0001610466-20-000057 | 10-Q | XBRL Viewer | Shell Midstream Partners LP

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Cover Page - shares	9 Months Ended
Cover Page - shares	Sep. 30, 2020	Oct. 30, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-36710
Entity Registrant Name	Shell Midstream Partners, L.P.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-5223743
Entity Address, Address Line One	150 N. Dairy Ashford
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77079
City Area Code	832
Local Phone Number	337-2034
Title of 12(b) Security	Common Units, Representing Limited Partner Interests
Trading Symbol	SHLX
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		393,289,537
Entity Central Index Key	0001610466
Amendment Flag	false
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Millions, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue
Revenue from contract with customer	$ 95	$ 111	$ 308	$ 335
Lease revenue – related parties	15	14	43	42
Total revenue	110	125	351	377
Costs and expenses
Operations and maintenance – third parties	9	19	33	48
Operations and maintenance – related parties	30	14	76	44
Cost of product sold	3	10	20	26
Loss from revision of asset retirement obligation	0	0	0	2
General and administrative – third parties	3	2	7	8
General and administrative – related parties	11	14	40	37
Depreciation, amortization and accretion	13	12	39	36
Property and other taxes	6	5	15	14
Total costs and expenses	75	76	230	215
Operating income	35	49	121	162
Income from equity method investments	109	115	330	265
Dividend income from other investments	0	0	0	14
Other income	7	8	27	28
Investment, dividend and other income	116	123	357	307
Interest income	8	1	16	2
Interest expense	22	27	71	69
Income before income taxes	137	146	423	402
Income tax expense	0	0	0	0
Net income	137	146	423	402
Less: Net income attributable to noncontrolling interests	2	5	9	14
Net income attributable to the Partnership	135	141	414	388
Preferred unitholder’s interest in net income attributable to the Partnership	12	0	24	0
General partner’s interest in net income attributable to the Partnership	0	36	55	93
Limited Partners’ interest in net income attributable to the Partnership’s common unitholders	$ 123	$ 105	$ 335	$ 295
Net income per Limited Partner Unit:
Distributions per Limited Partner unit (in dollars per share)	$ 0.4600	$ 0.4450	$ 1.3800	$ 1.2900
Common
Costs and expenses
Net income attributable to the Partnership		$ 105		$ 295
Net income per Limited Partner Unit:
Common - basic (in dollars per share)	0.31	$ 0.45	0.98	$ 1.30
Common - diluted (in dollars per share)	$ 0.30	$ 0.45	$ 0.96	$ 1.30
Common units – public
Costs and expenses
Net income	$ 38	$ 56
Weighted average Limited Partner Units outstanding:
Common units - basic (in shares)	123.8	123.8	123.8	123.8
Common units - diluted (in shares)	123.8	123.8	123.8	123.8
Common units – public \| Shell Pipeline Company L P
Costs and expenses
Net income	$ 85	$ 49
Common units – SPLC \| Shell Pipeline Company L P
Weighted average Limited Partner Units outstanding:
Common units - basic (in shares)	269.5	109.5	216.3	104.1
Common units - diluted (in shares)	320.3	109.5	250.2	104.1
Third Parties \| Transportation, Terminaling and Storage Services
Revenue
Revenue from contract with customer	$ 26	$ 33	$ 84	$ 109
Third Parties \| Product Revenue
Revenue
Revenue from contract with customer	0	0	0	4
Related Parties \| Transportation, Terminaling and Storage Services
Revenue
Revenue from contract with customer	64	68	210	196
Related Parties \| Product Revenue
Revenue
Revenue from contract with customer	$ 5	$ 10	$ 14	$ 26

UNAUDITED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Sep. 30, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 329	$ 290
Accounts receivable – third parties, net	10	12
Accounts receivable – related parties	40	29
Allowance oil	7	12
Prepaid expenses	10	16
Total current assets	396	359
Equity method investments	1,045	926
Property, plant and equipment, net	708	726
Operating lease right-of-use assets	4	4
Other investments	2	2
Contract assets – related parties	237	0
Other assets – related parties	2	2
Total assets	2,394	2,019
Current liabilities
Accounts payable – third parties	8	5
Accounts payable – related parties	20	10
Deferred revenue – third parties	5	0
Deferred revenue – related parties	14	0
Accrued liabilities – third parties	21	12
Accrued liabilities – related parties	17	19
Total current liabilities	85	46
Noncurrent liabilities
Debt payable – related party	2,692	2,692
Operating lease liabilities	4	4
Finance lease liabilities	24	24
Deferred revenue and other unearned income	3	2
Total noncurrent liabilities	2,723	2,722
Total liabilities	2,808	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)	0
Financing receivables – related parties	(300)	0
Accumulated other comprehensive loss	(6)	(8)
Total partners’ deficit	(437)	(775)
Noncontrolling interests	23	26
Total deficit	(414)	(749)
Total liabilities and deficit	$ 2,394	$ 2,019
Common unitholders' capital account, units outstanding (in shares)	393,289,537	233,289,537
Shell Pipeline Company L P
(DEFICIT) EQUITY
General partner – SPLC (0 and 4,761,012 units issued and outstanding as of September 30, 2020 and December 31, 2019)	$ 0	$ (4,014)
Common Units
(DEFICIT) EQUITY
Common unitholders	$ 3,402	$ 3,450
Common unitholders' capital account, units outstanding (in shares)	123,832,233	123,832,233
Common Units \| Shell Pipeline Company L P
(DEFICIT) EQUITY
Common unitholders	$ (2,474)	$ (203)
Common unitholders' capital account, units outstanding (in shares)	269,457,304	109,457,304

UNAUDITED CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Sep. 30, 2020	Dec. 31, 2019
Common unitholders' capital account, units outstanding (in shares)	393,289,537	233,289,537
Shell Pipeline Company L P
Preferred units, issued (in shares)	50,782,904	0
Preferred units, outstanding (in shares)	50,782,904	0
General partners' capital account, units issued (in shares)	0	4,761,012
General partners' capital account, units outstanding (in shares)	0	4,761,012
Common Units
Common unitholders' capital account, units issued (in shares)	123,832,233	123,832,233
Common unitholders' capital account, units outstanding (in shares)	123,832,233	123,832,233
Common Units \| Shell Pipeline Company L P
Common unitholders' capital account, units issued (in shares)	269,457,304	109,457,304
Common unitholders' capital account, units outstanding (in shares)	269,457,304	109,457,304

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities
Net income	$ 423	$ 402
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion	39	36
Amortization of contract assets - related parties	8	0
Loss from revision of asset retirement obligation	0	2
Allowance oil reduction to net realizable value	8	1
Non-cash interest expense	0	1
Undistributed equity earnings	(6)	(5)
Changes in operating assets and liabilities
Accounts receivable	(10)	4
Allowance oil	(3)	(1)
Prepaid expenses and other assets	6	14
Accounts payable	11	0
Deferred revenue and other unearned income	20	(11)
Accrued liabilities	7	15
Net cash provided by operating activities	503	458
Cash flows from investing activities
Capital expenditures	(17)	(31)
Acquisitions from Parent	0	(90)
Contributions to investment	0	(13)
Return of investment	62	56
Net cash provided by (used in) investing activities	45	(78)
Cash flows from financing activities
Payment of equity issuance costs	(2)	0
Borrowings under credit facilities	0	600
Capital distributions to general partner	0	(510)
Distributions to noncontrolling interests	(12)	(13)
Distributions to unitholders and general partner	(497)	(379)
Other contributions from Parent	1	9
Receipt of principal payments on financing receivables	2	0
Repayment of principal on finance leases	(1)	(1)
Net cash used in financing activities	(509)	(294)
Net increase in cash and cash equivalents	39	86
Cash and cash equivalents at beginning of the period	290	208
Cash and cash equivalents at end of the period	329	294
Non-cash investing and financing transactions:
Change in accrued capital expenditures	$ 3	$ (2)

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN (DEFICIT) EQUITY - USD ($) $ in Millions	Total	Cumulative Effect, Period of Adoption, Adjustment	Financing Receivable	Accumulated Other Comprehensive Loss	Noncontrolling Interests	Preferred Partner Shell Pipeline Company L P	Common Unitholders	Common Unitholders Cumulative Effect, Period of Adoption, Adjustment	Common Unitholders Shell Pipeline Company L P	Common Unitholders Shell Pipeline Company L P Cumulative Effect, Period of Adoption, Adjustment	General Partner SPLC Shell Pipeline Company L P	General Partner SPLC Shell Pipeline Company L P Cumulative Effect, Period of Adoption, Adjustment
Beginning balance at Dec. 31, 2018	$ (257.0)	$ (9.0)		$ 0.0	$ 25.0		$ 3,459.0	$ (4.0)	$ (198.0)	$ (5.0)	$ (3,543.0)	$ 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	137.0				5.0		58.0		47.0		27.0
Other contributions from Parent	7.0										7.0
Distributions to unitholders and general partner	(129.0)						(49.0)		(40.0)		(40.0)
Distributions to noncontrolling interests	(3.0)				(3.0)
Ending balance at Mar. 31, 2019	(254.0)			0.0	27.0		3,464.0		(196.0)		(3,549.0)
Beginning balance at Dec. 31, 2018	(257.0)	$ (9.0)		0.0	25.0		3,459.0	$ (4.0)	(198.0)	$ (5.0)	(3,543.0)	$ 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	402.0
Ending balance at Sep. 30, 2019	(757.0)			(6.0)	26.0		3,461.0		(196.0)		(4,042.0)
Beginning balance at Mar. 31, 2019	(254.0)			0.0	27.0		3,464.0		(196.0)		(3,549.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	119.0				4.0		45.0		40.0		30.0
Other contributions from Parent	3.0			(6.0)							9.0
Distributions to unitholders and general partner	(119.0)						(51.0)		(42.0)		(26.0)
Distributions to noncontrolling interests	(6.0)				(6.0)
April 2020 Transaction and June 2019 Acquisition	(510.0)										(510.0)
Ending balance at Jun. 30, 2019	(767.0)			(6.0)	25.0		3,458.0		(198.0)		(4,046.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	146.0				5.0		56.0		49.0		36.0
Other contributions from Parent	(1.0)										(1.0)
Distributions to unitholders and general partner	(131.0)						(53.0)		(47.0)		(31.0)
Distributions to noncontrolling interests	(4.0)				(4.0)
Ending balance at Sep. 30, 2019	(757.0)			(6.0)	26.0		3,461.0		(196.0)		(4,042.0)
Beginning balance at Dec. 31, 2019	(749.0)		$ 0.0	(8.0)	26.0	$ 0.0	3,450.0		(203.0)		(4,014.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	142.0				4.0		44.0		39.0		55.0
Distributions to unitholders and general partner	(162.0)						(57.0)		(50.0)		(55.0)
Distributions to noncontrolling interests	(5.0)				(5.0)
Ending balance at Mar. 31, 2020	(774.0)		0.0	(8.0)	25.0	0.0	3,437.0		(214.0)		(4,014.0)
Beginning balance at Dec. 31, 2019	(749.0)		0.0	(8.0)	26.0	0.0	3,450.0		(203.0)		(4,014.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	423.0
Ending balance at Sep. 30, 2020	(414.0)		(300.0)	(6.0)	23.0	(1,059.0)	3,402.0		(2,474.0)		0.0
Beginning balance at Mar. 31, 2020	(774.0)		0.0	(8.0)	25.0	0.0	3,437.0		(214.0)		(4,014.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	144.0				3.0	12.0	41.0		88.0		0.0
Other contributions from Parent	1.0			0.0					1.0		0.0
Distributions to unitholders and general partner	(163.0)						(57.0)		(51.0)		(55.0)
Distributions to noncontrolling interests	(4.0)				(4.0)
Principal repayments on financing receivables	1.0		1.0
April 2020 Transaction and June 2019 Acquisition	416.0		(302.0)			(1,071.0)			(2,280.0)		4,069.0
Ending balance at Jun. 30, 2020	(379.0)		(301.0)	(8.0)	24.0	(1,059.0)	3,421.0		(2,456.0)		0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	137.0				2.0	12.0	38.0		85.0		0.0
Other Comprehensive Income (Loss), Net of Tax	2.0			2.0
Distributions to unitholders and general partner	(172.0)					(12.0)	(57.0)		(103.0)		0.0
Distributions to noncontrolling interests	(3.0)				(3.0)
Principal repayments on financing receivables	1.0		1.0
Ending balance at Sep. 30, 2020	$ (414.0)		$ (300.0)	$ (6.0)	$ 23.0	$ (1,059.0)	$ 3,402.0		$ (2,474.0)		$ 0.0

- Definition

Amount after tax and reclassification adjustments of other comprehensive income (loss).

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- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

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- Definition

Amount of stockholders' equity (deficit), net of receivables from officers, directors, owners, and affiliates of the entity, attributable to both the parent and noncontrolling interests. Amount excludes temporary equity. Alternate caption for the concept is permanent equity.

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+ Details

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
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 tax	2	0	2	0
Comprehensive income	139	146	425	402
Less comprehensive income attributable to noncontrolling interests	2	5	9	14
Comprehensive income attributable to the Partnership	$ 137	$ 141	$ 416	$ 388

- Definition

Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income (loss) and other comprehensive income (loss), attributable to noncontrolling interests. Excludes changes in equity resulting from investments by owners and distributions to owners.

+ References + Details

- Definition

Amount after tax of increase (decrease) in equity from transactions and other events and circumstances from net income and other comprehensive income. Excludes changes in equity resulting from investments by owners and distributions to owners.

+ References + Details

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

+ Details

Description of Business and Basis of Presentation

9 Months Ended

Sep. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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.

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.

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.

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.

Acquisitions and Other Transactions

9 Months Ended

Sep. 30, 2020

Asset Acquisition [Abstract]

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 SGOM’s 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.

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.

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 2% general partner interest in us. The equity issued consisted of 9,477,756 common units issued to LP Holdings, and 193,424 general partner units issued to the general partner in order to maintain its 2% general partner interest in us. These common and general partner units issued were assigned no book value because the cash consideration exceeded the historical carrying value of equity interests acquired. Accordingly, the units issued had no impact on partner capital accounts, other than changing ownership percentages.

As a result of the June 2019 Acquisition, we now have significant influence over both Explorer and Colonial and account for these investments as equity method investments.

Related Party Transactions

9 Months Ended

Sep. 30, 2020

Related Party Transactions

Related party transactions include transactions with SPLC and Shell, including those entities in which Shell has an ownership interest but does not have control.

Acquisition Agreements

On February 27, 2020, the Partnership and Triton entered into the Purchase and Sale Agreement with SPLC, SGOM, Shell Chemical and SOPUS to acquire: (i) 79% of the issued and outstanding membership interests in Mattox, from SGOM and (ii) certain logistics assets at Norco, which are comprised of crude, chemicals, intermediate and finished product pipelines, storage tanks, docks, truck and rail racks and supporting infrastructure, from SOPUS and Shell Chemical. The transactions closed pursuant to the Purchase and Sale Agreement on April 1, 2020. See Note 2 — Acquisitions and Other Transactions in this report for additional details.

For a description of other applicable agreements, see Note 3 – Acquisitions and Divestiture in the Notes to Consolidated Financial Statements of our 2019 Annual Report.

2019 Omnibus Agreement

On November 3, 2014, we entered into an Omnibus Agreement with SPLC and our general partner concerning our payment of an annual general and administrative services fee to SPLC, as well as our reimbursement of certain costs incurred by SPLC on our behalf. On February 19, 2019, we, our general partner, SPLC, the Operating Company and Shell Oil Company terminated the Omnibus Agreement effective as of February 1, 2019, and we, our general partner, SPLC and the Operating Company entered into a new Omnibus Agreement effective February 1, 2019 (the “2019 Omnibus Agreement”). On February 18, 2020, pursuant to the 2019 Omnibus Agreement, the Board of Directors of our general partner (the “Board”) approved a 3% inflationary increase to the annual general and administrative fee for 2020.

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

•our payment of an annual general and administrative fee of approximately $11 million for the provision of certain services by SPLC;

•our obligation to reimburse SPLC for certain direct or allocated costs and expenses incurred by SPLC on our behalf; and

•our obligation to reimburse SPLC for all expenses incurred by SPLC as a result of us becoming and continuing as a publicly traded entity; we will reimburse our general partner for these expenses to the extent the fees relating to such services are not included in the general and administrative fee.

Under the 2019 Omnibus Agreement, SPLC agreed to indemnify us against tax liabilities relating to our assets acquired at our initial public offering (our “initial assets”) that are identified prior to the date that is 60 days after the expiration of the statute of limitations applicable to such liabilities. This obligation has no threshold or cap. We in turn agreed to indemnify SPLC against events and conditions associated with the ownership or operation of our initial assets (other than any liabilities against which SPLC is specifically required to indemnify us as described above).

During the nine months ended September 30, 2020, neither we, nor SPLC, made any claims for indemnification under the 2019 Omnibus Agreement.

Trade Marks License Agreement

We, our general partner and SPLC entered into a Trade Marks License Agreement with Shell Trademark Management Inc. effective as of February 1, 2019. The Trade Marks License Agreement grants us the use of certain Shell trademarks and trade names and expires on January 1, 2024 unless earlier terminated by either party upon 360 days’ notice.

Tax Sharing Agreement

For a discussion of the Tax Sharing Agreement, see Note 4—Related Party Transactions—Tax Sharing Agreement in the Notes to Consolidated Financial Statements of our 2019 Annual Report.

Other Agreements

We have entered into several other customary agreements with SPLC and Shell. These agreements include pipeline operating agreements, reimbursement agreements and services agreements. See Note 4—Related Party Transactions—Other Agreements in the Notes to Consolidated Financial Statements of our 2019 Annual Report.

Partnership Agreement

Concurrently with the execution of the Partnership Interests Restructuring Agreement, on April 1, 2020, we executed the Second Amended and Restated Partnership Agreement, which amended and restated the Partnership’s First Amended and Restated Agreement of Limited Partnership dated November 3, 2014, (“First Amended and Restated Partnership Agreement” as the same was previously amended) in its entirety. Under the Second Amended and Restated Partnership Agreement, the IDRs were eliminated, the economic general partnership interest was converted into a non-economic general partner interest, and the general partner or its assignee agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the April 2020 Transaction, in an amount of $20 million per quarter for four consecutive fiscal quarters, to begin with the distribution made with respect to the second quarter of 2020. The transaction closed simultaneously with the closing of the transactions described in Acquisition Agreements above. See Note 2—Acquisitions and Other Transactions for additional details.

Prior to the execution of the Second Amended and Restated Partnership Agreement, on December 21, 2018, we executed Amendment No. 2 (the “Second Amendment”) to the First Amended and Restated Partnership Agreement. Under the Second Amendment, the general partner agreed to waive $50 million of distributions in 2019 by agreeing to reduce distributions to holders of the Partnership’s IDRs by: (1) $17 million for the three months ended March 31, 2019; (2) $17 million for the three months ended June 30, 2019; and (3) $16 million for the three months ended September 30, 2019.

Noncontrolling Interests

For Zydeco, noncontrolling interest consists of SPLC’s 7.5% retained ownership interest as of both September 30, 2020 and December 31, 2019. For Odyssey, noncontrolling interest consists of GEL Offshore Pipeline LLC’s (“GEL”) 29% retained ownership interest as of both September 30, 2020 and December 31, 2019.

Other Related Party Balances

Other related party balances consist of the following:


	September 30, 2020		December 31, 2019
Accounts receivable	$	40	$	29
Prepaid expenses	10		15
Other assets	2		2
Contract assets (1)	237		—
Accounts payable (2)	20		10
Deferred revenue	14		—
Accrued liabilities (3)	17		19
Debt payable (4)	2,692		2,692
Financing receivables (1)	300		—

(1) Contract assets and Financing receivables were recognized in connection with the April 2020 Transaction. Refer to the section entitled “Sale Leaseback” below for additional details. Financing receivables were presented as a component of (deficit) equity.

(2) Accounts payable reflects amounts owed to SPLC for reimbursement of third-party expenses incurred by SPLC for our benefit.

(3) As of September 30, 2020, Accrued liabilities reflects $15 million accrued interest and $2 million other accrued liabilities, which are primarily related to the accrued operation and maintenance expenses on the Norco Assets. As of December 31, 2019, Accrued liabilities reflects $18 million of accrued interest and $1 million of other accrued liabilities.

(4) Debt payable reflects borrowings outstanding after taking into account unamortized debt issuance costs of $2 million as of both September 30, 2020 and December 31, 2019.

Related Party Credit Facilities

We have entered into five credit facilities with STCW: the Ten Year Fixed Facility, the Seven Year Fixed Facility, the Five Year Revolver due July 2023, the Five Year Revolver due December 2022 and the Five Year Fixed Facility. Zydeco has also entered into the 2019 Zydeco Revolver with STCW. For definitions and additional information regarding these credit facilities, see Note 7 – Related Party Debt in this report and Note 8 – Related Party Debt in the Notes to Consolidated Financial Statements of our 2019 Annual Report.

Related Party Revenues and Expenses

We provide crude oil transportation, terminaling and storage services to related parties under long-term contracts. We entered into these contracts in the normal course of our business. Our revenue from related parties for the three and nine months ended September 30, 2020 and September 30, 2019 is disclosed in Note 10 – Revenue Recognition.

The following table shows related party expenses, including certain personnel costs, incurred by Shell and SPLC on our behalf that are reflected in the accompanying unaudited consolidated statements of income for the indicated periods. Included in these amounts, and disclosed below, is our share of operating and general corporate expenses, as well as the fees paid to SPLC under certain agreements.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Allocated operating expenses	$	13	$	5	$	33	$	13
Major maintenance costs (1)	—		—		3		—
Insurance expense (2)	6		4		16		13
Other (3)	11		5		24		18
Operations and maintenance – related parties	$	30	$	14	$	76	$	44

Allocated general corporate expenses	$	8	$	8	$	25	$	22
Management Agreement fee	2		3		7		7
Omnibus Agreement fee	3		3		8		8
Other	(2)		—		—		—
General and administrative – related parties	$	11	$	14	$	40	$	37

(1) Major maintenance costs are expensed as incurred in connection with the maintenance services of the Norco Assets. Refer to section entitled “Sale Leaseback” below for additional details.

(2) The majority of our insurance coverage is provided by a wholly owned subsidiary of Shell. The remaining coverage is provided by third-party insurers.

(3) Other expenses primarily relate to severance, salaries and wages, other payroll expenses and special maintenance.

For a discussion of services performed by Shell on our behalf, see Note 1 – Description of Business and Basis of Presentation – Basis of Presentation in the Notes to Consolidated Financial Statements of our 2019 Annual Report.

Pension and Retirement Savings Plans

Employees who directly or indirectly support our operations participate in the pension, postretirement health and life insurance, and defined contribution benefit plans sponsored by Shell, which include other Shell subsidiaries. Our share of pension and postretirement health and life insurance costs for the three and nine months ended September 30, 2020 were $1 million and $4 million, respectively. Our share of pension and postretirement health and life insurance costs for the three and nine months ended September 30, 2019 were $2 million and $5 million, respectively. Our share of defined contribution benefit plan costs for the three and nine months ended September 30, 2020 were less than $1 million and $2 million, respectively. Our share of defined contribution benefit plan costs for the three and nine months ended September 30, 2019 were $1 million and $2 million, respectively. Pension and defined contribution benefit plan expenses are included in either General and administrative – related parties or Operations and maintenance – related parties, depending on the nature of the employee’s role in our operations.

Share-based Compensation

Certain SPLC and Shell employees supporting our operations as well as other Shell operations were historically granted awards under the Performance Share Plan, Shell’s incentive compensation program. Share-based compensation expense is included in General and administrative – related parties in the accompanying unaudited consolidated statements of income. These costs for both the three and nine months ended September 30, 2020 and September 30, 2019 were not material.

Severance

For the three and nine months ended September 30, 2020, we have recorded voluntary and involuntary severance costs of $1 million and $6 million, respectively. Severance expenses are included in either General and administrative – related parties or Operations and maintenance – related parties, depending on the nature of the employee’s role in our operations.

Equity and Other Investments

We have equity and other investments in various entities. In some cases, we may be required to make capital contributions or other payments to these entities. See Note 4 – Equity Method Investments for additional details.

Reimbursements

Historically, reimbursements received were primarily related to the directional drill project on the Zydeco pipeline system (the “directional drill project”). As the directional drill project was completed at the end of 2019, the amounts incurred by the project and associated claims for reimbursement from our Parent in the three and nine months ended September 30, 2020 were not material. For the three and nine months ended September 30, 2019 the amounts were less than $1 million and $10 million, respectively. These reimbursements are included in Other contributions from Parent in the accompanying unaudited consolidated statements of cash flows. For each of these periods, this amount reflects our proportionate share of the directional drill project costs and expenses.

Sale Leaseback

In connection with the April 2020 Transaction (see Note 2—Acquisitions and Other Transactions), SOPUS and Shell Chemical transferred the Norco Assets 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 these logistic assets which included financing components and service components (defined below). The Partnership receives an annual net payment of $140 million, which is the total annual payment pursuant to the terminaling service agreements of $151 million, less $11 million, which primarily represents the allocated utility costs from SOPUS related to the Norco Assets. Both annual payments are subject to annual Consumer Price Index adjustments.

The transfer of the Norco Assets, combined with the terminaling services agreements, were accounted for as a failed sale leaseback under the lease standard. As a result, the transaction was treated as a financing arrangement in which the underlying assets were not recognized in property, plant and equipment of the Partnership as control of the Norco Assets did not transfer to the Partnership, and instead were recorded as financing receivables from SOPUS and Shell Chemical on April 1, 2020 in the amount of $302 million.

The financing receivables are presented as contra-equity in (deficit) equity because they were transferred in exchange for the Series A Preferred Units and newly issued common units, both of which are fully vested, nonforfeitable equity instruments. We recognize interest income on the financing receivables on the basis of an imputed interest rate of 11.1% related to SOPUS and 7.4% related to Shell Chemical. The following table shows the interest income, reduction in the financing receivables, as well as the cash payments for interest income and principal repayment of the financing receivables for the three and nine months ended September 30, 2020:


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Interest income	$	8	$	15
Reduction in the financing receivables	1		2
Cash payments for interest income	7		12
Cash payments for principal repayment of the financing receivables	1		2

The transfer of the Norco Assets and the terminaling services agreements as a result of the April 2020 Transaction have operation and maintenance service components and major maintenance service components (together “service components”). Consistent with our operating lease arrangements, we allocate a portion of the arrangement’s transaction price to any service components within the scope of the revenue standard (defined below in Note 4 – Equity Method Investments) and defer the revenue, if necessary, until the point at which the performance obligation is met. We present the revenue earned from the service components under the revenue standard within Transportation, terminaling and storage services – related parties in the unaudited consolidated statements of income. Contract assets were also recorded in the amount of $244 million as of April 1, 2020. See Note 10 – Revenue Recognition for additional details related to revenue recognized on the service components and amortization of the contract assets.

Equity Method Investments

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Equity Method Investments

For each of the following investments, we have the ability to exercise significant influence over these investments based on certain governance provisions and our participation in the significant activities and decisions that impact the management and economic performance of the investments.

Equity method investments comprise the following as of the dates indicated:


	September 30, 2020			December 31, 2019
	Ownership	Investment Amount		Ownership	Investment Amount
Mattox (1)	79.0%	$	166	—	$	—
Amberjack – Series A / Series B	75.0% / 50.0%	395		75.0% / 50.0%	426
Mars	71.5%	156		71.5%	161
Bengal	50.0%	89		50.0%	88
Permian Basin	50.0%	88		50.0%	91
LOCAP	41.48%	12		41.48%	9
Explorer	38.59%	79		38.59%	88
Poseidon	36.0%	—		36.0%	—
Colonial	16.125%	28		16.125%	30
Proteus	10.0%	14		10.0%	15
Endymion	10.0%	18		10.0%	18
		$	1,045		$	926

(1) Mattox was acquired as part of the April 2020 Transaction. This interest has been accounted for on a prospective basis. See below for additional information.

We acquired a 79% interest in Mattox in the April 2020 Transaction. This investment qualifies for equity method accounting, as we have the ability to exercise significant influence but not control over this investment as of the acquisition date. Upon acquisition, we recorded SGOM’s historical carrying value of the equity interests transferred as a transaction between entities under common control, totaling $174 million. We recognize equity earnings for Mattox prospectively from the date of acquisition, and record the distributions from Mattox as a reduction to the equity method investment balance.

For the three and nine months ended September 30, 2020, distributions received from equity method investments were $142 million and $412 million, respectively, and for the three and nine months ended September 30, 2019 were $130 million and $341 million, respectively.

Unamortized differences in the basis of the initial investments and our interest in the separate net assets within the financial statements of the investees are amortized into net income over the remaining useful lives of the underlying assets. As of September 30, 2020 and December 31, 2019, the unamortized basis differences included in our equity investments are $86 million and $92 million, respectively. For the three and nine months ended September 30, 2020 the net amortization expense was $2 million and $6 million, respectively, and for the three and nine months ended September 30, 2019, the net amortization expense was $2 million and $4 million, respectively.

During the first quarter of 2018, the investment amount for Poseidon was reduced to zero due to distributions received that were in excess of our investment balance, and we, therefore, suspended the equity method of accounting for this investment. Further, we have no commitments to provide further financial support to Poseidon. As such, we have recorded excess distributions in Other income of $7 million and $25 million for the three and nine months ended September 30, 2020, respectively, and $8 million and $25 million for the three and nine months ended September 30, 2019, respectively. If our cumulative share of equity earnings becomes greater than the amount of distributions received, we will resume the equity method of accounting as long as the equity method investment balance remains greater than zero.

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


	Three Months Ended September 30,				Nine Months Ended September 30, 2020
	2020		2019		2020		2019
Mattox (1)	$	15	$	—	$	30	$	—
Amberjack	28		31		86		94
Mars	33		35		92		93
Bengal	5		8		14		18
Explorer (2)	9		20		33		27
Colonial (2)	14		17		59		21
Other (3)	5		4		16		12
	$	109	$	115	$	330	$	265

(1) We acquired an interest in Mattox on April 1, 2020. The acquisition of this interest has been accounted for prospectively.

(2) We acquired additional interests in Explorer and Colonial in June 2019. The acquisition of these interests has been accounted for prospectively. Prior to the acquisition date, Explorer and Colonial were accounted for as Other investments without readily determinable fair values and were therefore carried at cost.

(3) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.

The adoption of the revenue standard for the majority of our equity method investments followed the non-public business entity adoption date of January 1, 2019 for their stand-alone financial statements, with the exception of Mars and Permian Basin, which adopted on January 1, 2018. As a result of the adoption of the revenue standard on January 1, 2019, we recognized our proportionate share of Amberjack’s cumulative effect transition adjustments as a decrease to opening (deficit) equity in the amount of $9 million under the modified retrospective transition method.

Under the lease standard, the adoption date for our equity method investments will follow the non-public business entity adoption date of January 1, 2020 or 2021 for their stand-alone financial statements, with the exception of Permian Basin, which adopted on January 1, 2019. There was no material impact on the Partnership’s consolidated financial statements as a result of the adoption of the lease standard by our equity method investees.

We assess our equity method investments for impairment whenever changes in the facts and circumstances indicate a loss in value has occurred, if the loss is deemed to be other than temporary. Due to the continuing effects of the COVID-19 pandemic, we evaluated whether an impairment indicator existed as of September 30, 2020. Based on our current forecast and expectations of market conditions, we determined that there was no triggering event that required us to update our impairment evaluation of our equity method investments. However, if the facts and circumstances change in the near-term and indicate a loss in value that is other-than-temporary, we will re-evaluate whether the carrying amount of our equity method investments may not be recoverable.

Summarized Financial Information

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


	Three Months Ended September 30, 2020
	Total revenues		Total operating expenses		Operating income		Net income
Statements of Income
Mattox	$	22	$	3	$	19	$	19
Amberjack	69		16		53		54
Mars	68		22		46		46
Bengal	19		9		10		10
Explorer	75		42		33		25
Colonial	319		172		147		89
Poseidon	36		9		27		26
Other (1)	53		30		23		20

(1) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.


	Nine Months Ended September 30, 2020
	Total revenues		Total operating expenses		Operating income		Net income
Statements of Income
Mattox (1)	$	44	$	6	$	38	$	38
Amberjack	219		52		167		167
Mars	201		71		130		130
Bengal	51		24		27		27
Explorer	251		132		119		91
Colonial	1,068		501		567		374
Poseidon	99		26		73		68
Other (2)	167		91		76		68

(1) Our interest in Mattox was acquired on April 1, 2020. Mattox’s total revenues, total operating expenses and operating income (on a 100% basis) for the nine months ended September 30, 2020 were $62 million, $9 million and $53 million, respectively.

(2) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.


	Three Months Ended September 30, 2019
	Total revenues		Total operating expenses		Operating income		Net income
Statements of Income
Amberjack	$	80	$	18	$	62	$	62
Mars	82		32		50		50
Bengal	22		7		15		15
Explorer	122		51		71		55
Colonial	354		190		164		109
Poseidon	31		9		22		20
Other (1)	44		21		23		21

(1) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.


	Nine Months Ended September 30, 2019
	Total revenues		Total operating expenses		Operating income		Net income
Statements of Income
Amberjack	$	235	$	54	$	181	$	182
Mars	212		80		132		133
Bengal	59		23		36		36
Explorer (1)	159		64		95		73
Colonial (2)	442		234		208		136
Poseidon	96		26		70		63
Other (3)	130		76		54		47

(1) Our additional interest in Explorer was acquired on June 6, 2019. Explorer’s total revenues, total operating expenses and operating income (on a 100% basis) for the nine months ended September 30, 2019 were $344 million, $145 million and $199 million, respectively.

(2) Our additional interest in Colonial was acquired on June 6, 2019. Colonial’s total revenues, total operating expenses and operating income (on a 100% basis) for the nine months ended September 30, 2019 were $1,050 million, $520 million and $530 million, respectively.

(3) Included in Other is the activity associated with our investments in Permian Basin, LOCAP, Proteus and Endymion.

Capital ContributionsWe make capital contributions for our pro-rata interest in Permian Basin to fund capital and other expenditures. For both the three and nine months ended September 30, 2020, we made no capital contributions, and for the three and nine months ended September 30, 2019, we made capital contributions of $3 million and $13 million, respectively.

Property, Plant and Equipment

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Property, plant and equipment consist of the following as of the dates indicated:


	Depreciable Life	September 30, 2020		December 31, 2019
Land	—	$	12	$	11
Building and improvements	10 - 40 years	47		40
Pipeline and equipment (1)	10 - 30 years	1,258		1,228
Other	5 - 25 years	34		33
		1,351		1,312
Accumulated depreciation and amortization (2)		(652)		(613)
		699		699
Construction in progress		9		27
Property, plant and equipment, net		$	708	$	726

(1) As of September 30, 2020 and December 31, 2019, includes costs of $372 million and $369 million, respectively, related to assets under operating lease (as lessor). As of both September 30, 2020 and December 31, 2019, includes cost of $23 million, related to right-of-use (“ROU”) assets under finance lease (as lessee).

(2) As of September 30, 2020 and December 31, 2019, includes accumulated depreciation of $143 million and $133 million, respectively, related to assets under operating lease (as lessor). As of September 30, 2020 and December 31, 2019, includes accumulated amortization of $7 million and $6 million, respectively, related to ROU assets under finance lease (as lessee).

Depreciation and amortization expense on property, plant and equipment for the three and nine months ended September 30, 2020 was $13 million and $39 million, respectively, and for the three and nine months ended September 30, 2019 was $12 million and $36 million, respectively, and is included in costs and expenses in the accompanying unaudited consolidated statements of income. Depreciation and amortization expense on property, plant and equipment includes amounts pertaining to assets under operating leases (as lessor) and finance leases (as lessee).

We evaluate long-lived assets for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount of our assets may not be recoverable. Due to the continuing effects of the COVID-19 pandemic, we evaluated whether an impairment indicator existed as of September 30, 2020. Based on our current forecast and expectations of market conditions, we determined that there was no triggering event that required us to update our impairment evaluation of property, plant and equipment. However, if current volatile market conditions deteriorate further or continue for an extended period of time, we may be required to assess the recoverability of our long-lived assets, which could result in an impairment.

Accrued Liabilities - Third Parties

9 Months Ended

Sep. 30, 2020

Payables and Accruals [Abstract]

Accrued Liabilities - Third Parties

Accrued Liabilities – Third Parties

Accrued liabilities – third parties consist of the following as of the dates indicated:


	September 30, 2020		December 31, 2019
Project accruals	$	6	$	5
Property taxes	13		4
Other accrued liabilities	2		3
Accrued liabilities – third parties	$	21	$	12

See Note 3—Related Party Transactions for a discussion of Accrued liabilities – related parties.

Related Party Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Related Party Debt

Related Party DebtConsolidated related party debt obligations comprise the following as of the dates indicated:


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

For the three and nine months ended September 30, 2020, interest and fee expenses associated with our borrowings, net of capitalized interest, were $22 million and $69 million, respectively, and for the three and nine months ended September 30, 2019, interest and fee expenses associated with our borrowings, net of capitalized interest, were $26 million and $67 million, respectively. We paid $22 million and $71 million for interest, respectively, during the three and nine months ended September 30, 2020, and we paid $23 million and $62 million for interest, respectively, during the three and nine months ended September 30, 2019.

Borrowings under our revolving credit facilities approximate fair value as the interest rates are variable and reflective of market rates, which results in Level 2 instruments. The fair value of our fixed rate credit facilities is estimated based on the published market prices for issuances of similar risk and tenor and is categorized as Level 2 within the fair value hierarchy. As of September 30, 2020, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $2,694 million and $2,919 million, respectively. As of December 31, 2019, the carrying amount and estimated fair value of total debt (before amortization of issuance costs) was $2,694 million and $2,825 million, respectively.

For additional information on our credit facilities, refer to Note 8 – Related Party Debt in the Notes to Consolidated Financial Statements in our 2019 Annual Report.

Borrowings and repayments under our credit facilities for the nine months ended September 30, 2020 and September 30, 2019 are disclosed in our unaudited consolidated statements of cash flows. See Note 9 – (Deficit) Equity for additional information regarding the source of our repayments, if applicable to the period.

Accumulated Other Comprehensive Loss	9 Months Ended
Accumulated Other Comprehensive Loss	Sep. 30, 2020
Equity [Abstract]
Accumulated Other Comprehensive Loss	Accumulated Other Comprehensive LossAs a result of the transactions contemplated by the June 2019 Acquisition, we recorded an accumulated other comprehensive loss related to pension and other post-retirement benefits provided by Explorer and Colonial to their employees. We are not a sponsor of these benefits plans. The June 2019 Acquisition is accounted for as a transaction among entities under common control on a prospective basis, and we have recorded the acquisition on our unaudited consolidated balance sheet at SPLC’s historical basis, which included accumulated other comprehensive loss. Our assumption of the accumulated other comprehensive loss balance had no effect on our comprehensive income during the period as the balance was accumulated while under the ownership of SPLC.

(Deficit) Equity

9 Months Ended

Sep. 30, 2020

Equity [Abstract]

(Deficit) Equity

General Partner and IDR Restructuring

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

Shelf Registrations

We have a universal shelf registration statement on Form S-3 on file with the SEC under which we, as a well-known seasoned issuer, have the ability to issue and sell an indeterminate amount of common units and partnership securities representing limited partner units. We also have on file with the SEC a shelf registration statement on Form S-3 relating to $1,000,000,000 of common units and partnership securities representing limited partner units to be used in connection with the “at-the-market” equity distribution program, direct sales or other sales consistent with the plan of distribution set forth in the registration statement.

At-the-Market Program

We have an “at-the-market” equity distribution program pursuant to which we may issue and sell common units for up to $300 million in gross proceeds. During both the nine months ended September 30, 2020 and September 30, 2019, we did not have any sales under this program.

Units Outstanding

The changes in the number of Partnership units outstanding from December 31, 2019 through September 30, 2020 are as follows:


(in units)	SPLC Preferred	Public Common	SPLC Common	General Partner
Balance as of December 31, 2019	—	123,832,233	109,457,304	4,761,012
April 2020 Transaction (1)	50,782,904	—	160,000,000	(4,761,012)
Balance as of September 30, 2020	50,782,904	123,832,233	269,457,304	—

(1) See Note 2 – Acquisitions and Other Transactions for additional information.

Common units

The common units represent limited partner interests in us. The holders of common units, both public and SPLC, are entitled to participate in partnership distributions and have limited rights of ownership as provided for under the Second Amended and Restated Partnership Agreement.

As of September 30, 2020, we had 393,289,537 common units outstanding, of which 123,832,233 were publicly owned. SPLC owned 269,457,304 common units, representing an aggregate 68.5% limited partner interest in us. As of December 31, 2019, we had 233,289,537 common units outstanding, of which 123,832,233 were publicly owned, and SPLC owned 109,457,304 common units, representing an aggregate 46% limited partner interest in us, all of the IDRs, and 4,761,012 general partner units, representing a 2% general partner interest in us.

Series A Preferred Units

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

Conversion

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

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

Voting

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

Change of Control

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

Special Distribution

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

Distributions to our Unitholders

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

Under the Second Amended and Restated Partnership Agreement, the general partner or its assignee has agreed to waive a portion of the distributions that would otherwise be payable on the common units issued to SPLC as part of the April 2020 Transaction, in an amount of $20 million per quarter for four consecutive fiscal quarters, to begin with the distribution made with respect to the second quarter of 2020. See Note 3 — Related Party Transactions for terms of the Second Amended and Restated Partnership Agreement.

Under the Second Amendment, our general partner elected to waive $50 million of IDRs in 2019 to be used for future investment by the Partnership. See Note 3 — Related Party Transactions for terms of the Second Amendment.

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


Date Paid or		Public	SPLC	SPLC	General Partner			Distributions per Limited Partner Unit
to be Paid	Three Months Ended	Common	Preferred	Common	IDRs	2%	Total

		(in millions, except per unit amounts)
February 14, 2019	December 31, 2018	49	—	40	37	3	129	$	0.4000
May 15, 2019	March 31, 2019 (1)	51	—	42	23	3	119	0.4150
August 14, 2019	June 30, 2019 (1)	53	—	47	28	3	131	0.4300
November 14, 2019	September 30, 2019 (1)	56	—	48	33	3	140	0.4450
February 14, 2020	December 31, 2019	57	—	50	52	3	162	0.4600
May 15, 2020	March 31, 2020	57	—	50	52 (3)	3 (4)	162	0.4600
August 14, 2020	June 30, 2020 (2)	57	12	104	—	—	173	0.4600
November 13, 2020	September 30, 2020 (2)	57	12	104	—	—	173	0.4600

(1) Includes the impact of waived distributions to the holders of the IDRs with respect to the Second Amendment as described above.

(2) Includes the impact of waived distributions to SPLC with respect to the April 2020 Transaction as described above.

(3) This amount represents the Final IDR Payment (as defined in the Partnership Interests Restructuring Agreement) to which the general partner (or its assignee) was entitled pursuant to the Partnership Interests Restructuring Agreement. Also pursuant to the Partnership Interests Restructuring Agreement, the general partner agreed (on its own behalf and on behalf of its assignees) to waive any distributions that it would otherwise be entitled to receive with respect to the newly-issued 160 million common units that it received in the April 2020 Transaction for the quarter in which it receives the Final IDR Payment. The general partner will not be entitled to any payments with respect to the IDRs going forward, as they have been cancelled as a part of the April 2020 Transaction.

(4) This amount represents the final distribution payment on the 2% economic general partner interest. The general partner will not be entitled to any payments with respect to the economic general partner interest going forward, as it was converted into a non-economic general partner interest as a part of the April 2020 Transaction.

Distributions to Noncontrolling Interests

Distributions to SPLC for its noncontrolling interest in Zydeco for the three and nine months ended September 30, 2020 were $1 million and $4 million, respectively, and for the three and nine months ended September 30, 2019 were $1 million and $4 million, respectively. Distributions to GEL for its noncontrolling interest in Odyssey for the three and nine months ended September 30, 2020 were $2 million and $8 million, respectively, and for the three and nine months ended September 30, 2019 were $3 million and $9 million, respectively. See Note 3 — Related Party Transactions for additional details.

Financing Receivables Related to Sale Leaseback (Contra-Equity)

In connection with the April 2020 Transaction, financing receivables in the amount of $300 million were recorded as contra-equity in the unaudited statement of changes in (deficit) equity as of September 30, 2020. See Note 2 — Acquisitions and Other Transactions and Note 3 — Related Party Transactions for additional details.

Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition

The revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.

Disaggregation of Revenue

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Transportation services revenue – third parties	$	24	$	31	$	78	$	103
Transportation services revenue – related parties (1)	31		55		127		156
Storage services revenue – third parties	2		2		6		6
Storage services revenue – related parties	2		1		6		5

Terminaling services revenue – related parties (2)	31		12		73		35
Terminaling services revenue – major maintenance service – related parties (3)	—		—		4		—
Product revenue – third parties (4)	—		—		—		4
Product revenue – related parties (4)	5		10		14		26
Total Topic 606 revenue	95		111		308		335
Lease revenue – related parties	15		14		43		42
Total revenue	$	110	$	125	$	351	$	377

(1) Transportation services revenue - related parties includes $2 million and $4 million, respectively, of the non-lease service component (defined below) in our transportation services contracts for the three and nine months ended September 30, 2020 and 2019.

(2) Terminaling services revenue - related parties is comprised of the service components in our terminaling services contracts, including the operation and maintenance service components related to the Norco Assets in connection with the April 2020 Transaction. See Note 3 – Related Party Transactions for additional details.

(3) Terminaling services revenue - major maintenance service - related parties is comprised of the service components related to providing required major maintenance to the Norco Assets in connection with the April 2020 Transaction. See Note 3 – Related Party Transactions for additional details.

(4) Product revenue is comprised of allowance oil sales.

Lease revenue

Certain of our long-term transportation and terminaling services contracts with related parties are accounted for as operating leases. These agreements have both a lease component and an implied operation and maintenance service component (“non-lease service component”). We allocate the arrangement consideration between the lease components and any non-lease service components based on the relative stand-alone selling price of each component. We estimate the stand-alone selling price of the lease and non-lease service components based on an analysis of service-related and lease-related costs for each contract, adjusted for a representative profit margin. The contracts have a minimum fixed monthly payment for both the lease and non-lease service components. We present the non-lease service components under the revenue standard within Transportation, terminaling and storage services – related parties in the unaudited consolidated statements of income.

Revenues from the lease components of these agreements are recorded within Lease revenue – related parties in the unaudited consolidated statements of income. Some of these agreements were entered into for terms of ten years, with the option for the lessee to extend for two additional five-year terms. One of these contracts was amended to include an option for the lessee to extend for a fourteen-month term prior to the original extension options. Further, we have agreements with initial terms of ten years with the option for the lessee to extend for up to ten additional one-year terms. As of September 30, 2020, future minimum payments of both the lease and non-lease service components to be received under the initial ten-year contract term of these operating leases were estimated to be:


	Total		Less than 1 year		Years 2 to 3		Years 4 to 5		More than 5 years
Operating leases	$	756	$	110	$	219	$	219	$	208

Terminaling services revenue

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

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

The operation and maintenance service components consist of the Partnership’s obligation to operate the Norco Assets over the life of the agreements. It is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and, therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on the number of days elapsed.

The major maintenance service components consist of the Partnership’s obligation to provide major maintenance on the Norco Assets such that the current capacity available to the customers is maintained over the life of the agreements. It is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time using the input method (cost-to-cost method) based on the ratio of actual major maintenance costs incurred to date to the total forecasted major maintenance costs over the contract term.

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

Contract Balances

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


	January 1, 2020		September 30, 2020
Receivables from contracts with customers – third parties	$	11	$	10
Receivables from contracts with customers – related parties	24		27
Contract assets - related parties	—		237
Deferred revenue – third parties	—		5
Deferred revenue – related parties (1)	—		14

(1) Deferred revenue - related parties is related to deficiency credits from certain minimum volume commitment contracts and certain components of our terminaling service contracts on the Norco Assets.

In connection with the April 2020 Transaction, we also recorded contract assets in the amount of $244 million as of April 1, 2020 based on the difference between the consideration allocated to the Norco Transaction and the recognized financing receivables. The contract assets represent the excess of the fair value embedded within the terminaling services agreements transferred by the Partnership to SOPUS and Shell Chemical as part of entering into the terminaling services agreements. The

contract assets balance is amortized in a pattern consistent with the recognition of revenue on the service components of the contract. The portion of the contract assets related to operations and maintenance is amortized on a straight-line basis over a fifteen-year period, and the portion related to major maintenance is amortized based on the ratio of actual major maintenance costs incurred to the total projected major maintenance costs over the fifteen year term. We recorded amortization as a component of Transportation, terminaling and storage services – related parties of $4 million and $8 million, respectively, for the three and nine months ended September 30, 2020. We had no contract assets recognized from the costs to obtain or fulfill a contract as of December 31, 2019.

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


	Reminder of 2020		2021		2022		2023		2024		2025
Amortization	$	4	$	15	$	16	$	16	$	17	$	17

Significant changes in the deferred revenue balances with customers during the period are as follows:


	December 31, 2019		Additions (1)		Reductions (2)		September 30, 2020
Deferred revenue – third parties	$	—	$	7	$	(2)	$	5
Deferred revenue – related parties	—		16		(2)		14

(1) Deferred revenue additions resulted from $19 million deficiency payments from minimum volume commitment contracts and $4 million of deferred revenue related to the major maintenance service components of our terminaling service contracts on the Norco Assets.

(2) Deferred revenue reductions resulted from revenue earned through the actual or estimated use and expiration of deficiency credits.

Remaining Performance Obligations

The following table includes revenue expected to be recognized in the future related to performance obligations exceeding one year of their initial terms that are unsatisfied or partially unsatisfied as of September 30, 2020:


	Total		Remainder of 2020		2021		2022		2023		2024 and beyond
Revenue expected to be recognized on multi-year committed shipper transportation contracts	$	497	$	24	$	63	$	63	$	63	$	284
Revenue expected to be recognized on other multi-year transportation service contracts (1)	36		2		5		5		5		19
Revenue expected to be recognized on multi-year storage service contracts	18		1		4		4		4		5
Revenue expected to be recognized on multi-year terminaling service contracts (1)	342		12		48		48		48		186
Revenue expected to be recognized on multi-year operation and major maintenance terminaling service contracts(2)	1,533		25		106		106		106		1,190
	$	2,426	$	64	$	226	$	226	$	226	$	1,684

(1) Relates to the service components of certain of our long-term transportation and terminaling service contracts, which are accounted for as operating leases.

(2) Relates to the operation and maintenance service components and the major maintenance service components of our terminaling service contracts on the Norco Assets in connection with the April 2020 Transaction.

As an exemption under the revenue standard, we do not disclose the amount of remaining performance obligations for contracts with an original expected duration of one year or less or for variable consideration that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section 50
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
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-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
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-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section 50
-Paragraph 12
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-URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045

+ Details

Net Income Per Limited Partner Unit	9 Months Ended
Net Income Per Limited Partner Unit	Sep. 30, 2020
Pa