash paid for interest was approximately $5,287,000, $5,089,000, and $5,750,000 in 2016, 2015 and 2014, respectively.


15

LOOP LLC
Balance Sheets
Years Ended December 31, 2016 and 2015


5.    Related-Party Transactions

Revenues from owners and owner affiliates were approximately $119,209,000, $113,014,000, and $143,814,000 for 2016, 2015 and 2014, respectively. Expenses relating to oil exchange transactions with owner affiliates were approximately $1,606,000, $0 and $0 in 2016, 2015 and 2014, respectively.

LOOP receives a management fee under its contract to manage the operations of LOCAP. The contract is extended automatically from year-to-year unless terminated by either LOCAP or LOOP. LOCAP is the largest pipeline of LOOP’s three outbound connecting carriers and handled 73% of LOOP’s deliveries in 2016, 74% in 2015 and 76% in 2014. Two of LOOP’s owners are also owners of LOCAP. LOOP also receives a management fee under a terminalling agreement for the storage of MARS Oil Pipeline Company crude oil, which is automatically renewed.

6.    Employees’ Pension and Other Postretirement Benefits

LOOP sponsors defined benefit pension plans, which cover all employees of LOOP. Benefits for retired employees are based on the average of their highest 36 consecutive months’ earnings in the 120 months preceding retirement. Benefits for active employees are based on their average earnings for the 36 consecutive months preceding the valuation date. In addition, LOOP provides postretirement healthcare and life insurance benefits to all retired employees.

FASB ASC Topic 715, Compensation Retirement Benefits, requires, among other things, the recognition of the funded status of each defined benefit plan, retiree healthcare and other post- retirement benefit plans, and postemployment benefit plans on the balance sheet. Each over funded plan is recognized as an asset and each underfunded plan is recognized as a liability. The initial impact of the standard due to unrecognized prior service costs or credits and net actuarial gains or losses as well as subsequent changes in the funded status is recognized as a component of accumulated comprehensive loss in owners’ equity.


16

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


The following table sets forth the plans’ benefit obligations, fair value of plan assets, and funded status at December 31, 2016 and 2015:

(in thousands)
 
Pension benefits
 
Other Postretirement Benefits
 
 
2016
 
2015
 
2016
 
2015
Change in projected benefit obligation
 
 
 
 
 
 
 
 
Benefit obligation at January 1
 
$
85,118

 
$
87,607

 
$
15,201

 
$
14,715

Service cost
 
3,164

 
3,424

 
613

 
619

Interest cost
 
3,810

 
3,665

 
664

 
604

Participant contributions
 

 

 
192

 
182

Actuarial (gain) loss
 
4,847

 
(7,180
)
 
441

 
(402
)
Benefit payments
 
(2,662
)
 
(2,398
)
 
(489
)
 
(517
)
Benefit obligation at December 31
 
$
94,277

 
$
85,118

 
$
16,622

 
$
15,201

Accumulated benefit obligation
 
$
80,439

 
$
73,003

 
$

 
$

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at January 1
 
$
63,015

 
$
60,626

 
$

 
$

Actual return on plan assets
 
6,693

 
656

 

 

Employer contributions
 
4,231

 
4,131

 
297

 
335

Participant contributions
 

 

 
192

 
182

Benefit payments
 
(2,662
)
 
(2,398
)
 
(489
)
 
(517
)
Fair value of plan assets at December 31
 
$
71,277

 
$
63,015

 
$

 
$

Funded status of plans
 
$
(23,000
)
 
$
(22,103
)
 
$
(16,622
)
 
$
(15,201
)
Amounts recognized in the balance sheet
 
 
 
 
 
 
 
 
Current assets
 
$

 
$

 
$

 
$

Noncurrent asset
 

 

 

 

Current liability
 
30

 
20

 
476

 
476

Noncurrent liability
 
22,971

 
22,083

 
16,146

 
14,725

Accumulated other comprehensive loss
 
28,734

 
27,658

 
2,694

 
2,320



17

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


Components of net periodic retirement and other post-retirement benefits expense consisted of the following:

(in thousands)
 
2016
 
2015
 
2014
Pension plans
 
 
 
 
 
 
Service cost
 
$
3,164

 
$
3,424

 
$
2,942

Interest cost
 
3,810

 
3,665

 
3,409

Expected return on assets
 
(4,795
)
 
(4,456
)
 
(4,071
)
Amortization of prior service cost
 

 

 

Amortization of actuarial loss
 
1,873

 
2,211

 
1,550

Net periodic pension cost
 
4,052

 
4,844

 
3,830

Other postretirement plans
 
 
 
 
 
 
Service cost
 
613

 
619

 
497

Interest cost
 
664

 
604

 
551

Expected return on assets
 

 

 

Amortization of prior service cost
 

 

 

Amortization of actuarial loss
 
68

 
74

 

Net other postretirement plans cost
 
$
1,345

 
$
1,297

 
$
1,048


Amounts recognized in accumulated comprehensive loss were as follows:
(in thousands)
 
Pension benefits
 
Other Postretirement Benefits
 
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Net actuarial loss
 
$
(28,734
)
 
$
(27,658
)
 
$
(33,249
)
 
$
(2,694
)
 
$
(2,320
)
 
$
(2,796
)

Net periodic benefit cost recognized and other changes in plan assets and benefit obligations recognized in accumulated other comprehensive loss in 2016, 2015, and 2014 were as follows:

(in thousands)
 
Pension benefits
 
Other Postretirement Benefits
 
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Net periodic benefit cost recognized
 
$
6,974

 
$
7,089

 
$
6,351

 
$
1,277

1,223

$
1,223

1,048

$
1,048

Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
Expected return on plan assets
 
(4,795
)
 
(4,456
)
 
(4,071
)
 

 

 

Net actuarial loss
 
1,873

 
2,211

 
1,550

 
68

 
74

 

Total recognized in accumulated other comprehensive income
 
(2,922
)
 
(2,245
)
 
(2,521
)
 
68

 
74

 

Total recognized in net periodic benefit cost and accumulated other comprehensive income
 
$
4,052

 
$
4,844

 
$
3,830

 
$
1,345

 
$
1,297

 
$
1,048



18

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


The net loss and prior service cost for the defined benefit pension plan expected to be recognized from accumulated other comprehensive loss into net periodic benefit cost in 2017 are $1,839,406 and $0, respectively. The net loss for the defined other postretirement benefit plans expected to be recognized from accumulated other comprehensive loss into net periodic benefit cost in 2017 is $79,470. Weighted average assumptions used to determine the benefit obligations for 2016 and 2015 were as follows:
(in thousands)
 
Pension benefits
 
Other Postretirement Benefits
 
 
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Weighted average assumptions December 31
 
 
 
 
 
 
 
 
 
 
 
 
Discount Rate - Retirement plan
 
4.16%
 
4.46%
 
4.21%
 
4.20%
 
4.51%
 
4.30%
Discount rate - Supplemental retirement plan
 
4.01%
 
4.46%
 
4.21%
 
 
 
 
 
 
Expected return on plan assets
 
7.50%
 
7.50%
 
7.50%
 
N/A
 
N/A
 
N/A
Rate of compensation increase - Retirement plan/Postretirement plan
 
4.50%
 
4.50%
 
5.00%
 
4.50%
 
4.50%
 
4.50%
Rate of compensation increase - Supplemental retirement plan
 
5.00%
 
5.00%
 
5.00%
 

 

 

Healthcare cost trend rate
 
N/A
 
N/A
 
N/A
 
7.50%
 
5.60%
 
8.00%
Rate to which cost trend declines
 
N/A
 
N/A
 
N/A
 
5.00%
 
5.00%
 
5.00%
Year rate reaches ultimate trend rate
 
 
 
 
2021
 
2021
 
2020

LOOP’s overall expected long-term return on plan assets is 7.5%. The long-term rate of return is determined by using the weighted average of historical real returns for major asset classes based on target asset allocations. The result is then adjusted for the inflation assumption.

LOOP’s overall investment strategy is to achieve a mix of investments with a diversification of asset types. The Plan’s investment strategy will evolve from an objective of maximizing asset returns toward a dynamic liability driven investment (LDI) strategy as the Plan’s funded status improves. The objective is to more closely align the Plan’s assets with its liabilities in terms of how both respond to interest rate changes. In order to achieve the asset allocation appropriate for a dynamic LDI strategy, the following factors will be considered:

1. The Plan’s assets will effectively be divided into two investment categories:

The “LDI” category – comprised primarily of U.S. Treasury STRIPs, Bonds, Notes, and investment grade fixed income investments designed to closely track the Plan’s liability duration sensitivity.

The “Return Seeking” category – comprised of a mix of traditional and alternative asset classes.

2. The Administrative Committee intends to continuously reduce the assets allocated to the “Return Seeking” category, thereby increasing the assets allocated to the “LDI” category based on the overall improvement in the Plan’s funded status reaching the following targets:

Funded Status Target (FST)
 
<85%
 
85–90%
 
90–95%
 
>95%
Equity +/-5%
 
65
%
 
60
%
 
55
%
 
50
%
Fixed income +/-5%
 
35

 
40

 
45

 
50


Money market instruments are included in the Fixed Income portion of the asset allocation and will generally represent 2% of portfolio assets to meet ongoing liquidity needs.

19

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014



The Plan’s equity allocation is divided with allocation Targets and allowed Ranges as follows:

 
 
Minimum Percentage
 
Target Percentage
 
Maximum Percentage
Large Cap
 
42
%
 
62
%
 
82
%
Mid Cap
 
7

 
15

 
23

Small Cap
 
4

 
8

 
12

Non-U.S.
 
7

 
15

 
23

Equities
 
 
 
100
%
 
 

The asset allocations of LOOP’s benefit plans as of December 31, 2016 were as follows:

(in thousands)
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Short-term investment fund (a)
 
525

 

 

 
525

Mutual funds (b)
 
578

 

 

 
578

Subtotal
 
$
1,103

 
$

 
$

 
$
1,103

 
 
 
 
 
 
 
 
 
Common/collective trust funds (c)
 
 
 
 
 
 
 
 
S&P 500 index
 
 
 
 
 
 
 
$
6,970

Liability driven investment
 
 
 
 
 
 
 
6,049

Midcap index
 
 
 
 
 
 
 
24,641

International equity index
 
 
 
 
 
 
 
3,659

Small cap index
 
 
 
 
 
 
 
28,855

Subtotal
 
 
 
 
 
 
 
$
70,174

Total Assets
 
 
 
 
 
 
 
$
71,277



20

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


The asset allocations of LOOP’s benefit plans as of December 31, 2015 were as follows:
(in thousands)
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total
Common/collective trust funds (a)
 
$

 
$
6,094

 
$

 
$
6,094

Midcap index
 
 
 
5,229

 
 
 
5,229

International equity index
 
 
 
21,731

 
 
 
21,731

Liability driven investment
 
 
 
3,532

 
 
 
3,532

Small cap index
 
 
 
25,155

 
 
 
25,155

S&P 500 index
 
 
 
 
 
 
 

Short-term investment fund (b)
 
791

 
 
 
 
 
791

Mutual funds (c)
 
482

 
 
 
 
 
482

Total Assets
 
$
1,273

 
$
61,741

 
$

 
$
63,014


(a) Short-term investment fund

The short-term investment fund is valued as of the closing price each day based on the assets held by the fund and are deemed to be actively traded and are, therefore, categorized in Level 1 of the fair value hierarchy.

(b) Mutual funds

The shares of mutual funds are actively traded and valued using quoted prices for identical securities from the market exchanges. Mutual funds are categorized in Level 1 of the fair value hierarchy.

(c) Common/collective trust funds

The common/collective trust funds (CCTs) are valued based on the quoted redemption value of units owned by the defined benefit pension plan at year-end. Investments that are measured using the net asset value (NAV) per share practical expedient have not been categorized in the fair value hierarchy.


The asset allocations of LOOP’s benefit plans as of December 31, 2016 and December 31, 2015 were as follows:
 
 
Plan Assets in Percentage
 
 
Asset Category
 
2016
 
2015
 
Target Allocation
Equity securities
 
65
%
 
64
%
 
30%-65%
Fixed income
 
34

 
35

 
30%-70%
Cash
 
1

 
1

 
0%-25%
 
 
100
%
 
100
%
 
 

LOOP appoints members of a Committee, which is the named fiduciary of the plan. The members of the Committee establish policy for trust funding and plan administration. This Committee is authorized to appoint, discharge, and replace investment advisors and plan trustees. The Committee determines the plan’s short and long-term financial needs regarding assets and communicates them to the Trustee at least annually. The Trustee has exclusive discretion to manage and control actual plan assets in accordance with the plan’s asset allocation policy.


21

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


LOOP’s pension and postretirement plans use a measurement date of December 31.

(in thousands)
 
Pension benefits
 
Other Postretirement Benefits
 
 
2016
 
2015
 
2016
 
2015
Benefit cost
 
$
4,052

 
$
4,844

 
$
1,345

 
$
1,297

Employer contributions
 
4,231

 
4,131

 
297

 
335

Participant contributions
 

 

 
192

 
182

Benefits paid
 
2,662

 
2,398

 
489

 
517


LOOP expects to contribute approximately $4,000,000 ($333,333 per month) to its pension plans in 2017, which is in excess of its minimum funding requirement of $0.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

(in thousands)
 
Pension Benefits
 
Other Benefits
2017
 
$
3,009

 
$
476

2018
 
3,566

 
532

2019
 
3,798

 
556

2020
 
3,987

 
622

2021
 
4,323

 
658

Years 2022-2026
 
25,228

 
3,949


LOOP also sponsors a Savings Plan to assist eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 7% of their earnings) are matched by LOOP at a rate of 100%. LOOP’s contributions to the Savings Plan were $1,555,000, $1,431,000, and $1,357,000 in 2016, 2015 and 2014 respectively.

7.    Leases

Certain land and vessels are leased. Except for the land lease for the headquarters office building, all leases are operating leases and were entered into in the normal course of business. Each has varying terms, renewal options, and escalation provisions. In 2007, LOOP entered into a 25-year lease in the Northpark Business Park in Covington, Louisiana for the land on which the headquarters’ office building was constructed in 2009, with option to extend for an additional 50 years. LOOP capitalized this lease obligation. The lease provides an option for LOOP to purchase the land after 10 years, which obligates the lessor to sell the land. The parties have agreed that LOOP will purchase the land in March 2017.

LOOP has eight underground salt dome storage caverns at Clovelly Hub. The land for the underground storage caverns are leased from two major oil companies, one of which is an owner of LOOP. The primary lease term is 30 years with an option to renew for two additional 10-year periods. The annual rental is based on storage capacity and a per-barrel fee, and is adjusted annually per changes in storage capacity and the Consumer Price Index. LOOP may cancel the lease at any time by paying a $20,000 cancellation fee.


22

LOOP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


LOOP had total operating lease and rental expenses of $21,016,000, $20,496,000, and $19,185,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Of these amounts, operating leases for marine terminal support services were approximately $18,040,000, $17,666,000, and $16,437,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Future minimum lease payments under non-cancellable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital lease payments as of December 31, 2016 are as follows:

(in thousands)
 
Capital Leases
 
Operating Leases
2017
 
$
2,000

 
$
2,946

2018
 

 
3,066

2019
 

 
3,190

2020
 

 
3,223

2021
 

 
3,287

Thereafter
 

 
22,891

Total minimum lease payments
 
$
2,000

 
$
38,603


8.    Subsequent Events

LOOP has evaluated all events that occurred prior to February 10, 2017, the date of issuance of LOOP’s financial statements, and has determined that there are no other subsequent events that require disclosure.


23





LOOP LLC
Condensed Financial Statements
As of June 30, 2017




LOOP LLC
Index of Condensed Financial Statements








Page(s)


Financial Statements

Condensed Balance Sheets at June 30, 2017 and December 31, 2016............................................... 2

Condensed Statements of Income for the Six Months Ended June 30, 2017 and 2016........................ 3

Condensed Statements of Comprehensive Income for the Six Months Ended June 30, 2017
and 2016 ................................................................................................................................................ 4

Condensed Statements of Changes in Members’ Equity for the Six Months Ended June 30, 2017
and 2016 ................................................................................................................................................ 5

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 ................ 6

Notes to Condensed Financial Statements........................................................................................ 7–12


1

LOOP LLC
Condensed Balance Sheets (Unaudited)
June 30, 2017 and December 31, 2016


 
 
June 30, 2017
 
December 31, 2016
Assets
 
 
 
 
Current assets
 
 
 
 
Cash and cash equivalents
 
$
48,533,474

 
$
27,438,056

Receivables from affiliates
 
12,101,595

 
11,002,371

Receivables from nonaffiliates
 
11,245,949

 
10,595,533

Materials and supplies
 
15,799,856

 
15,189,596

Prepayments
 
7,898,248

 
6,159,982

Restricted cash
 
1,904,000

 
8,384,000

Oil inventory
 
31,069,730

 
37,902,796

Total current assets
 
128,552,852

 
116,672,334

Property, plant and equipment net of accumulated depreciation and amortization
 
776,505,687

 
754,871,328

Construction in progress
 
40,064,998

 
56,256,759

Net property, plant and equipment
 
816,570,685

 
811,128,087

Other assets
 
147,296

 
153,319

Total Assets
 
$
945,270,833

 
$
927,953,740

Liabilities and Members' Equity
 
 
 
 
Current liabilities
 
 
 
 
Accounts payable and accrued expenses
 
$
16,338,242

 
$
25,124,185

Deferred revenue
 
3,210,250

 
6,523,000

Interest payable
 
1,223,334

 
1,290,742

Current maturities of long-term debt
 
94,710,000

 
94,710,000

Total current liabilities
 
115,481,826

 
127,647,927

Noncurrent Liabilities
 
 
 
 
Long-term debt
 
270,096,172

 
270,016,077

Pension and benefits
 
43,083,908

 
40,226,441

Asset retirement obligation
 
19,659,750

 
18,919,413

Deferred revenue
 
1,530,243

 
1,643,674

Other
 
5,352,926

 
5,378,504

Total noncurrent liabilities
 
339,722,999

 
336,184,109

Members' equity
 
490,066,008

 
464,121,704

Total Liabilities and Members' Equity
 
$
945,270,833

 
$
927,953,740











The accompanying notes are an integral part of these condensed financial statements.

2

LOOP LLC
Condensed Statements of Income (Unaudited)
June 30, 2017 and 2016

 
 
Six Months Ended June 30,
 
 
2017
 
2016
Operating revenues
 
 
 
 
Offloading
 
$
42,336,952

 
$
50,708,383

Pipeline receipts
 
28,916,712

 
23,997,014

Tank storage fees
 
27,196,340

 
22,530,000

Cavern storage fees
 
24,426,151

 
17,239,354

Storage futures trading
 
14,075,629

 
8,166,273

Port fees, blending, and incidental
 
4,294,238

 
4,749,722

Allowance oil
 
13,476,935

 
6,195,225

Management fees
 
2,312,543

 
2,226,257

Total Operating Revenues ( Affiliate revenue was approximately $69,567,000 and $59,957,000 in 2017 and 2016, respectively )
 
157,035,500

 
135,812,228

Operating expenses

Salaries and wages
 
 
 
 
Salaries and wages
 
13,698,506

 
12,895,713

Materials and supplies
 
2,580,340

 
2,601,019

Outside services
 
27,206,757

 
26,810,987

Fuel and power
 
4,918,666

 
4,830,826

Maintenance materials
 
1,396,992

 
2,322,261

Rentals
 
5,761,117

 
5,609,610

Oil loss allowance
 
348,305

 
1,860,369

Depreciation, amortization, and accretion
 
12,162,085

 
12,024,569

Pension and benefits
 
5,158,606

 
5,261,043

Insurance and uninsured losses
 
945,894

 
955,801

Taxes - other than income
 
2,536,411

 
2,357,480

Total operating expenses ( Affiliate expense was $0 for 2017 and 2016, respectively )
 
76,713,679

 
77,529,678

Income from operations
 
80,321,821

 
58,282,550

Interest and other
 
 
 
 
Other income
 
1,358,184

 
1,089,941

Interest income
 
65,583

 
94,006

Interest expense
 
(3,301,284
)
 
(2,409,938
)
Net interest expense and other
 
(1,877,517
)
 
(1,225,991
)
Net income
 
$
78,444,304

 
$
57,056,559

 
 
 
 
 




The accompanying notes are an integral part of these condensed financial statements.


3

LOOP LLC
Condensed Statements of Comprehensive Income (Unaudited)
June 30, 2017 and 2016


 
 
Six Months Ended June 30,
 
 
2017
 
2016
Net income
 
$
78,444,304

 
$
57,056,559

Other comprehensive income
 
 
 
 
Pension and postretirement benefits adjustments
 
(995,730
)
 
(724,962
)
Comprehensive income
 
$
77,448,574

 
$
56,331,597







































The accompanying notes are an integral part of these condensed financial statements.

4

LOOP LLC
Condensed Statements of Changes in Members' Equity (Unaudited)
June 30, 2017 and 2016



 
 
Six Months Ended June 30,
 
 
2017
 
2016
Members' equity
 
 
 
 
Balances at beginning of year
 
$
464,121,704

 
$
419,664,718

Net income
 
78,444,304

 
57,056,559

Members' distributions
 
(52,500,000
)
 
(32,500,000
)
Balances at June 30
 
490,066,008

 
444,221,277





































The accompanying notes are an integral part of these condensed financial statements.


5

LOOP LLC
Condensed Statements of Cash Flows (Unaudited)
June 30, 2017 and 2016

 
 
Six Months Ended June 30,
 
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
Net income
 
$
78,444,304

 
$
57,056,559

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Depreciation, amortization, and accretion
 
12,242,180

 
12,024,569

Pension and benefits
 
2,857,467

 
2,985,434

Changes in operating assets and liabilities
 
 
 
 
Receivables from affiliates
 
(1,099,224
)
 
3,895,899

Receivables from nonaffiliates
 
(650,416
)
 
(609,649
)
Materials and supplies
 
(610,260
)
 
(668,269
)
Prepayments
 
(1,738,266
)
 
127,492

Other assets
 
6,023

 
93,276

Oil inventory
 
6,833,066

 
(4,544,856
)
Deferred revenue
 
(3,426,181
)
 
2,288,937

Accounts payable and accrued expenses
 
(6,582,094
)
 
1,291,398

Other noncurrent liabilities
 
714,759

 
556,240

Interest payable
 
(67,408
)
 
32,602

Net cash provided by operating activities
 
86,923,950

 
74,529,632

Cash flows from investing activities
 
 
 
 
Capital expenditures
 
(19,808,532
)
 
(61,916,630
)
Increase in restricted cash
 
6,480,000

 
(6,071,000
)
Net cash used in investing activities
 
(13,328,532
)
 
(67,987,630
)
Cash flows from financing activities
 
 
 
 
Members' distributions
 
(52,500,000
)
 
(32,500,000
)
Net cash used in financing activities
 
(52,500,000
)
 
(32,500,000
)
Net increase (decrease) in cash and cash equivalents
 
21,095,418

 
(25,957,998
)
Cash and cash equivalents
 
 
 
 
Beginning of period
 
27,438,056

 
53,042,282

End of period
 
$
48,533,474

 
$
27,084,284

Noncash transactions
 
 
 
 
Capital expenditures in accounts payable and accrued expenses, net
 
$
(2,203,848
)
 
$
(159,486
)
 
 
 
 
 








The accompanying notes are an integral part of these condensed financial statements.

6

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016


1.    Organization, Operations and Ownership

Organization and Operations
LOOP LLC (LOOP), headquartered in Covington, Louisiana, owns and operates midstream crude oil infrastructure, including a deep water oil port offshore of Louisiana, pipelines, and onshore storage facilities. The deep water oil port offloads crude oil from crude carrying marine vessels destined for onshore storage and pipeline transport to the LOCAP LLC (LOCAP), an affiliate pipeline system, and other connecting carriers for onward delivery to refineries on the United States of America’s (U.S.) Gulf Coast and the Midwest regions. Additionally, LOOP receives and stores oil for onward transport from various other pipeline connections, and manages the operations of LOCAP. LOOP also offers future period cavern storage capacity through auction, providing market participants with the right to store barrels of LOOP Sour Crude at one of their onshore storage facilities for a specific calendar month.

Ownership
Under the Limited Liability Company Agreement and the First Stage Throughput and Deficiency Agreement (T&D), as amended, each owner, as listed below, is obligated in accordance with its ownership percentage to ship oil through LOOP’s midstream crude oil infrastructure in quantities sufficient for LOOP to pay certain of its expenses and obligations, including LOOP’s long-term debt secured by the T&D, or to make cash payments to LOOP for which they receive credit for future throughput. At December 31, 2016 and 2015, the ownership of LOOP and the associated T&D obligations were as follows:

 
 
Ownership
 
T&D Obligation
Marathon Petroleum Company LP
 
10.0
%
 
50.7
%
MPL Louisiana Holdings LLC
 
40.7

 
*

Valero Terminaling and Distribution Company
 
3.2

 
3.2

Shell Oil Company
 
19.5

 
46.1

Shell Pipeline Company LP
 
26.6

 
**

 
 
100.0
%
 
100.0
%
* The T&D obligor is Marathon Petroleum Company LP.
 
 
** The T&D obligor is Shell Oil Company.
 
 
 
 
 
 
 
 
 

2.    Summary of Significant Accounting Policies

Basis of Accounting
The condensed financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) which provide for reduced disclosure for interim periods. These condensed financial statements, including the year-end balance sheet data that was derived from audited financial statements, do not include all necessary disclosures required by U.S. GAAP for annual financial statements.

In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair presentation of our results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each interim period of the year. Our results of operations for the six months ended June 30, 2017 are not necessarily indicative of results expected for the full year of 2017. For a more complete discussion of the Company’s significant accounting policies and

7

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016

other information, you should read our most recent audited financial statements as of December 31, 2016, which includes all disclosures required by U.S. GAAP.

Allowance Oil Revenue, Oil Loss Allowance, and Oil Inventory
As of June 30, 2017, 400,000 barrels of oil were sold, for which a gain of $5,844,000 was recorded to Allowance oil revenue.

There have been no comprehensive inventory measurements and related adjustments recorded for the six months ended June 30, 2017.

Receivables
There was no allowance for doubtful accounts as of June 30, 2017 and December 31, 2016.

Recent Accounting Pronouncements
In March 2017, the FASB issued accounting guidance that changes the presentation of net periodic pension and postretirement benefit cost (“net benefit cost”) in the income statement. This new guidance requires service cost to be presented as part of operating income (expense) and all other components of net benefit cost are to be shown outside of operations. This guidance will be effective for periods beginning after December 15, 2018, including interim periods within those fiscal years, and is to be applied on a retrospective basis. Early adoption is permitted as of the beginning of an annual period for which an entity’s financial statements have not been issued or made available for issuance. We do not expect this guidance to have a significant impact on our financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. The new guidance will be effective in 2020 for private companies, with early adoption permitted. LOOP has not yet determined the potential effects on the financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this Update do not provide a definition of restricted cash or restricted cash equivalents. The new guidance will be effective in 2018 for private companies, with early adoption permitted. LOOP has not yet determined the potential effects on the financial statements.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. ASU
2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. ASU 2015-11 applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. ASU 2015-11 is effective for public companies for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption of ASU 2015-11 is permitted. We are currently evaluating ASU 2015-11 to determine if this guidance will have a material impact.


8

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 related to recognition of revenue based upon an entity’s contracts with customers to transfer goods or services. Under the new standard update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2019. LOOP is currently evaluating the impact of this accounting standard update on the financial statements.

3. Property, Plant, and Equipment

As of June 30, 2017 and December 31, 2016, gross property, plant, and equipment was as follows:

(in thousands)
 
June 30, 2017
 
December 31, 2016
Land, leases, and rights of way
 
$
13,362

 
$
13,362

Buildings
 
77,755

 
77,755

Equipment and communications systems
 
35,344

 
33,499

Storage caverns and tanks
 
638,219

 
610,191

Delivery equipment
 
798,218

 
795,476

Furniture, fixtures, and other
 
29,940

 
29,864

Construction in progress
 
40,065

 
56,257

Total property, plant, and equipment
 
$
1,632,903

 
$
1,616,404

Accumulated depreciation
 
816,333

 
805,276

Net property, plant, and equipment
 
$
816,570

 
$
811,128


Total assets depreciated under the straight-line method have an original cost of approximately $165,413,000 and $163,521,000 at June 30, 2017 and December 31, 2016, respectively, and are depreciated over useful lives ranging from 5 to 25 years, with the exception of the Northpark headquarters, which is depreciated over 50 years. The remaining assets are depreciated under the UTD method. At current throughput levels, the remaining depreciable life is approximately 22 years as of June 30, 2017. Interest capitalized was approximately $190,000 and $804,000 as of June 30, 2017 and, 2016, respectively.

Asset Retirement Obligations

The following table reconciles the beginning and ending aggregate recorded amount of the asset retirement obligations as of June 30, 2017 and 2016:
(in thousands)
 
Asset Retirement Obligation
December 31, 2015
 
$
17,611

Change in estimate
 

Accretion expense
 
622

June 30, 2016
 
$
18,233

 
 
 
December 31, 2016
 
$
18,919

Change in estimate
 

Accretion expense
 
741

June 30, 2017
 
$
19,660


9

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016

4.    Long-Term Debt and Financing Arrangements

The Louisiana Offshore Terminal Authority (the Authority) issued Deepwater Port Revenue Bonds
(the Bonds) for the benefit of LOOP as indicated below:

(in thousands)
Series
 
Maturity Date
 
Date of Mandatory Put
 
Outstanding as of June 30, 2017
1997A
 
September 1, 2017
 
N/A
 
$
24,710

1999
*
October 1, 2019
 
N/A
 
24,605

2001
*
October 1, 2021
 
N/A
 
23,255

2003D
*
September 1, 2023
 
N/A
 
22,520

2007A
 
September 1, 2027
 
N/A
 
81,020

2007B1A1
*
October 1, 2037
 
N/A
 
20,000

2007B1B
*
October 1, 2037
 
N/A
 
20,000

2007B1B2
*
October 1, 2037
 
N/A
 
20,000

2007B2A1
 
October 1, 2037
 
October 1, 2019
 
30,000

2007B2A2
*
October 1, 2037
 
N/A
 
10,000

2007B2B
*
October 1, 2037
 
N/A
 
20,000

2010A
 
October 1, 2018
 
October 1, 2018
 
22,980

2010B-1
 
October 1, 2040
 
October 1, 2017
 
70,000

2010B-2
*
October 1, 2040
 
N/A
 
30,000

2012
*
October 1, 2020
 
N/A
 
22,345

2013A
 
September 1, 2033
 
N/A
 
56,550

2013B
 
September 1, 2033
 
N/A
 
43,450

2013C
 
September 1, 2034
 
N/A
 
37,960

 
 
 
 
 
 
$
579,395

 
 
*Less Treasury bonds held by LOOP
 
(212,725
)
 
 
Total debt
 
$
366,670

 
 
Less amount due within one year
 
(94,710
)
 
 
Less issuance costs
 
(1,866
)
 
 
 
 
$
270,094


LOOP currently has two irrevocable letters of credit securing outstanding or contingent obligations. The first letter of credit with a commitment of approximately $25,116,000 provides security for the Series 1997A Bonds and expires on March 31, 2018. The second letter of credit with a commitment of approximately $44,164,000 provides security for the Series 2013B Bonds and expires on August 31, 2019. LOOP also has a $50,000,000 committed line of credit for general corporate purposes. The line of credit expires on December 31, 2017. There were no amounts outstanding on the line of credit at June 30, 2017 and December 31, 2016. The credit facilities mentioned above are collateralized by the assignment of certain of LOOP’s rights to receive payments under the T&D (Note 1).

Cash paid for interest was approximately $3,369,000 and $2,377,000 as of June 30, 2017 and 2016, respectively.


10

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016

5.    Related-Party Transactions

Revenues from owners and owner affiliates were $69,567,000 and $59,957,000 for the periods ending June 30, 2017 and 2016, respectively. Affiliate revenue related to the sale of crude oil was $5,844,000 and $0 for the periods ending June 30, 2017 and 2016, respectively. There were no expenses relating to oil exchange transactions with owner affiliates in 2017.

LOOP receives a management fee under its contract to manage the operations of LOCAP. The contract is extended automatically from year-to-year unless terminated by either LOCAP or LOOP. LOCAP is the largest pipeline of LOOP’s three outbound connecting carriers and for the six months ended June 30, 2017 handled 74% of LOOP’s deliveries. Two of LOOP’s owners are also owners of LOCAP. LOOP also receives a management fee under a terminalling agreement for the storage of MARS Oil Pipeline Company crude oil, which is automatically renewed.

6.      Employees’ Pension and Other Postretirement Benefits

Components of net periodic retirement and other post-retirement benefits expense for the six months ended June 30, 2017 and 2016 consisted of the following:

 
 
Six Months Ended June 30,
(in thousands)
 
2017
 
2016
Pension plans
 
 
 
 
Service cost
 
$
1,951

 
$
1,582

Interest cost
 
1,947

 
1,905

Expected return on assets
 
(2,617
)
 
(2,397
)
Amortization of prior service cost
 

 

Amortization of actuarial loss
 
956

 
937

Net periodic pension cost
 
$
2,237

 
$
2,027

Other postretirement plans
 
 
 
 
Service cost
 
$
370

 
$
307

Interest cost
 
339

 
332

Expected return on assets
 

 

Amortization of prior service cost
 

 

Amortization of actuarial loss
 
40

 
34

Net other postretirement plans cost
 
$
749

 
$
673


LOOP contributed $2,000,000 to its pension plans during the six-month period ending June 30, 2017, which is in excess of its minimum funding requirement of $0.

LOOP also sponsors a Savings Plan to assist eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 7% of their earnings) are matched by LOOP at a rate of 100%. LOOP’s contributions to the Savings Plan were $976,000 and $911,000 for the six months ended June 30, 2017 and 2016, respectively.

Under authoritative accounting standards, assumptions are made regarding the valuation of benefit obligations and the performance of plan assets. As required, we recognize a balance sheet asset or liability for each of our pension and other postretirement benefit (“OPEB”) plans equal to the plan’s funded status as of the measurement date.


11

LOOP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016

Actuarial gains and losses are recognized annually in our consolidated statements of income in the fourth quarter and whenever a plan is determined to qualify for a re-measurement during a fiscal year. The remaining components of pension and OPEB plan expense, primarily service cost, interest cost and expected return on assets, are recorded on a monthly basis. The market-related value of assets equals the actual market value as of the date of measurement.


7.    Subsequent Events

LOOP has evaluated all other events that occurred prior to August 18, 2017, the date of issuance of these financial statements, and has determined that there are no other subsequent events that require disclosure.

On September 1, 2017, Marathon Petroleum Corporation dropped its 40.7% ownership in LOOP LLC by MPL Louisiana Holdings LLC to MPLX, a master limited partnership.

12



LOCAP LLC
Financial Statements
Years Ended December 31, 2016, 2015 and 2014




LOCAP LLC
Index of Financial Statements
Years Ended December 31, 2016, 2015 and 2014








Page(s)


Report of Independent Auditors for the year ended December 31, 2016 ............................................. 1

Report of Independent Auditors for the years ended December 31, 2015 and 2014 ........................... 2

Financial Statements

Balance Sheets ............................................................................................................................................ 3

Statements of Income and Members’ Equity ............................................................................................... 4

Statements of Cash Flows ........................................................................................................................... 5

Notes to Financial Statements ............................................................................................................... 6–11










Report of Independent Auditors


To the Management of LOCAP LLC

We have audited the accompanying financial statements of LOCAP LLC, which comprise the balance sheet as of December 31, 2016, and the related statements of income, members’ equity and cash flows for the year then ended.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LOCAP LLC as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

The financial statements of the Company as of December 31, 2015 and for the years ended December 31, 2015 and 2014 were audited by other auditors whose report, dated February 17, 2016, expressed an unmodified opinion on those statements.

/s/ PricewaterhouseCoopers LLP

New Orleans, Louisiana
February 10, 2017







1


Independent Auditors’ Report



The Owners of LOCAP LLC:

We have audited the accompanying financial statements of LOCAP LLC, which comprise the balance sheet as of December 31, 2015, and the related statements of income and members’ equity, and cash flows for the two-year period ended December 31, 2015, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of LOCAP LLC as of December 31, 2015, and the results of its operations and its cash flows for the two-year period ended December 31, 2015 in accordance with U.S. generally accepted accounting principles.

/s/KPMG LLP

New Orleans, Louisiana
February 17, 2016



2

LOCAP LLC
Balance Sheets
Years Ended December 31, 2016, 2015 and 2014




 
2016
 
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
1,002,365

 
$
638,294

Receivables from affiliates
3,247,030

 
3,336,662

Receivables from nonaffiliates
2,948,358

 
3,591,567

Materials and supplies
1,170,198

 
1,118,587

Prepayments
182,448

 
89,062

Deferred income taxes

 
41,147

Total current assets
8,550,399

 
8,815,319

 
 
 
 
Property, plant, and equipment net of accumulated depreciation

39,666,934

 
37,525,764

Construction in progress

5,706,964

 
3,590,522

Net property, plant, and equipment

45,373,898

 
41,116,286

Other assets

1,201,795

 
224,500

Deferred income taxes

67,473

 

Total assets

$
55,193,565

 
$
50,156,105

 
 
 
 
Liabilities and Members' Equity
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
3,877,326

 
$
2,234,251

Commercial paper
34,986,350

 
34,497,183

Total current liabilities
38,863,676

 
36,731,434

 
 
 
 
Deferred income taxes
9,419,301

 
9,094,244

Deferred revenue
3,841,136

 
2,105,177

Total liabilities
52,124,113

 
47,930,855

 
 
 
 
Members' equity
3,069,452

 
2,225,250

Total liabilities and members' equity
$
55,193,565

 
$
50,156,105












The accompanying notes are an integral part of these financial statements.

3

LOCAP LLC
Statements of Income and Members' Equity
Years Ended December 31, 2016, 2015 and 2014



 
2016
 
2015
 
2014
Operating revenue
 
 
 
 
 
Transportation
$
51,360,264

 
$
49,156,846

 
$
41,981,718

Rental
51,635

 
56,907

 
71,343

Total operating revenue (Affiliate revenue was approximately $34,897,000, $34,272,000 and $30,541,000 in 2016, 2015 and 2014, respectively)
51,411,899

 
49,213,753

 
42,053,061

Operating expenses
 
 
 
 
 
Materials and supplies
418,608

 
279,091

 
201,352

Outside services
8,734,570

 
7,460,521

 
8,482,263

Fuel and power
1,729,429

 
1,493,434

 
1,551,996

Maintenance materials
902,136

 
995,541

 
812,996

Rentals
760,875

 
701,450

 
656,735

Depreciation
1,402,085

 
1,311,494

 
1,061,956

Insurance and uninsured losses
16,261

 
13,564

 
116,897

Taxes - other than income
3,126,500

 
2,952,262

 
2,797,793

Total operating expenses (Affiliate expenses were approximately $6,600,000, $5,200,000, and $4,537,000 in 2016, 2015 and 2014, respectively)
17,090,464

 
15,207,357

 
15,681,988

Income from operations
34,321,435

 
34,006,396

 
26,371,073

Interest
 
 
 
 
 
Income
191,325

 
385,737

 
125,867

Expense
(619,629
)
 
(418,511
)
 
(445,996
)
Net interest expense
(428,304
)
 
(32,774
)
 
(320,129
)
Income before income taxes
33,893,131

 
33,973,622

 
26,050,944

Provision for income taxes

 
 
 
 
 
Current
12,750,198

 
12,427,377

 
8,352,334

Deferred
298,731

 
646,807

 
1,673,214

Tax provision
13,048,929

 
13,074,184

 
10,025,548

Net income
$
20,844,202

 
$
20,899,438

 
$
16,025,396

Members' equity
 
 
 
 
 
Beginning of year
2,225,250

 
2,325,812

 
1,800,416

Distributions
(20,000,000
)
 
(21,000,000
)
 
(15,500,000
)
End of year
$
3,069,452

 
$
2,225,250

 
$
2,325,812








The accompanying notes are an integral part of these financial statements.

4

LOCAP LLC
Statements of Cash Flows
Years Ended December 31, 2016, 2015 and 2014




 
2016
 
2015
 
2014
Cash flows from operating activities

 
 
 
 
 
Net income

$
20,844,202

 
$
20,899,438

 
$
16,025,396

Adjustments to reconcile net income to net cash provided by operating activities

 
 
 
 
 
Depreciation
1,402,085

 
1,311,494

 
1,061,956

Deferred income taxes

298,731

 
646,807

 
1,673,214

Changes in assets and liabilities

 
 
 
 
 
Receivables from affiliates

89,632

 
1,194,778

 
(1,912,599
)
Receivables from nonaffiliates
643,209

 
(2,304,104
)
 
(333,897
)
Materials and supplies
(51,611
)
 
(221,836
)
 
(20,995
)
Prepayments
(93,386
)
 
13,045

 
58,868

Other assets
(977,295
)
 
1,161,072

 
(1,339,168
)
Accounts payable, accrued expense, other
1,085,358

 
(1,568,620
)
 
1,357,117

Deferred revenue
1,735,959

 
(95,690
)
 
(95,690
)
Net cash provided by operating activities
24,976,884

 
21,036,384

 
16,474,202

Cash flows used in investing activity
 
 
 
 
 
Capital expenditures
(4,815,805
)
 
(5,031,024
)
 
(6,174,568
)
Cash flows from financing activities
 
 
 
 
 
Net increase in commercial paper
202,992

 
5,400,834

 
4,098,641

Members' distributions
(20,000,000
)
 
(21,000,000
)
 
(15,500,000
)
Net cash used in financing activities
(19,797,008
)
 
(15,599,166
)
 
(11,401,359
)
Net increase (decrease) in cash and cash equivalents
364,071

 
406,194

 
(1,101,725
)
Cash and cash equivalents
 
 
 
 
 
Beginning of year
638,294

 
232,100

 
1,333,825

End of year
$
1,002,365

 
$
638,294

 
$
232,100

 
 
 
 
 
 
Noncash transactions
 
 
 
 
 
Capital expenditures included in accounts payable and accrued expenses, net
$
843,892

 
$
1,069,466

 
$
1,538,829








The accompanying notes are an integral part of these financial statements.

5

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


1.    Organization and Ownership

LOCAP LLC (LOCAP), headquartered in Covington, Louisiana, owns and operates a federally regulated crude oil pipeline and tank facility in St. James, Louisiana that distributes oil received from LOOP LLC’s (LOOP) storage facilities and other connecting pipelines to nearby refineries and into the midcontinent of the United States of America (U.S.). LOCAP’s owners are Hardin Street Holdings LLC (58.52%) and Shell Pipeline Company LP (41.48%). Hardin Street Holdings LLC is an indirectly wholly owned subsidiary of Marathon Petroleum Corporation. Shell Pipeline Company LP is an indirectly wholly owned subsidiary of Shell Oil Company (Owner Companies).

LOOP acts as operator of LOCAP in accordance with the terms of the Operating Agreement dated
July 1, 1987, as amended (Operating Agreement).

2.    Summary of Significant Accounting Policies

Regulated Operations
LOCAP’s operations are subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) and follow the Financial Accounting Standards Board’s accounting standards for regulated operations.

Basis of Accounting

LOCAP maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the U.S. LOCAP has no elements of comprehensive income other than net income.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition
LOCAP derives revenue from services provided for the transportation of crude oil. Revenue for these services is recognized as services are rendered, when there is evidence of an arrangement, the price is fixed or determinable, and collection of the resulting receivables is reasonably assured. Prices are established by tariffs filed and published with FERC.

Cash and Cash Equivalents
LOCAP considers all highly liquid debt instruments with maturities of three months or less at the date of purchase to be cash equivalents. LOCAP maintains its cash and cash equivalents at financial institutions. The balances may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. Management believes this risk is not significant.

Receivables
LOCAP extends credit to customers and other parties in the normal course of business. LOCAP regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts, if needed. In evaluating the level of established reserves, LOCAP makes judgments regarding the customers’ ability to make required payments, economic events and other factors. As

6

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required through a charge to operations in the period in which that determination was made. There was no allowance as of December 31, 2016, 2015 or 2014.

Materials and Supplies
Materials and supplies, which consist of spare parts, diesel fuel and other supplies, are stated at cost (average cost method for spare parts and supplies and first-in, first-out method for diesel fuel). LOCAP assesses the realizability of its inventories based upon specific usage and future utility. An operating expense is recorded to reduce valuation when factors such as excess or obsolete inventory are identified.

Property, Plant, and Equipment
Property, plant and equipment include costs of assets constructed, purchased or leased under a capital lease, related delivery and installation costs and interest incurred on significant capital projects during their construction periods. Expenditures for renewals and betterments also are capitalized, but expenditures for normal repairs and maintenance are expensed as incurred. The cost and accumulated depreciation applicable to assets retired or sold are removed from the respective accounts, and gains or losses thereon are included in operations.

The assets are being depreciated under the straight-line method over their useful lives, which range from 10 to 60 years.

LOCAP evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the net carrying amount of the asset group may not be recoverable. Recoverability of assets is measured by a comparison of the net carrying amount of the asset group to future undiscounted net cash flows expected to be generated from the use and eventual disposition of that asset group. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured and if the carrying amount exceeds the fair value, an impairment loss is recognized.

Interest is capitalized in connection with the construction of assets. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life.

Income Taxes

LOCAP is a limited liability company that has elected to be taxed as a corporation for income tax purposes. LOCAP uses the asset and liability method for determining its income taxes, under which current and deferred tax assets and liabilities are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax assets and liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are classified as noncurrent on the balance sheet, along with any related valuation allowance.

Deferred income taxes are provided for the estimated income tax effect of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets are also provided if there are operating losses, capital losses or certain tax credit carryovers. A valuation allowance, reducing deferred tax assets, is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The realization of such deferred tax assets is dependent upon the generation of sufficient future taxable income of the appropriate character. LOCAP will establish a valuation allowance when it believes it is more likely than not a net deferred tax asset will not be realized .


7

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


LOCAP only recognizes a tax benefit after concluding that it is more likely than not that the benefit will be sustained upon audit by the respective taxing authority based solely on the technical merits of the associated tax position. Once the recognition threshold is met, LOCAP recognizes a tax benefit measured as the largest amount of the tax benefit that, in management’s judgment, is greater than 50% likely to be realized. Interest and penalties related to income tax liabilities are included in income tax expense or benefit.

Other Noncurrent Liabilities Deferred Revenue
LOCAP was reimbursed approximately $2.8 million in 2008 and $1.8 million in 2016 by customers for the cost of two connections (Plains, Genesis) to LOCAP’s pipeline at St. James, Louisiana. This amount was recorded as deferred revenue and is being recognized as income over a 30-year period for each connection.

Fair Value
LOCAP has a number of financial instruments, none of which are held for trading purposes. The reported amounts of certain of LOCAP’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to their short maturities.

Fair value focuses on an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In addition, the use of market-based information is suggested over entity specific information and a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date is established.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 related to recognition of revenue based upon an entity’s contracts with customers to transfer goods or services. Under the new standard update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2019. LOCAP is currently evaluating the impact of this accounting standard update on the financial statements.

In April 2015, the FASB issued ASU No. 2015-3, Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The pronouncement is effective for annual reporting periods beginning after December 15, 2015. This accounting guidance is effective for LOCAP beginning in 2016. The balance sheet as of December 31, 2015 is also presented in accordance with the guidance of this new standard.

In November 2015, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction – that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. The new guidance will be effective in 2018 for private companies, with early adoption permitted. LOCAP adopted the ASU in these financial statements.

8

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


In January 2016, the FASB issued ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. Changes to the current GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, entities that are not public business entities will no longer be required to disclose the fair value of financial instruments carried at amortized cost. The new guidance will be effective for private companies beginning in 2019, except for a certain provision in the standard that is early adoptable. LOCAP early adopted the ASU provision permitting the omission of fair value disclosures for financial instruments at amortized cost in these financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. The new guidance will be effective in 2020 for private companies, with early adoption permitted. LOCAP has not yet determined the potential effects on the financial statements.

3.    Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

 
Useful Life
 
December 31
 
(in Years)
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
Land
N/A
 
$
1,314,332

 
$
1,314,332

Rights-of-way
30–60
 
2,085,408

 
2,085,408

Line pipe, fittings, and pipeline construction
30–60
 
111,828,421

 
109,991,671

Buildings
30–60
 
4,576,055

 
4,509,293

Pumping and station equipment, tanks, and delivery
30–60
 
59,186,685

 
57,756,211

Communication systems
15–30
 
1,014,357

 
861,048

Office furniture, vehicles, and other assets
Various
 
2,020,157

 
1,990,211

Construction in progress
 
 
5,706,694

 
3,590,522

 
 
 
$
187,732,109

 
$
182,098,696

Accumulated depreciation
 
 
142,358,482

 
140,982,410

Net Property, plant, and equipment
 
 
$
45,373,628

 
$
41,116,286


4.    Debt

LOCAP had commercial paper outstanding of $35,000,000 and $34,500,000 at December 31, 2016 and 2015 less unamortized discounts of approximately $13,650 and $2,817 at December 31, 2016 and 2015, respectively. The maturities of the Commercial Paper Notes do not exceed 90 days as of December 31, 2016 and 2015. The average interest rate on the commercial paper and line of credit was 1.24% in 2016 and 0.96% in 2015. Cash paid during the year for interest on the commercial paper and line of credit was $275,341, $152,976, and $130,708 in 2016, 2015 and 2014, respectively.


9

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


Additionally, LOCAP has a line of credit for $60,000,000 with a bank to provide support for its commercial paper program, which expires on October 31, 2021. There were no amounts outstanding on the line of credit at December 31, 2016 and 2015.

As collateral for the commercial paper and line of credit, LOCAP has assigned to two banks certain of its rights to payments under the Throughput and Deficiency (T&D) Agreement. Marathon Petroleum LP and Shell Oil Company (each being referred to individually as an obligor and collectively as the obligors) have assumed and agreed to pay all obligations and liabilities under the T&D Agreement. The T&D Agreement generally provides that the obligors will ship or cause to be shipped through the facilities of LOCAP their respective T&D obligation percentage (or that of their subsidiary) of the amount of crude oil that will provide LOCAP an amount of cash revenue at least sufficient, with other available cash resources, to pay and discharge the commercial paper as it becomes due (as well as other costs of operations of LOCAP as set forth in a separate agreement). The T&D Agreement then provides that, in the event cash available to LOCAP is not adequate to avoid a cash deficiency on the date that any payment is due on the commercial paper or line of credit, each obligor is obligated to advance to LOCAP, in cash, its percentage share of such deficiency as an advance payment for future costs for transportation through the facilities. Such percentages are as follows:

T&D Obligor
 
Percentage
Marathon Petroleum LP
 
58.52
%
Shell Oil Company
 
41.48

 
 
100.00
%

5.    Income Taxes

LOCAP has recognized deferred taxes on the book and tax basis differences of advances for transportation and property, plant, and equipment. No valuation allowance has been provided against deferred tax assets, as management believes it is more likely than not that these assets will be realized through the reversal of taxable temporary differences and income from operations. The difference between the statutory tax rate and the effective tax rate relates to state taxes. Cash paid for income taxes was approximately $12,990,000, $11,371,000, and $9,342,000 in 2016, 2015 and 2014, respectively.

LOCAP has not recorded reserves for uncertain tax positions as it believes all tax positions are highly certain. LOCAP operates in the U.S. and State of Louisiana. Its federal tax returns are open for examination for 2016 and 2015.

Deferred income taxes at December 31, 2016 and 2015 relate to the following:


 
2016
 
2015
Property, plant and equipment
$
10,829,796

 
$
9,863,114

Deferred revenue - transportation advances
(1,477,968
)
 
(810,017
)
 
$
9,351,828

 
$
9,053,097



10

LOCAP LLC
Notes to Financial Statements
Years Ended December 31, 2016, 2015 and 2014


6.    Related Party Transactions

Transportation revenue from owners and owner affiliates was approximately $34,897,000, $34,272,000 and $30,541,000 in 2016, 2015 and 2014, respectively.

Under the Operating Agreement, a portion of the operating costs are to be settled on a fixed fee rather than a direct charge basis. Total payments to LOOP for fees, reimbursable expenses, and purchases made on behalf of LOCAP were approximately $6,600,000, $5,200,000, and $4,537,000 in 2016, 2015 and 2014, respectively. Such amounts are determined on an arm’s length basis and are included in Outside Services in the accompanying statements of income and members’ equity. The LOCAP T&D obligors are also owners of LOOP either by direct ownership or through a subsidiary; however, in different percentages.

7.    Leases

LOCAP has entered into several leases, primarily for land at the St. James Facility. Each has varying terms, renewal options, and escalation provisions. LOCAP incurred lease expenses of approximately $343,000, $297,000, and $214,000 in 2016, 2015 and 2014, respectively. LOCAP’s non-cancelable minimum lease commitments are as follows:

(in thousands)
 
Operating Leases
2017
 
$
331

2018
 
330

2019
 
396

2020
 
396

2021
 
396

Thereafter
 
28,000

Total minimum lease payments
 
$
29,849


8.    Subsequent Events

LOCAP has evaluated all events that occurred prior to February 10, 2017, the date LOCAP’s financial statements were available to be issued, and has determined that there are no subsequent events that require disclosure.

11


LOCAP LLC
Condensed Financial Statements
As of June 30, 2017




LOCAP LLC
Index of Condensed Financial Statements










Page(s)

Condensed Financial Statements

Condensed Balance Sheets at June 30, 2017 and December 31, 2016............................................... 2

Condensed Statements of Income and Members’ Equity for the Six Months Ended June 30, 2017
and 2016 ................................................................................................................................................ 3

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 ................ 4

Notes to Condensed Financial Statements........................................................................................ 5–7



LOCAP LLC
Condensed Balance Sheets (Unaudited)
June 30, 2017 and December 31, 2016




 
June 30
 
December 31
2017
 
2016
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
710,830

 
$
1,002,365

Receivables from affiliates
4,672,261

 
3,247,030

Receivables from nonaffiliates
2,582,576

 
2,948,358

Materials and supplies
1,372,367

 
1,170,198

Prepayments
3,099,261

 
182,448

Total current assets
12,437,295

 
8,550,399

Property, plant, and equipment net of accumulated depreciation
39,832,363

 
39,666,934

Construction in progress
9,990,443

 
5,706,964

Net property, plant, and equipment
49,822,806

 
45,373,898

Other assets
224,666

 
1,201,795

Total assets
$
62,484,767

 
$
55,126,092

Liabilities and Members' Equity

 
 
 
Current liabilities
 
 
 
Accounts payable and accrued expenses
$
5,340,053

 
$
3,877,326

Commercial paper
32,957,375

 
34,986,350

Total current liabilities
38,297,428

 
38,863,676

Deferred income taxes
11,020,702

 
9,351,828

Line of credit
4,000,000

 

Deferred revenue
3,762,678

 
3,841,136

Total liabilities
57,080,808

 
52,056,640

Members' equity
5,403,959

 
3,069,452

Total liabilities and members' equity
$
62,484,767

 
$
55,126,092


















The accompanying notes are an integral part of these condensed financial statements.

2

LOCAP LLC
Condensed Statements of Income and Members' Equity (Unaudited)
June 30, 2017 and 2016


 
Six Months Ended June 30
 
2017
 
2016
Operating revenue
 
 
 
Transportation
$
26,427,096

 
$
25,207,197

Rental and other
96,534

 
30,278

Total operating revenue  (Affiliate revenue was approximately $18,892,000 and $16,528,000 in 2017 and 2016, respectively)
26,523,630

 
25,237,475

Operating expenses
 
 
 
Materials and supplies
235,622

 
171,887

Outside services
2,927,399

 
3,968,335

Fuel and power
1,537,402

 
743,078

Maintenance materials
260,246

 
414,816

Rentals
174,103

 
183,629

Depreciation
773,727

 
693,672

Insurance and uninsured losses
6,804

 
6,124

Taxes - other than income
1,761,572

 
1,746,678

Total operating expenses (Affiliate expenses were approximately $4,587,000 and $3,017,000 for 2017 and 2016, respectively)
7,676,875

 
7,928,219

Income from operations
18,846,755

 
17,309,256

Interest
 
 
 
Income
55,364

 
106,860

Expense
(320,957
)
 
(316,688
)
Net interest expense
(265,593
)
 
(209,828
)
Income before income taxes
18,581,162

 
17,099,428

Provision for income taxes

7,246,655

 
6,666,239

Net income
$
11,334,507

 
$
10,433,189

 
 
 
 
Members' equity
 
 
 
Beginning of year
$
3,069,452

 
$
2,225,250

Distributions
(9,000,000
)
 
(10,000,000
)
End of period
$
5,403,959

 
$
2,658,439











The accompanying notes are an integral part of these condensed financial statements.

3

LOCAP LLC
Condensed Statements of Cash Flows (Unaudited)
June 30, 2017 and 2016



 
Six Months Ended June 30
 
2017
 
2016
Cash flows from operating activities
 
 
 
Net income
$
11,334,507

 
$
10,433,189

Adjustments to reconcile net income to net cash provided by operating activities

773,727

 
693,672

Depreciation

 
 
 
Deferred income taxes

1,668,874

 
(1,176,869
)
Changes in operating assets and liabilities

 
 
 
Receivables from affiliates
(1,425,231
)
 
256,635

Receivables from nonaffiliates
365,782

 
(446,813
)
Materials and supplies
(202,169
)
 
(97,274
)
Prepayments
(2,916,813
)
 
(148,982
)
Deferred Revenue
(78,458
)
 
(47,845
)
Other assets
977,129

 
111,934

Accounts payable, accrued expenses, and other
1,915,135

 
2,577,624

Net cash provided by operating activities
12,412,483

 
12,155,271

Cash flows used in investing activity
 
 
 
Capital expenditures
(5,675,043
)
 
(2,409,562
)
Cash flows from financing activities
 
 
 
Net increase (decrease) in commercial paper
(2,028,975
)
 
477,773

Increase in line of credit
4,000,000

 

Members' distributions
(9,000,000
)
 
(10,000,000
)
Net cash used in financing activities
(7,028,975
)
 
(9,522,227
)
Net increase (decrease) in cash and cash equivalents
(291,535
)
 
223,482

Cash and cash equivalents
 
 
 
Beginning of period
1,002,365

 
638,294

End of period
$
710,830

 
$
861,776

 
 
 
 
Noncash transactions
 
 
 
Capital expenditures included in accounts payable, accrued expenses and other (net)
$
(452,408
)
 
$
(652,219
)








The accompanying notes are an integral part of these condensed financial statements.

4

LOCAP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016


1.    Organization and Ownership

LOCAP LLC (LOCAP), headquartered in Covington, Louisiana, owns and operates a federally regulated crude oil pipeline and tank facility in St. James, Louisiana that distributes oil received from LOOP LLC’s (LOOP) storage facilities and other connecting pipelines to nearby refineries and into the midcontinent of the United States of America (U.S.). LOCAP’s owners are Hardin Street Holdings LLC (58.52%) and Shell Pipeline Company LP (41.48%). Hardin Street Holdings LLC is an indirectly wholly owned subsidiary of Marathon Petroleum Corporation. Shell Pipeline Company LP is an indirectly wholly owned subsidiary of Shell Oil Company (Owner Companies).

LOOP acts as operator of LOCAP in accordance with the terms of the Operating Agreement dated
July 1, 1987, as amended (Operating Agreement).

2.    Summary of Significant Accounting Policies

Basis of Accounting
The condensed financial statements have been prepared pursuant to generally accepted accounting principles in the United States of America (“U.S. GAAP”) which provide for reduced disclosure for interim periods. LOCAP has no elements of comprehensive income other than net income. These condensed financial statements, including the year-end balance sheet data that was derived from audited financial statements, do not include all necessary disclosures required by U.S. GAAP for annual financial statements.

In management’s opinion, the unaudited financial information for the interim periods presented includes all adjustments necessary for a fair presentation of our results of operations, financial position, and cash flows. All adjustments are of a normal recurring nature unless otherwise disclosed. Revenues, expenses, assets and liabilities can vary during each interim period of the year. Our results of operations for the six months ended June 30, 2017 are not necessarily indicative of results expected for the full year of 2017. For a more complete discussion of the Company’s significant accounting policies and other information, you should read our most recent audited financial statements as of December 31, 2016, which includes all disclosures required by U.S. GAAP.

Receivables
There was no allowance for doubtful accounts as of June 30, 2017 and December 31, 2016.

Other Noncurrent Liabilities Deferred Revenue
LOCAP was reimbursed $4.6 million from 2008 through December 31, 2016 by customers for the cost of infrastructure and connections (Plains, Genesis) to LOCAP’s pipeline at St. James, Louisiana. These amounts were recorded as deferred revenue and are being recognized as income over a 30-year period for each connection.

Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 related to recognition of revenue based upon an entity’s contracts with customers to transfer goods or services. Under the new standard update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective beginning January 1, 2019. LOCAP is currently evaluating the impact of this accounting standard update on the financial statements .




5

LOCAP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016


In February 2016, the FASB issued ASU 2016-02, Leases, which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. The new guidance will be effective in 2020 for private companies, with early adoption permitted. LOCAP has not yet determined the potential effects on the financial statements.

3.    Property, Plant, and Equipment

Property, plant, and equipment consist of the following:

 
June 30
 
December 31
 
2017
 
2016
 
 
 
 
 
 
 
 
Land and rights-of-way
$
3,399,740

 
$
3,399,740

Line pipe, fittings, and pipeline construction
111,828,421

 
111,828,421

Buildings
4,576,055

 
4,576,055

Pumping and station equipment, tanks, and delivery
59,186,685

 
59,186,685

Communication systems
1,953,513

 
1,014,357

Office furniture, vehicles, and other assets
2,020,157

 
2,020,157

Construction in progress
9,990,443

 
5,706,964

 
192,955,014

 
187,732,379

Accumulated depreciation
143,132,208

 
142,358,481

Net property, plant, and equipment
$
49,822,806

 
$
45,373,898


4.    Debt

LOCAP had commercial paper outstanding of $33,000,000 and $35,000,000 at June 30, 2017 and December 31, 2016 less unamortized discounts of approximately $42,625 and $13,650 at June 30, 2017 and December 31, 2016, respectively. The maturities of the Commercial Paper Notes do not exceed 90 days as of June 30, 2017 and 2016. Cash paid during the year for interest on the commercial paper and line of credit was $350,000 and $339,000 for the six months ended June 30, 2017 and 2016, respectively.

Additionally, LOCAP has a line of credit for $60,000,000 with a bank to provide support for its commercial paper program, which expires on October 31, 2021. There was $4,000,000 and $0 outstanding on the line of credit at June 30, 2017 and December 31, 2016, respectively. This amount is classified as non-current based on its’ expiration date.



6

LOCAP LLC
Notes to Condensed Financial Statements
June 30, 2017 and 2016


5.    Income Taxes

LOCAP has recognized deferred taxes on the book and tax basis differences of deferred revenue and property, plant, and equipment. No valuation allowance has been provided against deferred tax assets, as management believes it is more likely than not that these assets will be realized through the reversal of taxable temporary differences and income from operations. The difference between the statutory tax rate and the effective tax rate relates to state taxes. Cash paid for income taxes was approximately $7,800,000 and $7,560,000 for the six months ended June 30, 2017 and 2016, respectively.

LOCAP has not recorded reserves for uncertain tax positions as it believes all tax positions are highly certain.

6.    Related Party Transactions

Transportation revenue from owners and owner affiliates was approximately $18,892,000 and$16,528,000 in 2017 and 2016, respectively.

Under the Operating Agreement, a portion of the operating costs are to be settled on a fixed fee rather than a direct charge basis. Total payments to LOOP for fees, reimbursable expenses, and purchases made on behalf of LOCAP were approximately $4,587,000 and $3,017,000 in 2017 and 2016, respectively. Such amounts are determined on an arm’s length basis and are included in Outside Services in the accompanying statements of income and members’ equity. The LOCAP T&D obligors are also owners of LOOP either by direct ownership or through a subsidiary; however, in different percentages.

7.    Subsequent Events

LOCAP has evaluated all events that occurred prior to August 18, 2017, the date LOCAP’s financial statements were available to be issued, and has determined that there are no other subsequent events that require disclosure.

On September 1, 2017, Marathon Petroleum Corporation dropped its 58.52% ownership in LOCAP LLC by Hardin Street Holdings LLC to MPLX, a master limited partnership.

7
MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS



Set forth below are the MPLX LP unaudited pro forma consolidated statements of income for each of the years in the three-year period ended December 31, 2016 and the six months ended June 30, 2017 and the MPLX LP unaudited pro forma consolidated balance sheet as of June 30, 2017 (together with the notes to the unaudited pro forma consolidated financial statements, the “pro forma financial statements”). The pro forma financial statements give effect to the acquisition of: all of the membership interests of Lincoln Pipeline LLC, a Delaware limited liability company which holds a 35 percent ownership interest in Illinois Extension Pipeline Company, L.L.C. (the "SAX Interest"); all of the membership interests of MPL Louisiana Holdings LLC, a Delaware limited liability company which holds a 40.7 percent ownership interest in LOOP LLC (the "LOOP Interest"); a 58.52 percent ownership interest in a Delaware limited liability company, LOCAP LLC (the "LOCAP Interest"); and a 24.51 percent ownership interest in a Delaware corporation, Explorer Pipeline Company (the "Explorer Interest" and, together with the SAX Interest, the LOOP Interest, and the LOCAP Interest, the “Equity Method Investments” or "EMI"). Unless otherwise stated or the context otherwise indicates, all references to “MPLX”, “the Partnership”, “we”, “our”, “us”, or similar expressions refer to MPLX LP and its subsidiaries. References to "MPC", refer to Marathon Petroleum Corporation and its subsidiaries, other than the Partnership. The pro forma financial statements have been prepared based on certain pro forma adjustments to the consolidated financial statements included in our Current Report on Form 8-K filed with the SEC on May 1, 2017. These pro forma financial statements should be read in conjunction with such historical consolidated financial statements, including the related consolidated financial statement notes. The pro forma financial statements have been prepared in accordance with Article 11 of the SEC’s Regulation S-X.

On September 1, 2017, we entered into a Membership Interests and Shares Contributions Agreement (the “Contributions Agreement”) with MPLX Logistics Holdings LLC, MPLX Holdings Inc., MPLX GP LLC, (the "General Partner") and MPC Investment LLC, all of which are wholly-owned subsidiaries of MPC. Pursuant to the Contributions Agreement, we agreed to acquire the Equity Method Investments held by indirect wholly-owned subsidiaries of MPC for cash consideration of $420 million (the “Cash Consideration”) and equity consideration in the form of common units and general partner units with a fair value of $630 million (the “Equity Consideration”), for total consideration of $1.05 billion (the “Acquisition”).

The pro forma financial statements assume the issuance of 18,628,930 common units of the Partnership to MPC and the issuance of 380,182 general partner units of the Partnership to our General Partner. The actual allocation of Equity Consideration will be determined at the closing of the Acquisition, with the number of general partner units issued being that number required for the General Partner to maintain its two percent general partner interest in the Partnership. We plan to fund the Cash Consideration, along with associated offering and transaction costs, by drawing on our existing revolver.

The Equity Method Investments acquired by MPLX consist of the following:

SAX Interest - all of the membership interests of Lincoln Pipeline LLC, which holds a 35 percent interest in Illinois Extension Pipeline Company, L.L.C., which owns and operates a 168-mile, 24-inch diameter oil pipeline from Flanagan, Illinois to Patoka, Illinois. The pipeline system has a capacity of 300,000 barrels per day (“Bpd”), as well as additional tankage and two pump stations, collectively referred to as the Southern Access Extension or SAX. The pipeline system was operational in December 2015.

LOOP Interest - all of the membership interests of MPL Louisiana Holdings LLC, which holds a 40.7 percent interest in LOOP LLC (“LOOP”), which owns and operates midstream crude oil infrastructure, including a deep water oil port offshore of Louisiana, pipelines and onshore storage facilities. The deep water oil port offloads crude oil from crude carrying marine vessels destined for onshore storage and pipeline transport to the LOCAP LLC (“LOCAP”), an affiliate pipeline system, and other connecting carriers for onward delivery to refineries on the U. S. Gulf Coast and the Midwest regions. Additionally, LOOP receives and stores oil for onward transport from various other pipeline connections.

LOCAP Interest - a 58.52 percent ownership interest in LOCAP, which owns and operates a federally regulated crude oil pipeline and tank facility in St. James, Louisiana that distributes oil received from LOOP storage facilities and other connecting pipelines to nearby refineries and into the mid-continent of the United States.

Explorer Interest - a 24.51 percent ownership interest in Explorer Pipeline Company, which owns and operates a 1,830-mile refined products pipeline that transports products from the U.S. Gulf Coast to the Midwest, with a current capacity of 660,000 Bpd.

The Equity Method Investments will be recorded by the Partnership at MPC’s historical cost, as the Acquisition is between entities under common control. The pro forma adjustments are based on currently available information and certain estimates and assumptions; actual adjustments may differ from the pro forma adjustments. However, our management believes the assumptions

1

MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS


are reasonable for presenting the significant effects of the Acquisition, and that the pro forma adjustments give appropriate effect to those assumptions, are factually supportable, and are properly applied in the pro forma financial statements.

The MPLX LP unaudited pro forma consolidated balance sheet as of June 30, 2017 has been prepared to give effect to the Acquisition as if it had occurred on June 30, 2017. The MPLX LP unaudited pro forma consolidated statements of income for each of the three-year period ended December 31, 2016 and the six months ended June 30, 2017 have been prepared to give effect to the Acquisition as if it had occurred on January 1, 2014. For the purposes of these unaudited pro forma consolidated financial statements, the Equity Consideration described above is based on the simple average of the ten day trading volume weighted average New York Stock Exchange price of a common unit for the ten trading days ending on August 28, 2017. On December 4, 2015, MarkWest Energy Partners, L.P. ("MWE") merged with a wholly-owned subsidiary of MPLX (the "MarkWest Merger"). The operating results of MWE for the period of December 4, 2015 through December 31, 2015, are included in the MPLX LP historical consolidated statement of income for the year ended December 31, 2015. The MPLX LP unaudited pro forma consolidated statement of income for the year ended December 31, 2015 does not reflect the MarkWest Merger as of January 1, 2015. Pro forma financial information related to the MarkWest Merger is included in our Current Report on Form 8-K filed with the SEC on December 4, 2015.





















2


MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 2017

(In millions, except per unit data)
MPLX LP Historical
 
EMI
Historical (a)
 
EMI Pro Forma Adjustments
 
MPLX LP Pro Forma
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
546

 
$

 
$

 
$
546

Service revenue - related parties
525

 

 

 
525

Rental income
139

 

 

 
139

Rental income - related parties
137

 

 

 
137

Product sales
394

 

 

 
394

Product sales - related parties
4

 

 

 
4

Gain on sale of assets
1

 

 

 
1

Income from equity method investments
6

 
63

 

 
69

Other income
3

 

 

 
3

Other income - related parties
47

 

 

 
47

Total revenues and other income
1,802

 
63

 

 
1,865

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
252

 

 

 
252

Purchased product costs
271

 

 

 
271

Rental cost of sales
25

 

 

 
25

Rental cost of sales - related parties
1

 

 

 
1

Purchases - related parties
216

 

 

 
216

Depreciation and amortization
351

 

 

 
351

General and administrative expenses
115

 

 

 
115

Other taxes
26

 

 

 
26

Total costs and expenses
1,257

 

 

 
1,257

Income from operations
545

 
63

 

 
608

Interest expense
140

 

 
6

(b)
146

Other financial costs
25

 

 

 
25

Income (loss) before income taxes
380

 
63

 
(6
)
 
437

Provision for income taxes
2

 

 

(g)
2

Net income (loss)
378

 
63

 
(6
)
 
435

Less: Net income attributable to noncontrolling interests
2

 

 

 
2

Less: Net income attributable to Predecessor
36

 

 

 
36

Net income (loss) attributable to MPLX LP
340

 
63

 
(6
)
 
397

Less: Preferred unit distributions
33

 
 
 

 
33

Less: General partner’s interest in net income attributable to MPLX LP
136

 
 
 
3

(h)
139

Limited partners’ interest in net income attributable to MPLX LP
$
171

 
 
 
$
54

 
$
225

Per Unit Data (Note 3)
 
 
 
 
 
 
 
Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
0.46

 
 
 
 
 
$
0.57

Common - diluted
0.46

 
 
 
 
 
0.57

Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
370

 
 
 
19

 
389

Common - diluted
374

 
 
 
19

 
393


See Notes to the Unaudited Pro Forma Consolidated Financial Statements.

3



MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2016

(In millions, except per unit data)
MPLX LP
Historical
 
EMI
Historical (a)
 
EMI
Pro Forma
Adjustments
 
MPLX LP
Pro Forma
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
958

 
$

 
$

 
$
958

Service revenue - related parties
936

 

 

 
936

Rental income
298

 

 

 
298

Rental income - related parties
235

 

 

 
235

Product sales
572

 

 

 
572

Product sales - related parties
11

 

 

 
11

Gain on sale of assets
1

 

 

 
1

(Loss) income from equity method investments
(74
)
 
114

 

 
40

Other income
6

 

 

 
6

Other income - related parties
86

 

 

 
86

Total revenues and other income
3,029

 
114

 

 
3,143

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
454

 

 

 
454

Purchased product costs
448

 

 

 
448

Rental cost of sales
57

 

 

 
57

Rental cost of sales - related parties
1

 

 

 
1

Purchases - related parties
388

 

 

 
388

Depreciation and amortization
591

 

 

 
591

Impairment expense
130

 

 

 
130

General and administrative expenses
227

 

 

 
227

Other taxes
50

 

 

 
50

Total costs and expenses
2,346

 

 

 
2,346

Income from operations
683

 
114

 

 
797

Related party interest and other financial (income) costs
1

 

 

 
1

Interest expense
210

 

 
11

(b)
221

Other financial costs
50

 

 

 
50

Income (loss) before income taxes
422

 
114

 
(11
)
 
525

(Benefit) provision for income taxes
(12
)
 

 
2

(g)
(10
)
Net income (loss)
434

 
114

 
(13
)
 
535

Less: Net income attributable to noncontrolling interests
2

 

 

 
2

Less: Net income attributable to Predecessor
199

 

 

 
199

Net income attributable to MPLX LP
233

 
114

 
(13
)
 
334

Less: Preferred unit distributions
41

 
 
 

 
41

Less: General partner’s interest in net income attributable to MPLX LP
191

 
 
 
9

(h)
200

Limited partners’ interest in net income attributable to MPLX LP
$
1

 
 
 
$
92

 
$
93

Per Unit Data (Note 3)
 
 
 
 
 
 
 
Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$

 
 
 
 
 
$
0.25

Common - diluted

 
 
 
 
 
0.25

Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
331

 
 
 
19

 
350

Common - diluted
338

 
 
 
19

 
357


See Notes to the Unaudited Pro Forma Consolidated Financial Statements.

4


MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2015
(In millions, except per unit data)
MPLX LP
Historical
 
EMI Historical (a)
 
EMI Pro Forma
Adjustments
 
MPLX LP
Pro Forma
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
130

 
$

 
$

 
$
130

Service revenue - related parties
701

 

 

 
701

Rental income
20

 

 

 
20

Rental income - related parties
146

 

 

 
146

Product sales
36

 

 

 
36

Product sales - related parties
1

 

 

 
1

Income (loss) from equity method investments
3

 
70

 

 
73

Other income
6

 

 

 
6

Other income - related parties
58

 

 

 
58

Total revenues and other income
1,101

 
70

 

 
1,171

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
247

 

 

 
247

Purchased product costs
20

 

 

 
20

Rental cost of sales
11

 

 

 
11

Rental cost of sales - related parties
1

 

 

 
1

Purchases - related parties
172

 

 

 
172

Depreciation and amortization
129

 

 

 
129

Impairment expense

 

 

 

General and administrative expenses
125

 

 

 
125

Other taxes
15

 

 

 
15

Total costs and expenses
720

 

 

 
720

Income from operations
381

 
70

 

 
451

Debt retirement expense

 

 

 

Interest expense
35

 

 
11

(b)
46

Other financial costs
12

 

 

 
12

Income (loss) before income taxes
334

 
70

 
(11
)
 
393

Provision (Benefit) for income taxes
1

 

 

(g)
1

Net income (loss)
333

 
70

 
(11
)
 
392

Less: Net income attributable to noncontrolling interests
1

 

 

 
1

Less: Net income attributable to Predecessor
176

 

 

 
176

Net income (loss) attributable to MPLX LP
156

 
70

 
(11
)
 
215

Less: General partner’s interest in net income attributable to MPLX LP
57

 
 
 
6

(h)
63

Limited partners’ interest in net income attributable to MPLX LP
$
99

 


 
$
53

 
$
152

Per Unit Data (Note 3)
 
 
 
 
 
 
 
Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
1.23

 
 
 
 
 
$
1.44

Common - diluted
1.22

 
 
 
 
 
1.43

Subordinated - basic and diluted
0.11

 
 
 
 
 
0.51

Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
79

 
 
 
19

 
98

Common - diluted
80

 
 
 
19

 
99

Subordinated - basic and diluted
18

 
 
 

 
18

See Notes to the Unaudited Pro Forma Consolidated Financial Statements.


5



MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2014
 
(In millions, except per unit data)
MPLX LP
Historical
 
EMI
Historical (a)
 
EMI
Pro Forma
Adjustments
 
MPLX LP
Pro Forma
Revenues and other income:
 
 
 
 
 
 
 
Service revenue
$
70

 
$

 
$

 
$
70

Service revenue - related parties
662

 

 

 
662

Rental income

 

 

 

Rental income - related parties
15

 

 

 
15

Product sales

 

 

 

Product sales - related parties

 

 

 

Income from equity method investments

 
61

 

 
61

Other income
6

 

 

 
6

Other income - related parties
40

 

 

 
40

Total revenues and other income
793

 
61

 

 
854

Costs and expenses:
 
 
 
 
 
 
 
Cost of revenues (excludes items below)
228

 

 

 
228

Purchased product costs

 

 

 

Rental cost of sales
1

 

 

 
1

Rental cost of sales - related parties

 

 

 

Purchases - related parties
153

 

 

 
153

Depreciation and amortization
75

 

 

 
75

Impairment expense

 
 
 

 

General and administrative expenses
81

 

 

 
81

Other taxes
10

 

 

 
10

Total costs and expenses
548

 

 

 
548

Income from operations
245

 
61

 

 
306

Debt retirement expense

 

 

 

Related party interest and other financial costs

 

 

 

Interest expense
4

 

 
11

(b)
15

Other financial costs
1

 

 

 
1

Income (loss) before income taxes
240

 
61

 
(11
)
 
290

Provision for income taxes
1

 

 

(g)
1

Net income (loss)
239

 
61

 
(11
)
 
289

Less: Net income attributable to noncontrolling interests
57

 

 

 
57

Less: Net income attributable to Predecessor
61

 

 

 
61

Net income (loss) attributable to MPLX LP
121

 
61

 
(11
)
 
171

Less: General partner’s interest in net income attributable to MPLX LP
6

 
 
 
2

(h)
8

Limited partners’ interest in net income attributable to MPLX LP
$
115

 


 
$
48

 
$
163

Per Unit Data (Note 3)
 
 
 
 
 
 
 
Net income attributable to MPLX LP per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
1.55

 
 
 
 
 
$
1.65

Common - diluted
1.55

 
 
 
 
 
1.64

Subordinated - basic and diluted
1.50

 
 
 
 
 
1.65

Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
37

 
 
 
19

 
56

Common - diluted
37

 
 
 
19

 
56

Subordinated - basic and diluted
37

 
 
 

 
37

See Notes to the Unaudited Pro Forma Consolidated Financial Statements.

6


MPLX LP
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2017
(In millions)
MPLX LP
Historical
 
EMI
Historical (a)
 
EMI
Pro Forma Adjustments
 
MPLX LP Pro Forma
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
293

 
$

 
$
420

(b)
$
293

 
 
 
 
 
(420
)
(c)
 
Receivables, net
284

 

 

 
284

Receivables - related parties
173

 

 

 
173

Inventories
62

 

 

 
62

Other current assets
31

 

 

 
31

Total current assets
843

 

 

 
843

Equity method investments
3,368

 
644

 

 
4,012

Property, plant and equipment, net
11,638

 

 

 
11,638

Intangibles, net
473

 

 

 
473

Goodwill
2,245

 

 

 
2,245

Long-term receivables - related parties
16

 

 

 
16

Other noncurrent assets
18

 

 

 
18

Total assets
$
18,601

 
$
644

 
$

 
$
19,245

Liabilities
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
$
144

 
$

 
$

 
$
144

Accrued liabilities
178

 

 

 
178

Payables - related parties
93

 

 

 
93

Deferred revenue
3

 

 

 
3

Deferred revenue - related parties
39

 

 

 
39

Accrued property, plant and equipment
171

 

 

 
171

Accrued taxes
39

 

 

 
39

Accrued interest payable
94

 

 

 
94

Other current liabilities
29

 

 

 
29

Total current liabilities
790

 

 

 
790

Long-term deferred revenue
26

 

 

 
26

Long-term deferred revenue - related parties
33

 

 

 
33

Long-term debt
6,666

 

 
420

(b)
7,086

Deferred income taxes
7

 

 

(g)
7

Deferred credits and other liabilities
170

 

 

 
170

Total liabilities
7,692

 

 
420

 
8,112

Commitments and contingencies
 
 
 
 
 
 
 
Redeemable preferred units
1,000

 

 

 
1,000

Equity
 
 
 
 
 
 
 
Common unitholders - public
8,360

 

 

 
8,360

Class B unitholders
133

 

 

 
133

Common unitholder - MPC
1,161

 

 
617

(d)
1,778

Common unitholder - GP
351

 

 
13

(d)
364

General partner - MPC
(242
)
 

 
(406
)
(e)
(648
)
Net investment

 
644

 
(644
)
(f)

Total MPLX LP partners’ capital
9,763

 
644

 
(420
)
 
9,987

Noncontrolling interest
146

 

 

 
146

Total equity
9,909

 
644

 
(420
)
 
10,133

Total liabilities, preferred units and equity
$
18,601

 
$
644

 
$

 
$
19,245

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

7


MPLX LP
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Except as noted within the context of each footnote, the dollar amounts presented in the tabular data within these footnotes are stated in millions of dollars.

1. Basis of Pro Forma Presentation

The accompanying unaudited pro forma consolidated financial information is intended to reflect the impact of the Acquisition on MPLX's consolidated financial statements and presents the pro forma consolidated financial position and results of operations of MPLX based on its historical financial statements and the financial statements related to the SAX Interest, LOOP Interest, LOCAP Interest and Explorer Interest, incorporated by reference in this Current Report on Form 8-K, after giving effect to the Acquisition and pro forma adjustment as described in these notes. Pro forma adjustments are included only to the extent they are (i) directly attributable to the Acquisition, (ii) factually supportable and (iii) with respect to the unaudited pro forma consolidated statements of income, expected to have a continuing impact on the consolidated results. Certain items included in the historical consolidated financial statements of MPLX LP were not adjusted for in these unaudited pro forma consolidated financial statements, as they were not directly related to the Acquisition.

The unaudited pro forma consolidated balance sheet as of June 30, 2017 has been prepared to give effect to the Acquisition as if it had occurred on June 30, 2017. The unaudited pro forma consolidated statements of income for the three-year period ended December 31, 2016 and the six months ended June 30, 2017 have been prepared to give effect to the Acquisition as if it had occurred on January 1, 2014.

2. Pro Forma Adjustments to the Unaudited Consolidated Financial Statements

Equity Method Investments
 
(a)
Adjustments reflect the acquisition of the SAX Interest of $298 million, the LOOP Interest of $229 million, the LOCAP Interest of $23 million, and the Explorer Interest of $94 million, totaling $644 million at MPC's historical cost as of June 30, 2017. Adjustments also reflect the associated equity income for the periods presented. The Partnership’s accounting policy is to record its share of the results of the Equity Method Investments, and any related amortization expense and related tax impact, one month in arrears within Income from Equity Method Investments in the consolidated statements of income. The equity earnings are as follows:

(in millions)
Six Months Ended June 30, 2017
Year Ended December 31, 2016
Year Ended December 31, 2015
Year Ended December 31, 2014
SAX Interest (1)
12

25



LOOP Interest
30

45

34

36

LOCAP Interest
7

12

11

8

Explorer Interest
14

32

25

17

Income from equity method investments
$
63

$
114

$
70

$
61

(1) The pipeline was placed into service in December 2015.

(b)
Adjustment to reflect proceeds from MPLX's borrowings of $420 million under the bank revolving credit facility, which bears interest at 2.70 percent and is due 2022, intended to fund the Cash Consideration of the Acquisition. Adjustment to reflect the associated interest expense of $6 million for the six months ended June 30, 2017 and $11 million for each of the years ended December 31, 2016, 2015 and 2014.

(c)
Adjustment to reflect the $420 million cash payment made to MPC in connection with the Acquisition.

(d)
Adjustment to reflect the issuance of 18,628,930 common units and 380,182 general partner units to MPC in connection with the Acquisition. Pro forma equity adjustments include increases to common unitholder - MPC and General partner - MPC of $617 million and $13 million, respectively.

(e)
The Partnership recorded its acquired interest in the Equity Method Investments at their historical carrying values and the excess consideration paid over the historical carrying values as a decrease to general partner equity. The unaudited

8


pro forma consolidated balance sheet reflects a decrease in General partner - MPC equity of $406 million; which includes $1.05 billion total fair value consideration less the Equity Method Investments' combined historical carrying value of $644 million.

(f)
Adjustment to reflect the elimination of MPC's combined net investment in the SAX Interest, LOOP Interest, LOCAP Interest, and Explorer Interest at June 30, 2017, of $644 million.

(g)
Adjustment to reflect the estimated additional provision of $2 million for the year ended December 31, 2016 for income taxes associated with the Acquisition. There are no tax consequences related to the Equity Method Investments' for the six months ended June 30, 2017 or the years ended December 31, 2015 or 2014.

(h)
Adjustment to reflect the net income attributable to the general partner, including distributions related to the General Partner's IDRs, to give effect to the Acquisition. The adjustment reflects the combined MPLX and the Equity Method Investments' historical cash distributions allocated per the terms of MPLX's partnership agreement.

3. Pro Forma Net Income per Limited Partner Unit

The pro forma basic and diluted net income per limited partner unit is determined by dividing the limited partners' interests in pro forma net income attributable to MPLX by the weighted-average number of common units outstanding for the period. As there is more than one class of participating securities, the two-class method is used when calculating the net income per unit applicable to limited partners. The classes of securities in the calculation include common units, class B units, subordinated units, general partner units, certain equity-based compensation awards and IDRs. Presented in the tables below, all newly issued units in connection with the Acquisition were assumed to have been outstanding since January 1, 2014. Additionally, net income attributable to the General Partner, IDRs and limited partners was adjusted per the pro forma adjustments; and the pro forma basic and diluted weighted average number of common units equals the actual weighted average number of common units outstanding for each of the periods presented, plus the amount of assumed newly issued units.
(in millions; except exchange ratio)
Six Months Ended
June 30, 2017
 
Year Ended
December 31, 2016
 
Year Ended
December 31, 2015
 
Year Ended
December 31, 2014
Common Units per the Contributions Agreement - basic
19

 
19

 
19

 
19

MPLX weighted average common units outstanding - basic
370

 
331

 
79

 
37

Pro forma MPLX weighted average common units outstanding - basic
389

 
350

 
98

 
56

 
 
 
 
 
 
 
 
Common Units per the Contributions Agreement - diluted
19

 
19

 
19

 
19

MPLX weighted average common units outstanding - diluted
374

 
338

 
80

 
37

Pro forma MPLX weighted average common units outstanding - diluted
393

 
357

 
99

 
56


9


 
June 30, 2017
(in millions; except per unit data)
General Partner
 
Limited Partners'
Common Units
 
Total
Basic and diluted earnings per unit:
 
 
 
 
 
Allocation of earnings:
 
 
 
 
 
   Income attributable to MPLX LP
 
 
 
 
$
397

     Distribution declared on Preferred units
 
 
 
 
33

      Income allocated to participating securities
 
 
 
 

         Income available to unitholders
 
 
 
 
$
364

 
 
 
 
 
 
      Pro forma distributions declared (including IDRs)
$
145

 
$
427

 
$
572

      Pro forma distributions greater than net income
 
 
 
 
 
        attributable to MPLX LP
(4
)
 
(204
)
 
(208
)
         Net income attributable to MPLX LP
 
 
 
 
 
           unitholders - basic
$
141

 
$
223

 
$
364

 
 
 
 
 
 
Pro forma weighted average units outstanding - basic
 
 
389

 
 
Pro forma weighted average units outstanding - diluted
 
 
393

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
  Limited partner unit - basic
 
 
$
0.57

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
  Limited partner unit - diluted
 
 
$
0.57

 
 

 
December 31, 2016
(in millions; except per unit data)
General Partner
 
Limited Partners'
Common Units
 
Total
Basic and diluted earnings per unit:
 
 
 
 
 
Allocation of earnings:
 
 
 
 
 
   Income attributable to MPLX LP
 
 
 
 
$
334

     Distribution declared on Preferred units
 
 
 
 
41

      Income allocated to participating securities
 
 
 
 
1

         Income available to unitholders
 
 
 
 
$
292

 
 
 
 
 
 
      Pro forma distributions declared (including IDRs)
$
217

 
$
731

 
$
948

      Pro forma distributions greater than net income
 
 
 
 
 
        attributable to MPLX LP
(13
)
 
(643
)
 
(656
)
         Net income attributable to MPLX LP
 
 
 
 
 
           unitholders - basic
$
204

 
$
88

 
$
292

 
 
 
 
 
 
Pro forma weighted average units outstanding - basic
 
 
350

 
 
Pro forma weighted average units outstanding - diluted
 
 
357

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
  Limited partner unit - basic
 
 
$
0.25

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
  Limited partner unit - diluted
 
 
$
0.25

 
 


10


 
December 31, 2015
(in millions; except per unit data)
General Partner
 
Limited Partners'
Common Units
 
Limited Partner
Subordinated Units
 
Total
Basic and diluted earnings per unit:
 
 
 
 
 
 
 
Allocation of earnings:
 
 
 
 
 
 
 
   Income attributable to MPLX LP
 
 
 
 
 
 
$
215

      Income allocated to participating securities
 
 
 
 
 
 
1

         Income available to unitholders
 
 
 
 
 
 
$
214

 
 
 
 
 
 
 
 
      Pro forma distributions declared (including IDRs)
$
68

 
$
257

 
$
31

 
$
356

      Pro forma distributions greater than net income
 
 
 
 
 
 
 
        attributable to MPLX LP
(3
)
 
(117
)
 
(22
)
 
(142
)
         Net income attributable to MPLX LP
 
 
 
 
 
 
 
           unitholders - basic
$
65

 
$
140

 
$
9

 
$
214

 
 
 
 
 
 
 
 
Pro forma weighted average units outstanding - basic
 
 
98

 
18

 
 
Pro forma weighted average units outstanding - diluted
 
 
99

 
18

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
 
 
  Limited partner unit - basic
 
 
$
1.44

 
$
0.51

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
 
 
  Limited partner unit - diluted
 
 
$
1.43

 
$
0.51

 
 
 
December 31, 2014
(in millions; except per unit data)
General Partner
 
Limited Partners'
Common Units
 
Limited Partner
Subordinated Units
 
Total
Basic and diluted earnings per unit:
 
 
 
 
 
 
 
Allocation of earnings:
 
 
 
 
 
 
 
   Income attributable to MPLX LP
 
 
 
 
 
 
$
171

      Income allocated to participating securities
 
 
 
 
 
 

         Income available to unitholders
 
 
 
 
 
 
$
171

 
 
 
 
 
 
 
 
      Pro forma distributions declared (including IDRs)
$
7

 
$
81

 
$
52

 
$
140

      Pro forma undistributed net income
 
 
 
 
 
 
 
        attributable to MPLX LP
11

 
11

 
9

 
31

         Net income attributable to MPLX LP
 
 
 
 
 
 
 
           unitholders - basic
$
18

 
$
92

 
$
61

 
$
171

 
 
 
 
 
 
 
 
Pro forma weighted average units outstanding - basic
 
 
56

 
37

 
 
Pro forma weighted average units outstanding - diluted
 
 
56

 
37

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
 
 
  Limited partner unit - basic
 
 
$
1.65

 
$
1.65

 
 
Pro forma net income attributable to MPLX LP per
 
 
 
 
 
 
 
  Limited partner unit - diluted
 
 
$
1.64

 
$
1.65

 
 




11