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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                         
Commission file number: 001-36710
Shell Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)

Delaware 46-5223743
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
150 N. Dairy Ashford, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
(832) 337-2034
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Units, Representing Limited Partner Interests SHLX New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company ☐

Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ý
The registrant had 393,289,537 common units outstanding as of April 30, 2021.





SHELL MIDSTREAM PARTNERS, L.P.
TABLE OF CONTENTS
 
Page
3
3
3
                   Unaudited Consolidated Statements of Income
3
5
6
7
8
26
45
45
47
47
47
48
49
50
* SHELL and the SHELL Pecten are registered trademarks of Shell Trademark Management, B.V. used under license.



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS

March 31, 2021 December 31, 2020
(in millions of dollars)
ASSETS
Current assets  
Cash and cash equivalents $ 317  $ 320 
Accounts receivable – third parties, net 14  20 
Accounts receivable – related parties 31  21 
Allowance oil 14 
Prepaid expenses 16  24 
Total current assets 392  394 
Equity method investments 1,007  1,013 
Property, plant and equipment, net 686  699 
Operating lease right-of-use assets
Other investments
Contract assets – related parties 229  233 
Other assets – related parties
Total assets $ 2,322  $ 2,347 
LIABILITIES
Current liabilities
Accounts payable – third parties $ $
Accounts payable – related parties 12  16 
Deferred revenue – third parties
Deferred revenue – related parties 22  19 
Accrued liabilities – third parties 12  10 
Accrued liabilities – related parties 16  28 
Total current liabilities 67  82 
Noncurrent liabilities
Debt payable – related party 2,691  2,692 
Operating lease liabilities
Finance lease liabilities 24  24 
Deferred revenue and other unearned income
Total noncurrent liabilities 2,722  2,723 
Total liabilities 2,789  2,805 
Commitments and Contingencies (Note 11)
(DEFICIT) EQUITY
Preferred unitholders (50,782,904 units issued and outstanding as of both March 31, 2021 and December 31, 2020)
(1,059) (1,059)
Common unitholders – public (123,832,233 units issued and outstanding as of both March 31, 2021 and December 31, 2020)
3,373  3,382 
Common unitholder – SPLC (269,457,304 units issued and outstanding as of both March 31, 2021 and December 31, 2020)
(2,498) (2,497)
Financing receivables – related parties (297) (298)
Accumulated other comprehensive loss (9) (9)
Total partners’ deficit (490) (481)
Noncontrolling interests 23  23 
Total deficit (467) (458)
Total liabilities and deficit $ 2,322  $ 2,347 
The accompanying notes are an integral part of the consolidated financial statements.


3




SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended
March 31,
2021 2020
Revenue
Transportation, terminaling and storage services – third parties $ 41  $ 31 
Transportation, terminaling and storage services – related parties 78  69 
Product revenue – third parties —  — 
Product revenue – related parties
Lease revenue – related parties 14  14 
Total revenue 139  121 
Costs and expenses
Operations and maintenance – third parties 11  14 
Operations and maintenance – related parties 27  14 
Cost of product sold 15 
Impairment of fixed assets — 
General and administrative – third parties
General and administrative – related parties 10  12 
Depreciation, amortization and accretion 13  13 
Property and other taxes
Total costs and expenses 75  76 
Operating income 64  45 
Income from equity method investments 102  112 
Other income 14 
Investment and other income 116  121 
Interest income
Interest expense 21  25 
Income before income taxes 167  142 
Income tax expense —  — 
Net income 167  142 
Less: Net income attributable to noncontrolling interests
Net income attributable to the Partnership $ 163  $ 138 
Preferred unitholder’s interest in net income attributable to the Partnership 12  — 
General partner’s interest in net income attributable to the Partnership —  55 
Limited Partners’ interest in net income attributable to the Partnership’s common unitholders $ 151  $ 83 
Net income per Limited Partner Unit - Basic and Diluted:
Common - basic $ 0.38  $ 0.36 
Common - diluted $ 0.37  $ 0.36 
Distributions per Limited Partner Unit $ 0.4600  $ 0.4600 
Weighted average Limited Partner Units outstanding - Basic and Diluted:
Common units - public - basic 123.8  123.8 
Common units - SPLC - basic 269.5  109.5 
Common units - public - diluted 123.8  123.8 
Common units - SPLC - diluted 320.3  109.5 
The accompanying notes are an integral part of the consolidated financial statements.

4


SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31,
2021 2020
Net income $ 167  $ 142 
Other comprehensive income, net of tax:
Remeasurements of pension and other postretirement benefits related to equity method investments, net of tax —  — 
Comprehensive income $ 167  $ 142 
Less comprehensive income attributable to:
Noncontrolling interests
Comprehensive income attributable to the Partnership $ 163  $ 138 

The accompanying notes are an integral part of the consolidated financial statements.
5


SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS 

Three Months Ended March 31,
2021 2020
(in millions of dollars)
Cash flows from operating activities
Net income $ 167  $ 142 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion 13  13 
Amortization of contract assets - related parties — 
Impairment of fixed assets — 
Allowance oil reduction to net realizable value — 
Undistributed equity earnings (5) — 
Changes in operating assets and liabilities
Accounts receivable (4) (3)
Allowance oil (5) — 
Prepaid expenses and other assets
Accounts payable (5) (3)
Deferred revenue and other unearned income — 
Accrued liabilities (10) — 
Net cash provided by operating activities 166  162 
Cash flows from investing activities
Capital expenditures (1) (7)
Contributions to investment (2) — 
Return of investment 12  14 
Net cash provided by investing activities
Cash flows from financing activities
Distributions to noncontrolling interests (4) (5)
Distributions to unitholders and general partner (173) (162)
Prepayment fee on credit facility (2) — 
Receipt of principal payments on financing receivables — 
Net cash used in financing activities (178) (167)
Net increase in cash and cash equivalents (3)
Cash and cash equivalents at beginning of the period 320  290 
Cash and cash equivalents at end of the period $ 317  $ 292 
Supplemental cash flow information
Non-cash investing and financing transactions:
Change in accrued capital expenditures $ $ (4)
The accompanying notes are an integral part of the consolidated financial statements.
6


SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN (DEFICIT) EQUITY
Partnership
(in millions of dollars) Preferred Unitholder SPLC Common Unitholders Public Common Unitholder SPLC Financing Receivables Accumulated Other Comprehensive Loss Noncontrolling Interests Total
Balance as of December 31, 2020 $ (1,059) $ 3,382  $ (2,497) $ (298) $ (9) $ 23  $ (458)
Net income 12  48  103  —  —  167 
Distributions to unitholders (12) (57) (104) —  —  —  (173)
Distributions to noncontrolling interests —  —  —  —  —  (4) (4)
Principal repayments on financing receivables —  —  —  —  — 
Balance as of March 31, 2021 $ (1,059) $ 3,373  $ (2,498) $ (297) $ (9) $ 23  $ (467)


Partnership
(in millions of dollars) Common Unitholders Public Common Unitholder SPLC General Partner SPLC Accumulated Other Comprehensive Loss Noncontrolling Interests Total
Balance as of December 31, 2019 $ 3,450  $ (203) $ (4,014) $ (8) $ 26  $ (749)
Net income 44  39  55  —  142 
Distributions to unitholders and general partner (57) (50) (55) —  —  (162)
Distributions to noncontrolling interests —  —  —  —  (5) (5)
Balance as of March 31, 2020 $ 3,437  $ (214) $ (4,014) $ (8) $ 25  $ (774)
The accompanying notes are an integral part of the consolidated financial statements.

7


SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO UNAUDITED 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 the Business and Basis of Presentation
Shell Midstream Partners, L.P. (“we,” “us,” “our,” “SHLX” 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”). 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.

Until April 1, 2020, our general partner owned an approximate 2% general partner economic interest in the Partnership, including the incentive distribution rights (“IDRs”). On April 1, 2020, we closed the transactions contemplated by the Partnership Interests Restructuring Agreement with our general partner dated February 27, 2020 (the “Partnership Interests Restructuring Agreement”), pursuant to which the IDRs were eliminated and the 2% general partner economic interest was converted into a non-economic general partner interest in the Partnership. As of March 31, 2021, our general partner holds a non-economic general partner interest in the Partnership, and affiliates of SPLC own a 68.5% limited partner interest (269,457,304 common units) and 50,782,904 Series A perpetual convertible preferred units (the “Series A Preferred Units”) in the Partnership. These common units and preferred units, on an as-converted basis, represent a 72% interest in the Partnership. See Note 7 — (Deficit) Equity for additional details.

Description of the Business
We own, operate, develop and acquire pipelines and other midstream and logistics assets. As of March 31, 2021, our assets include interests in entities that own (a) crude oil and refined products pipelines and terminals that serve as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and deliver refined products from those markets to major demand centers and (b) storage tanks and financing receivables that are secured by pipelines, storage tanks, docks, truck and rail racks and other infrastructure used to stage and transport intermediate and finished products. The Partnership’s assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.

We generate revenue from the transportation, terminaling and storage of crude oil, refined products, and intermediate and finished products through our pipelines, storage tanks, docks, truck and rail racks, generate income from our equity and other investments, and generate interest income from financing receivables on certain logistic assets. Our operations consist of one reportable segment. 




















8



The following table reflects our ownership interests as of March 31, 2021:
SHLX 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”) (1)
92.5  %
Mattox Pipeline Company LLC (“Mattox”) 79.0  %
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  %
Explorer Pipeline Company (“Explorer”) 38.59  %
Poseidon Oil Pipeline Company, L.L.C. (“Poseidon”) 36.0  %
Colonial Enterprises, Inc. (“Colonial”) 16.125  %
Proteus Oil Pipeline Company, LLC (“Proteus”) 10.0  %
Endymion Oil Pipeline Company, LLC (“Endymion”) 10.0  %
Cleopatra Gas Gathering Company, LLC (“Cleopatra”) 1.0  %
(1) SPLC owns the remaining 7.5% ownership interest in Zydeco.

Basis of Presentation
Our unaudited consolidated financial statements include all subsidiaries required to be consolidated under generally accepted accounting principles in the United States (“GAAP”). Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars. The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. The year-end consolidated balance sheet data was derived from audited financial statements. During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report”), filed with the United States Securities and Exchange Commission (“SEC”) unless otherwise described herein. The unaudited consolidated financial statements for the three months ended March 31, 2021 and March 31, 2020 include all adjustments we believe are necessary for a fair statement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature unless otherwise disclosed. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our 2020 Annual Report.

Our consolidated subsidiaries include Pecten, Sand Dollar, Triton, Zydeco, Odyssey and the Operating Company. Asset acquisitions of additional interests in previously consolidated subsidiaries and interests in 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.

Summary of Significant Accounting Policies
The accounting policies are set forth in Note 2 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of our 2020 Annual Report. There have been no significant changes to these policies during the three months ended March 31, 2021, other than those noted below.

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Recent Accounting Pronouncements

Standards Adopted as of January 1, 2021
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity. The update will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models may result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021 for SEC filers, excluding smaller reporting companies. We elected to early adopt effective January 1, 2021. The adoption of ASU 2020-06 did not have a material impact on our unaudited consolidated financial statements.

2. 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.

Partnership Interests Restructuring Agreement
On February 27, 2020, we and our general partner entered into the Partnership Interests Restructuring Agreement, effective April 1, 2020, pursuant to which the IDRs were eliminated and the 2% general partner economic interest was converted into a non-economic general partner interest in the Partnership.

Purchase and Sale Agreement
On February 27, 2020, we entered into the Purchase and Sale Agreement by and among Triton, SPLC, Shell GOM Pipeline Company LLC (“SGOM”), Shell Chemical LP (“Shell Chemical”) and Equilon Enterprises LLC d/b/a Shell Oil Products US (“SOPUS”), effective April 1, 2020, pursuant to which we acquired 79% of the issued and outstanding membership interests in Mattox from SGOM, and SOPUS and Shell Chemical transferred to Triton, as a designee of the Partnership, certain logistics assets at the Shell Norco Manufacturing Complex (the “Norco Assets”).

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. On February 19, 2019, we, our general partner, SPLC, the Operating Company and Shell Oil Company terminated the Omnibus Agreement effective as of February 1, 2019, and we, our general partner, SPLC and the Operating Company entered into a new Omnibus Agreement effective February 1, 2019 (the “2019 Omnibus Agreement”). On February 18, 2020, pursuant to the 2019 Omnibus Agreement, the Board of Directors of our general partner (the “Board”) approved a 3% inflationary increase to the annual general and administrative fee for 2020. On February 16, 2021, pursuant to the 2019 Omnibus Agreement, the Board approved a decrease in the annual general and administrative fee to $10 million for 2021, based on a change in the cost of the services provided.

The 2019 Omnibus Agreement addresses, among other things, the following matters:

our payment of an annual general and administrative fee of approximately $10 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; and
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.

Trade Marks License Agreement
We, our general partner and SPLC entered into a Trade Marks License Agreement with Shell Trademark Management Inc. effective as of February 1, 2019. The Trade Marks License Agreement grants us the use of certain Shell trademarks and trade names and expires on January 1, 2024 unless earlier terminated by either party upon 360 days’ notice.
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Tax Sharing Agreement
For a discussion of the Tax Sharing Agreement, see Note 4—Related Party Transactions—Tax Sharing Agreement in the Notes to Consolidated Financial Statements of our 2020 Annual Report.

Other Agreements
We have entered into several customary agreements with SPLC and Shell. These agreements include pipeline operating agreements, reimbursement agreements and services agreements. See Note 4—Related Party Transactions—Other Agreements in the Notes to Consolidated Financial Statements of our 2020 Annual Report.

Partnership Agreement
Concurrently with the execution of the Partnership Interests Restructuring Agreement, on April 1, 2020, we executed the Second Amended and Restated Partnership Agreement, which amended and restated the Partnership’s First Amended and Restated Agreement of Limited Partnership dated November 3, 2014, (“First Amended and Restated Partnership Agreement”) as the same was previously amended) in its entirety. Under the Second Amended and Restated Partnership Agreement, the IDRs were eliminated, the economic general partnership interest was converted into a non-economic general partner interest, and our general partner or its assignee agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the transaction completed in April 2020, in an amount of $20 million per quarter for four consecutive fiscal quarters, beginning with the distribution made with respect to the second quarter of 2020.

Noncontrolling Interests
For Zydeco, noncontrolling interest consists of SPLC’s 7.5% retained ownership interest as of both March 31, 2021 and December 31, 2020. For Odyssey, noncontrolling interest consists of GEL Offshore Pipeline LLC’s (“GEL”) 29% retained ownership interest as of both March 31, 2021 and December 31, 2020.

Other Related Party Balances
Other related party balances consist of the following:
March 31, 2021 December 31, 2020
Accounts receivable $ 31  $ 21 
Prepaid expenses 14  22 
Other assets
Contract assets (1)
229  233 
Accounts payable (2)
12  16 
Deferred revenue 22  19 
Accrued liabilities (3)
16  28 
Debt payable (4)
2,691  2,692 
Finance lease liability
Financing receivables (1)
297  298 
(1) Contract assets and Financing receivables were recognized in connection with the transaction completed in April 2020. Refer to the section entitled Sale Leaseback below for additional details. Financing receivables were presented as a component of (deficit) equity.
(2) Accounts payable reflects amounts owed to SPLC for reimbursement of third-party expenses incurred by SPLC for our benefit.
(3) As of March 31, 2021, Accrued liabilities reflects $12 million of accrued interest and $4 million of other accrued liabilities. As of December 31, 2020, Accrued liabilities reflects $16 million of accrued interest and $12 million of other accrued liabilities. Other accrued liabilities are primarily related to the accrued operation and maintenance expenses on the Norco Assets.
(4) Debt payable reflects borrowings outstanding after taking into account unamortized debt issuance costs of $3 million and $2 million as of March 31, 2021 and December 31, 2020, respectively.

Related Party Credit Facilities
We have entered into five credit facilities with Shell Treasury Center (West) Inc. (“STCW”), an affiliate of the Partnership: the 2021 Ten Year Fixed Facility, the Ten Year Fixed Facility, the Seven Year Fixed Facility, the Five Year Revolver due July 2023 and the Five Year Revolver due December 2022. Zydeco has also entered into the 2019 Zydeco Revolver with STCW. For definitions and additional information regarding these credit facilities, see Note 5 – Related Party Debt in this report and Note 8 – Related Party Debt in the Notes to Consolidated Financial Statements of our 2020 Annual Report.
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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 revenue from related parties for the three months ended March 31, 2021 and March 31, 2020 is disclosed in Note 8 – Revenue Recognition.

The following table shows related party expenses, including certain personnel costs, incurred by Shell and SPLC on our behalf that are reflected in the accompanying unaudited consolidated statements of income for the indicated periods. Included in these amounts, and disclosed below, is our share of operating and general corporate expenses, as well as the fees paid to SPLC under certain agreements.
 
Three Months Ended March 31,
2021 2020
Allocated operating expenses $ 14  $
Major maintenance costs (1)
— 
Insurance expense (2)
Other (3)
Operations and maintenance – related parties $ 27  $ 14 
Allocated general corporate expenses $ $
Management Agreement fee
Omnibus Agreement fee
General and administrative – related parties $ 10  $ 12 
(1) Major maintenance costs are expensed as incurred in connection with the maintenance services of the Norco Assets. Refer to section entitled Sale Leaseback below for additional details.
(2) The majority of our insurance coverage is provided by a wholly owned subsidiary of Shell. The remaining coverage is provided by third-party insurers.
(3) Other expenses primarily relate to salaries and wages, other payroll expenses and special maintenance.

For a discussion of services performed by Shell on our behalf, see Note 1 – Description of Business and Basis of Presentation – Basis of Presentation– Expense Allocations in the Notes to Consolidated Financial Statements of our 2020 Annual Report.

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 both the three months ended March 31, 2021 and March 31, 2020 were $2 million. Our share of defined contribution benefit plan costs for both the three months ended March 31, 2021 and March 31, 2020 were $1 million. 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 unaudited consolidated statements of income, depending on the nature of the employee’s role in our operations.

Equity and Other Investments
We have equity and other investments in various entities. In some cases, we may be required to make capital contributions or other payments to these entities. See Note 3 – Equity Method Investments for additional details.

Sale Leaseback
Pursuant to the terminaling services agreements entered into among Triton, SOPUS and Shell Chemical related to the Norco Assets acquired in the transaction completed in April 2020, the Partnership receives an annual net payment of $140 million, which is the total annual payment pursuant to the terminaling service agreements of $151 million, less $11 million, which primarily represents the allocated utility costs from SOPUS related to the Norco Assets. Both annual payments are subject to annual Consumer Price Index adjustments.

The transfer of the Norco Assets, combined with the terminaling services agreements, were accounted for as a failed sale leaseback under ASC Topic 842, Leases (“the lease standard”). As a result, the transaction was treated as a financing arrangement in which the underlying assets were not recognized in property, plant and equipment of the Partnership as control
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of the Norco Assets did not transfer to the Partnership, and instead were recorded as financing receivables from SOPUS and Shell Chemical.

We recognize interest income on the financing receivables on the basis of an imputed interest rate of 11.1% related to SOPUS and 7.4% related to Shell Chemical. The following table shows the interest income and reduction in the financing receivables for the three months ended March 31, 2021:

Three Months Ended March 31,
2021
Interest income (1)
$
Reduction in the financing receivables (1)
(1) Cash payments received for interest income and principal repayments on financing receivables were received in the same period that the interest income and principal repayment were recorded.

The transfer of the Norco Assets and the terminaling services agreements as a result of the transaction completed in April 2020 have operation and maintenance service components and major maintenance service components (together “service components”). Consistent with our operating lease arrangements, we allocate a portion of the arrangement’s transaction price to any service components within the scope of ASC Topic 606, Revenue from Contracts with Customers (“the revenue standard”) and defer the revenue, if necessary, until the point at which the performance obligation is met. We present the revenue earned from the service components under the revenue standard within Transportation, terminaling and storage services – related parties in the unaudited consolidated statements of income. See Note 8 – Revenue Recognition for additional details related to revenue recognized on the service components and amortization of the contract assets.

3. 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:

March 31, 2021 December 31, 2020
Ownership Investment Amount Ownership Investment Amount
Mattox 79.0% $ 161  79.0% $ 163 
Amberjack – Series A / Series B
75.0% / 50.0%
376 
75.0% / 50.0%
382 
Mars 71.5% 153  71.5% 152 
Bengal 50.0% 89  50.0% 88 
Permian Basin 50.0% 82  50.0% 83 
LOCAP 41.48% 14  41.48% 12 
Explorer 38.59% 70  38.59% 73 
Poseidon 36.0% —  36.0% — 
Colonial 16.125% 31  16.125% 29 
Proteus 10.0% 14  10.0% 14 
Endymion 10.0% 17  10.0% 17 
$ 1,007  $ 1,013 

For the three months ended March 31, 2021 and March 31, 2020, distributions received from equity method investments were $123 million and $135 million, respectively.

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 March 31, 2021 and December 31, 2020, the unamortized basis differences included in our equity investments are $82 million and $84 million, respectively. For both the three months ended March 31, 2021 and March 31, 2020, the net amortization expense was $2 million, which is included in Income from equity method investments.

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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 for this investment. As we have no commitments to provide further financial support to Poseidon, we have recorded excess distributions of $14 million and $9 million, respectively, in Other income for the three months ended March 31, 2021 and March 31, 2020. Once our cumulative share of equity earnings becomes greater than the cumulative amount of distributions received, we will resume the equity method of accounting as long as the equity method investment balance remains greater than zero.

Earnings from our equity method investments were as follows during the periods indicated:

Three Months Ended March 31,
2021 2020
Mattox (1)
$ 15  $ — 
Amberjack 29  29 
Mars 29  31 
Bengal
Explorer 14 
Colonial 15  27 
Other (2)
$ 102  $ 112 
(1) We acquired an interest in Mattox in April 2020. The acquisition of this interest has been accounted for prospectively.
(2) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.

Under the lease standard, the adoption date for our equity method investments followed the non-public business entity adoption date of January 1, 2020 for their stand-alone financial statements, with the exception of Permian Basin, which adopted on January 1, 2019. There was no material impact on the Partnership’s consolidated financial statements as a result of the adoption of the lease standard by our equity method investees.

Summarized Financial Information
The following tables present aggregated selected unaudited income statement data for our equity method investments on a 100% basis. However, during periods in which an acquisition occurs, the selected unaudited income statement data reflects activity from the date of the acquisition.

Three Months Ended March 31, 2021
Total revenues Total operating expenses Operating income Net income
Statements of Income
Mattox $ 22  $ $ 19  $ 19 
Amberjack 72  17  55  55 
Mars 63  22  41  41 
Bengal 13 
Explorer 69  42  27  21 
Colonial 290  133  157  97 
Poseidon 42  10  32  31 
Other (1)
56  32  24  23 
(1) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.


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Three Months Ended March 31, 2020
Total revenues Total operating expenses Operating income Net income
Statements of Income
Amberjack $ 76  $ 19  $ 57  $ 57 
Mars 72  28  44  44 
Bengal 17  10  10 
Explorer 96  47  49  38 
Colonial 401  163  238  169 
Poseidon 33  24  22 
Other (1)
57  27  30  25 
(1) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.

Capital Contributions
We make capital contributions for our pro-rata interest in Permian Basin to fund capital and other expenditures. For the three months ended March 31, 2021, we made a capital contribution of approximately $2 million. We did not make any capital contributions for the three months ended March 31, 2020.

4. Property, Plant and Equipment
Property, plant and equipment, net, consists of the following as of the dates indicated:
 
Depreciable
Life
March 31, 2021 December 31, 2020
Land
—  $ 12  $ 12 
Building and improvements
10 - 40 years
47  47 
Pipeline and equipment (1)
10 - 30 years
1,260  1,263 
Other
5 - 25 years
35  34 
1,354  1,356 
Accumulated depreciation and amortization (2)
(674) (661)
680  695 
Construction in progress
Property, plant and equipment, net
$ 686  $ 699 
(1) As of both March 31, 2021 and December 31, 2020, includes costs of $372 million related to assets under operating leases (as lessor). As of both March 31, 2021 and December 31, 2020, includes cost of $23 million related to assets under capital lease (as lessee).
(2) As of March 31, 2021 and December 31, 2020, includes accumulated depreciation of $150 million and $147 million, respectively, related to assets under operating leases (as lessor). As of both March 31, 2021 and December 31, 2020, includes accumulated amortization of $8 million related to assets under capital lease (as lessee).

Depreciation and amortization expense on property, plant and equipment for both the three months ended March 31, 2021 and March 31, 2020 was $13 million and is included in costs and expenses in the accompanying unaudited consolidated statements of income. Depreciation and amortization expense on property, plant and equipment includes amounts pertaining to assets under operating (as lessor) and capital (as lessee) leases.

Impairment of certain property, plant and equipment
On January 25, 2021, we executed an agreement to divest the 12” segment of the Auger pipeline, however, this agreement was subsequently terminated. As a result of the intended divestment, we recorded an impairment charge of approximately $3 million during the first quarter of 2021. The remainder of the Auger pipeline will continue to operate under the ownership of Pecten. Refer to Note 12 – Subsequent Events for additional information on this divestiture.

5. Related Party Debt
Consolidated related party debt obligations comprise the following as of the dates indicated:

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March 31, 2021 December 31, 2020
Outstanding Balance Total Capacity Available Capacity Outstanding Balance Total Capacity Available Capacity
2021 Ten Year Fixed Facility
$ 600  $ 600  $ —  $ —  $ —  $ — 
Ten Year Fixed Facility
600  600  —  600  600  — 
Seven Year Fixed Facility
600  600  —  600  600  — 
Five Year Revolver due July 2023
494  760  266  494  760  266 
Five Year Revolver due December 2022
400  1,000  600  400  1,000  600 
Five Year Fixed Facility
—  —  —  600  600  — 
2019 Zydeco Revolver —  30  30  —  30  30 
Unamortized debt issuance costs (3) n/a n/a (2) n/a n/a
Debt payable – related party $ 2,691  $ 3,590  $ 896  $ 2,692  $ 3,590  $ 896 

For the three months ended March 31, 2021 and March 31, 2020, interest and fee expenses associated with our borrowings, net of capitalized interest, were $21 million and $24 million, respectively. We paid $24 million and $25 million for interest, respectively, during the three months ended March 31, 2021 and March 31, 2020.

On March 16, 2021, we entered into a ten-year fixed rate credit facility with STCW with a borrowing capacity of $600 million (the “2021 Ten Year Fixed Facility”). The 2021 Ten Year Fixed Facility bears an interest rate of 2.96% per annum and matures on March 16, 2031. No issuance fee was incurred in connection with the 2021 Ten Year Fixed Facility. The 2021 Ten 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 2021 Ten Year Fixed Facility. The 2021 Ten Year Fixed Facility was fully drawn on March 23, 2021 and the borrowings were used to repay the borrowings under, and replace, the Five Year Fixed Facility. In consideration for STCW’s consent to the early prepayment of the Five Year Fixed Facility, the Partnership incurred a fee of approximately $2 million, which was paid on March 23, 2021. The Five Year Fixed Facility automatically terminated in connection with the early prepayment.

Borrowings under our revolving credit facilities approximate fair value as the interest rates are variable and reflective of market rates, which results in Level 2 instruments. The fair value of our fixed rate credit facilities is estimated based on the published market prices for issuances of similar risk and tenor and is categorized as Level 2 within the fair value hierarchy. As of March 31, 2021, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $2,694 million and $2,879 million, respectively. As of December 31, 2020, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $2,694 million and $2,928 million, respectively.

Borrowings and repayments under our credit facilities for the three months ended March 31, 2021 and March 31, 2020 are disclosed in our unaudited consolidated statements of cash flows. See Note 7 – (Deficit) Equity for additional information regarding the source of our repayments, if applicable to the period. Borrowings under each of the Five Year Revolver due July 2023, the Five Year Revolver due December 2022 and the 2019 Zydeco Revolver bear interest at the three-month London Interbank Offered Rate (“LIBOR”) plus a margin or, in certain instances (including if LIBOR is discontinued) at an alternate interest rate as described in each respective revolver. Over the next few years, LIBOR will be discontinued globally, and as such, a new benchmark will take its place. We are in discussion with our Parent to further clarify the reference rate(s) applicable to our revolving credit facilities once LIBOR is discontinued, and we are evaluating any potential impact on our facilities.

For additional information on our credit facilities, refer to Note 8 – Related Party Debt in the Notes to Consolidated Financial Statements in our 2020 Annual Report.

6. Accumulated Other Comprehensive Loss
For both the three months ended March 31, 2021 and March 31, 2020, we did not record any remeasurements related to the pension and other post-retirement benefits provided by Explorer and Colonial to their employees. We are not a sponsor of these benefits plans.

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7. (Deficit) Equity

General Partner and IDR Restructuring
Prior to April 1, 2020, our capital accounts were comprised of a 2% general partner interest and 98% limited partner interests. On April 1, 2020, in connection with the transaction completed in April 2020, we closed on the transactions contemplated by the Partnership Interests Restructuring Agreement, pursuant to which we eliminated all of the IDRs and converted the 2% economic general partner interest in the Partnership into a non-economic general partner interest. As a result, 4,761,012 general partner units and the IDRs were canceled and are no longer outstanding, and therefore, no longer participate in distributions of cash from the Partnership. Because the transaction was among entities under common control, our general partner’s negative equity balance of $4 billion at April 1, 2020 was transferred to SPLC’s equity accounts, allocated between its holdings of common units and preferred units, based on the relative fair value of the common units and preferred units issued as consideration in the transaction completed in April 2020.

Shelf Registrations
We have a universal shelf registration statement on Form S-3 on file with the SEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units and partnership securities representing limited partner units. We also have on file with the SEC a shelf registration statement on Form S-3 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.

At-the-Market Program
We have an “at-the-market” equity distribution program pursuant to which we may issue and sell common units for up to $300 million in gross proceeds. During both the three months ended March 31, 2021 and March 31, 2020, we did not have any sales under this program.

Units Outstanding

Common units
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 the Second Amended and Restated Partnership Agreement.

As of both March 31, 2021 and December 31, 2020, we had 393,289,537 common units outstanding, of which 123,832,233 were publicly owned. SPLC owned 269,457,304 common units, representing an aggregate 68.5% limited partner interest in us.

Series A Preferred Units
As of both March 31, 2021 and December 31, 2020, we had 50,782,904 preferred units outstanding. On April 1, 2020, as partial consideration for the transaction completed in April 2020, we issued 50,782,904 Series A Preferred Units to SPLC at a price of $23.63 per preferred unit. The Series A Preferred Units rank senior to all common units with respect to distribution rights and rights upon liquidation. The Series A Preferred Units have voting rights, distribution rights and certain redemption rights, and are also convertible (at the option of the Partnership and at the option of the holder, in each case under certain circumstances) and are otherwise subject to the terms and conditions as set forth in the Second Amended and Restated Partnership Agreement. We classified the Series A Preferred Units as permanent equity since they are not redeemable for cash or other assets 1) at a fixed or determinable price on a fixed or determinable date; 2) at the option of the holder; or 3) upon the occurrence of an event that is not solely within the control of the issuer.

Conversion
At the option of Series A Preferred Unitholders. Beginning with the earlier of (1) January 1, 2022 and (2) immediately prior to the liquidation of the Partnership, the Series A Preferred Units are convertible by the preferred unitholders, at the preferred unitholdersoption, into common units on a one-for-one basis, adjusted to give effect to any accrued and unpaid distributions on the applicable preferred units.

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At the option of the Partnership. The Partnership shall have the right to convert the Series A Preferred Units on a one-for-one basis, adjusted to give effect to any accrued and unpaid distributions on the applicable Series A Preferred Units, into common units at any time from and after January 1, 2023, if the closing price of the common units is greater than $33.082 per unit (140% of the Series A Preferred Unit Issue Price (as defined in the Second Amended and Restated Partnership Agreement)) for any 20 trading days during the 30 trading-day period immediately preceding notice of the conversion. The conversion rate for the Series A Preferred Units shall be the quotient of (a) the sum of (i) $23.63, plus (ii) any unpaid cash distributions on the applicable Series A Preferred Units, divided by (b) $23.63.

Voting
The Series A Preferred Units are entitled to vote on an as-converted basis with the common units and have certain other class voting rights with respect to any amendment to the Second Amended and Restated Partnership Agreement. In the event of any liquidation of the Partnership, the Series A Preferred Units are entitled to receive, out of the assets of the Partnership available for distribution to the partners or any assignees, prior and in preference to any distribution of any assets of any junior securities, the value in each holders capital account in respect of such Series A Preferred Units.

Change of Control
Upon the occurrence of certain events involving a change of control in which more than 90% of the consideration payable to the holders of the common units is payable in cash, the Series A Preferred Units will automatically convert into common units at the then-applicable conversion rate. Upon the occurrence of certain other events involving a change of control, the holders of the Series A Preferred Units may elect, among other potential elections, to convert the Series A Preferred Units to common units at the then-applicable conversion rate.

Special Distribution
Each Series A Preferred Unit has the right to share in any special distributions by the Partnership of cash, securities or other property pro rata with the common units or any other securities, on an as-converted basis, provided that special distributions shall not include regular quarterly distributions paid in the normal course of business on the common units.

Distributions to our Unitholders
In connection with the transaction completed in April 2020, commencing with the quarter ended June 30, 2020, the holders of the Series A Preferred Units are entitled to cumulative quarterly distributions at a rate of $0.2363 per Series A Preferred Unit, payable quarterly in arrears no later than 60 days after the end of the applicable quarter. The Partnership is not entitled to pay any distributions on any junior securities, including any of the common units, prior to paying the quarterly distribution payable to the Series A Preferred Units, including any previously accrued and unpaid distributions. For the three months ended March 31, 2021, the aggregate and per unit amounts of cumulative preferred distributions paid were $12 million and $0.2363, respectively.

Under the Second Amended and Restated Partnership Agreement, our general partner or its assignee has agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the transaction completed in April 2020, in an amount of $20 million per quarter for four consecutive fiscal quarters, beginning with the distribution made with respect to the second quarter of 2020. See Note 2 — Related Party Transactions for terms of the Second Amended and Restated Partnership Agreement.

The following table details the distributions declared and/or paid for the periods presented:

Date Paid or Public SPLC SPLC General Partner Distributions
per Limited
Partner Unit
to be Paid Three Months Ended Common Preferred Common IDRs 2% Total
(in millions, except per unit amounts)
February 14, 2020 December 31, 2019 $ 57  $ —  $ 50  $ 52  $ $ 162  $ 0.4600 
May 15, 2020
March 31, 2020
57  —  50 
52 (2)
3 (3)
162  0.4600 
August 14, 2020
June 30, 2020 (1)
57  12  104  —  —  173  0.4600 
November 13, 2020
September 30, 2020 (1)
57  12  104  —  —  173  0.4600 
February 12, 2021
December 31, 2020 (1)
57  12  104  —  —  173  0.4600 
May 14, 2021
March 31, 2021 (1) (4)
57  12  104 
173  0.4600 
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(1) Includes the impact of waived distributions to SPLC with respect to the transaction completed in April 2020 as described above.
(2) This amount represents the Final IDR Payment (as defined in the Partnership Interests Restructuring Agreement) to which our general partner (or its assignee) was entitled pursuant to the Partnership Interests Restructuring Agreement. Also pursuant to the Partnership Interests Restructuring Agreement, our general partner agreed (on its own behalf and on behalf of its assignees) to waive any distributions that it would otherwise be entitled to receive with respect to the newly-issued 160 million common units that it received in the transaction completed in April 2020 for the quarter in which it receives the Final IDR Payment. Our general partner is not entitled to any payments with respect to the IDRs, as they were cancelled as a part of the transaction completed in April 2020.
(3) This amount represents the final distribution payment on the 2% economic general partner interest. Our general partner is not entitled to any payments with respect to the economic general partner interest, as it was converted into a non-economic general partner interest as a part of the transaction completed in April 2020.
(4) See Note 12 Subsequent Events for additional information.

Distributions to Noncontrolling Interests
Distributions to SPLC for its noncontrolling interest in Zydeco for the three months ended March 31, 2021 were less than $1 million and for the three months ended March 31, 2020 were $1 million. Distributions to GEL for its noncontrolling interest in Odyssey for both the three months ended March 31, 2021 and March 31, 2020 were $4 million. See Note 2 — Related Party Transactions for additional details.

8. Revenue Recognition
The 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 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.

Disaggregation of Revenue
The following table provides information about disaggregated revenue by service type and customer type:

Three Months Ended
March 31,
2021 2020
Transportation services revenue – third parties $ 39  $ 29 
Transportation services revenue – related parties (1)
44  55 
Storage services revenue – third parties
Storage services revenue – related parties
Terminaling services revenue – related parties (2)
30  12 
Terminaling services revenue – major maintenance service – related parties (3)
— 
Product revenue – third parties (4)
—  — 
Product revenue – related parties (4)
Total Topic 606 revenue 125  107 
Lease revenue – related parties 14  14 
   Total revenue $ 139  $ 121 
(1) Transportation services revenue - related parties for both the three months ended March 31, 2021 and 2020 includes $1 million of non-lease service component in our transportation services contracts.
(2) Terminaling services revenue - related parties is comprised of the service components in our terminaling services contracts, including the operation and maintenance service components related to the Norco Assets in connection with the transaction completed in April 2020. See Note 2 Related Party Transactions for additional details.
(3) Terminaling services revenue - major maintenance service - related parties is comprised of the service components related to providing required major maintenance to the Norco Assets in connection with the transaction completed in April 2020. See Note 2 Related Party Transactions for additional details.
(4) Product revenue is comprised of allowance oil sales.



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Lease revenue
Certain of our long-term transportation and terminaling services contracts with related parties are accounted for as operating leases. These agreements have both lease and non-lease service components. We allocate the arrangement consideration between the lease components and any non-lease service components 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 revenue standard within Transportation, terminaling and storage services – related parties in the unaudited consolidated statements of income.

Revenues from the lease components of these agreements are recorded within Lease revenue – related parties in the unaudited consolidated statements of income. Some of these agreements were entered into for terms of ten years, with the option for the lessee to extend for two additional five-year terms. One of these contracts was amended to include an option for the lessee to extend for a fourteen-month term prior to the original extension options. However, it is reasonably certain that the original extension options of the two additional five-year terms will not be exercised for this contract. Further, we have agreements with initial terms of ten years with the option for the lessee to extend for up to ten additional one-year terms. As of March 31, 2021, future minimum payments of both the lease and non-lease service components 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 $ 707  $ 111  $ 220  $ 220  $ 156 

Terminaling services revenue - Norco Assets
In April 2020, the Partnership closed the transaction pursuant to which the Norco Assets were transferred from SOPUS and Shell Chemical to Triton. In connection with closing this transaction, Triton entered into terminaling service agreements with SOPUS and Shell Chemical related to the Norco Assets. These terminaling service agreements were entered into for an initial term of fifteen years, with the option to extend for additional five-year terms. The transfer of the Norco Assets, combined with the terminaling services agreements, were accounted for as a failed sale leaseback under the lease standard. The Partnership receives an annual net payment of $140 million, which is the total annual payment pursuant to the terminaling service agreements of $151 million, less $11 million, which primarily represents the allocated utility costs from SOPUS related to the Norco Assets.

These agreements have components related to financing receivables, for which the interest income is recognized in the unaudited consolidated statements of income and principal payments are recognized as a reduction to the financing receivables in the unaudited consolidated balance sheet. Revenue related to the operation and maintenance service components and major maintenance service components are presented within Transportation, terminaling and storage services – related parties in the unaudited consolidated statements of income.

The operation and maintenance service components consist of the Partnership’s obligation to operate the Norco Assets over the life of the agreements. It 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 the number of days elapsed.

The major maintenance service components consist of the Partnership’s obligation to provide major maintenance on the Norco Assets such that the current capacity available to the customers is maintained over the life of the agreements. It 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 using the input method (cost-to-cost method) based on the ratio of actual major maintenance costs incurred to date to the total forecasted major maintenance costs over the contract term.

We allocate the arrangement consideration between the components based on the relative stand-alone selling price of each component in accordance with the revenue standard. The Partnership established the stand-alone selling price for the financing
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components based off an expected return on the assets being financed. The Partnership established the stand-alone selling price for the service components using expected cost-plus margin approach based on the Partnership’s forecasted costs of satisfying the performance obligation plus an appropriate margin for the service. The key assumptions include forecasts of the future operation and maintenance costs and major maintenance costs and the expected margin with respect to the service components and the expected return on the assets with respect to the financing components.

Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers:

January 1, 2021 March 31, 2021
Receivables from contracts with customers – third parties $ 19  $ 12 
Receivables from contracts with customers – related parties 18  23 
Contract assets - related parties 233  229 
Deferred revenue – third parties
Deferred revenue – related parties (1)
19  22 
(1) Deferred revenue - related parties is related to deficiency credits from certain minimum volume commitment contracts and certain components of our terminaling service contracts on the Norco Assets.

In connection with the transaction completed in April 2020, we also recorded contract assets based on the difference between the consideration allocated to the Norco Transaction and the recognized financing receivables. The contract assets represent the excess of the fair value embedded within the terminaling services agreements transferred by the Partnership to SOPUS and Shell Chemical as part of entering into the terminaling services agreements. The contract assets balance is amortized in a pattern consistent with the recognition of revenue on the service components of the contract. The portion of the contract assets related to operations and maintenance is amortized on a straight-line basis over a fifteen-year period, and the portion related to major maintenance is amortized based on the ratio of actual major maintenance costs incurred to the total projected major maintenance costs over the fifteen year term. We recorded amortization as a component of Transportation, terminaling and storage services – related parties of $4 million for the three months ended March 31, 2021. We had $229 million and $233 million contract assets recognized from the costs to obtain or fulfill a contract as of March 31, 2021 and December 31, 2020, respectively.

The estimated future amortization related to the contract assets for the next five years is as follows:

Remainder of 2021 2022 2023 2024 2025 2026
Amortization $ 11  $ 16  $ 16  $ 17  $ 17  $ 15 


Significant changes in the deferred revenue balances with customers during the period are as follows:
December 31, 2020
Additions (1)
Reductions (2)
March 31, 2021
Deferred revenue – third parties $ $ $ (4) $
Deferred revenue – related parties 19  (4) 22 
(1) Deferred revenue additions resulted from $6 million deficiency payments from minimum volume commitment contracts and $3 million of deferred revenue related to the major maintenance service components of our terminaling service contracts on the Norco Assets.
(2) Deferred revenue reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.

Remaining Performance Obligations
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 March 31, 2021:
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Total Remainder of 2021 2022 2023 2024 2025 and beyond
Revenue expected to be recognized on multi-year committed shipper transportation contracts $ 457  $ 48  $ 63  $ 63  $ 57  $ 226 
Revenue expected to be recognized on other multi-year transportation service contracts (1)
33  10 
Revenue expected to be recognized on multi-year storage service contracts 26  10  — 
Revenue expected to be recognized on multi-year terminaling service contracts (1)
323  36  48  48  48  143 
Revenue expected to be recognized on multi-year operation and major maintenance terminaling service contracts(2)
1,489  80  106  106  106  1,091 
$ 2,328  $ 175  $ 234  $ 228  $ 221  $ 1,470 
(1) 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.
(2) Relates to the operation and maintenance service components and the major maintenance service components of our terminaling service contracts on the Norco Assets in connection with the transaction completed in April 2020.

As an exemption under the revenue standard, 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.

9. Net Income Per Limited Partner Unit
Net income per unit applicable to common limited partner units 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 outstanding for the period. Prior to April 1, 2020, the classes of participating securities included common units, general partner units and IDRs. Because we had more than one class of participating securities, we used the two-class method when calculating the net income per unit applicable to limited partners. Effective April 1, 2020, the classes of participating securities included only common units, as the general partner units and the IDRs were eliminated and the Series A Preferred Units are not considered a participating security. See Note 7 – (Deficit) Equity, for a discussion of the elimination of our general partner’s IDRs and 2% economic interest effective April 1, 2020. For the three months ended March 31, 2021, our Series A Preferred Units were dilutive to net income per limited partner unit. Basic and diluted net income per unit are the same for prior periods because we did not have any potentially dilutive units outstanding for those periods presented.

Net income earned by the Partnership is allocated between the classes of participating securities in accordance with the terms of our partnership agreement as in effect on the date such calculation is performed, after giving effect to priority income allocations to the holders of the Series A Preferred Units if applicable. Earnings are allocated based on actual cash distributions declared to our unitholders, including those attributable to the IDRs prior to the second quarter of 2020, if applicable. To the extent net income attributable to the Partnership exceeds or is less than cash distributions, this difference is allocated based on the unitholders’ respective ownership percentages. For the diluted net income per limited partner unit calculation under the Second Amended and Restated Partnership Agreement, the Series A Preferred Units are assumed to be converted at the beginning of the period into common limited partner units on a one-for-one basis, and the distribution formula for available cash is recalculated using the available cash amount increased only for the preferred distributions, which would have been attributable to the common units after conversion.

The following tables show the allocation of net income attributable to the Partnership to arrive at net income per limited partner unit:
 
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Three Months Ended
March 31,
2021 (1)
2020
Net income * $ 142 
Less:
Net income attributable to noncontrolling interests *
Net income attributable to the Partnership * 138 
Less:
General partner’s distribution declared
* 55 
Preferred unitholder’s interest in net income * — 
Limited partners’ distribution declared on common units * 107 
Income less than distributions * $ (24)
(1) Effective April 1, 2020, the classes of participating securities included only common units, as the general partner units and the IDRs were eliminated and the Series A Preferred Units are not considered a participating security. Therefore, the allocation of net income attributable to the Partnership to arrive at net income per limited partner unit is not applicable for the three months ended March 31, 2021.

Three Months Ended March 31, 2021
Limited Partners’ Common Units
  (in millions of dollars, except per unit data)
Net income attributable to the Partnership’s common unitholders (basic) $ 151 
Dilutive effect of preferred units 12 
Net income attributable to the Partnership’s common unitholders (diluted) $ 163 
Weighted average units outstanding - Basic 393.3 
Dilutive effect of preferred units 50.8 
Weighted average units outstanding - Diluted 444.1 
Net income per limited partner unit:
Basic $ 0.38 
Diluted $ 0.37 

Three Months Ended March 31, 2020
General Partner Limited Partners’ Common Units Total
(in millions of dollars, except per unit data)
Distributions declared $ 55  $ 107  $ 162 
Distributions in excess of net income —  (24) (24)
Net income attributable to the Partnership $ 55  $ 83  $ 138 
Weighted average units outstanding:
Basic and diluted 233.3 
Net income per limited partner unit:
Basic and diluted $ 0.36 


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10. Income Taxes
We are not a taxable entity for U.S. federal income tax purposes or for the majority of states that impose an income tax. Taxes on our net income are generally borne by our partners through the allocation of taxable income. Our income tax expense results from partnership activity in the state of Texas, as conducted by Zydeco, Sand Dollar and Triton. Income tax expense for both the three months ended March 31, 2021 and March 31, 2020 was not material.

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.

11. Commitments and Contingencies

Environmental Matters
We are subject to federal, state and local environmental laws and regulations. We routinely conduct reviews of potential environmental issues and claims that could impact our assets or operations. These reviews assist us in identifying environmental issues and estimating the costs and timing of remediation efforts. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. These revisions are reflected in our income in the period in which they are probable and reasonably estimable. As of both March 31, 2021 and December 31, 2020, these costs and any related liabilities are not material.

Legal Proceedings
We are named defendants in lawsuits and governmental proceedings that arise in the ordinary course of business. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. While there are still uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience to date, we do not expect that the ultimate resolution of these matters will have a material adverse effect on our financial position, operating results or cash flows.

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 cancellable 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.

12. Subsequent Events
We have evaluated events that occurred after March 31, 2021 through the issuance of these unaudited consolidated financial statements. Any material subsequent events that occurred during this time have been properly recognized or disclosed in the unaudited consolidated financial statements and accompanying notes.

Distribution
On April 21, 2021, the Board declared cash distributions of $0.4600 per limited partner common unit and $0.2363 per limited partner preferred unit for the three months ended March 31, 2021. These distributions will be paid on May 14, 2021 to unitholders of record as of May 4, 2021.

May 2021 Transaction
Effective May 1, 2021, Triton sold to SOPUS, as designee of SPLC, certain assets associated with its clean products truck rack terminal and facility in Anacortes, Washington (the “Anacortes Assets”). In exchange for the Anacortes Assets, SPLC paid Triton $10 million in cash and transferred to the Operating Company, as designee of Triton, SPLC’s 7.5% interest in Zydeco (the “May 2021 Transaction”).

The May 2021 Transaction closed pursuant to a Sale and Purchase Agreement dated April 28, 2021 between Triton and SPLC, effective May 1, 2021 (the “May 2021 Sale and Purchase Agreement”). The May 2021 Sale and Purchase Agreement contains customary representations, warranties and covenants of Triton and SPLC. SPLC, on the one hand, and Triton, on the other hand, have agreed to indemnify each other and their respective affiliates, officers, directors and other representatives against
24


certain losses resulting from any breach of their representations, warranties or covenants contained in the May 2021 Sale and Purchase Agreement, subject to certain limitations and survival periods.

In connection with the May 2021 Transaction, the Partnership and SPLC entered into a Termination of Voting Agreement dated April 28, 2021 and effective May 1, 2021, under which they agreed to terminate the Voting Agreement dated November 3, 2014 between the Partnership and SPLC, relating to certain governance matters for their respective direct and indirect ownership interests in Zydeco.

Auger Divestiture
On April 29, 2021, we executed an agreement to divest the 12” segment of the Auger pipeline, effective June 1, 2021. The remainder of the Auger pipeline will continue to operate under the ownership of Pecten.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 acquired from Shell Pipeline Company LP (“SPLC”) and its affiliates. We conduct our operations either through our wholly owned subsidiary Shell Midstream Operating LLC (the “Operating Company”) or through direct ownership. Our general partner is Shell Midstream Partners GP LLC (the “general partner”). References to “RDS,” “Shell” or “Parent” refer collectively to Royal Dutch Shell plc and its controlled affiliates, other than us, our subsidiaries and our general partner.

The following discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes in this quarterly report and Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020 (our “2020 Annual Report”) and the consolidated financial statements and related notes therein. Our 2020 Annual Report contains a discussion of other matters not included herein, such as disclosures regarding critical accounting policies and estimates and contractual obligations. You should also read the following discussion and analysis together with “Risk Factors” set forth in our 2020 Annual Report and the “Cautionary Statement Regarding Forward-Looking Statements” in this report.

Partnership Overview
We own, operate, develop and acquire pipelines and other midstream assets and logistics assets. As of March 31, 2021, our assets include interests in entities that own (a) crude oil and refined products pipelines and terminals that serve as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and deliver refined products from those markets to major demand centers and (b) storage tanks and financing receivables that are secured by pipelines, storage tanks, docks, truck and rail racks and other infrastructure used to stage and transport intermediate and finished products. Our assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.

For a description of our assets, please see Part I, Item 1 - Business and Properties in our 2020 Annual Report.

2021 developments include:

Auger Divestiture. On January 25, 2021, we executed an agreement to divest the 12” segment of the Auger pipeline, however, this agreement was subsequently terminated. As a result of the intended divestment, we recorded an impairment charge of approximately $3 million during the first quarter of 2021. This impairment charge had no impact on CAFD. On April 29, 2021, we executed a new agreement to divest this segment of pipeline, effective June 1, 2021.

May 2021 Transaction. Effective May 1, 2021, we closed the transaction contemplated by that certain Sale and Purchase Agreement dated April 28, 2021 between Triton and SPLC, pursuant to which Triton sold to SOPUS, as designee of SPLC, certain assets associated with its clean products truck rack terminal and facility in Anacortes, Washington (the “Anacortes Assets”). In exchange for the Anacortes Assets, SPLC paid Triton $10 million in cash and transferred to the Operating Company, as designee of Triton, SPLC’s 7.5% interest in Zydeco.

Credit Facilities. On March 16, 2021, we entered into a ten-year fixed rate credit facility with STCW with a borrowing capacity of $600 million (the “2021 Ten Year Fixed Facility”). The 2021 Ten Year Fixed Facility bears an interest rate of 2.96% per annum and matures on March 16, 2031. The 2021 Ten Year Fixed Facility was fully drawn on March 23, 2021 and the borrowings were used to repay the borrowings under, and replace, the Five Year Fixed Facility. The Five Year Fixed Facility automatically terminated in connection with the early prepayment.

We generate revenue from the transportation, terminaling and storage of crude oil, refined products, and intermediate and         finished products through our pipelines, storage tanks, docks, truck and rail racks, generate income from our equity and other investments, and generate interest income from financing receivables on certain logistics assets at the Shell Norco Manufacturing Complex (the “Norco Assets”). Our revenue is generated 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 United States. We generally do not own any of the crude oil, refinery gas or refined petroleum products we handle, nor do we engage in the trading of these commodities. We therefore have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long-term.


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Anticipated 2021 impacts to net income and cash available for distribution (“CAFD”) include:

Planned Turnarounds. Certain offshore connected producers will have planned turnarounds during 2021. We anticipate an impact of approximately $10 million to net income and CAFD from planned turnaround activity in 2021.

Colonial Rate Case. Colonial is currently involved in a FERC rate case that, depending upon the outcome, could negatively impact our net income and CAFD.

The broader market environment for our customers was extremely challenging in 2020, and impacted worldwide demand for oil and gas and increased downward pressure on oil prices. Although we are still dealing with the continuing effects of the COVID-19 pandemic, we have seen oil prices rise to more moderate levels in the first quarter of 2021. However, the responses of oil and gas producers to the changes in both demand and price of oil and natural gas are constantly evolving and remain uncertain. The master limited partnership (“MLP”) market has also changed significantly, and capital for high growth fueled by dropdown activity continues to be constrained. We are fortunate that RDS has provided us favorable loan and equity terms, allowing us flexibility to acquire high quality assets from our affiliates. While we expect to retain this flexibility, we anticipate continuing to moderate inorganic growth in our asset base and focusing on the sustainable operation of our core assets, cash preservation and the organic growth of our business throughout 2021.

Executive Overview
Net income was $167 million and net income attributable to the Partnership was $163 million during the three months ended March 31, 2021. We generated cash from operations of $166 million. As of March 31, 2021, we had cash and cash equivalents of $317 million, total debt of $2,691 million and unused capacity under our credit facilities of $896 million.

Our 2021 operations and strategic initiatives demonstrated our continuing focus on our business strategies:

Maintain operational excellence through prioritization of safety, reliability and efficiency;
Enhanced focus on cash optimization and reduced discretionary project spend;
Focus on advantageous commercial agreements with creditworthy counterparties to enhance financial results and deliver reliable distribution growth over the long-term; and
Optimize existing assets and pursue organic growth opportunities.

How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) revenue (including pipeline loss allowance (“PLA”) from contracted capacity and throughput); (ii) operations and maintenance expenses (including capital expenses); (iii) Adjusted EBITDA (defined below); and (iv) CAFD.

Contracted Capacity and Throughput
The amount of revenue our assets generate primarily depends on our transportation and storage services agreements with shippers and the volumes of crude oil, refinery gas and refined products that we handle through our pipelines, terminals and storage tanks.

The commitments under our transportation, terminaling and storage services agreements with shippers and the volumes we handle in our pipelines and storage tanks are primarily affected by the supply of, and demand for, crude oil, refinery gas, natural gas and refined products in the markets served directly or indirectly by our assets. This supply and demand is impacted by the market prices for these products in the markets we serve. Over the past year, the COVID-19 pandemic caused significant disruptions in the U.S. economy and financial and energy markets, including substantial demand destruction in the oil and gas markets. While there has recently been a turnaround in the demand for, and price of, crude oil, refined products pipelines are continuing to experience lower demand. The situation surrounding the ongoing COVID-19 pandemic (including but not limited to, vaccination rates, infection rates and related restrictions) is constantly evolving and unpredictable and could impact the volumes running through our pipelines and terminals.

We utilize the commercial arrangements we believe are the most prudent under the market conditions to deliver on our business strategy. The results of our operations will be impacted by our ability to:

maintain utilization of and rates charged for our pipelines and storage facilities;
utilize the remaining uncommitted capacity on, or add additional capacity to, our pipeline systems;
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increase throughput volumes on our pipeline systems by making connections to existing or new third-party pipelines or other facilities, primarily driven by the anticipated supply of, and demand for, crude oil and refined products; and
identify and execute organic expansion projects.

Operations and Maintenance Expenses
Our operations and maintenance expenses consist primarily of:

labor expenses (including contractor services);
insurance costs (including coverage for our consolidated assets and operated joint ventures);
utility costs (including electricity and fuel);
repairs and maintenance expenses; and
major maintenance costs (related to the terminaling service agreements of the Norco Assets, which are expensed as incurred because the Partnership does not own the related assets).

Certain costs naturally fluctuate based on throughput volumes and the grades of crude oil and types of refined products we handle, whereas other costs generally remain stable across broad ranges of throughput and storage volumes, but can vary depending upon the level of both planned and unplanned maintenance activity in the particular period. Our maintenance activity can be impacted by events such as turnarounds, asset integrity work and storms.

Our management seeks to maximize our profitability by effectively managing operations and maintenance expenses. For example, our property and business interruption insurance is provided by a wholly owned subsidiary of Shell, which results in cost savings and improved coverage. Further, we, along with our Parent, started an initiative in 2020 to reduce operational costs. We expect that some of these activities, such as re-scoping and/or deferring projects, evaluating third-party service contracts and reducing the use of contractors, will directly benefit our assets and their contribution to our net income. Other activities, such as the streamlining of structure and processes at the Parent level, will result in a reduction of certain costs and fees for which we reimburse and pay SPLC. While cost effectiveness has always been a focus of the business, it is of increased importance given the current operating environment.

Adjusted EBITDA and Cash Available for Distribution
Adjusted EBITDA and CAFD have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. You should not consider Adjusted EBITDA or CAFD in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA and CAFD may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and CAFD may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

The GAAP measures most directly comparable to Adjusted EBITDA and CAFD are net income and net cash provided by operating activities. Adjusted EBITDA and CAFD should not be considered as an alternative to GAAP net income or net cash provided by operating activities. Please refer to “Results of Operations - Reconciliation of Non-GAAP Measures” for the reconciliation of GAAP measures net income and cash provided by operating activities to non-GAAP measures, Adjusted EBITDA and CAFD.

We define Adjusted EBITDA as net income before income taxes, interest expense, interest income, gain or loss from dispositions of fixed assets, allowance oil reduction to net realizable value, loss from revision of asset retirement obligation, and depreciation, amortization and accretion, plus cash distributed to us from equity method investments for the applicable period, less equity method distributions included in other income and income from equity method investments. We define Adjusted EBITDA attributable to the Partnership as Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests and Adjusted EBITDA attributable to Parent.

We define CAFD as Adjusted EBITDA attributable to the Partnership less maintenance capital expenditures attributable to the Partnership, net interest paid by the Partnership, cash reserves, income taxes paid and Series A Preferred Unit distributions, plus net adjustments from volume deficiency payments attributable to the Partnership, reimbursements from Parent included in partners’ capital, principal and interest payments received on financing receivables, and certain one-time payments received. CAFD will not reflect changes in working capital balances.

The definition of CAFD was updated during the second quarter of 2020 due to the closing of the transaction completed in April 2020, which resulted in part in the transfer of the Norco Assets to be accounted for as a failed sale leaseback under ASC Topic 842, Leases (the “lease standard”). As a result, the Partnership recognized financing receivables from Equilon Enterprises LLC d/b/a Shell Oil Products US (“SOPUS”) and Shell Chemical LP (“Shell Chemical”). These assets impact CAFD since principal
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payments on the financing receivables are not included in net income. As a result, such principal and interest payments on the financing receivables have been included as an adjustment to CAFD since the second quarter of 2020. Also as partial consideration for the transaction completed in April 2020, SPLC received 50,782,904 Series A perpetual convertible preferred units (the “Series A Preferred Units”) in the Partnership. The distributions on these Series A Preferred Units have been deducted from CAFD since the second quarter of 2020.

We believe that the presentation of these non-GAAP supplemental financial measures provides useful information to management and investors in assessing our financial condition and results of operations.

Adjusted EBITDA and CAFD are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;
our ability to incur and service debt and fund capital expenditures; and
the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Factors Affecting Our Business and Outlook
We believe key factors that impact our business are the supply of, and demand for, crude oil, natural gas, refinery gas and refined products in the markets in which our business operates. We also believe that our customers’ requirements, competition and government regulation of crude oil, refined products, natural gas and refinery gas play an important role in how we manage our operations and implement our long-term strategies. In addition, acquisition opportunities, whether from Shell or third parties, and financing options, will also impact our business. These factors are discussed in more detail below.

Changes in Crude Oil Sourcing and Refined Product Demand Dynamics
To effectively manage our business, we monitor our market areas for both short-term and long-term shifts in crude oil and refined products supply and demand. Changes in crude oil supply such as new discoveries of reserves, declining production in older fields, operational impacts at producer fields and the introduction of new sources of crude oil supply affect the demand for our services from both producers and consumers. In addition, general economic, regulatory, broad market and worldwide health considerations, including the continuing effects of the COVID-19 pandemic, can also affect sourcing and demand dynamics for our services.

One of the strategic advantages of our crude oil pipeline systems is their ability to transport attractively priced crude oil from multiple supply markets to key refining centers along the Gulf Coast. Our crude oil shippers periodically change the relative mix of crude oil grades delivered to the refineries and markets served by our pipelines. They also occasionally choose to store crude longer term when the forward price is higher than the current price (a “contango market”). While these changes in the sourcing patterns of crude oil transported or stored are reflected in changes in the relative volumes of crude oil by type handled by our pipelines, our total crude oil transportation revenue is primarily affected by changes in overall crude oil supply and demand dynamics, such as the demand destruction that resulted from the COVID-19 pandemic, as well as U.S. exports.

Similarly, our refined products pipelines have the ability to serve multiple major demand centers. Our refined products shippers periodically change the relative mix of refined products shipped on our refined products pipelines, as well as the destination points, based on changes in pricing and demand dynamics. While these changes in shipping patterns are reflected in relative types of refined products handled by our various pipelines, our total product transportation revenue is primarily affected by changes in overall refined products supply and demand dynamics, including the continuing effects of the COVID-19 pandemic. Demand can also be greatly affected by refinery performance in the end market, as refined products pipeline demand will increase to fill the supply gap created by refinery issues.

We can also be constrained by asset integrity considerations in the volumes we ship. We may elect to reduce cycling on our systems to reduce asset integrity risk, which in turn would likely result in lower revenues.

As these supply and demand dynamics shift, we anticipate that we will continue to actively pursue projects that link new sources of supply to producers and consumers and to create new services or capacity arrangements that meet customer requirements. We expect to continue extending our corridor pipelines to provide developing growth regions in the Gulf of Mexico with access via our existing corridors to onshore refining centers and market hubs. For example, we are expanding the
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Mars system to address growing production volumes in the Gulf of Mexico regions served by Mars. It is expected that the project will be fully operational with incremental growth volumes arriving into the Mars system in 2022. We believe this strategy will allow our offshore business to grow profitably throughout demand cycles.

Changes in Customer Contracting
We generate a portion of our revenue under long-term transportation service agreements with shippers, including ship-or-pay agreements and life-of-lease transportation agreements, some of which provide a guaranteed return, and storage service agreements with marketers, pipelines and refiners. Historically, the commercial terms of these long-term transportation and storage service agreements have substantially mitigated volatility in our financial results by limiting our direct exposure to reductions in volumes due to supply or demand variability. Our business could be negatively affected if we are unable to renew or replace our contract portfolio on comparable terms, by sustained downturns or sluggishness in commodity prices, or the economy in general (as with the significant disruptions in the U.S. economy and financial and energy markets caused by the COVID-19 pandemic), and is impacted by shifts in supply and demand dynamics, the mix of services requested by the customers of our pipelines, competition and changes in regulatory requirements affecting our operations. Our business can also be impacted by asset integrity or customer interruptions and natural disasters or other events that could lead customers or connecting carriers to invoke force majeure or other defenses to avoid contractual performance.

Two of Zydeco’s throughput and deficiency agreements (“T&D agreements”) expired in the fourth quarter of 2020. These expired contracts accounted for less than 10% of our revenue for 2020. Effective during the second quarter of 2021, we have replaced a portion of the expired volumes associated with these contracts. There are several ways in which the remaining volumes, and the associated revenue, could be replaced in the future, such as through additional re-contracting or spot shipments, the outcome of which will be dependent on market and customer dynamics.

The market environment at any given time will dictate the rates, terms and duration of agreements that shippers are willing to enter into, as well as the contracts that best satisfy the needs of our business. As we have grown and diversified our business over the past several years, we have benefited from shifting reliance away from the results of any one asset. While Zydeco continues to serve an important market, as exemplified by our purchase of the remaining 7.5% interest in Zydeco in the May 2021 Transaction, and we strive to maximize the long-term value of the system to both shippers and the pipeline, we will continue to diversify our risk across products, customers and geographies.

Changes in Commodity Prices and Customers Volumes
Crude oil prices have fluctuated significantly over the past few years, often with drastic moves in relatively short periods of time. During 2020, the demand for, and price of, oil and natural gas decreased significantly due to the continuing effects of the COVID-19 pandemic and the resulting governmental regulations and travel restrictions aimed at slowing the spread of the virus. Although these impacts are ongoing, we have seen oil prices rise to more moderate levels in the first quarter of 2021. The current global geopolitical and economic uncertainty continues to contribute to future volatility in financial and commodity markets. Our direct exposure to commodity price fluctuations is limited to the PLA provisions in our tariffs. Indirectly, global demand for refined products and chemicals could impact our terminal operations and refined products and refinery gas pipelines, as well as our crude pipelines that feed U.S. manufacturing demand. Likewise, changes in the global market for crude oil could affect our crude oil pipeline and terminals and require expansion capital expenditures to reach growing export hubs. Demand for crude oil, refined products and refinery gas may decline in the areas we serve as a result of decreased production by our customers, depressed commodity prices, decreased third-party investment in the industry, increased competition and other adverse economic factors such as the ongoing COVID-19 pandemic, which affect the exploration, production and refining industries. Although we have seen the earlier depressed demand due to the pandemic for crude oil level off, our refined products pipelines are continuing to experience demand destruction. Further, an increase in COVID-19 infection rates could have additional negative impacts on demand, such as reducing the volumes running through our pipelines and terminals. However, fixed contracts with volume minimums and demand for tanks for storage are expected to moderate any impact on our terminaling and storage service revenue.

Certain of our assets benefit from long-term fee-based arrangements and are strategically positioned to connect crude oil volumes originating from key onshore and offshore production basins to the Texas and Louisiana refining markets, where demand for throughput has remained strong. Historically, with the exception of the impacts of the COVID-19 pandemic, we have not experienced a material decline in throughput volumes on our crude oil pipeline systems as a result of lower crude oil prices. If crude oil prices drop to lower levels for a sustained period due to the COVID-19 pandemic or other factors, we will see a reduction in our transportation volumes if production coming into our systems is deferred and our associated allowance oil sales decrease. Our customers may also experience liquidity and credit problems or other unexpected events, which could cause them to defer development or repair projects, avoid our contracts in bankruptcy, invoke force majeure clauses or other defenses
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to avoid contractual performance or renegotiate our contracts on terms that are less attractive to us or impair their ability to perform under our contracts.

Our throughput volumes on our refined products pipeline systems depend primarily on the volume of refined products produced at connected refineries and the desirability of our end markets. These factors in turn are driven by refining margins, maintenance schedules and market differentials. Refining margins depend on the cost of crude oil or other feedstocks and the price of refined products. These margins are affected by numerous factors beyond our control, including the domestic and global supply of and demand for crude oil and refined products. Our refined products pipelines are continuing to experience demand destruction in the near term due to the COVID-19 pandemic, which has resulted in a decrease in consumer demand for refined products.

Other Changes in Customers Volumes
Onshore crude transportation volumes were down in the three months ended March 31, 2021 (the “Current Quarter”) versus the three months ended March 31, 2020 (the “Comparable Quarter”) due to the negative impacts of the COVID-19 pandemic on production and refinery utilization in the Current Quarter relative to the Comparable Quarter. Additionally, the closure of the Convent refinery at the end of 2020 caused a significant decrease in non-mainline volumes in the Current Quarter.

Offshore crude transportation volumes were relatively flat in the Current Quarter versus the Comparable Quarter due to similar supply and demand dynamics and crude pricing in both the Current Quarter and Comparable Quarter.

Similarly, onshore terminaling and storage volumes were also relatively flat in the Current Quarter versus the Comparable Quarter.

Major Maintenance Projects
During 2020, we incurred costs related to the Bessie Heights project (“Bessie Heights”), which is a directional drill project on the Zydeco pipeline system to replace an exposed and suspended 22-inch diameter pipe in the low-lying marsh area between Bird Island and Bridge City, Texas, as well as to replace lap welded pipe below the Neches River. The majority of the spend was incurred in 2020, and any remaining spend in the first quarter of 2021 was not material.

For expected capital expenditures in 2021, refer to Capital Resources and Liquidity - Capital Expenditures and Investments.

Major Expansion Projects
We are expanding the Mars system to address growing production volumes in the Gulf of Mexico regions served by Mars. We expect definitive agreements with producers to be finalized during the second quarter of 2021. SPLC has elected to fund the installation of the equipment necessary to enable greater throughput volumes on the system, but the revenue associated with increased throughput volumes will benefit Mars. It is expected that the project will be fully operational with incremental growth volumes arriving into the Mars system in 2022.

Customers
We transport and store crude oil, refined products, natural gas and refinery gas for a broad mix of customers, including producers, refiners, marketers and traders, and are connected to other crude oil and refined products pipelines. In addition to serving directly-connected U.S. Gulf Coast markets, our crude oil and refined products pipelines have access to customers in various regions of the United States through interconnections with other major pipelines. Our customers use our transportation and storage services for a variety of reasons. Refiners typically require a secure and reliable supply of crude oil over a prolonged period of time to meet the needs of their specified refining diet and frequently enter into long-term firm transportation agreements to ensure a ready supply of a specific mix of crude oil grades, rate surety and sometimes sufficient transportation capacity over the life of the contract. Similarly, chemical sites require a secure and reliable supply of refinery gas to crackers and enter into long-term firm transportation agreements to ensure steady supply. Producers of crude oil and natural gas require the ability to deliver their product to market and frequently enter into firm transportation contracts to ensure that they will have sufficient capacity available to deliver their product to delivery points with greater market liquidity. Marketers and traders generate income from buying and selling crude oil and refined products to capitalize on price differentials over time or between markets. Our customer mix can vary over time and largely depends on the crude oil and refined products supply and demand dynamics in our markets.



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Competition
Our pipeline systems compete primarily with other interstate and intrastate pipelines and with marine and rail transportation. Some of our competitors may expand or construct transportation systems that would create additional competition for the services we provide to our customers. For example, newly constructed transportation systems in the onshore Gulf of Mexico region may increase competition in the markets where our pipelines operate. In addition, future pipeline transportation capacity could be constructed in excess of actual demand in the market areas we serve, which could reduce the demand for our services, and could lead to the reduction of the rates that we receive for our services. While we do see some variation from quarter-to quarter resulting from changes in our customers’ demand for transportation, this risk has historically been mitigated by the long-term, fixed rate basis upon which we have contracted a substantial portion of our capacity.

Our storage terminal competes with surrounding providers of storage tank services. Some of our competitors have expanded terminals and built new pipeline connections, and third parties may construct pipelines that bypass our location. These, or similar events, could have a material adverse impact on our operations.

Our refined products terminals generally compete with other terminals that serve the same markets. These terminals may be owned by major integrated oil and gas companies or by independent terminaling companies. While fees for terminal storage and throughput services are not regulated, they are subject to competition from other terminals serving the same markets. However, our contracts provide for stable, long-term revenue, which is not impacted by market competitive forces.

Regulation
Our assets are subject to regulation by various federal, state and local agencies; for example, our interstate common carrier pipeline systems are subject to economic regulation by the Federal Energy Regulatory Commission (“FERC”). Intrastate pipeline systems are regulated by the appropriate state agency.

In early 2021, PHMSA issued a revised map of the ecological High Consequence Areas (“HCAs”) in the Gulf of Mexico. This revised map expanded the ecological HCA of the Gulf of Mexico to include previously excluded dolphin and whale habitats. The HCA now encompasses most of the Gulf of Mexico. This places most liquid pipelines in the Gulf of Mexico in an HCA and subject to the assessment requirements of 49 CFR 195.452. This may impact certain operational activity such as the frequency at which certain inspections need to be performed and the types of inspections required at those intervals. The holistic impact to our business is uncertain at this time, but we expect that all companies with similar Gulf of Mexico operations will be similarly impacted.

In May 2020, Zydeco, Mars, LOCAP and Colonial filed with FERC to increase rates subject to FERC’s indexing adjustment methodology by approximately 2.0% starting on July 1, 2020. Rate complaints are currently pending at FERC in Docket Nos. OR18-7-002, et al. challenging Colonial’s tariff rates, its market power and its practices and charges related to transmix and product volume loss. While certain procedural deadlines have been extended as a result of the impact of the COVID-19 pandemic, an initial decision by the administrative law judge in this proceeding is currently scheduled for August 2021. A FERC decision is anticipated by spring 2022.
On June 18, 2020, FERC issued a NOI as Docket No. RM20-14-000 regarding the five-year review of the oil pipeline rate index formula. FERC proposed a new formula of Producer Price Index for Finished Goods (“PPI-FG”) plus 0.09% based on its review of industry data provided in the annual FERC Form 6 reports from 2014 through 2019. The NOI proposal, which would take effect in July 2021, would change the current five-year formula from PPI-FG plus 1.23%. FERC invited comments regarding its proposal and any alternative methodologies for calculating the index level, including issues such as different data trimming methodologies and whether it should reflect the effects of any cost-of-service policy changes in the calculation of the index level. Comments on the NOI were filed by multiple parties by August 17, 2020, and reply comments were filed by September 11, 2020. After reviewing the comments and reply comments by interested parties, FERC issued an order on December 17, 2020 adopting a new formula of PPI-FG plus 0.78% for the next five-year period commencing on July 1, 2021. In January 2021, multiple parties requested rehearing of this order. FERC granted rehearing on February 18, 2021 for further consideration, but no timeline was established for when FERC will act on the merits of the requests for rehearing.

On October 1, 2019, PHMSA issued three new final rules. The only rule that has a potential material impact is the rule concerning hazardous liquids, which adds a requirement to make all onshore lines in or affecting HCAs capable of accommodating in-line inspection tools over the next 20 years. A list of the products pipelines impacted by the requirement for an HCA line to be piggable has been developed and each line is being evaluated for constructability and cost implications. Those reviews require an in depth look at line configuration and will continue throughout the year.

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For more information on federal, state and local regulations affecting our business, please read Part I, Items 1 and 2, Business and Properties in our 2020 Annual Report.

Acquisition Opportunities
We may continue to pursue acquisitions of complementary assets from Shell, as well as from third parties. We also may pursue acquisitions jointly with Shell. Given the size and scope of Shell’s footprint and its significant ownership interest in us, we expect acquisitions from Shell will be a growth mechanism for the foreseeable future. However, Shell and its affiliates are under no obligation to sell or offer to sell us additional assets or to pursue acquisitions jointly with us, and we are under no obligation to buy any additional assets from them or to pursue any joint acquisitions with them. We will continue to focus our acquisition strategy on transportation and midstream assets. We believe that we would be well positioned to acquire midstream assets from Shell, as well as from third parties, should such opportunities arise. Identifying and executing acquisitions is a key part of our strategy. However, if we do not make acquisitions on economically acceptable terms or if we incur a substantial amount of debt in connection with the acquisitions, our future growth will be limited, and the acquisitions we do make may reduce, rather than increase, our available cash. Our ability to obtain financing or access capital markets may also directly impact our ability to continue to pursue strategic acquisitions. The level of current market demand for equity issued by MLPs may make it more challenging for us to fund our acquisitions with the issuance of equity in the capital markets. However, we believe our balance sheet offers us flexibility, providing us other financing options such as hybrid securities, purchases of common units by RDS and debt. While we expect to retain this flexibility, we anticipate continuing to moderate inorganic growth in our asset base and focusing on the sustainable operation of our core assets, cash preservation and organic growth of our business in 2021.
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Results of Operations
The following tables and discussion are a summary of our results of operations, including a reconciliation of Adjusted EBITDA and CAFD to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Three Months Ended
March 31,
2021 2020
Revenue $ 139  $ 121 
Costs and expenses
Operations and maintenance 38  28 
Cost of product sold 15 
Impairment of fixed assets — 
General and administrative 12  15 
Depreciation, amortization and accretion 13  13 
Property and other taxes
Total costs and expenses 75  76 
Operating income 64  45 
Income from equity method investments 102  112 
Other income 14 
Investment and other income 116  121 
Interest income
Interest expense 21  25 
Income before income taxes 167  142 
Income tax expense —  — 
Net income 167  142 
Less: Net income attributable to noncontrolling interests
Net income attributable to the Partnership 163  138 
Preferred unitholder’s interest in net income attributable to the Partnership 12  — 
General partner’s interest in net income attributable to the Partnership —  55 
Limited Partners’ interest in net income attributable to the Partnership’s common unitholders $ 151  $ 83 
Adjusted EBITDA attributable to the Partnership (1)
$ 201  $ 196 
Cash available for distribution attributable to the Partnership’s common unitholders (1)
$ 173  $ 170 
(1) For a reconciliation of Adjusted EBITDA and CAFD attributable to the Partnership to their most comparable GAAP measures, please read “—Reconciliation of Non-GAAP Measures.





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Three Months Ended
March 31,
Pipeline throughput (thousands of barrels per day) (1)
2021 2020
Zydeco – Mainlines 641  669 
Zydeco – Other segments 18  200 
Zydeco total system 659  869 
Amberjack total system 332  358 
Mars total system 498  537 
Bengal total system 350  442 
Poseidon total system 338  279 
Auger total system 95  72 
Delta total system 243  281 
Na Kika total system 51  59 
Odyssey total system 138  153 
Colonial total system 1,995  2,680 
Explorer total system 443  547 
Mattox total system (2)
104  67 
LOCAP total system 820  1,007 
Other systems 518  450 
Terminals (3) (4)
Lockport terminaling throughput and storage volumes 251  247 
Revenue per barrel ($ per barrel)
Zydeco total system (5)
$ 0.47  $ 0.49 
Amberjack total system (5)
2.43  2.36 
Mars total system (5)
1.33  1.39 
Bengal total system (5)
0.41  0.43 
Auger total system (5)
1.69  1.46 
Delta total system (5)
0.66  0.58 
Na Kika total system (5)
1.06  0.97 
Odyssey total system (5)
0.98  0.96 
Lockport total system (6)
0.21  0.21 
Mattox total system (7)
1.52 
N/A (8)
(1) Pipeline throughput is defined as the volume of delivered barrels. For additional information regarding our pipeline and terminal systems, refer to Part I, Item I - Business and Properties - Our Assets and Operations in our 2020 Annual Report.
(2) The actual delivered barrels for Mattox are disclosed in the above table for the comparative periods. However, Mattox is billed by monthly minimum quantity per dedication and transportation agreements entered into in April 2020. Based on the contracted volume determined in the agreements, the thousands of barrels per day (for revenue calculation purposes) for Mattox are 154 barrels per day for the three months ended March 31, 2021.
(3) Terminaling throughput is defined as the volume of delivered barrels and storage is defined as the volume of stored barrels.
(4) Refinery Gas Pipeline and our refined products terminals are not included above as they generate revenue under transportation and terminaling service agreements, respectively, that provide for guaranteed minimum revenue and/or throughput.
(5) Based on reported revenues from transportation and allowance oil divided by delivered barrels over the same time period. Actual tariffs charged are based on shipping points along the pipeline system, volume and length of contract.
(6) Based on reported revenues from transportation and storage divided by delivered and stored barrels over the same time period. Actual rates are based on contract volume and length.
(7) Mattox is billed at a fixed rate of $1.52 per barrel for the monthly minimum quantity in accordance with the terms of dedication and transportation agreements entered into in April 2020.
(8) Mattox is billed at a fixed rate (see note above) per dedication and transportation agreements. The rates for the first quarter of 2020 are not applicable, as we only entered into these agreements in April 2020.

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Reconciliation of Non-GAAP Measures
The following tables present a reconciliation of Adjusted EBITDA and CAFD to net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

Please read “—Adjusted EBITDA and Cash Available for Distribution” for more information.

Three Months Ended
March 31,
2021 2020
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Income
Net income $ 167  $ 142 
Add:
Impairment of fixed assets — 
Allowance oil reduction to net realizable value — 
Depreciation, amortization and accretion 16  13 
Interest income (8) (1)
Interest expense 21  25 
Cash distributions received from equity method investments 123  135 
Less:
Equity method distributions included in other income 14 
Income from equity method investments 102  112 
Adjusted EBITDA 206  201 
Less:
   Adjusted EBITDA attributable to noncontrolling interests
Adjusted EBITDA attributable to the Partnership 201  196 
Less:
Series A Preferred Units distribution 12  — 
Net interest paid by the Partnership (1)
21  24 
Maintenance capex attributable to the Partnership
Add:
Principal and interest payments received on financing receivables
— 
Net adjustments from volume deficiency payments attributable to the Partnership (2)
Cash available for distribution attributable to the Partnership’s common unitholders $ 173  $ 170 
(1) Amount represents both paid and accrued interest attributable to the period.



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Three Months Ended March 31,
2021 2020
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Cash Provided by Operating Activities
Net cash provided by operating activities $ 166  $ 162 
Add:
Interest income (8) (1)
Interest expense 21  25 
Return of investment 12  14 
Less:
Change in deferred revenue and other unearned income — 
Allowance oil reduction to net realizable value — 
Change in other assets and liabilities (15) (11)
Adjusted EBITDA 206  201 
Less:
 Adjusted EBITDA attributable to noncontrolling interests
Adjusted EBITDA attributable to the Partnership 201  196 
Less:
Series A Preferred Units distribution 12  — 
Net interest paid by the Partnership (1)
21  24 
Maintenance capex attributable to the Partnership
Add:
Principal and interest payments received on financing receivables — 
Net adjustments from volume deficiency payments attributable to the Partnership (2)
Cash available for distribution attributable to the Partnership’s common unitholders $ 173  $ 170 
(1) Amount represents both paid and accrued interest attributable to the period.




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Current Quarter compared to Comparable Quarter

Revenues
Total revenue increased by $18 million in the Current Quarter as compared to the Comparable Quarter comprised of increases of $20 million attributable to terminaling services revenue, partially offset by decreases of $1 million in transportation services revenue and $1 million attributable to product revenue. Lease revenue was consistent in the Current Quarter and the Comparable Quarter.

Terminaling services revenue increased primarily due to the recognition of revenue related to the service components of the new terminaling service agreements related to the Norco Assets acquired in April 2020.

Transportation services revenue decreased primarily due to the expiration of two transportation services agreements at the end of 2020. This decrease was partially offset by more deficiency credits being used and recognized in revenue in the Current Quarter than in the Comparable Quarter.

Product revenue decreased by $1 million and relates to lower sales of allowance oil for certain of our onshore and offshore crude pipelines in the Current Quarter as compared to the Comparable Quarter.

Costs and Expenses
Total costs and expenses decreased $1 million in the Current Quarter as compared to the Comparable Quarter primarily due to a decrease of $11 million of cost of product sold and $3 million of general and administrative expenses. These decreases were partially offset by an increase of $10 million of operations and maintenance expenses and $3 million of impairment of fixed assets. Depreciation expense and property tax expense were both flat.

Cost of product sold decreased primarily as a result of a net realizable value adjustment on allowance oil inventory in the Comparable Quarter, as well as lower sales of allowance oil in the Current Quarter as compared to the Comparable Quarter.

General and administrative expenses decreased in the Current Quarter versus the Comparable Quarter primarily due to higher professional fees in the Comparable Quarter related to work performed around system implementation and the transaction completed in April 2020.

Operations and maintenance expenses increased mainly as a result of higher maintenance costs related to the Norco Assets acquired in April 2020.

Property tax expense increased as a result of the acquisition of the Norco Assets in April 2020 and was offset by changes in property tax appraisal estimates.

Investment and Other Income
Investment and other income decreased $5 million in the Current Quarter as compared to the Comparable Quarter. Income from equity method investments decreased by $10 million, primarily as a result of lower earnings from Colonial and Explorer, partially offset by higher earnings from the acquisition of an interest in Mattox in April 2020. This decrease was partially offset by an increase of $5 million in Other income related to higher distributions from Poseidon in the Current Quarter.

Interest Income and Expense
Interest income was $7 million higher in the Current Quarter as compared to the Comparable Quarter mainly due to interest income related to the financing receivables recorded in connection with the Norco Assets acquired in April 2020. Interest expense decreased by $4 million due to lower interest rates in the Current Quarter versus the Comparable Quarter resulting from the ongoing effects of the COVID-19 pandemic on market interest rates.


Capital Resources and Liquidity
We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under our credit facilities and our ability to access the capital markets. We believe this access to credit along with cash generated from operations will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements, and to make quarterly cash distributions. However, we cannot accurately predict the effects of the continuing COVID-19 pandemic on our
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capital resources and liquidity due to the current significant level of uncertainty. Our liquidity as of March 31, 2021 was $1,213 million, consisting of $317 million cash and cash equivalents and $896 million of available capacity under our credit facilities.

On April 1, 2020, we closed the transactions contemplated by the Partnership Interests Restructuring Agreement, which included the elimination of all the IDRs, the conversion of the economic general partner interest into a non-economic general partner interest and the establishment of the rights and preferences of the Series A Preferred Units in the Partnership’s Second Amended and Restated Agreement of Limited Partnership, effective as of April 1, 2020 (the “Second Amended and Restated Partnership Agreement”). Pursuant to the Partnership Interests Restructuring Agreement, the general partner (or its assignee) has agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the transaction completed in April 2020, in an amount of $20 million per quarter for four consecutive fiscal quarters, beginning with the distribution made with respect to the second quarter of 2020. Refer to Note 3 – Acquisitions and Other Transactions in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in our 2020 Annual Report for more details.

Credit Facility Agreements
As of March 31, 2021, we have entered into the following credit facilities:

Total Capacity Current Interest Rate Maturity Date
2021 Ten Year Fixed Facility $ 600  2.96  % March 16, 2031
Ten Year Fixed Facility 600  4.18  % June 4, 2029
Seven Year Fixed Facility 600  4.06  % July 31, 2025
Five Year Revolver due July 2023 760  1.21  % July 31, 2023
Five Year Revolver due December 2022 1,000  1.22  % December 1, 2022
2019 Zydeco Revolver 30  0.87  % August 6, 2024

On March 16, 2021, we entered into a ten-year fixed rate credit facility with STCW with a borrowing capacity of $600 million (the “2021 Ten Year Fixed Facility”). The 2021 Ten Year Fixed Facility bears an interest rate of 2.96% per annum and matures on March 16, 2031. The 2021 Ten Year Fixed Facility was fully drawn on March 23, 2021 and the borrowings were used to repay the borrowings under, and replace, the Five Year Fixed Facility. Refer to Note 5 – Related Party Debt in the Notes to the Unaudited Consolidated Financial Statements for additional information.

Borrowings under the Five Year Revolver due July 2023, the Five Year Revolver due December 2022 and the 2019 Zydeco Revolver bear interest at the three-month LIBOR rate plus a margin or, in certain instances (including if LIBOR is discontinued) at an alternate interest rate as described in each respective revolver. Over the next few years, LIBOR will be discontinued globally, and as such, a new benchmark will take its place. We are in discussion with our Parent to further clarify the reference rate(s) applicable to our revolving credit facilities once LIBOR is discontinued, and we are evaluating any potential impact on our facilities.

Our weighted average interest rate for the three months ended March 31, 2021 and March 31, 2020 was 3.1% and 3.6%, respectively. The weighted average interest rate includes drawn and undrawn interest fees, but does not consider the amortization of debt issuance costs or capitalized interest. A 1/8 percentage point (12.5 basis points) increase in the interest rate on the total variable rate debt of $894 million as of March 31, 2021 would increase our consolidated annual interest expense by approximately $1 million.

We will need to rely on the willingness and ability of our related party lender to secure additional debt, our ability to use cash from operations and/or obtain new debt from other sources to repay/refinance such loans when they come due and/or to secure additional debt as needed.

As of March 31, 2021, we were in compliance with the covenants contained in our credit facilities, and Zydeco was in compliance with the covenants contained in the 2019 Zydeco Revolver.

For definitions and additional information on our credit facilities, refer to Note 5 – Related Party Debt in the Notes to the Unaudited Consolidated Financial Statements in this report and Note 8 – Related Party Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in our 2020 Annual Report.


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Cash Flows from Our Operations
Operating Activities. We generated $166 million in cash flow from operating activities in the Current Quarter compared to $162 million in the Comparable Quarter. The increase in cash flows was primarily driven by an increase in revenue and equity investment income related to the acquisition of the Norco Assets and an interest in Mattox, respectively, in April 2020. This increase was partially offset by lower equity investment income related to Colonial, as well as the timing of receipt of receivables and payment of accruals in 2021.

Investing Activities. Our cash flow provided by investing activities was $9 million in the Current Quarter compared to $7 million in the Comparable Quarter. The increase in cash flow provided by investing activities was primarily due to lower capital expenditures in the Current Quarter, partially offset by a contribution to investment and lower return of investment in the Current Quarter compared to the Comparable Quarter.

Financing Activities. Our cash flow used in financing activities was $178 million in the Current Quarter compared to $167 million in the Comparable Quarter. The increase in cash flow used in financing activities was primarily due to increased distributions paid to unitholders in the Current Quarter compared to the Comparable Quarter, as well as a one-time prepayment fee related to a credit facility in the Current Quarter.

Capital Expenditures and Investments
Our operations can be capital intensive, requiring investments to maintain, expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements consist of maintenance capital expenditures and expansion capital expenditures. Examples of maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to acquire additional assets to grow our business, to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities. We regularly explore opportunities to improve service to our customers and maintain or increase our assets’ capacity and revenue. We may incur substantial amounts of capital expenditures in certain periods in connection with large maintenance projects that are intended to only maintain our assets’ capacity or revenue.

We incurred capital expenditures and investments of $4 million and $3 million for the Current Quarter and the Comparable Quarter, respectively. The increase in capital expenditures and investments in the Current Quarter as compared to the Comparable Quarter is due to a contribution to investment in the Current Quarter, partially offset by the Zydeco pipeline exposure replacement project at Bessie Heights that was completed in 2020.

A summary of our capital expenditures and investments is shown in the table below:
 
Three Months Ended
March 31,
2021 2020
Maintenance capital expenditures $ $
Total capital expenditures paid
Increase (decrease) in accrued capital expenditures (4)
Total capital expenditures incurred
Contributions to investment — 
Total capital expenditures and investments $ $

We expect total capital expenditures and investments to be approximately $24 million for 2021, a summary of which is shown in the table below:
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Actual Expected
Three Months Ended
March 31, 2021
Nine Months Ending December 31, 2021 Total Expected 2021 Capital Expenditures
Maintenance capital expenditures
   Zydeco $ $ $ 10 
   Pecten — 
   Odyssey — 
   Triton — 
Total maintenance capital expenditures incurred 18  20 
Contributions to investment
Total capital expenditures and investments $ $ 20  $ 24 

Expansion and Maintenance Expenditures
We do not expect to incur any expansion capital expenditures in 2021.
Zydeco’s maintenance capital expenditures for the three months ended March 31, 2021 were $2 million, primarily for an upgrade of the motor control center at Houma, as well as various maintenance projects. We expect Zydeco’s maintenance capital expenditures to be $8 million for the remainder of 2021, of which approximately $5 million is related to the upgrade of the motor control center at Houma, $2 million is related to Houma tank maintenance projects and $1 million is related to other routine maintenance projects.

Pecten’s maintenance capital expenditures for the three months ended March 31, 2021 were immaterial, and we expect Pecten’s maintenance capital expenditures to be approximately $1 million for the remainder of 2021 related to a Lockport tank maintenance project and various improvements on Delta.

Triton’s maintenance capital expenditures for the three months ended March 31, 2021 were immaterial, and we expect Triton’s maintenance capital expenditures to be approximately $4 million for the remainder of 2021. The expected 2021 spend is related to Seattle terminal dock line repair and replacement and other routine maintenance projects at the various terminals.

Odyssey’s maintenance capital expenditures for the three months ended March 31, 2021 were immaterial, and we expect Odyssey’s maintenance capital expenditures to be approximately $5 million for the remainder of 2021 related to a project at MP289C to re-route the pipeline around the platform.

We do not expect any maintenance capital expenditures for Sand Dollar in 2021.

We anticipate that capital expenditures for the remainder of the year will be funded primarily with cash from operations.

Capital Contributions
In accordance with the Member Interest Purchase Agreement dated October 16, 2017 pursuant to which we acquired a 50% interest in Permian Basin, we will make capital contributions for our pro rata interest in Permian Basin to fund capital and other expenditures, as approved by a supermajority (75%) vote of the members. We made a capital contribution of approximately $2 million in the three months ended March 31, 2021, and expect to make approximately $2 million in additional capital contributions during the remainder of 2021.

Contractual Obligations
A summary of our contractual obligations as of March 31, 2021 is shown in the table below:

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Total Less than 1 year  Years 1 to 3  Years 3 to 5 More than 5 years
Operating leases for land and platform space $ $ —  $ $ $
Finance leases (1)
55  10  10  30 
Other agreements (2)
34  12  12 
Debt obligation (3)
2,694  —  894  600  1,200 
Interest payments on debt (4)
513  80  147  118  168 
Total $ 3,303  $ 91  $ 1,064  $ 741  $ 1,407 
(1) Finance leases include Port Neches storage tanks and Garden Banks 128 A platform. Finance leases include $23 million in interest, $24 million in principal and $8 million in executory costs.
(2) Includes a joint tariff agreement and Odyssey tie-in agreement.
(3) See Note 5 Related Party Debt in the Notes to the Unaudited Consolidated Financial Statements for additional information.
(4) Interest payments were calculated based on rates in effect at March 31, 2021 for variable rate borrowings.

Since December 31, 2020, there were no material changes to the obligations included in the table above outside of the ordinary course of business.

On April 1, 2020, as partial consideration for the transaction completed in April 2020, we issued 50,782,904 Series A Preferred Units to SPLC at a price of $23.63 per preferred unit. Our Series A Preferred Units are contractually entitled to receive cumulative quarterly distributions. For the three months ended March 31, 2021, cumulative preferred distributions paid to our Series A Preferred Unitholders were $12 million. However, subject to certain conditions, we or the holders of the Series A Preferred Units may convert the Series A Preferred Units into common units at certain anniversary dates after the issuance date. Due to the uncertain timing of any potential conversion, distributions related to the Series A Preferred Units were not included in the contractual obligations table above.


Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Environmental Matters and Compliance Costs
Our operations are subject to extensive and frequently changing federal, state and local laws, regulations and ordinances relating to the protection of the environment. Among other things, these laws and regulations govern the emission or discharge of pollutants into or onto the land, air and water, the handling and disposal of solid and hazardous wastes and the remediation of contamination. As with the industry in general, compliance with existing and anticipated environmental laws and regulations increases our overall cost of business, including our capital costs to construct, maintain, operate and upgrade equipment and facilities. While these laws and regulations affect our maintenance capital expenditures and net income, we believe they do not affect our competitive position, as the operations of our competitors are similarly affected. We believe our facilities are in substantial compliance with applicable environmental laws and regulations. However, these laws and regulations are subject to changes, or to changes in the interpretation of such laws and regulations, by regulatory authorities, and continued and future compliance with such laws and regulations may require us to incur significant expenditures. Additionally, violation of environmental laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions limiting our operations, investigatory or remedial liabilities or construction bans or delays in the construction of additional facilities or equipment. Additionally, a release of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expenses, including costs to comply with applicable laws and regulations and to resolve claims by third parties for personal injury or property damage or claims by the U.S. federal government or state governments for natural resources damages. These impacts could directly and indirectly affect our business and have an adverse impact on our financial position, results of operations and liquidity if we do not recover these expenditures through the rates and fees we receive for our services. We believe our competitors must comply with similar environmental laws and regulations. However, the specific impact on each competitor may vary depending on a number of factors, including, but not limited to, the type of competitor and location of its operating facilities. For additional information, refer to Environmental Matters, Items 1 and 2, Business and Properties in our 2020 Annual Report.

We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded
42


environmental requirements, which could increase our environmental costs, may arise in the future. We believe we substantially comply with all legal requirements regarding the environment; however, as not all of the associated costs are fixed or presently determinable (even under existing legislation) and may be affected by future legislation or regulations, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed.

Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are set forth in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation — Critical Accounting Policies and Estimates in our 2020 Annual Report. As of March 31, 2021, there have been no significant changes to our critical accounting policies and estimates since our 2020 Annual Report was filed other than those noted below.

Recent Accounting Pronouncements
Please refer to Note 1– Description of the Business and Basis of Presentation in the Notes to the Unaudited Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements and new accounting pronouncements.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements. You can identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.

We based the forward-looking statements on our current expectations, estimates and projections about us and the industries in which we operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed in the forward-looking statements. Any differences could result from a variety of factors, including the following:

The continued ability of Shell and our non-affiliate customers to satisfy their obligations under our commercial and other agreements and the impact of lower market prices for crude oil, refined petroleum products and refinery gas.
The volume of crude oil, refined petroleum products and refinery gas we transport or store and the prices that we can charge our customers.
The tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment imposed by federal and state regulators.
Changes in revenue we realize under the loss allowance provisions of our fees and tariffs resulting from changes in underlying commodity prices.
Our ability to renew or replace our third-party contract portfolio on comparable terms.
Fluctuations in the prices for crude oil, refined petroleum products and refinery gas, including fluctuations due to political or economic measures taken by various countries.
The level of production of refinery gas by refineries and demand by chemical sites.
The level of onshore and offshore (including deepwater) production and demand for crude oil by U.S. refiners.
Changes in global economic conditions and the effects of a global economic downturn on the business of Shell and the business of its suppliers, customers, business partners and credit lenders.
The ongoing COVID-19 pandemic and related governmental regulations and travel restrictions, and the resulting sustained reduction in the global demand for oil and natural gas.
Availability of acquisitions and financing for acquisitions on our expected timing and acceptable terms.
Changes in, and availability to us, of the equity and debt capital markets.
Liabilities associated with the risks and operational hazards inherent in transporting and/or storing crude oil, refined petroleum products and refinery gas.
Curtailment of operations or expansion projects due to unexpected leaks, spills, or severe weather disruption; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.
Costs or liabilities associated with federal, state and local laws and regulations, including those that may be implemented by the current U.S. presidential administration, relating to environmental protection and safety, including spills, releases and pipeline integrity.
Costs associated with compliance with evolving environmental laws and regulations on climate change.
Costs associated with compliance with safety regulations and system maintenance programs, including pipeline integrity management program testing and related repairs.
Changes in tax status or applicable tax laws.
Changes in the cost or availability of third-party vessels, pipelines, rail cars and other means of delivering and transporting crude oil, refined petroleum products and refinery gas.
Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.
The factors generally described in Part I, Item 1A. Risk Factors in our 2020 Annual Report.


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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. The information about market risks for the three months ended March 31, 2021 does not differ materially from that disclosed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk” in our 2020 Annual Report, except as noted below.

Commodity Price Risk
With the exception of buy/sell arrangements on some of our offshore pipelines and our allowance oil retained, we do not take ownership of the crude oil or refined products that we transport and store for our customers, and we do not engage in the trading of any commodities. We therefore have limited direct exposure to risks associated with fluctuating commodity prices.

Our long-term transportation agreements and tariffs for crude oil shipments include pipeline loss allowance (“PLA”). The PLA provides additional revenue for us at a stated factor per barrel. If product losses on our pipelines are within the allowed levels, we retain the benefit; otherwise, we are required to compensate our customers for any product losses that exceed the allowed levels. We take title to any excess product that we transport when product losses are within the allowed level, and we sell that product several times per year at prevailing market prices. This allowance oil revenue, which accounted for approximately 5% of our total revenue for both the three months ended March 31, 2021 and March 31, 2020, is subject to more volatility than transportation revenue, as it is directly dependent on our measurement capability and commodity prices. As a result, the income we realize under our loss allowance provisions will increase or decrease as a result of changes in the mix of product transported, measurement accuracy and underlying commodity prices. We do not intend to enter into any hedging agreements to mitigate our exposure to decreases in commodity prices through our loss allowances.

Interest Rate Risk
We are exposed to the risk of changes in interest rates, primarily as a result of variable rate borrowings under our revolving credit facilities. To the extent that interest rates increase, interest expense for these revolving credit facilities will also increase. As of both March 31, 2021 and December 31, 2020, the Partnership had $894 million in outstanding variable rate borrowings under these revolving credit facilities. A hypothetical change of 12.5 basis points in the interest rate of our variable rate debt would impact the Partnership’s annual interest expense by approximately $1 million for both the three months ended March 31, 2021 and March 31, 2020. We do not currently intend to enter into any interest rate hedging agreements, but will continue to monitor interest rate exposure.

Our fixed rate debt does not expose us to fluctuations in our results of operations or liquidity from changes in market interest rates. Changes in interest rates do affect the fair value of our fixed rate debt. See Note 5 – Related Party Debt in the Notes to the Unaudited Consolidated Financial Statements for further discussion of our borrowings and fair value measurements. 

Other Market Risks
We may also have risk associated with changes in policy or other actions taken by FERC. Please see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors Affecting Our Business and Outlook – Regulation” for additional information.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Our disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on management’s evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), were effective at the reasonable assurance level as of March 31, 2021.

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Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the ordinary course of business, we are not a party to any litigation or governmental or other proceeding that we believe will have a material adverse impact on our financial position, results of operations or cash flows.

Information regarding legal proceedings is set forth in Note 11—Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements and is incorporated herein by reference.

Item 1A. Risk Factors
Risk factors relating to us are discussed in Part I, Item 1A. Risk Factors in our 2020 Annual Report. There have been no material changes from the risk factors previously disclosed in our 2020 Annual Report.


47


Item 5. Other Information

Disclosures Required Pursuant to Section 13(r) of the Securities Exchange Act of 1934
In accordance with our General Business Principles and Code of Conduct, Shell Midstream Partners, L.P. seeks to comply with all applicable international trade laws, including applicable sanctions and embargoes.

Under the Iran Threat Reduction and Syria Human Rights Act of 2012, and Section 13(r) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engaged in certain specified activities during the period covered by the report. Because the U.S. Securities and Exchange Commission defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us.

The activities listed below have been conducted outside the United States by non-U.S. affiliates of Royal Dutch Shell plc that may be deemed to be under common control with us. The disclosure does not relate to any activities conducted directly by us, our subsidiaries or our general partner and does not involve our or our general partner’s management.

For purposes of this disclosure, we refer to Royal Dutch Shell plc and its subsidiaries, other than us, our subsidiaries, our general partner and Shell Midstream LP Holdings LLC, as the “RDS Group.” When not specifically identified, references to actions taken by the RDS Group mean actions taken by the applicable RDS Group company. None of the payments disclosed below were made in U.S. dollars, nor are any of the balances disclosed below held in U.S. dollars; however, for disclosure purposes, all have been converted into U.S. dollars at the appropriate exchange rate.

During the first quarter of 2021, the RDS Group paid $1,355 to the Civil Aviation Organization (Iran) for the clearance of overflight permits for RDS Group aircraft over Iranian airspace. There was no gross revenue or net profit associated with these transactions. On occasion, RDS Group aircraft may be routed over Iran, and, therefore, these payments may continue in the future.

The RDS Group maintains accounts with Karafarin Bank where its cash deposits (balance of $5,602,085 at March 31, 2021) generated non-taxable interest income of $58,822 in the first quarter of 2021. In addition, the RDS Group paid $1 in bank charges in the first quarter of 2021.

May 2021 Transaction
Effective May 1, 2021, Triton sold to SOPUS, as designee of SPLC, certain assets associated with its clean products truck rack terminal and facility in Anacortes, Washington (the “Anacortes Assets”). In exchange for the Anacortes Assets, SPLC paid Triton $10 million in cash and transferred to the Operating Company, as designee of Triton, SPLC’s 7.5% interest in Zydeco (the “May 2021 Transaction”).

The May 2021 Transaction closed pursuant to a Sale and Purchase Agreement dated April 28, 2021 between Triton and SPLC, effective May 1, 2021 (the “May 2021 Sale and Purchase Agreement”). The May 2021 Sale and Purchase Agreement contains customary representations, warranties and covenants of Triton and SPLC. SPLC, on the one hand, and Triton, on the other hand, have agreed to indemnify each other and their respective affiliates, officers, directors and other representatives against certain losses resulting from any breach of their representations, warranties or covenants contained in the May 2021 Sale and Purchase Agreement, subject to certain limitations and survival periods.

In connection with the May 2021 Transaction, the Partnership and SPLC entered into a Termination of Voting Agreement dated April 28, 2021 and effective May 1, 2021 (the “Zydeco Voting Termination Agreement”), under which they agreed to terminate the Voting Agreement dated November 3, 2014 between the Partnership and SPLC, relating to certain governance matters for their respective direct and indirect ownership interests in Zydeco.

The terms of the May 2021 Transaction 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 to assist in its evaluation and negotiation of the May 2021 Transaction.

The foregoing descriptions of the May 2021 Sale and Purchase Agreement and the Zydeco Voting Termination Agreement are not complete and are qualified in their entirety by reference to the full text of the May 2021 Sale and Purchase Agreement and the Zydeco Voting Termination Agreement, which are filed as Exhibits 10.1 and 10.2, respectively, to this Quarterly Report and are each incorporated herein by reference.
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Item 6. Exhibits
The following documents are included as exhibits to this Quarterly Report on Form 10-Q. Those exhibits incorporated by reference are so indicated by the information supplied with respect thereto. Those exhibits which are not incorporated by reference are attached hereto.

Exhibit
Number
Exhibit Description
Incorporated by Reference
Filed
Herewith
Furnished
Herewith
Form
Exhibit
Filing Date
SEC
File No.
10.1 X
10.2 X
10.3 8-K 10.1 03/18/2021 001-36710
31.1 X
31.2 X
32.1 X
32.2 X
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. X
101.SCH
Inline XBRL Taxonomy Extension Schema X
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase X
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase X
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase X
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase X
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). X

49


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
Date: April 30, 2021
SHELL MIDSTREAM PARTNERS, L.P.
By:
SHELL MIDSTREAM PARTNERS GP LLC
By:
/s/ Shawn J. Carsten
Shawn J. Carsten
Vice President and Chief Financial Officer
(principal financial officer and principal accounting officer)






















50
Exhibit 10.1
SALE AND PURCHASE AGREEMENT
BETWEEN
TRITON WEST LLC

AND

SHELL PIPELINE COMPANY LP
April 28, 2021




TABLE OF CONTENTS
Article I DEFINITIONS
1
Section 1.1    Definitions
1
Section 1.2    Construction
4
Article II SALE AND PURCHASE, CONSIDERATION AND CLOSING
4
Section 2.1    Sale and Purchase
4
Section 2.2    Consideration
4
Section 2.3    Closing
5
Section 2.4    Withholding Rights
6
Section 2.5    Tax Allocation
6
Article III REPRESENTATIONS AND WARRANTIES OF TRITON
6
Section 3.1    Organization
6
Section 3.2    Authority and Approval
7
Section 3.3    No Conflict; Consents
7
Section 3.4    Title to Physical Assets
7
Section 3.5    Litigation; Laws and Regulations
7
Section 3.6    Taxes
8
Section 3.7    Brokerage Arrangements
8
Article IV REPRESENTATIONS AND WARRANTIES OF SPLC
8
Section 4.1    Organization and Existence
8
Section 4.2    Authority and Approval
8
Section 4.3    No Conflict; Consents
9
Section 4.4    Brokerage Arrangements
9
Section 4.5    Litigation
10
Section 4.6    Title to Zydeco Subject Interests
10
Section 4.7    Management Projections and Budgets
10
Article V TAX MATTERS
10
Section 5.1    Liability for Taxes
10
Section 5.2    Cooperation
11
Section 5.3    Transfer Tax
11
Section 5.4    Conflict
11
Article VI INDEMNIFICATION
11
Section 6.1    Indemnification of SPLC
11
Section 6.2    Indemnification of Triton
12
Section 6.3    Survival
12
Section 6.4    Indemnification Procedures
12
Section 6.5    Direct Claim
13
Section 6.6    Limitations on Indemnification
13
Section 6.7    Sole Remedy
14
Article VII MISCELLANEOUS
14
i




Section 7.1    Acknowledgements
14
Section 7.2    Cooperation; Further Assurances
14
Section 7.3    Expenses
14
Section 7.4    Notices
15
Section 7.5    Arbitration
15
Section 7.6    Governing Law
16
Section 7.7    Public Statements
16
Section 7.8    Entire Agreement; Amendments and Waivers
17
Section 7.9    Conflicting Provisions
17
Section 7.10    Binding Effect and Assignment
17
Section 7.11    Severability
17
Section 7.12    Interpretation
17
Section 7.13    Headings
18
Section 7.14    Multiple Counterparts
18

ii




SALE AND PURCHASE AGREEMENT
This Sale and Purchase Agreement (this “Agreement”) is made as of April 28, 2021 by and between Triton West LLC, a Delaware limited liability company (“Triton”), and SHELL PIPELINE COMPANY lp, a Delaware limited partnership (“SPLC”). SPLC and Triton may be referred to individually as “Party” or collectively as the “Parties” herein.
RECITALS:
WHEREAS, Triton is the owner of (a) a clean products truck rack terminal and facility located at 11673 March’s Point Road, Anacortes, WA 98221 and other related assets as more particularly described on Exhibit “A” attached hereto and made a part hereof (the “Physical Assets”), which such Physical Assets are adjacent to the Puget Sound Refinery that is owned and operated by Equilon Enterprises LLC, a Delaware limited liability company d/b/a Shell Oil Products US (“SOPUS”) and (b) the real property on which such Physical Assets are located, as more particularly described on Exhibit A to the Deed attached hereto and made a part hereof (the “Real Property”, and together with the Physical Assets, the “Assets”);
WHEREAS, Zydeco Pipeline Company LLC (“Zydeco”) is a Delaware limited liability company in which SPLC owns a seven and one-half percent (7.5%) interest (the “Zydeco Subject Interests”), and Shell Midstream Operating LLC, a Delaware limited liability company and the sole member of Triton, owns the remaining 92.5% interest;
WHEREAS, Triton and SPLC desire to enter into a transaction pursuant to which (i) Triton conveys to SPLC or its designee all of Triton’s right, title and interest in and to the Assets, and (ii) SPLC conveys to Triton or its designee all of SPLC’s right, title and interest in and to the Zydeco Subject Interests, in each case on the terms and conditions provided in this Agreement and the Transaction Documents; and
NOW, THEREFORE, in consideration of the premises and the respective representations, warranties, covenants, agreements and conditions contained herein, the Parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions    . The respective terms defined in this Section 1.1 shall, when used in this Agreement, have the respective meanings specified herein, with each such definition equally applicable to both singular and plural forms of the terms so defined:
2017 Contribution” means the contribution of the Assets, among other assets, by SOPUS to Triton pursuant to a Purchase and Sale Agreement, dated as of November 22, 2017.
Affiliate” means (a) with respect to Triton, only (i) the General Partner; (ii) Shell Midstream Partners LP Holdco LLC; (iii) SHLX; and (iv) any Person Controlled by Shell Midstream Partners, L.P., and (b) with respect to SPLC, any Person that directly or indirectly, through one or more intermediaries or otherwise, Controls, is Controlled by, or is under common Control with SPLC, in all cases excluding the Persons set forth in clause (a) of this definition.
Agreement” has the meaning ascribed to such term in the preamble.
Applicable Law” means any provision of any law or administrative rule or regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to SPLC or Triton.
Assets” has the meaning ascribed to such term in the first recital to this Agreement.
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Assignment Agreement” means the Assignment Agreement between SPLC and Triton (or its designee), dated as of the date hereof, to be effective as of the Effective Time, relating to the Zydeco Subject Interests.
Bill of Sale” means a Bill of Sale between Triton and SPLC substantially in the form attached as Exhibit “C”.
Business Day” means any day except a Saturday, a Sunday and any day in which in Houston, Texas, United States shall be a legal holiday or a day on which banking institutions are authorized or required by law or other government action to close.
Ceiling Amount” has the meaning ascribed to such term in Section 6.6(a).
Closing” has the meaning ascribed to such term in Section 2.3(a).
Closing Date” means the date on which the Closing occurs.
Conflicts Committee” means the conflicts committee of the board of directors of the General Partner.
Control” and its derivatives mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Damages” means any losses, damages, liabilities, claims, demands, causes of action, judgments, settlements, fines, penalties, costs and expenses (including court costs and reasonable attorneys’ and expert’s fees) of any and every kind or character, known or unknown, fixed or contingent.
Deductible Amount” has the meaning ascribed to such term in Section 6.6(a).
Deed” means the deed to be executed by Triton in favor of SPLC or its designee in substantially the form attached hereto as Exhibit “B”.
Direct Claim” has the meaning ascribed to such term in Section 6.5.
Dispute” has the meaning ascribed to such term in Section 7.5(a).
Effective Time” means 12:01 a.m., Central Standard Time, on May 1, 2021.
General Partner” means Shell Midstream Partners GP LLC, a Delaware limited liability company and the general partner of SHLX.
Governmental Authority” means any federal, state, municipal or other government, governmental court, department, commission, board, bureau, agency or instrumentality, whether foreign or domestic.
Lien” means any mortgage, deed of trust, lien, security interest, pledge, conditional sales contract, charge or encumbrance.
Notice” has the meaning ascribed to such term in Section 7.4.
Operating Agreement Amendment” means the First Amendment to Operating and Administrative Management Agreement dated as of December 1, 2017, dated as of the date hereof, to be effective as of the Effective Time.
Permitted Liens” means all: (a) mechanics’, materialmen’s, repairmen’s, employees’ contractors’ operators’, carriers’, workmen’s or other like Liens or charges arising by operation of law, in the ordinary course of business or incident to the construction or improvement of any of the Assets, in each case, for amounts not yet delinquent (including any amounts being withheld as provided by
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Applicable Law); (b) Liens arising under original purchase price conditional sales contracts and equipment leases with third parties entered into in the ordinary course of business; (c) immaterial defects and irregularities in title, encumbrances, exceptions and other matters that, singularly or in the aggregate, will not materially interfere with the ownership, use, value, operation or maintenance of the Assets to which they pertain or Triton’s ability to perform its obligations hereunder with respect thereto; (d) Liens for Taxes that are not yet due and payable; (e) pipeline, utility and similar easements and other rights in respect of surface operations; and (f) all rights to consent, by required notices to, filings with, or other actions by Governmental Authorities or third parties in connection with the sale or conveyance of easements, rights of way, licenses, facilities or interests therein if they are customarily obtained subsequent to the sale or conveyance.
Person” means an individual or entity, including any partnership, corporation, association, trust, limited liability company, joint venture, unincorporated organization or other entity.
Physical Assets” has the meaning ascribed to such term in the recitals to this Agreement.
Real Property” has the meaning ascribed to such term in the preamble.
Rules” has the meaning ascribed to such term in Section 7.5(a).
SHLX” means Shell Midstream Partners, L.P., a Delaware limited partnership.
SOPUS” has the meaning ascribed to such term in the recitals to this Agreement.
SPLC” has the meaning ascribed to such term in the preamble.
SPLC Indemnified Parties” has the meaning ascribed to such term in Section 6.1.
SPLC Material Adverse Effect” means a material adverse effect on or a material adverse change in the ability of SPLC to perform its obligations under this Agreement and the other Transaction Documents or to consummate the transactions contemplated hereby or thereby.
Tax” means any and all U.S. federal, state, local or foreign net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, capital stock, profits, margin, license, license fee, environmental, customs duty, unclaimed property or escheat payments, alternative fuels, mercantile, lease, service, withholding, payroll, employment, unemployment, social security, disability, excise, severance, registration, stamp, occupation, premium, property (real or personal), windfall profits, fuel, value added, alternative or add on minimum, estimated or other similar taxes, duties, levies, customs, tariffs, imposts or assessments (including public utility commission property tax assessments) imposed by any Governmental Authority, together with any interest, penalties or additions thereto payable to any Governmental Authority in respect thereof or any liability for the payment of any amounts of any of the foregoing types as a result of being a member of an affiliated, consolidated, combined or unitary group, or being a party to any agreement or arrangement whereby liability for payment of such amounts was determined or taken into account with reference to the liability of any other Person.
Tax Allocation” has the meaning ascribed to such term in Section 2.5.
Tax Return” means any Tax return, statement, form and report (including any election, declaration, disclosure, schedule, estimate, amended and informational tax return and supporting information) filed or required to be filed with any Taxing Authority in connection with any Tax.
Taxing Authority” means any Governmental Authority having or exercising jurisdiction with respect to any Tax.
Termination Agreement” means that certain Termination Agreement between Triton and SOPUS, dated as of the date hereof, to be effective as of the Effective Time, terminating (a) the schedule
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relating to the Assets, which schedule is attached to that certain Terminalling Services Agreement dated December 1, 2017 between Triton and SOPUS and (b) any other related agreements, in substantially the form attached hereto as Exhibit “F”.
Termination of Voting Agreement” means that certain Termination of Voting Agreement between SHLX and SPLC, dated as of the date hereof, to be effective as of the Effective Time, terminating that certain Voting Agreement dated as of November 3, 2014, relating to certain governance matters for Zydeco.
TPH” means Tudor Pickering Holt & Co Advisors LP.
Transaction Documents” means this Agreement, the Assignment Agreement, the Deed, the Bill of Sale, the Termination Agreement, the Operating Agreement Amendment, the Termination of Voting Agreement and any other documents of conveyance or other related documents contemplated to be entered into in connection with this Agreement and the transactions contemplated hereby with respect to which Triton and SPLC are parties.
Transactions” means the transactions contemplated by the Transaction Documents.
Transfer Tax” has the meaning ascribed to such term in Section 5.3.
Tribunal” has the meaning ascribed to such term in Section 7.5(b).
Triton” has the meaning ascribed to such term in the preamble.
Triton Indemnified Parties” has the meaning ascribed to such term in Section 6.2.
Triton Material Adverse Effect” means a material adverse effect on or a material adverse change in the ability of Triton to perform its obligations under this Agreement and the other Transaction Documents or to consummate the transactions contemplated hereby or thereby.
Zydeco” has the meaning ascribed to such term in the recitals to this Agreement.
Zydeco Subject Interestshas the meaning ascribed to such term in the recitals to this Agreement.
Section 1.2 Construction. In construing this Agreement: (a) the word “includes” and its derivatives means “includes, without limitation” and corresponding derivative expressions; (b) the currency amounts referred to herein, unless otherwise specified, are in United States dollars; (c) whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified; (d) unless otherwise specified, all references in this Agreement to “Article,” “Section,” “Exhibit,” “preamble” or “recitals” shall be references to an Article, Section, Exhibit, preamble or recitals hereto; and (e) whenever the context requires, the words used in this Agreement shall include the masculine, feminine and neuter and singular and the plural.
ARTICLE II
SALE AND PURCHASE, CONSIDERATION AND CLOSING
Section 2.1 Sale and Purchase. Upon the terms and subject to the conditions set forth in this Agreement and in the other Transaction Documents, at the Closing, (i) Triton shall sell, transfer, assign, convey and deliver to SPLC or its designee all of its right, title and interest in and to the Assets, free and clear of all Liens other than Permitted Liens; and (ii) SPLC shall sell, transfer, assign convey and deliver to Triton or its designee all the Zydeco Subject Interests, free and clear of all Liens (other than restrictions under applicable federal and state securities laws).
Section 2.2 Consideration. In consideration of the transactions contemplated by this Agreement (a) SPLC will deliver to Triton or its designee (i) Ten Million United States Dollars ($10,000,000) and (ii)
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the Zydeco Subject Interests; and (b) Triton will deliver to SPLC or its designee the Assets, in each case on the terms set forth herein. Unless otherwise agreed by the Parties, all payments under this Agreement will be made by bank wire transfer to the bank account designated in writing by the receiving party, in immediately available funds, without setoff, withholding or any deduction of any kind, including for any banking, transfer or other costs.
Section 2.3 Closing.
(a) The closing of the Transaction (the “Closing”) shall take place as provided in this Section 2.3 and will be held at the offices of Triton at 150 N. Dairy Ashford Road, Houston, Texas 77079 on April 30, 2021, commencing at 9:00 a.m., Houston time, or such other place, date and time as may be mutually agreed upon by the Parties hereto. Upon Closing, the Transaction shall be effective as of the Effective Time.
(b) At the Closing, SPLC or its designee shall deliver, or cause to be delivered, to Triton, the following:
(i)Ten Million United States Dollars ($10,000,000) and the Zydeco Subject Interests;
(ii)a duly executed counterpart of the Bill of Sale;
(iii)a duly executed counterpart of the Deed;
(iv)a signed Affidavit of Non-Foreign Status of Entity duly executed by SOPUS and substantially in the form set forth on Exhibit “E”;
(v)a counterpart of the Termination Agreement, duly executed by SOPUS;
(vi)a duly executed counterpart of the Assignment Agreement;
(vii)a duly executed counterpart of the Operating Agreement Amendment;
(viii)a duly executed counterpart of the Termination of Voting Agreement; and
(ix)such other certificates, instruments of conveyance and documents as may be reasonably requested by Triton at least two (2) Business Days prior to the Closing Date to carry out the intent and purposes of this Agreement.
(c) At the Closing, Triton shall deliver, or cause to be delivered, to SPLC, the following:
(i)a duly executed counterpart of the Bill of Sale;
(ii)a duly executed counterpart of the Deed;
(iii)a signed Affidavit of Non-Foreign Status of Entity duly executed by Triton and substantially in the form set forth on Exhibit “D”;
(iv)a duly executed counterpart of the Termination Agreement;
(v)a duly executed counterpart of the Assignment Agreement;
(vi)a counterpart of the Operating Agreement Amendment, duly executed by Triton and the General Partner;
(vii) counterpart of the Termination of Voting Agreement, duly executed by SHLX; and
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(viii)such other certificates, instruments of conveyance and documents as may be reasonably requested by SPLC at least two (2) Business Days prior to the Closing Date to carry out the intent and purposes of this Agreement.
Section 2.4 Withholding Rights. The cash consideration from SPLC to Triton shall be delivered free and clear of, and without deduction or withholding for, any Taxes unless such deduction or withholding is required under Applicable Law or administrative practice. If SPLC determines that any amount of the cash consideration paid to Triton is subject to deduction or withholding for Taxes, then SPLC shall promptly notify Triton in writing of such determination. The Parties agree to cooperate and use commercially reasonable efforts to eliminate or reduce any such Tax. If any amounts are withheld pursuant to this Section 2.4 and paid over to the applicable Governmental Authority, such amounts shall be treated for all purposes of this Agreement as having been paid or distributed to such Person that was entitled to such amount with respect to which such Taxes were withheld.
Section 2.5 Tax Allocation. Triton and SPLC shall negotiate in good faith to agree upon an allocation of the consideration (the “Tax Allocation”). The Parties shall attempt to finalize the Tax Allocation within sixty (60) days after the Effective Time, provided, however, the Parties shall not be obligated to reach agreement. If agreement is reached, the Parties shall treat and report (and, if necessary, to cause each of their respective Affiliates to so treat and report) the sale and purchase contemplated in this Agreement for all federal, state and local Tax purposes in a manner consistent with the Tax Allocation and shall not take any position on their respective Tax Returns that is inconsistent with the Tax Allocation. Each Party recognizes that the Tax Allocation does not include the other Party’s acquisition expenses and that each Party will allocate such expenses appropriately.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TRITON
Triton hereby represents and warrants to SPLC that:
Section 3.1 Organization. Triton is a limited liability company duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited liability company power and authority to own, operate and lease its properties and assets and to carry on its business as now conducted. Triton is duly licensed or qualified to do business and is in good standing in the states in which the character of the properties and assets owned or held by it or the nature of the business conducted by it requires it to be so licensed or qualified, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a Triton Material Adverse Effect.
Section 3.2 Authority and Approval.
(a)Triton has full limited liability company power and authority to execute and deliver this Agreement and the other Transaction Documents to which Triton is or will be a party, to consummate the transactions contemplated hereby and thereby and to perform all of the obligations hereof and thereof to be performed by it. The execution and delivery by Triton of this Agreement and the other Transaction Documents to which Triton is or will be a party, the consummation of the transactions contemplated hereby and thereby and the performance of all of the obligations hereof and thereof to be performed by Triton have been duly authorized and approved by all requisite limited liability company action on the part of Triton.
(b)This Agreement has been duly executed and delivered by Triton and constitutes the valid and legally binding obligation of Triton, enforceable against it in accordance with its terms, and, upon the execution of the other Transaction Documents to which Triton is or will be a party, such other Transaction Documents will be duly executed and delivered by Triton and constitute or will constitute the
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valid and legally binding obligations of Triton, enforceable against Triton in accordance with their terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights and remedies generally and by general principles of equity (whether applied in a proceeding at law or in equity).

Section 3.3 No Conflict; Consents.
(a)The execution, delivery and performance of this Agreement and the other Transaction Documents to which Triton is or will be a party by Triton does not, and the fulfillment and compliance with the terms and conditions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not, (i) violate, conflict with, result in any breach of, or require the consent of any Person under, any of the terms, conditions or provisions of the certificate of formation or limited liability company agreement or other organizational documents of Triton; (ii) conflict with or violate any Applicable Law; or (iii) conflict with, result in a breach of, constitute a default under (whether with notice or the lapse of time or both), or accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, or result in the suspension, termination or cancellation of, or in a right of suspension, termination or cancellation of, any indenture, mortgage, agreement, contract, commitment, right of way, license, concession, permit, lease, joint venture or other instrument by which Triton or any of the Assets are bound, except in the case of clauses (ii) and (iii) for those items which, individually or in the aggregate, would not reasonably be expected to have a Triton Material Adverse Effect or result in any material liability or obligation of SPLC (other than any liability or obligation hereunder).
(b)No consent, approval, license, permit, order or authorization of any Governmental Authority or other Person is required to be obtained or made by Triton with respect to the Assets in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents to which Triton is or will be a party or the consummation of the transactions contemplated hereby or thereby except (i) as have been waived or obtained or with respect to which the time for asserting such right has expired or (ii) for those which individually or in the aggregate would not reasonably be expected to have a Triton Material Adverse Effect (including such consents, approvals, licenses, permits, orders or authorizations that are not customarily obtained prior to the Closing and are reasonably expected to be obtained in the ordinary course of business following the Closing).
Section 3.4 Title to Physical Assets.
(a) To the extent that the Physical Assets were conveyed to Triton beneficially and of record pursuant to the 2017 Contribution, Triton owns, beneficially and of record, the Physical Assets.
(b)To the extent that the Physical Assets were conveyed to Triton with good and defensible title and free and clear of Liens pursuant to the 2017 Contribution, Triton will convey good and defensible title, free and clear of all Liens (other than Permitted Liens), to the Physical Assets to SPLC at Closing.
(c)Neither Triton nor the Physical Assets are subject to any agreements or understandings, including but not limited to rights of first refusal, rights of first offer, preemptive rights or other purchase rights with respect to the transfer of the Physical Assets, which would (if unwaived) prevent Closing and which have not been waived or will have not been waived prior to Closing.

Section 3.5 Litigation; Laws and Regulations.
.
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(a)There are no (i) civil, criminal or administrative actions, suits, claims, hearings, arbitrations or proceedings pending or, to Triton’s knowledge, threatened against Triton relating to the ownership or operation of the Assets, (ii) judgments, orders, decrees or injunctions of any Governmental Authority, whether at law or in equity, against Triton relating to the ownership or operation of the Assets or (iii) pending or, to Triton’s knowledge, threatened investigations by any Governmental Authority against Triton relating to the ownership or operation of the Assets, except in each case for those items which, individually or in the aggregate, would not reasonably be expected to have a Triton Material Adverse Effect.
(b)Triton is not in violation of or in default under any Applicable Law except as would not, individually or in the aggregate, reasonably be expected to have a Triton Material Adverse Effect.
Section 3.6 Taxes.
(a)Triton or its Affiliates has timely filed with the appropriate Taxing Authority all material Tax Returns required to be filed by Triton or its Affiliates with respect to the Assets. All such Tax Returns are true, correct and complete in all material respects. All material Taxes due by Triton or its Affiliates with respect to the Assets have been timely paid.
(b)There are no Liens on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax on the Assets other than Permitted Liens.
(c)No Tax assessment, deficiency or adjustment has been asserted or proposed in writing, in any case with respect to the Assets or the operations of Triton with respect to the Assets.
(d)No agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitations) has been executed or filed with any Taxing Authority with respect to the Assets.
(e)No Tax allocation, Tax sharing or Tax indemnity or similar agreement or arrangement is currently in effect with respect to the Assets.
Section 3.7 Brokerage Arrangements. Triton has not entered (directly or indirectly) into any agreement with any Person that would obligate Triton or any of its Affiliates to pay any commission, brokerage or “finder’s fee” or other similar fee in connection with this Agreement or other Transaction Documents or the transactions contemplated hereby or thereby, other than the engagement letter between TPH and the Conflicts Committee, dated as of December 17, 2020.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SPLC

SPLC represents and warrants to Triton as follows:
Section 4.1 Organization and Existence. SPLC is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited partnership power and authority to own, operate and lease its properties and assets and to carry on its business as now conducted, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to have a SPLC Material Adverse Effect.
Section 4.2 Authority and Approval.
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(a)SPLC has full limited partnership power and authority to execute and deliver this Agreement and the other Transaction Documents to which SPLC is or will be a party, to consummate the transactions contemplated hereby and thereby, to perform all of the obligations hereof and thereof to be performed by it. The execution and delivery of this Agreement and the other Transaction Documents to which SPLC is or will be a party, the consummation of the transactions contemplated hereby and thereby and the performance of all of the obligations hereof and thereof to be performed by SPLC has been duly authorized and approved by all requisite limited partnership action of SPLC.
(b)This Agreement has been duly executed and delivered by or on behalf of SPLC, and constitutes the valid and legally binding obligation of SPLC, enforceable against SPLC in accordance with its terms and, upon the execution of the other Transaction Documents to which SPLC is or will be a party, such other Transaction Documents will be duly executed and delivered by or on behalf of SPLC and constitutes or will constitute the valid and legally binding obligation of SPLC, enforceable against SPLC in accordance with their terms, except in each case as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws affecting the enforcement of creditors’ rights and remedies generally and by general principles of equity (whether applied in a proceeding at law or in equity).
Section 4.3 No Conflict; Consents.
(a)The execution, delivery and performance of this Agreement and the other Transaction Documents to which SPLC is or will be a party by SPLC does not, and the fulfillment and compliance with the terms and conditions hereof and thereof and the consummation of the transactions contemplated hereby and thereby will not, (i) violate, conflict with, result in any breach of, or require the consent of any Person under, any of the terms, conditions or provisions of the certificate of limited partnership, certificate of limited liability company, partnership agreement or limited liability company agreement, as applicable, of SPLC or Zydeco; (ii) conflict with or violate any provision of any law or administrative rule or regulation or any judicial, administrative or arbitration order, award, judgment, writ, injunction or decree applicable to SPLC or Zydeco or any property or asset of SPLC or Zydeco; or (iii) conflict with, result in a breach of, or constitute a default under (whether with notice or the lapse of time or both) any indenture, mortgage, agreement, contract, commitment, license, concession, permit, right of way, lease, joint venture or other instrument to which SPLC or Zydeco is a party or by which it is bound or to which any of its property is subject, except in the case of clauses (ii) and (iii) for those items which, individually or in the aggregate, would not reasonably be expected to affect the ability of either SPLC to perform its obligations under this Agreement and the other Transaction Documents to which SPLC is or will be a party or to consummate the transactions contemplated hereby or thereby.
(b)No consent, approval, license, permit, order or authorization of any Governmental Authority or other Person is required to be obtained or made by or with respect to SPLC or Zydeco in connection with the execution, delivery, and performance of this Agreement or the other Transaction Documents to which SPLC is or will be a party or the consummation of the transactions contemplated hereby and thereby, except (i) as have been waived or obtained or with respect to which the time for asserting such right has expired or (ii) for those which individually or in the aggregate would not reasonably be expected to affect the ability of SPLC to perform its obligations under this Agreement and the other Transaction Documents to which SPLC is or will be a party or to consummate the transactions contemplated hereby or thereby (including such consents, approvals, licenses, permits, orders or authorizations that are not customarily obtained prior to the Closing and are reasonably expected to be obtained in the ordinary course of business following the Closing).
Section 4.4 Brokerage Arrangements, SPLC has not entered (directly or indirectly) into any agreement with any Person that would obligate SPLC or any of its Affiliates to pay any commission,
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brokerage or “finder’s fee” or other similar fee in connection with this Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby.
Section 4.5 Litigation. There are no civil, criminal or administrative actions, suits, claims, hearings, arbitrations, investigations or proceedings pending or, or to SPLC’s knowledge, threatened that (a) question or involve the validity or enforceability of any of SPLC’s obligations under this Agreement or (b) seek (or reasonably might be expected to seek) (i) to prevent or delay the consummation by SPLC of the transactions contemplated by this Agreement, or (ii) damages in connection with any such consummation.
Section 4.6 Title to Zydeco Subject Interests. SPLC owns, beneficially and of record, the Zydeco Subject Interests and has good and valid title to all of the Zydeco Subject Interests and, upon delivery by SPLC of the Zydeco Subject Interests at Closing, will convey to Triton good title to the Zydeco Subject Interests, free and clear of all Liens. Except for (i) the conveyance of the Zydeco Subject Interests contemplated by this Agreement and (ii) restrictions under applicable federal and state securities laws, the Zydeco Subject Interests are not subject to any agreements or understandings with respect to the voting or transfer of any of the Zydeco Subject Interests, stockholders’ agreements, pledge agreements, buy-sell agreements, rights of first refusal, preemptive rights or proxy arrangements. The Zydeco Subject Interests have been duly authorized and are validly issued, fully paid and nonassessable. The Zydeco Subject Interests are not directly or indirectly subject to and were not issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of Applicable Law or any organizational documents of Zydeco.
Section 4.7 Management Projections and Budgets. The projections and budgets regarding each of Triton (with respect to the Assets) and Zydeco that were provided to Triton and its Affiliates (including those provided to TPH as financial advisor to the Conflicts Committee) by SPLC and its Affiliates as part of Triton’s review in connection with this Agreement, were prepared based upon assumptions that the SPLC’s management believe to be reasonable as of the date thereof and hereof and were consistent with SPLC’s management’s reasonable expectations as of the time they were prepared and as of the date hereof.
ARTICLE V
TAX MATTERS
Section 5.1 Liability for Taxes
(a)Except for any Transfer Taxes for which SPLC and Triton are jointly responsible pursuant to Section 5.3, Triton shall be liable for, and shall indemnify, defend and hold harmless SPLC from any unpaid Taxes imposed on or incurred by or with respect to the Assets, attributable to any taxable period ending on or prior to the Closing Date or portion thereof to the extent occurring on or prior to the Closing Date.
(b)SPLC shall be liable for and shall indemnify, defend and hold harmless the Triton Indemnified Parties from any Taxes imposed on or incurred by or with respect to the Assets attributable to any taxable period beginning after the Closing Date or portion thereof to the extent occurring after the Closing Date.
(c)For purposes of this Article V, the amount of any Taxes imposed on or incurred by or with respect to the Assets for a taxable period beginning before and ending after the Closing Date which is allocable to the period ending on or prior to the Closing Date, except to the extent the allocation is otherwise prescribed by Applicable Law or agreement in effect as of the date hereof, shall be as follows: (i) for any ad valorem, property or other Taxes imposed on a periodic basis, such amount shall
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be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending on (and including) the Closing Date and the denominator of which is the number of days in the entire Tax period, and (ii) for any Taxes that are based upon or related to income or receipts or imposed on a transactional basis (other than any Taxes described in clause (i) above), such amount shall be deemed to be the amount of such Tax arising from any transactions occurring on or prior to the Closing Date. For purposes of clause (i) of the immediately preceding sentence, the period for any such Tax shall begin on the date on which ownership of the applicable Assets gives rise to liability for the particular Tax and shall end on the day before the next such date. The amount of any Taxes imposed on or incurred by or with respect to the Assets for a taxable period beginning before and ending after the Closing Date which is not allocable to the period ending on or prior to the Closing Date pursuant to this Section 5.1(c) shall be allocable to the period beginning after the Closing Date.
(d)If SPLC receives a refund of any Taxes that Triton is responsible for hereunder, or if Triton receives a refund of any Taxes that SPLC is responsible for hereunder, the party receiving such refund shall, within ninety (90) days after receipt of such refund, remit it to the party which has responsibility for such Taxes hereunder. The Parties shall cooperate in order to take all necessary and reasonable steps to claim any such refund.
(e)For federal income tax purposes, the Parties agree to report any payments with respect to Section 5.1, Section 6.1 and Section 6.2 as an adjustment to the consideration from SPLC to Triton.

Section 5.2 Cooperation. The Parties will cooperate fully with each other regarding Tax matters and the preparation and filing of Tax Returns (including the execution of appropriate powers of attorney) and will make available to the other as reasonably requested all information, records and documents relating to Taxes governed by this Agreement until the expiration of the applicable statute of limitations or extension thereof or the conclusion of all audits, appeals or litigation with respect to such Taxes.
Section 5.3 Transfer Tax. Triton and SPLC shall bear joint and equal responsibility for any transfer, documentary, sales, use, stamp, registration and other similar Taxes and fees arising out of or in connection with the transactions effected pursuant to this Agreement (“Transfer Tax”). Triton and SPLC shall jointly cause any Transfer Taxes to be timely remitted to the appropriate Taxing Authority as prescribed by applicable Law. The Parties agree to take reasonable efforts to cooperate with each other in a timely manner to minimize any applicable Transfer Taxes and with respect to preparing and making all filings, returns and reports as may be required to comply with applicable Law in connection with the payment of Transfer Taxes. Any Tax Returns required to be filed with respect to any Transfer Taxes shall be prepared and filed by the Party obligated to file such Tax Returns under applicable Law.
Section 5.4 Conflict. In the event of a conflict between the provisions of this Article V and any other provisions of this Agreement, the provisions of this Article V shall control.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of SPLC. Subject to the limitations set forth in this Agreement, Triton shall indemnify, defend and hold SPLC, its Affiliates, and its and their security holders, owners, directors, officers, shareholders, and employees (the “SPLC Indemnified Parties”), harmless from and against any and all Damages suffered or incurred by any SPLC Indemnified Party as a result of or arising out of (a) any breach or inaccuracy of a representation or warranty of Triton in this Agreement and (b) any breach of any agreement or covenant on the part of Triton made under this Agreement or in
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connection with the transactions contemplated hereby or in the Transaction Documents to which Triton is a party.
Section 6.2 Indemnification of Triton. Subject to the limitations set forth in this Agreement, SPLC shall indemnify, defend and hold Triton, its Affiliates, and its and their security holders, owners, directors, officers, shareholders and employees (the “Triton Indemnified Parties”) harmless from and against any and all Damages suffered or incurred by the Triton Indemnified Parties as a result of or arising directly or indirectly out of (a) any breach or inaccuracy of a representation or warranty of SPLC in this Agreement, or (b) any breach of any agreement or covenant on the part of SPLC made under this Agreement or in connection with the transactions contemplated hereby or in the Transaction Documents to which SPLC is a party.
Section 6.3 Survival. All the provisions of this Agreement shall survive the Closing, notwithstanding any investigation at any time made by or on behalf of any Party hereto, provided that the representations and warranties set forth in Article III and Article IV shall terminate and expire on the date that is eighteen (18) months following the Closing Date, except (a) the representations and warranties of Triton set forth in Section 3.6 (Taxes) shall survive until the date that is sixty (60) days after the expiration of the applicable statutes of limitations (including all periods of extension and tolling), (b) the representations and warranties of Triton set forth in Section 3.1 (Organization), Section 3.2 (Authority and Approval) and Section 3.7 (Brokerage Arrangements) shall survive until the expiration of the applicable statute of limitations, and (d) the representations and warranties of SPLC set forth in Section 4.1 (Organization and Existence), Section 4.2 (Authority and Approval) and Section 4.4 (Brokerage Arrangements) shall survive until the expiration of the applicable statute of limitations. After a representation and warranty has terminated and expired, no indemnification shall or may be sought pursuant to this Article VI on the basis of that representation and warranty by any Person who would have been entitled pursuant to this Article VI to indemnification on the basis of that representation and warranty prior to its termination and expiration, provided that in the case of each representation and warranty that shall terminate and expire as provided in this Section 6.3, no claim presented in writing for indemnification pursuant to this Article VI on the basis of that representation and warranty prior to its termination and expiration shall be affected in any way by that termination and expiration. The indemnification obligations under this Article VI or elsewhere in this Agreement shall apply regardless of whether any suit or action results solely or in part from the active, passive or concurrent negligence or strict liability of the indemnified party. The covenants and agreements entered into pursuant to this Agreement to be performed after the Closing shall survive the Closing.
Section 6.4 Indemnification Procedures.
(a)The indemnified party hereunder agrees that within a reasonable period of time after it becomes aware of facts giving rise to a claim for indemnification under this Article VI, it will provide notice thereof in writing to the indemnifying party, specifying the nature of and specific basis for such claim.
(b)The indemnifying party shall have the right to control all aspects of the defense of (and any counterclaims with respect to) any claims brought against the indemnified party that are covered by the indemnification under this Article VI, including the selection of counsel, determination of whether to appeal any decision of any court and the settling of any such claim or any matter or any issues relating thereto; provided, however, that no such settlement for only the payment of money shall be entered into without the consent of the indemnified party, which consent shall not be unreasonably withheld, conditioned or delayed, unless it includes a full release of the indemnified party from such claim; provided further, that no such settlement containing any form of injunctive or similar relief shall be entered into without the prior written consent of the indemnified party, which consent shall not be unreasonably delayed or withheld.
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(c)The indemnified party agrees to cooperate in good faith and in a commercially reasonably manner with the indemnifying party with respect to all aspects of the defense of and pursuit of any counterclaims with respect to any claims covered by the indemnification under this Article VI, including the prompt furnishing to the indemnifying party of any correspondence or other notice relating thereto that the indemnified party may receive, permitting the name of the indemnified party to be utilized in connection with such defense and counterclaims, the making available to the indemnifying party of any files, records or other information of the indemnified party that the indemnifying party considers relevant to such defense and counterclaims, the making available to the indemnifying party of any employees of the indemnified person and the granting to the indemnifying party of reasonable access rights to the properties and facilities of the indemnified party; provided, however, that in connection therewith the indemnifying party agrees to use reasonable efforts to minimize the impact thereof on the operations of the indemnified party and further agrees to maintain the confidentiality of all files, records, and other information furnished by the indemnified party pursuant to this Section 6.4. The obligation of the indemnified party to cooperate with the indemnifying party as set forth in the immediately preceding sentence shall not be construed as imposing upon the indemnified party an obligation to hire and pay for counsel in connection with the defense of and pursuit of any counterclaims with respect to any claims covered by the indemnification set forth in this Article VI, provided, however, that the indemnified party may, at its own option, cost and expense, hire and pay for counsel in connection with any such defense and counterclaims. The indemnifying party agrees to keep any such counsel hired by the indemnified party informed as to the status of any such defense or counterclaim, but the indemnifying party shall have the right to retain sole control over such defense and counterclaims so long as the indemnified party is still seeking indemnification hereunder.
(d)In determining the amount of any Damages for which the indemnified party is entitled to indemnification under this Agreement, the gross amount of the indemnification will be reduced by (i) any insurance proceeds realized by the indemnified person in respect of such Damages from third party insurers, and such correlative insurance benefit shall be net of any expenses related to the receipt of such proceeds, including any premium adjustments that become due and payable by the indemnified party as a result of such claim, and (ii) all amounts recovered by the indemnified party in respect of such Damages under contractual indemnities from third persons.
Section 6.5 Direct Claim. Any claim by an indemnified party with respect to any Damages which do not result from a claim for indemnity involving a third party (a “Direct Claim”) will be asserted by giving the indemnifying party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable. The indemnifying party will have a period of ninety (90) days from receipt of such Direct Claim within which to respond to such Direct Claim. If the indemnifying party does not respond within such ninety (90) day period, the indemnifying party will be deemed to have accepted such Direct Claim. If the indemnifying party rejects such Direct Claim, the indemnified party will be free to seek enforcement of its rights to indemnification under this Agreement.
Section 6.6 Limitations on Indemnification.
(a)To the extent that SPLC Indemnified Parties or Triton Indemnified Parties would otherwise be entitled to indemnification for Damages pursuant to Section 6.1 or Section 6.2, Triton or SPLC, as applicable, shall be liable only if the Damages for any claim that exceeds Four Hundred Thousand United States Dollars ($400,000) (the “Deductible Amount”), and then Triton or SPLC, as applicable, shall be liable only for the Damages, if any, to the extent of the excess over the Deductible Amount. In no event shall either Party’s aggregate liability under Section 6.1 or Section 6.2 exceed Four Million United States Dollars ($4,000,000) (the “Ceiling Amount”). Notwithstanding the foregoing, (i) SPLC’s aggregate liability to Triton Indemnified Parties under Section 6.2 for breaches or inaccuracies of
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representations and warranties contained in Section 4.7 (Management Projections and Budgets) shall not be subject to the Ceiling Amount but shall not exceed Twenty Million United States Dollars ($20,000,000) and (ii) the Deductible Amount and the Ceiling Amount shall not apply to breaches or inaccuracies of representations and warranties contained in Section 3.1 (Organization), Section 3.2 (Authority and Approval), Section 3.4 (Title to Physical Assets), Section 3.6 (Taxes), and Section 3.7 (Brokerage Arrangements), Section 4.1 (Organization and Existence), Section 4.2 (Authority and Approval), Section 4.4 (Brokerage Arrangements) and Section 4.6 (Title to Zydeco Subject Interests), provided, that neither Party’s aggregate liability for all claims under this Agreement, including for breaches or inaccuracies of representations and warranties contained in such sections and for breaches of covenants, shall exceed Forty Million United States Dollars ($40,000,000).
(b)For purposes of determining the amount of Damages, with respect to any asserted claim for indemnification by a SPLC Indemnified Party or Triton Indemnified Party, as applicable, such determination shall be made without regard to any qualifier as to “material,” “materiality,” Triton Material Adverse Effect expressly contained in Article III or SPLC Material Adverse Effected expressly contained in Article IV, as applicable; provided that this Section 6.6(b) shall not so modify the representations and warranties for purposes of first determining whether a breach of any representation or warranty has occurred.
(c)Additionally, neither Triton, on the one hand, nor SPLC, on the other hand, will be liable as an indemnitor under this Agreement for any consequential, incidental, special, indirect or exemplary damages suffered or incurred by the indemnified party or parties except to the extent resulting pursuant to third party indemnity claims.
Section 6.7 Sole Remedy. No Party shall have liability under this Agreement or the transactions contemplated hereby except as is provided in Article V or this Article VI (other than claims or causes of action arising from intentional fraud or willful misconduct).
ARTICLE VII
MISCELLANEOUS
Section 7.1 Acknowledgements. Each Party acknowledges that it has relied on the representations and warranties of the other party expressly and specifically set forth in this Agreement. Such representations and warranties constitute the sole and exclusive representations and warranties of the Parties hereto in connection with the transactions contemplated hereby, and the Parties hereto understand, acknowledge and agree that all other representations and warranties of any kind or nature, whether expressed, implied or statutory, oral or written, past or present, are specifically disclaimed.
Section 7.2 Cooperation; Further Assurances. Each Party shall use its respective commercially reasonable efforts to obtain all approvals and consents required by or necessary for the Transactions. Each Party acknowledges that certain actions may be necessary with respect to the matters and actions contemplated by this Agreement such as making notifications and obtaining consents or approvals or other clearances that are material to the consummation of the transactions contemplated hereby, and each agrees to take all appropriate action and to do all things necessary, proper or advisable under Applicable Laws and regulations to make effective the Transactions; provided, however, that nothing in this Agreement will require any Party hereto to hold separate or make any divestiture not expressly contemplated herein of any asset or otherwise agree to any restriction on its operations or other burdensome condition which would in any such case be material to its assets, liabilities or business in order to obtain any consent or approval or other clearance required by this Agreement.
Section 7.3 Expenses. Except as otherwise provided herein and regardless of whether the transactions contemplated hereby are consummated, each Party shall pay its own expenses incident to this Agreement and all action taken in preparation for carrying this Agreement into effect.
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Section 7.4 Notices. Any notice, request, instruction, correspondence or other document to be given hereunder by any Party hereto to another Party hereto (herein collectively called “Notice”) shall be in writing and either delivered (i) in person, by courier service requiring acknowledgment of receipt of delivery or (ii) by e-mail, with delivery deemed to have been duly given upon acknowledgment of receipt of e-mail as follows:
If to Triton, addressed to:
Triton West LLC
150 N. Dairy Ashford Road
Houston, Texas 77079
Attn:
Email:
With a copy to:
Triton West LLC
150 N. Dairy Ashford Road
Houston, Texas 77079
Attn: General Counsel, Shell Midstream Partners
Email: lmmuratta@shell.com
If to SPLC, addressed to:
Shell Pipeline Company LP
150 N. Dairy Ashford Rd.
Houston, Texas 77079
Attn:
Email:
With a copy to:
Shell Pipeline Company LP
150 N. Dairy Ashford Rd.
Houston, Texas 77079
Attention: Associate General Counsel Downstream Portfolio & PCRO
Email: shawn.carolan@shell.com

Notice given by personal delivery or courier service shall be effective upon actual receipt. Any Party may change any address to which Notice is to be given to it by giving Notice as provided above of such change of address.
Section 7.5 Arbitration.
(a)Any dispute, controversy or claim arising out of or in connection with this Agreement or its subject matter or formation, whether in tort, contract, under statute or otherwise, including any question regarding its existence, validity, interpretation, breach or termination, and including any non-contractual claim (a “Dispute”), shall be finally and exclusively resolved by arbitration under the arbitration rules of the American Arbitration Association (the “Rules”), which Rules are deemed to be incorporated by reference into this Agreement.
(b)The arbitral tribunal (the “Tribunal”) shall consist of three arbitrators, to be appointed in accordance with the Rules.
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(c)The seat of the arbitration shall be Houston, Texas.
(d)The language of the arbitration shall be English.
(e)Any award rendered by the Tribunal shall be made in writing and shall be final and binding on the Parties. The Parties undertake to carry out the award without delay.
(f)All aspects of the arbitration shall be confidential. Save to the extent required by law or pursuant to any proceedings to enforce or challenge an award, no aspect of the proceedings, documentation, or any partial or final award or order or any other matter connected with the arbitration shall be disclosed to any other person by either Party or its counsel, agents, corporate parents, affiliates or subsidiaries without the prior written consent of the other Party.
(g)Nothing in this Section 7.5 shall be construed as preventing any Party from seeking conservatory or similar interim relief from any court with competent jurisdiction.
(h)In respect of any Dispute, each party to this Agreement expressly waives any right to claim or recover from the other Party, and the Tribunal is not empowered to award, any punitive, exemplary, moral, multiple or similar non-compensatory damages.
(i)Articles 3 and 9 of the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration shall apply to the arbitration.
(j)Each Party hereby waives, to the fullest extent permitted by law: (i) any right under the laws of any jurisdiction to apply to any court or other judicial authority to determine any preliminary point of law, except as expressly provided in Section 7.5(g), and/or (ii) any right it may otherwise have under the laws of any jurisdiction to appeal or otherwise challenge the award, other than on the same grounds on which recognition and enforcement of an award may be refused under Article V of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.
(k)Judgment upon any award and/or order may be entered in any court having jurisdiction thereof.
Section 7.6 Governing Law.
(a)This Agreement shall be subject to and governed by the laws of the State of Texas. Each Party hereby submits to the exclusive jurisdiction of the state and federal courts in the State of Texas and to venue in the state courts in Harris County, Texas and in the federal courts of Harris County, Texas.
(b)Each of the Parties irrevocably waives any and all right to trial by jury in any legal proceeding between the Parties arising out of or relating to this Agreement or the transactions contemplated by this Agreement.
(c)Each Party to this Agreement waives, to the fullest extent permitted by Applicable Law, any right it may have to receive damages from any other Party based on any theory of liability for any special, indirect, consequential (including lost profits), exemplary or punitive damages (except to the extent that any such damages are included in indemnifiable losses resulting from a third party claim in accordance with Article VI).
Section 7.7 Public Statements. The Parties hereto shall consult with each other and no Party shall issue any public announcement or statement with respect to this Agreement or the transactions contemplated hereby without the consent of the other Party, unless the Party desiring to make such announcement or statement, after seeking such consent from the other Parties, obtains advice from legal
16


counsel that a public announcement or statement is required by Applicable Law or stock exchange regulations.
Section 7.8 Entire Agreement; Amendments and Waivers.
(a)This Agreement and the other Transaction Documents constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the subject matter hereof. Each Party to this Agreement agrees that no other Party to this Agreement (including its agents and representatives) has made any representation, warranty, covenant or agreement to or with such Party relating to this Agreement or the transactions contemplated hereby, other than those expressly set forth herein and in the other Transaction Documents.
(b)No amendment, supplement, modification or waiver of this Agreement shall be binding unless executed in writing by each Party to be bound thereby; provided, however, that any material amendment, supplement, modification or waiver to this Agreement shall require the approval of the Conflicts Committee. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (regardless of whether similar), nor shall any such waiver constitute a continuing waiver unless otherwise expressly provided.
Section 7.9 Conflicting Provisions. This Agreement and the other Transaction Documents, read as a whole, set forth the Parties’ rights, responsibilities and liabilities with respect to the transactions contemplated by this Agreement. In this Agreement and the other Transaction Documents, and as between them, specific provisions prevail over general provisions. In the event of a conflict between this Agreement and any of the other Transaction Documents, this Agreement shall control.
Section 7.10 Binding Effect and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective permitted successors and assigns, but neither this Agreement nor any of the rights, benefits or obligations hereunder shall be assigned or transferred, by operation of law or otherwise, by any Party hereto without the prior written consent of each other Party; provided that SPLC may assign its right to receive the Assets hereunder to an Affiliate of SPLC without the written consent of Triton provided that SPLC shall not be relieved of any obligations or liabilities hereunder as a result of any such assignment. Nothing in this Agreement, express or implied, is intended to confer upon any person or entity other than the Parties hereto and their respective permitted successors and assigns, any rights, benefits or obligations hereunder, except for express language with respect to SPLC Indemnified Parties and the Triton Indemnified Parties contained in the indemnification provisions of Article VI.
Section 7.11 Severability. If any provision of this Agreement is rendered or declared illegal or unenforceable by reason of any existing or subsequently enacted legislation or by decree of a court of last resort, Triton and SPLC shall promptly meet and negotiate substitute provisions for those rendered or declared illegal or unenforceable, but all of the remaining provisions of this Agreement shall remain in full force and effect.
Section 7.12 Interpretation. It is expressly agreed by the Parties that this Agreement shall not be construed against any Party, and no consideration shall be given or presumption made, on the basis of who drafted this Agreement or any provision hereof or who supplied the form of this Agreement. Each Party hereto agrees that this Agreement has been purposefully drawn and correctly reflects its understanding of the transactions contemplated by this Agreement and, therefore, waives the application
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of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document.
Section 7.13 Headings. The headings of the several Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. The Exhibits referred to herein are attached hereto and incorporated herein by this reference, and unless the context expressly requires otherwise, such Exhibits are incorporated in the definition of “Agreement.”
Section 7.14 Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and in the event that any signature is delivered by electronic or facsimile transmission, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such electronic or facsimile signature page were an original thereof.
[Signature page follows.]
18



IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first written above.
Triton West LLC
By:    /s/ Sean Guillory            
Name:    Sean Guillory    
Title:    President

Shell Pipeline Company LP
By: Shell Pipeline GP LLC, its general partner

By:    /s/ Shawn J. Carsten            
Name:    Shawn J. Carsten        
Title:    Vice President - Finance








19
            Exhibit 10.2            
TERMINATION OF VOTING AGREEMENT


THIS TERMINATION OF VOTING AGREEMENT (this “Termination Agreement”) is entered into as of April 28, 2021 to be effective as of May 1, 2021 (the “Termination Date”), by and between SHELL MIDSTREAM PARTNERS, L.P., a Delaware limited partnership (the “Partnership”), and SHELL PIPELINE COMPANY LP, a Delaware limited partnership (“SPLC”). The Partnership and SPLC may be referred to individually as “Party” or collectively as the “Parties” herein. Terms capitalized herein but not defined shall have the meaning attributed to them in the Voting Agreement (defined herein below).
WHEREAS, the Partnership and SPLC previously entered into that certain Voting Agreement dated as of November 3, 2014 relating to certain governance matters for their respective direct and indirect ownership interests in Zydeco Pipeline Company LLC, a Delaware limited liability company (“Zydeco”); and
WHEREAS, Triton West LLC, a Delaware limited liability company and a wholly owned subsidiary of the Partnership (“Triton”) and SPLC have entered into that certain Sale and Purchase Agreement (the “SPA”) dated as of April 28, 2021 and effective as of May 1, 2021, pursuant to which, among other things, SPLC has agreed to sell to Triton or its designee SPLC’s seven and one-half percent (7.5%) ownership interest in and to Zydeco; and
WHEREAS, after consummation of the transactions contemplated in the Purchase Agreement, the Partnership, or a wholly owned subsidiary thereof, will own 100% of the ownership interests in and to Zydeco; and
WHEREAS, in connection with the SPA, the Parties wish to terminate the Voting Agreement; and
NOW, THEREFORE, in consideration of the mutual premises contained herein and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
1.    Termination. Effective as of the Termination Date, the Voting Agreement shall be and hereby is terminated and canceled in its entirety without further action by the Parties.
2.    No Remaining Obligations. The Parties hereby acknowledge and agree that all of the obligations under the Voting Agreement have been performed and satisfied and that no further obligations remain thereunder.
3.    Further Assurances. Each Party to this Termination Agreement shall do all such acts and cause to be done all such things as any Party hereto reasonably may request from time to time in order to give full effect to this Termination Agreement and to secure their respective rights hereunder, and without further consideration, each Party will execute and deliver such other documents, and take such other action, as any Party may reasonably request in order to consummate more effectively the transactions contemplated hereby.
4.    Miscellaneous. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflict of laws principles. This Termination Agreement, the SPA, and any agreements entered into by the Parties in connection with the SPA, constitute the entire understanding among the Parties with the respect to the subject matter hereof and shall be binding upon and inure to the benefit of the Parties and their respective legal representatives, successors and assigns. This Termination Agreement may be executed in any number of counterparts, all of which when taken together shall constitute one original instrument and in the event that any signature is delivered by electronic or facsimile transmission, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) with the same force and effect as if such electronic or facsimile signature page were an original thereof.

[Signature Page Follows]
        


    IN WITNESS WHEREOF, the Parties have executed this Termination of Voting Agreement as of the date first written above.


                    
Shell Midstream Partners, L.P.
By:     Shell Midstream Partners GP LLC
    Its General Partner
By: /s/ Sean Guillory
Name: Sean Guillory
Title: Vice President - Commercial

Shell Pipeline Company LP
By:     Shell Pipeline GP LLC
    Its General Partner
By: /s/ Shawn J. Carsten
Name: Shawn J. Carsten
Title: Vice President - Finance

Signature Page to Termination of Voting Agreement

Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Steven C. Ledbetter, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Shell Midstream Partners, L.P.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 30, 2021 /s/ Steven C. Ledbetter
President and Chief Executive Officer
of Shell Midstream Partners GP LLC
(the general partner of Shell Midstream Partners, L.P.)



Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Shawn J. Carsten, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Shell Midstream Partners, L.P.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: April 30, 2021
/s/ Shawn J. Carsten
Vice President and Chief Financial Officer
of Shell Midstream Partners GP LLC
(the general partner of Shell Midstream Partners, L.P.)



Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Shell Midstream Partners, L.P. (the “Partnership”) on Form 10-Q for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven C. Ledbetter, Chief Executive Officer of Shell Midstream Partners GP LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: April 30, 2021 /s/ Steven C. Ledbetter
President and Chief Executive Officer
of Shell Midstream Partners GP LLC
(the general partner of Shell Midstream Partners, L.P.)




Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Shell Midstream Partners, L.P. (the “Partnership”) on Form 10-Q for the period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawn J. Carsten, Chief Financial Officer of Shell Midstream Partners GP LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: April 30, 2021
/s/ Shawn J. Carsten
Vice President and Chief Financial Officer
of Shell Midstream Partners GP LLC
(the general partner of Shell Midstream Partners, L.P.)