|
| | | | |
Consolidated Statement of Changes in Equity | Phillips 66 Partners LP |
|
| | | | | | | | | | | | | |
| Millions of Dollars |
| Partnership | | |
| Common Unitholders Public |
| Common Unitholder Phillips 66 |
| General Partner Phillips 66 |
| Accum. Other Comprehensive Loss |
| Net Investment— Predecessors* |
| Total |
|
| | | | | | |
December 31, 2015 | $ | 809 |
| 233 |
| (650 | ) | (2 | ) | 1,054 |
| 1,444 |
|
Net income attributable to Predecessors | — |
| — |
| — |
| — |
| 103 |
| 103 |
|
Net contributions from Phillips 66—Predecessors | — |
| — |
| — |
| — |
| 88 |
| 88 |
|
Issuance of common units | 971 |
| — |
| — |
| — |
| — |
| 971 |
|
Allocation of net investment to unitholders | — |
| 233 |
| 33 |
| — |
| (266 | ) | — |
|
Net income attributable to the Partnership | 51 |
| 89 |
| 63 |
| — |
| — |
| 203 |
|
Other comprehensive income | — |
| — |
| — |
| 1 |
| — |
| 1 |
|
Quarterly cash distributions to unitholders and General Partner | (41 | ) | (86 | ) | (50 | ) | — |
| — |
| (177 | ) |
Other contributions from Phillips 66 | — |
| — |
| 4 |
| — |
| — |
| 4 |
|
September 30, 2016* | $ | 1,790 |
| 469 |
| (600 | ) | (1 | ) | 979 |
| 2,637 |
|
|
|
|
|
|
|
|
December 31, 2016 | $ | 1,795 |
| 476 |
| (704 | ) | (1 | ) | — |
| 1,566 |
|
Issuance of common units | 171 |
| — |
| — |
| — |
| — |
| 171 |
|
Net income attributable to the Partnership | 78 |
| 109 |
| 112 |
| — |
| — |
| 299 |
|
Quarterly cash distributions to unitholders and General Partner | (78 | ) | (113 | ) | (96 | ) | — |
| — |
| (287 | ) |
Other contributions from Phillips 66 | — |
| — |
| 26 |
| — |
| — |
| 26 |
|
September 30, 2017 | $ | 1,966 |
| 472 |
| (662 | ) | (1 | ) | — |
| 1,775 |
|
| | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 |
| Partnership | | |
| Preferred Unitholders Public | Common Unitholders Public | Common Unitholder Phillips 66 | Accum. Other Comprehensive Loss | Noncontrolling Interest | Total |
| | | | | | |
March 31, 2021 | $ | 749 | | 2,647 | | (828) | | (2) | | 287 | | 2,853 | |
Net income | 12 | | 55 | | 158 | | — | | 9 | | 234 | |
| | | | | | |
Quarterly cash distributions to unitholders ($0.875 per common unit) | (12) | | (52) | | (148) | | — | | — | | (212) | |
Repurchase of preferred units | (20) | | (1) | | (3) | | — | | — | | (24) | |
| | | | | | |
Distributions to noncontrolling interest | — | | — | | — | | — | | (13) | | (13) | |
Other contributions from Phillips 66 | — | | — | | 1 | | — | | — | | 1 | |
June 30, 2021 | $ | 729 | | 2,649 | | (820) | | (2) | | 283 | | 2,839 | |
| | | | | | |
March 31, 2020 | $ | 747 | | 2,723 | | (616) | | (1) | | 0 | | 2,853 | |
| | | | | | |
Net income | 9 | | 63 | | 183 | | — | | — | | 255 | |
Quarterly cash distributions to unitholders ($0.875 per common unit) | (10) | | (51) | | (148) | | — | | — | | (209) | |
Transfer of equity interest | — | | — | | — | | — | | 305 | | 305 | |
Other contributions from Phillips 66 | — | | — | | 9 | | — | | — | | 9 | |
June 30, 2020 | $ | 746 | | 2,735 | | (572) | | (1) | | 305 | | 3,213 | |
| | | | | | | | | | | | | | |
| Units |
| Three Months Ended June 30 |
| Preferred Units Public | Common Units Public | Common Units Phillips 66 | Total Units |
| | | | |
March 31, 2021 | 13,819,791 | | 58,580,009 | | 169,760,137 | | 242,159,937 | |
Units issued in public equity offerings | — | | — | | — | | — | |
Repurchase of preferred units | (368,528) | | — | | — | | (368,528) | |
June 30, 2021 | 13,451,263 | | 58,580,009 | | 169,760,137 | | 241,791,409 | |
| | | | |
March 31, 2020 | 13,819,791 | | 58,580,009 | | 169,760,137 | | 242,159,937 | |
Units issued in public equity offerings | — | | — | | — | | — | |
June 30, 2020 | 13,819,791 | | 58,580,009 | | 169,760,137 | | 242,159,937 | |
See Notes to Consolidated Financial Statements. | | | | |
*Prior-period financial information has been retrospectively adjusted for acquisitions | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Six Months Ended June 30 |
| Partnership | | |
| Preferred Unitholders Public | Common Unitholders Public | Common Unitholder Phillips 66 | Accum. Other Comprehensive Loss | Noncontrolling Interest | Total |
| | | | | | |
December 31, 2020 | $ | 749 | | 2,706 | | (656) | | (1) | | 293 | | 3,091 | |
Net income | 24 | | 47 | | 136 | | — | | 16 | | 223 | |
Other comprehensive loss | — | | — | | — | | (1) | | — | | (1) | |
Quarterly cash distributions to unitholders ($1.750 per common unit) | (24) | | (103) | | (297) | | — | | — | | (424) | |
Repurchase of preferred units | (20) | | (1) | | (3) | | — | | — | | (24) | |
| | | | | | |
Distributions to noncontrolling interest | — | | — | | — | | — | | (26) | | (26) | |
| | | | | | |
June 30, 2021 | $ | 729 | | 2,649 | | (820) | | (2) | | 283 | | 2,839 | |
| | | | | | |
December 31, 2019 | $ | 746 | | 2,717 | | (628) | | (1) | | 0 | | 2,834 | |
Issuance of common units | — | | 2 | | — | | — | | — | | 2 | |
Net income | 19 | | 118 | | 344 | | — | | — | | 481 | |
Quarterly cash distributions to unitholders ($1.750 per common unit) | (19) | | (102) | | (297) | | — | | — | | (418) | |
Transfer of equity interest | — | | — | | — | | — | | 305 | | 305 | |
Other contributions from Phillips 66 | — | | — | | 9 | | — | | — | | 9 | |
June 30, 2020 | $ | 746 | | 2,735 | | (572) | | (1) | | 305 | | 3,213 | |
| | | | | | | | | | | | | | |
| Units |
| Six Months Ended June 30 |
| Preferred Units Public | Common Units Public | Common Units Phillips 66 | Total Units |
| | | | |
December 31, 2020 | 13,819,791 | | 58,580,009 | | 169,760,137 | | 242,159,937 | |
Units issued in public equity offerings | — | | — | | — | | — | |
Repurchase of preferred units | (368,528) | | — | | — | | (368,528) | |
June 30, 2021 | 13,451,263 | | 58,580,009 | | 169,760,137 | | 241,791,409 | |
| | | | |
December 31, 2019 | 13,819,791 | | 58,539,439 | | 169,760,137 | | 242,119,367 | |
Units issued in public equity offerings | — | | 40,570 | | — | | 40,570 | |
June 30, 2020 | 13,819,791 | | 58,580,009 | | 169,760,137 | | 242,159,937 | |
See Notes to Consolidated Financial Statements. | | | | |
|
| | | | | | | | |
| Common Units Public |
| Common Units Phillips 66 |
| General Partner Units Phillips 66 |
| Total Units |
|
| | | | |
December 31, 2015 | 24,138,750 |
| 58,349,042 |
| 1,683,425 |
| 84,171,217 |
|
Units issued in public equity offerings | 18,996,152 |
| — |
| — |
| 18,996,152 |
|
Units issued associated with acquisitions | — |
| 1,813,745 |
| 295,178 |
| 2,108,923 |
|
September 30, 2016 | 43,134,902 |
| 60,162,787 |
| 1,978,603 |
| 105,276,292 |
|
| | | | |
December 31, 2016 | 43,134,902 |
| 64,047,024 |
| 2,187,386 |
| 109,369,312 |
|
Units issued in public equity offerings | 3,323,576 |
| — |
| — |
| 3,323,576 |
|
September 30, 2017 | 46,458,478 |
| 64,047,024 |
| 2,187,386 |
| 112,692,888 |
|
See Notes to Consolidated Financial Statements.
|
| | | | |
Notes to Consolidated Financial Statements | Phillips 66 Partners LP |
Note 1—Business and BasisDescription of Presentationthe Business
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” or “GP” refer to Phillips 66 Partners GP LLC, and references to Phillips“Phillips 66 PDIPDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us.us and wholly owns our General Partner.
Description of the Business
We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) pipelines, terminals and other transportation, and midstream assets. Our common units trade on the New York Stock Exchange under the symbol PSXP.
Our assets consist of crude oil, refined petroleum products and NGL transportation,terminaling, processing terminaling and storage systems, as well as an NGL fractionator.assets. We conduct our operations through both wholly owned and joint-venturejoint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine9 of Phillips 66’s owned or joint-venturejoint venture refineries. Our operations consist of 1 reportable segment.
We primarily generate revenue by providing fee-based transportation, terminaling, processing, terminaling, storage and NGL fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling NGL,crude oil, refined petroleum products and crude oil.NGL. Since we do not own any of the NGL, crude oil, and refined petroleum products and NGL we handle and do not engage in the trading of NGL, crude oil and refined petroleum products,those commodities, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.
Basis of Presentation
We have acquired assets from Phillips 66 that were considered transfers of businesses between entities under common control. This required the transactions to be accounted for as if the transfers had occurred at the beginning of the transfer period, with prior periods retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of these acquired businesses prior to the effective date of each acquisition. We refer to these pre-acquisition operations as those of our “Predecessors.”
The combined financial statements of our Predecessors were derived from the accounting records of Phillips 66 and reflect the combined historical results of operations, financial position and cash flows of our Predecessors as if such businesses had been combined for all periods presented.
All intercompany transactions and accounts of our Predecessors have been eliminated. The assets and liabilities of our Predecessors in these financial statements have been reflected on a historical cost basis because the transfer of the Predecessors to us took place within the Phillips 66 consolidated group. The consolidated statement of income also includes expense allocations for certain functions performed by Phillips 66, including operational support services such as engineering and logistics and allocations of general corporate expenses related to executive oversight, accounting, treasury, tax, legal, information technology and procurement. These allocations were based primarily on relative carrying values of properties, plants and equipment (PP&E) and equity-method investments, or number of terminals and pipeline miles, and secondarily on activity-based cost allocations. Our management believes the assumptions underlying the allocation of expenses from Phillips 66 are reasonable. Nevertheless, the financial results of our Predecessors may not include all of the actual expenses that would have been incurred had our Predecessors been a stand-alone publicly traded partnership during the periods presented.
Note 2—Interim Financial Information
The unaudited interim financial information presented in the financial statements included in this report is unauditedprepared in accordance with generally accepted accounting principles in the United States (GAAP) and includes all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our financial position, results of operations and cash flows for the periods presented. Unless otherwise specified, all such adjustments are of a normal and recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements included in this report. Therefore, these interim financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our 20162020 Annual Report on Form 10-K. The results of operations for the three and ninesix months ended SeptemberJune 30, 2017,2021, are not necessarily indicative of the results to be expected for the full year.
Note 3—ChangesThe Coronavirus Disease 2019 (COVID-19) pandemic continues to impact global economic activity. Our results in Accounting Principles
Effective January 1, 2017, we early adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates the second stepquarter of 2021 reflect the gradual recovery of demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions since the beginning of 2021. However, the adverse impacts of the COVID-19 pandemic may continue in the near term, and the depth and duration of the resulting economic consequences remain uncertain. We continuously monitor our asset and investment portfolio for impairments in this challenging business environment.
Note 3—Operating Revenues
Operating revenues are primarily generated from long-term pipeline transportation, terminaling, storage, processing and fractionation lease and service agreements, mainly with Phillips 66. These agreements typically include escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. In addition, most of these agreements contain renewal options, which typically require the goodwill impairment test. Under the revised test, an entity should perform its annual, or interim, goodwill impairment testmutual consent of both our customers and us.
Total operating revenues disaggregated by comparing the fair valueasset type were as follows:
| | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2021 | | 2020 | | | 2021 | | 2020 | |
| | | | | |
Pipelines | $ | 121 | 97 | | 225 | 208 |
Terminals | 43 | 33 | | 82 | 76 |
Storage, processing and other revenues | 116 | 111 | | 225 | 224 |
Total operating revenues | $ | 280 | 241 | | 532 | 508 |
The majority of our agreements with Phillips 66 are considered operating leases under GAAP. The classification of a reporting unit with its carrying amount. An entity should recognizelease as either an impairment chargeoperating or a financing lease requires judgment in assessing the contract’s lease and service components and in determining the asset’s fair value. We have elected to account for lease and service elements of contracts classified as leases on a combined basis, except for leases of processing-type assets, which contain non-ratable fees related to turnaround activity. For these types of leases, we continue to separate the amountlease and service elements based on relative standalone prices and apply the lease standard to the lease element and the revenue standard to the service element.
Total operating revenues disaggregated by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amountlease and service revenues were as follows:
| | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2021 | | 2020 | | | 2021 | | 2020 | |
| | | | | |
Lease revenues | $ | 233 | | 195 | | | 440 | | 413 | |
Service revenues | 47 | | 46 | | | 92 | | 95 | |
Total operating revenues | $ | 280 | | 241 | | | 532 | | 508 | |
Accounts Receivable
We bill our customers, mainly Phillips 66, under our lease and service contracts generally on a monthly basis.
Total accounts receivable by revenue type was as follows:
| | | | | | | | | | | |
| Millions of Dollars |
| June 30 2021 | | December 31 2020 |
| | | |
Lease receivables | $ | 84 | | | 87 | |
Service receivables | 17 | | | 19 | |
Total accounts receivable | $ | 101 | | | 106 | |
Deferred Revenues
Effective January 1, 2017, we early adopted ASU No. 2016-18, “StatementOur deferred revenues represent payments received from our customers, mainly Phillips 66, in advance of Cash Flows (Topic 230): Restricted Cash.” The new update changes the classification and presentation of restricted cash in the statement of cash flows. The amendment requires that a statement of cash flows explain the change during the period in the totalwhich lease and service contract performance obligations have been fulfilled. The majority of cash, cash equivalents,our deferred revenues relate to a tolling agreement and amounts generally describeda storage agreement that are classified as restricted cashleases. The remainder of our deferred revenues relate to lease and restricted cash equivalents. Adoption of this ASU on a retrospective basis did not impact our financial statements.
Effective January 1, 2017, we early adopted ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” The new update clarifies how certain cash receipts and cash payments should be presented and classifiedservice agreements that contain minimum volume commitments with recovery provisions. Our deferred revenues are recorded in the statement“Deferred revenues” and “Other liabilities” line items on our consolidated balance sheet.
Total deferred revenues under our lease and service agreements were as follows:
| | | | | | | | | | | |
| Millions of Dollars |
| June 30 2021 | | December 31 2020 |
| | | |
Deferred lease revenues | $ | 51 | | | 45 | |
Deferred service revenues | 2 | | | 4 | |
Total deferred revenues | $ | 53 | | | 49 | |
Future Minimum Lease Payments from Customers
At June 30, 2021, future minimum payments to be received under our lease agreements with customers, mainly Phillips 66, were estimated to be:
| | | | | |
| Millions of Dollars |
| |
Remainder of 2021 | $ | 384 | |
2022 | 753 | |
2023 | 707 | |
2024 | 589 | |
2025 | 530 | |
Remaining years | 1,297 | |
Total future minimum lease payments from customers | $ | 4,260 | |
Remaining Performance Obligations
We typically have long-term service contracts with our customers, mainly Phillips 66, of cash flows. In addition,which the new update clarifiesoriginal durations range from 5 to 15 years. The weighted-average remaining duration of these contracts is 9 years. These contracts include both fixed and variable transaction price components. At June 30, 2021, future service revenues expected to be recognized for the fixed component of the transaction price of our remaining performance obligations from service contracts with our customers that when cash receipts and cash payments have aspectsan original expected duration of moregreater than one classyear were:
| | | | | |
| Millions of Dollars |
| |
Remainder of 2021 | $ | 65 | |
2022 | 124 | |
2023 | 124 | |
2024 | 99 | |
2025 | 95 | |
Remaining years | 381 | |
Total future service revenues | $ | 888 | |
For the predominant sourceremaining service performance obligations, we applied the exemption for variable prices allocated entirely to a wholly unsatisfied performance obligation or use. Adoption of this ASU onto a retrospective basis did not have a material impact on our financial statements.
Note 4—Acquisitions
River Parish Acquisition
In November 2016, we acquired the River Parish NGL System, a non-affiliated party’s NGL logistics assets located in southeast Louisiana, consisting of pipelines and storage caverns connecting multiple fractionation facilities, refineries and a petrochemical facility. At the acquisition date, we recorded $183 million of PP&E and $3 million of goodwill. Our acquisition accounting was finalized during the first quarter of 2017, with no changewholly unsatisfied promise to the provisional amounts recorded in 2016.
During 2016, we completed three acquisitions that were considered transfers of businesses between entities under common control, and therefore the related acquired assets were transferred at historical carrying value. Because these acquisitions were common control transactions in which we acquired businesses, our historical financial statements have been retrospectively adjustedtransfer distinct services as if we owned the acquired assets for all periods presented.
Fractionator Acquisitions
Initial Fractionator Acquisition. In February 2016, we entered into a Contribution, Conveyance and Assumption Agreement (CCAA) with subsidiaries of Phillips 66 to acquire a 25 percent controlling interest in Phillips 66 Sweeny Frac LLC (Sweeny Frac LLC) for total consideration of $236 million (the Initial Fractionator Acquisition). Total consideration consisted of the assumptionpart of a $212 million note payable to a subsidiary of Phillips 66 and the issuance of 412,823 common units to Phillips 66 PDI and 8,425 general partner units to our General Partner to maintain its 2 percent general partner interest. The Initial Fractionator Acquisition closed in March 2016.performance obligation.
Subsequent Fractionator Acquisition.In May 2016, we entered into a CCAA with subsidiaries of Phillips 66 to acquire the remaining 75 percent interest in Sweeny Frac LLC and 100 percent of the Standish Pipeline for total consideration of $775 million (the Subsequent Fractionator Acquisition). Total consideration consisted of the assumption of $675 million of notes payable to a subsidiary of Phillips 66 and the issuance of 1,400,922 common units to Phillips 66 PDI and 286,753 general partner units to our General Partner to maintain its 2 percent general partner interest in us after also taking into account the public offering we completed in May 2016. The Subsequent Fractionator Acquisition closed in May 2016.
Eagle Acquisition
In October 2016, we entered into a CCAA with subsidiaries of Phillips 66 to acquire certain pipeline and terminal assets supporting four Phillips 66-operated refineries (the Eagle Acquisition). We paid Phillips 66 total consideration of $1,305 million, consisting of $1,109 million in cash and the issuance of 3,884,237 common units to Phillips 66 PDI and 208,783 general partner units to our General Partner to maintain its 2 percent general partner interest. The Eagle Acquisition closed in October 2016.
The following tables present our previously reported results of operations and cash flows giving effect to the Eagle Acquisition. The results of operations and cash flows of the Initial Fractionator Acquisition and Subsequent Fractionator Acquisition are included in our previously reported consolidated statement of income and consolidated statement of cash flows for the periods presented, within the first column. The second column in all tables presents the retrospective adjustments made to our historical financial information for the related acquired assets prior to the effective date of acquisition. The third column in all tables presents our consolidated financial information as retrospectively adjusted.
|
| | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30, 2016 |
Consolidated Statement of Income | Phillips 66 Partners LP (As previously reported) |
| | Acquired Eagle Assets Predecessor |
|
| Consolidated Results |
|
Revenues and Other Income |
| | |
|
|
Operating revenues—related parties | $ | 108 |
| | 73 |
|
| 181 |
|
Operating revenues—third parties | 2 |
| | 5 |
|
| 7 |
|
Equity in earnings of affiliates | 33 |
| | — |
|
| 33 |
|
Other income | 1 |
| | — |
|
| 1 |
|
Total revenues and other income | 144 |
| | 78 |
|
| 222 |
|
| | | |
|
|
Costs and Expenses | | | |
|
|
Operating and maintenance expenses | 26 |
| | 28 |
|
| 54 |
|
Depreciation | 15 |
| | 10 |
|
| 25 |
|
General and administrative expenses | 9 |
| | 8 |
|
| 17 |
|
Taxes other than income taxes | 1 |
| | 3 |
|
| 4 |
|
Interest and debt expense | 10 |
| | — |
|
| 10 |
|
Total costs and expenses | 61 |
| | 49 |
|
| 110 |
|
Income before income taxes | 83 |
| | 29 |
|
| 112 |
|
Provision for income taxes | — |
| | — |
|
| — |
|
Net income | 83 |
| | 29 |
|
| 112 |
|
Less: Net income attributable to Predecessors | — |
| | 29 |
|
| 29 |
|
Net income attributable to the Partnership | 83 |
| | — |
|
| 83 |
|
Less: General partner’s interest in net income attributable to the Partnership | 26 |
| | — |
|
| 26 |
|
Limited partners’ interest in net income attributable to the Partnership | $ | 57 |
| | — |
|
| 57 |
|
|
| | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2016 |
Consolidated Statement of Income | Phillips 66 Partners LP (As previously reported) |
| | Acquired Eagle Assets Predecessor |
| | Consolidated Results |
|
Revenues and Other Income | | | | | |
Operating revenues—related parties | $ | 315 |
| | 219 |
| | 534 |
|
Operating revenues—third parties | 6 |
| | 16 |
| | 22 |
|
Equity in earnings of affiliates | 88 |
| | — |
| | 88 |
|
Other income | 1 |
| | — |
| | 1 |
|
Total revenues and other income | 410 |
| | 235 |
| | 645 |
|
| | | | | |
Costs and Expenses | | | | | |
Operating and maintenance expenses | 76 |
| | 86 |
| | 162 |
|
Depreciation | 44 |
| | 27 |
| | 71 |
|
General and administrative expenses | 26 |
| | 24 |
| | 50 |
|
Taxes other than income taxes | 11 |
| | 13 |
| | 24 |
|
Interest and debt expense | 31 |
| | — |
| | 31 |
|
Total costs and expenses | 188 |
| | 150 |
| | 338 |
|
Income before income taxes | 222 |
| | 85 |
| | 307 |
|
Provision for income taxes | 1 |
| | — |
| | 1 |
|
Net income | 221 |
| | 85 |
| | 306 |
|
Less: Net income attributable to Predecessors | 18 |
| | 85 |
| | 103 |
|
Net income attributable to the Partnership | 203 |
| | — |
| | 203 |
|
Less: General partner’s interest in net income attributable to the Partnership | 63 |
| | — |
| | 63 |
|
Limited partners’ interest in net income attributable to the Partnership | $ | 140 |
| | — |
| | 140 |
|
|
| | | | | | | | | |
| Millions of Dollars |
| Nine Months Ended September 30, 2016 |
| Phillips 66 Partners LP (As previously reported) |
| | Acquired Eagle Assets Predecessor |
| | Consolidated Results |
|
Cash Flows From Operating Activities | | | | | |
Net income | $ | 221 |
| | 85 |
| | 306 |
|
Adjustments to reconcile net income to net cash provided by operating activities | | | | | |
Depreciation | 44 |
| | 27 |
| | 71 |
|
Deferred taxes | 1 |
| | — |
| | 1 |
|
Adjustment to equity earnings for cash distributions received | (4 | ) | | — |
| | (4 | ) |
Deferred revenues and other | 9 |
| | — |
| | 9 |
|
Other | 4 |
| | — |
| | 4 |
|
Working capital adjustments | | | | | |
Decrease (increase) in accounts receivable | (16 | ) | | 1 |
| | (15 | ) |
Decrease (increase) in materials and supplies | (1 | ) | | — |
| | (1 | ) |
Decrease (increase) in prepaid expenses and other current assets | (2 | ) | | — |
| | (2 | ) |
Increase (decrease) in accounts payable | 4 |
| | 3 |
| | 7 |
|
Increase (decrease) in accrued interest | (17 | ) | | — |
| | (17 | ) |
Increase (decrease) in deferred revenues | 5 |
| | — |
| | 5 |
|
Increase (decrease) in other accruals | 3 |
| | 4 |
| | 7 |
|
Net Cash Provided by Operating Activities | 251 |
| | 120 |
| | 371 |
|
| | | | | |
Cash Flows From Investing Activities | | | | | |
Cash capital expenditures and investments | (249 | ) | | (72 | ) | | (321 | ) |
Return of investment from equity affiliates | 10 |
| | — |
| | 10 |
|
Other | (24 | ) | | — |
| | (24 | ) |
Net Cash Used in Investing Activities | (263 | ) | | (72 | ) | | (335 | ) |
| | | | | |
Cash Flows From Financing Activities | | | | | |
Net contributions from (to) Phillips 66 to (from) Predecessors | 89 |
| | (48 | ) | | 41 |
|
Acquisition of noncontrolling interest in Sweeny Frac LLC | (656 | ) | | — |
| | (656 | ) |
Issuance of debt | 428 |
| | — |
| | 428 |
|
Repayment of debt | (686 | ) | | — |
| | (686 | ) |
Issuance of common units | 972 |
| | — |
| | 972 |
|
Quarterly distributions to common unitholders—public | (41 | ) | | — |
| | (41 | ) |
Quarterly distributions to common unitholder—Phillips 66 | (86 | ) | | — |
| | (86 | ) |
Quarterly distributions to General Partner—Phillips 66 | (50 | ) | | — |
| | (50 | ) |
Other cash contributions from Phillips 66 | 11 |
| | — |
| | 11 |
|
Net Cash Used in Financing Activities | (19 | ) | | (48 | ) | | (67 | ) |
| | | | | |
Net Change in Cash and Cash Equivalents | (31 | ) | | — |
| | (31 | ) |
Cash and cash equivalents at beginning of period | 50 |
| | — |
| | 50 |
|
Cash and Cash Equivalents at End of Period | $ | 19 |
| | — |
| | 19 |
|
Note 5—4—Equity Investments
The following table summarizes the carrying value of our equity investments.investments:
| | | | | | | | | | | | | | | | | |
| | | Millions of Dollars |
| Percentage Ownership | | June 30 2021 | | December 31 2020 |
| | | | | |
Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (Bakken Pipeline) | 25.00 | % | | $ | 577 | | | 577 | |
Bayou Bridge Pipeline, LLC (Bayou Bridge) | 40.00 | | | 280 | | | 288 | |
DCP Sand Hills Pipeline, LLC (Sand Hills) | 33.34 | | | 580 | | | 582 | |
DCP Southern Hills Pipeline, LLC (Southern Hills) | 33.34 | | | 214 | | | 217 | |
Explorer Pipeline Company (Explorer) | 21.94 | | | 84 | | | 92 | |
Gray Oak Pipeline, LLC | 65.00 | | | 833 | | | 860 | |
Liberty Pipeline LLC (Liberty)* | 0 | | | 0 | | | 241 | |
Paradigm Pipeline LLC (Paradigm) | 50.00 | | | 139 | | | 141 | |
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal) | 70.00 | | | 16 | | | 15 | |
South Texas Gateway Terminal LLC (South Texas Gateway Terminal) | 25.00 | | | 176 | | | 167 | |
STACK Pipeline LLC (STACK) | 50.00 | | | 63 | | | 64 | |
Total equity investments | | | $ | 2,962 | | | 3,244 | |
|
| | | | | | | | |
| | | Millions of Dollars |
| Percentage Ownership |
| | Carrying Value |
| | September 30 2017 |
| December 31 2016 |
|
| | | | |
DCP Sand Hills Pipeline, LLC (Sand Hills) | 33.34 | % | | $ | 478 |
| 445 |
|
DCP Southern Hills Pipeline, LLC (Southern Hills) | 33.34 |
| | 208 |
| 212 |
|
Explorer Pipeline Company (Explorer) | 21.94 |
| | 124 |
| 126 |
|
Phillips 66 Partners Terminal LLC (Phillips 66 Partners Terminal) | 70.00 |
| | 57 |
| 72 |
|
Paradigm Pipeline LLC (Paradigm) | 50.00 |
| | 130 |
| 117 |
|
Bayou Bridge Pipeline, LLC (Bayou Bridge) | 40.00 |
| | 171 |
| 115 |
|
STACK Pipeline LLC (STACK) | 50.00 |
| | 97 |
| 55 |
|
Total equity investments | | | $ | 1,265 |
| 1,142 |
|
|
*In April 2021, we transferred our 50% ownership interest in Liberty to our co-venturer.
Earnings (losses) from our equity investments were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 | | |
| 2021 | | 2020 | | | 2021 | | 2020 | | | | |
| | | | | | | | |
Bakken Pipeline | $ | 38 | | 30 | | | 82 | | 87 | | | | |
Bayou Bridge | 10 | | 7 | | | 17 | | 17 | | | | |
Sand Hills | 33 | | 37 | | | 60 | | 78 | | | | |
Southern Hills | 12 | | 10 | | | 24 | | 21 | | | | |
Explorer | 11 | | 4 | | | 14 | | 11 | | | | |
Gray Oak Pipeline, LLC | 26 | | 14 | | | 47 | | 19 | | | | |
| | | | | | | | |
Paradigm | 6 | | 2 | | | 11 | | 6 | | | | |
Phillips 66 Partners Terminal | 1 | | (1) | | | 1 | | (1) | | | | |
South Texas Gateway Terminal | 5 | | 0 | | | 9 | | 0 | | | | |
STACK | 0 | | 1 | | | 1 | | 2 | | | | |
Total equity in earnings of affiliates | $ | 142 | | 104 | | | 266 | | 240 | | | | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | |
Sand Hills | $ | 21 |
| 16 |
| | 58 |
| 48 |
|
Southern Hills | 6 |
| 7 |
| | 20 |
| 21 |
|
Explorer | 7 |
| 8 |
| | 18 |
| 17 |
|
Phillips 66 Partners Terminal | 2 |
| — |
| | 5 |
| — |
|
Paradigm | (1 | ) | — |
| | (2 | ) | — |
|
Bayou Bridge | 4 |
| 2 |
| | 8 |
| 2 |
|
STACK | 2 |
| — |
| | 4 |
| — |
|
Total equity in earnings of affiliates | $ | 41 |
| 33 |
| | 111 |
| 88 |
|
Liberty
Note 6—Properties, PlantsLiberty was a joint venture formed to develop and Equipment
Ourconstruct the Liberty Pipeline system. In the first quarter of 2021, we decided to exit the Liberty Pipeline project, which had previously been deferred due to the challenging business environment created by the COVID-19 pandemic. As a result, we recorded a $198 million impairment to reduce the book value of our investment in PP&E,Liberty at March 31, 2021, to our share of the estimated fair value of the joint venture’s pipeline assets and net working capital. The impairment is included in the “Impairments” line item on our consolidated statement of income. This valuation resulted in a Level 3 nonrecurring fair value measurement.
In April 2021, we transferred our 50% ownership interest in Liberty to our co-venturer for cash and certain pipeline assets with a value that approximated our book value of $46 million at March 31, 2021.
Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)
In 2020, the trial court presiding over litigation regarding the Dakota Access Pipeline ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement under Lake Oahe in North Dakota and later vacated the easement. Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the associated accumulated depreciation, was:EIS, which is expected to be completed in 2022. In May 2021, the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and in June 2021, dismissed the litigation. It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed.
Dakota Access and ETCO have guaranteed repayment of $2.5 billion aggregate principal amount of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access. In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access in certain circumstances relating to the litigation described above. At June 30, 2021, our share of the maximum potential equity contributions under the CECU was approximately $631 million.
If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we also could be required to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU.
Summarized financial information for 100% of Dakota Access is as follows:
| | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 |
| 2021 | | | 2020 | | | 2021 | | 2020 | |
| | | | | | |
Revenues | $ | 198 | | | 169 | | | 413 | | 427 | |
Income before income taxes | 125 | | | 94 | | | 267 | | 280 | |
Net income | 125 | | | 94 | | | 267 | | 280 | |
|
| | | | | |
| Millions of Dollars |
| September 30 2017 |
| December 31 2016 |
|
| | |
Land | $ | 19 |
| 19 |
|
Buildings and improvements | 87 |
| 88 |
|
Pipelines and related assets* | 1,352 |
| 1,335 |
|
Terminals and related assets* | 631 |
| 610 |
|
Rail racks and related assets* | 137 |
| 137 |
|
Fractionator and related assets* | 616 |
| 615 |
|
Caverns and related assets* | 583 |
| 569 |
|
Construction-in-progress | 53 |
| 27 |
|
Gross PP&E | 3,478 |
| 3,400 |
|
Less: Accumulated depreciation | 803 |
| 725 |
|
Net PP&E | $ | 2,675 |
| 2,675 |
|
Gray Oak Pipeline, LLC*AssetsGray Oak Pipeline, LLC was formed to develop and construct the Gray Oak Pipeline, which transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations that include Corpus Christi and the Sweeny area, including the Phillips 66 Sweeny Refinery, as well as access to the Houston market. We have a consolidated holding company that owns 65% of Gray Oak Pipeline, LLC. In December 2018, a third party exercised its option to acquire a 35% interest in the holding company. Because the holding company’s sole asset was its ownership interest in Gray Oak Pipeline, LLC, which was considered a financial asset, and because certain restrictions were placed on the third party’s ability to transfer or sell its interest in the holding company during the construction of the Gray Oak Pipeline, the legal sale of the 35% interest did not qualify as a sale under GAAP at that time. The Gray Oak Pipeline commenced full operations in the second quarter of 2020 and the restrictions placed on the co-venturer were lifted on June 30, 2020, resulting in the recognition of the sale under GAAP. Accordingly, at June 30, 2020, the co-venturer’s 35% interest in the holding company was recharacterized from a long-term obligation to a noncontrolling interest on our consolidated balance sheet. In addition, the premium of $84 million previously paid by the co-venturer in 2019 was recharacterized from a long-term obligation to a gain in our consolidated statement of income for which we are the lessor.
Note 7—Debt
Debt at Septemberthree and six months ended June 30, 2017, and December 31, 2016, was:
|
| | | | | | | | | | | | |
| Millions of Dollars |
| September 30, 2017 |
| Fair Value Hierarchy | Total Fair Value |
| Balance Sheet Carrying Value |
|
| Level 1 |
| Level 2* |
| Level 3 |
|
| |
2.646% Senior Notes due 2020 | $ | — |
| 302 |
| — |
| 302 |
| 300 |
|
3.605% Senior Notes due 2025 | — |
| 499 |
| — |
| 499 |
| 500 |
|
3.550% Senior Notes due 2026 | — |
| 490 |
| — |
| 490 |
| 500 |
|
4.680% Senior Notes due 2045 | — |
| 291 |
| — |
| 291 |
| 300 |
|
4.900% Senior Notes due 2046 | — |
| 631 |
| — |
| 631 |
| 625 |
|
Revolving credit facility at 2.45% at September 30, 2017 | — |
| 87 |
| — |
| 87 |
| 87 |
|
Total | $ | — |
| 2,300 |
| — |
| 2,300 |
| 2,312 |
|
Net unamortized discounts and debt issuance costs | | | | | (22 | ) |
Total debt |
|
|
|
| 2,290 |
|
Short-term debt | | | | | (17 | ) |
Long-term debt | | | | | $ | 2,273 |
|
*Fair value was estimated using observable market prices.
|
| | | | | | | | | | | | |
| Millions of Dollars |
| December 31, 2016 |
| Fair Value Hierarchy | Total Fair Value |
| Balance Sheet Carrying Value |
|
| Level 1 |
| Level 2* |
| Level 3 |
|
| | | | | |
2.646% Senior Notes due 2020 | $ | — |
| 298 |
| — |
| 298 |
| 300 |
|
3.605% Senior Notes due 2025 | — |
| 490 |
| — |
| 490 |
| 500 |
|
3.550% Senior Notes due 2026 | — |
| 483 |
| — |
| 483 |
| 500 |
|
4.680% Senior Notes due 2045 | — |
| 277 |
| — |
| 277 |
| 300 |
|
4.900% Senior Notes due 2046 | — |
| 599 |
| — |
| 599 |
| 625 |
|
Revolving credit facility at 1.98% at December 31, 2016 | — |
| 210 |
| — |
| 210 |
| 210 |
|
Total | $ | — |
| 2,357 |
| — |
| 2,357 |
| 2,435 |
|
Net unamortized discounts and debt issuance costs | | | | | (24 | ) |
Total debt |
|
|
|
| 2,411 |
|
Short-term debt | | | | | (15 | ) |
Long-term debt | | | | | $ | 2,396 |
|
*Fair value was estimated using observable market prices. |
Revolving Credit Facility
At September2020. For the six months ended June 30, 2017, and December 31, 2016, we had2020, the co-venturer contributed an aggregate of $87$61 million and $210 million, respectively, borrowed and outstanding under our $750 million revolving credit facility.
Note 8—Equity
ATM Program
In June 2016, we filed a prospectus supplement to the shelf registration statement for our continuous offering program that became effective with the Securities and Exchange Commission in May 2016, related to the continuous issuance of up to an aggregate of $250 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, is referred to as our ATM Program). We did not issue any common units under the ATM Program during the three months ended September 30, 2017. For the nine months ended September 30, 2017, on a settlement date basis, we issued 3,323,576 common units under our ATM Program, which generated net proceeds of $171 million. For the three and nine months ended September 30, 2016, on a settlement date basis, we issued 83,294 and 346,152 common units, respectively, under our ATM Program, generating net proceeds of $5 million and $19 million, respectively. Since inception through September 30, 2017, we have issued an aggregate of 3,669,728 common units under our ATM Program, generating net proceeds of $190 million, after broker commissions of $2 million. The net proceeds from sales under the ATM Program are used for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital.
Common Unit Offerings
In August 2016, we completed a public offering of 6,000,000 common units representing limited partner interests at a price of $50.22 per common unit. We received proceeds (net of underwriting discounts and commissions) of $299 million from the offering. We utilized the net proceeds to repay the note assumed as part of the Initial Fractionator Acquisition and to repay other short-term borrowings incurredholding company to fund its portion of Gray Oak Pipeline, LLC’s cash calls. We have an effective ownership interest of 42.25% in Gray Oak Pipeline, LLC, after considering our acquisition of an additionalco-venturer’s 35% interest in Explorer and our contribution to form STACK Pipeline. Seethe consolidated holding company.
Note 4—Acquisitions for additional information.
In May 2016, we completed a public offering, consisting of an aggregate of 12,650,000 common units representing limited partner interests at a price of $52.40 per common unit. We received proceeds (net of underwriting discounts and commissions) of $656 million from the offering. We utilized the net proceeds to partially repay debt assumed as part of the Subsequent Fractionator Acquisition. See Note 4—Acquisitionsfor additional information.
Note 9—5—Net Income Per Limited Partner Unit
NetWe calculate net income attributable to the Partnership per limited partner unit is computed by dividing the limited partners’ interest in net income attributable to the Partnership by the weighted-average number of common units outstanding for the period. The classes ofAfter considering the period’s cash distributions declared, the remaining undistributed earnings or excess distributions declared over earnings, if any, are allocated to participating securities in accordance with the contractual terms of our partnership agreement and as of September 30, 2017, includedprescribed under the two-class method for those periods in which we have participating securities. The earnings amount allocated to the limited partner common unitholders is then adjusted for any premiums paid to repurchase preferred units. Our preferred units general partner units and incentive distribution rights (IDRs). Basic andbecame participating securities effective October 1, 2020. See Note 9—Equityfor additional information on our preferred units.
For the diluted net income per limited partner unit calculation, the preferred units are assumed to be converted at the same because we dobeginning of the period into common limited partner units on a 1-for-one basis, and the distribution formula for available cash in our partnership agreement is recalculated, using the original available cash amount increased only for the preferred distributions declared which would not have been paid after conversion.Any potentially dilutive instruments outstanding.
Net income earned bysecurities are excluded from the Partnership is allocated between the limited partners and the General Partner (including the General Partner’s IDRs) in accordance with our partnership agreement. First, earnings are allocated based on actual cash distributions made to our unitholders, including those attributable to the General Partner’s IDRs. To the extent net income attributable to the Partnership exceeds or is less than cash distributions, this difference is allocated based on the unitholders’ respective ownership percentages, after consideration of any priority allocations of earnings.
When our financial statements are retrospectively adjusted after a dropdown transaction, the earnings of the acquired business, prior to the closing of the transaction, are allocated entirely to our General Partner and presented as net income (loss) attributable to Predecessors. Thediluted earnings per unit computation if the effect of our limited partners prior to the close of the transaction do not change as a result of a dropdown transaction. After the closing of a dropdown transaction, the earnings of the acquired business are allocated in accordance with our partnership agreement as previously described.including such securities would be anti-dilutive.
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | |
Net income attributable to the Partnership | $ | 99 |
| 83 |
| | 299 |
| 203 |
|
Less: General partner’s distribution declared (including IDRs)* | 43 |
| 26 |
| | 111 |
| 63 |
|
Limited partners’ distribution declared on common units* | 78 |
| 56 |
| | 209 |
| 145 |
|
Distributions less than (in excess of) net income attributable to the Partnership | $ | (22 | ) | 1 |
| | (21 | ) | (5 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 | | |
| 2021 | | | 2020 | | | 2021 | | 2020 | | | | |
| | | | | | | | | |
Net income attributable to the Partnership | $ | 225 | | | 255 | | | 207 | | 481 | | | | |
Less: | | | | | | | | | |
Limited partners’ distributions declared on preferred units* | 12 | | | 9 | | | 24 | | 19 | | | | |
Limited partners’ distributions declared on common units* | 199 | | | 200 | | | 399 | | 399 | | | | |
Distributions less than (more than) net income attributable to the Partnership | $ | 14 | | | 46 | | | (216) | | 63 | | | | |
*DistributionDistributions declared are attributable to the indicated periods.
|
| | | | | | | | |
| General Partner (including IDRs) |
| Limited Partners’ Common Units |
| Total |
|
Three Months Ended September 30, 2017 | | | |
Net income attributable to the Partnership (millions): | | | |
Distribution declared | $ | 43 |
| 78 |
| 121 |
|
Distribution in excess of net income attributable to the Partnership | — |
| (22 | ) | (22 | ) |
Net income attributable to the Partnership | $ | 43 |
| 56 |
| 99 |
|
| | | |
Weighted-average units outstanding—basic and diluted | | 110,505,502 |
|
|
| | | |
Net income per limited partner unit—basic and diluted (dollars) | | $ | 0.51 |
| |
| | | |
Three Months Ended September 30, 2016 | | | |
Net income attributable to the Partnership (millions): | | | |
Distribution declared | $ | 26 |
| 56 |
| 82 |
|
Distribution less than net income attributable to the Partnership | — |
| 1 |
| 1 |
|
Net income attributable to the Partnership | $ | 26 |
| 57 |
| 83 |
|
| | | |
Weighted-average units outstanding—basic and diluted | | 100,555,277 |
| |
| | | |
Net income per limited partner unit—basic and diluted (dollars) | | $ | 0.57 |
| |
| | | | | | | | | | | | |
| Limited Partners’ Common Units | | Limited Partners’ Preferred Units | Total |
Three Months Ended June 30, 2021 | | | | |
Net income attributable to the Partnership (millions): | | | | |
Distributions declared | $ | 199 | | | 12 | | 211 | |
Distributions less than net income attributable to the Partnership | 14 | | | 0 | | 14 | |
Net income attributable to the Partnership | 213 | | | 12 | | 225 | |
Premium paid for the repurchase of preferred units | (4) | | | | |
Net income attributable to the Partnership—basic | 209 | | | | |
Dilutive effect of preferred units | 0 | | | | |
Net income attributable to the Partnership—diluted | $ | 209 | | | | |
| | | | |
Weighted-average units outstanding—basic | 228,340,146 | | | | |
Dilutive effect of preferred units | 0 | | | | |
Weighted-average units outstanding—diluted | 228,340,146 | | | | |
| | | | |
Net income attributable to the Partnership per limited partner unit—basic (dollars) | $ | 0.91 | | | | |
Net income attributable to the Partnership per limited partner unit—diluted (dollars) | 0.91 | | | | |
| | | | | | | | | | | |
| Limited Partners’ Common Units | Limited Partners’ Preferred Units | Total |
Three Months Ended June 30, 2020 | | | |
Net income attributable to the Partnership (millions): | | | |
Distributions declared | $ | 200 | | 9 | | 209 | |
Distributions less than net income attributable to the Partnership | 46 | | 0 | | 46 | |
Net income attributable to the Partnership—basic | 246 | | 9 | | 255 | |
Dilutive effect of preferred units | 9 | | | |
Net income attributable to the Partnership—diluted | $ | 255 | | | |
| | | |
Weighted-average units outstanding—basic | 228,340,146 | | | |
Dilutive effect of preferred units | 13,819,791 | | | |
Weighted-average units outstanding—diluted | 242,159,937 | | | |
| | | |
Net income attributable to the Partnership per limited partner unit—basic (dollars) | $ | 1.07 | | | |
Net income attributable to the Partnership per limited partner unit—diluted (dollars) | 1.05 | | | |
|
| | | | | | | | |
| General Partner (including IDRs) |
| Limited Partners’ Common Units |
| Total |
|
Nine Months Ended September 30, 2017 | | | |
Net income attributable to the Partnership (millions): | | | |
Distribution declared | $ | 111 |
| 209 |
| 320 |
|
Distribution less than (in excess of) net income attributable to the Partnership | 1 |
| (22 | ) | (21 | ) |
Net income attributable to the Partnership | $ | 112 |
| 187 |
| 299 |
|
| | | |
Weighted-average units outstanding—basic and diluted | | 109,042,961 |
| |
| | | |
Net income per limited partner unit—basic and diluted (dollars) | | $ | 1.72 |
| |
| | | |
Nine Months Ended September 30, 2016 | | | |
Net income attributable to the Partnership (millions): | | | |
Distribution declared | $ | 63 |
| 145 |
| 208 |
|
Distribution in excess of net income attributable to the Partnership | — |
| (5 | ) | (5 | ) |
Net income attributable to the Partnership | $ | 63 |
| 140 |
| 203 |
|
| | | |
Weighted-average units outstanding—basic and diluted | | 91,414,459 |
| |
| | | |
Net income per limited partner unit—basic and diluted (dollars) | | $ | 1.53 |
| |
| | | | | | | | | | | | |
| Limited Partners’ Common Units | | Limited Partners’ Preferred Units | Total |
Six Months Ended June 30, 2021 | | | | |
Net income attributable to the Partnership (millions): | | | | |
Distributions declared | $ | 399 | | | 24 | | 423 | |
Distributions more than net income attributable to the Partnership | (216) | | | 0 | | (216) | |
Net income attributable to the Partnership | 183 | | | 24 | | 207 | |
Premium paid for the repurchase of preferred units | (4) | | | | |
Net income attributable to the Partnership—basic | 179 | | | | |
Dilutive effect of preferred units | 0 | | | | |
Net income attributable to the Partnership—diluted | $ | 179 | | | | |
| | | | |
Weighted-average units outstanding—basic | 228,340,146 | | | | |
Dilutive effect of preferred units | 0 | | | | |
Weighted-average units outstanding—diluted | 228,340,146 | | | | |
| | | | |
Net income attributable to the Partnership per limited partner unit—basic (dollars) | $ | 0.78 | | | | |
Net income attributable to the Partnership per limited partner unit—diluted (dollars) | 0.78 | | | | |
| | | | | | | | | | | |
| Limited Partners’ Common Units | Limited Partners’ Preferred Units | Total |
Six Months Ended June 30, 2020 | | | |
Net income attributable to the Partnership (millions): | | | |
Distributions declared | $ | 399 | | 19 | | 418 | |
Distributions less than net income attributable to the Partnership | 63 | | 0 | | 63 | |
Net income attributable to the Partnership—basic | 462 | | 19 | | 481 | |
Dilutive effect of preferred units | 19 | | | |
Net income attributable to the Partnership—diluted | $ | 481 | | | |
| | | |
Weighted-average units outstanding—basic | 228,326,203 | | | |
Dilutive effect of preferred units | 13,819,791 | | | |
Weighted-average units outstanding—diluted | 242,145,994 | | | |
| | | |
Net income attributable to the Partnership per limited partner unit—basic (dollars) | $ | 2.02 | | | |
Net income attributable to the Partnership per limited partner unit—diluted (dollars) | 1.99 | | | |
On October 18, 2017,July 20, 2021, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.646$0.875 per limited partnercommon unit, which combined with distributions to our General Partner, will result in a total distributionsdistribution of $121$199 million attributable to the thirdsecond quarter of 2017.2021. This distribution is payable Novemberon August 13, 2017,2021, to common unitholders of record as of OctoberJuly 30, 2021.
Beginning with the distribution to preferred unitholders attributable to the fourth quarter of 2020, the preferred unitholders at the record date are entitled to receive cumulative quarterly distributions equal to the greater of $0.678375 per unit, or the per-unit distribution amount paid to the common unitholders. Preferred unitholders will receive $12 million of distributions attributable to the second quarter of 2021. This distribution is payable August 13, 2021, to preferred unitholders of record as of July 30, 2021.
Note 6—Properties, Plants and Equipment
Our investment in properties, plants and equipment (PP&E), with the associated accumulated depreciation, was:
| | | | | | | | | | | |
| Millions of Dollars |
| June 30 2021 | | December 31 2020 |
| | | |
Land | $ | 19 | | | 19 | |
Buildings and improvements | 117 | | | 115 | |
Pipelines and related assets* | 1,539 | | | 1,518 | |
Terminals and related assets* | 851 | | | 847 | |
Rail racks and related assets* | 137 | | | 137 | |
Processing and related assets* | 1,064 | | | 1,063 | |
Caverns and related assets* | 733 | | | 732 | |
Construction-in-progress | 445 | | | 394 | |
Gross PP&E | 4,905 | | | 4,825 | |
Accumulated depreciation | (1,252) | | | (1,186) | |
Net PP&E | $ | 3,653 | | | 3,639 | |
*Assets for which we are the lessor. |
Note 7—Debt
| | | | | | | | | | | |
| Millions of Dollars |
| June 30 2021 | | December 31 2020 |
| | | |
2.450% Senior Notes due December 2024 | $ | 300 | | | 300 | |
3.605% Senior Notes due February 2025 | 500 | | | 500 | |
3.550% Senior Notes due October 2026 | 500 | | | 500 | |
3.750% Senior Notes due March 2028 | 500 | | | 500 | |
3.150% Senior Notes due December 2029 | 600 | | | 600 | |
4.680% Senior Notes due February 2045 | 450 | | | 450 | |
4.900% Senior Notes due October 2046 | 625 | | | 625 | |
| | | |
Tax-exempt bonds due April 2021 at weighted-average rate of 0.360% | 0 | | | 50 | |
Term loan due April 2022 at rate of 0.955% | 450 | | | 0 | |
Revolving credit facility borrowings due July 2021 at rate of 1.350% at June 30, 2021 and weighted-average rate of 1.397% at December 31, 2020 | 15 | | | 415 | |
Debt at face value | 3,940 | | | 3,940 | |
Net unamortized discounts and debt issuance costs | (30) | | | (31) | |
Total debt | 3,910 | | | 3,909 | |
Short-term debt | (465) | | | (465) | |
Long-term debt | $ | 3,445 | | | 3,444 | |
| | | |
| | | |
The fair value of our fixed-rate and floating-rate debt is estimated based on observable market prices and is classified as Level 2 of the fair value hierarchy. The fair value of our fixed-rate debt was $3,827 million and $3,752 million at June 30, 2021, and December 31, 2017.2020, respectively. The fair value of our floating-rate debt approximated carrying value of $465 million at June 30, 2021 and December 31, 2020.
At June 30, 2021, and December 31, 2020, borrowings of $15 million and $415 million, respectively, were outstanding under our $750 million revolving credit facility. At both June 30, 2021, and December 31, 2020, $1 million in letters of credit had been issued that were supported by this facility.
Term Loan Agreement
On April 6, 2021, we entered into a $450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of April 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a floating rate based on either a Eurodollar rate or a reference rate, plus a margin of 0.875%. Proceeds were primarily used to repay amounts borrowed under our $750 million revolving credit facility.
Debt Repayment
On April 1, 2021, we repaid the 2 remaining $25 million tranches of tax-exempt bonds due April 2021, totaling $50 million.
Note 10—8—Contingencies
From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.uncertain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include any contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that
of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Environmental
We are subject to extensive federal, state and local environmental laws and regulations. We record accruals for contingent environmental liabilities based on management’s best estimates, using all information that is available at the time. We measure estimates and base liabilities on currently available facts, existing technology, and presently enacted laws and regulations, taking into account stakeholder and business considerations. When measuring environmental liabilities, we also consider our prior experience in remediation of contaminated sites, other companies’ cleanup experience, and data released by the U.S. Environmental Protection Agency or other organizations. We consider unasserted claims in our determination of environmental liabilities, and we accrue them in the period they are both probable and reasonably estimable.
At both SeptemberJune 30, 2017,2021, and December 31, 2016,2020, our total environmental accrual was $2 million. accruals were not material.
In the future, we may be involved in additional environmental assessments, cleanups and proceedings.
Legal Proceedings
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal organization applies its knowledge, experience and professional judgment to the specific characteristics of our cases, employing a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and recommendsdetermines if adjustment of existing accruals, or establishment of new accruals, is required. As of SeptemberJune 30, 2017,2021, and December 31, 2016,2020, we did not have any material accrued contingent liabilities associated with litigation matters.
Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize a non-cash expensenoncash expenses and an associated non-cashnoncash capital contributioncontributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.
We have assumed,
Note 9—Equity
On June 29, 2021, we repurchased 368,528 of the outstanding Series A Perpetual Convertible Preferred Units with an aggregate carrying value of $20 million for $24 million in cash, or $65.124 per unit. Upon the repurchase, these preferred units were canceled and have agreedare no longer outstanding. At June 30, 2021, there were 13,451,263 preferred units outstanding.
Beginning with the distribution to pay, discharge and perform as and when due, all liabilities arising out of orpreferred unitholders attributable to the ownership or operationfourth quarter of 2020, the assets, or other activities occurring in connection with and attributablepreferred unitholders at the record date are entitled to receive cumulative quarterly distributions equal to the ownershipgreater of $0.678375 per unit, or operation of the assets, from and after the effective date of each acquisition.
Note 11—Cash Flow Information
2016 Subsequent Fractionator Acquisition
The Subsequent Fractionator Acquisition had both cash and noncash elements. The historical book value of the net assets acquired was $871 million. Of thisper-unit distribution amount $656 million was a financing cash outflow, representing the acquisition of the noncontrolling interest in Sweeny Frac LLC, through the repayment of a portion of the debt assumed in the transaction. The remaining debt financing balance of $19 million represented a noncash investing and financing activity. The remaining $196 million of book value was attributedpaid to the common and general partnerunitholders as if such preferred units issued (a noncash investing and financing activity).
2016 Initial Fractionator Acquisition
had converted into common units immediately prior to the record date. The Initial Fractionator Acquisition was a noncash transaction. The historical book valueholders of the net assets of our 25 percent interest acquired was $283 million. Of this amount, $212 million was attributedpreferred units may convert their preferred units into common units, on a 1-for-one basis, at any time, in full or in part, subject to the note payable assumed (a noncash investingminimum conversion amounts and financing activity). The remaining $71 million was attributed to the common and general partner units issued (a noncash investing and financing activity).conditions.
Capital Expenditures
Our capital expenditures and investments consisted of:
|
| | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2017 |
| 2016* |
|
Capital Expenditures and Investments | | |
Cash capital expenditures and investments | $ | 227 |
| 321 |
|
Change in capital expenditure accruals | (2 | ) | (23 | ) |
Total capital expenditures and investments | $ | 225 |
| 298 |
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
|
| | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2017 |
| 2016 |
|
Capital Expenditures and Investments |
|
|
Capital expenditures and investments attributable to the Partnership | $ | 225 |
| 207 |
|
Capital expenditures attributable to Predecessors* | — |
| 91 |
|
Total capital expenditures and investments* | $ | 225 |
| 298 |
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
|
| | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2017 |
| 2016 |
|
Other Noncash Investing and Financing Activities | | |
Certain liabilities of acquired assets retained by Phillips 66(1) | $ | — |
| 45 |
|
(1)Certain liabilities of assets acquired from Phillips 66 were retained by Phillips 66, pursuant to the terms of various agreements under which we acquired those assets. See Note 10—Contingencies for additional information on excluded liabilities associated with acquisitions from Phillips 66.
Note 12—Related Party Transactions
Commercial Agreements
We have entered into multiplelong-term, fee-based commercial agreements with Phillips 66 including transportation services agreements, terminal services agreements, storage services agreements, stevedoring services agreements, a fractionation service agreement, a tolling services agreement, and rail terminal services agreements. Under these long-term, fee-based agreements, weto provide transportation, terminaling, storage, stevedoring, fractionation, processing, and rail terminal services to Phillips 66, andservices. Under these agreements, Phillips 66 commits to provide us with minimum quarterlytransportation, throughput or storage volumes, of crude oil, NGL, feedstock, and refined petroleum products or minimum monthly service fees. Under our transportation, processing, and terminaling services agreements, ifIf Phillips 66 fails to transport, throughput or storedoes not meet its minimum throughput volume during any quarter, thencommitments under an agreement, Phillips 66 will paypays us a deficiency payment based on the calculation described in the agreement.
Amended and Restated Operational Services Agreement
Under our amended and restated operational services agreement, we reimburse Phillips 66 for providing certain operational services to usprovided in support of our pipelines, and terminaling, processing, and storage facilities. These services include routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Phillips 66 may mutually agree upon from time to time.
Amended Omnibus Agreement
The amended omnibus agreement addresses our payment of an operating and administrative support fee and our obligation to reimburse Phillips 66 for all other direct or allocated costs and expenses incurred by Phillips 66 in providing general and administrative services. Additionally, the omnibus agreement addresses Phillips 66’s indemnification to us and our indemnification to Phillips 66 for certain environmental and other liabilities. Further, it addresses the granting of a license from Phillips 66 to us with respect to the use of certain Phillips 66 trademarks.
The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We pay Phillips 66 an operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $8 million per month.
We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended and restated operational services agreement, we reimburse Phillips 66 for the provision of certain operational services in support of our operating assets. Additionally, we pay Phillips 66 for insurance services provided to us, and recoveries under these policies are recorded as an offset to our expenses. Operating and maintenance expenses also include volumetric gains and losses associated with volumes transported by Phillips 66.
Tax Sharing Agreement
We have entered into aUnder our tax sharing agreement, with Phillips 66 pursuant to which we reimburse Phillips 66 for our share of state and local income and other taxes incurred by Phillips 66 due to our results of operations being included in a combined or consolidated tax return filed by Phillips 66. Any reimbursement is limited to the tax that we (and our subsidiaries) would have paid had we not been included in a combined group with Phillips 66. Phillips 66 may use its tax attributes to cause its combined or consolidated group to owe no tax; however, we would nevertheless reimburse Phillips 66 for the tax we would have owed, even though Phillips 66 had no cash expense for that period.
Related Party Transactions
Significant related party transactions included in operatingour costs and maintenance expenses general and administrative expenses and interest and debt expense were:
| | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 | | |
| 2021 | | | 2020 | | | 2021 | | 2020 | | | | |
| | | | | | | | | |
Operating and maintenance expenses | $ | 47 | | | 42 | | | 105 | | 90 | | | | |
General and administrative expenses | 16 | | | 21 | | | 31 | | 38 | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016* |
| | 2017 |
| 2016* |
|
| | | | | |
Operating and maintenance expenses | $ | 31 |
| 28 |
| | 88 |
| 79 |
|
General and administrative expenses | 15 |
| 14 |
| | 44 |
| 41 |
|
Interest and debt expense | — |
| 1 |
| | — |
| 3 |
|
Total | $ | 46 |
| 43 |
| | 132 |
| 123 |
|
We pay Phillips 66 a monthly operational and administrative support fee under the terms of our amended omnibus agreement in the amount of $7 million. On October 6, 2017, in connection with the transaction described in Note 14—Subsequent Events, the omnibus agreement was amended and our monthly operational and administrative support fee was increased to $8 million prospectively. The operational and administrative support fee is for the provision of certain services, including: logistical services; asset oversight, such as operational management and supervision; corporate engineering services, including asset integrity and regulatory services; business development services; executive services; financial and administrative services (including treasury and accounting); information technology; legal services; corporate health, safety and environmental services; facility services; human resources services; procurement services; investor relations; tax matters; and public company reporting services. We also reimburse Phillips 66 for all other direct or allocated costs incurred on behalf of us, pursuant to the terms of our amended omnibus agreement. The classification of these charges between operating and maintenance expenses and general and administrative expenses is based on the functional nature of the services performed for our operations. Under our amended operational services agreement, we reimburse Phillips 66 for the provision of certain operational services to us in support of our pipeline, rail rack, fractionator, processing, terminaling, and storage facilities. Additionally, we pay Phillips 66 for insurance services provided to us. Operating and maintenance expenses also include volumetric gain/loss associated with volumes transported by Phillips 66.
During the third quarter of 2016, we paid $24 million to Phillips 66 to assume Phillips 66’s rights and obligations under an agreement to acquire the River Parish NGL System in southeast Louisiana. The payment to Phillips 66 is reflected as an “other” investing cash outflow in the consolidated statement of cash flows in 2016.
Other related party balances were included in the following line items on our consolidated balance sheet, consisted of the following, all of which were related to commercial agreements with Phillips 66:
| | | | | | | | | | | |
| Millions of Dollars |
| June 30 2021 | | December 31 2020 |
| | | |
Prepaid expenses and other current assets | $ | 8 | | 7 |
Other assets | 46 | | 47 |
Deferred revenues | 34 | | 27 |
Other current liabilities | 1 | | 1 |
Other liabilities | 62 | | 64 |
|
| | | | | |
| Millions of Dollars |
| September 30 2017 |
| December 31 2016 |
|
| | |
Deferred rentals and other | $ | 5 |
| 5 |
|
Deferred revenues | 24 |
| 14 |
|
Deferred revenues and other | 18 |
| 19 |
|
Note 13—New Accounting Standards
Equity Affiliate Arrangements
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition ofMarch 2019, we and our co-venturers in Dakota Access provided a Business,” which clarifies the definition ofCECU in conjunction with a business with the objective of adding guidance to assist in evaluating whether transactions should be accountedsenior unsecured notes offering. See Note 4—Equity Investments, for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction is not considered an acquisition of a business. If the screen is not met, then the amendment requires that, to be considered a business, the operation must include, at a minimum, an inputadditional information.
Note 11—Cash Flow Information
Capital Expenditures and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The amendment should be applied prospectively,Investments
Our capital expenditures and no disclosuresinvestments consisted of:
| | | | | | | | | | | |
| Millions of Dollars |
| Six Months Ended June 30 |
| 2021 | | | 2020 | |
| | | |
Cash capital expenditures and investments | $ | 141 | | | 601 | |
Change in capital expenditure accruals | (22) | | | 10 | |
Total capital expenditures and investments | $ | 119 | | | 611 | |
Distributions from Equity Affiliates
Distributions received from our equity affiliates are required at the effective date. We are currently evaluating the provisions of ASU No. 2017-01.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under current accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of control occurs over an identified property, plant and equipment for a period of time in exchange for consideration. Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases—financing and operating—which are substantially similar to capital and operating leases under current guidance. Under the new standard, assets and liabilities arising from operating leases will require recognitionclassified on the balance sheet. The effect of all leases in the statement of comprehensive income and theour consolidated statement of cash flows will be largely unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply its provisions to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements. As part of our assessment work-to-date, we have formed an implementation team, commenced identification of our lease population and are evaluating lease software packages.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision affects net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU and other related updates issued are intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. As part of our assessment work-to-date, we have formed an implementation team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption on earnings from equity method investments and revenue generated by lease arrangements. Based on our analysis to-date, we have not identified any material impact on our financial statements, other than disclosure.
Note 14— Subsequent Events
Bakken Pipeline/MSLP Acquisition
On September 19, 2017, we entered into a CCAA with subsidiaries of Phillips 66 for us to acquire an indirect 25 percent interest in each of Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (together, Dakota/ETCO) and a direct 100 percent interest in Merey Sweeny, L.P. (MSLP and the acquisitions pursuant to the CCAA, collectively, the Bakken Pipeline/MSLP Acquisition).
The assets owned by Dakota/ETCOcumulative earnings approach. Under this approach, a distribution received from an equity affiliate is considered a return on investment and MSLP are described below:
Dakota/ETCO owns the Bakken Pipeline, which includes 1,926 combined pipeline miles which has 520,000 barrels per day (BPD) of crude oil capacity expandable to 570,000 BPD. There are receipt stations in North Dakota to access Bakken and Three Forks production, a delivery and receipt point in Patoka, Illinois, and delivery points in Nederland, Texas, including at the Phillips 66 Beaumont Terminal. The pipeline, which commenced commercial operations on June 1, 2017, is supported by long-term, fee-based contracts.
MSLP owns a 125,000 BPD capacity vacuum distillation unit and a 70,000 BPD capacity delayed coker unit. MSLP processes residue from heavy sour crude oil into liquid products and fuel-grade petroleum coke at the Phillips 66 Sweeny Refinery in Old Ocean, Texas.
In connection with the closing of the acquisition, MSLP and Phillips 66 entered intoclassified as an amended and restated tolling services agreement, effective October 1, 2017, with a 15-year term that includes a base throughput fee and a minimum volume commitment from Phillips 66.
The Bakken Pipeline/MSLP Acquisition closed on October 6, 2017. We paid Phillips 66 total consideration of $1.65 billion, consisting of $372 million inoperating cash the assumption of $588 million of promissory notes payable to Phillips 66 and a $450 million term loan under which Phillips 66 was the obligor, and the issuance of 5,005,778 newly issued units, which were allocated as 4,713,113 common units to P66 PDI and 292,665 general partner units to our General Partner to maintain its 2 percent general partner interest. After the closing of the Bakken Pipeline/MSLP Acquisition, we repaid the $588 million of promissory notes and the $450 million term loan using proceedsinflow unless cumulative distributions received from the private placementequity affiliate exceed cumulative equity in earnings. If cumulative distributions from an equity affiliate exceed cumulative equity in earnings, the excess is considered a return of investment and debt issuances described below. The Bakken Pipeline/MSLP Acquisition increasedis classified as an investing cash inflow on our total equity investments and net PP&E by approximately$610 million and $220 million, respectively.consolidated statement of cash flows.
Debt and Equity Issuances
Private Placement
13,819,791 perpetual convertible preferred units generating gross proceeds of $750 million.
6,304,204 common units generating gross proceeds of $300 million.
Together, the units issued in the private placement resulted in net proceeds, after deducting offering and transaction expenses, of approximately $1.03 billion.
We privately placed approximately 13.8 million Series A Perpetual Convertible Preferred Units (Preferred Units) representing limited partner interests for a price of $54.27 per unit. The Preferred Units rank senior to all common units with respect to distributions and rights upon liquidation. The holders of the Preferred Units are entitled to receive cumulative quarterly distributions equal to $0.678375 per unit, commencing for the quarter ended December 31, 2017, with a prorated amount from the date of issuance. Following the third anniversary of the issuance of the Preferred Units, the holders of the Preferred Units will receive as a quarterly distribution the greater of $0.678375 per unit or the amount of per-unit distributions paid to common unitholders as if such Preferred Units had converted into common units immediately prior to the record date.
The holders of the Preferred Units may convert their Preferred Units into common units, on a one-for-one basis, at any time after the second anniversary of the issuance date, in full or in part, subject to minimum conversion amounts and conditions. After the third anniversary of the issuance date, we may convert the Preferred Units into common units at any time, in whole or in part, subject to certain minimum conversion amounts and conditions, if the arithmetic average of the volume-weighted trading price of our common units is greater than $73.2645 per unit for the 20 day trading period immediately preceding the conversion notice date and the average trading volume of the common units is at least 100,000 for the preceding 20 trading days. The conversion rate for the Preferred Units shall be the quotient of (a) the sum of (i) $54.27, plus (ii) any unpaid cash distributions on the applicable Preferred Unit, divided by (b) $54.27. The holders of the Preferred Units are entitled to vote on an as-converted basis with the common unitholders and have certain other class voting rights with respect to any amendment to our partnership agreement that would adversely affect any rights, preferences or privileges of the Preferred Units. In addition, upon certain events involving a change in control, the holders of Preferred Units may elect, among other potential elections, to convert their Preferred Units to common units at the then change of control conversion rate.
Debt Issuances. On October 13, 2017, we closed on a public debt offering and issued $500 million aggregate principal amount of 3.750% Senior Notes due 2028 and an additional $150 million aggregate principal amount of our outstanding 4.680% Senior Notes due 2045. Interest on the Senior Notes due 2028 is payable semiannually in arrears on March 1 and September 1 of each year, commencing on March 1, 2018. The Senior Notes due 2045 are an additional issuance of our existing Senior Notes due 2045, and interest is payable semiannually in arrears on February 15 and August 15 of each year. The proceeds from the public debt offering have been applied to repay the remaining balances on the promissory notes and term loan assumed in the Bakken Pipeline/MSLP Acquisition and also will be used for general partnership purposes, including funding of future acquisitions and organic projects and the repayment of outstanding indebtedness under our revolving credit facility.
| |
Item 2. | Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Unless otherwise stated or the context otherwise indicates, all references to “Phillips 66 Partners,” “the Partnership,” “us,” “our,” “we”“we,” or similar expressions refer to Phillips 66 Partners LP, including its consolidated subsidiaries. References to Phillips 66 may refer to Phillips 66 and/or its subsidiaries, depending on the context. References to our “General Partner” refer to Phillips 66 Partners GP LLC, and references to Phillips“Phillips 66 PDIPDI” refer to Phillips 66 Project Development Inc., the Phillips 66 subsidiary that holds a limited partner interest in us.us and wholly owns our General Partner.
Management’s Discussion and Analysis is the Partnership’s analysis of its financial performance, financial condition, and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes appearingthereto included elsewhere in this report. It contains forward-looking statements including, without limitation, statements relating to the Partnership’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions normally identify forward-looking statements.statements, but the absence of these words does not mean that a statement is not forward-looking. The Partnership does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Partnership’s disclosures under the heading: “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.”
EXECUTIVE OVERVIEW AND BUSINESS ENVIRONMENT AND EXECUTIVE OVERVIEW
Partnership Overview
We are a growth-oriented master limited partnership formed to own, operate, develop and acquire primarily fee-based midstream assets. Our operations consist of crude oil, refined petroleum products and natural gas liquids (NGL) pipelines and terminals, and other transportation and midstream assets. Our common units trade on the New York Stock Exchange under the symbol PSXP.
Our assets consist of crude oil, refined petroleum products and NGL transportation, terminaling, processing and storage systems, as well as an NGL fractionator.assets. We conduct our operations through both wholly owned and joint-venturejoint venture operations. The majority of our wholly owned assets are associated with, and are integral to the operation of, nine of Phillips 66’s owned or joint-venturejoint venture refineries.
We primarily generate revenue by providing fee-based transportation, terminaling, processing, terminaling, storage and NGL fractionation services to Phillips 66 and other customers. Our equity affiliates primarily generate revenue from transporting and terminaling NGL,crude oil, refined petroleum products and crude oil. Since we do not own any of the NGL, crude oil and refined petroleum products we handle and do not engage in the trading of NGL, crude oil and refined petroleum products, we have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.NGL.
Basis of Presentation
We have acquired assets from Phillips 66 that were considered transfers of businesses between entities underOur common control. This required the transactions to be accounted for as if the transfers had occurred at the beginning of the transfer period, with prior periods retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes have been retrospectively adjusted to include the historical results and financial position of these acquired businesses prior to the effective date of each acquisition. We refer to these pre-acquisition operations as those of our “Predecessors.”
See the “Basis of Presentation” section of Note 1—Business and Basis of Presentation, in the Notes to Consolidated Financial Statements, for additional informationunits trade on the content and comparability of our historical financial statements.New York Stock Exchange under the symbol PSXP.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance, including: (1) volumes handled (including pipeline throughput, terminaling throughput and storage volumes);handled; (2) operating and maintenance expenses; (3) net income (loss) before net interest expense, income taxes, depreciation and amortization (EBITDA); (4) adjusted EBITDA; and (5) distributable cash flow.
Volumes Handled
The amount of revenue we generate primarily depends on the volumes of crude oil, refined petroleum products and NGL that we handle in our pipeline, terminal, rail rack, processing, storage and NGL fractionator systems. In addition, our equity affiliates generate revenue from transporting and terminaling NGL, crude oil, and refined petroleum products.products and NGL. These volumes are primarily affected by the supply of, and demand for, NGL, crude oil, and refined petroleum products and NGL in the markets served directly or indirectly by our assets, as well as the operational status of the refineries served by our assets. Phillips 66 has committed to minimum throughput volumes under many of our commercial agreements.
Operating and Maintenance Expenses
Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor expenses (including contractor services), utility costs, and repair and maintenance expenses. TheseOperating and maintenance expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities, particularly maintenance activities, performed during the period. Our processing assets are periodically subject to major maintenance, or turnaround activities, which can significantly increase operating and maintenance expenses in a given year. Although we seek to manage our maintenance expenditures on our facilities to avoid significant variability in our quarterly cash flows, we balance this approach with our high standards of safety and environmental stewardship, such that critical maintenance is regularly performed.
Our operating and maintenance expenses are also affected by volumetric gains/losses resulting from variances in meter readings and other measurement methods, as well as volume fluctuations due to pressure and temperature changes. Under certain commercial agreements with Phillips 66, the value of any NGL, crude oil, or refined petroleum product and NGL volumetric gain/loss isgains and losses are determined by reference to the monthly average reference price for the applicable commodity. Any gains and gains/losses under these provisions decrease or increase, respectively, our operating and maintenance expenses in the period in which they are realized. These contractual volumetric gain/loss provisions could increase variability in our operating and maintenance expenses.
EBITDA, Adjusted EBITDA and Distributable Cash Flow
We define EBITDA as net income (loss) plus net interest expense, income taxes, depreciation and amortization attributable to both the Partnership and our Predecessors.amortization.
Adjusted EBITDA is the EBITDA directly attributable to the Partnership after deducting the adjusted EBITDA attributable to our Predecessors,noncontrolling interest, further adjusted for:
•The difference between cash distributions receivedproportional share of equity affiliates’ net interest expense, income taxes, depreciation and equity earnings from our affiliates.amortization, and impairments.
•Transaction costs associated with acquisitions.
•Certain other noncash items, including expenses indemnified by Phillips 66.gains and losses on asset sales and asset impairments.
Distributable cash flow is defined as adjusted EBITDA less (i) equity affiliate distributions less than proportional adjusted EBITDA, (ii) maintenance capital expenditures, (iii) net interest expense, maintenance capital expenditures and(iv) income taxes paid and (v) preferred unit distributions, plus adjustments for deferred revenue impacts and prefunded maintenance capital expenditures.impacts.
EBITDA, adjusted EBITDA, and distributable cash flow are not presentations made in accordance with accounting principles generally accepted (GAAP)accounting principles in the United States.States (GAAP). EBITDA, adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management believes external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may find useful to assess:
•Our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of EBITDA and adjusted EBITDA, financing methods.
•The ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders.
•Our ability to incur and service debt and fund capital expenditures.
•The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
The GAAP performance measure most directly comparable to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities. They have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. Additionally, because EBITDA, adjusted EBITDA, and distributable cash flow may be defined differently by other companies in our industry, our definition of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Business Environment
Since weWe do not own any of the NGL, crude oil, and refined petroleum products and NGL we handle and do not engage in the trading of NGL, crude oilthose commodities, and refined petroleum products, wetherefore have limited direct exposure to risks associated with fluctuating commodity prices, although these risks indirectly influence our activities and results of operations over the long term.
Our throughput volumes primarily depend on the volume of crude oil processed and refined petroleum products produced at Phillips 66’s owned or operated refineries with which our assets are integrated, which in turnintegrated. These volumes are primarily dependent on Phillips 66’s refining margins and maintenance schedules. Refining margins depend on the costprice of crude oil or other feedstocks and the price of refined petroleum products. These prices are affected by numerous factors beyond our or Phillips 66’s control, including the domestic and global supply of and demand for crude oil and refined petroleum products. Throughput volumes of our equity affiliates primarily depend on upstream drilling activities, refinery performance and product supply and demand.
The Coronavirus Disease 2019 (COVID-19) pandemic continues to impact global economic activity. Our results in the second quarter of 2021 reflect the gradual recovery of demand for refined petroleum products following the administration of COVID-19 vaccines and the easing of pandemic restrictions since the beginning of 2021. However, the adverse impacts of the COVID-19 pandemic may continue in the near term, and the depth and duration of the resulting economic consequences remain uncertain. We continuously monitor our asset and investment portfolio for impairments in this challenging business environment.
While we believe we and the majority of our joint ventures have substantially mitigated our indirect exposure to commodity price fluctuations through the minimum volume commitments included in our commercial agreements with Phillips 66 during the respective terms of those agreements, our ability to execute our growth strategy in our areas of operation will depend, in part, on the availability of attractively priced crude oil in the areas served by our crude oil pipelines and rail racks, demand for refined petroleum products in the markets served by our refined petroleum product pipelines and terminals, and the general demand for midstream services, including NGL transportation and fractionation.
RESULTS OF OPERATIONS
Unless otherwise indicated, discussion of results for the three-three and nine-month periodssix months ended SeptemberJune 30, 2017,2021, is based on a comparison with the respective corresponding periodsperiod of 2016.2020.
| | | | | | | | | | | | | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended June 30 | | Six Months Ended June 30 | | |
| 2021 | | | 2020 | | | 2021 | | 2020 | | | | |
Revenues and Other Income | | | | | | | | | |
Operating revenues—related parties | $ | 274 | | | 236 | | | 519 | | 494 | | | | |
Operating revenues—third parties | 6 | | | 5 | | | 13 | | 14 | | | | |
Equity in earnings of affiliates | 142 | | | 104 | | | 266 | | 240 | | | | |
Gain from equity interest transfer | — | | | 84 | | | — | | 84 | | | | |
Other income | 1 | | | 1 | | | 1 | | 2 | | | | |
Total revenues and other income | 423 | | | 430 | | | 799 | | 834 | | | | |
| | | | | | | | | |
Costs and Expenses | | | | | | | | | |
Operating and maintenance expenses | 93 | | | 84 | | | 188 | | 172 | | | | |
Depreciation | 34 | | | 31 | | | 68 | | 61 | | | | |
Impairments | — | | | — | | | 198 | | — | | | | |
General and administrative expenses | 18 | | | 17 | | | 35 | | 34 | | | | |
Taxes other than income taxes | 11 | | | 10 | | | 21 | | 21 | | | | |
Interest and debt expense | 32 | | | 28 | | | 65 | | 57 | | | | |
Other expenses | — | | | 5 | | | — | | 7 | | | | |
Total costs and expenses | 188 | | | 175 | | | 575 | | 352 | | | | |
Income before income taxes | 235 | | | 255 | | | 224 | | 482 | | | | |
Income tax expense | 1 | | | — | | | 1 | | 1 | | | | |
Net Income | 234 | | | 255 | | | 223 | | 481 | | | | |
Less: Net income attributable to noncontrolling interest | 9 | | | — | | | 16 | | — | | | | |
Net Income Attributable to the Partnership | 225 | | | 255 | | | 207 | | 481 | | | | |
Less: Preferred unitholders’ interest in net income attributable to the Partnership | 12 | | | 9 | | | 24 | | 19 | | | | |
Limited Partners’ Interest in Net Income Attributable to the Partnership | $ | 213 | | | 246 | | | 183 | | 462 | | | | |
| | | | | | | | | |
Net Cash Provided by Operating Activities | $ | 286 | | | 215 | | | 513 | | 489 | | | | |
| | | | | | | | | |
Adjusted EBITDA | $ | 337 | | | 269 | | | 626 | | 590 | | | | |
| | | | | | | | | |
Distributable Cash Flow | $ | 267 | | | 218 | | | 500 | | 487 | | | | |
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016* |
| | 2017 |
| 2016* |
|
Revenues and Other Income | | | | | |
Operating revenues—related parties | $ | 193 |
| 181 |
| | 563 |
| 534 |
|
Operating revenues—third parties | 11 |
| 7 |
| | 32 |
| 22 |
|
Equity in earnings of affiliates | 41 |
| 33 |
| | 111 |
| 88 |
|
Other income | — |
| 1 |
| | 7 |
| 1 |
|
Total revenues and other income | 245 |
| 222 |
| | 713 |
| 645 |
|
| | | | | |
Costs and Expenses | | | | | |
Operating and maintenance expenses | 69 |
| 54 |
| | 188 |
| 162 |
|
Depreciation | 30 |
| 25 |
| | 82 |
| 71 |
|
General and administrative expenses | 16 |
| 17 |
| | 48 |
| 50 |
|
Taxes other than income taxes | 7 |
| 4 |
| | 23 |
| 24 |
|
Interest and debt expense | 23 |
| 10 |
| | 71 |
| 31 |
|
Other expenses | 1 |
| — |
| | 1 |
| — |
|
Total costs and expenses | 146 |
| 110 |
| | 413 |
| 338 |
|
Income before income taxes | 99 |
| 112 |
| | 300 |
| 307 |
|
Provision for income taxes | — |
| — |
| | 1 |
| 1 |
|
Net income | 99 |
| 112 |
| | 299 |
| 306 |
|
Less: Net income attributable to Predecessors | — |
| 29 |
| | — |
| 103 |
|
Net income attributable to the Partnership | 99 |
| 83 |
| | 299 |
| 203 |
|
Less: General partner’s interest in net income attributable to the Partnership | 43 |
| 26 |
| | 112 |
| 63 |
|
Limited partners’ interest in net income attributable to the Partnership | $ | 56 |
| 57 |
| | 187 |
| 140 |
|
| | | | | |
Net cash provided by operating activities | $ | 152 |
| 128 |
| | 422 |
| 371 |
|
| | | | | |
Adjusted EBITDA | $ | 168 |
| 111 |
| | 493 |
| 282 |
|
| | | | | |
Distributable cash flow | $ | 136 |
| 102 |
| | 400 |
| 250 |
|
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30 | | Six Months Ended June 30 | | |
| 2021 | | | 2020 | | | 2021 | | 2020 | | | | |
Wholly Owned Operating Data | | | | | | | | | |
Pipelines | | | | | | | | | |
Pipeline revenues (millions of dollars) | $ | 121 | | | 97 | | | 225 | | 208 | | | | |
Pipeline volumes(1) (thousands of barrels daily) | | | | | | | | | |
Crude oil | 957 | | | 806 | | | 877 | | 873 | | | | |
Refined petroleum products and NGL | 1,029 | | | 825 | | | 920 | | 846 | | | | |
Total | 1,986 | | | 1,631 | | | 1,797 | | 1,719 | | | | |
| | | | | | | | | |
Average pipeline revenue per barrel (dollars) | $ | 0.66 | | | 0.65 | | | 0.68 | | 0.66 | | | | |
| | | | | | | | | |
Terminals | | | | | | | | | |
Terminal revenues (millions of dollars) | $ | 43 | | | 33 | | | 82 | | 76 | | | | |
Terminal throughput (thousands of barrels daily) | | | | | | | | | |
Crude oil(2) | 397 | | | 380 | | | 386 | | 420 | | | | |
Refined petroleum products | 827 | | | 690 | | | 743 | | 719 | | | | |
Total | 1,224 | | | 1,070 | | | 1,129 | | 1,139 | | | | |
| | | | | | | | | |
Average terminaling revenue per barrel (dollars) | $ | 0.38 | | | 0.33 | | | 0.39 | | 0.36 | | | | |
| | | | | | | | | |
Storage, processing and other revenues (millions of dollars) | $ | 116 | | | 111 | | | 225 | | 224 | | | | |
Total Operating Revenues (millions of dollars) | $ | 280 | | | 241 | | | 532 | | 508 | | | | |
| | | | | | | | | |
Joint Venture Operating Data(3) | | | | | | | | | |
Crude oil, refined petroleum products and NGL (thousands of barrels daily) | 1,327 | | | 942 | | | 1,190 | | 890 | | | | |
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
|
| | | | | | | | | | |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| Thousands of Barrels Daily |
Pipeline, Terminal and Storage Volumes | | | | | |
Pipelines(1) | | | | | |
Pipeline throughput volumes | | | | | |
Wholly Owned Pipelines | | | | | |
Crude oil* | 1,015 |
| 981 |
| | 965 |
| 1,010 |
|
Refined products and NGL* | 920 |
| 855 |
| | 944 |
| 836 |
|
Total | 1,935 |
| 1,836 |
| | 1,909 |
| 1,846 |
|
| | | | | |
Select Joint Venture Pipelines(2) | | | | | |
NGL | 387 |
| 346 |
| | 371 |
| 333 |
|
| | | | | |
Terminals | | | | | |
Terminal throughput and storage volumes(3) | | | | | |
Crude oil*(4) | 586 |
| 541 |
| | 522 |
| 534 |
|
Refined products and NGL* | 828 |
| 822 |
| | 855 |
| 809 |
|
Total | 1,414 |
| 1,363 |
| | 1,377 |
| 1,343 |
|
| | | | | |
Revenue Per Barrel (dollars) | | | | | |
Average pipeline revenue per barrel(5) | $ | 0.63 |
| 0.59 |
| | 0.62 |
| 0.60 |
|
Average terminaling and storage revenue per barrel | 0.41 |
| 0.41 |
| | 0.42 |
| 0.41 |
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
(1) Represents the sum of volumes transported through each separately tariffed pipeline segment.
(2) Total pipeline system throughput volumes for the Sand Hills and Southern Hills pipelines (100 percent basis) per day for each period presented.
(3) Terminal throughput and storage volumes include leased capacity converted to a MBD-equivalent based on capacity divided by days in the period.
(4) Crude oil terminals include Bayway and Ferndale rail rack volumes.volumes included in crude oil terminals.
(5) Excludes(3) Proportional share of total pipeline and terminal volumes of joint ventures consistent with recognized equity in earnings of affiliates.
The following tables present reconciliations of EBITDA and adjusted EBITDA to net income, and EBITDA and distributable cash flow to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
| | | | | | | | | | | | Millions of Dollars |
| Millions of Dollars | | Three Months Ended June 30 | | Six Months Ended June 30 | |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | 2021 | | | 2020 | | | 2021 | | 2020 | | |
| 2017 |
| 2016* |
| | 2017 |
| 2016* |
| |
Reconciliation to Net Income | | | | | |
Net income | $ | 99 |
| 112 |
| | 299 |
| 306 |
| |
Reconciliation to Net Income Attributable to the Partnership | | Reconciliation to Net Income Attributable to the Partnership | | | | | | |
Net Income Attributable to the Partnership | | Net Income Attributable to the Partnership | $ | 225 | | | 255 | | | 207 | | 481 | | |
Plus: | | Plus: | | | | |
Net income attributable to noncontrolling interest | | Net income attributable to noncontrolling interest | 9 | | | — | | | 16 | | — | | |
Net Income | | Net Income | 234 | | | 255 | | | 223 | | 481 | | |
Plus: | | | | | Plus: | | | | |
Depreciation | 30 |
| 25 |
| | 82 |
| 71 |
| Depreciation | 34 | | | 31 | | | 68 | | 61 | | |
Net interest expense | 23 |
| 10 |
| | 71 |
| 31 |
| Net interest expense | 32 | | | 29 | | | 65 | | 57 | | |
Provision for income taxes | — |
| — |
| | 1 |
| 1 |
| |
Income tax expense | | Income tax expense | 1 | | | — | | | 1 | | 1 | | |
EBITDA | 152 |
| 147 |
| | 453 |
| 409 |
| EBITDA | 301 | | | 315 | | | 357 | | 600 | | |
Plus: | | | | | Plus: | | | | |
Distributions in excess of equity earnings | 10 |
| 1 |
| | 30 |
| 7 |
| |
Expenses indemnified by Phillips 66 | 4 |
| — |
| | 7 |
| 4 |
| |
Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments | | Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments | 51 | | | 38 | | | 100 | | 73 | | |
Expenses indemnified or prefunded by Phillips 66 | | Expenses indemnified or prefunded by Phillips 66 | 1 | | | — | | | 1 | | — | | |
Transaction costs associated with acquisitions | 2 |
| 2 |
| | 3 |
| 4 |
| Transaction costs associated with acquisitions | — | | | — | | | — | | 1 | | |
Impairments | | Impairments | — | | | — | | | 198 | | — | | |
Less: | | | | | Less: | | | | |
EBITDA attributable to Predecessors | — |
| 39 |
| | — |
| 142 |
| |
Gain from equity interest transfer | | Gain from equity interest transfer | — | | | 84 | | | — | | 84 | | |
Adjusted EBITDA attributable to noncontrolling interest | | Adjusted EBITDA attributable to noncontrolling interest | 16 | | | — | | | 30 | | — | | |
Adjusted EBITDA | 168 |
| 111 |
| | 493 |
| 282 |
| Adjusted EBITDA | 337 | | | 269 | | | 626 | | 590 | | |
Plus: | | | | | Plus: | | | | |
Deferred revenue impacts** | 1 |
| 4 |
| | 9 |
| 7 |
| |
Deferred revenue impacts*† | | Deferred revenue impacts*† | (4) | | | 5 | | | 5 | | 7 | | |
Less: | | | | | Less: | | | | |
Equity affiliate distributions less than (more than) proportional adjusted EBITDA | | Equity affiliate distributions less than (more than) proportional adjusted EBITDA | 3 | | | (10) | | | 17 | | (9) | | |
Maintenance capital expenditures† | | Maintenance capital expenditures† | 17 | | | 28 | | | 23 | | 43 | | |
Net interest expense | 23 |
| 10 |
| | 71 |
| 31 |
| Net interest expense | 32 | | | 29 | | | 65 | | 57 | | |
Maintenance capital expenditures | 10 |
| 3 |
| | 31 |
| 8 |
| |
Distributable cash flow | $ | 136 |
| 102 |
| | 400 |
| 250 |
| |
Preferred unit distributions | | Preferred unit distributions | 12 | | | 9 | | | 24 | | 19 | | |
Income taxes paid | | Income taxes paid | 2 | | | — | | | 2 | | — | | |
Distributable Cash Flow | | Distributable Cash Flow | $ | 267 | | | 218 | | | 500 | | 487 | | |
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
**Difference between cash receipts and revenue recognition.
†Excludes Merey Sweeny capital reimbursements and turnaround impacts.
| | | Millions of Dollars | | Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 | | Three Months Ended June 30 | | Six Months Ended June 30 | |
| 2017 | 2016* |
| | 2017 | 2016* |
| | 2021 | | | 2020 | | | 2021 | | 2020 | | |
Reconciliation to Net Cash Provided by Operating Activities | | | | | Reconciliation to Net Cash Provided by Operating Activities | | | | | | |
Net Cash Provided by Operating Activities | $ | 152 |
| 128 |
| | 422 |
| 371 |
| Net Cash Provided by Operating Activities | $ | 286 | | | 215 | | 513 | | 489 | |
Plus: | | | | | Plus: | | | | |
Net interest expense | 23 |
| 10 |
| | 71 |
| 31 |
| Net interest expense | 32 | | | 29 | | | 65 | | 57 | | |
Provision for income taxes | — |
| — |
| | 1 |
| 1 |
| |
Income tax expense | | Income tax expense | 1 | | | — | | | 1 | | 1 | | |
Changes in working capital | (20 | ) | 8 |
| | (31 | ) | 16 |
| Changes in working capital | (11) | | | (3) | | | (22) | | (15) | | |
Adjustment to equity earnings for cash distributions received | — |
| 3 |
| | (2 | ) | 4 |
| |
Undistributed equity earnings | | Undistributed equity earnings | (7) | | | (5) | | | (2) | | (9) | | |
Impairments | | Impairments | — | | | — | | | (198) | | — | | |
Gain from equity interest transfer | | Gain from equity interest transfer | — | | | 84 | | | — | | 84 | | |
Deferred revenues and other liabilities | | Deferred revenues and other liabilities | 2 | | | 2 | | | 2 | | 2 | | |
Other | (3 | ) | (2 | ) | | (8 | ) | (14 | ) | Other | (2) | | | (7) | | | (2) | | (9) | | |
EBITDA | 152 |
| 147 |
| | 453 |
| 409 |
| EBITDA | 301 | | | 315 | | | 357 | | 600 | | |
Plus: | | | | | Plus: | | | | |
Distributions in excess of equity earnings | 10 |
| 1 |
| | 30 |
| 7 |
| |
Expenses indemnified by Phillips 66 | 4 |
| — |
| | 7 |
| 4 |
| |
Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments | | Proportional share of equity affiliates’ net interest, taxes, depreciation and amortization, and impairments | 51 | | | 38 | | | 100 | | 73 | | |
Expenses indemnified or prefunded by Phillips 66 | | Expenses indemnified or prefunded by Phillips 66 | 1 | | | — | | | 1 | | — | | |
Transaction costs associated with acquisitions | 2 |
| 2 |
| | 3 |
| 4 |
| Transaction costs associated with acquisitions | — | | | — | | | — | | 1 | | |
Impairments | | Impairments | — | | | — | | | 198 | | — | | |
Less: | | | | | Less: | | | | |
EBITDA attributable to Predecessors | — |
| 39 |
| | — |
| 142 |
| |
Gain from equity interest transfer | | Gain from equity interest transfer | — | | | 84 | | | — | | 84 | | |
Adjusted EBITDA attributable to noncontrolling interest | | Adjusted EBITDA attributable to noncontrolling interest | 16 | | | — | | | 30 | | — | | |
| Adjusted EBITDA | 168 |
| 111 |
| | 493 |
| 282 |
| Adjusted EBITDA | 337 | | | 269 | | | 626 | | 590 | | |
Plus: | | | | | Plus: | | | | |
Deferred revenue impacts** | 1 |
| 4 |
| | 9 |
| 7 |
| |
Deferred revenue impacts*† | | Deferred revenue impacts*† | (4) | | | 5 | | | 5 | | 7 | | |
| Less: |
|
| | | Less: | | | | |
Equity affiliate distributions less than (more than) proportional adjusted EBITDA | | Equity affiliate distributions less than (more than) proportional adjusted EBITDA | 3 | | | (10) | | | 17 | | (9) | | |
Maintenance capital expenditures† | | Maintenance capital expenditures† | 17 | | | 28 | | | 23 | | 43 | | |
Net interest expense | 23 |
| 10 |
| | 71 |
| 31 |
| Net interest expense | 32 | | | 29 | | | 65 | | 57 | | |
Maintenance capital expenditures | 10 |
| 3 |
| | 31 |
| 8 |
| |
Distributable cash flow | $ | 136 |
| 102 |
| | 400 |
| 250 |
| |
Preferred unit distributions | | Preferred unit distributions | 12 | | | 9 | | | 24 | | 19 | | |
Income taxes paid | | Income taxes paid | 2 | | | — | | | 2 | | — | | |
Distributable Cash Flow | | Distributable Cash Flow | $ | 267 | | | 218 | | | 500 | | 487 | | |
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
**Difference between cash receipts and revenue recognition.
†Excludes Merey Sweeny capital reimbursements and turnaround impacts.
Minimum Volume Commitments
Under certain of our transportation and terminal services agreements, if Phillips 66 fails to transport a minimum throughput volume during any quarter, then Phillips 66 will pay us a deficiency payment based on the calculation described in the agreement. Payments made by Phillips 66 for these shortfall volumes are initially recorded as “Deferred revenues” on our consolidated balance sheet, as Phillips 66 generally has the right to make up the shortfall volumes in the following four quarters. The deferred revenue is recognized at the earlier of the quarter in which Phillips 66 makes up the shortfall volumes or the expiration of the period in which Phillips 66 is contractually allowed to make up the shortfall volumes.
Detail on these transportation- and terminal-based deferred revenues follows:
|
| | | | | | | | | | |
| Millions of Dollars |
| Three Months Ended September 30 | | Nine Months Ended September 30 |
| 2017 |
| 2016 |
| | 2017 |
| 2016 |
|
| | | | | |
Deferred revenues—beginning of period | $ | 21 |
| 5 |
| | 12 |
| 4 |
|
Quarterly deficiency payments(1) | 4 |
| 3 |
| | 17 |
| 7 |
|
Quarterly deficiency make-up/expirations(2) | (3 | ) | — |
| | (7 | ) | (3 | ) |
Deferred revenues—end of period | $ | 22 |
| 8 |
| | 22 |
| 8 |
|
(1) Cash received with deferred revenue recognition.
(2) Revenue recognized on cash previously received.
Statement of Income Analysis
Operating revenues increased $16 million, or 9 percent, and $39 million, or 7 percent,16%, and increased $24 million, or 5%, in the thirdsecond quarter and the nine-monthsix-month period of 2017,2021, respectively. The increases in both periods were primarily attributable to increased volumes resulting from market demand. Additionally, the increase in the third quarter of 2017six-month period was primarily attributable to additional revenues from the River Parish NGL System acquired in November 2016 and higher volumes on the Ponca Crude System, partially offset by lower volumes on the Sweeny to Pasadena Products System as a resulteffects of Hurricane Harvey impacts. The increasewinter storms impacting the Central and Gulf Coast regions in the nine-month periodfirst quarter of 2017 was due to additional revenues from the River Parish NGL System and from additional storage capacity coming online at Clemens Caverns, partially offset by lower throughput volumes on the Gold Line Products System due to maintenance at Phillips 66’s Borger refinery.2021.
Equity in earnings of affiliates increased $8$38 million, or 24 percent,37%, and $23increased $26 million, or 26 percent,11%, in the thirdsecond quarter and the nine-monthsix-month period of 2017,2021, respectively. The increases in both periods were primarily attributabledue to higher volumes, including volumes from Gray Oak Pipeline, LLC, which commenced full operations during the second quarter of 2020, and South Texas Gateway Terminal LLC (South Texas Gateway), which commenced full operations in the first quarter of 2021. The increases in both periods were partially offset by a decrease in earnings from DCP Sand Hills Pipeline, LLC (Sand Hills)LLC. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.
Gain on equity interest transfer reflects the second-quarter 2020 gain recognition related to a co-venturer’s acquisition of a 35% interest in the consolidated holding company that owns an interest in Gray Oak Pipeline, LLC. See Note 4—Equity Investments, in the Notes to Consolidated Financial Statements, for additional information.
Operating and Bayou Bridge Pipeline, LLC (Bayou Bridge)maintenance expenses increased $9 million, or 11%, and increased $16 million, or 9%, in the second quarter and six-month period of 2021, respectively. The increases in both periods were primarily due to higher volumes. In addition, the increaseutility costs.
Interest and debt expense increased $4 million, or 14%, and increased $8 million, or 14%, in the nine-month period also reflected additional earnings from Bayou Bridge, which began operations in April 2016,second quarter and STACK Pipeline LLC (STACK), in which we acquired a 50 percent interest in August 2016.
Operating and maintenance expenses increased by $15 million, or 28 percent, and $26 million, or 16 percent, in the third quarter and the nine-monthsix-month period of 2017,2021, respectively. The increases in both periods were primarily due to operating expenses associated withlower capitalized interest and increased debt.
Impairments reflects the River Parish NGL System acquiredfirst-quarter 2021 impairment of our investment in November 2016.
Depreciation increased $5 million, or 20 percent, and $11 million, or 15 percent,Liberty Pipeline LLC (Liberty). See Note 4—Equity Investments, in the third quarter and the nine-month period of 2017, respectively. The increases were mainly attributableNotes to the River Parish NGL System acquired in November 2016,Consolidated Financial Statements, for additional cavern storage capacity placed into service, and accelerated depreciation for assets taken out of service.information.
Interest and debt expense increased $13 million and $40 million in the third quarter and the nine-month period of 2017, respectively, primarily due to higher average debt principal balances as a result of the issuance of $1,125 million in aggregate principal amount of senior notes in October 2016.
CAPITAL RESOURCES AND LIQUIDITY
Significant Sources of Capital
Our sources of liquidity include cash generated from operations, distributions from our equity affiliates, borrowings from related parties and under our revolving credit facility, and issuances of additional debt and equity securities.securities, and funding from joint venture partners. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditure requirements and our quarterly cash distributions.
Operating Activities
We generated $422$513 million in cash from operations during the first ninesix months of 2017,2021, an improvement over cash from operationsincrease of $371$24 million forcompared with the corresponding period of 2016.2020. The improvementincrease was mainlyprimarily driven by working capital impacts.higher operating revenues and higher operating distributions from equity affiliates.
Common UnitsEquity Affiliate Distributions
In August 2016,Our operating and investing cash flows are impacted by distribution decisions made by our equity affiliates. During the first six months of 2021, we completedreceived aggregate distributions from our equity affiliates of $345 million, compared with $335 million during the same period of 2020. We cannot control the amount or timing of future distributions from equity affiliates; therefore, future distributions are not assured.
Revolving Credit Facility
At June 30, 2021, and December 31, 2020, borrowings of $15 million and $415 million, respectively, were outstanding under our $750 million revolving credit facility. At both June 30, 2021, and December 31, 2020, $1 million in letters of credit had been issued that were supported by this facility.
Term Loan Agreement
On April 6, 2021, we entered into a public offering$450 million term loan agreement and borrowed the full amount. The term loan agreement has a maturity date of 6,000,000 common units representing limited partner interestsApril 5, 2022, and the outstanding borrowings can be repaid at any time and from time to time, in whole or in part, without premium or penalty. Borrowings bear interest at a pricefloating rate based on either a Eurodollar rate or a reference rate, plus a margin of $50.22 per common unit. We received proceeds (net of underwriting discounts and commissions) of $299 million from the offering. We utilized the net proceeds0.875%. Proceeds were primarily used to repay the note assumed as partamounts borrowed under our $750 million revolving credit facility.
Transfer of Equity Interest
In April 2021, we transferred our acquisition of an additional50% ownership interest in ExplorerLiberty to our co-venturer for cash and certain pipeline assets with a value that approximated our contribution to form STACK Pipeline. SeeNote 4—Acquisitions in the Notes to Consolidated Financial Statements for additional information.
In May 2016, we completed a public offering, consistingbook value of an aggregate of 12,650,000 common units representing limited partner interests,$46 million at a price of $52.40 per common unit. We received proceeds (net of underwriting discounts and commissions) of $656 million from the offering (2016 Unit Offering). We utilized the net proceeds to partially repay debt assumed as part of the Subsequent Fractionator Acquisition.March 31, 2021. See Note 4—AcquisitionsEquity Investments, in the Notes to Consolidated Financial Statements, for additional information.
ATM Program
InAt June 2016,30, 2021, we filed a prospectus supplement to the shelf registration statement forhave $248 million of available capacity under our $250 million continuous offering program that became effective with the Securities and Exchange Commission in May 2016, related to the continuous issuance of up to an aggregate of $250 million of common units, in amounts, at prices and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market (ATM) program. We suspended issuances under the ATM program is referredin the first quarter of 2020 due to as our ATM Program).low common unit prices. We did not issue any common units under ourthe ATM Programprogram during the three and six months ended SeptemberJune 30, 2017. For2021.
Off-Balance Sheet Arrangements
Dakota Access, LLC (Dakota Access) and Energy Transfer Crude Oil Company, LLC (ETCO)
In 2020, the nine months ended Septembertrial court presiding over litigation regarding the Dakota Access Pipeline ordered the U.S. Army Corps of Engineers (USACE) to prepare an Environmental Impact Statement (EIS) relating to an easement under Lake Oahe in North Dakota and later vacated the easement. Although the easement has been vacated, the USACE has indicated that it will not take action to stop pipeline operations while it proceeds with the EIS, which is expected to be completed in 2022. In May 2021, the court denied a request for an injunction to shut down the pipeline while the EIS is being prepared and in June 2021, dismissed the litigation. It is possible that the litigation could be reopened or new litigation challenging the EIS, once completed, could be filed.
Dakota Access and ETCO have guaranteed repayment of $2.5 billion aggregate principal amount of senior unsecured notes issued by a wholly owned subsidiary of Dakota Access. In addition, we and our co-venturers in Dakota Access provided a Contingent Equity Contribution Undertaking (CECU) in conjunction with the notes offering. Under the CECU, the co-venturers may be severally required to make proportionate equity contributions to Dakota Access in certain circumstances relating to the litigation described above. At June 30, 2017, on a settlement date basis, we issued 3,323,576 common units under2021, our ATM Program, which generated net proceedsshare of $171 million. For the three and nine months ended September 30, 2016, on a settlement date basis, we issued 83,294 and 346,152 common units, respectively, under our ATM Program, generating net proceeds of $5 million and $19 million, respectively. Since inception through September 30, 2017, we have issued an aggregate of 3,669,728 common units under our ATM Program, generating net proceeds of $190 million, after broker commissions of $2 million. The net proceeds from salesmaximum potential equity contributions under the ATM ProgramCECU was approximately $631 million.
If the pipeline is required to cease operations, and should Dakota Access and ETCO not have sufficient funds to pay ongoing expenses, we also could be required to support our share of the ongoing expenses, including scheduled interest payments on the notes of approximately $25 million annually, in addition to the potential obligations under the CECU. If we are used for general partnership purposes, which may include funding of debt repayment, future acquisitions, capital expenditures and additionsrequired to working capital.
Issuances of common unitsperform under our ATM Program can reduce our General Partner’s interest below 2 percent. Wethe CECU, we would expect the General Partner’s interest to be periodically restored to 2 percent in connectionfund such performance with dropdown transactions or through direct equity contributions. However, these future contributions from our General Partner cannot be assured. At September 30, 2017, our General Partner’s interest was slightly less than 2 percent.
Revolving Credit Facility
At September 30, 2017, and December 31, 2016, we had an aggregate of $87 million and $210 million, respectively, borrowed and outstandingcash, capacity available under our $750 million revolving credit facility. We repaid the $87 million outstanding balance on our revolving credit facility, in October 2017, utilizing proceedsthird-party debt financing, and/or sponsor loans from the equity and debt issuances discussed in the “Outlook” section.Phillips 66.
Note Payable
In May 2016, in connection with the Subsequent Fractionator Acquisition, we entered into three separate Assignment and Assumption of Note agreements with subsidiaries of Phillips 66, pursuant to which we assumed the obligations under three term promissory notes (the Subsequent Notes), each with a $225 million principal balance. Also in May 2016, using proceeds from the 2016 Unit Offering, we repaid two of the Subsequent Notes in their entirety and reduced the outstanding balance on the remaining Subsequent Note to $19 million, which was repaid in June 2016.
Shelf Registration
We have a universal shelf registration statement on file with the SEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units representing limited partner interests, preferred units representing limited partner interests, and debt securities.
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.
Capital Requirements
Capital Expenditures and Investments
Our operations can beare capital intensive requiringand require investments to expand, upgrade, maintain or enhance existing operations and to meet environmental and operational requirements of our wholly owned and joint venture entities. Our capital requirements consist of maintenance and expansion capital expenditures, as well as contributions to our joint ventures. Examples of maintenanceMaintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or to maintain existing system volumes and related cash flows. In contrast, expansion capital expenditures are those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business, including contributions to joint ventures that are using the contributed funds for such purposes.
Our capital expenditures and investments represent the total spending for our capital requirements. Our adjusted capital spending is a non-GAAP financial measure that demonstrates our net share of capital spending, and reflects an adjustment for the portion of consolidated capital spending funded by certain joint venture partners. Additionally, the disaggregation of adjusted capital spending between expansion and maintenance is not a distinction recognized under GAAP. We disaggregate adjusted capital spending because our partnership agreement requires that we treat expansion and maintenance capital differently for operating and capital surplus determinations. Further, we generally fund expansion capital spending with both operating and financing cash flows and fund maintenance capital spending with operating cash flows.
Our capital expenditures and investments were:
| | | | | | | | | | | |
| Millions of Dollars |
| Six Months Ended June 30 |
| 2021 | | | 2020 | |
Capital Expenditures and Investments | | | |
Capital expenditures and investments | $ | 119 | | | 611 | |
Capital expenditures and investments funded by certain joint venture partners | — | | | (61) | |
Adjusted Capital Spending | $ | 119 | | | 550 | |
| | | |
Expansion | $ | 96 | | | 507 | |
Maintenance | 23 | | | 43 | |
Our capital expenditures and investments for the first ninesix months of 2017 and 2016 were:
|
| | | | | |
| Millions of Dollars |
| Nine Months Ended September 30 |
| 2017 |
| 2016 |
|
| | |
Capital expenditures and investments attributable to the Partnership | | |
Expansion | $ | 194 |
| 199 |
|
Maintenance | 31 |
| 8 |
|
Total | 225 |
| 207 |
|
Capital expenditures attributable to Predecessors* | — |
| 91 |
|
Total capital expenditures and investments | $ | 225 |
| 298 |
|
*Prior-period financial information has been retrospectively adjusted for acquisitions of businesses under common control.
Our capital expenditures and investments for the first nine months of 20172021 were $225 million, primarily associated with the following activities:
•Construction activities related to the C2G Pipeline, a new 16-inch ethane pipeline that connects our Clemens Caverns storage facility to petrochemical facilities in Gregory, Texas, near Corpus Christi, Texas.
•Contributions to Bayou Bridge to continue progress on itsDakota Access for a pipeline segment from Lake Charles, Louisiana, to St. James, Louisiana.optimization project.
•Contributions to STACK to extendcomplete the origination point of its pipeline system to access additional area producersSouth Texas Gateway Terminal development activities.
•Spending associated with other return, reliability and increase capacity.maintenance projects.
Contributions to Sand Hills to increase capacity on its NGL pipeline system.
Reactivation and upgrading of various tanks at the Bayway Products System to facilitate additional storage and gasoline blending.
Contributions to Paradigm Pipeline LLC to fund its contributions to the Sacagawea Pipeline joint venture to construct a natural gas pipeline.
Various upgrades and replacements of assets.
Other Investing
During the third quarter of 2016, we paid $24 million to Phillips 66 to assume Phillips 66’s rights and obligations under an agreement to acquire the River Parish NGL System in southeast Louisiana. The payment to Phillips 66 is reflected as an “other” investing cash outflow in the consolidated statement of cash flows in 2016.
Cash DistributionDistributions
On October 18, 2017,July 20, 2021, the Board of Directors of our General Partner declared a quarterly cash distribution of $0.646$0.875 per common unit, which combined with distributions to our General Partner, will result in a total distribution of $121$199 million attributable to the second quarter of 2021. This distribution is payable on NovemberAugust 13, 2017,2021, to common unitholders of record as of October 31, 2017.July 30, 2021.
Cash distributions will be madeBeginning with the distribution to our General Partner in respectpreferred unitholders attributable to the fourth quarter of its general partner interest and its ownership of all incentive distribution rights (IDRs), which entitle our General Partner2020, the preferred unitholders at the record date are entitled to receive increasing percentages, upcumulative quarterly distributions equal to 50 percent,the greater of quarterly cash distributions in excess of $0.244375$0.678375 per unit. Accordingly, based onunit, or the per-unit distribution declared on October 18, 2017, our General Partneramount paid to the common unitholders. Preferred unitholders will receive 35 percent$12 million of distributions attributable to the second quarter of 2021. This distribution is payable August 13, 2021, to preferred unitholders of record as of July 30, 2021.
Repurchase of Preferred Units
On June 29, 2021, we repurchased 368,528 of the third-quarter 2017outstanding Series A Perpetual Convertible Preferred Units with an aggregate carrying value of $20 million for $24 million in cash, distribution in respector $65.124 per unit. Upon the repurchase, these preferred units were canceled and are no longer outstanding. At June 30, 2021, there were 13,451,263 preferred units outstanding.
Debt Repayment
On April 1, 2021, we repaid the two remaining $25 million tranches of all IDRs.tax-exempt bonds due April 2021, totaling $50 million.
Contingencies
From time to time, lawsuits involving a variety of claims that arise in the ordinary course of business are filed against us. We also may be required to remove or mitigate the effects on the environment of the placement, storage, disposal or release of certain chemical, mineral and petroleum substances at various sites. We regularly assess the need for accounting recognition or disclosure of these contingencies. In the case of all known contingencies (other than those related to income taxes), we accrue a liability when the loss is probable and the amount is reasonably estimable. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. We do not reduce these liabilities for potential insurance or third-party recoveries. If applicable, we accrue receivables for probable insurance or other third-party recoveries. In the case of income-tax-related contingencies, we use a cumulative probability-weighted loss accrual in cases where sustaining a tax position is less than certain.uncertain.
Based on currently available information, we believe it is remote that future costs related to known contingent liability exposures will exceed current accruals by an amount that would have a material adverse impact on our consolidated financial statements. As we learn new facts concerning contingencies, we reassess our position both with respect to accrued liabilities and other potential exposures. Estimates particularly sensitive to future changes include any contingent liabilities recorded for environmental remediation, tax and legal matters. Estimated future environmental remediation costs are subject to change due to such factors as the uncertain magnitude of cleanup costs, the unknown time and extent of such remedial actions that may be required, and the determination of our liability in proportion to that of other potentially responsible parties. Estimated future costs related to tax and legal matters are subject to change as events evolve and as additional information becomes available during the administrative and litigation processes.
Regulatory Matters
Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act of 1992, and certain of our pipeline systems providing intrastate service are subject to rate regulation by applicable state authorities under their respective laws and regulations. Our pipeline, rail rack and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations.
Legal and Tax Matters
Under our amended omnibus agreement, Phillips 66 provides certain services for our benefit, including legal and tax support services, and we pay an operational and administrative support fee for these services. Phillips 66’s legal and tax organizations apply their knowledge, experience and professional judgment to the specific characteristics of our cases and uncertain tax positions. Phillips 66’s legal organization employs a litigation management process to manage and monitor the legal proceedings against us. The process facilitates the early evaluation and quantification of potential exposures in individual cases and enables tracking of those cases that have been scheduled for trial and/or mediation. Based on professional judgment and experience in using these litigation management tools and available information about current developments in all our cases, Phillips 66’s legal organization regularly assesses the adequacy of current accruals and recommends if adjustment of existing accruals, or establishment of new accruals, is required. As of SeptemberJune 30, 2017,2021, and December 31, 2016,2020, we did not have any material accrued contingent liabilities associated with litigation matters.
Environmental
We are subject to extensive federal, state and local environmental laws and regulations. These requirements, which frequently change, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment at or on our facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of governmental orders that may subject us to additional operational constraints. Future expenditures may be required to comply with the Federal Clean Air Act and other federal, state and local requirements in respect of our various sites, including our pipelines and storage assets. The impact of legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our financial position, results of operations and liquidity.
As with all costs, if these expenditures are not ultimately reflectedrecovered in the tariffs and other fees we receive for our services, our operating results will be adversely affected. We believe that substantially all similarly situated parties and holders of comparable assets must comply with similar environmental laws and regulations. However, the specific impact on each may vary depending on a number of factors, including, but not limited to, the age and location of its operating facilities.
We accrue for environmental remediation activities when the responsibility to remediate is probable and the amount of associated costs can be reasonably estimated. As environmental remediation matters proceed toward ultimate resolution or as additional remediation obligations arise, charges in excess of those previously accrued may be required. New or expanded environmental requirements, which could increase our environmental costs, may arise in the future. We believe we are in substantial compliance with all legal obligations regarding the environment and have established the environmental accruals that are currently required; however, it is not possible to predict all of the ultimate costs of compliance, including remediation costs that may be incurred and penalties that may be imposed, because not all of the costs are fixed or presently determinable (even under existing legislation) and the costs may be affected by future legislation or regulations.
Paradis Pipeline Station Incident
On February 9, 2017, a fire occurred at the Paradis Pipeline Station on the River Parish NGL System. There was one Phillips 66 employee fatality and other workers injured. We continue to cooperate with regulatory agencies investigating this incident. We do not currently expect claims related to this incident, individually or in the aggregate, to have a material impact on our results of operations.
Indemnification and Excluded Liabilities
Under our amended omnibus agreement and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 will indemnify us, or assume responsibility, for certain environmental liabilities, tax liabilities, litigation and any other liabilities attributable to the ownership or operation of the assets contributed to us and that arose prior to the effective date of each acquisition. These indemnifications and exclusions from liability have, in some cases, time limits and deductibles. When Phillips 66 performs under any of these indemnifications or exclusions from liability, we recognize a non-cash expenseexpenses and an associated non-cash capital contributioncontributions from our General Partner, as these are considered liabilities paid for by a principal unitholder.
We have assumed, and have agreed to pay, discharge and perform as and when due, all liabilities arising out
NEW ACCOUNTING STANDARDS
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” which clarifies the definition of a business with the objective of adding guidance to assist in evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The amendment provides a screen for determining when a transaction involves an acquisition of a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, then the transaction is not considered an acquisition of a business. If the screen is not met, then the amendment requires that, to be considered a business, the operation must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output. The guidance may reduce the number of transactions accounted for as business acquisitions. Public business entities should apply the guidance in ASU No. 2017-01 to annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The amendment should be applied prospectively, and no disclosures are required at the effective date. We are currently evaluating the provisions of ASU No. 2017-01.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” In the new standard, the FASB modified its determination of whether a contract is a lease rather than whether a lease is a capital or operating lease under current accounting principles generally accepted in the United States (GAAP). A contract represents a lease if a transfer of control occurs over an identified property, plant and equipment for a period of time in exchange for consideration. Control over the use of the identified asset includes the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct its use. The FASB continued to maintain two classifications of leases - financing and operating - which are substantially similar to capital and operating leases under current guidance. Under the new standard, assets and liabilities arising from operating leases will require recognition on the balance sheet. The effect of all leases in the statement of comprehensive income and the statement of cash flows will be largely unchanged. Lessor accounting will also be largely unchanged. Additional disclosures will be required for financing and operating leases for both lessors and lessees. Public business entities should apply the guidance in ASU No. 2016-02 for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. Entities are required to adopt the ASU using a modified retrospective approach, subject to certain optional practical expedients, and apply its provisions to leasing arrangements existing at or entered into after the earliest comparative period presented in the financial statements. We are currently evaluating the provisions of ASU No. 2016-02 and assessing its impact on our financial statements. As part of our assessment work-to-date, we have formed an implementation team, commenced identification of our lease population and are evaluating lease software packages.
In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” to meet its objective of providing more decision-useful information about financial instruments. The majority of this ASU’s provisions amend only the presentation or disclosures of financial instruments; however, one provision affects net income. Equity investments carried under the cost method or lower of cost or fair value method of accounting, in accordance with current GAAP, will have to be carried at fair value upon adoption of ASU No. 2016-01, with changes in fair value recorded in net income. For equity investments that do not have readily determinable fair values, a company may elect to carry such investments at cost less impairments, if any, adjusted up or down for price changes in similar financial instruments issued by the investee, when and if observed. Public business entities should apply the guidance in ASU No. 2016-01 for annual periods beginning after December 15, 2017, and interim periods within those annual periods, with early adoption prohibited. We are currently evaluating the provisions of ASU No. 2016-01. Our initial review indicates that ASU No. 2016-01 will have a limited impact on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606).” This ASU and other related updates issued are intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets and expand disclosure requirements. In August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date.” The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities should apply the guidance in ASU No. 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. As part of our assessment work-to-date, we have formed an implementation team, completed training on the new ASU’s revenue recognition model and are continuing our contract review and documentation. Our expectation is to adopt the standard on January 1, 2018, using the modified retrospective application. Our evaluation of the new ASU is ongoing, which includes understanding the impact of adoption on earnings from equity method investments and revenue generated by lease arrangements. Based on our analysis to-date, we have not identified any material impact on our financial statements, other than disclosure.
OUTLOOK
Bakken Pipeline/MSLP Acquisition
On September 19, 2017, we entered into a Contribution, Conveyance and Assumption Agreement (CCAA) with subsidiaries of Phillips 66 for us to acquire an indirect 25 percent interest in each of Dakota Access, LLC and Energy Transfer Crude Oil Company, LLC (together, Dakota/ETCO) and a direct 100 percent interest in Merey Sweeny, L.P. (MSLP and the acquisitions pursuant to the CCAA, collectively, the Bakken Pipeline/MSLP Acquisition).
The assets owned by Dakota/ETCO and MSLP are described below:
Dakota/ETCO owns the Bakken Pipeline, which includes 1,926 combined pipeline miles which has 520,000 barrels per day (BPD) of crude oil capacity expandable to 570,000 BPD. There are receipt stations in North Dakota to access Bakken and Three Forks production, a delivery and receipt point in Patoka, Illinois, and delivery points in Nederland, Texas, including at the Phillips 66 Beaumont Terminal. The pipeline, which commenced commercial operations on June 1, 2017, is supported by long-term, fee-based contracts.
MSLP owns a 125,000 BPD capacity vacuum distillation unit and a 70,000 BPD capacity delayed coker unit. MSLP processes residue from heavy sour crude oil into liquid products and fuel-grade petroleum coke at the Phillips 66 Sweeny Refinery in Old Ocean, Texas.
In connection with the closing of the acquisition, MSLP and Phillips 66 entered into an amended and restated tolling services agreement, effective October 1, 2017, with a 15-year term that includes a base throughput fee and a minimum volume commitment from Phillips 66.
The Bakken Pipeline/MSLP Acquisition closed on October 6, 2017. We paid Phillips 66 total consideration of $1.65 billion, consisting of $372 million in cash, the assumption of $588 million of promissory notes payable to Phillips 66 and a $450 term loan under which Phillips 66 was the obligor, and the issuance of 5,005,778 newly issued units, which were allocated as 4,713,113 common units to P66 PDI and 292,665 general partner units to our General Partner to maintain its 2 percent general partner interest. After the closing of the Bakken Pipeline/MSLP Acquisition, we repaid the $588 million of promissory notes and the $450 million term loan using proceeds from the private placement and debt issuances described below.
Debt and Equity Issuances
In part to fund the cash portion of the Bakken Pipeline/MSLP Acquisition consideration, on October 6, 2017, we closed on a private placement and issued the following:
13,819,791 perpetual convertible preferred units (Preferred Units) generating gross proceeds of $750 million.
6,304,204 common units generating gross proceeds of $300 million.
Together, the Preferred Units and common units issued in the private placement resulted in net proceeds, after deducting offering and transaction expenses, of approximately $1.03 billion. Additionally, on October 13, 2017, we closed on a public debt offering pursuant to our effective shelf registration statement and issued $500 million aggregate principal amount of 3.750% Senior Notes due 2028 and an additional $150 million aggregate principal amount of our outstanding 4.680% Senior Notes due 2045.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements. You can normally identify our forward-looking statements by the words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions.expressions, although the absence of these words does not mean that statement is not forward-looking.
We based the forward-looking statements on our current expectations, estimates and projections about us, our operations, the operations of our joint ventures and the entities in which we own equity interests, as well as the industries in which we and they operate in general. We caution you these statements are not guarantees of future performance as they involve assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. In addition, we based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements. Any differences could result from a variety of factors, including the following:
•The continuing effects of the COVID-19 pandemic and its negative impact on the demand for crude oil and refined petroleum products, as well as the extent and duration of recovery of economies and the demand for crude oil and refined petroleum products after the pandemic subsides.
•Reductions in the volume of crude oil, refined petroleum products and NGL we or our equity affiliates transport, fractionate, process, terminal and store.
•The continued ability of Phillips 66 to satisfy its obligations under our commercial and other agreements.
The volume of crude oil, NGL and refined petroleum products we transport, fractionate, process, terminal and store.
The tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.
Changes in revenue we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.
•Fluctuations in the prices and demand for crude oil, NGL and refined petroleum products.products and NGL, including as a result of actions taken by OPEC and other countries impacting supply and demand and, correspondingly, commodity prices.
•Changes in global economic conditions and the effects of a global economic downturn on the business of Phillips 66 and the business of its suppliers, customers, business partners and credit lenders.governmental policies relating to crude oil, refined petroleum products or NGL pricing, regulation, taxation, or exports.
Liabilities•Potential liabilities associated with the risks and operational hazards inherent in transporting, fractionating, processing, terminaling and storing crude oil, NGL and refined petroleum products.products and NGL.
•Curtailment of operations due to severe weather disruption;(including as a result of climate change) disruption or natural disasters; riots, strikes, lockouts or other industrial disturbances;disturbances.
•Accidents or failureother unscheduled shutdowns affecting our pipelines, processing, fractionating, terminaling, and storage facilities or equipment, or those of information technology systems due to various causes, including unauthorized accessour equity affiliates, suppliers or attack.customers.
Inability•Our, and our equity affiliates’, inability to obtain or maintain permits, in a timely manner, ifor at all, including those necessary for capital projects, orand the possibility of the revocation or modification of existingsuch permits.
Inability•The operation, financing and distribution decisions of our joint ventures, which we may not control.
•The inability to comply with government regulations or make capital expenditures required to maintain compliance.
Failure•The failure to timely complete construction of announced and future capital projects in a timely manner, cost overruns associated with such projects, and the ability to obtain or maintain permits necessary for such projects.
The operation, financing and distribution decisions of our joint ventures.
•Costs or liabilities associated with federal, state, and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.
•Failure of information technology systems due to various causes, including unauthorized access or attack.
•Changes to the tariff rates with respect to volumes transported through regulated assets, which rates are subject to review and possible adjustment by federal and state regulators.
•Changes in revenues we realize under the loss allowance provisions of our regulated tariffs resulting from changes in underlying commodity prices.
•Costs associated with compliance with evolving environmental laws and regulations on climate change.
•Costs associated with compliance with safety regulations, including pipeline integrity management program testing and related repairs.
•Changes in the cost or availability of third-party vessels, pipelines, railcars and other means of delivering and transporting crude oil, NGL and refined petroleum products.products and NGL.
•General domestic and international economic and political developments including armed hostilities, expropriation of assets, social unrest, insurrections, and other political, economic or diplomatic developments, including those caused by public health issues and outbreaks of diseases and pandemics.
•Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.
•Our ability to comply with the terms of our credit facility, indebtedness and other financing arrangements, which, if accelerated, we may not be able to repay.
•Our ability to incur additional indebtedness or our ability to obtain financing on terms that we deem acceptable, including the refinancing of our current obligations; higher interest rates and costs of financing would increase our expenses.
•Changes in tax, environmental and other laws and regulations.
•The factors generally described in “ItemItem 1A. Risk Factors”Factors in our 20162020 Annual Report on Form 10-K filed with the SEC on February 17, 2017.10-K.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our commodity price risk and interest rate risk at SeptemberJune 30, 2017,2021, did not differ materially from that disclosed under Item 7A of our 20162020 Annual Report on Form 10-K.
Item 4. CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (the Act), is recorded, processed, summarized and reported within the time periods specified in U.S. Securities and Exchange Commission (the SEC) rules and forms, and that such information is accumulated and communicated to our General Partner’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. As of SeptemberJune 30, 2017,2021, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, with the participation of the General Partner’s management, carried out an evaluation, pursuant to Rule 13a-15(b) of the Act, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Act). Based upon that evaluation, our General Partner’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of SeptemberJune 30, 2017.2021.
There have been no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) of the Act, in the quarterly period ended SeptemberJune 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Although we may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business, we are not a party to any reportable litigation or governmental or other proceeding, including those involving governmental authorities under federal, state and local laws regulating the discharge of materials into the environment, that we reasonably believe will be in excess of $300,000 or have a material adverse impact on our consolidated financial position. In addition, as discussed in Note 10—Contingencies, in the Notes to Consolidated Financial Statements, under
Under our amended omnibus agreement, and pursuant to the terms of various agreements under which we acquired assets from Phillips 66, Phillips 66 indemnifies us, or assumes responsibility, for certain liabilities relating to litigation and environmental matters attributable to the ownership or operation of our assets prior to their contribution to us from Phillips 66.
See Note 8—Contingencies, in the Notes to Consolidated Financial Statements, for additional information.
Item 1A. RISK FACTORS
There have beenwere no material changes from the risk factors disclosed underin Item 1A of our 20162020 Annual Report on Form 10-K.
Item 6. EXHIBITS
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| | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | Form | Exhibit Number | Filing Date | SEC File No. |
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| | Credit Agreement, dated as of April 6, 2021, by and among Phillips 66 Partners LP, Phillips 66 Partners Holdings LLC, the lenders party thereto, The Bank of Nova Scotia, Houston Branch, as administrative agent, and The Bank of Nova Scotia, BofA Securities, Inc. and Sumitomo Mitsui Banking Corporation as joint lead arrangers and joint bookrunners. | 8-K | 10.1 | 4/12/2021 | 001-36011 |
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101.INS* | | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | | | | |
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101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. | | | | |
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101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | | | |
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101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | | | |
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101.LAB* | | Inline XBRL Taxonomy Extension Labels Linkbase Document. | | | | |
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101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | | | |
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104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | | | | |
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* Filed herewith.
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| Incorporated by Reference |
Exhibit Number | | Exhibit Description | Form | Exhibit Number | Filing Date | SEC File No. |
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| S-1 | 3.1 | 3/27/2013 | 333-187582 |
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| | | 8-K | 3.1 | 10/10/2017 | 001-36011 |
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| | | 8-K | 3.2 | 10/10/2017 | 001-36011 |
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| | | 8-K | 4.2 | 10/13/2017 | 001-36011 |
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| | | 8-K | 4.4 | 10/13/2017 | 001-36011 |
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| | | 8-K | 4.1 | 10/10/2017 | 001-36011 |
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| | | 8-K | 10.1 | 9/25/2017 | 001-36011 |
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| | | 8-K | 2.1 | 9/25/2017 | 001-36011 |
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| | | 8-K | 10.1 | 10/10/2017 | 001-36011 |
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| | | 8-K | 10.2 | 10/10/2017 | 001-36011 |
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| | | 8-K | 10.3 | 10/10/2017 | 001-36011 |
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101.INS* | | XBRL Instance Document. | | | | |
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| | | Incorporated by Reference |
Exhibit
Number | | Exhibit Description | Form | Exhibit Number | Filing Date | SEC File No. |
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101.SCH* | | XBRL Schema Document. | | | | |
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101.CAL* | | XBRL Calculation Linkbase Document. | | | | |
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101.LAB* | | XBRL Labels Linkbase Document. | | | | |
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101.PRE* | | XBRL Presentation Linkbase Document. | | | | |
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101.DEF* | | XBRL Definition Linkbase Document. | | | | |
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* Filed herewith |
†Confidential treatment has been requested for certain portion of this Exhibit pursuant to a confidential treatment request filed with the Securities and Exchange Commission on October 10, 2017. Such portions have been omitted and filed separately with the Securities and Exchange Commission. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| PHILLIPS 66 PARTNERS LP |
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| PHILLIPS 66 PARTNERS LP |
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| By: Phillips 66 Partners GP LLC, its general partner |
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| /s/ Chukwuemeka A. Oyolu |
| Chukwuemeka A. Oyolu Vice President and Controller (Chief Accounting and Duly Authorized Officer) |
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Date: October 27, 2017
August 3, 2021