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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

Delaware46-5223743
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
150 N. Dairy Ashford, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
(832) 337-2034
(Registrant’s telephone number, including area code)

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

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Units, Representing Limited Partner InterestsSHLXNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No   ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company

Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ý


The registrant had 393,289,537 common units outstanding as of October 30, 2020.

1



SHELL MIDSTREAM PARTNERS, L.P.
TABLE OF CONTENTS
 
Page
                   Unaudited Consolidated Statements of Income
* SHELL and the SHELL Pecten are registered trademarks of Shell Trademark Management, B.V. used under license.
2


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)

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

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(in millions of dollars, except per unit data)
Revenue
Transportation, terminaling and storage services – third parties$26 $33 $84 $109 
Transportation, terminaling and storage services – related parties64 68 210 196 
Product revenue – third parties   4 
Product revenue – related parties5 10 14 26 
Lease revenue – related parties15 14 43 42 
Total revenue110 125 351 377 
Costs and expenses
Operations and maintenance – third parties9 19 33 48 
Operations and maintenance – related parties30 14 76 44 
Cost of product sold3 10 20 26 
Loss from revision of asset retirement obligation   2 
General and administrative – third parties3 2 7 8 
General and administrative – related parties11 14 40 37 
Depreciation, amortization and accretion13 12 39 36 
Property and other taxes6 5 15 14 
Total costs and expenses75 76 230 215 
Operating income35 49 121 162 
Income from equity method investments109 115 330 265 
Dividend income from other investments   14 
Other income7 8 27 28 
Investment, dividend and other income116 123 357 307 
Interest income8 1 16 2 
Interest expense22 27 71 69 
Income before income taxes137 146 423 402 
Income tax expense    
Net income137 146 423 402 
Less: Net income attributable to noncontrolling interests2 5 9 14 
Net income attributable to the Partnership$135 $141 $414 $388 
Preferred unitholder’s interest in net income attributable to the Partnership12  24  
General partner’s interest in net income attributable to the Partnership 36 55 93 
Limited Partners’ interest in net income attributable to the Partnership’s common unitholders$123 $105 $335 $295 


3


Net income per Limited Partner Unit:
Common - basic$0.31 $0.45 $0.98 $1.30 
Common - diluted$0.30 $0.45 $0.96 $1.30 
Distributions per Limited Partner Unit$0.4600 $0.4450 $1.3800 $1.2900 
Weighted average Limited Partner Units outstanding:
Common units – public - basic123.8 123.8 123.8 123.8 
Common units – SPLC - basic269.5 109.5 216.3 104.1 
Common units – public - diluted123.8 123.8 123.8 123.8 
Common units – SPLC - diluted320.3 109.5 250.2 104.1 


The accompanying notes are an integral part of the consolidated financial statements.
4


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


Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
(in millions of dollars)
Net income$137 $146 $423 $402 
Other comprehensive income, net of tax:
Remeasurements of pension and other postretirement benefits related to equity method investments, net of tax2  2  
Comprehensive income$139 $146 $425 $402 
Less comprehensive income attributable to:
Noncontrolling interests2 5 9 14 
Comprehensive income attributable to the Partnership$137 $141 $416 $388 

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



SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED BALANCE SHEETS
September 30, 2020December 31, 2019
(in millions of dollars)
ASSETS
Current assets 
Cash and cash equivalents$329 $290 
Accounts receivable – third parties, net10 12 
Accounts receivable – related parties40 29 
Allowance oil7 12 
Prepaid expenses10 16 
Total current assets396 359 
Equity method investments1,045 926 
Property, plant and equipment, net708 726 
Operating lease right-of-use assets 4 4 
Other investments2 2 
Contract assets – related parties237  
Other assets – related parties2 2 
Total assets$2,394 $2,019 
LIABILITIES
Current liabilities
Accounts payable – third parties$8 $5 
Accounts payable – related parties20 10 
Deferred revenue – third parties5  
Deferred revenue – related parties14  
Accrued liabilities – third parties21 12 
Accrued liabilities – related parties17 19 
Total current liabilities85 46 
Noncurrent liabilities
Debt payable – related party2,692 2,692 
Operating lease liabilities4 4 
Finance lease liabilities24 24 
Deferred revenue and other unearned income3 2 
Total noncurrent liabilities2,723 2,722 
Total liabilities2,808 2,768 
Commitments and Contingencies (Note 12)
(DEFICIT) EQUITY
Preferred unitholders (50,782,904 and 0 units issued and outstanding as of September 30, 2020 and December 31, 2019)
(1,059) 
Common unitholders – public (123,832,233 units issued and outstanding as of both September 30, 2020 and December 31, 2019)
3,402 3,450 
Common unitholder – SPLC (269,457,304 and 109,457,304 units issued and outstanding as of September 30, 2020 and December 31, 2019)
(2,474)(203)
General partner – SPLC (0 and 4,761,012 units issued and outstanding as of September 30, 2020 and December 31, 2019)
 (4,014)
Financing receivables – related parties(300) 
Accumulated other comprehensive loss(6)(8)
Total partners’ deficit(437)(775)
Noncontrolling interests23 26 
Total deficit(414)(749)
Total liabilities and deficit$2,394 $2,019 

The accompanying notes are an integral part of the consolidated financial statements.
6


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

Nine Months Ended September 30,
20202019
(in millions of dollars)
Cash flows from operating activities
Net income$423 $402 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion39 36 
Amortization of contract assets - related parties8  
Loss from revision of asset retirement obligation 2 
Allowance oil reduction to net realizable value8 1 
Non-cash interest expense 1 
Undistributed equity earnings(6)(5)
Changes in operating assets and liabilities
Accounts receivable(10)4 
Allowance oil(3)(1)
Prepaid expenses and other assets6 14 
Accounts payable11  
Deferred revenue and other unearned income20 (11)
Accrued liabilities7 15 
Net cash provided by operating activities503 458 
Cash flows from investing activities
Capital expenditures(17)(31)
Acquisitions from Parent (90)
Contributions to investment (13)
Return of investment62 56 
Net cash provided by (used in) investing activities45 (78)
Cash flows from financing activities
Payment of equity issuance costs(2) 
Borrowings under credit facilities 600 
Capital distributions to general partner (510)
Distributions to noncontrolling interests(12)(13)
Distributions to unitholders and general partner(497)(379)
Other contributions from Parent1 9 
Receipt of principal payments on financing receivables2  
Repayment of principal on finance leases(1)(1)
Net cash used in financing activities(509)(294)
Net increase in cash and cash equivalents39 86 
Cash and cash equivalents at beginning of the period290 208 
Cash and cash equivalents at end of the period$329 $294 
Supplemental cash flow information
Non-cash investing and financing transactions:
Change in accrued capital expenditures$3 $(2)
The accompanying notes are an integral part of the consolidated financial statements.
7


SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN (DEFICIT) EQUITY
Partnership
(in millions of dollars)Preferred Unitholder SPLCCommon Unitholders PublicCommon Unitholder SPLCGeneral Partner SPLCFinancing ReceivableAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Balance as of December 31, 2019$ $3,450 $(203)$(4,014)$ $(8)$26 $(749)
Net income— 44 39 55 — — 4 142 
Distributions to unitholders and general partner— (57)(50)(55)— — — (162)
Distributions to noncontrolling interests— — — — — — (5)(5)
Balance as of March 31, 2020$ $3,437 $(214)$(4,014)$ $(8)$25 $(774)
Net income12 41 88  — — 3 144 
Other contributions from Parent— — 1  —  — 1 
Distributions to unitholders and general partner— (57)(51)(55)— — — (163)
Distributions to noncontrolling interests— — — — — — (4)(4)
Principal repayments on financing receivables— — — — 1 — — 1 
April 2020 Transaction(1,071)— (2,280)4,069 (302)— — 416 
Balance as of June 30, 2020$(1,059)$3,421 $(2,456)$ $(301)$(8)$24 $(379)
Net income12 38 85  — — 2 137 
Other comprehensive income— — — — — 2 — 2 
Distributions to unitholders and general partner(12)(57)(103) — — — (172)
Distributions to noncontrolling interests— — — — — — (3)(3)
Principal repayments on financing receivables— — — — 1 — — 1 
Balance as of September 30, 2020$(1,059)$3,402 $(2,474)$ $(300)$(6)$23 $(414)


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Partnership
(in millions of dollars)Common Unitholders PublicCommon Unitholder SPLCGeneral Partner SPLCAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Balance as of December 31, 2018$3,459 $(198)$(3,543)$ $25 $(257)
Impact of change in accounting policy (Note 4)(4)(5) — — (9)
Net income58 47 27 — 5 137 
Other contributions from Parent— — 7 — — 7 
Distributions to unitholders and general partner(49)(40)(40)— — (129)
Distributions to noncontrolling interests— — — — (3)(3)
Balance as of March 31, 2019$3,464 $(196)$(3,549)$ $27 $(254)
Net income45 40 30 — 4 119 
Other contributions from Parent— — 9 (6)— 3 
Distributions to unitholders and general partner(51)(42)(26)— — (119)
Distributions to noncontrolling interests— — — — (6)(6)
June 2019 Acquisition— — (510)— — (510)
Balance as of June 30, 2019$3,458 $(198)$(4,046)$(6)$25 $(767)
Net income56 49 36 — 5 146 
Other distributions to Parent— — (1)— (1)
Distributions to unitholders and general partner(53)(47)(31)— (131)
Distributions to noncontrolling interests— — — — (4)(4)
Balance as of September 30, 2019$3,461 $(196)$(4,042)$(6)$26 $(757)

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

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SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
Except as noted within the context of each note disclosure, the dollar amounts presented in the tabular data within these note disclosures are stated in millions of dollars.

1. Description of Business and Basis of Presentation

Shell Midstream Partners, L.P. (“we,” “us,” “our,” “SHLX” or “the Partnership”) is a Delaware limited partnership formed by Royal Dutch Shell plc on March 19, 2014 to own and operate pipeline and other midstream assets, including certain assets acquired from Shell Pipeline Company LP (“SPLC”) and its affiliates. We conduct our operations either through our wholly owned subsidiary Shell Midstream Operating LLC (the “Operating Company”) or through direct ownership. Our general partner is Shell Midstream Partners GP LLC (“general partner”). References to “RDS,” “Shell” or “Parent” refer collectively to Royal Dutch Shell plc and its controlled affiliates, other than us, our subsidiaries and our general partner.

Until April 1, 2020, the general partner owned an approximate 2% general partner economic interest in the Partnership, including the incentive distribution rights (“IDRs”). On April 1, 2020, we closed the transactions contemplated by the Partnership Interests Restructuring Agreement with our general partner dated February 27, 2020 (the “Partnership Interests Restructuring Agreement”), pursuant to which the IDRs were eliminated and the 2% general partner economic interest was converted into a non-economic general partner interest in the Partnership. As of September 30, 2020, our general partner holds a non-economic general partner interest in the Partnership, and affiliates of SPLC own a 68.5% limited partner interest (269,457,304 common units) and 50,782,904 Series A perpetual convertible preferred units (the “Series A Preferred Units”) in the Partnership. See Note 2 — Acquisitions and Other Transactions and Note 9 — (Deficit) Equity for additional details.

Description of Business

We own, operate, develop and acquire pipelines and other midstream and logistics assets. As of September 30, 2020, our assets include interests in entities that own (a) crude oil and refined products pipelines and terminals that serve as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and deliver refined products from those markets to major demand centers and (b) storage tanks and financing receivables that are secured by pipelines, storage tanks, docks, truck and rail racks and other infrastructure used to stage and transport intermediate and finished products. The Partnership’s assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.

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




















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The following table reflects our ownership interests as of September 30, 2020:
SHLX Ownership
Pecten Midstream LLC (“Pecten”)100.0 %
Sand Dollar Pipeline LLC (“Sand Dollar”)100.0 %
Triton West LLC (“Triton”)100.0 %
Zydeco Pipeline Company LLC (“Zydeco”) (1)
92.5 %
Mattox Pipeline Company LLC (“Mattox”)79.0 %
Amberjack Pipeline Company LLC (“Amberjack”) – Series A/Series B
75.0% / 50.0%
Mars Oil Pipeline Company LLC (“Mars”)71.5 %
Odyssey Pipeline L.L.C. (“Odyssey”)71.0 %
Bengal Pipeline Company LLC (“Bengal”)50.0 %
Crestwood Permian Basin LLC (“Permian Basin”)50.0 %
LOCAP LLC (“LOCAP”)41.48 %
Explorer Pipeline Company (“Explorer”)38.59 %
Poseidon Oil Pipeline Company, L.L.C. (“Poseidon”)36.0 %
Colonial Enterprises, Inc. (“Colonial”)16.125 %
Proteus Oil Pipeline Company, LLC (“Proteus”)10.0 %
Endymion Oil Pipeline Company, LLC (“Endymion”)10.0 %
Cleopatra Gas Gathering Company, LLC (“Cleopatra”)1.0 %
(1) SPLC owns the remaining 7.5% ownership interest in Zydeco.

Basis of Presentation

Our unaudited consolidated financial statements include all subsidiaries required to be consolidated under generally accepted accounting principles in the United States (“GAAP”). Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars. The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. The year-end consolidated balance sheet data was derived from audited financial statements. During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 (our “2019 Annual Report”), filed with the United States Securities and Exchange Commission (“SEC”) unless otherwise described herein. The unaudited consolidated financial statements for the three and nine months ended September 30, 2020 and September 30, 2019 include all adjustments we believe are necessary for a fair statement of the results of operations for the interim periods presented. These adjustments are of a normal recurring nature unless otherwise disclosed. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These unaudited consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our 2019 Annual Report.

Our consolidated subsidiaries include Pecten, Sand Dollar, Triton, Zydeco, Odyssey and the Operating Company. Asset acquisitions of additional interests in previously consolidated subsidiaries and interests in equity method and other investments are included in the financial statements prospectively from the effective date of each acquisition. In cases where these types of acquisitions are considered acquisitions of businesses under common control, the financial statements are retrospectively adjusted.

Summary of Significant Accounting Policies

The accounting policies are set forth in Note 2 — Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of our 2019 Annual Report. There have been no significant changes to these policies during the nine months ended September 30, 2020, other than those noted below.

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Leases, Sale Leaseback

When entering into sale-leaseback transactions as a buyer-lessor, the requirements in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and all related accounting standards updates to such Topic (collectively, “the revenue standard”) are applied in determining whether the transfer of an asset shall be accounted for as a sale of the asset by assessing whether it satisfies a performance obligation under the contract by transferring control of an asset. If the seller-lessee transfers control of an asset to us, we account for the transfer of the asset as a purchase and recognize the transferred asset. The subsequent leaseback of the asset is accounted for in accordance with ASC Topic 842, Leases (the “lease standard”), in the same manner as any other lease. If the seller-lessee does not transfer the control of an asset to us, the failed sale-leaseback transaction is accounted for as a financing arrangement. Transactions in which control of an asset is not transferred are accounted for as financing receivables in accordance with ASC Topic 310, Receivables. Since the seller-lessee did not transfer the control of assets to us in the April 2020 Transaction (defined in Note 2 — Acquisitions and Other Transactions below), we did not recognize the transferred assets, and instead they were accounted for as financing receivables. Receivables issued in exchange for the Partnership’s capital stock should be presented as a component of the partner’s (deficit) equity. Since the Partnership issued common units and preferred units as consideration in exchange for the financing receivables in the April 2020 Transaction, we recorded the financing receivables as contra-equity. Refer to Note 2 — Acquisitions and Other Transactions and Note 9 – (Deficit) Equity for additional details. We recognize interest income on the financing receivables on the basis of the imputed interest rate determined in accordance with ASC Topic 835, Interest.

Allowance for Expected Credit Losses

Accounts receivable represent valid claims against customers for products sold or services rendered, net of allowances for doubtful accounts. We assess the creditworthiness of our counterparties on an ongoing basis and require security, including prepayments and other forms of collateral, when appropriate. We establish provisions for losses on third-party accounts receivable due from shippers and operators based on current expected credit losses. As of September 30, 2020 and December 31, 2019, we did not have a material amount of allowance for doubtful accounts.

Net income per limited partner unit

Prior to the April 2020 Transaction, we used the two-class method when calculating the net income per unit applicable to limited partners as there were different participating securities included in the calculation including common units, general partner units and IDRs. After the April 2020 Transaction, the IDRs were eliminated, the 2% general partner economic interest was converted into a non-economic general partner interest in the Partnership and the newly issued Series A Preferred Units did not qualify as participating securities. Therefore, the two-class method was still applied to the year-to-date calculation but was not applicable to the calculations for the second and third quarters of 2020.

Reclassifications

Certain reclassifications have been made to prior period amounts in our unaudited consolidated statements of income and unaudited consolidated balance sheets to conform to the current period presentation. The net effect of these reclassifications was not material to our consolidated financial statements.

Recent Accounting Pronouncements

Standards Adopted as of January 1, 2020

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13 to Topic 326, Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments, which replaces the current incurred loss impairment method with a method that reflects expected credit losses on financial instruments. The measurement of current expected credit losses under the new guidance is applicable to financial assets measured at amortized cost, including third-party trade receivables. We adopted the new standard effective January 1, 2020, using the modified retrospective method for all financial assets measured. No cumulative-effect adjustment to retained earnings was required upon adoption. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.

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Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity. The update will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models may result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. This update also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021 for SEC filers, excluding smaller reporting companies. Early adoption is permitted, but not earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the appropriate date of adoption and the effect of the adoption of this update on our consolidated financial statements. The effect will largely depend on the composition and terms of our financial instruments at the time of adoption.

2. Acquisitions and Other Transactions

April 2020 Transaction

On April 1, 2020, we closed the following transactions (together referred to as the “April 2020 Transaction”):

Pursuant to a Purchase and Sale Agreement dated as of February 27, 2020 (the “Purchase and Sale Agreement”) between the Partnership and Triton, SPLC, Shell GOM Pipeline Company LLC (“SGOM”), Shell Chemical LP (“Shell Chemical”) and Equilon Enterprises LLC d/b/a Shell Oil Products US (“SOPUS”), we acquired 79% of the issued and outstanding membership interests in Mattox from SGOM (the “Mattox Transaction”), and SOPUS and Shell Chemical transferred to Triton, as a designee of the Partnership, certain logistics assets at the Shell Norco Manufacturing Complex located in Norco, Louisiana (such assets, the “Norco Assets,” and such transaction, the “Norco Transaction”); and
Simultaneously with the closing of the transactions contemplated by the Purchase and Sale Agreement, we also closed the transactions contemplated by the Partnership Interests Restructuring Agreement with our general partner dated February 27, 2020, pursuant to which we eliminated all of the IDRs and converted the 2% economic general partner interest in the Partnership into a non-economic general partner interest (the “GP/IDR Restructuring”). The general partner or its assignee has also agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the April 2020 Transaction, in an amount of $20 million per quarter for each of four consecutive fiscal quarters, to begin with the distribution made with respect to the second quarter of 2020.

As consideration for the April 2020 Transaction, the Partnership issued 50,782,904 Series A Preferred Units to SPLC at a price of $23.63 per unit, plus 160,000,000 newly issued common units. Certain third-party fair value appraisals were performed to determine the fair value of the total consideration as well as the fair values of each of the Mattox Transaction, the Norco Transaction and the GP/IDR Restructuring, as of April 1, 2020. Because the components of the April 2020 Transaction were entered in contemplation of each other and were transactions among entities under common control, the fair values of the April 2020 Transaction were used solely for the purpose of allocating a portion of the consideration on a relative fair value basis to the Norco Transaction.

In connection with the April 2020 Transaction, the Partnership recorded the following balances as of April 1, 2020:

Equity method investment (1)
$174 
Financing receivables – related parties (2)
302 
Contract assets - related parties (3)
244 
April 2020 Transaction$720 
(1) Equity method investment was recorded at SGOMs historical carrying value of the 79% interest in Mattox. See more discussion in the section entitled “Mattox Transaction” below.
(2) Financing receivables under the failed sale leaseback were recorded at the fair value of the property, plant and equipment of the Norco Assets transferred by SOPUS and Shell Chemical and recognized as a component of the Partners deficit. See more discussion in the section entitled “Norco Transaction” below.
(3) Contract assets were recorded based on the difference between the consideration allocated to the Norco Transaction and the financing receivables. See more discussion in the section entitled “Norco Transaction” below.
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Mattox Transaction

We acquired 79% of the issued and outstanding membership interests in Mattox from SGOM. The acquisition was accounted for as a transaction among entities under common control on a prospective basis as an asset acquisition. As a result of the Mattox Transaction, we have significant influence, but not control, over Mattox and account for this investment as an equity method investment. As such, we recorded the acquired equity interests in Mattox at SGOM’s historical carrying value of $174 million, which is included in Equity method investments in our unaudited consolidated balance sheet as of September 30, 2020. See Note 4 —Equity Method Investments for additional details.

Norco Transaction

SOPUS and Shell Chemical transferred certain logistics assets at the Shell Norco Manufacturing Complex located in Norco, Louisiana, which are comprised of crude, chemicals, intermediate and finished product pipelines, storage tanks, docks, truck and rail racks and supporting infrastructure, to Triton, as a designee of the Partnership. The Partnership simultaneously leased the Norco Assets back to SOPUS and Shell Chemical pursuant to the terminaling services agreements entered into among Triton, SOPUS and Shell Chemical related to the Norco Assets. The Partnership receives an annual net payment of $140 million, which is the total annual payment pursuant to the terminaling services agreements of $151 million, less $11 million, which primarily represents the allocated utility costs from SOPUS related to the Norco Assets. Both payments are subject to annual Consumer Price Index adjustments.

The transfer of the Norco Assets combined with the terminaling services agreements were accounted for as a failed sale leaseback under the lease standard, as control of the assets did not transfer to the Partnership. As a result, the transaction was treated as a financing arrangement. As the Norco Transaction was entered into simultaneously and in contemplation of the Mattox Transaction and the GP/IDR Restructuring components, we allocated $546 million of the fair value of the consideration of the April 2020 Transaction to the Norco Transaction based on its relative stand-alone fair value to the other components of the April 2020 Transaction. From this amount, we recorded financing receivables of $302 million, based on the fair value of the Norco Assets’ property, plant and equipment transferred from SOPUS and Shell Chemical, using a combination of market and cost valuation approaches. The financing receivables were recorded as the fair value of property, plant and equipment because the annual payments received by the Partnership are directly related to the lease of the property, plant and equipment of the Norco Assets. Since the financing receivables from SOPUS and Shell Chemical arose from transactions involving the issuance of the Partnership’s common and preferred units, the financing receivables were presented as a component of (deficit) equity and not as assets on the balance sheet.

As of April 1, 2020, we also recorded contract assets in the amount of $244 million, which represent the difference between the allocated fair value of the Norco Transaction of $546 million and the recognized financing receivables of $302 million. The contract assets represent the excess of the fair value embedded within the terminaling services agreements transferred by the Partnership to SOPUS and Shell Chemical as part of entering into the terminaling services agreements. See Note 10 — Revenue Recognition for additional details.

The amount of contract assets recognized was dependent on the allocated fair value of the consideration to the Norco Transaction, which was determined using the fair values of the consideration transferred and the fair values of each of the three components of the April 2020 Transaction. The common units were valued using a market approach based on the market opening price of the Partnership’s common units as of April 1, 2020, less a discount for the waiver described above and a marketability discount. The Series A Preferred Units were valued using an income approach based on a trinomial lattice model. Further, the fair values of the three components of the April 2020 Transaction were determined using an income approach of discounted cash flows at an average discount rate for each of the Mattox Transaction, the Norco Transaction and the GP/IDR Restructuring components of 14%, 11% and 20%, respectively.

GP/IDR Restructuring

On April 1, 2020, we also closed the transactions contemplated by the Partnership Interests Restructuring Agreement, which included the elimination of all the IDRs and the cancellation of 4,761,012 general partner units, both of which were held by the general partner, and amended and restated our partnership agreement to reflect these and other changes (as so amended, the “Second Amended and Restated Partnership Agreement”). The 2% general partner economic interest was converted into a non-economic general partner interest. Because the components of the April 2020 Transaction were among entities under common control, the general partner’s negative equity balance of $4 billion at April 1, 2020 was transferred to SPLC’s equity accounts, allocated between its holdings of common units and preferred units, based on the relative fair value of the consideration related to the issuance of common units and preferred units in the April 2020 Transaction.

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Upon the closing of the April 2020 Transaction, the Partnership had 393,289,537 common units outstanding, of which SPLC’s wholly owned subsidiary, Shell Midstream LP Holdings LLC (“LP Holdings”), owned 269,457,304 common units in the Partnership, representing an aggregate 68.5% limited partner interest. The Partnership also had 50,782,904 of Series A Preferred Units outstanding which are entitled to receive a quarterly distribution of $0.2363 per unit and all of which are owned by LP Holdings. See Note 9 — (Deficit) Equity for additional details.

June 2019 Acquisition

On June 6, 2019, we acquired SPLC’s remaining 25.97% ownership interest in Explorer and 10.125% ownership interest in Colonial for consideration valued at $800 million (the “June 2019 Acquisition”). The June 2019 Acquisition increased our ownership interest in Explorer to 38.59% and in Colonial to 16.125%. The June 2019 Acquisition closed pursuant to a Contribution Agreement dated May 10, 2019 (the “May 2019 Contribution Agreement”) between us and SPLC, and is accounted for as a transaction among entities under common control on a prospective basis as an asset acquisition. As such, we recorded the acquired equity interests at SPLC’s historical carrying value of $90 million, which is included in Equity method investments in our unaudited consolidated balance sheets. In addition, as a transfer among entities under common control, we recorded Accumulated other comprehensive loss of $6 million related to historical remeasurements of pension and other postretirement benefits provided by Explorer and Colonial to their employees. We recognized $510 million of cash consideration in excess of the historical carrying value of equity interests acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. We funded the June 2019 Acquisition with $600 million in cash consideration from borrowings under our Ten Year Fixed Facility (as defined in Note 7—Related Party Debt) with Shell Treasury Center (West) Inc. (“STCW”) and non-cash equity consideration valued at $200 million. Pursuant to the May 2019 Contribution Agreement, the number of common units representing the equity consideration was determined by dividing the contribution amount (25% of total consideration of $800 million) by the price per unit of $20.68, which represents the volume weighted average sales prices of the common units calculated for the five-trading-day period ended on April 30, 2019, less the general partner units issued to the general partner in order to maintain its