UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One) | |
☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the fiscal year ended December 31, | |
OR | |
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period to |
Commission File Number 001-32505
TRANSMONTAIGNE PARTNERS LLC
(Exact name of registrant as specified in its charter)
Delaware | 34-2037221 |
Suite 3100, 1670 Broadway
Denver, Colorado 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Title of Each Class | Name of Each Exchange on Which Registered |
| |
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ⌧ No ◻
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 ◻ 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 ⌧ 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 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 ◻ | 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. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ⌧
The aggregate market value of common units held by non-affiliates of the registrant on June 30, 20222023 was $nil.
As of the date of this filing, the registrant has no common units outstanding.
* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. When used in this Annual Report, the words “could,” “may,” “should,” “will,” “seek,” “believe,” “expect,” “anticipate,” “intend,” “continue,” “estimate,” “plan,” “target,” “predict,” “project,” “attempt,” “is scheduled,” “likely,” “forecast,” the negatives thereof and other similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. You are cautioned not to place undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in this Annual Report. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
● | our ability to successfully implement our business strategy; |
● | competitive conditions in our industry; |
● | actions taken by third-party customers, producers, operators, processors and transporters; |
● | pending legal or environmental matters; |
● | costs of conducting our operations; |
● | fluctuations in the price of the products that we purchase and sell; |
● | our ability to complete internal growth projects on time and on budget; |
● | general economic conditions, including inflation; |
● | the price of oil, natural gas, natural gas liquids and other commodities in the energy industry; |
● | large customer defaults; |
● | rising interest rates; |
● | operating hazards, global health epidemics, natural disasters, weather-related delays, cyber-security breaches, IT system outages, global or regional conflicts, casualty losses and other matters beyond our control; |
● | uncertainty regarding our future operating results; |
● | effects of existing and future laws and governmental regulations; |
● | the effects of future litigation; |
● | plans, objectives, expectations and intentions contained in this Annual Report that are not historical; and |
● | public health crises, epidemics and |
All forward-looking statements, expressed or implied, included in this Annual Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Annual Report.
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Part I
As used in this Annual Report, unless the context requires otherwise, references to “we,” “us,” “our,” “TransMontaigne Partners,” “the Partnership,” or “the Company” are intended to mean, TransMontaigne Partners LLC, and our wholly owned and controlled operating subsidiaries. References to ‘ArcLight’ are intended to mean ArcLight Energy Partners Fund VI, L.P., its affiliates and subsidiaries, other than us and our subsidiaries.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Overview
We are a terminaling and transportation company with assets and operations in the United States along the Gulf Coast, in the Midwest, in Houston and Brownsville, Texas, along the Mississippi and Ohio Rivers, in the Southeast and along the West Coast. We provide integrated terminaling, storage, transportation and related services for companies engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, renewable products, crude oil, chemicals, fertilizers and other liquid products. In addition, we sell refined and renewable products to major fuel producers and marketers in the Pacific Northwest at our terminal in Tacoma, Washington. Light refined products include gasolines, diesel fuels, heating oil and jet fuels. Heavy refined products include residual fuel oils and asphalt. Renewable products include ethanol, biodiesel, renewable diesel and relevant feedstocks. Our direct exposure to changes in commodity prices is limited to product sales out of our Tacoma, Washington terminal and the value of product gains and losses arising from terminaling services agreements with certain customers, which accounts for a small portion of our revenue.
We use our owned and operated terminaling facilities to, among other things: receive refined products and renewable products from the pipeline, ship, barge or railcar making delivery on behalf of our customers and transfer those products to the tanks located at our terminals; store the products in our tanks for our customers; monitor the volume of the products stored in our tanks; heat residual fuel oils and asphalt stored in our tanks; and distribute the products out of our terminals in vessels, railcars or truckloads using truck racks and other distribution equipment located at our terminals, including pipelines. We also continue to provide ethanol logistics services and other services to the growing renewable products market, as well as to engage in blending activities related to the throughput process.
We are 100% owned by TLP Finance Holdings, LLC (“TLP Finance”), an indirect controlled subsidiary of ArcLight. We are voluntarily filing with the Securities and Exchange Commission pursuant to the covenants contained in our outstanding 6.125% senior unsecured notes due 2026.
Contribution of Pacific Northwest assets. On November 17, 2021, Arclight contributed Pike West Coast Holdings, LLC (“Pike West Coast”), a portfolio company of ArcLight Energy Partners Fund VI, L.P. to the Company. Pike West Coast is an infrastructure company with significant operations across the renewable fuels supply chain in the U.S.United States Pacific Northwest (the “Pacific Northwest Contribution”).
Pike West Coast owns a 100% ownership interest in SeaPort Financing, LLC. SeaPort Financing, LLC owns a 100% ownership interest in SeaPort Sound Terminal, LLC (“SeaPort Sound”), which owns a refined and renewable products terminal in Tacoma, Washington, a 51% ownership interest in SeaPort Midstream Partners, LLC (“SeaPort Midstream”), which owns refined and renewable products terminals in both Seattle, Washington and Portland, Oregon, and a 30% ownership interest in Olympic Pipeline Company, LLC (“Olympic Pipeline Company”), which owns the Olympic Pipeline between Blaine, Washington and Portland, Oregon and a refined and renewable products terminal in Bayview, Washington.
The Pacific Northwest Contribution has been recorded at carryover basis as a reorganization of entities under common control. As such, all periods presented include the assets, liabilities, and results of operations of the Pacific Northwest Contribution.
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Assets and Operations
Our terminals are located in six geographic regions, which we refer to as our Gulf Coast, Midwest, Brownsville, River, Southeast and West Coast terminals. In addition, we have unconsolidated investments in BOSTCO, Olympic Pipeline Company, SeaPort Midstream and Frontera (each defined below). The locations and approximate aggregate active storage capacity at our owned and joint venture terminal facilities as of December 31, 20222023 are as follows:
| | | |
|
| Active storage | |
| | capacity (1) | |
| | (shell bbls) | |
Our Terminals by Region: | | |
|
Gulf Coast Terminals: |
| | |
Port Everglades North (Fort Lauderdale), FL |
| 2,487,000 |
|
Port Everglades South (Fort Lauderdale), FL (2) |
| 376,000 |
|
Jacksonville, FL |
| 271,000 |
|
Cape Canaveral, FL |
| 724,000 |
|
Port Manatee, FL |
| 1,293,000 |
|
Pensacola, FL |
| 270,000 |
|
Fisher Island (Miami), FL |
| 673,000 |
|
Tampa, FL |
| 760,000 |
|
Gulf Coast Total |
| 6,854,000 |
|
Midwest Terminals: |
| | |
Rogers, AR and Mount Vernon, MO (aggregate amounts) |
| 419,000 |
|
Cushing, OK |
| 1,005,000 |
|
Oklahoma City, OK |
| 158,000 |
|
Midwest Total |
| 1,582,000 |
|
Brownsville Terminal |
| 1,647,000 |
|
River Terminals: |
| | |
Evansville, IN |
| 245,000 |
|
New Albany, IN |
| 201,000 |
|
Greater Cincinnati, KY |
| 199,000 |
|
Henderson, KY |
| 170,000 |
|
Louisville, KY |
| 183,000 |
|
Owensboro, KY |
| 154,000 |
|
Paducah, KY |
| 322,000 |
|
Baton Rouge, LA (Dock) |
| — |
|
Greenville, MS |
| 369,000 |
|
Cape Girardeau, MO |
| 140,000 |
|
East Liverpool, OH |
| 228,000 |
|
River Total |
| 2,211,000 |
|
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| | |
|
|
| Active storage |
|
| | capacity (1) |
|
| | (shell bbls) |
|
Southeast Terminals: |
| | |
Albany, GA |
| 203,000 |
|
Americus, GA |
| 98,000 |
|
Athens, GA |
| 203,000 |
|
Bainbridge, GA |
| 368,000 |
|
Birmingham, AL |
| 178,000 |
|
Charlotte, NC |
| 121,000 |
|
Collins/Purvis, MS (Collins terminal) |
| 6,280,000 |
|
Collins, MS (Collins rack) |
| 200,000 |
|
Doraville, GA |
| 438,000 |
|
Fairfax, VA |
|
|
|
Greensboro, NC |
| 479,000 |
|
Griffin, GA |
| 107,000 |
|
Lookout Mountain, GA |
| 219,000 |
|
Macon, GA |
| 174,000 |
|
Meridian, MS |
| 139,000 |
|
Norfolk, VA |
| 1,336,000 |
|
Richmond, VA |
| 448,000 |
|
Rome, GA |
| 152,000 |
|
Selma, NC |
|
|
|
Spartanburg, SC |
| 166,000 |
|
Southeast Total |
|
|
|
West Coast Terminals: |
| | |
Martinez, CA | | 5,034,000 |
|
Richmond, CA | |
|
|
Tacoma, WA | |
|
|
West Coast Total |
|
|
|
Our Joint Ventures Terminals: |
| | |
BOSTCO Joint Venture Terminal (3) |
| 7,080,000 |
|
Olympic Pipeline Company Joint Venture Terminal (4) |
| 510,000 |
|
SeaPort Midstream Joint Venture Terminal (5) |
| 1,251,000 |
|
Frontera Joint Venture Terminal (6) |
|
|
|
TOTAL CAPACITY |
|
|
|
(1) | Active storage capacity includes terminals which do not need capital investment to contract available storage capacity. |
(2) | Reflects our ownership interest net of a major oil company’s ownership interest in certain tank capacity. |
(3) | Reflects the total active storage capacity of Battleground Oil Specialty Terminal Company LLC (“BOSTCO”), of which we have a 42.5% |
(4) | Reflects the total active storage capacity of Olympic Pipeline Company, of which we have a 30% ownership interest. |
(5) | Reflects the total active storage capacity of SeaPort Midstream, of which we have a 51% ownership interest. |
(6) | Reflects the total active storage capacity of Frontera Brownsville LLC (“Frontera”), of which we have a 50% ownership interest. |
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Gulf Coast Operations. Our Gulf Coast terminals consist of eight active product terminals and comprise the largest terminal network in Florida. These terminals have approximately 6.9 million barrels of aggregate active storage capacity in ports including Port Everglades, Miami and Cape Canaveral, which are among the busiest cruise ship ports in the nation. At our Gulf Coast terminals, we handle refined and renewable products and crude oil on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products and crude oil. Our Gulf Coast terminals receive products from vessels on behalf of our customers. In addition, our Jacksonville terminal also receives asphalt by rail, and our Port Everglades (North) terminal also receives product by truck. We distribute by truck or barge at all of our Gulf Coast terminals. In addition, we distribute products by pipeline at our Port Everglades and Tampa terminals. A major oil company retains an ownership interest, ranging from 25% to 50%, in specific tank capacity at our Port Everglades (South) terminal. We manage and operate the Port Everglades (South) terminal, and we are reimbursed by the major oil company for its proportionate share of our operating and maintenance costs.
Midwest Terminals. In Missouri and Arkansas, we own the Razorback pipeline and terminals in Mount Vernon, Missouri, at the origin of the pipeline and in Rogers, Arkansas, at the terminus of the pipeline. We refer to these two terminals collectively as the Razorback terminals. The Razorback pipeline is a 67-mile, 8-inch diameter interstate common carrier pipeline that transports light refined product from our terminal at Mount Vernon, where it is interconnected with a pipeline system owned by a third party, to our terminal at Rogers. The Razorback pipeline has a capacity of approximately 30,000 barrels per day. The Razorback terminals have approximately 0.4 million barrels of aggregate active storage capacity. Effective January 1, 2021, a third party leases the capacity, and assumed operatorship, of the Razorback pipeline and the terminals in Mount Vernon, Missouri and in Rogers, Arkansas. Our Rogers facility is the only products terminal located in Northwest Arkansas.
We lease land in Cushing, Oklahoma and constructed storage tanks and associated infrastructure on the property for the receipt of crude oil by truck and pipeline, the blending of crude oil and the storage of approximately 1.0 million barrels of crude oil.
We also own and operate a terminal facility in Oklahoma City, Oklahoma with approximately 0.2 million barrels of aggregate active storage capacity. Our Oklahoma City terminal receives gasolines and diesel fuels from pipeline systems owned by third parties for delivery via our truck rack for redistribution to locations throughout the Oklahoma City region.
Brownsville, Texas Operations. We own and operate a product terminal with approximately 1.6 million barrels of aggregate active storage capacity and related ancillary facilities in Brownsville independent of the Frontera joint venture, as well as the Diamondback pipeline which handles liquid product movements between south Texas and Mexico. At our Brownsville terminal we handle refined petroleum products, chemicals, vegetable oils, naphtha, and wax on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of petroleum products. Our Brownsville facilities receive products on behalf of our customers from a pipeline system owned by a third party, vessels, by truck or railcar.
The Diamondback pipeline consists of an 8” pipeline that previously transported propane approximately 16 miles from our Brownsville facilities to the U.S./United States/Mexico border and a 6” pipeline, which runs parallel to the 8” pipeline that can be used by us in the future to transport additional refined products to Matamoros, Mexico. Operations on the Diamondback pipeline were shut down in the first quarter of 2018; however, we expect to recommission the Diamondback Pipeline and resume operations on both the 8” pipeline, providing gasoline service thereon, and the previously idle 6” pipeline, providing diesel service thereon, inwhen our customer obtains all the second half of 2023, andnecessary approvals from the Mexican government. We have previously filed revised tariffs with the FERC to support such activities.
River Operations. Our River terminals are composed of 11 active product terminals located along the Mississippi and Ohio Rivers with approximately 2.2 million barrels of aggregate active storage capacity. Our River operations also include a dock facility in Baton Rouge, Louisiana, which is the only direct waterborne connection between the Colonial pipeline and Mississippi River waterborne transportation. At our River terminals, we handle renewable fuels, renewable fuel feedstocks, gasolines, diesel fuels, heating oil, chemicals and fertilizers on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products and
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industrial and commercial end-users. Our River terminals receive products from vessels, barges and trucks on behalf of our customers and distribute products primarily to trucks and barges.
Southeast Operations. Our Southeast terminals consist of 20 active product terminals located along the Colonial and Plantation pipelines in Alabama, Georgia, Mississippi, North Carolina, South Carolina and Virginia with an aggregate active storage capacity of approximately 12.312.5 million barrels. At our Southeast terminals, we handle gasolines, diesel fuels, ethanol, biodiesel, jet fuel and heating oil on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of refined products. Our Southeast terminals primarily receive products from the Colonial and Plantation pipelines on behalf of our customers and distribute products primarily to trucks with the exception of the Collins terminal. The Collins terminal is the only independent terminal capable of storing and redelivering product to, from and between the Colonial and Plantation pipelines.
West Coast Operations. Our West Coast terminals consist of three active product terminals with approximately 7.2 million barrels of aggregate active storage capacity. Our two California terminals are well positioned with pipeline connections to two of the three local refineries, one of the two local renewable fuels plants, the Northern California products pipeline distribution system and marine access to all three refineries and both renewable fuels plants in the San Francisco Bay area. Our Tacoma, Washington terminal is connected via pipeline to the four largest refineries in Washington and by marine to all five Washington refineries. The Tacoma terminal is the only independent terminal in the Puget Sound area with a unit train facility. The Tacoma terminal sells refined and renewable products and crude oil to major fuel producers and marketers in the Pacific Northwest. At our West Coast terminals, we handle crude oil, gasoline, diesel, jet fuel, gasoline blend stocks, fuel oil, Avgas, ethanol and other renewable products and feedstocks on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products. Our West Coast terminals primarily receive products from vessels, pipeline and rail facilities on behalf of our customers and distribute products primarily via vessel, pipeline, truck and rail facilities.
Investment in BOSTCO. On December 20, 2012, we acquired a 42.5% Class A ownership interest in BOSTCO from Kinder Morgan Battleground Oil, LLC, a wholly owned subsidiary of Kinder Morgan. BOSTCO is a terminal facility on the Houston Ship Channel designed to handle residual fuel, feedstocks, distillates and other black oils. BOSTCO currently has fully subscribed capacity of approximately 7.1 million barrels. Our investment in BOSTCO entitles us to appoint a member to the Board of Managers of BOSTCO, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, BOSTCO’s business. Kinder Morgan is responsible for managing BOSTCO’s day-to-day operations. Our 42.5% Class A ownership interest does not allow us to control BOSTCO, but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in BOSTCO under the equity method of accounting.
Investment in Olympic Pipeline Company. As part of the Pacific Northwest Contribution on November 17, 2021, we acquired a 30% ownership interest in Olympic Pipeline Company joint venture, which owns the Olympic Pipeline between Blaine, Washington and Portland, Oregon and the Bayview, Washington terminal with approximately 0.5 million barrels of aggregate active storage capacity. The Olympic Pipeline is a 400-mile FERC regulated pipeline that serves as the primary refined product distribution pipeline in the Pacific Northwest. ARCO Midcon LLC, an affiliate of BP, owns the remaining 70% interest and operates both the Olympic Pipeline and the Bayview terminal. BP is responsible for managing Olympic Pipeline Company’s day-to-day operations. Our investment in Olympic Pipeline Company entitles us to appoint one member, out of two, to the Management Committee of Olympic Pipeline Company, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, Olympic Pipeline Company’s business. Our 30% ownership interest does not allow us to control Olympic Pipeline Company but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in Olympic Pipeline Company under the equity method of accounting.
Investment in SeaPort Midstream. As part of the Pacific Northwest Contribution on November 17, 2021, we acquired a 51% ownership interest in SeaPort Midstream joint venture, which owns two terminals in Seattle, Washington and Portland, Oregon with approximately 1.3 million barrels of aggregate active storage capacity. Each terminal is connected to the Olympic Pipeline and has multimodal connectivity, including rail, barge, tanker and truck. BP Mariner Holding Company LLC owns the remaining 49% interest in SeaPort Midstream. We operate the SeaPort Midstream assets under an operating and administrative agreement between us and SeaPort Midstream. Our investment in SeaPort
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Midstream entitles us to appoint two, out of four, of the members to the Board of Managers, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, SeaPort Midstream’s business. Our ownership interest does not allow us to control SeaPort Midstream but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in SeaPort Midstream under the equity method of accounting.
Investment in Frontera. On April 1, 2011, we contributed approximately 1.5 million barrels of light petroleum product storage capacity, as well as related ancillary facilities, to the Frontera joint venture, in exchange for a cash payment of approximately $25.6 million and a 50% ownership interest in the Frontera joint venture. An affiliate of PEMEX, Mexico’s state owned petroleum company, acquired the remaining 50% ownership interest in Frontera for a cash payment of approximately $25.6 million.Frontera. We operate the Frontera assets under an operations and reimbursement agreement between us and Frontera. Frontera has approximately 1.7 million barrels of aggregate active storage capacity. Our 50% ownership interest does not allow us to control Frontera but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in Frontera under the equity method of accounting.
Our Services and Revenue Streams
We generate revenue from our terminal and pipeline transportation operations by charging fees for providing integrated terminaling, transportation and related services. In addition, we sell refined and renewable products to major fuel producers and marketers in the Pacific Northwest at our terminal in Tacoma, Washington. The fees we charge and our other sources of revenue are composed of:
● | Terminaling services fees. Our terminaling services agreements are structured as either throughput agreements or storage agreements. Our throughput agreements contain provisions that require our customers to make minimum payments, which are based on |
● | Management fees. We manage and operate certain tank capacity at our Port Everglades South terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate the Frontera joint venture and receive a management fee based on our costs incurred. We lease land under operating leases as the lessor or sublessor with third parties and affiliates. We manage and operate rail sites at certain Southeast terminals on behalf of a major oil company and receive reimbursement for operating and maintenance costs. We manage and operate SeaPort Midstream and receive a management fee based on our costs incurred. We also manage additional terminal facilities that are owned by affiliates of ArcLight, including Lucknow-Highspire Terminals, LLC, which operates terminals throughout Pennsylvania encompassing approximately 9.9 million barrels of storage capacity and we receive a management fee based on our costs incurred. |
● | Pipeline transportation fees. We earned pipeline transportation fees at our Diamondback pipeline under a capacity reservation agreement that ended on May 26, 2021. Revenue associated with the capacity reservation agreement was recognized ratably over the respective term, regardless of whether the capacity was actually utilized. |
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● | Product sales. Our product sales revenue refers to the sale of refined and renewable products at our Tacoma, Washington terminal. Product sales revenue pricing is contractually specified and is recognized at a point in time when our customers take control and legal title of the commodities purchased. Product sales revenue is recorded gross of cost of product sales, which includes product supply and transportation costs. |
Further detail regarding our financial information can be found under Item 8. “Financial Statements and Supplementary Data” of this Annual Report.
Business Strategies
Generate stable cash flows through the use of long-term contracts with our customers. We intend to continue to generate stable and predictable cash flows by capitalizing on our high quality, well positioned and geographically diverse asset base, which is critical infrastructure for our customers. In addition, we seek to continue to enhance the stability of our business by focusing on our highly contracted assets, long-term relationships with high quality customers, fee-based cash flows and multi-year minimum revenue commitments. We generate revenue from customers who pay us fees based on the volume of terminal capacity contracted for, volume of products throughput at our terminals or volume of products transported in our pipelines.
Attract additional volumes and products to our systems. We intend to attract new volumes of refined products, renewable products, crude oil and specialty chemicals to our systems and terminals from existing and new customers by leveraging our asset base, continuing to provide superior customer service and through aggressively marketing our services to additional customers in our areas of operation. We have limited available capacity at certain terminal locations and our terminal facilities that have traditionally handled refined products are also well-positioned to service other products, including renewable products; as a result, we can accommodate additional volumes and varying products at a minimal incremental cost.
Capitalize on organic growth opportunities associated with our existing assets. We continually seek to identify and evaluate economically attractive organic expansion and asset enhancement opportunities that leverage our existing asset footprint and strategic relationships with our customers. We intend to focus on projects that can be completed at a relatively low cost, that have potential for attractive returns, and that are responsive to changes in customer demand, including as it may relate to an increased demand for renewable products storage capacity and terminaling services.
Maintain a disciplined financial policy. We will continue to pursue a disciplined financial policy by maintaining a prudent capital structure, managing our exposure to interest rate risk and conservatively managing our cash reserves. We believe this conservative capital structure will allow us to consider attractive growth projects and acquisitions even in challenging commodity price or capital market environments.
Pursue strategic and accretive acquisitions. We plan to pursue accretive acquisitions of high quality, critical energy infrastructure assets that are complementary to our existing asset base or that provide attractive returns in new operating regions or business lines. We will pursue acquisitions in our areas of operation that we believe will allow us to realize operational efficiencies by capitalizing on our existing infrastructure, personnel and customer relationships. We will also seek acquisitions in new geographic areas or new but related business lines to the extent that we believe we can utilize our operational expertise to enhance our business with these acquisitions.
Competitive Conditions
We face competition from other terminals and pipelines that may be able to supply our customers with integrated terminaling and transportation services on a more competitive basis. We compete with national, regional and
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local terminal and transportation companies, including the major integrated oil companies, of widely varying sizes,
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financial resources and levels of experience. In particular, our ability to compete could be harmed by factors we cannot control, including:
● | price competition from terminal and transportation companies, some of which are substantially larger than we are and have greater financial resources, and control substantially greater storage capacity, than we do; |
● | the perception that another company can provide better service; and |
● | the availability of alternative supply points, or supply points located closer to our customers’ operations. |
We also compete with national, regional and local terminal and transportation companies for acquisition and expansion opportunities. Some of these competitors are substantially larger than us and have greater financial resources and lower costs of capital than we do.
Significant Customer Relationships
We generate revenue from our terminal and pipeline transportation operations by charging fees for providing integrated terminaling, transportation and related services. In addition, our Tacoma, Washington terminal sells refined and renewable products and crude oil to major fuel producers and marketers in the Pacific Northwest. We have several significant customer relationships, our top 10 customers made up approximately 63%67% of the total revenue for the year ended December 31, 2022.2023.
Terminals and Pipeline Control Operations
The pipelines we own or operate are operated via optical fiber, wireless and wide area network communication systems from a central control room located in Atlanta,Roswell, Georgia, with the exception of the Tacoma terminal. We can also monitor activity at our terminals from this control room or other areas within the Atlanta,Roswell, Georgia office. The Tacoma control room is located on-site.
The control centers operate with Supervisory Control and Data Acquisition, or SCADA, systems. Our control centers are equipped with computer systems designed to continuously monitor operational data, including product throughput, flow rates and pressures. In addition, the control centers monitor alarms and throughput balances. The control centers operate remote pumps, motors and valves associated with the delivery and receipt of refined products. The computer systems are designed to enhance leak-detection capabilities, sound automatic alarms if operational conditions outside of pre-established parameters occur and provide for remote-controlled shutdown of pumping operations. Pump stations and meter-measurement points on the pipeline are linked by high-speed communication systems for remote monitoring and control. In addition, our Collins terminal contains full back-up/redundant disaster recovery systems covering all of our SCADA systems with the exception of the Tacoma terminal.
Government Regulation and Environmental Matters
Our business is subject to various federal, state, and local laws and regulations, including relating to protection of the environment. We are committed to complying with these laws and regulations. To date, such compliance has not had a material adverse effect on our business, financial position, results of operations, liquidity, or competitive position.
Regulation. We are subject to regulation by the Department of Transportation Office of Pipeline and Hazardous Materials Safety Administration, or PHMSA, including the Pipeline Inspection, Protection, Enforcement and Safety Acts of 2002, 2006, 2011, 2016 and 2020 or PIPES and comparable state statutes relating to the design, installation, testing, construction, operation, replacement and management of the pipeline facilities we operate or own. PIPES covers petroleum and petroleum products pipelines and requires any entity that owns or operates such pipeline facilities to comply with certain regulations, to permit access to and copying of records, and to make certain reports and provide information as required by the Secretary of Transportation. We believe that we are in material compliance with PIPES and the regulations promulgated thereunder.
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PHMSA has promulgated regulations that require qualification of pipeline personnel. These regulations require pipeline operators to develop and maintain a written qualification program for individuals performing covered tasks on pipeline facilities. The intent of these regulations is to ensure a qualified work force and to reduce the probability and consequence of incidents caused by human error. The regulations establish qualification requirements for individuals performing covered tasks and amend certain training requirements in existing regulations. We believe that we are in material compliance with these PHMSA regulations.
We also are subject to PHMSA regulations applicable to High Consequence Areas, or HCAs, for Category 2 pipeline systems (companies operating less than 500 miles of jurisdictional pipeline). These regulations specify how to assess, evaluate, repair and validate the integrity of pipeline segments that could impact populated areas, areas unusually sensitive to environmental damage and commercially navigable waterways, in the event of a release. The pipelines we own or manage are subject to these requirements. The regulations require an integrity management program that utilizes internal pipeline inspection, pressure testing, or other equally effective means to assess the integrity of pipeline segments in HCAs. The program requires periodic review of pipeline segments in HCAs to ensure adequate preventative and mitigating measures exist. Through this program, we evaluated a range of threats to each pipeline segment’s integrity by analyzing available information about the pipeline segment and consequences of a failure in an HCA. The regulations require prompt action to address integrity issues raised by the assessment and analysis. We have completed baseline assessments for all segments and believe that we are in material compliance with these PHMSA regulations. In October 2019, PHMSA submitted three major rules to the Federal Register, including rules focused on the safety of hazardous liquid pipelines and enhanced emergency order procedures. The safety of hazardous liquid pipelines rule extended leak detection requirements to all non-gathering hazardous liquid pipelines and requires operators to inspect affected pipelines following extreme weather events or natural disasters to address any resulting damage. This rule took effect on July 1, 2020. The enhanced emergency procedures rule focuses on increased emergency safety measures. In particular, this rule increases the authority of PHMSA to issue an emergency order that addresses unsafe conditions or hazards that pose an imminent threat to pipeline safety. This rule took effect on December 2, 2019. We believe that we are in material compliance with each of these recent PHMSA rules.
Our terminals also are subject to various state regulations regarding our storage of product in aboveground storage tanks. These regulations require, among other things, registration of tanks, financial assurances and inspection and testing, consistent with the standards established by the American Petroleum Institute. We have completed baseline assessments for all of the segments and believe that we are in material compliance with these aboveground storage tank regulations.
We also are subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard, the Environmental Protection Agency, or EPA, community right-to-know regulations under Title III of the Federal Superfund Amendment and Reauthorization Act, and comparable state statutes require us to organize and disclose information about the hazardous materials used in our operations. Certain parts of this information must be reported to employees, state and local governmental authorities and local citizens upon request. We believe that we are in material compliance with OSHA and state requirements, including general industry standards, record keeping requirements and monitoring of occupational exposures.
In general, we expect to increase our expenditures during the next decade to comply with higher industry and regulatory safety standards such as those described above. Although we cannot estimate the magnitude of such expenditures at this time, we do not believe that they will have a material adverse impact on our results of operations.
Environmental Matters. Our operations are subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of product terminals and pipelines, we must comply with these laws and regulations at federal, state and local levels. These laws and regulations can restrict or impact our business activities in many ways, such as:
● | requiring remedial action to mitigate releases of hydrocarbons, hazardous substances or wastes caused by our operations or attributable to former operators; |
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● | requiring capital expenditures to comply with environmental control requirements; and |
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● | enjoining the operations of facilities deemed in non-compliance with permits issued pursuant to such environmental laws and regulations. |
Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes impose strict, joint and several liability for costs required to cleanup and restore sites where hydrocarbons, hazardous substances or wastes have been released or disposed of. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hydrocarbons, hazardous substances or other wastes into the environment.
The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment. As a result, there can be no assurance as to the amount or timing of future expenditures that may be required for environmental compliance or remediation, and actual future expenditures may be different from the amounts we currently anticipate. We try to anticipate future regulatory requirements that may affect our operations and to plan accordingly to comply with and minimize the costs of such requirements.
We believe that the various environmental activities in which we are presently engaged are not expected to materially interrupt or diminish our operational ability. We cannot assure, however, that future events, such as changes in existing laws, the promulgation of new laws, or the development or discovery of new facts or conditions will not cause us to incur significant costs. The following is a discussion of certain potential material environmental concerns that relate to our business.
Water. The Federal Water Pollution Control Act of 1972, renamed and amended as the Clean Water Act or CWA, imposes strict controls against the discharge of pollutants, including oil and its derivatives into navigable waters. The discharge of pollutants into regulated waters is prohibited except in accordance with the regulations issued by the EPA or the state. We are subject to various types of storm water discharge requirements at our terminals. The EPA and a number of states have adopted regulations that require us to obtain permits to discharge storm water run-off from our facilities. Such permits may require us to monitor and sample the effluent from our operations. The cost involved in obtaining and renewing these storm water permits is not material. We believe that we are in material compliance with effluent limitations at our facilities and with the CWA generally.
The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial potential liability for the costs of removing an oil or hazardous substance spill. State laws for the control of water pollution also provide for various civil and criminal penalties and liabilities in the event of a release of petroleum or its derivatives in surface waters or into the groundwater. Spill prevention control and countermeasure requirements of federal laws require, among other things, appropriate containment be constructed around product storage tanks to help prevent the contamination of navigable waters in the event of a product tank spill, rupture or leak.
The primary federal law for oil spill liability is the Oil Pollution Act of 1990, as amended, or OPA, which addresses three principal areas of oil pollution—prevention, containment and cleanup. It applies to vessels, offshore platforms, and onshore facilities, including terminals, pipelines and transfer facilities. In order to handle, store or transport oil, facilities are required to file oil spill response plans with the United States Coast Guard, the Office of Pipeline Safety and/or the EPA. Numerous states have enacted laws similar to OPA and require similar or additional prevention and response plans. Under OPA and similar state laws, responsible parties for a regulated facility from which oil is discharged may be liable for removal costs and natural resources damages. We believe that we are in material compliance with regulations pursuant to OPA and similar state laws.
Contamination resulting from spills or releases of products is an inherent risk in the petroleum terminal and pipeline industry. To the extent that groundwater contamination requiring remediation exists around the facilities we own as a result of past operations, we believe any such contamination is being controlled or remedied without having a
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material adverse effect on our financial condition. However, such costs can be unpredictable and are site specific and, therefore, the effect may be material in the aggregate.
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Air Emissions. Our operations are subject to the federal Clean Air Act, or CAA, and comparable state and local statutes. The CAA requires most industrial operations in the United States to incur ongoing expenditures to meet the air emission control standards that are developed and implemented by the EPA and state environmental agencies. These laws and regulations regulate emissions of air pollutants from various industrial sources, including our operations, and also impose various monitoring and reporting requirements. Such laws and regulations may require a facility to obtain pre-approval for the construction or modification of certain projects or assets expected to produce air emissions or result in the increase of existing air emissions. Accordingly, such facilities must obtain and strictly comply with air permits containing requirements.
Most of our terminaling operations require air permits. These operations generally include volatile organic compound emissions (primarily hydrocarbons) associated with truck loading activities and tank working and breathing losses. The sources of these emissions are strictly regulated through the permitting process. Such regulation includes stringent control technology and extensive permit review with periodic renewal. The cost involved in obtaining and renewing these permits is not material.
Moreover, any of our facilities that emit volatile organic compounds or nitrogen oxides and are located in ozone non-attainment areas face increasingly stringent regulations, including requirements to install various levels of control technology on sources of pollutants. We believe that we are in material compliance with existing standards and regulations pursuant to the CAA and similar state and local laws, and we do not anticipate that implementation of additional regulations will have a material adverse effect on us.
Congress and numerous states are currently considering proposed legislation directed at reducing “greenhouse gas emissions.” It is not possible at this time to predict how future legislation that may be enacted to address greenhouse gas emissions would impact our operations. We believe we are in material compliance with existing federal and state greenhouse gas reporting regulations. Although future laws and regulations could result in increased compliance costs or additional operating restrictions, they are not expected to have a material adverse effect on our business, financial position, results of operations and cash flows.
Hazardous and Solid Waste. Our operations are subject to the Federal Resource Conservation and Recovery Act, as amended, or RCRA, and comparable state laws, which impose detailed requirements for the handling, storage, treatment, and disposal of hazardous and solid waste. Our terminal facilities are routinely classified by the EPA as Very Small Quantity Generators. Our terminals do not generate hazardous waste except in isolated and infrequent cases. At such times, only third party disposal sites which have been audited and approved by us are used. Our operations also generate solid wastes that are regulated under state law or the less stringent solid waste requirements of RCRA. We believe that we are in substantialmaterial compliance with the existing requirements of RCRA and similar state and local laws, and the cost involved in complying with these requirements is not material.
Site Remediation. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or CERCLA, also known as the “Superfund” law, and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of persons responsible for the release of hazardous substances into the environment. Such classes of persons include the current and past owners or operators of sites where a hazardous substance was released, and companies that disposed or arranged for disposal of hazardous substances at offsite locations such as landfills. In the course of our operations we will generate wastes or handle substances that may fall within the definition of a “hazardous substance.” CERCLA authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. Under CERCLA, we could be subject to joint and several liability for the costs of cleaning up and restoring sites where hazardous substances have been released, for damages to natural resources and for the costs of certain health studies. We believe that we are in material compliance with the existing requirements of CERCLA.
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We currently own, lease, or operate numerous properties and facilities that for many years have been used for industrial activities, including product terminaling operations. Hazardous substances, wastes, or hydrocarbons may have been released on or under the properties owned or leased by us, or on or under other locations where such substances have been taken for disposal. In addition, some of these properties have been operated by third parties or by previous
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owners whose treatment and disposal or release of hazardous substances, wastes, or hydrocarbons, was not under our control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes (including substances disposed of or released by prior owners or operators) or remediate contaminated property (including groundwater contamination, whether from prior owners or operators or other historic activities or spills).
In connection with our acquisition of the Florida, (other than Pensacola), Midwest, Brownsville, Texas, River Southeast, and Pensacola, FloridaSoutheast terminals and facilities, a third party agreed to indemnify us against certain potential environmental claims, losses and expenses. Based on our current knowledge, we expect that the active remediation projects subject to the benefit of this indemnification obligation are winding down and will not involve material additional claims, losses, and expenses.
Endangered Species Act. The Endangered Species Act restricts activities that may affect endangered or threatened species or their habitats. While some of our facilities are in regions that may be designated as habitat for endangered or threatened species, we believe that we are in substantialmaterial compliance with the Endangered Species Act. However, the discovery of previously unidentified endangered or threatened species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected area.
Operational Hazards and Insurance. Our terminal and pipeline facilities may experience damage as a result of an accident or natural disaster. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations. We maintain insurance of various types that we consider adequate to cover our operations, properties and loss of income at specified locations. Coverage for domestic acts of terrorism as defined in Terrorism Risk Insurance Program Reauthorization Act 2007 are covered under certain of our casualty insurance policies.
The insurance covers all of our facilities in amounts that we consider to be reasonable. The insurance policies are subject to deductibles that we consider reasonable and not excessive. Our insurance does not cover every potential risk associated with operating terminals, pipelines and other facilities. Consistent with insurance coverage generally available to the industry, our insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences.
Climate Change. The concern over climate change continues to attract considerable attention in the United States and around the globe. As a result, numerous proposals have been advanced and are likely to continue to be initiated at the international, national, regional and state levels of government to monitor and limit emissions of greenhouse gases (“GHGs”). These efforts have included consideration of cap-and-trade programs, carbon taxes and GHG reporting and tracking programs, vehicle efficiency standards, electric vehicle mandates, and regulations that directly limit GHG emissions from certain sources. These proposals and future legislation could increase operating costs within the oil and gas industry and accelerate the transition away from fossil fuels, which could in turn reduce demand for our customer’s products, and our services, and adversely affect our business and results of operations.
Domestically, federal and state legislative and regulatory initiatives have attempted to and will likely continue to address climate change and control or limit greenhouse gas emissions. A number of states, including states in which we operate such as California and Washington, have enacted or passed measures to track and reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and regional greenhouse gas cap-and-trade programs and establish vehicle efficiency standards and electric vehicle mandates.
In December 2015, over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions (the “Paris Agreement”). Though the United States had withdrawn under President Trump, in January 2021, President Biden issued an executive order whereby the United States again became a party to the Paris Agreement. President Biden also issued an Executive Order on climate change in which he announced putting the U.S.United States on a path to achieve net-zero carbon emissions, economy-wide, by 2050. In November 2021, the United States
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enacted a nearly $1 trillion bipartisan infrastructure law, which provided significant funding for electric vehicles and clean energy technologies in an effort to accelerate the transition away from fossil fuels.
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On October 7, 2023, California signed into law two climate disclosure bills that will impose reporting obligations on companies doing business in California—SB 253, the Climate Corporate Data Accountability Act and SB 261, Greenhouse Gases: Climate-Related Financial Risk. On March 21, 2022,6, 2024, the Securities and Exchange Commission issued a proposedfinal rule that wouldwill enhance and standardize climate-related disclosures for investors. If passed,We are still evaluating the impact of the final rule on the Company; however, such rulerules at the federal and state level could increase our costs to operate and maintain our facilities by, for example, requiring that we measure and report our emissions, install new emission controls at our facilities, acquire allowances to authorize our emissions, pay taxes related to our emissions and administer and manage an emissions program, among other possible measures. We may be unable to include some or all of these increased costs in the fees we charge to our customers and any such recovery may depend on events beyond our control, including the provisions of any final legislation or implementing regulations.
In August 2022, the United States enacted the Inflation Reduction Act of 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and support for green energy manufacturing programs. Certain of these initiatives are subject to ongoing litigation, and the impacts of each of these laws and orders, and the terms of any legislation or regulation to implement the U.S.United States commitment under the Paris Agreement, remain unclear at this time. In January 2024, the United States Environmental Protection Agency ("EPA") released a proposed rule to implement the methane emissions reduction program outlined in the Inflation Reduction Act of 2022 by imposing a “waste emissions charge” on certain petroleum and natural gas sources that are already required to report their emissions under the EPA’s Greenhouse Gas Reporting Program. Changes to U.S.United States climate change strategy under the current Biden administration and future administrations remain subject to the ultimate passage of legislation and action of federal and state regulatory agencies; therefore, the impact to our industry and our current and future operations due to climate change and greenhouse gas regulation is unknown at this time.
Climatic events in the areas in which we operate, whether from climate change or otherwise, can cause disruptions, and in some cases, delays in, or suspension of, our services. These events, including but not limited to storms, drought, wildfire, extreme temperatures or flooding, may become more intense or more frequent as a result of climate change and could impact our operations, including damages to our facilities. As a result of losses sustained at our facilities, in the energy industry, or in the geographies where our facilities are located, we may experience increased insurance costs, or difficulty obtaining adequate insurance coverage. Extreme weather events could cause damage to our facilities that may exceed our insurance coverage and our financial condition and results of operations could be adversely affected.
Tariff Regulation. The Razorback pipeline, which runs between Mount Vernon, Missouri and Rogers, Arkansas and the Diamondback pipeline, which runs between Brownsville, Texas and the U.S./United States/Mexico border, transport petroleum products subject to regulation by the FERC under the Interstate Commerce Act and the Energy Policy Act of 1992 and rules and orders promulgated under those statutes. We expect to recommission the Diamondback Pipeline and resume operations on both the 8” pipeline, providing gasoline service thereon, and the previously idle 6” pipeline, providing diesel service thereon, inwhen our customer obtains all the second half of 2023,necessary approvals from the Mexican government, and have previously filed revised tariffs with the FERC to support such activities. FERC regulation requires that the rates of pipelines providing interstate service, such as the Razorback and Diamondback pipelines, be filed at FERC and posted publicly, and that these rates be “just and reasonable” and nondiscriminatory. Rates are currently regulated by the FERC primarily through an index methodology, whereby a pipeline is allowed to change its rates based on the change from year to year in the Producer Price Index for Finished Goods (PPI-FG). In January 2022, in response to rising inflation and a rehearing proceeding, the FERC set the new index at PPI-FG minus 0.21% for the five-year period extending through June 2026, and ordered pipelines to recalculate their rate ceiling levels effective March 1, 2022. TheIn May 2023, FERC had previously set thepublished its annual index atfigure based on changes in PPI-FG, plus 0.78%which permitted oil and liquids pipelines to increase their index ceiling levels by approximately 13% for the five-yeartime period beginningfrom July 1, 2021.2023 through June 30, 2024. In the alternative, interstate pipeline companies may elect to support rate filings by using a cost-of-service methodology, competitive market showings, or actual agreements (that is, negotiated rates agreements) between shippers and the oil pipeline company.
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Negotiated Rates. The current rates charged by the Razorback pipeline and, upon recommencement of service, the Diamondback pipeline, are negotiated rates that were established via an agreement with non-affiliated shippers and are not index rates or cost-of-service rates. Therefore, while we continue to monitor FERC’s policy changes with respect to index rates and cost-of-service rates, we do not expect such changes to have an adverse impact on the rates charged by the Razorback and Diamondback pipelines and do not discuss such changes here.
The FERC generally has not investigated interstate oil pipeline rates on its own initiative when those rates have not been the subject of a protest or a complaint by a shipper. A shipper or other party having a substantial economic interest in our rates could, however, challenge our rates. In response to such challenges, the FERC could investigate our rates and require us to modify the amounts charged. In the absence of a challenge to our rates, given our ability to utilize either filed rates as annually indexed or to utilize rates tied to cost of service methodology, competitive market showing, or actual agreements between shippers and us, we do not believe that FERC’s regulations governing oil pipeline
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ratemaking would have any negative material monetary impact on us unless the regulations were substantially modified in such a manner so as to effectively prevent a pipeline company’s ability to earn a fair return for the shipment of petroleum products utilizing its transportation system, which we believe to be an unlikely scenario.
In addition to being regulated by the FERC, we are required to maintain a Presidential Permit from the United States Department of State to operate and maintain the Diamondback pipeline, because the pipeline transports petroleum products across the international boundary line between the United States and Mexico. The Department of State’s regulations do not affect our rates but do require the agency’s approval for the international crossing. We do not believe that these regulations would have any negative material monetary impact on us unless the regulations were substantially modified, which we believe to be an unlikely scenario.
Safety and Maintenance. We perform preventive and normal maintenance on the pipeline and terminal systems we operate or own and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of the pipeline and terminal tanks we operate or own as required by code or regulation. External coatings and impressed current cathodic protection systems are used to protect against external corrosion. We conduct all cathodic protection work in accordance with National Association of Corrosion Engineers standards. We continually monitor, test, and record the effectiveness of these corrosion-inhibiting systems.
We monitor or require the monitoring of the structural integrity of all of our PHMSA, regulated pipeline systems. These pipeline systems include the 67-mile Razorback pipeline; a 37-mile pipeline, known as the “Pinebelt pipeline,” located in Covington County, Mississippi that transports refined petroleum liquids betweenconnects our Collins and Purvis, Mississippi bulk storage terminal facilities; approximately 5 miles of various diameter petroleum pipeline in and around Martinez, California;California; approximately 3 miles of pipeline connected to our Tacoma, Washington terminal; and the Diamondback pipeline.pipeline consisting of two approximately 16-mile pipelines. The maintenance of structural integrity includes a program of integrity management by us or required by us that conforms to Federal and State regulations and follows industry periodic inspection and testing guidelines. Beginning in 2002, PHMSA required internal inspections or other integrity testing of all PHMSA-regulated crude oil and refined product pipelines that affect or could affect high consequence areas, or HCA’s. We believe that the pipelines we own and manage meet or exceed all PHMSA inspection requirements for pipelines located in the United States.
Maintenance facilities containing equipment for pipe repairs, spare parts, and trained response personnel are located along all of these pipelines. Employees participate in simulated spill response and deployment exercises on a regular basis. They also participate in actual spill response boom deployment exercises in planned spill scenarios in accordance with Oil Pollution Act of 1990 requirements. We believe that the pipelines we own and manage have been constructed and are maintained or are required to be maintained in all material respects in accordance with applicable federal, state, and local laws and the regulations and standards prescribed by the American Petroleum Institute, PHMSA, and accepted industry practice.
At our terminals, tanks designed for gasoline (or other high vapor pressure products) storage are equipped with internal or external floating roofs or alternative vapor control devices designed to minimize emissions and prevent the development of potentially flammable vapor from accumulating within the vapor space between fluid levels and the roof of the tank. Our terminal facilities operate with all required facility response plans, spill prevention and control plans, and other plans and programs to respond to emergencies.
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Many of our terminal loading racks are protected with fire protection systems activated by either heat sensors or an emergency switch. Many of our storage tanks are also protected by aqueous fire-fighting foam systems that are activated in case of fire.
Title to Properties
The Razorback, Pinebelt, Tacoma and Diamondback pipelines are generally constructed on easements and rights-of-way granted by the apparent record owners of the property and in some instances these grants are revocable at the election of the grantor. Several rights-of-way for the Razorback pipeline and other real property assets are shared with other pipelines and other assets owned by third parties. In many instances, lands over which rights-of-way have
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been obtained are subject to prior liens that have not been subordinated to the right-of-way grants. We have obtained permits from public authorities to cross over or under, or to lay facilities in or along, watercourses, county roads, municipal streets, and state highways and, in some instances, these permits are revocable at the election of the grantor. We have also obtained permits from railroad companies to cross over or under lands or rights-of-way, many of which are also revocable at the grantor’s election. In some cases, property for pipeline purposes was purchased in fee.
Some of the leases, easements, rights-of-way, permits, licenses and franchise ordinances transferred to us will require the consent of the grantor to transfer these rights, which in some instances is a governmental entity. We have obtained sufficient third-party consents, permits, and authorizations for the transfer of the facilities necessary for us to operate our business in all material respects as described in this Annual Report. With respect to any consents, permits, or authorizations that have not been obtained, we believe that these consents, permits, or authorizations will be obtained, or that the failure to obtain these consents, permits, or authorizations would not have a material adverse effect on the operation of our business.
We believe that we have satisfactory title to all of our assets. Although title to these properties is subject to encumbrances in some cases, such as customary interests generally retained in connection with acquisition of real property, liens that can be imposed in some jurisdictions for government-initiated action to cleanup environmental contamination, liens for current taxes and other burdens, and easements, restrictions and other encumbrances to which the underlying properties were subject at the time of our acquisition, we believe that none of these burdens should materially detract from the value of these properties or from our interest in these properties or should materially interfere with their use in the operation of our business.
Human Capital Management
Employees. Our executive officers are employed by TransMontaigne Management Company, LLC (“TMC”), a wholly owned subsidiary of ArcLight, which also provides services to certain other ArcLight affiliates. All other employees who provide services to the Company are employed by our subsidiary, TLP Management Services L.L.C. (“TMS”). TMS provides certain payroll functions and maintains all employee benefits programs on behalf of TMC pursuant to a services agreement between TMC and TMS. As of February 28, 2023,29, 2024, we had approximately 532541 employees.
Attracting, Retaining and Developing Personnel. We face a competitive talent environment, including having an aging workforce. Maintaining appropriate headcount levels is critical to the operation of our terminals and other assets. To attract and retain a successful workforce, we study market trends, benchmarking the attractiveness of our employee value proposition, and analyzing retention data. We also focus on driving employee engagement, which is key to increasing employee productivity, retention, and safety. We take a data-centric approach, including the use of surveys among management employees,and our employee population, to identify new initiatives that will help boost engagement, employee satisfaction and drive business results. We provide a competitive pay and benefits package that is designed to attract and retain a skilled and diverse workforce.
Employee Safety and Training. Employee health and safety and community safety are at the core of our operating principles. We are continuously monitoring and seeking to improve our safety performance. We measure this performance by tracking internal metrics such as incident rates. Our internal safety-audit program incorporates a risk based, terminal specific design that helps to ensure our continuous compliance with safety regulations and industry
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standards. We provide terminal personnel with ongoing facility operations training, including terminal specific requirements and ongoing safety compliance training, and we recognize our terminal employees with annual safety awards. All accident, incident, injury/lost-time and near-miss events are investigated and reviewed by our dedicated safety and health department and reported to executive management and, as applicable, to terminal managers, vendors, and employees. We use this investigation, review and reporting to translate events into safety/operational enhancements, policy changes, training, or discipline, in each case as appropriate, to mitigate the potential for recurrence. We have been recognized by the International Liquids Terminals Association (ILTA) multiple times for safety excellence.
Employee Development and Retention. We also emphasize developing personnel in connection with employee attraction and retainage efforts, as well as in connection with the efficient operation of our business. We
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provide a range of developmental programs, opportunities, skills, and resources for our employees to work safely and be successful in their careers. For example, we have a formalized terminal manager training and career advancement process to develop and promote talent from within. We provide hands-on training and simulation training designed to improve training effectiveness and safety outcomes. We also use modern learning and performance technologies to offer robust professional growth opportunities. Through on-demand digital course offerings, custom-built learning paths, and performance-management tools, our platforms deliver a contemporary, convenient, and inclusive approach to professional development.
Finally, we are committed to recruiting the most qualified, talented, and diverse people. We strive to create a diverse, equitable, and inclusive workplace where a wide range of perspectives and experiences are represented, valued, and empowered to thrive. Over one-third of our workforce is represented by minority populations, while nearly one third of our senior management team consists of women. While our current workforce reflects a broad range of backgrounds and experiences, we continue to focus our recruiting on building an even more diverse workforce.
Sustainability Report
We voluntarily publish a Sustainability Report, which describes our sustainability vision, energy-efficiency initiatives, handling of renewable fuels, environmental and safety programs, greenhouse gas emissions programs, community commitment and involvement, safety, cybersecurity, employee development and training, governance, ethics, diversity and inclusion and risk management. Our Sustainability Report can be viewed at the “Sustainability” section of our website at www.transmontaignepartners.com. Our Sustainability Report and the information contained on our website are not part of this Annual Report on Form 10-K, are not deemed filed with the SEC and are not to be incorporated by reference into any of our filings under the Securities Act of 1934.
Available Information
We file annual, quarterly, and current reports and other documents with the SEC under the Securities Exchange Act of 1934. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The public can obtain any documents that we file at http://www.sec.gov.
In addition, our annual reports on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on or through the “Investor”“SEC Filings” section of our website at www.transmontaignepartners.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
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ITEM 1A. RISK FACTORS
Our business, operations and financial condition are subject to various risks. You should carefully consider the following risk factors together with all of the other information set forth in this Annual Report, including the matters addressed under “Cautionary Statement Regarding Forward-Looking Statements,” in connection with any investment in our securities. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows could be materially adversely affected, which could result in investors in our securities losing all or part of their investment.
Risks Inherent in Our Business
We depend upon a relatively small number of customers for a substantial majority of our revenue. A substantial reduction of revenue from one or more of these customers would have a material adverse effect on our financial condition and results of operations.
We expect to derive a substantial majority of our revenue from several significant customers for the foreseeable future. Events that adversely affect the business operations of any one or more of our significant customers may adversely affect our financial condition or results of operations. Therefore, we are indirectly subject to the business risks
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of our significant customers, many of which are similar to the business risks we face. For example, a material decline in refined petroleum product supplies available to our customers, or a significant decrease in our customers’ ability to negotiate marketing contracts on favorable terms, could result in a material decline in the use of our tank capacity or throughput of product at our terminal facilities, which would likely cause our revenue and results of operations to decline. In addition, if any of our significant customers were unable to meet their contractual commitments to us for any reason, then our revenue and cash flow would decline.
We are exposed to the credit risks of our significant customers which could affect our creditworthiness. Any material nonpayment or nonperformance by such customers could also adversely affect our financial condition and results of operations.
We have various credit terms with virtually all of our customers, and our customers have varying degrees of creditworthiness. Although we evaluate the creditworthiness of each of our customers, we may not always be able to fully anticipate or detect deterioration in their creditworthiness and overall financial condition, which could expose us to risks of loss resulting from nonpayment or nonperformance by our significant customers. Some of our significant customers may be highly leveraged and subject to their own operating and regulatory risks. Any material nonpayment or nonperformance by our significant customers could require us to pursue substitute customers for our affected assets or provide alternative services. There can be no assurance that any such efforts would be successful or would provide similar revenue. These events could adversely affect our financial condition and results of operations.
Our continued expansion programs may require access to additional capital. Tightened capital markets or more expensive capital could impair our ability to maintain or grow our operations.
Our primary liquidity needs are to fund our approved capital projects and future expansion. Our revolving credit facility provides for a maximum borrowing line of credit equal to $150 million. At December 31, 2022,2023, our outstanding borrowings under the revolving credit facility were $nil.$88 million. At December 31, 2022,2023, the capital expenditures to complete the approved additional investments and expansion capital projects are estimated to be approximately $35$20 million. We expect to fund our future investments and expansion capital expenditures with cash flows from operations and borrowings under our revolving credit facility. If we cannot obtain adequate financing to complete the approved investments and capital projects while maintaining our current operations, we may not be able to continue to operate our business as it is currently conducted.
Moreover, our long term business strategies include acquiring additional energy-related terminaling and transportation facilities and further expansion of our existing terminal capacity. We will need to raise additional funds to grow our business and implement these strategies. We anticipate that such additional funds may be raised through equity contributions from ArcLight or debt financings depending on the circumstances. Any equity contributions or debt
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financing, if available at all, may not be on terms that are favorable to us. Limitations on our access to capital could result from events or causes beyond our control, and could include, among other factors, significant increases in interest rates, increases in the risk premium required by investors, generally or for investments in energy-related companies, decreases in the availability of credit or the tightening of terms required by lenders. If we cannot obtain adequate financing, we may not be able to fully implement our business strategies, and our business, results of operations and financial condition would be adversely affected.
Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
As of December 31, 2022,2023, we had total long-term debt of $1.3 billion and we had an unused borrowing base availability of $150$62 million under our revolving credit facility. Our level of debt could have important consequences to us. For example our level of debt could:
● | impair our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes; |
● | require us to dedicate a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations and future business opportunities; |
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● | make us more vulnerable to competitive pressures, changes in interest rates or a downturn in our business or the economy generally; or |
● | limit our flexibility in responding to changing business and economic conditions. |
If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, acquisitions,capital expenditures, investments or capital expenditures,acquisitions, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We may not be able to affect any of these actions on satisfactory terms, or at all.
Restrictive covenants in our senior secured term loan and revolving credit facility, the indenture governing our senior notes and future debt instruments may limit our ability to respond to changes in market conditions or pursue business opportunities.
Our senior secured term loan and revolving credit facility and the indenture governing our senior notes contain, and the terms of any future indebtedness may contain, restrictive covenants that limit our ability to, among other things:
● | incur or guarantee additional debt; |
● | make distributions under certain circumstances; |
● | make certain investments and acquisitions; |
● | incur certain liens or permit them to exist; |
● | enter into certain types of transactions with affiliates; |
● | merge or consolidate with another company or undergo a change in control; and |
● | transfer, sell or otherwise dispose of assets. |
Our senior secured term loan and revolving credit facility also contains covenants requiring us to maintain certain financial ratios and tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there is no assurance that that we will meet any such ratios and tests.
The provisions of our senior secured term loan and revolving credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our debt agreements could result in a
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default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our security-holders could experience a partial or total loss of their investment. Please read “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
We may incur substantial additional indebtedness, which could further exacerbate the risks that we may face.
Subject to the restrictions in the instruments governing our outstanding indebtedness, we may incur substantial additional indebtedness (including secured indebtedness) in the future. Although the instruments governing our outstanding indebtedness do contain restrictions on the incurrence of additional indebtedness, these restrictions will be subject to waiver and a number of significant qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be substantial. As of December 31, 2022,2023, we had additional borrowing capacity of $150$62 million under our revolving credit facility, all of which would be secured if borrowed.
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Any increase in our level of indebtedness will have several important effects on our future operations, including, without limitation:
● | we will have additional cash requirements in order to support the payment of interest on our outstanding indebtedness; |
● | increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, such as interest rates, as well as to competitive pressure; and |
● | depending on the levels of our outstanding indebtedness, our ability to obtain additional financing for working capital, capital expenditures and general company purposes may be limited. |
The obligations of our customers under their terminaling services agreements may be reduced or suspended in some circumstances, which would adversely affect our financial condition and results of operations.
Our agreements with our customers provide that, if any of a number of events occur, which we refer to as events of force majeure, and the event renders performance impossible with respect to a facility, usually for a specified minimum period of days, our customer’s obligations wouldcould be temporarily suspended with respect to that facility. Force majeure events include, but are not limited to, wars, acts of enemies, embargoes, import or export restrictions, strikes, lockouts, acts of nature, including fires, storms, floods, hurricanes, explosions and mechanical or physical failures of our equipment or facilities or those of third parties. In the event of a force majeure, a significant customer’s minimum revenue commitment maycould, depending on the terms of the particular agreement, be reduced or the contract may be subject to termination. As a result, our revenue and results of operations could be materially adversely affected.
A significant portion of our operations are conducted through joint ventures, over which we do not maintain full control and which have unique risks.
A significant portion of our operations are conducted through joint ventures. We are entitled to appoint members to the BOSTCO and Olympic Pipeline Company board of managers and maintain certain rights of approval over significant changes to, or expansion of, BOSTCO’s or Olympic Pipeline Company’s business, however Kinder Morgan serves as the operator of BOSTCO and is responsible for its day-to-day operations and an affiliate of BP serves as the operator of Olympic Pipeline Company and is responsible for its day-to-day operations. Although we serve as the operator of Frontera and SeaPort Midstream, and are responsible for the day-to-day operations of each, there are restrictions and limitations on our authority to take certain material actions absent the consent of our joint venture partner.
With respect to our existing joint ventures, we share ownership with partners that may not always share our goals and objectives. Differences in views among the partners may result in delayed decisions or failures to agree on major matters, such as large expenditures or contractual commitments, the construction of assets or borrowing money,
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among others. Delay or failure to agree may prevent action with respect to such matters, even though such action may not serve our best interest or that of the joint venture. Accordingly, delayed decisions and disagreements could adversely affect the business and operations of the joint ventures and, in turn, our business and operations. From time to time, our joint ventures may be involved in disputes or legal proceedings which may negatively affect our investments. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
Competition from other terminals and pipelines that are able to supply our customers with storage capacity at a lower price could adversely affect our financial condition and results of operations.
We face competition from other terminals and pipelines that may be able to supply our customers with integrated terminaling services on a more competitive basis. We compete with national, regional and local terminal and pipeline companies, including the major integrated oil companies, of widely varying sizes, financial resources and experience. Our ability to compete could be harmed by factors we cannot control, including:
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● | price competition from terminal and transportation companies, some of which are substantially larger than us and have greater financial resources and control substantially greater product storage capacity, than we do; |
● | the perception that another company may provide better service; and |
● | the availability of alternative supply points or supply points located closer to our customers’ operations. |
In addition, our affiliates, including ArcLight, may engage in competition with us. If we are unable to compete with services offered by our competitors, including ArcLight and its affiliates, it could have a material adverse effect on our financial condition, results of operations and cash flows.
Many of our terminal facilities are connected to, and rely on, pipelines owned and operated by third parties for the receipt and distribution of refined petroleum products, and such pipeline operators may compete with us, make changes to their transportation service offerings or their pipeline tariffs, or suffer outages or reduced product transportation, which in each case would adversely affect our financial condition and results of operations.
Our Southeast facilities include 20 active product terminals located along the Plantation and Colonial pipeline systems and primarily receive refined products from Plantation and Colonial on behalf of our customers. In addition, the Collins terminal receives from, delivers to, and transfers refined petroleum products between the Plantation and Colonial pipeline systems. In these instances, we depend on our terminals’ connections to such petroleum pipelines owned and operated by third parties to supply our terminal facilities. Our ability to compete in a particular terminal market could be harmed by factors we cannot control, including changes in pipeline service offerings at one or more of our terminals or changes in pipeline tariffs that make alternative third party terminal locations or different transportation options more attractive to our current or prospective customers.
The FERC regulates the rates the pipeline operators can charge, and the terms and conditions they can offer, for interstate transportation service on refined products pipelines that connect to our terminals. Generally, petroleum products pipelines may change their rates within prescribed levels, which could lead our current or prospective customers to seek alternative delivery methods or destinations. Moreover, we cannot control or predict the amount of refined petroleum products that our customers are able to transport on the third party pipelines connecting into our terminals. The level of throughput on these pipelines can be impacted by a number of factors, including the quality or quantity of refined product produced, pipeline outages or interruptions due to weather-related or other natural causes, competitive forces, testing, line repair, damage, reduced operating pressures or other causes any of which could negatively impact our customers’ shipments to our terminals. As a result our revenue, results of operations and cash flows could be materially adversely affected.
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Fluctuations in the price of the products that we purchase and sell could adversely affect our results of operations.
We purchase and sell refined and renewable products, along with associated carbon offsets, at our Tacoma, Washington terminal and maintain limited product inventories to support these activities. We currently do not hedge our exposure to price fluctuations and a significant fluctuation in market prices of refined and renewable products and/or associated carbon offsets could result in losses or lower profits from these sales activities.
Expanding our business by constructing new facilities subjects us to risks that the project may not be completed on schedule and that the costs associated with the project may exceed our estimates or budgeted costs, which could adversely affect our financial condition and results of operations.
The construction of additions or modifications to our existing terminal and transportation facilities, and the construction of new terminals and pipelines, involves numerous regulatory, environmental, political, legal and operational uncertainties beyond our control and requires the expenditure of significant amounts of capital. If we undertake these projects, they may not be completed on schedule or at all and may exceed the budgeted cost. If we experience material cost overruns, we would have to finance these overruns using cash from operations, delaying other
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planned projects, incurring additional indebtedness or obtaining additional equity. Any or all of these methods may not be available when needed or may adversely affect our future results of operations and cash flows. Moreover, our revenue may not increase immediately upon the expenditure of funds on a particular project. For instance, if we construct additional storage capacity, the construction may occur over an extended period of time, and we will not receive any material increases in revenue until the project is completed. Moreover, we may construct additional storage capacity to capture anticipated future growth in consumption of products in a market in which such growth does not materialize. In addition, continuing supply chain issues and inflationary pressure that emerged during the economic recovery following the COVID-19 pandemic are likely to impact the completion timetable and/or increase our costs for construction materials.
Continued inflationary pressures could negatively impact our financial condition and results of operations.
The operation of our assets and the execution of expansion projects require significant expenditures for materials, property, equipment, labor and services. The high inflationary pressures that emergedbegan during the economic recovery following the COVID-19 pandemic could result in higher operating expenses and project costs for us, as well as higher interest rates, and we may not be able to pass these increased costs on to our customers in the form of higher fees for our services. In response to continued rising inflation, we expect interest rates to increase, which will increase the interest expense related to our variable interest rate debt. Changes in price levels that lead to decreases in our revenue or increases in the prices we pay to operate, maintain and expand our assets could adversely affect our business.
Adverse economic conditions periodically result in weakness and volatility, or higherhigh interest rates, in the capital markets, that may limit, temporarily or for extended periods, the ability of one or more of our significant customers to secure financing arrangements adequate to purchase their desired volume of product, which could reduce use of our tank capacity and throughput volumes at our terminal facilities and adversely affect our financial condition and results of operations.
Domestic and international economic conditions affect the functioning of capital markets and the availability of credit. Adverse economic conditions periodically result in weakness and volatility in the capital markets, which in turn can limit, temporarily or for extended periods, the credit available, and/or make such credit more costly, to various enterprises, including those involved in the supply and marketing of products. As a result of these conditions, some of our customers may suffer short or long-term reductions in their ability to finance their supply and marketing activities, or may voluntarily elect to reduce their supply and marketing activities in order to preserve working capital. A significant decrease in our customers’ ability to secure financing arrangements adequate to support their historic product throughput volumes could result in a material decline in the use of our tank capacity or the throughput of product at our terminal facilities. We may not be able to generate sufficient additional revenue from third parties to replace any shortfall in revenue from our current customers, which would likely cause our revenue, results of operations and cash flows to decline.
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Our business involves many hazards and operational risks, including adverse weather conditions, which could cause us to incur substantial liabilities and increased operating costs.
Our operations are subject to the many hazards inherent in the terminaling and transportation of products, including:
● | leaks or accidental releases of products or other materials into the environment, whether as a result of human error or otherwise; |
● | extreme weather conditions, such as hurricanes, tropical storms and rough seas, which are common along the Gulf Coast, and earthquakes, which are common along the West Coast; |
● | explosions, fires, accidents, mechanical malfunctions, faulty measurement and other operating errors; |
● | epidemic or pandemic diseases; or |
● | acts of terrorism, vandalism, or |
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If any of these events were to occur, we could suffer substantial losses because of personal injury or loss of life, severe damage to and destruction of storage tanks, pipelines and related property and equipment, and pollution or other environmental damage resulting in curtailment or suspension of our related operations and potentially substantial unanticipated costs for the repair or replacement of property and environmental cleanup. The United States government has issued public warnings indicating that pipelines and other infrastructure assets could be specific targets of terrorist organizations or cyber sabotage events. In addition, if we suffer accidental releases or spills of products at our terminals or pipelines, we could be faced with material third-party costs and liabilities, including those relating to claims for damages to property and persons and governmental claims for natural resource damages or fines or penalties for related violations of environmental laws or regulations. We are not fully insured against all risks to our business and if losses in excess of our insurance coverage were to occur, they could have a material adverse effect on our operations. Furthermore, events like hurricanes can affect large geographical areas which can cause us to suffer additional costs and delays in connection with subsequent repairs and operations because contractors and other resources are not available, or are only available at substantially increased costs following widespread catastrophes.
We are not fully insured against all risks incident to our business and could incur substantial liabilities as a result.
We may not be able to maintain or obtain insurance of the type and amount we desire at reasonable rates. As a result of market conditions, premiums and deductibles for certain of our insurance policies have increased substantially, and could escalate further. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, our insurance carriers require broad exclusions for losses due to terrorist acts. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our financial condition. In accordance with typical industry practice, we do not have any property or title insurance on the Razorback and Diamondback pipelines.
Our insurance policies each contain caps on the insurer’s maximum liability under the policy, and claims made by us are applied against the caps. In the event we reach the cap, we would seek to acquire additional insurance in the marketplace; however, we can provide no assurance that such insurance would be available or if available, at a reasonable cost.
A significant decrease in demand for refined products due to alternative fuel sources, new technologies or adverse economic conditions, including rising fuel prices, may cause one or more of our significant customers to reduce their use of our tank capacity and throughput volumes at our terminal facilities, which would adversely affect our financial condition and results of operations.
Market uncertainties, adverse economic conditions or lack of consumer confidence, in each case, may result in lower consumer spending on gasolines, distillates and travel, and higher prices of refined products could cause a reduction in demand for refined products, which could result in a material decline in the use of our tank capacity or
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throughput of product at our terminal facilities. Additionally, the volatility in the price of refined products may render our customers’ hedging activities ineffective, which could cause one or more of our significant customers to decrease their supply and marketing activities in order to reduce their exposure to price fluctuations.
Additional factors that could lead to a decrease in market demand for refined products include:
● | an increase in the market price of crude oil that leads to higher refined product prices; |
● | higher fuel taxes or other governmental or other regulatory actions that increase, directly or indirectly, the cost of gasolines or other refined products; |
● | a shift by consumers to more fuel-efficient or alternative fuel vehicles or an increase in fuel economy, whether as a result of technological advances by manufacturers, pending legislation proposing to mandate higher fuel economy, rising fuel prices or otherwise; |
● | an increase in the use of alternative fuel sources, such as ethanol, biodiesel, fuel cells and solar, electric and battery-powered engines (although, we do handle or would be capable of handling many renewable products at most of our terminal facilities); or |
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● | events that impact global market demand in a way that is not presently possible to predict, including impacts from global or regional conflicts, and global health epidemics and |
Mergers between our existing customers and our competitors could provide strong economic incentives for the combined entities to utilize their existing systems instead of ours in those markets where the systems compete. As a result, we could lose some or all of the volumes and associated revenues from these customers and we could experience difficulty in replacing those lost volumes and revenues.
Because most of our operating costs are fixed, any decrease in throughput volumes at our terminal facilities, would likely result not only in a decrease in our revenue, but also a decline in cash flow of a similar magnitude, which would adversely affect our results of operations, financial position and cash flows.
Cyber-attacks that circumvent our security measures and other breaches of our information technology systems, or a failure of our critical information technology systems, could disrupt our operations and result in increased costs.
We utilize information technology systems to operate our assets and manage our businesses. A cyber-attack or other security breach of our information technology systems could result in a breach of critical operational or financial controls and lead to a disruption of our operations, commercial activities or financial processes, including as a result of attempts to seek ransom from the Company. Additionally, we rely on third-party systems that could also be subject to cyber-attacks or security breaches, and the failure of which could have a significant adverse effect on the operation of our assets. We and the operators of the third-party systems on which we depend may not have the resources or technical sophistication to anticipate or prevent every emerging type of cyber-attack, and such an attack, or the additional security measures undertaken to prevent such an attack, could adversely affect our results of operations, financial position or cash flows.
In addition, we collect and store sensitive data, including our proprietary business information and information about our customers, suppliers and other counterparties, and personally identifiable information of our employees and of employees of TMC, on our information technology networks. Despite our security measures, our information technology and infrastructure may be vulnerable to cyber-attacks or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored therein could be accessed, publicly disseminated, lost or stolen. Any such access, dissemination or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties or could disrupt our operations, any of which could adversely affect our results of operations, financial position or cash flows.
We could also face attempts to obtain unauthorized access to our information technology systems, proprietary business information, and information about our customers by targeting acts of deception against individuals with
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legitimate access to physical locations or information. We regularly remind our officers and the employees providing services to the Company of these risks, and we annually update our executive team as to current and evolving risks relating to a variety of cyber-attacks; however, these efforts are not guaranteed to prevent the effectiveness of these cyber-attacks or any losses that may arise as a result thereof.
In addition to a cyber-attack or other security breach of our information technology systems, a failure of one or more of our critical information technology systems could result in a failure of critical operational or financial controls and lead to a disruption of our operations, commercial activities or financial processes. Such failures could disrupt our operations and/or adversely affect our business.
Because of our lack of asset diversification, adverse developments in our terminals or pipeline operations could adversely affect our revenue and cash flows.
We rely exclusively on the revenue generated from our terminals and pipeline operations. Because of our lack of diversification in asset type, an adverse development in these businesses would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets.
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Our operations are subject to governmental laws and regulations relating to the protection of the environment that may expose us to significant costs and liabilities.
Our business is subject to the jurisdiction of numerous governmental agencies that enforce complex and stringent laws and regulations with respect to a wide range of environmental, safety and other regulatory matters. We could be adversely affected by increased costs resulting from stricter pollution control requirements or liabilities resulting from non-compliance with required operating or other regulatory permits. New environmental laws and regulations might adversely impact our activities, including the transportation, storage and distribution of petroleum products. Federal, state and local agencies also could impose additional safety requirements, any of which could affect our profitability. Furthermore, our failure to comply with environmental or safety related laws and regulations also could result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory and remedial obligations and even the issuance of injunctions that restrict or prohibit the performance of our operations.
Federal, state and local agencies also have the authority to prescribe specific product quality specifications of refined products. Changes in product quality specifications or blending requirements could reduce our throughput volume, require us to incur additional handling costs or require capital expenditures. For example, different product specifications for different markets impact the fungibility of the products in our system and could require the construction of additional storage. If we are unable to recover these costs through increased revenues, our cash flows could be adversely affected.
Terrorist attacks, and the threat of terrorist attacks, have resulted in increased costs to our business. Continued war in Ukraine, the Israel-Hamas war and continuing attacks on, and escalating tension involving, United States forces in the Middle East, or other global hostilities or other sustained military campaigns may adversely impact our cash flows.
The long-term impact of terrorist attacks and the threat of future terrorist attacks, on the energy transportation industry in general, and on us in particular, is impossible to predict. Increased security measures that we have taken as a precaution against possible terrorist attacks have resulted in increased costs to our business. Uncertainty surrounding continued warthe Ukraine and Israel-Hamas wars, continuing attacks on, and escalating tension involving, United States forces in Ukraine,the Middle East or other global hostilities or other sustained military campaigns may affect our operations in unpredictable ways, including the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terrorism.
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Many of our storage tanks and portions of our pipeline system have been in service for several decades and could require increased maintenance or remediation expenditures, which could adversely affect our results of operations and our cash flows.
Our pipeline and storage assets are generally long-lived assets. As a result, some of those assets have been in service for many decades. The age and condition of these assets could result in increased maintenance or remediation expenditures. Any significant increase in these expenditures could adversely affect our results of operations, financial position and cash flows.
Climate change legislation or regulations restricting emissions of “greenhouse gases” or setting fuel economy or air quality standards could result in increased operating costs or reduced demand for the refined petroleum products that we transport, store or otherwise handle in connection with our business.
Federal and state legislative and regulatory initiatives in the United States have attempted to and will likely continue to address climate change and control or limit greenhouse gas (GHG) emissions. Although it is not possible to predict how they will impact our business, any such future laws or regulations could adversely affect demand for the products that we transport, store or otherwise handle or increase our costs to operate and maintain our facilities. A number of states, including states in which we operate such as California and Washington, have enacted or passed measures to track and reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and regional greenhouse gas cap-and-trade programs, and establish vehicle efficiency standards and electric vehicle mandates.
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In December 2015, over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions (the “Paris Agreement”). Though the United States had withdrawn under President Trump, on January 20, 2021, President Biden issued an executive order whereby the United States again became a party to the Paris Agreement. President Biden also issued an Executive Order on climate change in which he announced putting the U.S.United States on a path to achieve net-zero carbon emissions, economy-wide, by 2050. In November 2021, the United States enacted a nearly $1 trillion bipartisan infrastructure law, which provided significant funding for electric vehicles and clean energy technologies, and in August 2022, the United States enacted the Inflation Reduction Act of 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and support for green energy manufacturing programs. On October 7, 2023, California signed into law two climate disclosure bills that will impose reporting obligations on companies doing business in California—SB 253, the Climate Corporate Data Accountability Act and SB 261, Greenhouse Gases: Climate-Related Financial Risk. In January 2024, the United States Environmental Protection Agency ("EPA") released a proposed rule to implement the methane emissions reduction program outlined in the Inflation Reduction Act of 2022 by imposing a “waste emissions charge” on certain petroleum and natural gas sources that are already required to report their emissions under the EPA’s Greenhouse Gas Reporting Program. On March 21, 2022,6, 2024, the Securities and Exchange Commission issued a proposedfinal rule that wouldwill enhance and standardize climate-related disclosures for investors. If passed,We are still evaluating the impact of the final rule on the Company; however, such rulerules at the federal and state level could increase our costs to operate and maintain our facilities by, for example, requiring that we measure and report our emissions, install new emission controls at our facilities, acquire allowances to authorize our emissions, pay taxes related to our emissions and administer and manage an emissions program, among other possible measures. We may be unable to include some or all of these increased costs in the fees we charge to our customers and any such recovery may depend on events beyond our control, including the provisions of any final legislation or implementing regulations. Certain of these initiatives are subject to ongoing litigation, and the impacts of these laws and orders, and the terms of any legislation or regulation to implement the U.S.United States commitment under the Paris Agreement, remain unclear at this time.
These climate related regulatory initiatives could drive down demand for the refined petroleum products and other hydrocarbon products we transport, store or otherwise handle in connection with our business by stimulating demand for alternative forms of energy that do not rely on the combustion of fossil fuels. Such decreased demand could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, scientists and the Federal Government have stated that increasing concentrations of greenhouse gases in the earth’s atmosphere produce climate changes that have significant physical effects, such as increased frequency and
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severity of storms, droughts, floods and other climate events. As a result of losses sustained at our facilities, in the energy industry, or in the geographies where are facilities are located, we may experience increased insurance costs, or difficulty obtaining adequate insurance coverage. Extreme weather events could cause damage to our facilities that may exceed our insurance coverage and our financial condition and results of operations could be adversely affected.
Part II
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Quantitative and Qualitative Disclosures About Market Risks Inherent
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Changes in an Investmentand Disagreements with Accountants on Accounting and Financial Disclosure
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
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Certain Relationships and Related Transactions, and Director Independence
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition, or forecasts of future events. When used in this Annual Report, the words “could,” “may,” “should,” “will,” “seek,” “believe,” “expect,” “anticipate,” “intend,” “continue,” “estimate,” “plan,” “target,” “predict,” “project,” “attempt,” “is scheduled,” “likely,” “forecast,” the negatives thereof and other similar expressions are used to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. You are cautioned not to place undue reliance on any forward-looking statements. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in this Annual Report. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Factors that could cause our actual results to differ materially from the results contemplated by such forward-looking statements include:
● | our ability to successfully implement our business strategy; |
● | competitive conditions in |
● | actions taken by third-party customers, producers, operators, processors and transporters; |
● | pending legal or environmental matters; |
● | costs of conducting our operations; |
● | fluctuations in the price of the products that we purchase and sell; |
● | our ability to complete internal growth projects on time and on budget; |
● | general economic conditions, including inflation; |
● | the price of oil, natural gas, natural gas liquids and other commodities in the energy industry; |
● | large customer defaults; |
● | rising interest rates; |
● | operating hazards, global health epidemics, natural disasters, weather-related delays, cyber-security breaches, IT system outages, global or regional conflicts, casualty losses and other matters beyond our control; |
● | uncertainty regarding our future operating results; |
● | effects of existing and future laws and governmental regulations; |
● | the effects of future litigation; |
● | plans, objectives, expectations and intentions contained in this Annual Report that are not historical; and |
● | public health crises, epidemics and pandemics. |
All forward-looking statements, expressed or implied, included in this Annual Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Annual Report.
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Part I
As used in this Annual Report, unless the context requires otherwise, references to “we,” “us,” “our,” “TransMontaigne Partners,” “the Partnership,” or “the Company” are intended to mean, TransMontaigne Partners LLC, and our wholly owned and controlled operating subsidiaries. References to ‘ArcLight’ are intended to mean ArcLight Energy Partners Fund VI, L.P., its affiliates and subsidiaries, other than us and our subsidiaries.
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Overview
We are a terminaling and transportation company with assets and operations in the United States along the Gulf Coast, in the Midwest, in Houston and Brownsville, Texas, along the Mississippi and Ohio Rivers, in the Southeast and along the West Coast. We provide integrated terminaling, storage, transportation and related services for companies engaged in the distribution and marketing of light refined petroleum products, heavy refined petroleum products, renewable products, crude oil, chemicals, fertilizers and other liquid products. In addition, we sell refined and renewable products to major fuel producers and marketers in the Pacific Northwest at our terminal in Tacoma, Washington. Light refined products include gasolines, diesel fuels, heating oil and jet fuels. Heavy refined products include residual fuel oils and asphalt. Renewable products include ethanol, biodiesel, renewable diesel and relevant feedstocks. Our direct exposure to changes in commodity prices is limited to product sales out of our Tacoma, Washington terminal and the value of product gains and losses arising from terminaling services agreements with certain customers, which accounts for a small portion of our revenue.
We use our owned and operated terminaling facilities to, among other things: receive refined products and renewable products from the pipeline, ship, barge or railcar making delivery on behalf of our customers and transfer those products to the tanks located at our terminals; store the products in our tanks for our customers; monitor the volume of the products stored in our tanks; heat residual fuel oils and asphalt stored in our tanks; and distribute the products out of our terminals in vessels, railcars or truckloads using truck racks and other distribution equipment located at our terminals, including pipelines. We also continue to provide ethanol logistics services and other services to the growing renewable products market, as well as to engage in blending activities related to the throughput process.
We are 100% owned by TLP Finance Holdings, LLC (“TLP Finance”), an indirect controlled subsidiary of ArcLight. We are voluntarily filing with the Securities and Exchange Commission pursuant to the covenants contained in our outstanding 6.125% senior unsecured notes due 2026.
Contribution of Pacific Northwest assets. On November 17, 2021, Arclight contributed Pike West Coast Holdings, LLC (“Pike West Coast”), a portfolio company of ArcLight Energy Partners Fund VI, L.P. to the Company. Pike West Coast is an infrastructure company with significant operations across the renewable fuels supply chain in the United States Pacific Northwest (the “Pacific Northwest Contribution”).
Pike West Coast owns a 100% ownership interest in SeaPort Financing, LLC. SeaPort Financing, LLC owns a 100% ownership interest in SeaPort Sound Terminal, LLC (“SeaPort Sound”), which owns a refined and renewable products terminal in Tacoma, Washington, a 51% ownership interest in SeaPort Midstream Partners, LLC (“SeaPort Midstream”), which owns refined and renewable products terminals in both Seattle, Washington and Portland, Oregon, and a 30% ownership interest in Olympic Pipeline Company, LLC (“Olympic Pipeline Company”), which owns the Olympic Pipeline between Blaine, Washington and Portland, Oregon and a refined and renewable products terminal in Bayview, Washington.
The Pacific Northwest Contribution has been recorded at carryover basis as a reorganization of entities under common control. As such, all periods presented include the assets, liabilities, and results of operations of the Pacific Northwest Contribution.
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Assets and Operations
Our terminals are located in six geographic regions, which we refer to as our Gulf Coast, Midwest, Brownsville, River, Southeast and West Coast terminals. In addition, we have unconsolidated investments in BOSTCO, Olympic Pipeline Company, SeaPort Midstream and Frontera (each defined below). The locations and approximate aggregate active storage capacity at our owned and joint venture terminal facilities as of December 31, 2023 are as follows:
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| | |
| Active storage | |
| | capacity (1) |
| | (shell bbls) |
Southeast Terminals: | | |
Albany, GA | 203,000 | |
Americus, GA | 98,000 | |
Athens, GA | 203,000 | |
Bainbridge, GA | 368,000 | |
Birmingham, AL | 178,000 | |
Charlotte, NC | 121,000 | |
Collins/Purvis, MS (Collins terminal) | 6,280,000 | |
Collins, MS (Collins rack) | 200,000 | |
Doraville, GA | 438,000 | |
Fairfax, VA | 508,000 | |
Greensboro, NC | 479,000 | |
Griffin, GA | 107,000 | |
Lookout Mountain, GA | 219,000 | |
Macon, GA | 174,000 | |
Meridian, MS | 139,000 | |
Norfolk, VA | 1,336,000 | |
Richmond, VA | 448,000 | |
Rome, GA | 152,000 | |
Selma, NC | 673,000 | |
Spartanburg, SC | 166,000 | |
Southeast Total | 12,490,000 | |
West Coast Terminals: | | |
Martinez, CA | | 5,034,000 |
Richmond, CA | | 688,000 |
Tacoma, WA | | 1,486,000 |
West Coast Total | 7,208,000 | |
Our Joint Ventures Terminals: | | |
BOSTCO Joint Venture Terminal (3) | 7,080,000 | |
Olympic Pipeline Company Joint Venture Terminal (4) | 510,000 | |
SeaPort Midstream Joint Venture Terminal (5) | 1,251,000 | |
Frontera Joint Venture Terminal (6) | 1,655,000 | |
TOTAL CAPACITY | 42,488,000 |
(1) | Active storage capacity includes terminals which do not need capital investment to contract available storage capacity. |
(2) | Reflects our ownership interest net of a major oil company’s ownership interest in certain tank capacity. |
(3) | Reflects the total active storage capacity of Battleground Oil Specialty Terminal Company LLC (“BOSTCO”), of which we have a 42.5% Class A ownership interest. |
(4) | Reflects the total active storage capacity of Olympic Pipeline Company, of which we have a 30% ownership interest. |
(5) | Reflects the total active storage capacity of SeaPort Midstream, of which we have a 51% ownership interest. |
(6) | Reflects the total active storage capacity of Frontera Brownsville LLC (“Frontera”), of which we have a 50% ownership interest. |
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Gulf Coast Operations. Our Gulf Coast terminals consist of eight active product terminals and comprise the largest terminal network in Florida. These terminals have approximately 6.9 million barrels of aggregate active storage capacity in ports including Port Everglades, Miami and Cape Canaveral, which are among the busiest cruise ship ports in the nation. At our Gulf Coast terminals, we handle refined and renewable products and crude oil on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products and crude oil. Our Gulf Coast terminals receive products from vessels on behalf of our customers. In addition, our Jacksonville terminal also receives asphalt by rail, and our Port Everglades (North) terminal also receives product by truck. We distribute by truck or barge at all of our Gulf Coast terminals. In addition, we distribute products by pipeline at our Port Everglades and Tampa terminals. A major oil company retains an ownership interest, ranging from 25% to 50%, in specific tank capacity at our Port Everglades (South) terminal. We manage and operate the Port Everglades (South) terminal, and we are reimbursed by the major oil company for its proportionate share of our operating and maintenance costs.
Midwest Terminals. In Missouri and Arkansas, we own the Razorback pipeline and terminals in Mount Vernon, Missouri, at the origin of the pipeline and in Rogers, Arkansas, at the terminus of the pipeline. We refer to these two terminals collectively as the Razorback terminals. The Razorback pipeline is a 67-mile, 8-inch diameter interstate common carrier pipeline that transports light refined product from our terminal at Mount Vernon, where it is interconnected with a pipeline system owned by a third party, to our terminal at Rogers. The Razorback pipeline has a capacity of approximately 30,000 barrels per day. The Razorback terminals have approximately 0.4 million barrels of aggregate active storage capacity. Effective January 1, 2021, a third party leases the capacity, and assumed operatorship, of the Razorback pipeline and the terminals in Mount Vernon, Missouri and in Rogers, Arkansas. Our Rogers facility is the only products terminal located in Northwest Arkansas.
We lease land in Cushing, Oklahoma and constructed storage tanks and associated infrastructure on the property for the receipt of crude oil by truck and pipeline, the blending of crude oil and the storage of approximately 1.0 million barrels of crude oil.
We also own and operate a terminal facility in Oklahoma City, Oklahoma with approximately 0.2 million barrels of aggregate active storage capacity. Our Oklahoma City terminal receives gasolines and diesel fuels from pipeline systems owned by third parties for delivery via our truck rack for redistribution to locations throughout the Oklahoma City region.
Brownsville, Texas Operations. We own and operate a product terminal with approximately 1.6 million barrels of aggregate active storage capacity and related ancillary facilities in Brownsville independent of the Frontera joint venture, as well as the Diamondback pipeline which handles liquid product movements between south Texas and Mexico. At our Brownsville terminal we handle refined petroleum products, chemicals, vegetable oils, naphtha, and wax on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of petroleum products. Our Brownsville facilities receive products on behalf of our customers from a pipeline system owned by a third party, vessels, by truck or railcar.
The Diamondback pipeline consists of an 8” pipeline that previously transported propane approximately 16 miles from our Brownsville facilities to the United States/Mexico border and a 6” pipeline, which runs parallel to the 8” pipeline that can be used by us in the future to transport additional refined products to Matamoros, Mexico. Operations on the Diamondback pipeline were shut down in the first quarter of 2018; however, we expect to recommission the Diamondback Pipeline and resume operations on both the 8” pipeline, providing gasoline service thereon, and the previously idle 6” pipeline, providing diesel service thereon, when our customer obtains all the necessary approvals from the Mexican government. We have previously filed revised tariffs with the FERC to support such activities.
River Operations. Our River terminals are composed of 11 active product terminals located along the Mississippi and Ohio Rivers with approximately 2.2 million barrels of aggregate active storage capacity. Our River operations also include a dock facility in Baton Rouge, Louisiana, which is the only direct waterborne connection between the Colonial pipeline and Mississippi River waterborne transportation. At our River terminals, we handle renewable fuels, renewable fuel feedstocks, gasolines, diesel fuels, heating oil, chemicals and fertilizers on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products and
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industrial and commercial end-users. Our River terminals receive products from vessels, barges and trucks on behalf of our customers and distribute products primarily to trucks and barges.
Southeast Operations. Our Southeast terminals consist of 20 active product terminals located along the Colonial and Plantation pipelines in Alabama, Georgia, Mississippi, North Carolina, South Carolina and Virginia with an aggregate active storage capacity of approximately 12.5 million barrels. At our Southeast terminals, we handle gasolines, diesel fuels, ethanol, biodiesel, jet fuel and heating oil on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of refined products. Our Southeast terminals primarily receive products from the Colonial and Plantation pipelines on behalf of our customers and distribute products primarily to trucks with the exception of the Collins terminal. The Collins terminal is the only independent terminal capable of storing and redelivering product to, from and between the Colonial and Plantation pipelines.
West Coast Operations. Our West Coast terminals consist of three active product terminals with approximately 7.2 million barrels of aggregate active storage capacity. Our two California terminals are well positioned with pipeline connections to two of the three local refineries, one of the two local renewable fuels plants, the Northern California products pipeline distribution system and marine access to all three refineries and both renewable fuels plants in the San Francisco Bay area. Our Tacoma, Washington terminal is connected via pipeline to the four largest refineries in Washington and by marine to all five Washington refineries. The Tacoma terminal is the only independent terminal in the Puget Sound area with a unit train facility. The Tacoma terminal sells refined and renewable products to major fuel producers and marketers in the Pacific Northwest. At our West Coast terminals, we handle crude oil, gasoline, diesel, jet fuel, gasoline blend stocks, fuel oil, Avgas, ethanol and other renewable products and feedstocks on behalf of, and provide integrated terminaling services to, customers engaged in the distribution and marketing of products. Our West Coast terminals primarily receive products from vessels, pipeline and rail facilities on behalf of our customers and distribute products primarily via vessel, pipeline, truck and rail facilities.
Investment in BOSTCO.On December 20, 2012, we acquired a 42.5% Class A ownership interest in BOSTCO from Kinder Morgan Battleground Oil, LLC, a wholly owned subsidiary of Kinder Morgan. BOSTCO is a terminal facility on the Houston Ship Channel designed to handle residual fuel, feedstocks, distillates and other black oils. BOSTCO currently has fully subscribed capacity of approximately 7.1 million barrels. Our investment in BOSTCO entitles us to appoint a member to the Board of Managers of BOSTCO, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, BOSTCO’s business. Kinder Morgan is responsible for managing BOSTCO’s day-to-day operations. Our 42.5% Class A ownership interest does not allow us to control BOSTCO, but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in BOSTCO under the equity method of accounting.
Investment in Olympic Pipeline Company. As part of the Pacific Northwest Contribution on November 17, 2021, we acquired a 30% ownership interest in Olympic Pipeline Company joint venture, which owns the Olympic Pipeline between Blaine, Washington and Portland, Oregon and the Bayview, Washington terminal with approximately 0.5 million barrels of aggregate active storage capacity. The Olympic Pipeline is a 400-mile FERC regulated pipeline that serves as the primary refined product distribution pipeline in the Pacific Northwest. ARCO Midcon LLC, an affiliate of BP, owns the remaining 70% interest and operates both the Olympic Pipeline and the Bayview terminal. BP is responsible for managing Olympic Pipeline Company’s day-to-day operations. Our investment in Olympic Pipeline Company entitles us to appoint one member, out of two, to the Management Committee of Olympic Pipeline Company, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, Olympic Pipeline Company’s business. Our 30% ownership interest does not allow us to control Olympic Pipeline Company but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in Olympic Pipeline Company under the equity method of accounting.
Investment in SeaPort Midstream. As part of the Pacific Northwest Contribution on November 17, 2021, we acquired a 51% ownership interest in SeaPort Midstream joint venture, which owns two terminals in Seattle, Washington and Portland, Oregon with approximately 1.3 million barrels of aggregate active storage capacity. Each terminal is connected to the Olympic Pipeline and has multimodal connectivity, including rail, barge, tanker and truck. BP Mariner Holding Company LLC owns the remaining 49% interest in SeaPort Midstream. We operate the SeaPort Midstream assets under an operating and administrative agreement between us and SeaPort Midstream. Our investment in SeaPort
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Midstream entitles us to appoint two, out of four, of the members to the Board of Managers, to vote our proportionate ownership share on general governance matters and to certain rights of approval over significant changes in, or expansion of, SeaPort Midstream’s business. Our ownership interest does not allow us to control SeaPort Midstream but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in SeaPort Midstream under the equity method of accounting.
Investment in Frontera. On April 1, 2011, we contributed approximately 1.5 million barrels of light petroleum product storage capacity, as well as related ancillary facilities, to the Frontera joint venture, in exchange for a cash payment and a 50% ownership interest in the Frontera joint venture. An affiliate of PEMEX, Mexico’s state owned petroleum company, acquired the remaining 50% ownership interest in Frontera. We operate the Frontera assets under an operations and reimbursement agreement between us and Frontera. Frontera has approximately 1.7 million barrels of aggregate active storage capacity. Our 50% ownership interest does not allow us to control Frontera but does allow us to exercise significant influence over its operations. Accordingly, we account for our investment in Frontera under the equity method of accounting.
Our Services and Revenue Streams
We generate revenue from our terminal operations by charging fees for providing integrated terminaling, transportation and related services. In addition, we sell refined and renewable products to major fuel producers and marketers in the Pacific Northwest at our terminal in Tacoma, Washington. The fees we charge and our other sources of revenue are composed of:
● | Terminaling services fees. Our terminaling services agreements are structured as either throughput agreements or storage agreements. Our throughput agreements contain provisions that require our customers to make minimum payments, which are based on contractually established minimum volumes of throughput of the customer’s product at our facilities over a stipulated period of time. Due to this minimum payment arrangement, we recognize a fixed amount of revenue from the customer over a certain period of time, even if the customer throughputs less than the minimum volume of product during that period. In addition, if a customer throughputs a volume of product exceeding the minimum volume, we would recognize additional revenue on this incremental volume. Our storage agreements require our customers to make minimum payments based on the volume of storage capacity available to the customer under the agreement, which results in a fixed amount of recognized revenue. We refer to the fixed amount of revenue recognized pursuant to our terminaling services agreements as being “firm commitments.” Revenue recognized in excess of firm commitments and revenue recognized based solely on the volume of product distributed or injected are referred to as “ancillary.” In addition, “ancillary” revenue also includes fees received from ancillary services including heating and mixing of stored products, product transfer, railcar handling, butane blending, proceeds from the sale of product gains, wharfage and vapor recovery. |
● | Management fees. We manage and operate certain tank capacity at our Port Everglades South terminal for a major oil company and receive a reimbursement of its proportionate share of operating and maintenance costs. We manage and operate the Frontera joint venture and receive a management fee based on our costs incurred. We lease land under operating leases as the lessor or sublessor with third parties and affiliates. We manage and operate rail sites at certain Southeast terminals on behalf of a major oil company and receive reimbursement for operating and maintenance costs. We manage and operate SeaPort Midstream and receive a management fee based on our costs incurred. We also manage additional terminal facilities that are owned by affiliates of ArcLight, |
● | Pipeline transportation fees. We earned pipeline transportation fees at our Diamondback pipeline under a capacity reservation agreement that ended on May 26, 2021. Revenue associated with the capacity reservation agreement was recognized ratably over the respective term, regardless of whether the capacity was actually utilized. |
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● | Product sales. Our product sales revenue refers to the sale of refined and renewable products at our Tacoma, Washington terminal. Product sales revenue pricing is contractually specified and is recognized at a point in time when our customers take control and legal title of the commodities purchased. Product sales revenue is recorded gross of cost of product sales, which includes product supply and transportation costs. |
Further detail regarding our financial information can be found under Item 8. “Financial Statements and Supplementary Data” of this Annual Report.
Business Strategies
Generate stable cash flows through the use of long-term contracts with our customers. We intend to continue to generate stable and predictable cash flows by capitalizing on our high quality, well positioned and geographically diverse asset base, which is critical infrastructure for our customers. In addition, we seek to continue to enhance the stability of our business by focusing on our highly contracted assets, long-term relationships with high quality customers, fee-based cash flows and multi-year minimum revenue commitments. We generate revenue from customers who pay us fees based on the volume of terminal capacity contracted for, volume of products throughput at our terminals or volume of products transported in our pipelines.
Attract additional volumes and products to our systems. We intend to attract new volumes of refined products, renewable products, crude oil and specialty chemicals to our systems and terminals from existing and new customers by leveraging our asset base, continuing to provide superior customer service and through aggressively marketing our services to additional customers in our areas of operation. We have limited available capacity at certain terminal locations and our terminal facilities that have traditionally handled refined products are also well-positioned to service other products, including renewable products; as a result, we can accommodate additional volumes and varying products at a minimal incremental cost.
Capitalize on organic growth opportunities associated with our existing assets. We continually seek to identify and evaluate economically attractive organic expansion and asset enhancement opportunities that leverage our existing asset footprint and strategic relationships with our customers. We intend to focus on projects that can be completed at a relatively low cost, that have potential for attractive returns, and that are responsive to changes in customer demand, including as it may relate to an increased demand for renewable products storage capacity and terminaling services.
Maintain a disciplined financial policy. We will continue to pursue a disciplined financial policy by maintaining a prudent capital structure, managing our exposure to interest rate risk and conservatively managing our cash reserves. We believe this conservative capital structure will allow us to consider attractive growth projects and acquisitions even in challenging commodity price or capital market environments.
Pursue strategic and accretive acquisitions. We plan to pursue accretive acquisitions of high quality, critical energy infrastructure assets that are complementary to our existing asset base or that provide attractive returns in new operating regions or business lines. We will pursue acquisitions in our areas of operation that we believe will allow us to realize operational efficiencies by capitalizing on our existing infrastructure, personnel and customer relationships. We will also seek acquisitions in new geographic areas or new but related business lines to the extent that we believe we can utilize our operational expertise to enhance our business with these acquisitions.
Competitive Conditions
We face competition from other terminals and pipelines that may be able to supply our customers with integrated terminaling and transportation services on a more competitive basis. We compete with national, regional and local terminal and transportation companies, including the major integrated oil companies, of widely varying sizes,
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financial resources and levels of experience. In particular, our ability to compete could be harmed by factors we cannot control, including:
● | price competition from terminal and transportation companies, some of which are substantially larger than we are and have greater financial resources, and control substantially greater storage capacity, than we do; |
● | the perception that another company can provide better service; and |
● | the availability of alternative supply points, or supply points located closer to our customers’ operations. |
We also compete with national, regional and local terminal and transportation companies for acquisition and expansion opportunities. Some of these competitors are substantially larger than us and have greater financial resources and lower costs of capital than we do.
Significant Customer Relationships
We generate revenue from our terminal operations by charging fees for providing integrated terminaling, transportation and related services. In addition, our Tacoma, Washington terminal sells refined and renewable products to major fuel producers and marketers in the Pacific Northwest. We have several significant customer relationships, our top 10 customers made up approximately 67% of the total revenue for the year ended December 31, 2023.
Terminals and Pipeline Control Operations
The pipelines we own or operate are operated via optical fiber, wireless and wide area network communication systems from a central control room located in Roswell, Georgia, with the exception of the Tacoma terminal. We can also monitor activity at our terminals from this control room or other areas within the Roswell, Georgia office. The Tacoma control room is located on-site.
The control centers operate with Supervisory Control and Data Acquisition, or SCADA, systems. Our control centers are equipped with computer systems designed to continuously monitor operational data, including product throughput, flow rates and pressures. In addition, the control centers monitor alarms and throughput balances. The control centers operate remote pumps, motors and valves associated with the delivery and receipt of refined products. The computer systems are designed to enhance leak-detection capabilities, sound automatic alarms if operational conditions outside of pre-established parameters occur and provide for remote-controlled shutdown of pumping operations. Pump stations and meter-measurement points on the pipeline are linked by high-speed communication systems for remote monitoring and control. In addition, our Collins terminal contains full back-up/redundant disaster recovery systems covering all of our SCADA systems with the exception of the Tacoma terminal.
Government Regulation and Environmental Matters
Our business is subject to various federal, state, and local laws and regulations, including relating to protection of the environment. We are committed to complying with these laws and regulations. To date, such compliance has not had a material adverse effect on our business, financial position, results of operations, liquidity, or competitive position.
Regulation. We are subject to regulation by the Department of Transportation Office of Pipeline and Hazardous Materials Safety Administration, or PHMSA, including the Pipeline Inspection, Protection, Enforcement and Safety Acts of 2002, 2006, 2011, 2016 and 2020 or PIPES and comparable state statutes relating to the design, installation, testing, construction, operation, replacement and management of the pipeline facilities we operate or own. PIPES covers petroleum and petroleum products pipelines and requires any entity that owns or operates such pipeline facilities to comply with certain regulations, to permit access to and copying of records, and to make certain reports and provide information as required by the Secretary of Transportation. We believe that we are in material compliance with PIPES and the regulations promulgated thereunder.
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PHMSA has promulgated regulations that require qualification of pipeline personnel. These regulations require pipeline operators to develop and maintain a written qualification program for individuals performing covered tasks on pipeline facilities. The intent of these regulations is to ensure a qualified work force and to reduce the probability and consequence of incidents caused by human error. The regulations establish qualification requirements for individuals performing covered tasks and amend certain training requirements in existing regulations. We believe that we are in material compliance with these PHMSA regulations.
We also are subject to PHMSA regulations applicable to High Consequence Areas, or HCAs, for Category 2 pipeline systems (companies operating less than 500 miles of jurisdictional pipeline). These regulations specify how to assess, evaluate, repair and validate the integrity of pipeline segments that could impact populated areas, areas unusually sensitive to environmental damage and commercially navigable waterways, in the event of a release. The pipelines we own or manage are subject to these requirements. The regulations require an integrity management program that utilizes internal pipeline inspection, pressure testing, or other equally effective means to assess the integrity of pipeline segments in HCAs. The program requires periodic review of pipeline segments in HCAs to ensure adequate preventative and mitigating measures exist. Through this program, we evaluated a range of threats to each pipeline segment’s integrity by analyzing available information about the pipeline segment and consequences of a failure in an HCA. The regulations require prompt action to address integrity issues raised by the assessment and analysis. We have completed baseline assessments for all segments and believe that we are in material compliance with these PHMSA regulations. In October 2019, PHMSA submitted three major rules to the Federal Register, including rules focused on the safety of hazardous liquid pipelines and enhanced emergency order procedures. The safety of hazardous liquid pipelines rule extended leak detection requirements to all non-gathering hazardous liquid pipelines and requires operators to inspect affected pipelines following extreme weather events or natural disasters to address any resulting damage. This rule took effect on July 1, 2020. The enhanced emergency procedures rule focuses on increased emergency safety measures. In particular, this rule increases the authority of PHMSA to issue an emergency order that addresses unsafe conditions or hazards that pose an imminent threat to pipeline safety. This rule took effect on December 2, 2019. We believe that we are in material compliance with each of these recent PHMSA rules.
Our terminals also are subject to various state regulations regarding our storage of product in aboveground storage tanks. These regulations require, among other things, registration of tanks, financial assurances and inspection and testing, consistent with the standards established by the American Petroleum Institute. We have completed baseline assessments for all of the segments and believe that we are in material compliance with these aboveground storage tank regulations.
We also are subject to the requirements of the federal Occupational Safety and Health Act, or OSHA, and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard, the Environmental Protection Agency, or EPA, community right-to-know regulations under Title III of the Federal Superfund Amendment and Reauthorization Act, and comparable state statutes require us to organize and disclose information about the hazardous materials used in our operations. Certain parts of this information must be reported to employees, state and local governmental authorities and local citizens upon request. We believe that we are in material compliance with OSHA and state requirements, including general industry standards, record keeping requirements and monitoring of occupational exposures.
In general, we expect to increase our expenditures during the next decade to comply with higher industry and regulatory safety standards such as those described above. Although we cannot estimate the magnitude of such expenditures at this time, we do not believe that they will have a material adverse impact on our results of operations.
Environmental Matters.Our operations are subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of product terminals and pipelines, we must comply with these laws and regulations at federal, state and local levels. These laws and regulations can restrict or impact our business activities in many ways, such as:
● | requiring remedial action to mitigate releases of hydrocarbons, hazardous substances or wastes caused by our operations or attributable to former operators; |
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● | requiring capital expenditures to comply with environmental control requirements; and |
● | enjoining the operations of facilities deemed in non-compliance with permits issued pursuant to such environmental laws and regulations. |
Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of orders enjoining future operations. Certain environmental statutes impose strict, joint and several liability for costs required to cleanup and restore sites where hydrocarbons, hazardous substances or wastes have been released or disposed of. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hydrocarbons, hazardous substances or other wastes into the environment.
The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment. As a result, there can be no assurance as to the amount or timing of future expenditures that may be required for environmental compliance or remediation, and actual future expenditures may be different from the amounts we currently anticipate. We try to anticipate future regulatory requirements that may affect our operations and to plan accordingly to comply with and minimize the costs of such requirements.
We believe that the various environmental activities in which we are presently engaged are not expected to materially interrupt or diminish our operational ability. We cannot assure, however, that future events, such as changes in existing laws, the promulgation of new laws, or the development or discovery of new facts or conditions will not cause us to incur significant costs. The following is a discussion of certain potential material environmental concerns that relate to our business.
Water. The Federal Water Pollution Control Act of 1972, renamed and amended as the Clean Water Act or CWA, imposes strict controls against the discharge of pollutants, including oil and its derivatives into navigable waters. The discharge of pollutants into regulated waters is prohibited except in accordance with the regulations issued by the EPA or the state. We are subject to various types of storm water discharge requirements at our terminals. The EPA and a number of states have adopted regulations that require us to obtain permits to discharge storm water run-off from our facilities. Such permits may require us to monitor and sample the effluent from our operations. The cost involved in obtaining and renewing these storm water permits is not material. We believe that we are in material compliance with effluent limitations at our facilities and with the CWA generally.
The CWA provides penalties for any discharges of petroleum products in reportable quantities and imposes substantial potential liability for the costs of removing an oil or hazardous substance spill. State laws for the control of water pollution also provide for various civil and criminal penalties and liabilities in the event of a release of petroleum or its derivatives in surface waters or into the groundwater. Spill prevention control and countermeasure requirements of federal laws require, among other things, appropriate containment be constructed around product storage tanks to help prevent the contamination of navigable waters in the event of a product tank spill, rupture or leak.
The primary federal law for oil spill liability is the Oil Pollution Act of 1990, as amended, or OPA, which addresses three principal areas of oil pollution—prevention, containment and cleanup. It applies to vessels, offshore platforms, and onshore facilities, including terminals, pipelines and transfer facilities. In order to handle, store or transport oil, facilities are required to file oil spill response plans with the United States Coast Guard, the Office of Pipeline Safety and/or the EPA. Numerous states have enacted laws similar to OPA and require similar or additional prevention and response plans. Under OPA and similar state laws, responsible parties for a regulated facility from which oil is discharged may be liable for removal costs and natural resources damages. We believe that we are in material compliance with regulations pursuant to OPA and similar state laws.
Contamination resulting from spills or releases of products is an inherent risk in the petroleum terminal and pipeline industry. To the extent that groundwater contamination requiring remediation exists around the facilities we own as a result of past operations, we believe any such contamination is being controlled or remedied without having a
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material adverse effect on our financial condition. However, such costs can be unpredictable and are site specific and, therefore, the effect may be material in the aggregate.
Air Emissions. Our operations are subject to the federal Clean Air Act, or CAA, and comparable state and local statutes. The CAA requires most industrial operations in the United States to incur ongoing expenditures to meet the air emission control standards that are developed and implemented by the EPA and state environmental agencies. These laws and regulations regulate emissions of air pollutants from various industrial sources, including our operations, and also impose various monitoring and reporting requirements. Such laws and regulations may require a facility to obtain pre-approval for the construction or modification of certain projects or assets expected to produce air emissions or result in the increase of existing air emissions. Accordingly, such facilities must obtain and strictly comply with air permits containing requirements.
Most of our terminaling operations require air permits. These operations generally include volatile organic compound emissions (primarily hydrocarbons) associated with truck loading activities and tank working and breathing losses. The sources of these emissions are strictly regulated through the permitting process. Such regulation includes stringent control technology and extensive permit review with periodic renewal. The cost involved in obtaining and renewing these permits is not material.
Moreover, any of our facilities that emit volatile organic compounds or nitrogen oxides and are located in ozone non-attainment areas face increasingly stringent regulations, including requirements to install various levels of control technology on sources of pollutants. We believe that we are in material compliance with existing standards and regulations pursuant to the CAA and similar state and local laws, and we do not anticipate that implementation of additional regulations will have a material adverse effect on us.
Congress and numerous states are currently considering proposed legislation directed at reducing “greenhouse gas emissions.” It is not possible at this time to predict how future legislation that may be enacted to address greenhouse gas emissions would impact our operations. We believe we are in material compliance with existing federal and state greenhouse gas reporting regulations. Although future laws and regulations could result in increased compliance costs or additional operating restrictions, they are not expected to have a material adverse effect on our business, financial position, results of operations and cash flows.
Hazardous and Solid Waste. Our operations are subject to the Federal Resource Conservation and Recovery Act, as amended, or RCRA, and comparable state laws, which impose detailed requirements for the handling, storage, treatment, and disposal of hazardous and solid waste. Our terminal facilities are routinely classified by the EPA as Very Small Quantity Generators. Our terminals do not generate hazardous waste except in isolated and infrequent cases. At such times, only third party disposal sites which have been audited and approved by us are used. Our operations also generate solid wastes that are regulated under state law or the less stringent solid waste requirements of RCRA. We believe that we are in material compliance with the existing requirements of RCRA and similar state and local laws, and the cost involved in complying with these requirements is not material.
Site Remediation. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or CERCLA, also known as the “Superfund” law, and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of persons responsible for the release of hazardous substances into the environment. Such classes of persons include the current and past owners or operators of sites where a hazardous substance was released, and companies that disposed or arranged for disposal of hazardous substances at offsite locations such as landfills. In the course of our operations we will generate wastes or handle substances that may fall within the definition of a “hazardous substance.” CERCLA authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. Under CERCLA, we could be subject to joint and several liability for the costs of cleaning up and restoring sites where hazardous substances have been released, for damages to natural resources and for the costs of certain health studies. We believe that we are in material compliance with the existing requirements of CERCLA.
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We currently own, lease, or operate numerous properties and facilities that for many years have been used for industrial activities, including product terminaling operations. Hazardous substances, wastes, or hydrocarbons may have been released on or under the properties owned or leased by us, or on or under other locations where such substances have been taken for disposal. In addition, some of these properties have been operated by third parties or by previous owners whose treatment and disposal or release of hazardous substances, wastes, or hydrocarbons, was not under our control. These properties and the substances disposed or released on them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, we could be required to remove previously disposed substances and wastes (including substances disposed of or released by prior owners or operators) or remediate contaminated property (including groundwater contamination, whether from prior owners or operators or other historic activities or spills).
In connection with our acquisition of the Florida, Midwest, Brownsville, Texas, River and Southeast terminals and facilities, a third party agreed to indemnify us against certain potential environmental claims, losses and expenses. Based on our current knowledge, we expect that the active remediation projects subject to the benefit of this indemnification obligation are winding down and will not involve material additional claims, losses, and expenses.
Endangered Species Act. The Endangered Species Act restricts activities that may affect endangered or threatened species or their habitats. While some of our facilities are in regions that may be designated as habitat for endangered or threatened species, we believe that we are in material compliance with the Endangered Species Act. However, the discovery of previously unidentified endangered or threatened species could cause us to incur additional costs or become subject to operating restrictions or bans in the affected area.
Operational Hazards and Insurance.Our terminal and pipeline facilities may experience damage as a result of an accident or natural disaster. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations. We maintain insurance of various types that we consider adequate to cover our operations, properties and loss of income at specified locations. Coverage for domestic acts of terrorism as defined in Terrorism Risk Insurance Program Reauthorization Act 2007 are covered under certain of our casualty insurance policies.
The insurance covers all of our facilities in amounts that we consider to be reasonable. The insurance policies are subject to deductibles that we consider reasonable and not excessive. Our insurance does not cover every potential risk associated with operating terminals, pipelines and other facilities. Consistent with insurance coverage generally available to the industry, our insurance policies provide limited coverage for losses or liabilities relating to pollution, with broader coverage for sudden and accidental occurrences.
Climate Change. The concern over climate change continues to attract considerable attention in the United States and around the globe. As a result, numerous proposals have been advanced and are likely to continue to be initiated at the international, national, regional and state levels of government to monitor and limit emissions of greenhouse gases (“GHGs”). These efforts have included consideration of cap-and-trade programs, carbon taxes and GHG reporting and tracking programs, vehicle efficiency standards, electric vehicle mandates, and regulations that directly limit GHG emissions from certain sources. These proposals and future legislation could increase operating costs within the oil and gas industry and accelerate the transition away from fossil fuels, which could in turn reduce demand for our customer’s products, and our services, and adversely affect our business and results of operations.
Domestically, federal and state legislative and regulatory initiatives have attempted to and will likely continue to address climate change and control or limit greenhouse gas emissions. A number of states, including states in which we operate such as California and Washington, have enacted or passed measures to track and reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission inventories and regional greenhouse gas cap-and-trade programs and establish vehicle efficiency standards and electric vehicle mandates.
In December 2015, over 190 countries, including the United States, reached an agreement to reduce global greenhouse gas emissions (the “Paris Agreement”). Though the United States had withdrawn under President Trump, in January 2021, President Biden issued an executive order whereby the United States again became a party to the Paris Agreement. President Biden also issued an Executive Order on climate change in which he announced putting the United States on a path to achieve net-zero carbon emissions, economy-wide, by 2050. In November 2021, the United States
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enacted a nearly $1 trillion bipartisan infrastructure law, which provided significant funding for electric vehicles and clean energy technologies in an effort to accelerate the transition away from fossil fuels.
On October 7, 2023, California signed into law two climate disclosure bills that will impose reporting obligations on companies doing business in California—SB 253, the Climate Corporate Data Accountability Act and SB 261, Greenhouse Gases: Climate-Related Financial Risk. On March 6, 2024, the Securities and Exchange Commission issued a final rule that will enhance and standardize climate-related disclosures for investors. We are still evaluating the impact of the final rule on the Company; however, such rules at the federal and state level could increase our costs to operate and maintain our facilities by, for example, requiring that we measure and report our emissions, install new emission controls at our facilities, acquire allowances to authorize our emissions, pay taxes related to our emissions and administer and manage an emissions program, among other possible measures. We may be unable to include some or all of these increased costs in the fees we charge to our customers and any such recovery may depend on events beyond our control, including the provisions of any final legislation or implementing regulations.
In August 2022, the United States enacted the Inflation Reduction Act of 2022, which allocated $369 billion to climate change and environmental initiatives, including transportation electrification, fees on and greater regulation of methane emissions, and support for green energy manufacturing programs. Certain of these initiatives are subject to ongoing litigation, and the impacts of each of these laws and orders, and the terms of any legislation or regulation to implement the United States commitment under the Paris Agreement, remain unclear at this time. In January 2024, the United States Environmental Protection Agency ("EPA") released a proposed rule to implement the methane emissions reduction program outlined in the Inflation Reduction Act of 2022 by imposing a “waste emissions charge” on certain petroleum and natural gas sources that are already required to report their emissions under the EPA’s Greenhouse Gas Reporting Program. Changes to United States climate change strategy under the current Biden administration and future administrations remain subject to the ultimate passage of legislation and action of federal and state regulatory agencies; therefore, the impact to our industry and our current and future operations due to climate change and greenhouse gas regulation is unknown at this time.
Climatic events in the areas in which we operate, whether from climate change or otherwise, can cause disruptions, and in some cases, delays in, or suspension of, our services. These events, including but not limited to storms, drought, wildfire, extreme temperatures or flooding, may become more intense or more frequent as a result of climate change and could impact our operations, including damages to our facilities. As a result of losses sustained at our facilities, in the energy industry, or in the geographies where our facilities are located, we may experience increased insurance costs, or difficulty obtaining adequate insurance coverage. Extreme weather events could cause damage to our facilities that may exceed our insurance coverage and our financial condition and results of operations could be adversely affected.
Tariff Regulation. The Razorback pipeline, which runs between Mount Vernon, Missouri and Rogers, Arkansas and the Diamondback pipeline, which runs between Brownsville, Texas and the United States/Mexico border, transport petroleum products subject to regulation by the FERC under the Interstate Commerce Act and the Energy Policy Act of 1992 and rules and orders promulgated under those statutes. We expect to recommission the Diamondback Pipeline and resume operations on both the 8” pipeline, providing gasoline service thereon, and the previously idle 6” pipeline, providing diesel service thereon, when our customer obtains all the necessary approvals from the Mexican government, and have previously filed revised tariffs with the FERC to support such activities. FERC regulation requires that the rates of pipelines providing interstate service, such as the Razorback and Diamondback pipelines, be filed at FERC and posted publicly, and that these rates be “just and reasonable” and nondiscriminatory. Rates are currently regulated by the FERC primarily through an index methodology, whereby a pipeline is allowed to change its rates based on the change from year to year in the Producer Price Index for Finished Goods (PPI-FG). In January 2022, in response to rising inflation and a rehearing proceeding, the FERC set the new index at PPI-FG minus 0.21% for the five-year period extending through June 2026, and ordered pipelines to recalculate their rate ceiling levels effective March 1, 2022. In May 2023, FERC published its annual index figure based on changes in PPI-FG, which permitted oil and liquids pipelines to increase their index ceiling levels by approximately 13% for the time period from July 1, 2023 through June 30, 2024. In the alternative, interstate pipeline companies may elect to support rate filings by using a cost-of-service methodology, competitive market showings, or actual agreements (that is, negotiated rates agreements) between shippers and the oil pipeline company.
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Negotiated Rates. The current rates charged by the Razorback pipeline and, upon recommencement of service, the Diamondback pipeline, are negotiated rates that were established via an agreement with non-affiliated shippers and are not index rates or cost-of-service rates. Therefore, while we continue to monitor FERC’s policy changes with respect to index rates and cost-of-service rates, we do not expect such changes to have an adverse impact on the rates charged by the Razorback and Diamondback pipelines and do not discuss such changes here.
The FERC generally has not investigated interstate oil pipeline rates on its own initiative when those rates have not been the subject of a protest or a complaint by a shipper. A shipper or other party having a substantial economic interest in our rates could, however, challenge our rates. In response to such challenges, the FERC could investigate our rates and require us to modify the amounts charged. In the absence of a challenge to our rates, given our ability to utilize either filed rates as annually indexed or to utilize rates tied to cost of service methodology, competitive market showing, or actual agreements between shippers and us, we do not believe that FERC’s regulations governing oil pipeline ratemaking would have any negative material monetary impact on us unless the regulations were substantially modified in such a manner so as to effectively prevent a pipeline company’s ability to earn a fair return for the shipment of petroleum products utilizing its transportation system, which we believe to be an unlikely scenario.
In addition to being regulated by the FERC, we are required to maintain a Presidential Permit from the United States Department of State to operate and maintain the Diamondback pipeline, because the pipeline transports petroleum products across the international boundary line between the United States and Mexico. The Department of State’s regulations do not affect our rates but do require the agency’s approval for the international crossing. We do not believe that these regulations would have any negative material monetary impact on us unless the regulations were substantially modified, which we believe to be an unlikely scenario.
Safety and Maintenance. We perform preventive and normal maintenance on the pipeline and terminal systems we operate or own and make repairs and replacements when necessary or appropriate. We also conduct routine and required inspections of the pipeline and terminal tanks we operate or own as required by code or regulation. External coatings and impressed current cathodic protection systems are used to protect against external corrosion. We conduct all cathodic protection work in accordance with National Association of Corrosion Engineers standards. We continually monitor, test, and record the effectiveness of these corrosion-inhibiting systems.
We monitor or require the monitoring of the structural integrity of all of our PHMSA, regulated pipeline systems. These pipeline systems include the 67-mile Razorback pipeline; a 37-mile pipeline, known as the “Pinebelt pipeline,” that connects our Collins and Purvis, Mississippi bulk storage terminal facilities; approximately 5 miles of various diameter petroleum pipeline in and around Martinez, California; approximately 3 miles of pipeline connected to our Tacoma, Washington terminal; and the Diamondback pipeline consisting of two approximately 16-mile pipelines. The maintenance of structural integrity includes a program of integrity management by us or required by us that conforms to Federal and State regulations and follows industry periodic inspection and testing guidelines. Beginning in 2002, PHMSA required internal inspections or other integrity testing of all PHMSA-regulated crude oil and refined product pipelines that affect or could affect high consequence areas, or HCA’s. We believe that the pipelines we own and manage meet or exceed all PHMSA inspection requirements for pipelines located in the United States.
Maintenance facilities containing equipment for pipe repairs, spare parts, and trained response personnel are located along all of these pipelines. Employees participate in simulated spill response and deployment exercises on a regular basis. They also participate in actual spill response boom deployment exercises in planned spill scenarios in accordance with Oil Pollution Act of 1990 requirements. We believe that the pipelines we own and manage have been constructed and are maintained or are required to be maintained in all material respects in accordance with applicable federal, state, and local laws and the regulations and standards prescribed by the American Petroleum Institute, PHMSA, and accepted industry practice.
At our terminals, tanks designed for gasoline (or other high vapor pressure products) storage are equipped with internal or external floating roofs or alternative vapor control devices designed to minimize emissions and prevent the development of potentially flammable vapor from accumulating within the vapor space between fluid levels and the roof of the tank. Our terminal facilities operate with all required facility response plans, spill prevention and control plans, and other plans and programs to respond to emergencies.
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Many of our terminal loading racks are protected with fire protection systems activated by either heat sensors or an emergency switch. Many of our storage tanks are also protected by aqueous fire-fighting foam systems that are activated in case of fire.
Title to Properties
The Razorback, Pinebelt, Tacoma and Diamondback pipelines are generally constructed on easements and rights-of-way granted by the apparent record owners of the property and in some instances these grants are revocable at the election of the grantor. Several rights-of-way for the Razorback pipeline and other real property assets are shared with other pipelines and other assets owned by third parties. In many instances, lands over which rights-of-way have been obtained are subject to prior liens that have not been subordinated to the right-of-way grants. We have obtained permits from public authorities to cross over or under, or to lay facilities in or along, watercourses, county roads, municipal streets, and state highways and, in some instances, these permits are revocable at the election of the grantor. We have also obtained permits from railroad companies to cross over or under lands or rights-of-way, many of which are also revocable at the grantor’s election. In some cases, property for pipeline purposes was purchased in fee.
Some of the leases, easements, rights-of-way, permits, licenses and franchise ordinances transferred to us will require the consent of the grantor to transfer these rights, which in some instances is a governmental entity. We have obtained sufficient third-party consents, permits, and authorizations for the transfer of the facilities necessary for us to operate our business in all material respects as described in this Annual Report. With respect to any consents, permits, or authorizations that have not been obtained, we believe that these consents, permits, or authorizations will be obtained, or that the failure to obtain these consents, permits, or authorizations would not have a material adverse effect on the operation of our business.
We believe that we have satisfactory title to all of our assets. Although title to these properties is subject to encumbrances in some cases, such as customary interests generally retained in connection with acquisition of real property, liens that can be imposed in some jurisdictions for government-initiated action to cleanup environmental contamination, liens for current taxes and other burdens, and easements, restrictions and other encumbrances to which the underlying properties were subject at the time of our acquisition, we believe that none of these burdens should materially detract from the value of these properties or from our interest in these properties or should materially interfere with their use in the operation of our business.
Human Capital Management
Employees. Our executive officers are employed by TransMontaigne Management Company, LLC (“TMC”), a wholly owned subsidiary of ArcLight, which also provides services to certain other ArcLight affiliates. All other employees who provide services to the Company are employed by our subsidiary, TLP Management Services L.L.C. (“TMS”). TMS provides certain payroll functions and maintains all employee benefits programs on behalf of TMC pursuant to a services agreement between TMC and TMS. As of February 29, 2024, we had approximately 541 employees.
Attracting, Retaining and Developing Personnel. We face a competitive talent environment, including having an aging workforce. Maintaining appropriate headcount levels is critical to the operation of our terminals and other assets. To attract and retain a successful workforce, we study market trends, benchmarking the attractiveness of our employee value proposition, and analyzing retention data. We also focus on driving employee engagement, which is key to increasing employee productivity, retention, and safety. We take a data-centric approach, including the use of surveys among management and our employee population, to identify new initiatives that will help boost engagement, employee satisfaction and drive business results. We provide a competitive pay and benefits package that is designed to attract and retain a skilled and diverse workforce.
Employee Safety and Training. Employee health and safety and community safety are at the core of our operating principles. We are continuously monitoring and seeking to improve our safety performance. We measure this performance by tracking internal metrics such as incident rates. Our internal safety-audit program incorporates a risk based, terminal specific design that helps to ensure our continuous compliance with safety regulations and industry
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standards. We provide terminal personnel with ongoing facility operations training, including terminal specific requirements and ongoing safety compliance training, and we recognize our terminal employees with annual safety awards. All accident, incident, injury/lost-time and near-miss events are investigated and reviewed by our dedicated safety and health department and reported to executive management and, as applicable, to terminal managers, vendors, and employees. We use this investigation, review and reporting to translate events into safety/operational enhancements, policy changes, training, or discipline, in each case as appropriate, to mitigate the potential for recurrence. We have been recognized by the International Liquids Terminals Association (ILTA) multiple times for safety excellence.
Employee Development and Retention. We also emphasize developing personnel in connection with employee attraction and retainage efforts, as well as in connection with the efficient operation of our business. We provide a range of developmental programs, opportunities, skills, and resources for ouremployees to work safely and be successful in their careers. For example, we have a formalized terminal manager training and career advancement process to develop and promote talent from within. We provide hands-on training and simulation training designed to improve training effectiveness and safety outcomes. We also use modern learning and performance technologies to offer robust professional growth opportunities. Through on-demand digital course offerings, custom-built learning paths, and performance-management tools, our platforms deliver a contemporary, convenient, and inclusive approach to professional development.
Finally, we are committed to recruiting the most qualified, talented, and diverse people. We strive to create a diverse, equitable, and inclusive workplace where a wide range of perspectives and experiences are represented, valued, and empowered to thrive. Over one-third of our workforce is represented by minority populations, while nearly one third of our senior management team consists of women. While our current workforce reflects a broad range of backgrounds and experiences, we continue to focus our recruiting on building an even more diverse workforce.
Sustainability Report
We voluntarily publish a Sustainability Report, which describes our sustainability vision, energy-efficiency initiatives, handling of renewable fuels, environmental and safety programs, greenhouse gas emissions programs, community commitment and involvement, safety, cybersecurity, employee development and training, governance, ethics, diversity and inclusion and risk management. Our Sustainability Report can be viewed at the “Sustainability” section of our website at www.transmontaignepartners.com. Our Sustainability Report and the information contained on our website are not part of this Annual Report on Form 10-K, are not deemed filed with the SEC and are not to be incorporated by reference into any of our filings under the Securities Act of 1934.
Available Information
We file annual, quarterly, and current reports with the SEC under the Securities Exchange Act of 1934. The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The public can obtain any documents that we file at http://www.sec.gov.
In addition, our annual reports on Form 10-K, as well as our quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to all of the foregoing reports, are made available free of charge on or through the “SEC Filings” section of our website at www.transmontaignepartners.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC.
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ITEM 1A. RISK FACTORS
Our business, operations and financial condition are subject to various risks. You should carefully consider the following risk factors together with all of the other information set forth in this Annual Report, including the matters addressed under “Cautionary Statement Regarding Forward-Looking Statements,” in connection with any investment in our securities. If any of the following risks actually occurs, our business, financial condition, results of operations or cash flows could be materially adversely affected, which could result in investors in our securities losing all or part of their investment.
Risks Inherent in Our Business
We depend upon a relatively small number of customers for a substantial majority of our revenue. A substantial reduction of revenue from one or more of these customers would have a material adverse effect on our financial condition and results of operations.
We expect to derive a substantial majority of our revenue from several significant customers for the foreseeable future. Events that adversely affect the business operations of any one or more of our significant customers may adversely affect our financial condition or results of operations. Therefore, we are indirectly subject to the business risks of our significant customers, many of which are similar to the business risks we face. For example, a material decline in refined petroleum product supplies available to our customers, or a significant decrease in our customers’ ability to negotiate marketing contracts on favorable terms, could result in a material decline in the use of our tank capacity or throughput of product at our terminal facilities, which would likely cause our revenue and results of operations to decline. In addition, if any of our significant customers were unable to meet their contractual commitments to us for any reason, then our revenue and cash flow would decline.
We are exposed to the credit risks of our significant customers which could affect our creditworthiness. Any material nonpayment or nonperformance by such customers could also adversely affect our financial condition and results of operations.
We have various credit terms with virtually all of our customers, and our customers have varying degrees of creditworthiness. Although we evaluate the creditworthiness of each of our customers, we may not always be able to fully anticipate or detect deterioration in their creditworthiness and overall financial condition, which could expose us to risks of loss resulting from nonpayment or nonperformance by our significant customers. Some of our significant customers may be highly leveraged and subject to their own operating and regulatory risks. Any material nonpayment or nonperformance by our significant customers could require us to pursue substitute customers for our affected assets or provide alternative services. There can be no assurance that any such efforts would be successful or would provide similar revenue. These events could adversely affect our financial condition and results of operations.
Our continued expansion programs may require access to additional capital. Tightened capital markets or more expensive capital could impair our ability to maintain or grow our operations.
Our primary liquidity needs are to fund our approved capital projects and future expansion. Our revolving credit facility provides for a maximum borrowing line of credit equal to $150 million. At December 31, 2023, our outstanding borrowings under the revolving credit facility were $88 million. At December 31, 2023, the capital expenditures to complete the approved additional investments and expansion capital projects are estimated to be approximately $20 million. We expect to fund our future investments and expansion capital expenditures with cash flows from operations and borrowings under our revolving credit facility. If we cannot obtain adequate financing to complete the approved investments and capital projects while maintaining our current operations, we may not be able to continue to operate our business as it is currently conducted.
Moreover, our long term business strategies include acquiring additional energy-related terminaling and transportation facilities and further expansion of our existing terminal capacity. We will need to raise additional funds to grow our business and implement these strategies. We anticipate that such additional funds may be raised through equity contributions from ArcLight or debt financings depending on the circumstances. Any equity contributions or debt
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financing, if available at all, may not be on terms that are favorable to us. Limitations on our access to capital could result from events or causes beyond our control, and could include, among other factors, significant increases in interest rates, increases in the risk premium required by investors, generally or for investments in energy-related companies, decreases in the availability of credit or the tightening of terms required by lenders. If we cannot obtain adequate financing, we may not be able to fully implement our business strategies, and our business, results of operations and financial condition would be adversely affected.
Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.
As of December 31, 2023, we had total long-term debt of $1.3 billion and we had an unused borrowing base availability of $62 million under our revolving credit facility. Our level of debt could have important consequences to us. For example our level of debt could:
● | impair our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes; |
● | require us to dedicate a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations and future business opportunities; |
● | make us more vulnerable to competitive pressures, changes in interest rates or a downturn in our business or the economy generally; or |
● | limit our flexibility in responding to changing business and |
If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying our business activities, capital expenditures, investments or acquisitions, selling assets, restructuring or refinancing our debt or seeking additional equity capital. We may not be able to affect any of these actions on satisfactory terms, or at all.
Restrictive covenants in our senior secured term loan and revolving credit facility, the indenture governing our senior notes and future debt instruments may limit our ability to respond to changes in market conditions or pursue business opportunities.
Our senior secured term loan and revolving credit facility and the indenture governing our senior notes contain, and the terms of any future indebtedness may contain, restrictive covenants that limit our ability to, among other things:
● | incur or guarantee additional debt; |
● | make distributions under certain circumstances; |
● | make certain investments and |
● | incur certain liens or permit them to |
● | enter into certain types of transactions with affiliates; |
● | merge or consolidate with another company or undergo a change in control; and |
● | transfer, sell or otherwise dispose of assets. |
Our senior secured term loan and revolving credit facility also contains covenants requiring us to maintain certain financial ratios and tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and there is no assurance that that we will meet any such ratios and tests.
The provisions of our senior secured term loan and revolving credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our debt agreements could result in a
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default or an event of default that could enable our lenders to declare the outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our security-holders could experience a partial or total loss of their investment. Please read “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
We may incur substantial additional indebtedness, which could further exacerbate the risks that we may face.
Subject to the restrictions in the instruments governing our outstanding indebtedness, we may incur substantial additional indebtedness (including secured indebtedness) in the future. Although the instruments governing our outstanding indebtedness do contain restrictions on the incurrence of additional indebtedness, these restrictions will be subject to waiver and a number of significant qualifications and exceptions, and indebtedness incurred in compliance with these restrictions could be substantial. As of December 31, 2023, we had additional borrowing capacity of $62 million under our revolving credit facility, all of which would be secured if borrowed.
Any increase in our level of indebtedness will have several important effects on our future operations, including, without limitation:
● | we will have additional cash requirements in order to support the payment of interest on our outstanding indebtedness; |
● | increases in our outstanding indebtedness and leverage will increase our vulnerability to adverse changes in general economic and industry conditions, such as interest rates, as well as to competitive pressure; and |
● | depending on the levels of our outstanding indebtedness, our ability to obtain additional financing for working capital, capital expenditures and general company purposes may be limited. |
The obligations of our customers under their terminaling services agreements may be reduced or suspended in some circumstances, which would adversely affect our financial condition and results of operations.
Our agreements with our customers provide that, if any of a number of events occur, which we refer to as events of force majeure, and the event renders performance impossible with respect to a facility, usually for a specified minimum period of days, our customer’s obligations could be temporarily suspended with respect to that facility. Force majeure events include, but are not limited to, wars, acts of enemies, embargoes, import or export restrictions, strikes, lockouts, acts of nature, including fires, storms, floods, hurricanes, explosions and mechanical or physical failures of our equipment or facilities or those of third parties. In the event of a force majeure, a significant customer’s minimum revenue commitment could, depending on the terms of the particular agreement, be reduced or the contract may be subject to termination. As a result, our revenue and results of operations could be materially adversely affected.
A significant portion of our operations are conducted through joint ventures, over which we do not maintain full control and which have unique risks.
A significant portion of our operations are conducted through joint ventures. We are entitled to appoint members to the BOSTCO and Olympic Pipeline Company board of managers and maintain certain rights of approval over significant changes to, or expansion of, BOSTCO’s or Olympic Pipeline Company’s business, however Kinder Morgan serves as the operator of BOSTCO and is responsible for its day-to-day operations and an affiliate of BP serves as the operator of Olympic Pipeline Company and is responsible for its day-to-day operations. Although we serve as the operator of Frontera and SeaPort Midstream, and are responsible for the day-to-day operations of each, there are restrictions and limitations on our authority to take certain material actions absent the consent of our joint venture partner.
With respect to our existing joint ventures, we share ownership with partners that may not always share our goals and objectives. Differences in views among the partners may result in delayed decisions or failures to agree on major matters, such as large expenditures or contractual commitments, the construction of assets or borrowing money,
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among others. Delay or failure to agree may prevent action with respect to such matters, even though such action may not serve our best interest or that of the joint venture. Accordingly, delayed decisions and disagreements could adversely affect the business and operations of the joint ventures and, in turn, our business and operations. From time to time, our joint ventures may be involved in disputes or legal proceedings which may negatively affect our investments. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
Competition from other terminals and pipelines that are able to supply our customers with storage capacity at a lower price could adversely affect our financial condition and results of operations.
We face competition from other terminals and pipelines that may be able to supply our customers with integrated terminaling services on a more competitive basis. We compete with national, regional and local terminal and pipeline companies, including the major integrated oil companies, of widely varying sizes, financial resources and experience. Our ability to compete could be harmed by factors we cannot control, including:
● | price competition from terminal and transportation companies, some of which are substantially larger than us and have greater financial resources and control substantially greater product storage capacity, than we do; |
● | the perception that another company may provide better service; and |
● | the availability of alternative supply points or supply points located closer to our
|