Related Party Agreements and Transactions | 9 Months Ended |
Sep. 30, 2013 |
Related Party Transactions [Abstract] | ' |
Related Party Agreements and Transactions | ' |
Related Party Agreements and Transactions |
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Our related parties include: |
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• | MPC, which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, Gulf Coast and Southeast regions of the United States. | | | | | | | | | | | | | | |
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• | Centennial Pipeline LLC (“Centennial”), in which MPC has a 50.0 percent interest. Centennial owns a products pipeline and storage facility. | | | | | | | | | | | | | | |
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• | Muskegon Pipeline LLC (“Muskegon”), in which MPC has a 60.0 percent interest. Muskegon owns a common carrier products pipeline. | | | | | | | | | | | | | | |
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Commercial Agreements |
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At the closing of the Offering, the Partnership entered into long-term, fee-based transportation services agreements with MPC. On October 1, 2012, MPL entered into long-term, fee-based storage services agreements with MPC. Under these agreements, we provide transportation and storage services to MPC, and MPC has committed to provide us with minimum quarterly throughput and storage volumes of crude oil and products and minimum storage volumes of butane. We believe the terms and conditions under these agreements, as well as our initial agreements with MPC described below, are generally no less favorable to either party than those that could have been negotiated with unaffiliated parties with respect to similar services. |
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These commercial agreements with MPC include: |
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• | three separate 10-year transportation services agreements and one five-year transportation services agreement under which MPC pays the Partnership fees for transporting crude oil on each of our crude oil pipeline systems; | | | | | | | | | | | | | | |
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• | four separate 10-year transportation services agreements under which MPC pays the Partnership fees for transporting products on each of our product pipeline systems; | | | | | | | | | | | | | | |
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• | a five-year transportation services agreement under which MPC pays the Partnership fees for handling crude oil and products at our Wood River, Illinois barge dock; | | | | | | | | | | | | | | |
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• | a 10-year storage services agreement under which MPC pays the Partnership fees for providing storage services at our Neal, West Virginia butane cavern; and | | | | | | | | | | | | | | |
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• | four separate three-year storage services agreements under which MPC pays the Partnership fees for providing storage services at our tank farms. | | | | | | | | | | | | | | |
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All of our transportation services agreements for our crude oil and product pipeline systems (other than our Wood River, Illinois to Patoka, Illinois crude system) automatically renew for up to two additional five-year terms unless terminated by either party. The transportation services agreements for our Wood River to Patoka crude system and our barge dock automatically renew for up to four additional two-year terms unless terminated by either party. Our butane cavern storage services agreement does not automatically renew. Our storage services agreements for our tank farms automatically renew for additional one-year terms unless terminated by either party. |
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Under our transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay us a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. If the minimum capacity of the pipeline falls below the level of MPC’s commitment at any time, or if capacity on the pipeline is required to be allocated among shippers because volume nominations exceed available capacity, depending on the cause of the reduction in capacity, MPC’s commitment may be reduced or MPC will receive a credit for its minimum volume commitment for that period. In addition to MPC’s minimum volume commitment, MPC is also responsible for any loading, handling, transfer and other charges with respect to volumes we transport for MPC. If we agree to make any capital expenditures at MPC’s request, MPC will reimburse us for, or we will have the right in certain circumstances to file for an increased tariff rate to recover, the actual cost of such capital expenditures. Our transportation services agreements include provisions that permit MPC to suspend, reduce or terminate its obligations under the applicable agreement if certain events occur. These events include MPC deciding to permanently or indefinitely suspend refining operations at one or more of its refineries for at least twelve consecutive months and certain force majeure events that would prevent us or MPC from performing required services under the applicable agreement. |
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Under the storage services agreements, we are obligated to make available to MPC on a firm basis the available storage capacity at our tank farms and butane cavern, and MPC pays us a per-barrel fee for such storage capacity, regardless of whether MPC fully utilizes the available capacity. Beginning on January 1, 2014, the per-barrel fees in our storage services agreements will be adjusted annually based on changes in the producer price index. |
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Operating Agreements |
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At the closing of the Offering, the Partnership entered into an operating services agreement with MPC under which we operate various pipeline systems owned by MPC. In addition, under existing operating services agreements that MPL had previously entered into with MPC and third parties, MPL continues to operate various pipeline systems owned by MPC and third parties. Under these operating services agreements, the Partnership receives an operating fee for operating the assets and is reimbursed for direct and indirect costs associated with operating the assets. Most of these agreements are indexed for inflation. These agreements range from one to five years and automatically renew unless terminated by either party. |
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Effective February 1, 2013, we entered into an operating agreement with Blanchard Pipe Line Company LLC (“Blanchard”), a wholly-owned subsidiary of MPC, under which we operate various pipeline systems in Texas owned by Blanchard that it acquired in conjunction with MPC’s acquisition of the Galveston Bay refinery. Under the operating agreement, we receive an initial annual fee of $1.0 million, subject to adjustment for inflation, and are reimbursed for specific costs associated with operating the pipeline systems. The term of the operating agreement is until December 31, 2014, and it is automatically extended from year to year thereafter unless terminated by either party at least three months prior to the end of the term. |
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Management Services Agreements |
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Prior to the closing of the Offering, MPL entered into two management services agreements with MPC under which we provide certain management services to MPC with respect to certain of MPC’s retained pipeline assets. We receive fixed annual fees under the agreements for providing the required management services, initially in the amount of $0.7 million and thereafter adjusted annually for inflation and based on changes in the scope of management services provided. |
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Omnibus Agreement |
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Upon the closing of the Offering, the Partnership entered into an omnibus agreement with MPC that addresses our payment of a fixed annual fee to MPC for the provision of executive management services by certain executive officers of our general partner and our reimbursement of MPC for the provision of certain general and administrative services to us, as well as MPC’s indemnification of us for certain matters, including environmental, title and tax matters. |
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Employee Services Agreements |
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Effective October 1, 2012, the Partnership entered into two employee services agreements with MPC under which we reimburse MPC for the provision of certain operational and management services to us in support of our pipelines, barge dock, butane cavern and tank farms. |
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Related Party Transactions |
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We believe that transactions with related parties, other than certain transactions with MPC related to the provision of administrative services for periods prior to the Offering, were conducted on terms comparable to those with unrelated parties. See below for additional information on the transactions with MPC. |
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Sales to related parties were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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MPC | $ | 97.8 | | | $ | 96.6 | | | $ | 284.2 | | | $ | 265.8 | |
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Related party sales to MPC consist of crude oil and product pipeline transportation services based on regulated tariff rates and storage services based on contracted rates. |
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The fees received for operating pipelines for related parties included in other income-related parties on the consolidated statements of income were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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MPC | $ | 4.3 | | | $ | 3 | | | $ | 12.5 | | | $ | 8.8 | |
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Centennial | 0.3 | | | 0.1 | | | 0.8 | | | 0.7 | |
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Muskegon | — | | | 0.1 | | | 0.1 | | | 0.1 | |
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Total | $ | 4.6 | | | $ | 3.2 | | | $ | 13.4 | | | $ | 9.6 | |
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Subsequent to the Offering, MPC provides executive management services and certain general and administrative services to us under terms of the omnibus agreement. For periods prior to the Offering, MPC performed certain services related to information technology, engineering, legal, human resources and other financial and administrative services. Rates for shared services were negotiated between us and the service providers. Where costs incurred on our behalf could not practically be determined by specific identification, these costs were primarily allocated to us based on capital employed, wages or headcount. Our management believes those allocations were a reasonable reflection of the utilization of services provided. However, those allocations may not have fully reflected the expenses that would have been incurred had we been a stand-alone publicly traded partnership during those periods. |
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Charges for services included in purchases from related parties primarily relate to services that support our operations and maintenance activities. These charges were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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MPC | $ | 4.2 | | | $ | 4.4 | | | $ | 13.3 | | | $ | 11.3 | |
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Charges for services included in general and administrative expenses primarily relate to services that support our executive management, accounting and human resources activities, and allocations of corporate overhead costs from MPC for periods prior to the Offering. These charges were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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MPC | $ | 7.7 | | | $ | 5.9 | | | $ | 23.5 | | | $ | 17.4 | |
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In addition, some service costs related to engineering services are associated with assets under construction. These costs added to property, plant and equipment were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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MPC | $ | 2.4 | | | $ | 1.4 | | | $ | 5.9 | | | $ | 4 | |
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Effective October 1, 2012, MPL’s employees transferred to MPC, and we entered into two employee services agreements with MPC for the provision of certain operational and management services. Expenses incurred under the employee services agreements for periods subsequent to October 1, 2012 are shown in the table below by the income statement line where they were recorded. For periods prior to October 1, 2012, MPL employees were considered to participate in multiemployer benefit plans of MPC. Our allocated share of MPC’s employee benefit plan expenses for periods prior to October 1, 2012, including costs related to stock-based compensation plans, is shown in the table below by income statement line and was based upon a percentage of the salaries and wages of employees whose costs were recorded in each income statement line. The costs of personnel directly involved in or supporting operations and maintenance activities are classified as purchases from related parties. The costs of personnel involved in executive management, accounting and human resources activities are classified as general and administrative expenses. Expenses for employee benefit plans other than stock-based compensation plans were allocated to us primarily as a percentage of headcount. For the stock-based compensation plans, we were charged with the expenses directly attributed to our Predecessor’s employees, which were $0.2 million and $0.8 million for the three months and nine months ended September 30, 2012. |
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Employee services expenses from related parties were as follows: |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In millions) | 2013 | | 2012 | | 2013 | | 2012 |
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Purchases from related parties | $ | 19.6 | | | $ | 3.3 | | | $ | 56.1 | | | $ | 10 | |
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General and administrative expenses | 3.5 | | | 5 | | | 12 | | | 19.5 | |
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Total | $ | 23.1 | | | $ | 8.3 | | | $ | 68.1 | | | $ | 29.5 | |
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Receivables from related parties were as follows: |
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(In millions) | 30-Sep-13 | | 31-Dec-12 | | | | | | | | |
MPC | $ | 39 | | | $ | 37.6 | | | | | | | | | |
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Centennial | 1 | | | 0.3 | | | | | | | | | |
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Muskegon | 0.5 | | | 0.1 | | | | | | | | | |
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Total | $ | 40.5 | | | $ | 38 | | | | | | | | | |
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At September 30, 2013 and December 31, 2012, we also had long-term receivables of $0.3 million from MPC, which were included in other noncurrent assets on the consolidated balance sheets, related to indemnifications provided under the omnibus agreement. |
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Payables to related parties were as follows: |
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(In millions) | 30-Sep-13 | | 31-Dec-12 | | | | | | | | |
MPC | $ | 9.8 | | | $ | 13.4 | | | | | | | | | |
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Centennial | 0.1 | | | — | | | | | | | | | |
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Total | $ | 9.9 | | | $ | 13.4 | | | | | | | | | |
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Under our transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay us a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as deferred revenue-related parties. MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline system in excess of its minimum volume commitment during the following four or eight quarters under the terms of the applicable transportation services agreement. We recognize revenues for the deficiency payments when credits are used for volumes transported in excess of minimum quarterly volume commitments, when it becomes impossible to physically transport volumes necessary to utilize the credits or upon the expiration of the applicable four or eight quarter period. The use or expiration of the credits is a decrease in deferred revenue-related parties. |
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During the nine months ended September 30, 2013 and the period October 31, 2012 through December 31, 2012, MPC did not transport its minimum committed volumes. The resulting deficiencies were all related to transportation services agreements which have four quarter make-up periods. The deferred revenue-related parties associated with the deficiencies was as follows: |
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(In millions) | 30-Sep-13 | | 31-Dec-12 | | | | | | | | |
MPC | $ | 27.1 | | | $ | 4.2 | | | | | | | | | |
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To centralize cash management activities for MPC, MPC Investment Fund, Inc. (“MPCIF”), a wholly-owned subsidiary of MPC, was established and an agreement was executed on June 21, 2011 among MPCIF, MPL and ORPL. On a daily basis, we sent our excess cash to MPCIF as an advance or requested cash from MPCIF as a draw. Our net cash balance with MPCIF on the last day of each quarter was classified as loans receivable from related party or as loans payable to related party. The loan balance remained constant until the last day of the next quarter. Loans receivable earned interest at the three-month London Interbank Offered Rate (“LIBOR”) plus 10 basis points. Loans payable bore interest at the three-month LIBOR plus 50 basis points. At the end of each quarter, the net balance of the daily advances and draws and the accrued interest was rolled into the loan balance for the subsequent quarter. This agreement was terminated on September 28, 2012, in connection with the Offering. |
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Related party interest and other financial income were as follows: |
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(In millions) | Three Months Ended September 30, | | Nine Months Ended September 30, |
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Interest income on loans receivable from MPCIF | $ | — | | | $ | 0.5 | | | $ | — | | | $ | 1.3 | |
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