Report of Independent Registered Public Accounting Firm
To the Management Committee of
Poseidon Oil Pipeline Company, L.L.C.
Houston, Texas
We have audited the statements of operations, cash flows, and members’ equity of Poseidon Oil Pipeline Company L.L.C. (the “Company”) for the year ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and 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 of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing 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 over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of operations and cash flows of Poseidon Oil Pipeline Company L.L.C. for the year ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Houston, Texas
February 17, 2017
SHELL MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
|
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|
December 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
(in millions of dollars)
|
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
208.0
|
|
$
|
137.7
|
Accounts receivable – third parties, net
|
18.8
|
|
17.2
|
Accounts receivable – related parties
|
28.7
|
|
23.8
|
Allowance oil
|
12.7
|
|
12.4
|
Prepaid expenses
|
15.4
|
|
12.5
|
Total current assets
|
283.6
|
|
203.6
|
Equity method investments
|
822.9
|
|
362.6
|
Property, plant and equipment, net
|
742.4
|
|
736.5
|
Other investments
|
62.1
|
|
62.1
|
Other assets – related parties
|
2.5
|
|
1.7
|
Total assets
|
$
|
1,913.5
|
|
$
|
1,366.5
|
LIABILITIES
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable – third parties
|
$
|
4.0
|
|
$
|
4.0
|
Accounts payable – related parties
|
8.9
|
|
11.6
|
Deferred revenue – third parties
|
8.0
|
|
5.5
|
Deferred revenue – related party
|
2.6
|
|
13.9
|
Accrued liabilities – third parties
|
13.0
|
|
12.7
|
Accrued liabilities – related parties
|
15.7
|
|
7.2
|
Total current liabilities
|
52.2
|
|
54.9
|
Noncurrent liabilities
|
|
|
|
Debt payable – related party
|
2,090.7
|
|
1,844.0
|
Lease liability
|
25.1
|
|
24.3
|
Asset retirement obligations
|
—
|
|
6.6
|
Other unearned income
|
2.5
|
|
2.6
|
Total noncurrent liabilities
|
2,118.3
|
|
1,877.5
|
Total liabilities
|
2,170.5
|
|
1,932.4
|
Commitments and Contingencies (Note 14)
|
|
|
|
(DEFICIT) EQUITY
|
|
|
|
Common unitholders – public (123,832,233 and 98,832,233 units issued and outstanding as of December 31, 2018 and December 31, 2017)
|
3,459.3
|
|
2,773.5
|
Common unitholder – SPLC (99,979,548 and 88,950,136 units issued and outstanding as of December 31, 2018 and December 31, 2017)
|
(198.0)
|
|
(507.2)
|
General partner – SPLC (4,567,588 and 3,832,293 units issued and
outstanding as of December 31, 2018 and December 31, 2017)
|
(3,543.7)
|
|
(2,855.5)
|
Total partners’ deficit
|
(282.4)
|
|
(589.2)
|
Noncontrolling interests
|
25.4
|
|
23.3
|
Total deficit
|
(257.0)
|
|
(565.9)
|
Total liabilities and deficit
|
$
|
1,913.5
|
|
$
|
1,366.5
|
The accompanying notes are an integral part of the consolidated financial statements.
SHELL MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
|
|
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|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
(in millions of dollars, except per unit data)
|
|
|
|
|
Revenue
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
$
|
209.4
|
|
$
|
235.6
|
|
$
|
251.5
|
Transportation, terminaling and storage services – related parties
|
228.5
|
|
178.2
|
|
188.3
|
Product revenue – third parties
|
2.2
|
|
—
|
|
—
|
Product revenue – related parties
|
28.5
|
|
—
|
|
—
|
Lease revenue – related parties
|
56.1
|
|
56.3
|
|
13.1
|
Total revenue
|
524.7
|
|
470.1
|
|
452.9
|
Costs and expenses
|
|
|
|
|
|
Operations and maintenance – third parties
|
107.5
|
|
104.1
|
|
76.9
|
Operations and maintenance – related parties
|
54.4
|
|
45.6
|
|
40.0
|
Cost of product sold – third parties
|
7.4
|
|
—
|
|
—
|
Cost of product sold – related parties
|
25.3
|
|
—
|
|
—
|
(Gain) loss from revision of ARO and disposition of fixed assets
|
(3.4)
|
|
0.1
|
|
0.2
|
General and administrative – third parties
|
7.8
|
|
10.1
|
|
9.7
|
General and administrative – related parties
|
51.7
|
|
47.7
|
|
43.7
|
Depreciation, amortization and accretion
|
45.9
|
|
45.0
|
|
43.1
|
Property and other taxes
|
15.9
|
|
17.4
|
|
15.8
|
Total costs and expenses
|
312.5
|
|
270.0
|
|
229.4
|
Operating income
|
212.2
|
|
200.1
|
|
223.5
|
Income from equity method investments
|
234.9
|
|
186.6
|
|
138.1
|
Dividend income from other investments
|
66.8
|
|
37.4
|
|
28.3
|
Other income (loss)
|
31.4
|
|
—
|
|
(0.1)
|
Investment, dividend and other income (loss)
|
333.1
|
|
224.0
|
|
166.3
|
Interest expense, net
|
62.5
|
|
32.2
|
|
12.3
|
Income before income taxes
|
482.8
|
|
391.9
|
|
377.5
|
Income tax expense
|
0.4
|
|
0.1
|
|
—
|
Net income
|
482.4
|
|
391.8
|
|
377.5
|
Less: Net income attributable to the Parent
|
—
|
|
77.3
|
|
102.3
|
Less: Net income attributable to noncontrolling interests
|
18.3
|
|
19.2
|
|
30.3
|
Net income attributable to the Partnership
|
$
|
464.1
|
|
$
|
295.3
|
|
$
|
244.9
|
General partner’s interest in net income attributable to the Partnership
|
$
|
134.4
|
|
$
|
64.6
|
|
$
|
25.0
|
Limited Partners’ interest in net income attributable to the Partnership
|
$
|
329.7
|
|
$
|
230.7
|
|
$
|
219.9
|
|
|
|
|
|
|
Net income per Limited Partner Unit - Basic and Diluted:
|
|
|
|
|
|
Common
|
$
|
1.50
|
|
$
|
1.28
|
|
$
|
1.32
|
Subordinated
|
$
|
—
|
|
$
|
—
|
|
$
|
1.27
|
|
|
|
|
|
|
Distributions per Limited Partner unit:
|
$
|
1.4950
|
|
$
|
1.2461
|
|
$
|
1.0258
|
|
|
|
|
|
|
Weighted average Limited Partner Units outstanding - Basic and Diluted:
|
|
|
|
|
|
Common units - public
|
121.3
|
|
91.4
|
|
80.4
|
Common units - SPLC
|
99.0
|
|
89.0
|
|
21.5
|
Subordinated units - SPLC
|
—
|
|
—
|
|
67.5
|
The accompanying notes are an integral part of the consolidated financial statements.
SHELL MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
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|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
(in millions of dollars)
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
Net income
|
$
|
482.4
|
|
$
|
391.8
|
|
$
|
377.5
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
Depreciation, amortization and accretion
|
45.9
|
|
45.0
|
|
43.1
|
(Gain) loss from revision of ARO and disposition of fixed assets
|
(3.4)
|
|
0.1
|
|
0.2
|
Non-cash interest expense
|
0.9
|
|
0.4
|
|
2.7
|
Allowance oil reduction to net realizable value
|
5.5
|
|
0.3
|
|
—
|
Undistributed equity earnings
|
(5.8)
|
|
(6.5)
|
|
4.1
|
Changes in operating assets and liabilities
|
|
|
|
|
|
Accounts receivable
|
(6.8)
|
|
(7.4)
|
|
0.3
|
Allowance oil
|
(5.8)
|
|
(3.4)
|
|
(4.0)
|
Prepaid expenses and other assets
|
(3.7)
|
|
(6.8)
|
|
(0.1)
|
Accounts payable
|
(6.9)
|
|
8.3
|
|
0.3
|
Deferred revenue and other unearned income
|
(4.3)
|
|
6.0
|
|
7.9
|
Accrued liabilities
|
10.4
|
|
4.6
|
|
(2.8)
|
Net cash provided by operating activities
|
508.4
|
|
432.4
|
|
429.2
|
Cash flows from investing activities
|
|
|
|
|
|
Capital expenditures
|
(49.2)
|
|
(58.0)
|
|
(45.8)
|
Acquisitions from Parent
|
(481.6)
|
|
(420.5)
|
|
(172.8)
|
Third party acquisitions
|
—
|
|
(37.9)
|
|
(42.0)
|
Contributions to investment
|
(28.0)
|
|
(12.0)
|
|
—
|
Purchase price adjustment
|
—
|
|
0.3
|
|
—
|
Return of investment
|
48.2
|
|
18.2
|
|
15.8
|
Other
|
0.3
|
|
—
|
|
—
|
April 2017 Divestiture
|
—
|
|
0.8
|
|
—
|
Net cash used in investing activities
|
(510.3)
|
|
(509.1)
|
|
(244.8)
|
Cash flows from financing activities
|
|
|
|
|
|
Net proceeds from equity offerings
|
973.3
|
|
277.9
|
|
818.1
|
Borrowings under credit facilities
|
1,820.0
|
|
1,693.1
|
|
638.7
|
Repayments of credit facilities
|
(1,572.9)
|
|
(533.1)
|
|
(410.0)
|
Contributions from general partner
|
20.0
|
|
5.8
|
|
9.8
|
Proceeds from April 2017 Divestiture
|
—
|
|
20.2
|
|
—
|
Capital distributions to general partner
|
(738.4)
|
|
(1,034.5)
|
|
(896.3)
|
Distributions to noncontrolling interests
|
(16.4)
|
|
(18.9)
|
|
(30.2)
|
Distributions to unitholders and general partner
|
(423.1)
|
|
(267.8)
|
|
(179.9)
|
Net distributions to Parent
|
—
|
|
(65.6)
|
|
(120.0)
|
Other contributions from Parent
|
11.6
|
|
18.2
|
|
14.4
|
Credit facility issuance costs
|
(1.3)
|
|
(2.4)
|
|
(0.6)
|
Other
|
(0.6)
|
|
(0.6)
|
|
(0.1)
|
Net cash provided by (used in) financing activities
|
72.2
|
|
92.3
|
|
(156.1)
|
Net increase in cash and cash equivalents
|
70.3
|
|
15.6
|
|
28.3
|
Cash and cash equivalents at beginning of the period
|
137.7
|
|
122.1
|
|
93.8
|
Cash and cash equivalents at end of the period
|
$
|
208.0
|
|
$
|
137.7
|
|
$
|
122.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
Change in asset retirement obligation
|
$
|
1.7
|
|
$
|
—
|
|
$
|
(1.0)
|
Change in accrued capital expenditures
|
2.4
|
|
(0.1)
|
|
(1.1)
|
Other non-cash contributions from Parent
|
1.9
|
|
—
|
|
0.2
|
Net assets not contributed to the Partnership
|
—
|
|
(5.1)
|
|
—
|
Other non-cash capital distributions to general partner
|
—
|
|
—
|
|
(7.1)
|
Other non-cash contribution from general partner
|
—
|
|
—
|
|
7.1
|
The accompanying notes are an integral part of the consolidated financial statements.
SHELL MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of dollars)
|
Common Unitholders
Public
|
|
Common Unitholder
SPLC
|
|
Subordinated Unitholder
SPLC
|
|
General Partner
SPLC
|
|
Noncontrolling
Interests
|
|
Net Parent Investment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
$
|
1,637.5
|
|
$
|
(130.4)
|
|
$
|
(409.8)
|
|
$
|
(998.6)
|
|
$
|
108.4
|
|
$
|
425.4
|
|
$
|
632.5
|
Net income
|
107.2
|
|
27.2
|
|
85.5
|
|
25.0
|
|
30.3
|
|
102.3
|
|
377.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from public offerings
|
818.1
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
818.1
|
Contributions from general partner
|
—
|
|
—
|
|
—
|
|
16.9
|
|
—
|
|
—
|
|
16.9
|
Other contributions from Parent
|
—
|
|
—
|
|
—
|
|
3.0
|
|
—
|
|
6.7
|
|
9.7
|
Distributions to unitholders and general partner
|
(77.1)
|
|
(20.9)
|
|
(65.3)
|
|
(16.6)
|
|
—
|
|
—
|
|
(179.9)
|
Net distributions to Parent
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(120.0)
|
|
(120.0)
|
Distribution to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
(30.2)
|
|
—
|
|
(30.2)
|
Capital distributions to general partner
|
—
|
|
—
|
|
—
|
|
(903.4)
|
|
—
|
|
—
|
|
(903.4)
|
Acquisition of noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
(87.0)
|
|
—
|
|
(87.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
$
|
2,485.7
|
|
$
|
(124.1)
|
|
$
|
(389.6)
|
|
$
|
(1,873.7)
|
|
$
|
21.5
|
|
$
|
414.4
|
|
$
|
534.2
|
Net income
|
118.4
|
|
112.3
|
|
—
|
|
64.6
|
|
19.2
|
|
77.3
|
|
391.8
|
Net proceeds from public offerings
|
277.9
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
277.9
|
Contributions from general partner
|
—
|
|
—
|
|
—
|
|
5.8
|
|
—
|
|
—
|
|
5.8
|
Other contributions from Parent
|
—
|
|
—
|
|
—
|
|
17.1
|
|
—
|
|
—
|
|
17.1
|
Distributions to unitholders and general partner
|
(108.5)
|
|
(87.1)
|
|
(18.7)
|
|
(53.5)
|
|
—
|
|
—
|
|
(267.8)
|
Net distributions to Parent
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(65.6)
|
|
(65.6)
|
Distribution to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
(18.9)
|
|
—
|
|
(18.9)
|
Proceeds from April 2017 divestiture
|
—
|
|
—
|
|
—
|
|
18.7
|
|
1.5
|
|
—
|
|
20.2
|
Expiration of subordinated period
|
—
|
|
(408.3)
|
|
408.3
|
|
—
|
|
—
|
|
—
|
|
—
|
Acquisitions from Parent
|
—
|
|
—
|
|
—
|
|
(1,034.5)
|
|
—
|
|
(420.5)
|
|
(1,455.0)
|
Net assets not contributed to the partnership
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(5.6)
|
|
(5.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
$
|
2,773.5
|
|
$
|
(507.2)
|
|
$
|
—
|
|
$
|
(2,855.5)
|
|
$
|
23.3
|
|
$
|
—
|
|
$
|
(565.9)
|
Impact of change in accounting policy (Note 3)
|
(1.4)
|
|
1.0
|
|
—
|
|
(2.2)
|
|
0.3
|
|
—
|
|
(2.3)
|
Net income
|
182.4
|
|
147.3
|
|
—
|
|
134.4
|
|
18.3
|
|
—
|
|
482.4
|
Net proceeds from equity offerings
|
673.3
|
|
300.0
|
|
—
|
|
—
|
|
—
|
|
—
|
|
973.3
|
Contributions from general partner
|
—
|
|
—
|
|
—
|
|
20.0
|
|
—
|
|
—
|
|
20.0
|
Other contributions from Parent
|
—
|
|
—
|
|
—
|
|
13.5
|
|
(0.1)
|
|
—
|
|
13.4
|
Distributions to unitholders and general partner
|
(168.5)
|
|
(139.1)
|
|
—
|
|
(115.5)
|
|
—
|
|
—
|
|
(423.1)
|
Distribution to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
—
|
|
(16.4)
|
|
—
|
|
(16.4)
|
May 2018 Acquisition
|
—
|
|
—
|
|
—
|
|
(738.4)
|
|
—
|
|
—
|
|
(738.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
$
|
3,459.3
|
|
$
|
(198.0)
|
|
$
|
—
|
|
$
|
(3,543.7)
|
|
$
|
25.4
|
|
$
|
—
|
|
$
|
(257.0)
|
The accompanying notes are an integral part of the consolidated financial statements.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except as noted within the context of each note disclosure, the dollar amounts presented in the tabular data within these note disclosures are stated in millions of dollars.
1. Description of Business and Basis of Presentation
Shell Midstream Partners, L.P. (“we,” “us,” “our” or “the Partnership”) is a Delaware limited partnership formed by Royal Dutch Shell plc on March 19, 2014 to own and operate pipeline and other midstream assets, including certain assets received from Shell Pipeline Company LP (“SPLC”) and its affiliates. We conduct our operations either through our wholly owned subsidiary Shell Midstream Operating, LLC (“Operating Company”) or through direct ownership. Our general partner is Shell Midstream Partners GP LLC (“general partner” or “sponsor”). References to “RDS”, “Shell” or “Parent” refer collectively to Royal Dutch Shell plc and its controlled affiliates, other than us, our subsidiaries and our general partner. Our common units trade on the New York Stock Exchange under the symbol “SHLX.”
Description of Business
We are a growth-oriented master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets. As of December 31, 2018, our assets include interests in entities that own crude oil and refined products pipelines and terminals that serve as key infrastructure to (i) transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and (ii) deliver refined products from those markets to major demand centers. Our assets also include interests in entities that own natural gas and refinery gas pipelines which transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.
We generate revenue from the transportation, terminaling and storage of crude oil and refined products through our pipelines and storage tanks, and generate income from our equity and cost method investments. Our operations consist of one reportable segment.
The following table reflects our ownership, and Shell’s retained ownership as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
SHLX Ownership
|
|
Shell’s Retained Ownership
|
Pecten Midstream LLC (“Pecten”)
|
100.0
|
%
|
|
—
|
%
|
Sand Dollar Pipeline LLC (“Sand Dollar”)
|
100.0
|
%
|
|
—
|
%
|
Triton West LLC (“Triton”)
|
100.0
|
%
|
|
—
|
%
|
Zydeco Pipeline Company LLC (“Zydeco”)
|
92.5
|
%
|
|
7.5
|
%
|
Amberjack Pipeline Company LLC (“Amberjack”) – Series A/Series B
|
75.0% / 50.0%
|
|
|
—
|
%
|
Mars Oil Pipeline Company LLC (“Mars”)
|
71.5
|
%
|
|
—
|
%
|
Odyssey Pipeline L.L.C. (“Odyssey”)
|
71.0
|
%
|
|
—
|
%
|
Bengal Pipeline Company LLC (“Bengal”)
|
50.0
|
%
|
|
—
|
%
|
Crestwood Permian Basin LLC (“Permian Basin”)
|
50.0
|
%
|
|
—
|
%
|
LOCAP LLC (“LOCAP”)
|
41.48
|
%
|
|
—
|
%
|
Poseidon Oil Pipeline Company, L.L.C. (“Poseidon”)
|
36.0
|
%
|
|
—
|
%
|
Explorer Pipeline Company (“Explorer”)
|
12.62
|
%
|
|
25.97
|
%
|
Proteus Oil Pipeline Company, LLC (“Proteus”)
|
10.0
|
%
|
|
—
|
%
|
Endymion Oil Pipeline Company, LLC (“Endymion”)
|
10.0
|
%
|
|
—
|
%
|
Colonial Pipeline Company (“Colonial”)
|
6.0
|
%
|
|
10.12
|
%
|
Cleopatra Gas Gathering Company, LLC (“Cleopatra”)
|
1.0
|
%
|
|
—
|
%
|
Basis of Presentation
Our consolidated financial statements include all subsidiaries required to be consolidated under generally accepted accounting principles in the United States (“GAAP”). Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars. The accompanying consolidated financial statements and related notes have been prepared under the rules and regulations of the Securities and Exchange Commission (the “SEC”). These rules and regulations conform to the accounting principles contained in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, the single source of GAAP.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Our consolidated subsidiaries include Pecten, Sand Dollar, Triton, Zydeco, Odyssey and the Operating Company. Asset acquisitions of additional interests in previously consolidated subsidiaries and interests in equity method and other investments are included in the financial statements prospectively from the effective date of each acquisition. In cases where these types of acquisitions are considered acquisitions of businesses under common control, the financial statements are retrospectively adjusted. The following businesses were acquired from our Parent and accounted for as acquisitions of businesses under common control. As such, our consolidated financial statements include the financial results of these businesses, which were derived from the financial statements and accounting records of SPLC and Shell for the periods prior to acquisition. Specifically, such businesses are reflected for the following periods prior to the effective date of such acquisitions by us:
•May 2017 Acquisition for periods prior to May 10, 2017; and
•December 2017 Acquisition for periods prior to December 1, 2017, including the effect of fully consolidating Odyssey.
Our consolidated statements of income, cash flows and changes in equity for 2017 and 2016 consist of the combined results of the May 2017 Acquisition and the December 2017 Acquisition prior to the respective acquisition dates, and the consolidated activity of the Partnership. Our consolidated statements of income exclude the results of these businesses from net income attributable to the Partnership for the periods indicated above by allocating these results to our Parent. See Note 4 - Acquisitions and Divestiture for definitions and additional information.
Expense Allocations. Our consolidated statements of income also include expense allocations for certain functions performed by SPLC and Shell on behalf of the above businesses prior to their respective dates of acquisition by us. Such costs are included in either general and administrative expenses or operations and maintenance expenses in the accompanying consolidated statements of income, depending on the nature of the employee’s role in our operations. The expense allocations have been determined on a basis that we, SPLC and Shell consider to be a reasonable reflection of the utilization of the services provided or the benefit received during the periods presented.
Beginning July 1, 2014, Zydeco entered into an operating and management agreement with SPLC (the “Management Agreement”) under which SPLC provides general management and administrative services to us. Therefore, we do not receive allocated corporate expenses from SPLC or Shell under this agreement. We receive direct and allocated field and regional expenses including payroll expenses not covered under the Management Agreement. In addition, beginning from October 1, 2015, Pecten entered into an operating and management agreement under which we receive direct and allocated field and regional expenses from SPLC. Beginning May 10, 2017, Sand Dollar entered into an operating and administrative management agreement under which we receive allocated expenses from SPLC. On December 1, 2017, our general partner, SPLC and Triton West entered into an operating and administrative management agreement. Our general partner provides certain operational and support services pursuant to the agreement. The necessary personnel are employed by SPLC and are assigned to our general partner. Triton West is allocated costs in connection with the services. On December 1, 2017, our general partner, SPLC and Odyssey entered into an operating and administrative management agreement pursuant to which we receive direct and allocated expenses from our general partner. The expenses under these agreements are primarily allocated to us on the basis of headcount, labor or other measure. These expense allocations have been determined on a basis that both SPLC and we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented. See details of related party transactions in Note 5 — Related Party Transactions.
Cash. For all consolidated subsidiaries, we establish our own cash accounts for the funding of our operating and investing activities, with the exception of the capital expenditures incurred by SPLC on our behalf and then contributed to us. Funds are not commingled with the cash of other entities. Prior to the acquisition of each of these interests, the cash generated and used by our operations was deposited to Shell Treasury Center (West) Inc. (“STCW”) which was commingled with the cash of other entities controlled by Shell. STCW funded our operating activities and STCW or an affiliate funded investing activities as needed. Accordingly, we did not record any cash and cash equivalents held by SPLC on our behalf for any period prior to the effective date of each acquisition from Shell.
2. Summary of Significant Accounting Policies
Principles of Consolidation
Our consolidated financial statements include all subsidiaries where we have control. The assets and liabilities in the accompanying consolidated financial statements have been reflected on a historical basis. All significant intercompany accounts and transactions are eliminated upon consolidation. See Note 1 — Description of the Business and Basis of Presentation for additional details.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Regulation
Certain businesses are subject to regulation by various authorities including, but not limited to the FERC. Regulatory bodies exercise statutory authority over matters such as construction, rates and ratemaking and agreements with customers.
Net Parent Investment
Net Parent Investment represents Shell’s historical investment in us, our accumulated net earnings through the date which we completed the acquisition, and the net effect of transactions with, and allocations from, SPLC and Shell.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported of assets, liabilities, revenues and expenses in the accompanying consolidated financial statements and notes. Actual results could differ from those estimates.
Common Control Transactions
Assets and businesses acquired from our Parent and its subsidiaries are accounted for as common control transactions whereby the net assets acquired are combined with ours at our Parent’s historical carrying value. If any recognized consideration transferred in such a transaction exceeds the carrying value of the net assets acquired, the excess is treated as a capital distribution to our General Partner, similar to a dividend. If the carrying value of the net assets acquired exceeds any recognized consideration transferred including, if applicable, the fair value of any limited partner units issued, then our Parent would record an impairment and our net assets acquired would be recorded at fair value. To the extent that such transactions require prior periods to be retrospectively adjusted, historical net equity amounts prior to the transaction date are reflected in “Net Parent Investment.” Cash consideration up to the carrying value of net assets acquired is presented as an investing activity in our consolidated statement of cash flows. Cash consideration in excess of the carrying value of net assets acquired is presented as a financing activity in our consolidated statement of cash flows. Assets and businesses sold to our Parent are also common control transactions accounted for using historical carrying value with any resulting gain treated as a contribution from Parent.
Revenue Recognition
Our revenues are primarily generated from the transportation, terminaling and storage of crude oil, refined gas and refined petroleum products through our pipelines, terminals and storage tanks. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
See Note 3 — Revenue Recognition for information and disclosures related to revenue from contracts with customers.
Cash and Cash Equivalents
Our cash and cash equivalents includes cash and short-term highly liquid overnight deposits.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represent valid claims against customers for products sold or services rendered, net of allowances for
doubtful accounts. We assess the creditworthiness of our counterparties on an ongoing basis and require security, including
prepayments and other forms of collateral, when appropriate. We establish provisions for losses on accounts receivable due
from shippers and operators if we determine that we will not collect all or part of the outstanding balance. Outstanding
customer receivables are regularly reviewed for possible nonpayment indicators, and allowances for doubtful accounts are
recorded based upon management’s estimate of collectability at each balance sheet date. As of December 31, 2018 and 2017, we did not have any allowance for doubtful accounts.
Equity Method Investments
We account for investments where we have the ability to exercise significant influence, but not control, under the equity method of accounting. Income from equity method investments represents our proportionate share of net income generated by the equity method investees. Differences in the basis of the investments and the underlying net asset value of the investees, if any, are amortized into net income over the remaining useful lives of the underlying assets. Equity method investments are assessed for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred, if the loss is deemed to
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
be other than temporary. When the loss is deemed to be other than temporary, the carrying value of the equity method investment is written down to fair value.
Property, Plant and Equipment
Our property, plant and equipment is recorded at its historical cost of construction or, upon acquisition, at either the fair value of the assets acquired or the historical carrying value to the entity that placed the asset in service. Expenditures for major renewals and betterments are capitalized while those minor replacement, maintenance, and repairs which do not improve or extend asset life are expensed when incurred. For constructed assets, we capitalize all construction-related direct labor and material costs, as well as indirect construction costs. We capitalize interest on certain projects. For 2018, 2017 and 2016, the total amount of interest capitalized was immaterial.
We use the straight-line method to depreciate property, plant and equipment based on the estimated useful life of the asset. We report gains or losses on dispositions of fixed assets as (Gain) loss from revision of ARO and disposition of fixed assets in the accompanying consolidated statements of income.
Impairment of Long-lived Assets
We evaluate long-lived assets of identifiable business activities for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such assets may not be recoverable. These events include a significant decrease in the market value of the asset, changes in the manner in which we intend to use a long-lived asset, decisions to sell an asset and adverse changes in the legal or business environment such as adverse actions by regulators. If an event occurs, which is a determination that involves judgment, we perform an impairment assessment by comparing estimated undiscounted future cash flows associated with the asset to the asset’s net book value. If the net book value exceeds our estimate of undiscounted future cash flows, an impairment is calculated as the amount the net book value exceeds the estimated fair value associated with the asset. We determined that there were no asset impairments in 2018, 2017 or 2016.
Income Taxes
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income are generally borne by our partners through the allocation of taxable income. Our income tax expense results from partnership activity in the state of Texas, as conducted by Zydeco, Sand Dollar and Triton. Income tax expense for 2018, 2017 and 2016 was immaterial.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was signed into law by President Trump. The TCJA makes broad and complex changes to the Internal Revenue Code of 1986, including, but not limited to, (1) creating a new deduction on certain pass-through income to individual partners; (2) repealing the partnership technical termination rule; (3) creating new limitations on certain deductions and credits, including interest expense deductions; and (4) reducing the highest marginal U.S. federal corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. With the exception of the operations of Colonial, Explorer and LOCAP, which are treated as corporations for federal income tax purposes, the operations of the Partnership are not subject to federal income tax, and therefore, the legislation did not have a material impact to the Partnership for 2018.
Other Investments
We account for equity investments in entities where we do not have control or significant influence at fair value with changes in fair value recognized in net income when the fair value is readily determinable. For investments without readily determinable fair values, we carry such investments at cost less impairments, if any. These investments are remeasured at fair value either upon the occurrence of an observable price change or upon identification of impairment. These investments are reported as Other investments in our consolidated balance sheets and dividends received are reported in Dividend income from other investments in our consolidated income statements. We have the following three equity investments which are accounted for at cost as they do not have readily determinable fair values:
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
December 31, 2017
|
|
|
|
Ownership
|
|
Amount
|
|
Ownership
|
|
Amount
|
Colonial
|
6.00
|
%
|
|
$
|
11.4
|
|
6.00
|
%
|
|
$
|
11.4
|
Explorer (1)
|
12.62
|
%
|
|
48.6
|
|
12.62
|
%
|
|
48.6
|
Cleopatra
|
1.00
|
%
|
|
2.1
|
|
1.00
|
%
|
|
2.1
|
|
|
|
$
|
62.1
|
|
|
|
$
|
62.1
|
(1) As part of the December 2017 Acquisition, our ownership in Explorer increased from 2.62% to 12.62% and we continued to account for this investment as a cost method investment as of December 31, 2018 and December 31, 2017. Our voting interest is in line with our percentage ownership and key governance issues pertaining to Explorer require a majority vote. Consequently, we do not control or exercise significant influence over Explorer.
During the year ended December 31, 2018 we did not identify the occurrence of an observable price change or an identification of impairment for these three equity investments.
Asset Retirement Obligations
Asset retirement obligations (“AROs”) represent contractual or regulatory obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. Our AROs were zero and $6.6 million, respectively, as of December 31, 2018 and 2017. The decrease in the ARO balance resulted from revisions to an ARO on the Odyssey pipeline.
Our assets include pipelines and terminals that have contractual or regulatory obligations that will need to be settled at retirement. The settlement date of these obligations will depend mostly on the various supply sources that connect to our systems and the ongoing demand for usage in the markets we serve. We expect these supply sources and market demands to continue for the foreseeable future. As the settlement dates of obligations are indeterminate, there is not sufficient information to make a reasonable estimate of the ARO of our remaining assets as of December 31, 2018 and 2017.
We continue to evaluate our AROs and future developments could impact the amounts we record.
Pensions and Other Postretirement Benefits
We do not have our own employees. Employees that work on our pipelines or terminal are employees of SPLC and we share employees with other SPLC-controlled and non-controlled entities. For presentation of these accompanying consolidated financial statements, our portion of payroll costs and employee benefit plan costs have been allocated as a charge to us by SPLC and Shell Oil Company. Shell Oil Company sponsors various employee pension and postretirement health and life insurance plans. For purposes of these accompanying consolidated financial statements, we are considered to be participating in the benefit plans of Shell Oil Company. We participate in the following defined benefits plans: Shell Oil Pension Plan, Shell Oil Retiree Health Care Plan, and Pennzoil-Quaker State Retiree Medical & Life Insurance. As a participant in these benefit plans, we recognize as expense in each period an allocation from Shell Oil Company, and we do not recognize any employee benefit plan assets or liabilities. See Note 5 — Related Party Transactions for total pension and benefit expenses under these plans.
Legal
We are subject to litigation and regulatory proceedings as the result of our business operations and transactions. We use both internal and external counsel in evaluating our potential exposure to adverse outcomes from orders, judgments or settlements. In general, we expense legal costs as incurred. When we identify specific litigation that is expected to continue for a significant period of time, is probable to occur and may require substantial expenditures, we identify a range of possible costs expected to be required to litigate the matter to a conclusion or reach an acceptable settlement, and we accrue for the most probable outcome. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, our earnings will be affected.
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their economic benefit. We expense costs such as permits, compliance with existing environmental regulations, remedial investigations, soil sampling, testing and monitoring costs to meet applicable environmental laws and regulations where prudently incurred or determined to be reasonably possible in the ordinary course of business. We are permitted to recover such expenditures through tariff rates charged to customers. We also expense costs that relate to an existing
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
condition caused by past environmental incidents, which do not contribute to current or future revenue generation. We record environmental liabilities when environmental assessments and/or remedial efforts are probable and we can reasonably estimate the costs. Generally, our recording of these accruals coincides with our completion of a feasibility study or our commitment to a formal plan of action. We recognize receivables for anticipated associated insurance recoveries when such recoveries are deemed to be probable.
For 2018, 2017 and 2016, we incurred $0.1 million, $0.4 million, and $0.1 million, respectively, of environmental cleanup costs. At both December 31, 2018 and 2017, we had accruals for $0.3 million for environmental clean-up costs pursuant to a Consent Decree issued in 1998 by the State of Washington Department of Ecology with respect to our products terminal located in Seattle, Washington. The costs relate to ongoing groundwater compliance monitoring and other remedial activities. Refer to Note 5 — Related Party Transactions under the Omnibus Agreement for additional details.
We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income statement in the period in which they are probable and reasonably estimable.
Other Contingencies
We recognize liabilities for other contingencies when we have an exposure that indicates it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Where the most likely outcome of a contingency can be reasonably estimated, we accrue a liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is more likely than any other, the lower end of the range is accrued.
Fair Value Estimates
We measure assets and liabilities requiring fair value presentation or disclosure using an exit price (i.e., the price that would be received to sell an asset or paid to transfer a liability) and disclose such amounts according to the quality of valuation inputs under the following hierarchy:
Level 1: Quoted prices in an active market for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are directly or indirectly observable.
Level 3: Unobservable inputs that are significant to the fair value of assets or liabilities.
We classify the fair value of an asset or liability based on the lowest level of input significant to its measurement. A fair value initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement, or corroborating market data becomes available. Asset and liability fair values initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable.
The carrying amounts of our accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature.
Net income per limited partner unit
Net income per unit applicable to common limited partner units, and to subordinated limited partner units in periods prior to the expiration of the subordination period, is computed by dividing the respective limited partners’ interest in net income attributable to the partnership for the period by the weighted average number of common units and subordinated units, respectively, outstanding for the period. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, general partner units, and incentive distribution rights (“IDR’s”). Basic and diluted net income per unit are the same because we do not have any potentially dilutive units outstanding for the period presented.
Our net income includes earnings related to businesses acquired through transactions between entities under common control for periods prior to their acquisition by us. We have allocated these pre-acquisition earnings to our General Partner.
On February 15, 2017, all of the subordinated units converted into common units following the payment of the cash distribution for the fourth quarter of 2016. See Note 11 — (Deficit) Equity for additional information.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
Standards Adopted as of January 1, 2018
In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09 to Topic 606, Revenue from Contracts with Customers, which superseded revenue recognition guidance in Topic 605, Revenue Recognition, under GAAP. We adopted the new standard utilizing the modified retrospective transition approach, effective January 1, 2018, by recognizing the cumulative effect of initially applying the standard for periods prior to January 1, 2018 to the opening balance of (deficit) equity. See Note 3 — Revenue Recognition for additional information and disclosures required by the new standard.
Under the new standard, the adoption date for the majority of our equity method investments will follow the non-public business entity adoption date of January 1, 2019 for their stand-alone financial statements, with the exception of Mars and Permian Basin, which adopted on January 1, 2018. Accordingly, Amberjack will recognize a cumulative effect transition adjustment to equity of $18.9 million under the modified retrospective transition method as of January 1, 2019. The adjustment is related to its dedication and transportation agreements which contain tiered pricing arrangements resulting in a deferral of revenue. We will recognize our proportionate share of this Amberjack non-cash cumulative effect transition adjustment to decrease opening equity by $9.4 million at the transition date. The adoption of the new standard by our other equity method investments is not expected to be material.
In January 2017, the FASB issued ASU 2017-01 to Topic 805, Business Combinations, to clarify the definition of a business and to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This update was effective for us as of January 1, 2018. There was no impact on our financial statements as a result of this adoption in relation to our acquisition during the second quarter of 2018.
In August 2016, the FASB issued ASU 2016-15 to Topic 230, Statement of Cash Flows, making changes to the classification of certain cash receipts and cash payments in order to reduce diversity in presentation. The update addresses eight specific cash flow issues, of which only one is applicable to our financial statements. The applicable update relates to distributions received from equity method investees and prescribes two options for presenting these cash flows: cumulative earnings approach or nature of the distribution approach. We will continue to apply the cumulative earnings approach, where distributions received are considered either returns on investment and classified as operating cash flows or returns of investment and classified as investing cash flows. The adoption of this update on January 1, 2018 did not have a material impact on our financial statements.
In January 2016, the FASB issued ASU 2016-01 to Topic 825, Financial Instruments — Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Additionally, the update allows equity investments that do not have readily determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification of impairment, and requires additional disclosure around those investments. As these equity investments do not have readily determinable fair values, the adoption of this update on January 1, 2018 did not have a material impact on our financial statements.
Standards Not Adopted as of December 31, 2018
In February 2016, the FASB issued ASU 2016-02 to Topic 842, Leases, which requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either a financing lease or operating lease with classification affecting the pattern of expense recognition in the consolidated statements of income and presentation of cash flows in the consolidated statements of cash flows. This update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. For lessors, this update modifies the classification criteria and the accounting for sales-type and direct financing leases. This update is effective on a modified retrospective basis for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are adopting the new standard using the modified retrospective transition approach, effective January 1, 2019. We do not expect to recognize any cumulative effect of initially applying the standard for periods prior to January 1, 2019. We have completed the identification and aggregation of our lease contract population. We have also completed our review of these lease contracts to determine the transition approach as well as any necessary changes to existing processes and controls. The adoption will impact our consolidated financial statements and related disclosures as we will recognize right-of-use assets of approximately $4.7 million and corresponding lease liabilities for operating lease liabilities (where we are the lessee) of approximately $4.7 million. We do not expect an impact from adoption on our consolidated financial statements where we are the lessor.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We will elect the practical expedients upon transition that will retain the lease classification and initial direct costs for any leases that exist prior to adoption. As such, we are not required to reassess whether any contracts entered into prior to adoption are leases. In January 2018, the FASB issued ASU 2018-01 to provide an optional transition practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under existing guidance. We will elect this practical expedient. In July 2018, the FASB issued ASU 2018-11 which provides entities an optional transitional relief method that allows entities to not apply the new guidance in the comparative periods they present in their financial statements in the year of adoption. This update also provides an optional practical expedient for lessors to avoid separating lease and associated non-lease components within a contract if certain criteria are met. We will elect all these most recent practical expedients with the exception of the practical expedient to avoid separating lease and non-lease components within a contract and will continue to evaluate all other available transition practical expedients offered in connection with the new standard.
Under the new standard, the adoption date for our equity method investments will follow the non-public business entity adoption date of January 1, 2020 for their stand-alone financial statements.
In June 2016, the FASB issued ASU 2016-13 to Topic 326, Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment method with a method that reflects expected credit losses on financial instruments. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for fiscal years beginning after December 15, 2018. While we are still evaluating the impact of ASU 2016-13, we do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Revenue Recognition
Adoption of ASC Topic 606 “Revenue from Contracts with Customers”
On January 1, 2018, we adopted Topic 606 and all related ASU’s to this Topic (collectively, “the new revenue standard”) by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with the new revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous GAAP.
We recorded a non-cash cumulative effect transition adjustment to increase opening equity by $4.6 million, with the impact primarily due to the earlier recognition of revenue related to deficiency payments under minimum volume commitment contracts. Additionally, we recorded a non-cash cumulative effect transition adjustment for $6.9 million related to our equity method investment for Mars. The Mars adjustment related to its transportation and dedication agreement and method of recognition as a stand-ready obligation which results in a deferral of the recognition of revenue over the life of the contract, whereas under previous GAAP, revenue was recognized upon physical delivery. See Note 6 - Equity Method Investments for additional information. These adjustments resulted in a total net decrease to our total opening equity of $2.3 million.
Revenue Recognition
The new revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.
Our revenues are primarily generated from the transportation, terminaling and storage of crude oil, refinery gas and refined petroleum products through our pipelines, terminals and storage tanks. To identify the performance obligations, we considered all the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when each performance obligation is satisfied under the terms of the contract.
Each barrel of product transported or day of services provided is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on a measure of progress of volumes transported for transportation services contracts or number of days elapsed for storage and terminaling services contracts.
Product revenue related to allowance oil sales is recognized at the point in time when the control of the oil transfers to the customer.
For all performance obligations, payment is typically due in full within 30 days of the invoice date.
Disaggregation of Revenue
The following table provides information about disaggregated revenue by service type and customer type:
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017 (1)
|
|
2016 (1)
|
Transportation services revenue – third parties
|
|
$
|
200.9
|
|
$
|
226.9
|
|
$
|
242.9
|
Transportation services revenue – related parties (2)
|
|
176.1
|
|
172.2
|
|
179.7
|
Total transportation services revenue
|
|
377.0
|
|
399.1
|
|
422.6
|
|
|
|
|
|
|
|
Storage services revenue – third parties
|
|
8.5
|
|
8.7
|
|
8.6
|
Storage services revenue – related parties
|
|
6.7
|
|
6.0
|
|
8.6
|
Total storage services revenue
|
|
15.2
|
|
14.7
|
|
17.2
|
|
|
|
|
|
|
|
Terminaling services revenue – third parties
|
|
—
|
|
—
|
|
—
|
Terminaling services revenue – related parties
|
|
45.7
|
|
—
|
|
—
|
Total terminaling services revenue (3)
|
|
45.7
|
|
—
|
|
—
|
|
|
|
|
|
|
|
Product revenue – third parties
|
|
2.2
|
|
—
|
|
—
|
Product revenue – related parties
|
|
28.5
|
|
—
|
|
—
|
Total product revenue (4)
|
|
30.7
|
|
—
|
|
—
|
|
|
|
|
|
|
|
Total Topic 606 revenue
|
|
468.6
|
|
N/A
|
|
N/A
|
Lease revenue – related parties
|
|
56.1
|
|
56.3
|
|
13.1
|
Total revenue
|
|
$
|
524.7
|
|
$
|
470.1
|
|
$
|
452.9
|
(1) As noted above, prior period amounts have not been adjusted under the modified retrospective method.
(2) Transportation services revenue — related parties for 2018 includes $4.7 million of non-lease component in our transportation services contract.
(3) Terminaling services revenue for 2018 is entirely comprised of the non-lease service component in our terminaling services contracts.
(4) Product revenue for 2018 is comprised of allowance oil sales.
Transportation services revenue
We have both long-term transportation contracts and month-to-month contracts for spot shippers that make nominations on our pipelines. Some of the long-term contracts entitle the customer to a specified amount of guaranteed capacity on the pipeline. Transportation services are charged at a per barrel rate or other applicable unit of measure. We apply the allocation exception guidance for variable consideration related to market indexing for long-term transportation contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service which is consistent with the allocation objective. Except for guaranteed capacity payments as discussed below, transportation services are billed monthly as services are rendered.
Our contracts and tariffs contain terms for the customer to reimburse us for losses from evaporation or other loss in transit in the form of allowance oil. Allowance oil represents the net difference between the tariff PLA volumes and the actual volumetric losses. We obtain control of the excess oil not lost during transportation, if any. Under the new revenue standard, we include the excess oil retained during the period, if any, as non-cash consideration and include this amount in the transaction price for transportation services on a net basis. Our allowance oil is valued at the lower of cost or net realizable value using the average market price of the relevant type of crude oil during the month product was transported. Gains from pipeline operations that relate to allowance oil are recorded in Operations and maintenance expenses in the accompanying consolidated statements of income.
As a result of FERC regulations, revenues we collect may be subject to refund. We establish reserves for these potential refunds based on actual expected refund amounts on the specific facts and circumstances. We had no reserves for potential refunds as of December 31, 2018 and 2017.
Deferred revenue
Our FERC-approved transportation services agreements on Zydeco entitle the customer to a specified amount of guaranteed capacity on the pipeline. This capacity cannot be pro-rated even if the pipeline is oversubscribed. In exchange, the customer
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
makes a specified monthly payment regardless of the volume transported. If the customer does not ship its full guaranteed volume in a given month, it makes the full monthly cash payment (i.e., deficiency payments) and it may ship the unused volume in a later month for no additional cash payment for up to 12 months, subject to availability on the pipeline. The cash payment received is recognized as deferred revenue, a contract liability under the new revenue standard. If there is insufficient capacity on the pipeline to allow the unused volume to be shipped, the customer forfeits its right to ship such unused volume. We do not refund any cash payments relating to unused volumes.
Prior to January 1, 2018, deferred revenue under these arrangements was previously recognized into revenue once all contingencies or potential performance obligations associated with the related volumes had been satisfied or expired. Under the new revenue standard, we are required to estimate the likelihood that unused volumes will be shipped or forfeited at each reporting period based on additional data that becomes available and only to the extent that it is probable that a significant reversal of revenue will not occur. In some cases, this estimate could result in the earlier recognition of revenue.
Storage and terminaling services revenue
Storage and terminaling services are provided under short-term and long-term contracts, with a fixed price per month for committed storage and terminaling capacity, or under a monthly spot-rate for uncommitted storage or terminaling. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on the number of days elapsed. We apply the allocation exception guidance for variable consideration related to market indexing for long-term contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service which is consistent with the allocation objective. Storage and terminaling services are billed monthly as services are rendered.
Reimbursements from customers
Under certain transportation, terminaling and storage service contracts, we receive reimbursements from customers to recover costs of construction, maintenance or operating costs either under a tariff surcharge per volume shipped or under separate reimbursement payments. Because we consider these amounts as consideration from customers associated with ongoing services to be provided to customers, we defer these payments in deferred revenue and recognize amounts in revenue over the life of the associated revenue contract as performance obligations are satisfied under the contract. We consider these payments to be revenue because control of the long-lived assets does not transfer to our customer upon completion. Our financial statements were not materially impacted by adoption of the new revenue standard related to reimbursements from customers.
Lease revenue
Certain of our long-term transportation and terminaling services contracts with related parties are accounted for as operating leases under Topic 840, Leases. These agreements have both a lease component and an implied operation and maintenance service component (“non-lease service component”). We allocate the arrangement consideration between the lease components that fall within the scope of Topic 840 and any non-lease service components within the scope of the new revenue standard based on the relative stand-alone selling price of each component. We estimate the stand-alone selling price of the lease and non-lease service components based on an analysis of service-related and lease-related costs for each contract, adjusted for a representative profit margin. The contracts have a minimum fixed monthly payment for both the lease and non-lease service components. We present the non-lease service components under the new revenue standard within Transportation, terminaling and storage services – related parties in the consolidated statement of income.
Revenues from the lease components of these agreements are recorded within Lease revenue – related parties in the consolidated statement of income. Certain of these agreements were each entered into for terms of ten years, with the option to extend for two additional five year terms and we have additional agreements with an initial term of ten years with the option to extend for up to ten additional one-year terms. As of December 31, 2018, future minimum payments to be received under the ten-year contract term of these operating leases were estimated to be:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than 1 year
|
|
Years 2 to 3
|
|
Years 4 to 5
|
|
More than 5 years
|
Operating leases
|
|
$
|
933.4
|
|
$
|
107.7
|
|
$
|
215.5
|
|
$
|
215.5
|
|
$
|
394.7
|
Product revenue
We generate revenue by selling accumulated allowance oil inventory to customers. Sale of allowance oil is recorded as product revenue, with specific cost based on a weighted average price per barrel recorded as cost of product sold.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Prior to the adoption of the new revenue standard, allowance oil received was recorded as revenue on a gross basis with the resulting actual gain or loss recorded in operations and maintenance expenses. The subsequent sale of allowance oil, net of the product cost, was recorded as operations and maintenance expenses.
Joint tariff
Under a certain joint tariff, revenues were historically recorded on a net basis as an agent prior to the adoption of the new revenue standard. However, subsequent to the adoption of the new revenue standard, because we control the transportation service before it is transferred to the customer, we are the principal and, therefore, record revenues from these agreements on a gross basis within Transportation, terminaling and storage services – third parties or related parties.
Impact of adoption
In accordance with the new revenue standard, the following tables summarize the impact of adoption on our consolidated financial statements as of and for the year ended December 31, 2018:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
Consolidated Statement of Income
|
|
As Reported Under Topic 606
|
|
Amounts Without Adoption of Topic 606
|
|
Effect of Change Increase/(Decrease)
|
Revenue
|
|
|
|
|
|
|
Transportation, terminaling and storage services – third parties
|
|
$
|
209.4
|
|
$
|
209.2
|
|
$
|
0.2
|
Transportation, terminaling and storage services – related parties
|
|
228.5
|
|
183.4
|
|
45.1
|
Product revenue – third parties
|
|
2.2
|
|
—
|
|
2.2
|
Product revenue – related parties
|
|
28.5
|
|
—
|
|
28.5
|
Lease revenue – related parties
|
|
56.1
|
|
106.5
|
|
(50.4)
|
Costs and expenses
|
|
|
|
|
|
|
Operations and maintenance – third parties
|
|
107.5
|
|
112.1
|
|
(4.6)
|
Operations and maintenance – related parties
|
|
54.4
|
|
46.8
|
|
7.6
|
Cost of product sold – third parties
|
|
7.4
|
|
5.5
|
|
1.9
|
Cost of product sold – related parties
|
|
25.3
|
|
—
|
|
25.3
|
Net income
|
|
$
|
482.4
|
|
$
|
487.0
|
|
$
|
(4.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
Consolidated Balance Sheet
|
|
As Reported Under Topic 606
|
|
Amounts Without Adoption of Topic 606
|
|
Effect of Change Increase/(Decrease)
|
Deferred revenue – related party
|
|
$
|
2.6
|
|
$
|
2.5
|
|
$
|
0.1
|
Contract Balances
We perform our obligations under a contract with a customer by providing services in exchange for consideration from the customer. The timing of our performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. Although we did not have any contract assets as of December 31, 2018, we recognize a contract asset when we transfer goods or services to a customer and contractually bill an amount which is less than the revenue allocated to the related performance obligation. We recognize deferred revenue (contract liability) when the customer’s payment of consideration precedes our performance. The following table provides information about receivables and contract liabilities from contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2018
|
|
December 31, 2018
|
Receivables from contracts with customers – third parties
|
|
$
|
17.2
|
|
$
|
18.8
|
Receivables from contracts with customers – related parties
|
|
18.8
|
|
21.4
|
Deferred revenue – third parties
|
|
5.5
|
|
8.0
|
Deferred revenue – related party
|
|
9.4
|
|
2.6
|
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant changes in the deferred revenue balances with customers during the period are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Transition Adjustment
|
|
Additions (1)
|
|
Reductions (2)
|
|
December 31, 2018
|
Deferred revenue – third parties
|
|
$
|
5.5
|
|
$
|
—
|
|
$
|
10.0
|
|
$
|
(7.5)
|
|
$
|
8.0
|
Deferred revenue – related party
|
|
13.9
|
|
(4.5)
|
|
3.1
|
|
(9.9)
|
|
2.6
|
(1) Contract liability additions resulted from deficiency payments from minimum volume commitment contracts.
(2) Contract liability reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.
We currently have no assets recognized from the costs to obtain or fulfill a contract as of December 31, 2018.
Remaining Performance Obligations
As of December 31, 2018, contracts with remaining performance obligations primarily include minimum volume commitment contracts, long-term storage contracts and the service component of transportation and terminaling services contracts accounted for as operating leases.
The following table includes revenue expected to be recognized in the future related to performance obligations exceeding one year of their initial terms that are unsatisfied or partially unsatisfied as of December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023 and beyond
|
Revenue expected to be recognized on multi-year committed shipper transportation contracts (1)
|
|
$
|
539.9
|
|
$
|
64.3
|
|
$
|
50.1
|
|
$
|
49.8
|
|
$
|
49.8
|
|
$
|
325.9
|
Revenue expected to be recognized on other multi-year transportation service contracts (2)
|
|
45.0
|
|
5.4
|
|
5.4
|
|
5.4
|
|
5.4
|
|
23.4
|
Revenue expected to be recognized on multi-year storage service contracts
|
|
4.0
|
|
4.0
|
|
—
|
|
—
|
|
—
|
|
—
|
Revenue expected to be recognized on multi-year terminaling service contracts (2)
|
|
416.3
|
|
46.7
|
|
46.7
|
|
46.7
|
|
46.7
|
|
229.5
|
Total
|
|
$
|
1,005.2
|
|
$
|
120.4
|
|
$
|
102.2
|
|
$
|
101.9
|
|
$
|
101.9
|
|
$
|
578.8
|
(1) Excludes revenue deferred for deficiency payments.
(2) Relates to the non-lease service components of certain of our long-term transportation and terminaling service contracts which are accounted for as operating leases.
As an exemption, we do not disclose the amount of remaining performance obligations for contracts with an original expected duration of one year or less or for variable consideration that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions and Divestiture
2018 Acquisition
On May 11, 2018, we acquired SPLC’s ownership interests in Amberjack Pipeline Company LLC, a Delaware limited liability company (“Amberjack”), which is comprised of 75% of the issued and outstanding Series A membership interests of Amberjack and 50% of the issued and outstanding Series B membership interests of Amberjack for $1,220.0 million (the “May 2018 Acquisition”). The May 2018 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 9, 2018 (the “May 2018 Purchase and Sale Agreement”) between us and SPLC, and is accounted for as a transaction between entities under common control on a prospective basis as an asset acquisition. We acquired historical carrying value of net assets under common control of $481.6 million which is included in Equity method investments in our consolidated balance sheet. We recognized $738.4 million of consideration in excess of the historical carrying value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. We funded the May 2018 Acquisition with $494.0 million in borrowings under our Five Year Revolver due July 2023 (as defined in Note 9—Related Party Debt) and $726.0 million in borrowings under our Five Year Revolver due December 2022 (as defined in Note 9—Related Party Debt).
2017 Acquisitions
During 2017, we completed three acquisitions, each as described below. Of these, the December 2017 Acquisition and the May 2017 Acquisition were considered transfers of businesses between entities under common control, and therefore the related acquired assets and liabilities were transferred at historical carrying value. Because these acquisitions were common control transactions in which we acquired businesses, our historical financial statements were recast for the periods of our Parent’s ownership prior to the transactions.
December 2017 Acquisition
On December 1, 2017, we acquired a 100% interest in Triton, 41.48% of the issued and outstanding membership interest in LOCAP, an additional 22.9% interest in Mars, an additional 22.0% interest in Odyssey, and an additional 10.0% interest in Explorer from SPLC and SOPUS for $825.0 million in cash (the “December 2017 Acquisition”). As part of the December 2017 Acquisition, SOPUS contributed all but the working capital and certain environmental liabilities of Triton. The December 2017 Acquisition closed pursuant to a Purchase and Sale Agreement (the “December 2017 Purchase and Sale Agreement”) among the Operating Company, us, SPLC and SOPUS. SPLC and SOPUS are each wholly owned subsidiaries of Shell. We funded the cash consideration for the December 2017 Acquisition from $825.0 million in borrowings under the Five Year Revolver due December 2022 (as defined in Note 9—Related Party Debt) and the Five Year Fixed Facility (as defined in Note 9—Related Party Debt). Total transaction costs of $0.6 million were expensed as incurred. The terms of the December 2017 Acquisition were approved by the Board of Directors of our general partner (the “Board”) and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel.
In connection with the December 2017 Acquisition we acquired the following:
|
|
|
|
|
|
Cost investment (1)
|
$
|
22.3
|
Equity method investments (2)
|
76.1
|
Property, plant and equipment, net (3)
|
118.2
|
Partners’ capital (4)
|
3.2
|
December 2017 Acquisition
|
$
|
219.8
|
(1) Book Value of an additional 10.0% interest in Explorer contributed by SPLC.
(2) Book Value of an additional 22.9% interest in Mars and a 41.48% interest in LOCAP contributed by SPLC.
(3) Book Value of a 100.0% interest in the historical carrying value of property, plant and equipment, net contributed by SOPUS.
(4) Book Value of an additional 22.0% interest in Odyssey contributed by SOPUS.
We recognized $605.2 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. For the period from closing through December 31, 2017, we recognized $7.7 million in revenues and $18.8 million of net earnings related to this acquisition.
October 2017 Acquisition
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On October 17, 2017, we acquired a 50.0% interest in Crestwood Permian Basin LLC (“Permian Basin”), which owns the Nautilus gathering system in the Permian Basin, for $49.9 million consideration and initial capital contributions (the “October 2017 Acquisition”). The October 2017 Acquisition closed pursuant to a Member Interest Purchase Agreement dated October 16, 2017 (the “October 2017 Purchase Agreement”), among the Operating Company and CPB Member LLC (a jointly owned subsidiary of Crestwood Equity Partners LP and First Reserve). We have determined we have significant influence over the financial and operating policies of Permian Basin and we therefore account for this investment under the equity method. We funded the October 2017 Acquisition with cash on hand. The terms of the October 2017 Acquisition were approved by the Board.
May 2017 Acquisition
On May 10, 2017, we acquired a 100% interest in Delta, Na Kika and Refinery Gas Pipeline for $630.0 million in consideration (the “May 2017 Acquisition”). As part of the May 2017 Acquisition, SPLC and Shell GOM Pipeline Company LP (“Shell GOM”) contributed all but the working capital of Delta and Na Kika to Pecten, and Shell Chemical LP (“Shell Chemical”) contributed all but the working capital of Refinery Gas Pipeline to Sand Dollar. The May 2017 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 4, 2017 (the “May 2017 Purchase and Sale Agreement”), among the Operating Company, us, Shell Chemical, Shell GOM and SPLC. Shell Chemical, Shell GOM and SPLC are each wholly owned subsidiaries of Shell. We funded the May 2017 Acquisition with $50.0 million of cash on hand, $73.1 million in borrowings under our Five Year Revolver due July 2023 (as defined in Note 9 — Related Party Debt), and $506.9 million in borrowings under our Five Year Fixed Facility (as defined in Note 9 — Related Party Debt). Total transaction costs of $0.8 million were expensed as incurred. The terms of the May 2017 Acquisition were approved by the Board and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the May 2017 Purchase and Sale Agreement, Shell Chemical has agreed to reimburse us for costs and expenses incurred in connection with the conversion of a section of pipe from the Convent refinery to Sorrento from refinery gas service to butane service. The May 2017 Purchase and Sale Agreement contains other customary representations, warranties and covenants.
In connection with the May 2017 Purchase and Sale Agreement, we granted Shell Chemical a purchase option and right of first refusal with respect to Refinery Gas Pipeline and certain other related assets and the ownership interests in Sand Dollar. The purchase option may be triggered by, among other things, (i) a third party obtaining the right to use any or all of Refinery Gas Pipeline; (ii) the loss of all volume on Refinery Gas Pipeline that would result in it being permanently shutdown for two years or more; (iii) the termination of a transportation services agreement between Shell Chemical and Sand Dollar (“Refinery Gas Pipeline Agreement”); (iv) the expiration of the term of the Refinery Gas Pipeline Agreement; or (v) a change of control of our general partner; provided, however, that in the case of (i) through (iv), the purchase option would only be applicable to the Refinery Gas Pipeline impacted by such event. In addition, in the event that Sand Dollar receives an offer to sell all or a portion of Refinery Gas Pipeline or the ownership interests in Sand Dollar from a third party, Shell Chemical has a right of first refusal with respect to such Refinery Gas Pipeline or ownership interests, as applicable, for so long as the Refinery Gas Pipeline Agreement between Shell Chemical and Sand Dollar is in effect.
In connection with the May 2017 Acquisition we acquired historical carrying value of property, plant and equipment, net and other assets under common control as follows:
|
|
|
|
|
|
Delta
|
$
|
40.1
|
Na Kika
|
26.0
|
Refinery Gas Pipeline
|
134.6
|
May 2017 Acquisition
|
$
|
200.7
|
We recognized $429.3 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. For the period from closing through December 31, 2017, we recognized $63.8 million in revenues and $29.3 million of net earnings related to this acquisition.
2017 Divestiture
On April 28, 2017, Zydeco divested a small segment of its pipeline system (the “April 2017 Divestiture”) to SOPUS as part of the Motiva JV separation. The April 2017 Divestiture closed pursuant to a Pipeline Sale and Purchase Agreement (the “April 2017 Pipeline Sale and Purchase Agreement”) dated April 28, 2017 among Zydeco and SOPUS. We received $21.0 million in cash consideration for this sale, of which $19.4 million is attributable to the Partnership. The cash consideration represents $0.8
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
million for the book value of net assets divested, and $20.2 million in excess proceeds received from our Parent. The April 2017 Pipeline Sale and Purchase Agreement contained customary representations and warranties and indemnification by SOPUS.
2016 Acquisitions
On December 27, 2016, we acquired the following: (a) a 10.0% interest in Endymion from Mardi Gras Endymion Oil Pipeline Company, LLC, (b) a 10.0% interest in Proteus from Mardi Gras Transportation System Inc. (“Mardi Gras”) and (c) a 1.0% interest in Cleopatra from Mardi Gras. Each acquisition closed pursuant to their respective purchase agreements for an aggregate purchase price of $42.0 million (the “December 2016 Acquisition”). We have determined we have significant influence over the financial and operating policies of Proteus and Endymion and we therefore account for these investments under the equity method. We do not have control or significant influence over Cleopatra and therefore account for this investment under the cost method. We funded the December 2016 Acquisition with borrowings under the Five Year Revolver due July 2023 (as defined in Note 9 — Related Party Debt). The terms of the December 2016 Acquisition were approved by the Board.
In connection with the December 2016 Acquisition we acquired the following:
|
|
|
|
|
|
Cost investments (1)
|
$
|
2.1
|
Equity method investments (2)
|
39.9
|
December 2016 Acquisition
|
$
|
42.0
|
(1) $2.1 million purchase price of 1.0% in Cleopatra.
(2) $20.8 million purchase price of 10.0% in Endymion and $19.1 million purchase price of 10.0% interest in Proteus.
On October 3, 2016, we acquired a 49.0% interest in Odyssey from Shell Oil Products US (“SOPUS”) and an additional 20.0% interest in Mars from SPLC for $350.0 million (the “October 2016 Acquisition”). The October 2016 Acquisition closed pursuant to a purchase and sale agreement dated September 27, 2016 (“Odyssey and Mars Purchase and Sale Agreement”) among us, the Operating Company, SPLC and SOPUS, and is accounted for as a transaction between entities under common control on a prospective basis as an asset acquisition. We funded the October 2016 Acquisition with $50.0 million of cash on hand and $300.0 million in borrowings under the Five Year Revolver due July 2023 (as defined in Note 9—Related Party Debt) with STCW, an affiliate of Shell. The terms of the October 2016 Acquisition were approved by the Board and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the Odyssey and Mars Purchase and Sale Agreement, SPLC has agreed to pay us up to $10.0 million if Mars inventory management fees do not meet certain levels in aggregate for the calendar years ending 2017 through 2021. At this time there is no estimate of the amount, if any, to be received.
In connection with the October 2016 Acquisition, we acquired net assets under common control and recorded at their historical carrying value as follows:
|
|
|
|
|
|
Equity method investments (1) (2)
|
$
|
54.3
|
October 2016 Acquisition
|
$
|
54.3
|
(1) $51.3 million historical carrying value of 20.0% additional interest in Mars contributed by SPLC.
(2) $3.0 million historical carrying value of 49.0% interest in Odyssey contributed by SOPUS.
On August 9, 2016, we acquired a 2.62% equity interest in Explorer from SPLC (the “August 2016 Acquisition”) for $26.2 million. The August 2016 Acquisition was made in connection with SPLC’s right, as a current shareholder of Explorer, to acquire a portion of the equity interest being divested by another shareholder of Explorer. At that time SPLC separately owned a 35.97% equity interest in Explorer. The August 2016 Acquisition closed on August 9, 2016 pursuant to a Share Purchase and Sale Agreement among us, the Operating Company and SPLC, and is accounted for as a transaction between entities under common control on a prospective basis as an asset acquisition. We funded the August 2016 Acquisition with $26.3 million of cash on hand. Total transaction costs of $0.1 million were incurred. The terms of the August 2016 Acquisition were approved by the Board.
On May 23, 2016, we acquired an additional 30.0% interest in Zydeco, an additional 1.0% interest in Bengal and an additional 3.0% interest in Colonial for $700.0 million in consideration (the “May 2016 Acquisition”). The May 2016 Acquisition closed pursuant to a Contribution Agreement (the “May 2016 Contribution Agreement”) dated May 17, 2016 among us, the Operating Company and SPLC and became effective on April 1, 2016, and is accounted for as a transaction between entities under common control on a prospective basis as an asset acquisition. We funded the May 2016 Acquisition with $345.8 million from
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the net proceeds of a registered public offering of 10,500,000 common units representing limited partner interests in us (the “May 2016 Offering”), $50.4 million of cash on hand and $296.7 million in borrowings under the Five Year Revolver due July 2023 (as defined in Note 9—Related Party Debt) with STCW, an affiliate of Shell. The remaining $7.1 million in consideration consisted of an issuance of 214,285 general partner units to our general partner in order to maintain its 2% general partner interest in us. Total transaction costs of $0.4 million were incurred in association with the May 2016 Acquisition. The terms of the May 2016 Acquisition were approved by the Board and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the May 2016 Contribution Agreement, SPLC has agreed to reimburse us for our proportionate share of certain costs and expenses incurred by Zydeco after April 1, 2016 with respect to a directional drill project to address soil erosion over a two-mile section of our 22-inch diameter pipeline under the Atchafalaya River and Bayou Shaffer in Louisiana. Such reimbursements will be treated as an additional capital contribution from the general partner at the time of counter party payment. The May 2016 Contribution Agreement contained customary representations and warranties and indemnification by SPLC.
In connection with the May 2016 Acquisition, we acquired historical carrying value of net assets under common control as follows:
|
|
|
|
|
|
Cost investments (1)
|
$
|
5.2
|
Equity method investments (2)
|
1.5
|
Partners’ capital (3)
|
87.0
|
May 2016 Acquisition
|
$
|
93.7
|
(1) Book value of 3.0% additional interest in Colonial contributed by SPLC.
(2) Book value of 1.0% additional interest in Bengal contributed by SPLC.
(3) Book value of 30.0% additional interest in Zydeco from SPLC’s noncontrolling interest.
We recognized $606.3 million of consideration in excess of the historical carrying value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. This capital distribution is comprised of $599.2 million in cash and $7.1 million in general partner units issued.
5. Related Party Transactions
Related party transactions include transactions with SPLC and Shell, including those entities in which Shell has an ownership interest but does not have control.
Acquisition Agreements
Refer to Note 4 — Acquisitions and Divestiture for a description of applicable agreements.
Omnibus Agreement
On November 3, 2014, we entered into an Omnibus Agreement with SPLC and our general partner concerning our payment of an annual general and administrative services fee to SPLC as well as our reimbursement of certain costs incurred by SPLC on our behalf. This agreement addresses the following matters:
•our payment of an annual general and administrative fee of $8.5 million for the provision of certain services by SPLC;
•our obligation to reimburse SPLC for certain direct or allocated costs and expenses incurred by SPLC on our behalf;
•our obligation to reimburse SPLC for all expenses incurred by SPLC as a result of us becoming and continuing as a publicly traded entity; we will reimburse our general partner for these expenses to the extent the fees relating to such services are not included in the general and administrative fee; and
•the granting of a license from Shell to us with respect to the use of certain Shell trademarks and trade names.
Under the Omnibus Agreement, SPLC indemnified us against certain enumerated risks. Of those two indemnity obligations, one expired in 2017 and one remains. Under the remaining indemnification, SPLC agreed to indemnify us against tax liabilities relating to our initial assets that are identified prior to the date that is 60 days after the expiration of the statute of limitations applicable to such liabilities. This obligation has no threshold or cap. We in turn agreed to indemnify SPLC against events and conditions associated with the ownership or operation of our initial assets (other than any liabilities against which SPLC is specifically required to indemnify us as described above).
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2018 and 2017, neither we nor SPLC made any claims for indemnification under the Omnibus Agreement. On February 19, 2019, we, our general partner, SPLC, Shell Midstream Operating LLC and Shell Oil Company terminated the Omnibus Agreement effective as of February 1, 2019, and we, our general partner, SPLC and Shell Midstream Operating LLC entered into a new Omnibus Agreement effective February 1, 2019. In addition, we, our general partner and SPLC entered into a Trade Marks License Agreement with Shell Trademark Management Inc. effective as of February 1, 2019. Refer to Note 15 — Subsequent Events for additional information.
Tax Sharing Agreement
We have entered into a tax sharing agreement with Shell. Pursuant to this agreement, we have agreed to reimburse Shell for state and local income and franchise taxes attributable to any activity of our operating subsidiaries, and reported on Shell’s state or local income or franchise tax returns filed on a combined or unitary basis. Reimbursements under this agreement equal the amount of tax our applicable operating subsidiaries would be required to pay with respect to such activity, if such subsidiaries were to file a combined or unitary tax return separate from Shell. Shell will compute and invoice us for the tax reimbursement amount within 15 days of Shell filing its combined or unitary tax return on which such activity is included. We may be required to make prepayments toward the tax reimbursement amount to the extent that Shell is required to make estimated tax payments during the relevant tax year. The tax sharing agreement currently in place is effective for all taxable periods ending on or after December 31, 2017. The current agreement replaced a similar tax sharing agreement between Zydeco and Shell, which was effective for all tax periods ending before December 31, 2017. Reimbursements for tax years ended December 31, 2018, 2017 and 2016 were not material to our consolidated statements of income.
Other Agreements
In connection with the Initial Public Offering (“IPO”) and our acquisitions from Shell, we have entered into several customary agreements with SPLC and Shell. These agreements include pipeline operating agreements, reimbursement agreements and services agreements.
Pecten Contribution Agreement
Maintenance expense and capital expenditures for certain projects associated with the Lockport Terminal have been incurred. Under the Pecten Contribution Agreement entered into in connection with the acquisition in November 2015, SPLC has agreed to reimburse us for the maintenance expense and capital expenditures related to these projects. During 2018 and 2017, we recognized no reimbursement as other contributions from Parent, and in 2016 we recognized $1.6 million for these reimbursements as other contributions from Parent.
Operating Agreements
In connection with the formation of Pecten on October 1, 2015, Pecten entered into an operating and administrative management agreement with SPLC. Pursuant to this agreement, SPLC performs physical operations and maintenance services for Lockport and Auger and provides general and administrative services for Pecten. Pecten is required to reimburse SPLC for costs and expenses incurred in connection with such services. Also pursuant to the agreement, SPLC and Pecten agree to standard indemnifications as operator and asset owner, respectively.
In connection with the May 2017 Acquisition, on May 10, 2017, SPLC entered into an operating and administrative management agreement with Sand Dollar. Sand Dollar is allocated and required to reimburse SPLC for certain costs in connection with the services provided pursuant to the agreement. Also pursuant to the agreement, SPLC and Sand Dollar agree to standard indemnifications as operator and asset owner, respectively.
On December 1, 2017, our general partner, SPLC and Triton entered into an operating and administrative management agreement. Our general partner provides certain operational and support services pursuant to the agreement. The necessary personnel are employed by SPLC and are assigned to our general partner. Triton West is allocated certain costs by the general partner in connection with the services provided pursuant to the agreement. Our general partner reimburses SPLC for certain costs related to the assigned personnel. Our general partner, SPLC and Triton West each provide standard indemnifications as operator, employer and asset owner, respectively.
In connection with the December 2017 Acquisition, we were assigned an operating agreement for Odyssey, whereby SPLC performs physical operations and maintenance services and provides general and administrative services for Odyssey. Odyssey is required to reimburse SPLC for costs and expenses incurred in connection with such services. Also pursuant to the agreement, SPLC and Odyssey agree to standard indemnifications as operator and asset owner, respectively.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partnership Agreement
On December 21, 2018, we executed Amendment No. 2 (the “Second Amendment”) to the Partnership’s First Amended and Restated Agreement of Limited Partnership dated November 3, 2014. Under the Second Amendment, our sponsor agreed to waive $50.0 million of distributions in 2019 by agreeing to reduce distributions to holders of the incentive distribution rights by: (1) $17.0 million for the three months ending March 31, 2019, (2) $17.0 million for the three months ending June 30, 2019 and (3) $16.0 million for the three months ending September 30, 2019.
Noncontrolling Interests
For Zydeco, noncontrolling interest consists of SPLC’s 7.5% retained ownership interest as of December 31, 2018, 2017 and 2016. For Odyssey, noncontrolling interest consists of GEL Offshore Pipeline LLC’s (“GEL”) 29.0% retained ownership interest as of December 31, 2018, 2017 and 2016.
Other Related Party Balances
Other related party balances consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
Accounts receivable
|
$
|
28.7
|
|
$
|
23.8
|
Prepaid expenses
|
14.9
|
|
11.9
|
Other assets
|
2.5
|
|
1.7
|
Accounts payable (1)
|
8.9
|
|
11.6
|
Deferred revenue
|
2.6
|
|
13.9
|
Accrued liabilities (2)
|
15.7
|
|
7.2
|
Debt payable (3)
|
2,090.7
|
|
1,844.0
|
(1) Accounts payable reflects amounts owed to SPLC for reimbursement of third-party expenses incurred by SPLC for our benefit.
(2) As of December 31, 2018, Accrued liabilities reflects $14.3 million accrued interest and $1.4 million other accrued liabilities. As of December 31, 2017, Accrued liabilities reflects $6.6 million accrued interest and $0.6 million other accrued liabilities.
(3) Debt payable reflects borrowings outstanding net of unamortized debt issuance costs of $3.3 million and $2.9 million as of December 31, 2018 and 2017, respectively.
Related Party Credit Facilities
We have entered into four credit facilities with STCW: the Seven Year Fixed Facility, the Five Year Revolver due July 2023, the Five Year Revolver due December 2022 and the Five Year Fixed Facility. Zydeco has also entered into the Zydeco Revolver with STCW. See Note 9 – Related Party Debt for definitions and additional information regarding these credit facilities.
Related Party Revenues and Expenses
We provide crude oil transportation, terminaling and storage services to related parties under long-term contracts. We entered into these contracts in the normal course of our business. Our transportation, terminaling and storage services revenue and lease revenue from related parties for 2018, 2017 and 2016 is disclosed in Note 3 – Revenue Recognition.
In 2018, 2017 and 2016, we converted excess allowance oil to cash through sales to affiliates of Shell of $3.2 million, $1.3 million and $1.3 million, respectively. In 2018, upon the adoption of the new revenue standard, we include the revenue in Product revenue – related parties and the cost in Cost of product sold – related parties. In 2017 and 2016, we included net gains/(losses) from such sales in Operations and maintenance – related parties.
The majority of our insurance coverage is provided by a wholly owned subsidiary of Shell with the remaining coverage provided by third-party insurers. The related party portion of insurance expense, which is included within Operations and maintenance – related parties, for 2018, 2017 and 2016 was $15.2 million, $8.0 million and $5.9 million, respectively.
The following table shows related party expenses, including personnel costs described above, incurred by Shell and SPLC on our behalf that are reflected in the accompanying consolidated statements of income for the indicated periods:
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Operations and maintenance – related parties
|
$
|
54.4
|
|
$
|
45.6
|
|
$
|
40.0
|
General and administrative – related parties
|
51.7
|
|
47.7
|
|
43.7
|
For a discussion of services performed by Shell on our behalf, see Note 1 – Description of the Business and Basis of Presentation – Basis of Presentation. Pursuant to various operating and administrative management agreements, we are allocated indirect operating and general corporate expenses from Shell. Our allocated share of operating expenses, which are included within Operations and maintenance – related parties for 2018, 2017 and 2016, were $15.1 million, $17.1 million and $15.9 million, respectively. Additionally, our allocated share of general corporate expenses, which are included within General and administrative – related parties for 2018, 2017 and 2016, were $32.9 million, $26.3 million and $24.0 million, respectively. Included in General and administrative – related parties are $8.5 million, $8.1 million and $7.7 million, respectively, under the Management Agreement and $8.5 million, $8.5 million and $8.5 million, respectively, under the Omnibus Agreement.
In November 2017, the Enchilada platform in Garden Banks Block 128 experienced a fire that resulted in the shut-in of all production flowing through Auger. As a result, we filed a claim under our related party business continuity insurance and expect to partially recover losses occurring 60 days or more after the incident. Under this claim we received $6.5 million in 2018 and recorded it in Other income in our consolidated statements of income.
Pension and Retirement Savings Plans
Employees who directly or indirectly support our operations participate in the pension, postretirement health and life insurance, and defined contribution benefit plans sponsored by Shell, which include other Shell subsidiaries. Our share of pension and postretirement health and life insurance costs for 2018, 2017 and 2016 was $6.3 million, $4.3 million and $5.1 million, respectively. Our share of defined contribution benefit plan costs for 2018, 2017 and 2016 was $2.5 million, $1.7 million and $2.0 million, respectively. Pension and defined contribution benefit plan expenses are included in either General and administrative – related parties or Operations and maintenance – related parties in the accompanying consolidated statements of income, depending on the nature of the employee’s role in our operations.
Share-based Compensation
Certain SPLC and Shell employees supporting our operations as well as other Shell operations were historically granted awards under the Performance Share Plan (“PSP”), Shell’s incentive compensation program. Share-based compensation expense is included in General and administrative – related parties in the accompanying consolidated statements of income. These costs for 2018, 2017 and 2016 were immaterial.
Equity and Other Investments
We have equity and other investments in entities, including Colonial and Explorer, in which SPLC also owns interests. In some cases we may be required to make capital contributions or other payments to these entities. See Note 6 – Equity Method Investments for additional details.
Reimbursements from Our General Partner
The following table reflects reimbursements from our Parent in 2018, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Cash received (1)
|
$
|
11.7
|
|
$
|
15.8
|
|
$
|
2.8
|
Changes in receivable from Parent (2)
|
(0.3)
|
|
0.3
|
|
0.2
|
Total reimbursements (3)
|
$
|
11.4
|
|
$
|
16.1
|
|
$
|
3.0
|
(1) These reimbursements are included in Other contributions from Parent in the accompanying consolidated statements of cash flows.
(2) These reimbursements are included in Other non-cash contributions from Parent in the accompanying supplemental cash flow information.
(3) These reimbursements are included in Other contributions from Parent in the accompanying consolidated statements of (deficit) equity and are exclusive of the $2.0 million for 2018 related to contributions from Parent.
In 2018, 2017 and 2016, we filed claims for reimbursement from our Parent of $11.4 million, $16.1 million and $3.0 million, respectively. This reflects our proportionate share of Zydeco directional drill project costs and expenses of $11.4 million, $14.4 million and $1.4 million, respectively. Additionally, in 2017 this included reimbursement for the Refinery Gas Pipeline gas to
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
butane service connection project of $1.7 million and in 2016 this included $1.6 million of reimbursement of costs and expenses incurred by Lockport for the storm water improvement and tank repair projects.
6. Equity Method Investments
For each of the following investments, we have the ability to exercise significant influence over these investments based on certain governance provisions and our participation in the significant activities and decisions that impact the management and economic performance of the investments.
Equity method investments comprise the following as of the dates indicated:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2018
|
|
|
|
2017
|
|
|
|
Ownership
|
|
Amount
|
|
Ownership
|
|
Amount
|
Amberjack – Series A / Series B (1)
|
75.0% / 50.0%
|
|
$
|
457.5
|
|
—%
|
|
|
$
|
—
|
Mars
|
71.5%
|
|
|
168.9
|
|
71.5%
|
|
|
187.4
|
Bengal
|
50.0%
|
|
|
81.5
|
|
50.0%
|
|
|
79.7
|
Permian Basin
|
50.0%
|
|
|
72.2
|
|
50.0%
|
|
|
49.4
|
LOCAP
|
41.48%
|
|
|
8.2
|
|
41.48%
|
|
|
6.9
|
Poseidon
|
36.0%
|
|
|
—
|
|
36.0%
|
|
|
2.3
|
Proteus
|
10.0%
|
|
|
16.3
|
|
10.0%
|
|
|
17.4
|
Endymion
|
10.0%
|
|
|
18.3
|
|
10.0%
|
|
|
19.5
|
|
|
|
$
|
822.9
|
|
|
|
$
|
362.6
|
(1) We acquired an interest in Amberjack in the May 2018 Acquisition. The acquisition of this interest has been accounted for prospectively.
Unamortized differences in the basis of the initial investments and our interest in the separate net assets within the financial statements of the investees are amortized into net income over the remaining useful lives of the underlying assets. As of December 31, 2018, 2017 and 2016, the unamortized basis differences included in our equity investments are $40.4 million, $41.4 million and $42.7 million, respectively. For the years ended 2018, 2017 and 2016, the net amortization expense was $3.7 million, $3.8 million and $2.8 million, respectively, which is included in Income from equity method investments.
During the first quarter of 2018, the investment amount for Poseidon was reduced to zero due to distributions received that were in excess of our investment balance and we, therefore, suspended the equity method of accounting. As we have no commitments to provide further financial support to Poseidon, we have recorded excess distributions of $24.4 million in Other income for the year ended December 31, 2018. Once our cumulative share of equity earnings becomes greater than the amount of distributions received, we will resume the equity method of accounting as long as the equity method investment balance remains greater than zero.
Our equity investments in affiliates balance was affected by the following during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
Distributions Received
|
|
Income from Equity Method Investments
|
|
Impact of Change in Accounting Policy
|
|
|
|
Distributions Received
|
|
Income from Equity Method Investments
|
|
Purchase Price Adjustment
|
|
Distributions Received
|
|
Income from Equity Method Investments
|
|
|
Amberjack (1)
|
|
$
|
104.4
|
|
$
|
80.3
|
|
$
|
—
|
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Mars (2)
|
|
119.3
|
|
107.7
|
|
(6.9)
|
|
|
|
125.9
|
|
121.8
|
|
—
|
|
88.3
|
|
79.8
|
|
|
Bengal
|
|
19.0
|
|
20.8
|
|
—
|
|
|
|
19.0
|
|
22.6
|
|
—
|
|
19.6
|
|
20.2
|
|
|
Poseidon (3)
|
|
33.1
|
|
6.4
|
|
—
|
|
|
|
38.4
|
|
27.4
|
|
—
|
|
41.9
|
|
29.7
|
|
|
Other (4)
|
|
25.9
|
|
19.7
|
|
—
|
|
|
|
15.0
|
|
14.8
|
|
0.3
|
|
8.2
|
|
8.4
|
|
|
|
|
$
|
301.7
|
|
$
|
234.9
|
|
$
|
(6.9)
|
|
|
|
$
|
198.3
|
|
$
|
186.6
|
|
$
|
0.3
|
|
$
|
158.0
|
|
$
|
138.1
|
|
|
(1) We acquired an interest in Amberjack in the May 2018 Acquisition. The acquisition of this interest has been accounted for prospectively.
(2) We acquired an additional 22.9% interest in Mars in the December 2017 Acquisition.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) As stated above, the equity method of accounting has been suspended for Poseidon and excess distributions are recorded in Other income.
(4) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion. We acquired a 41.48% interest in LOCAP in the December 2017 Acquisition. The acquisition of our ownership interests in Proteus and Endymion was effective in the December 2016 Acquisition, for which we were not entitled to a distribution and the related equity investment income was less than $0.1 million.
See Note 4 – Acquisitions and Divestiture for additional information regarding the acquisitions of our equity investments. We acquired an additional 22.0% interest in Odyssey on December 1, 2017, which is now being consolidated in our financial statements on a retrospective basis.
The adoption date of the new revenue standard for the majority of our equity method investments will follow the non-public business entity adoption date of January 1, 2019 for their stand-alone financial statements, with the exception of Mars and Permian Basin which adopted on January 1, 2018. As a result of adoption, we recognized our proportionate share of the Mars cumulative effect transition adjustment as a decrease to opening equity in the amount of $6.9 million under the modified retrospective transition method, related to its transportation and dedication agreements which resulted in a deferral of revenue. The cumulative effect transition adjustment for Permian Basin was not material.
Summarized Financial Information
The following presents aggregated selected balance sheet and income statement data for our equity method investments (on a 100% basis):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
Amberjack (1)
|
|
$
|
204.0
|
|
$
|
47.3
|
|
$
|
156.7
|
|
$
|
156.8
|
Mars
|
|
241.3
|
|
87.4
|
|
153.9
|
|
153.9
|
Bengal
|
|
69.2
|
|
28.1
|
|
41.1
|
|
41.1
|
Poseidon
|
|
115.5
|
|
34.6
|
|
80.9
|
|
73.0
|
Other (2)
|
|
152.2
|
|
67.0
|
|
85.2
|
|
75.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
Non-current assets
|
|
Total assets
|
|
Current liabilities
|
|
Non-current liabilities
|
|
Equity (deficit)
|
|
Total liabilities and equity (deficit)
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amberjack (1)
|
|
$
|
45.8
|
|
$
|
846.2
|
|
$
|
892.0
|
|
$
|
4.3
|
|
$
|
4.2
|
|
$
|
883.5
|
|
$
|
892.0
|
Mars
|
|
53.1
|
|
178.2
|
|
231.3
|
|
5.4
|
|
18.4
|
|
207.5
|
|
231.3
|
Bengal
|
|
27.1
|
|
155.4
|
|
182.5
|
|
8.7
|
|
—
|
|
173.8
|
|
182.5
|
Poseidon
|
|
18.9
|
|
203.0
|
|
221.9
|
|
15.9
|
|
242.9
|
|
(36.9)
|
|
221.9
|
Other (2)
|
|
49.7
|
|
875.7
|
|
925.4
|
|
64.5
|
|
455.5
|
|
405.4
|
|
925.4
|
(1) Our interest in Amberjack was acquired on May 11, 2018. Amberjack total revenues, total operating expenses and operating income (on a 100% basis) was $294.9 million, $73.5 million and $221.4 million, respectively.
(2) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
255.5
|
|
$
|
81.9
|
|
$
|
173.6
|
|
$
|
173.6
|
Bengal
|
|
72.8
|
|
28.1
|
|
44.7
|
|
44.8
|
Poseidon
|
|
117.1
|
|
32.6
|
|
84.5
|
|
78.5
|
Other (1)
|
|
123.7
|
|
46.2
|
|
77.5
|
|
66.0
|
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
Non-current assets
|
|
Total assets
|
|
Current liabilities
|
|
Non-current liabilities
|
|
Equity (deficit)
|
|
Total liabilities and equity (deficit)
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
47.6
|
|
$
|
187.5
|
|
$
|
235.1
|
|
$
|
5.1
|
|
$
|
—
|
|
$
|
230.0
|
|
$
|
235.1
|
Bengal
|
|
25.0
|
|
156.6
|
|
181.6
|
|
10.5
|
|
0.3
|
|
170.8
|
|
181.6
|
Poseidon
|
|
18.7
|
|
218.6
|
|
237.3
|
|
17.6
|
|
237.4
|
|
(17.7)
|
|
237.3
|
Other (1)
|
|
91.6
|
|
625.3
|
|
716.9
|
|
98.9
|
|
244.7
|
|
373.3
|
|
716.9
|
(1) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion. Interest in Permian Basin was acquired by us on October 17, 2017 and is pro-rated in above table. For the year ended December 31, 2017, Permian Basin total revenue, total operating expenses and operating income (on a 100% basis) was $8.3 million, $5.0 million and $3.3 million, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
Total revenues
|
|
Total operating expenses
|
|
Operating income
|
|
Net income
|
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
229.8
|
|
$
|
83.0
|
|
$
|
146.8
|
|
$
|
146.8
|
Bengal
|
|
69.5
|
|
28.7
|
|
40.8
|
|
40.2
|
Poseidon
|
|
120.3
|
|
30.7
|
|
89.6
|
|
84.9
|
Other (1)
|
|
52.0
|
|
17.4
|
|
34.6
|
|
20.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
Non-current assets
|
|
Total assets
|
|
Current liabilities
|
|
Non-current liabilities
|
|
Equity
|
|
Total liabilities and equity
|
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mars
|
|
$
|
40.0
|
|
$
|
197.5
|
|
$
|
237.5
|
|
$
|
5.1
|
|
$
|
—
|
|
$
|
232.4
|
|
$
|
237.5
|
Bengal
|
|
34.0
|
|
147.5
|
|
181.5
|
|
16.8
|
|
0.7
|
|
164.0
|
|
181.5
|
Poseidon
|
|
17.1
|
|
233.6
|
|
250.7
|
|
20.7
|
|
219.7
|
|
10.3
|
|
250.7
|
Other (1)
|
|
42.5
|
|
395.4
|
|
437.9
|
|
43.9
|
|
100.8
|
|
293.2
|
|
437.9
|
(1) Interests in Proteus and Endymion were acquired by us on December 27, 2016, and is pro-rated in above table. For 2016, Proteus total revenue, total operating expenses and operating income (on a 100% basis) was $24.7 million, $11.7 million and $13.0 million, respectively. For 2016, Endymion total revenue, total operating expenses and operating income (on a 100% basis) was $28.1 million, $12.3 million and $15.8 million, respectively.
Capital Contributions
In accordance with the Member Interest Purchase Agreement entered into in conjunction with the acquisition of Permian Basin in October 2017, we will make capital contributions for our pro rata interest in Permian Basin to fund capital and other expenditures, as approved by supermajority (75%) vote of the members. We made capital contributions of $28.0 million in 2018.
7. Property, Plant and Equipment
Property, plant and equipment consist of the following as of the dates indicated:
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
Depreciable Life
|
|
2018
|
|
2017
|
Land
|
—
|
|
$
|
11.5
|
|
$
|
8.2
|
Building and improvements
|
10 - 40 years
|
|
39.0
|
|
38.9
|
Pipeline and equipment (1)
|
10 - 30 years
|
|
1,162.1
|
|
1,153.6
|
Other
|
5 - 25 years
|
|
17.9
|
|
17.8
|
|
|
|
1,230.5
|
|
1,218.5
|
Accumulated depreciation and amortization (2)
|
|
|
(567.3)
|
|
(526.1)
|
|
|
|
663.2
|
|
692.4
|
Construction in progress
|
|
|
79.2
|
|
44.1
|
Property, plant and equipment, net
|
|
|
$
|
742.4
|
|
$
|
736.5
|
(1) As of December 31, 2018 and 2017, includes cost of $365.8 million and $353.7 million, respectively, related to assets under operating leases (as lessor), which commenced in May 2017 and December 2017. As of both December 31, 2018 and 2017, includes cost of $22.8 million related to assets under capital lease (as lessee).
(2) As of December 31, 2018 and 2017, includes accumulated depreciation of $120.7 million and $104.7 million, respectively, related to assets under operating leases (as lessor), which commenced in May 2017 and December 2017. As of December 31, 2018 and 2017, includes accumulated depreciation of $4.5 million and $3.0 million, respectively, related to assets under capital lease (as lessee).
For 2018, 2017 and 2016, depreciation and amortization expense on property, plant and equipment of $45.9 million, $45.0 million and $43.1 million, respectively, is included in cost and expenses in the accompanying consolidated statements of income. Depreciation and amortization expense on property, plant and equipment includes amounts pertaining to assets under operating (as lessor) and capital leases (as lessee).
8. Accrued Liabilities – Third Parties
Accrued liabilities – third parties consist of the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
Project accruals
|
$
|
6.7
|
|
$
|
6.0
|
Property taxes
|
3.9
|
|
4.2
|
Other accrued liabilities
|
2.4
|
|
2.5
|
Total current accrued liabilities – third parties
|
$
|
13.0
|
|
$
|
12.7
|
See Note 5 – Related Party Transactions for a discussion of Accrued liabilities – related parties.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Related Party Debt
Consolidated related party debt obligations comprise the following as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
Outstanding Balance
|
|
Total Capacity
|
|
Available Capacity
|
|
Outstanding Balance
|
|
Total Capacity
|
|
Available Capacity
|
Seven Year Fixed Facility
|
|
$
|
600.0
|
|
$
|
600.0
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
Five Year Revolver due July 2023 (1)
|
|
494.0
|
|
760.0
|
|
266.0
|
|
246.9
|
|
760.0
|
|
513.1
|
Five Year Revolver due December 2022
|
|
400.0
|
|
1,000.0
|
|
600.0
|
|
1,000.0
|
|
1,000.0
|
|
—
|
Five Year Fixed Facility
|
|
600.0
|
|
600.0
|
|
—
|
|
600.0
|
|
600.0
|
|
—
|
Zydeco Revolver
|
|
—
|
|
30.0
|
|
30.0
|
|
—
|
|
30.0
|
|
30.0
|
Unamortized debt issuance costs
|
|
(3.3)
|
|
n/a
|
|
n/a
|
|
(2.9)
|
|
n/a
|
|
n/a
|
Debt payable – related party
|
|
$
|
2,090.7
|
|
$
|
2,990.0
|
|
$
|
896.0
|
|
$
|
1,844.0
|
|
$
|
2,390.0
|
|
$
|
543.1
|
(1) On August 1, 2018, the Partnership extended the maturity date. This was previously referred to as the Five Year Revolver due October 2019.
Interest and fee expenses associated with our borrowings, net of capitalized interest, were $61.0 million, $29.4 million and $8.6 million for 2018, 2017 and 2016, respectively, of which we paid $53.2 million, $25.0 million and $7.0 million, respectively.
Borrowings under our revolving credit facilities approximate fair value as the interest rates are variable and reflective of market rates, which results in a Level 2 instrument. The fair value of our Five Year Fixed Facility and our Seven Year Fixed Facility is estimated based on the published market prices for issuances of similar risk and tenor and is categorized as a Level 2 instrument. As of December 31, 2018, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $2,094.0 million and $2,099.1 million, respectively. As of December 31, 2017, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $1,846.9 million and $1,858.4 million, respectively.
The Seven Year Fixed Facility was fully drawn on August 1, 2018 and the borrowings were used to partially repay borrowings under the Five Year Revolver due December 2022.
On May 11, 2018, we funded the May 2018 Acquisition with $494.0 million in borrowings under the Five Year Revolver due July 2023 and $726.0 million in borrowings under the Five Year Revolver due December 2022.
On February 6, 2018, we used net proceeds from sales of common units and from our general partner’s proportionate capital
contribution to repay $246.9 million of borrowings outstanding under our Five Year Revolver due July 2023 and $726.0 million
of borrowings outstanding under our Five Year Revolver due December 2022.
On December 1, 2017, we borrowed $1,000.0 million under the Five Year Revolver due December 2022 and $93.1 million under our Five Year Fixed Facility. We used $825.0 million of these proceeds to fund the December 2017 Acquisition and the remaining $268.1 million to repay borrowings outstanding under our Five Year Revolver due July 2023. Additionally, we paid $0.7 million of accrued interest on the repaid borrowings with cash on hand.
On September 15, 2017, we used net proceeds from sales of common units to third parties to repay $265.0 million of borrowings outstanding under our Five Year Revolver due July 2023.
On May 10, 2017, we funded the May 2017 Acquisition with $50.0 million of cash on hand, $73.1 million in borrowings under our Five Year Revolver due July 2023 and $506.9 million in borrowings under our Five Year Fixed Facility (as defined below).
On May 23, 2016, we partially funded the cash portion of the May 2016 Acquisition with $296.7 million in borrowings under our Five Year Revolver due July 2023.
On March 29, 2016, we used cash on hand and net proceeds from sales of common units to third parties to repay $272.6 million of borrowings outstanding under the Five Year Revolver due July 2023 and all $137.4 million of borrowings outstanding under the 364-Day Revolver.
Credit Facility Agreements
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Seven Year Fixed Facility
On July 31, 2018, we entered into a seven-year fixed rate credit facility with STCW with a borrowing capacity of $600.0 million (the “Seven Year Fixed Facility”). We incurred an issuance fee of $1.3 million, which was paid on August 7, 2018. The Seven Year Fixed Facility contains customary representations, warranties, covenants and events of default, the occurrence of which would permit the lender to accelerate the maturity date of amounts borrowed under the Seven Year Fixed Facility.
The Seven Year Fixed Facility bears an interest rate of 4.06% per annum and matures on July 31, 2025.
Five Year Revolver due July 2023
On August 1, 2018, we amended and restated the five year revolving credit facility originally due October 2019 such that the facility will now mature on July 31, 2023 (the “Five Year Revolver due July 2023”). The Five Year Revolver due July 2023 will continue to bear interest at LIBOR plus a margin and we continue to pay interest of 0.19% on any unused capacity. Commitment fees began to accrue beginning on the date we entered into the agreement.
As of December 31, 2018, the annualized weighted average interest rate for the Five Year Revolver due July 2023 was 3.6%. There is no issuance fee associated with this amendment. All other material terms and conditions of the Five Year Revolver due July 2023 remain unchanged.
The Five Year Revolver due July 2023 was originally entered into on November 3, 2014. On September 27, 2016, we amended and restated the Five Year Revolver due July 2023 to increase the amount of the facility to $760.0 million, and paid an additional issuance fee of $0.6 million.
The Five Year Revolver due July 2023 provides that loans advanced under the facility can have a term ending on or before its maturity date.
Five Year Revolver due December 2022
On December 1, 2017, we entered into a five year revolving credit facility with STCW (the “Five Year Revolver due December 2022”) with a borrowing capacity of $1,000.0 million and paid an issuance fee of $1.7 million. Borrowings under the Five Year Revolver due December 2022 bear interest at the three-month LIBOR rate plus a margin. Additionally, we pay interest of 0.19% on any unused capacity. As of December 31, 2018, the weighted average interest rate for the Five Year Revolver due December 2022 was 3.3%. Commitment fees began to accrue beginning on the date we entered into the agreement. The Five Year Revolver due December 2022 matures on December 1, 2022.
Five Year Fixed Facility
On March 1, 2017, we entered into a Loan Facility Agreement with STCW with a borrowing capacity of $600.0 million (the “Five Year Fixed Facility”) and paid an issuance fee of $0.7 million. The Five Year Fixed Facility provides that we may not repay or prepay amounts borrowed without the consent of the lender and amounts repaid or prepaid may not be re-borrowed.
The Five Year Fixed Facility bears a fixed interest rate of 3.23% per annum. The Five Year Fixed Facility matures on March 1, 2022.
364-Day Revolver
On June 29, 2015, we entered into a revolving credit facility (the “364-Day Revolver”) with STCW which expired as of March 1, 2017.
Zydeco Revolving Credit Facility Agreement
On August 6, 2014, Zydeco entered into a senior unsecured revolving credit facility agreement with STCW (the “Zydeco Revolver”). The facility has a borrowing capacity of $30.0 million. Loans advanced under the agreement have up to a six-month term.
Borrowings under the credit facility bear interest at the three-month LIBOR rate plus a margin. Additionally, we pay interest of 0.23% on any unused capacity. As of December 31, 2018, the interest rate for the Zydeco Revolver was 3.9%. The Zydeco Revolver matures on August 6, 2019.
Covenants
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Seven Year Fixed Facility, the Five Year Revolver due July 2023, the Five Year Revolver due December 2022, the Five Year Fixed Facility, and the Zydeco Revolver, we (and Zydeco in the case of the Zydeco Revolver) have, among other things:
•agreed to restrict additional indebtedness not loaned by STCW;
•to give the applicable facility pari passu ranking with any new indebtedness; and
•to refrain from securing our assets except as agreed with STCW.
The facilities also contain customary events of default, such as nonpayment of principal, interest and fees when due and violation of covenants, as well as cross-default provisions under which a default under one credit facility may trigger an event of default in another facility with the same borrower. Any breach of covenants included in our debt agreements which could result in our related party lender demanding payment of the unpaid principal and interest balances will have a material adverse effect upon us and would likely require us to seek to renegotiate these debt arrangements with our related party lender and/or obtain new financing from other sources. As of December 31, 2018, we were in compliance with the covenants contained in the Seven Year Fixed Facility, the Five Year Revolver due July 2023, the Five Year Revolver due December 2022, the Five Year Fixed Facility, and Zydeco was in compliance with the covenants contained in the Zydeco Revolver.
Borrowings and repayments under our credit facilities for 2018, 2017 and 2016 are disclosed in our consolidated statements of cash flows. See Note 4 – Acquisitions and Divestiture for additional information regarding our use of borrowings. See Note 11 – (Deficit) Equity for additional information regarding the source of our repayments.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Leases
On December 1, 2014, we entered into a terminaling services agreement with a related party in which we were to take possession of certain storage tanks located in Port Neches, Texas, effective December 1, 2015. On October 26, 2015, the terminal services agreement was amended to provide for an interim in-service period for the purposes of commissioning the tanks in which we pay a nominal monthly fee. Our capitalized costs and related capital lease obligation commenced on December 1, 2015. Upon the in-service date of September 1, 2016, our monthly lease payment was increased to $0.4 million. Under this agreement, in the eighteenth month after the in-service date, actual fixed and variable costs could be compared to premised costs. If the actual and premised operating costs differ by more than 5.0%, the lease would be adjusted accordingly and this adjustment will be effective for the remainder of the lease. No adjustment has been made to date. The imputed interest rate on the capital portion of the lease is 15.0%.
Odyssey entered into an operating lease dated May 12, 1999 with a third party for usage of offshore platform space at Main Pass 289C. The agreement will continue to be in effect until the continued operation of the platform is uneconomic.
We are also obligated under various long-term and short-term noncancelable operating leases, primarily related to tank farm land leases. Several of the leases provide for renewal terms. Rental expense included in Operations and maintenance on the consolidated statements of income for 2018, 2017 and 2016 was $0.2 million, $0.3 million and $0.5 million, respectively.
The future minimum lease payments as of December 31, 2018, for the above lease obligations were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Remainder
|
Operating leases for land
|
$
|
3.4
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
0.2
|
|
$
|
2.4
|
Operating lease of platform space
|
1.9
|
|
0.1
|
|
0.1
|
|
0.1
|
|
0.1
|
|
0.1
|
|
1.4
|
Capital leases (1)
|
56.6
|
|
4.3
|
|
4.3
|
|
4.3
|
|
4.3
|
|
4.3
|
|
35.1
|
|
$
|
61.9
|
|
$
|
4.6
|
|
$
|
4.6
|
|
$
|
4.6
|
|
$
|
4.6
|
|
$
|
4.6
|
|
$
|
38.9
|
(1) Capital leases include Port Neches storage tanks and Garden Banks 128 "A" platform. Port Neches storage tanks includes $30.1 million in interest, $24.3 million in principal and excludes $9.6 million in executory costs.
As of December 31, 2018 and 2017, we had short-term payment obligations relating to capital expenditures totaling $8.3 million and $5.8 million, respectively. These represent unconditional payment obligations to vendors for products and services delivered in connection with capital projects.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. (Deficit) Equity
Our capital accounts are comprised of a 2% general partner interests and 98% limited partner interests. The common units represent limited partner interests in us. The holders of common units, both public and SPLC, are entitled to participate in partnership distributions and have limited rights of ownership as provided for under our partnership agreement. Our general partner participates in our distributions and also currently holds Incentive Distribution Rights ("IDR’s) that entitle it to receive increasing percentages of the cash we distribute from operating surplus.
In November 2018, we filed an update to our universal shelf registration statement on Form S-3 with the SEC relating to an indeterminate number of common units and partnership securities representing limited partner units. We also filed a shelf registration statement on Form S-3 with the SEC in November 2018 relating to $1,000,000,000 of common units and partnership securities representing limited partner units to be used in connection with the at-the-market equity distribution program, direct sales, or other sales consistent with the plan of distribution set forth in the registration statement.
Public Offerings and Private Placement
On February 6, 2018, we completed the sale of 25,000,000 common units in a registered public offering for $673.3 million net proceeds ($680.0 million gross proceeds, or $27.20 per common unit, less $6.0 million of underwriter’s fees and $0.7 million of transaction fees). In connection with the issuance of common units, we issued 510,204 general partner units to our general partner for $13.9 million in order to maintain its 2% general partner interest in us. On February 6, 2018, we also completed the sale of 11,029,412 common units in a private placement with Shell Midstream LP Holdings LLC, an indirect subsidiary of Shell, for an aggregate purchase price of $300.0 million, or $27.20 per common unit. In connection with the issuance of the common units, we issued 225,091 general partner units to the general partner for $6.1 million in order to maintain its 2% general partner interest in us.
We used net proceeds from sales of common units and from our general partner’s proportionate capital contribution to repay $246.9 million of borrowings outstanding under the Five Year Revolver due July 2023 and $726.0 million of borrowings outstanding under the Five Year Revolver due December 2022, as well as for general partnership purposes.
On September 15, 2017, we completed the sale of 5,170,000 common units in a registered public offering for $135.1 million net proceeds. In connection with the issuance of common units, we issued 105,510 general partner units to our general partner for $2.8 million in order to maintain its 2% general partner interest in us. We used the net proceeds from these sales of common units and from our general partner’s proportionate capital contribution to repay borrowings outstanding under the Five Year Revolver due July 2023 and for general partnership purposes.
On May 23, 2016, in conjunction with the May 2016 Acquisition, we completed the sale of 10,500,000 common units in a registered public offering for $345.8 million net proceeds ($349.1 million gross proceeds, or $33.25 per common unit, less $2.9 million of underwriter’s fees and $0.4 million of transaction fees). In connection with the issuance of common units, we issued 214,285 general partner units to our general partner as non-cash consideration of $7.1 million in order to maintain its 2% general partner interest in us. We used the net proceeds from the May 2016 Offering and from our general partner’s proportionate capital contribution to partially fund the May 2016 Acquisition.
As part of the registered public offering on May 23, 2016, the underwriters received an option to purchase an additional 1,575,000 common units, which they exercised in full on June 9, 2016 for $51.8 million net proceeds ($52.4 million gross proceeds, or $33.25 per common unit, less $0.5 million in underwriter’s fees and $0.1 million of transaction fees). In connection with the issuance of common units, we issued 32,143 general partner units to our general partner for $1.1 million in order to maintain its 2% general partner interest in us.
On March 29, 2016, we completed the sale of 12,650,000 common units in a registered public offering (the “March 2016 Offering”) for $395.1 million net proceeds ($401.6 million gross proceeds, or $31.75 per common unit, less $6.3 million of underwriter’s fees and $0.2 million of transaction fees). In connection with the issuance of the common units, we issued 258,163 general partner units to our general partner for $8.2 million in order to maintain its 2% general partner interest in us. We used the net proceeds from the March 2016 Offering and from our general partner’s proportionate capital contribution to repay borrowings outstanding under the Five Year Revolver due July 2023 and the 364-Day Revolver and for general partnership purposes.
At-the-Market Program
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 2, 2016, we commenced an “at-the-market” equity distribution program pursuant to which we may issue and sell common units for up to $300.0 million in gross proceeds.
During the quarter ended September 30, 2017, we completed the sale of 5,200,000 common units under this program for $139.8 million net proceeds ($140.2 million gross proceeds, or an average price of $26.96 per common unit, less $0.4 million of transaction fees). In connection with the issuance of the common units, we issued 106,122 general partner units to our general partner for $2.9 million in order to maintain its 2% general partner interest in us. We used the net proceeds from these sales of common units and from our general partner’s proportionate capital contribution to repay borrowings outstanding under the Five Year Revolver due July 2023 and for general partnership purposes.
During the quarter ended June 30, 2017, we completed the sale of 94,925 common units under this program for $2.9 million net proceeds ($3.0 million gross proceeds, or an average price of $31.51 per common unit, less $0.1 million of transaction fees). In connection with the issuance of the common units, we issued 1,938 general partner units to our general partner for $0.1 million in order to maintain its 2% general partner interest in us. We used proceeds from these sales of common units and from our general partner’s proportionate capital contribution for general partnership purposes.
During the quarter ended March 31, 2016, we completed the sale of 750,000 common units under this program for $25.4 million net proceeds ($25.5 million gross proceeds, or an average price of $34.00 per common unit, less $0.1 million of transaction fees). In connection with the issuance of the common units, we issued 15,307 general partner units to our general partner for $0.5 million in order to maintain its 2% general partner interest in us. We used the net proceeds from these sales of common units and from our general partner’s proportionate capital contribution to repay borrowings outstanding under the Five Year Revolver due July 2023 and the 364-Day Revolver and for general partnership purposes.
Other than as described above, we did not have any sales under this program.
Units Outstanding
As of December 31, 2018, we had 223,811,781 common units outstanding, of which 123,832,233 were publicly owned. SPLC owned 99,979,548 common units representing an aggregate 43.8% limited partner interest in us, all of the IDR’s, and 4,567,588 general partner units, representing a 2% general partner interest in us.
The changes in the number of units outstanding from December 31, 2016 through December 31, 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
Common
|
|
SPLC
Common
|
|
SPLC Subordinated
|
|
General
Partner
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
88,367,308
|
|
21,475,068
|
|
67,475,068
|
|
3,618,723
|
|
180,936,167
|
Expiration of subordination period
|
—
|
|
67,475,068
|
|
(67,475,068)
|
|
—
|
|
—
|
Units issued in connection with ATM program
|
5,294,925
|
|
—
|
|
—
|
|
108,060
|
|
5,402,985
|
Units issued in connection with public offerings
|
5,170,000
|
|
—
|
|
—
|
|
105,510
|
|
5,275,510
|
Balance as of December 31, 2017
|
98,832,233
|
|
88,950,136
|
|
—
|
|
3,832,293
|
|
191,614,662
|
Units issued in connection with equity offerings
|
25,000,000
|
|
11,029,412
|
|
—
|
|
735,295
|
|
36,764,707
|
Balance as of December 31, 2018
|
123,832,233
|
|
99,979,548
|
|
—
|
|
4,567,588
|
|
228,379,369
|
Expiration of Subordination Period
On February 15, 2017, all of the subordinated units converted into common units following the payment of the cash distribution for the fourth quarter of 2016. Each of our 67,475,068 outstanding subordinated units converted into one common unit. The converted units will participate pro rata with the other common units in distributions of available cash. The conversion of the subordinated units does not impact the amount of cash distributions paid by us or the total number of outstanding units.
Distributions to our Unitholders
Our sponsor has elected to waive $50.0 million of IDR’s in 2019 to be used for future investment by the Partnership. Under the terms of the Second Amendment, distributions to holders of the incentive distribution rights shall be reduced by: (1) $17.0 million for the three months ending March 31, 2019, (2) $17.0 million for the three months ending June 30, 2019 and (3) $16.0 million for the three months ending September 30, 2019.
The following table details the distributions declared and/or paid for the periods presented:
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date Paid or to be Paid
|
|
Three Months Ended
|
|
Public Common
|
|
SPLC Common
|
|
SPLC Subordinated
|
|
General Partner
|
|
|
|
|
|
Distributions per Limited Partner Unit
|
|
|
|
|
|
|
|
|
|
|
IDR’s
|
|
2%
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except per unit amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 11, 2016
|
|
December 31, 2015
|
|
$
|
13.9
|
|
$
|
4.7
|
|
$
|
14.8
|
|
$
|
1.2
|
|
$
|
0.7
|
|
$
|
35.3
|
|
$
|
0.22000
|
May 12, 2016
|
|
March 21, 2016
|
|
17.9
|
|
5.1
|
|
15.8
|
|
2.0
|
|
0.9
|
|
41.7
|
|
0.23500
|
August 12, 2016
|
|
June 30, 2016
|
|
22.0
|
|
5.4
|
|
16.9
|
|
3.7
|
|
1.0
|
|
49.0
|
|
0.25000
|
November 14, 2016
|
|
September 30, 2016
|
|
23.3
|
|
5.7
|
|
17.8
|
|
6.0
|
|
1.1
|
|
53.9
|
|
0.26375
|
February 14, 2017
|
|
December 31, 2016
|
|
24.5
|
|
5.9
|
|
18.7
|
|
8.3
|
|
1.2
|
|
58.6
|
|
0.27700
|
May 12, 2017
|
|
March 31, 2017
|
|
25.7
|
|
25.9
|
|
—
|
|
10.7
|
|
1.3
|
|
63.6
|
|
0.29100
|
August 14, 2017
|
|
June 30, 2017
|
|
26.9
|
|
27.0
|
|
—
|
|
12.9
|
|
1.4
|
|
68.2
|
|
0.30410
|
November 14, 2017
|
|
September 30, 2017
|
|
31.4
|
|
28.3
|
|
—
|
|
16.2
|
|
1.5
|
|
77.4
|
|
0.31800
|
February 14, 2018
|
|
December 31, 2017
|
|
32.9
|
|
29.6
|
|
—
|
|
18.9
|
|
1.7
|
|
83.1
|
|
0.33300
|
May 15, 2018
|
|
March 31, 2018
|
|
43.1
|
|
34.8
|
|
—
|
|
25.7
|
|
2.1
|
|
105.7
|
|
0.34800
|
August 14, 2018
|
|
June 30, 2018
|
|
45.2
|
|
36.5
|
|
—
|
|
29.4
|
|
2.3
|
|
113.4
|
|
0.36500
|
November 14, 2018
|
|
September 30, 2018
|
|
47.3
|
|
38.2
|
|
—
|
|
33.1
|
|
2.4
|
|
121.0
|
|
0.38200
|
February 14, 2019
|
|
December 31, 2018 (1)
|
|
49.5
|
|
40.0
|
|
—
|
|
36.9
|
|
2.6
|
|
129.0
|
|
0.40000
|
(1) For more information see Note 15 - Subsequent Events.
Distributions to Noncontrolling Interests
Distributions to SPLC for its noncontrolling interest in Zydeco were $7.3 million, $8.9 million and $20.3 million in 2018, 2017 and 2016, respectively. Distributions to GEL for its noncontrolling interest in Odyssey were $9.1 million, $10.0 million and $9.9 million in 2018, 2017 and 2016, respectively. See Note 5—Related Party Transactions for additional details.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Net Income Per Limited Partner Unit
Net income per unit applicable to common limited partner units, and to subordinated limited partner units in periods prior to the expiration of the subordination period, is computed by dividing the respective limited partners’ interest in net income attributable to the partnership for the period by the weighted average number of common units and subordinated units, respectively, outstanding for the period. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, general partner units, and IDR’s. Basic and diluted net income per unit are the same because we do not have any potentially dilutive units outstanding for the period presented.
Our net income includes earnings related to businesses acquired through transactions between entities under common control for periods prior to their acquisition by us. We have allocated these pre-acquisition earnings to our General Partner.
The following tables show the allocation of net income attributable to the Partnership to arrive at net income per limited partner unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net income
|
$
|
482.4
|
|
$
|
391.8
|
|
$
|
377.5
|
Less:
|
|
|
|
|
|
Net income attributable to the Parent
|
—
|
|
77.3
|
|
102.3
|
Net income attributable to noncontrolling interests
|
18.3
|
|
19.2
|
|
30.3
|
Net income attributable to the Partnership
|
464.1
|
|
295.3
|
|
244.9
|
Less:
|
|
|
|
|
|
General partner’s distribution declared
|
134.5
|
|
64.6
|
|
24.2
|
Limited partners’ distribution declared on common units
|
334.6
|
|
227.7
|
|
109.8
|
Limited partner’s distribution declared on subordinated units
|
—
|
|
—
|
|
69.2
|
Income (less than)/in excess of distributions
|
$
|
(5.0)
|
|
$
|
3.0
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
General Partner
|
|
Limited Partners’ Common Units
|
|
Total
|
|
|
|
|
|
|
|
(in millions of dollars, except per unit data)
|
|
|
|
|
Distributions declared
|
$
|
134.5
|
|
$
|
334.6
|
|
$
|
469.1
|
Income less than distributions
|
(0.1)
|
|
(4.9)
|
|
(5.0)
|
Net income attributable to the Partnership
|
$
|
134.4
|
|
$
|
329.7
|
|
$
|
464.1
|
Weighted average units outstanding:
|
|
|
|
|
|
Basic and diluted
|
|
|
220.3
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
Basic and diluted
|
|
|
$
|
1.50
|
|
|
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
General Partner
|
|
Limited Partners’ Common Units
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions of dollars, except per unit data)
|
|
|
|
|
|
|
Distributions declared
|
$
|
64.6
|
|
$
|
227.7
|
|
|
|
$
|
292.3
|
Income in excess of distributions
|
—
|
|
3.0
|
|
|
|
3.0
|
Net income attributable to the Partnership
|
$
|
64.6
|
|
$
|
230.7
|
|
|
|
$
|
295.3
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
180.4
|
|
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
General Partner
|
|
Limited Partners’ Common Units
|
|
Limited Partner’s Subordinated Units
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions of dollars, except per unit data)
|
|
|
|
|
|
|
Distributions declared
|
$
|
24.2
|
|
$
|
109.8
|
|
$
|
69.2
|
|
$
|
203.2
|
Income in excess of distributions
|
0.8
|
|
24.6
|
|
16.3
|
|
41.7
|
Net income attributable to the Partnership
|
$
|
25.0
|
|
$
|
134.4
|
|
$
|
85.5
|
|
$
|
244.9
|
Weighted average units outstanding:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
101.9
|
|
67.5
|
|
|
Net income per limited partner unit:
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
$
|
1.32
|
|
$
|
1.27
|
|
|
13. Transactions with Major Customers and Concentration of Credit Risk
Our Parent and its affiliates accounted for 59.7%, 49.9% and 44.5% of our total revenues for 2018, 2017 and 2016, respectively. The following table shows revenues from third party customers that accounted for a 10% or greater share of consolidated revenues for the indicated years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Customer C
|
$
|
64.5
|
|
$
|
70.3
|
|
$
|
72.9
|
The following table shows accounts receivable from third party customers that accounted for a 10% or greater share of consolidated net accounts receivable for the indicated years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Customer C
|
$
|
5.2
|
|
$
|
5.8
|
|
$
|
6.3
|
We have a concentration of revenues and trade receivables due from customers in the same industry, our Parent’s affiliates, integrated oil companies, marketers, and independent exploration, production and refining companies primarily within the Gulf Coast region of the U.S. These concentrations of customers may impact our overall exposure to credit risk as they may be similarly affected by changes in economic, regulatory, regional and other factors. We are potentially exposed to concentration of credit risk primarily through our accounts receivable with our Parent. These receivables have payment terms of 30 days or less, and there has been no history of collectability issues. We monitor the creditworthiness of third-party major customers. We manage our exposure to credit risk through credit analysis, credit limit approvals and monitoring procedures, and for certain
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
transactions, we may request letters of credit, prepayments or guarantees. As of December 31, 2018 and 2017, there were no such arrangements.
We have concentrated credit risk for cash by maintaining deposits in a major bank, which may at times exceed amounts covered by insurance provided by the United States Federal Deposit Insurance Corporation (“FDIC”). We monitor the financial health of the bank and have not experienced any losses in such accounts and believe we are not exposed to any significant credit risk. As of December 31, 2018, we had approximately $207.3 million in cash and cash equivalents in excess of FDIC limits.
14. Commitments and Contingencies
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations. We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are probable and reasonably estimable. For both December 31, 2018 and 2017, we had $0.3 million accrued liabilities associated with environmental clean-up costs. The accrued liability as of December 31, 2018 and 2017 relates to a Consent Decree issued in 1998 by the State of Washington Department of Ecology with respect to our products terminal located in Seattle, Washington. The costs relate to ongoing groundwater compliance monitoring and other remedial activities.
Legal Proceedings
We are named defendants in lawsuits and governmental proceedings that arise in the ordinary course of our business. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we do not expect that the ultimate resolution of these matters will have a material adverse effect on our financial position, operating results or cash flows.
Indemnification
Under our Omnibus Agreement, certain environmental liabilities, tax liabilities, litigation and other matters attributable to the ownership or operation of our assets prior to the IPO are indemnified by SPLC. Other than tax liabilities for which the statute of limitations has not expired, the obligations of SPLC under the Omnibus Agreement have expired. See Note 5–Related Party Transactions for additional information.
Minimum Throughput
On September 1, 2016, the in-service date of the capital lease for the Port Neches storage tanks, a joint tariff agreement with a third party became effective and requires monthly payments of approximately $0.4 million. The tariff will be analyzed annually and the rate updated based on the FERC indexing adjustment effective July 1 of each year. Effective July 1, 2018, there was an approximately 4.4% increase to this rate based on FERC indexing adjustment. The initial term of the agreement is ten years with automatic one year renewal terms with the option to cancel prior to each renewal period.
Other Commitments
Odyssey entered into a tie-in agreement effective January 2012 with a third party, which allowed producers to install the tie-in connection facilities and tying into the system. The agreement will continue to be in effect until the continued operation of the platform is uneconomic.
We hold cancelable easements or rights-of-way arrangements from landowners permitting the use of land for the construction and operation of our pipeline systems. Obligations under these easements are not material to the results of our operations.
Leases
We have operating leases for land, a lease of platform space and capital leases for storage tanks and platform space. See Note 10 – Leases for additional information relating to our lease obligations.
SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Subsequent Event(s)
We have evaluated events that occurred after December 31, 2018 through the issuance of these consolidated financial statements. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the consolidated financial statements and accompanying notes.
Distribution
On January 24, 2019, the Board declared a cash distribution of $0.4000 per limited partner unit for the three months ended December 31, 2018. The distribution was paid on February 14, 2019 to unitholders of record as of February 4, 2019.
Omnibus
On February 19, 2019, we, our general partner, SPLC, Shell Midstream Operating LLC and Shell Oil Company terminated the Omnibus Agreement effective as of February 1, 2019, and we, our general partner, SPLC and Shell Midstream Operating LLC entered into a new Omnibus Agreement effective February 1, 2019. The new Omnibus Agreement (i) removes indemnities that have expired; (ii) includes updates for additional assets acquired; and (iii) increases the administrative fee payable to SPLC to $10.5 million. On February 19, 2019, we, our general partner and Shell Trademark Management Inc. entered into a Trade Marks License Agreement granting us the use of certain Shell trademarks and trade names. The Trade Marks License Agreement is effective as of February 1, 2019 and will expire on January 1, 2024 unless earlier terminated by either party upon 360 days’ notice. The foregoing description of the Omnibus Agreement Termination Agreement, the new Omnibus Agreement and the Trade Marks License Agreement is not complete and is qualified in its entirety by reference to the full text of the Omnibus Agreement Termination Agreement, the new Omnibus Agreement and the Trade Marks License Agreement, filed as Exhibits 10.17, 10.18 and 10.19, respectively, and are each incorporated herein by reference.
16. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions of dollars, except per unit data)
|
|
Total Revenues (1)
|
|
Income Before Income Taxes
|
|
Net Income
|
|
Net Income Attributable to the Partnership
|
|
Limited Partners’ Interest in Net Income Attributable to the Partnership
|
|
Net Income per Common Unit - Basic
and Diluted (2)
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
99.6
|
|
$
|
64.8
|
|
$
|
64.8
|
|
$
|
64.0
|
|
$
|
37.0
|
|
$
|
0.18
|
Second
|
|
129.3
|
|
115.5
|
|
115.4
|
|
110.7
|
|
79.1
|
|
0.35
|
Third
|
|
153.5
|
|
154.3
|
|
154.2
|
|
148.3
|
|
112.3
|
|
0.50
|
Fourth
|
|
142.3
|
|
148.2
|
|
148.0
|
|
141.1
|
|
101.3
|
|
0.45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
$
|
109.1
|
|
$
|
98.1
|
|
$
|
98.1
|
|
$
|
70.8
|
|
$
|
58.7
|
|
$
|
0.33
|
Second
|
|
112.4
|
|
91.7
|
|
91.7
|
|
65.5
|
|
51.2
|
|
0.29
|
Third
|
|
121.8
|
|
99.5
|
|
99.5
|
|
72.6
|
|
55.0
|
|
0.31
|
Fourth
|
|
126.8
|
|
102.6
|
|
102.5
|
|
86.4
|
|
65.8
|
|
0.35
|
(1) As a result of the adoption of the new revenue standard, prior period amounts have not been adjusted under the modified retrospective method and continue to be reported in accordance with our historic accounting under previous GAAP.
(2) The net income per common unit for each of the quarterly periods in the applicable year may not equal the year-to-date net income per common unit as the calculations of each are performed independently.