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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2014
Commitments and Contingencies [Abstract] |
Commitments and Contingencies | Note 18. Commitments and Contingencies Litigation As part of our normal business activities, we may be named as defendants in legal proceedings, including those arising from regulatory and environmental matters. Although we are insured against various risks to the extent we believe it is prudent, there is no assurance that the nature and amount of such insurance will be adequate, in every case, to fully indemnify us against losses arising from future legal proceedings. We will vigorously defend the partnership in litigation matters. Management has regular quarterly litigation reviews, including updates from legal counsel, to assess the possible need for accounting recognition and disclosure of these contingencies. We accrue an undiscounted liability for those contingencies where the loss is probable and the amount can be reasonably estimated. If a range of probable loss amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum amount in the range is accrued. We do not record a contingent liability when the likelihood of loss is probable but the amount cannot be reasonably estimated or when the likelihood of loss is believed to be only reasonably possible or remote. For contingencies where an unfavorable outcome is reasonably possible and the impact would be material to our consolidated financial statements, we disclose the nature of the contingency and, where feasible, an estimate of the possible loss or range of loss. Based on a consideration of all relevant known facts and circumstances, we do not believe that the ultimate outcome of any currently pending litigation directed against us will have a material impact on our consolidated financial statements either individually at the claim level or in the aggregate. At December 31, 2014 and 2013, our accruals for litigation contingencies were $2.4 million and $3.7 million, respectively, and were recorded in our Consolidated Balance Sheets as a component of "Other current liabilities." Our evaluation of litigation contingencies is based on the facts and circumstances of each case and predicting the outcome of these matters involves uncertainties. In the event the assumptions we use to evaluate these matters change in future periods or new information becomes available, we may be required to record additional accruals. In an effort to mitigate expenses associated with litigation, we may settle legal proceedings out of court. ETP Matter. In connection with a proposed pipeline project, we and Energy Transfer Partners, L.P. ("ETP") signed a non-binding letter of intent in April 2011 that disclaimed any partnership or joint venture related to such project absent executed definitive documents and board approvals of the respective companies. Definitive agreements were never executed and board approval was never obtained for the potential pipeline project. In August 2011, the proposed pipeline project was cancelled due to a lack of customer support. In September 2011, ETP filed suit against us and a third party in connection with the cancelled project alleging, among other things, that we and ETP had formed a "partnership." The case was tried in the District Court of Dallas County, Texas, 298th Judicial District. While we firmly believe, and argued during our defense, that no agreement was ever executed forming a legal joint venture or partnership between the parties, the jury found that the actions of the two companies, nevertheless, constituted a legal partnership. As a result, the jury found that ETP was wrongfully excluded from a subsequent pipeline project involving a third party, and awarded ETP $319.4 million in actual damages on March 4, 2014. On July 29, 2014, the court entered judgment against us in an aggregate amount of $535.8 million, which includes (i) $319.4 million as the amount of actual damages awarded by the jury, (ii) an additional $150.0 million in disgorgement for the alleged benefit we received due to a breach of fiduciary duties by us against ETP and (iii) prejudgment interest in the amount of $66.4 million. The court also awarded post-judgment interest on such aggregate amount, to accrue at a rate of 5%, compounded annually. We do not believe that the verdict or the judgment entered against us is supported by the evidence or the law and intend to vigorously oppose the judgment through the appeals process. As of December 31, 2014, we have not recorded a provision for this matter as management believes payment of damages in this case is not probable. Redelivery Commitments We store natural gas, crude oil, NGLs and certain petrochemical products owned by third parties under various agreements. Under the terms of these agreements, we are generally required to redeliver volumes to the owner on demand. At December 31, 2014, we had approximately 9.2 trillion British thermal units ("TBtus") of natural gas, 9.3 MMBbls of crude oil, and 28.3 MMBbls of NGL and petrochemical products in our custody that were owned by third parties. We maintain insurance coverage related to such volumes that we believe is consistent with our exposure. See Note 19 for information regarding insurance matters. Commitments Under Equity Compensation Plans of EPCO In accordance with our agreements with EPCO, we reimburse EPCO for our share of its compensation expense associated with certain employees who perform management, administrative and operating functions for us (see Note 15). See Note 5 for additional information regarding our accounting for equity-based awards. Contractual Obligations The following table summarizes our various contractual obligations at December 31, 2014. A description of each type of contractual obligation follows:
|  | Payment or Settlement due by Period |
Contractual Obligations |  | Total |  |  | 2015 |  |  | 2016 |  |  | 2017 |  |  | 2018 |  |  | 2019 |  |  | Thereafter |
Scheduled maturities of debt obligations |  | $ | 21,389.2 |  |  | $ | 2,206.5 |  |  | $ | 750.0 |  |  | $ | 800.0 |  |  | $ | 350.0 |  |  | $ | 1,500.0 |  |  | $ | 15,782.7 |
Estimated cash interest payments |  | $ | 21,303.9 |  |  | $ | 1,005.6 |  |  | $ | 968.6 |  |  | $ | 953.0 |  |  | $ | 899.6 |  |  | $ | 846.8 |  |  | $ | 16,630.3 |
Operating lease obligations |  | $ | 542.7 |  |  | $ | 60.5 |  |  | $ | 62.0 |  |  | $ | 56.4 |  |  | $ | 48.9 |  |  | $ | 42.3 |  |  | $ | 272.6 |
Purchase obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product purchase commitments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Estimated payment obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | $ | 2,139.7 |  |  | $ | 637.5 |  |  | $ | 539.1 |  |  | $ | 295.5 |  |  | $ | 295.5 |  |  | $ | 195.1 |  |  | $ | 177.0 |
NGLs |  | $ | 487.0 |  |  | $ | 391.1 |  |  | $ | 26.4 |  |  | $ | 26.3 |  |  | $ | 28.9 |  |  | $ | 14.3 |  |  | $ | -- |
Crude oil |  | $ | 2,425.2 |  |  | $ | 2,279.1 |  |  | $ | 37.4 |  |  | $ | 37.3 |  |  | $ | 37.3 |  |  | $ | 34.1 |  |  | $ | -- |
Petrochemicals & refined products |  | $ | 1,499.3 |  |  | $ | 956.7 |  |  | $ | 493.1 |  |  | $ | 49.5 |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |
Other |  | $ | 71.8 |  |  | $ | 38.1 |  |  | $ | 9.2 |  |  | $ | 6.9 |  |  | $ | 4.2 |  |  | $ | 4.2 |  |  | $ | 9.2 |
Underlying major volume commitments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas (in TBtus) |  |  | 879 |  |  |  | 255 |  |  |  | 219 |  |  |  | 128 |  |  |  | 128 |  |  |  | 82 |  |  |  | 67 |
NGLs (in MMBbls) |  |  | 30 |  |  |  | 17 |  |  |  | 3 |  |  |  | 4 |  |  |  | 4 |  |  |  | 2 |  |  |  | -- |
Crude oil (in MMBbls) |  |  | 41 |  |  |  | 38 |  |  |  | 1 |  |  |  | 1 |  |  |  | 1 |  |  |  | -- |  |  |  | -- |
Petrochemicals & refined products (in MMBbls) |  |  | 23 |  |  |  | 15 |  |  |  | 7 |  |  |  | 1 |  |  |  | -- |  |  |  | -- |  |  |  | -- |
Service payment commitments |  | $ | 850.8 |  |  | $ | 200.6 |  |  | $ | 181.4 |  |  | $ | 154.9 |  |  | $ | 86.7 |  |  | $ | 66.1 |  |  | $ | 161.1 |
Capital expenditure commitments |  | $ | 1,299.8 |  |  | $ | 1,299.8 |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |
Scheduled Maturities of Long-Term Debt. We have long-term and short-term payment obligations under debt agreements. Amounts shown in the preceding table represent our scheduled future maturities of debt principal for the periods presented. See Note 12 for additional information regarding our consolidated debt obligations. Estimated Cash Interest Payments. Our estimated cash payments for interest are based on the principal amount of our consolidated debt obligations outstanding at December 31, 2014 and the contractually scheduled maturities of such balances. With respect to our variable-rate debt obligation, we applied the weighted-average interest rate paid during 2014 to determine the estimated cash payments. See Note 12 for the weighted-average variable interest rates charged in 2014. Our estimated cash payments for interest are significantly influenced by the long-term maturities of our $1.53 billion in junior subordinated notes. Our estimated cash payments for interest assume that these subordinated notes are not repaid prior to their respective maturity dates. We applied the current fixed interest rate through the respective maturity date for each junior subordinated note to determine the estimated cash payments for interest. Operating Lease Obligations. We lease certain property, plant and equipment under noncancelable and cancelable operating leases. Amounts shown in the preceding table represent minimum cash lease payment obligations under our operating leases with terms in excess of one year. Our significant lease agreements consist of (i) the lease of underground storage caverns for natural gas and NGLs, (ii) leased office space with affiliates of EPCO and (iii) land held pursuant to right-of-way agreements. Currently, our significant lease agreements have terms that range from 5 to 30 years. The agreements for leased office space with affiliates of EPCO and underground NGL storage caverns we lease from a third party include renewal options that could extend these contracts for up to an additional 20 years. The remainder of our significant lease agreements do not provide for additional renewal terms. Lease expense is charged to operating costs and expenses on a straight-line basis over the period of expected economic benefit. Contingent rental payments are expensed as incurred. We are generally required to perform routine maintenance on the underlying leased assets. In addition, certain leases give us the option to make leasehold improvements. Maintenance and repairs of leased assets resulting from our operations are charged to expense as incurred. We did not make any significant leasehold improvements during the years ended December 31, 2014, 2013 or 2012. Consolidated costs and expenses include lease and rental expense amounts of $94.2 million, $87.6 million and $95.1 million during the years ended December 31, 2014, 2013 and 2012, respectively. Purchase Obligations. We define purchase obligations as agreements to purchase goods or services that are enforceable and legally binding (i.e., unconditional) on us that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transactions. We classify our unconditional purchase obligations into the following categories:
§ | We have long and short-term product purchase obligations for natural gas, NGLs, crude oil, petrochemicals and refined products with third party suppliers. The prices that we are obligated to pay under these contracts approximate market prices at the time we take delivery of the volumes. The preceding table shows our volume commitments and estimated payment obligations under these contracts for the periods presented. Our estimated future payment obligations are based on the contractual price in each agreement at December 31, 2014 applied to all future volume commitments. Actual future payment obligations may vary depending on prices at the time of delivery. At December 31, 2014, we did not have any significant product purchase commitments with fixed or minimum pricing provisions with remaining terms in excess of one year.
§ | We have long and short-term commitments to pay service providers. Our contractual service payment commitments primarily represent our obligations under firm pipeline transportation contracts. Payment obligations vary by contract, but generally represent a price per unit of volume multiplied by a firm transportation volume commitment.
§ | We have short-term payment obligations relating to our capital spending program, including our share of the capital spending of our unconsolidated affiliates. These commitments represent unconditional payment obligations for services to be rendered or products to be delivered in connection with capital projects.
Other Long-Term Liabilities The following table summarizes the components of "Other long-term liabilities" as presented on Consolidated Balance Sheets at the dates indicated:
|  | December 31, |
|  | 2014 |  |  | 2013 |
Noncurrent portion of asset retirement obligations (see Note 8) |  | $ | 83.2 |  |  | $ | 82.5 |
Deferred revenues – non-current portion (see Note 2) |  |  | 73.0 |  |  |  | 54.6 |
Liquidity Option Agreement (see Note 10) |  |  | 119.4 |  |  |  | -- |
Centennial guarantees |  |  | 7.0 |  |  |  | 7.8 |
Other |  |  | 28.2 |  |  |  | 27.4 |
Total |  | $ | 310.8 |  |  | $ | 172.3 |
Liquidity Option Agreement On October 1, 2014, we issued 54,807,352 Enterprise common units to OTA, a U.S. corporation, in connection with Step 1 of the Oiltanking acquisition (see Note 10). In connection with Step 1 of this transaction, we entered into a put option (the "Liquidity Option Agreement") with OTA and Marquard & Bahls ("M&B," a German corporation), the ultimate parent company of OTA, whereby we granted M&B the option to sell to us 100% of the issued and outstanding capital stock of OTA at any time within a 90-day period commencing on February 1, 2020. At that time, OTA's only significant asset would be the Enterprise common units it received in Step 1 of the Oiltanking acquisition, to the extent that such common units are not sold by M&B prior to the option exercise date pursuant to the related Registration Rights Agreement (see Note 13) or otherwise. If M&B exercises the put option, any assets or liabilities held by OTA at the time of exercise (e.g., any deferred tax liability), including any Enterprise common units held by OTA, will be indirectly acquired by us upon receipt of OTA's capital stock. The aggregate consideration to be paid by us for OTA's capital stock would equal 100% of the then-current fair market value of the Enterprise common units owned by OTA at the exercise date. The fair market value would be determined by multiplying the number of Enterprise common units owned by OTA at the time of exercise by the volume-weighted sales price per unit of Enterprise common units as reported by the NYSE (or other national securities exchange, as applicable) for the ten consecutive trading days preceding the exercise. The consideration paid may be in the form of newly issued Enterprise common units, cash or any mix thereof, as determined solely by us. Enterprise has the ability to issue the requisite number of common units needed to satisfy any potential obligation under the Liquidity Option Agreement. The Liquidity Option Agreement contains indemnification by M&B for certain specified liabilities of OTA following the closing of any exercise of the Liquidity Option, and certain conditions to closing. If a defined "Trigger Event" occurs, the Liquidity Option may be exercised earlier within a 135-day period following notice of such event. Pursuant to the Liquidity Option Agreement, a "Trigger Event" means:
§ | any transaction, event, circumstance, condition or state of facts by which the Enterprise common units (or any other reference security) cease to be "regularly traded" within the meaning of Section 897 of the U.S. Internal Revenue Code (the "Code") and the Treasury Regulations thereunder;
§ | any transaction, event, circumstance, condition or state of facts by which OTA becomes the owner, for purposes of Section 897 of the Code, of Enterprise common units (or any other reference security) representing more than 5% of all outstanding Enterprise common units (or such reference securities) other than as a result solely of the acquisition of additional Enterprise common units or other reference securities by OTA, M&B or any affiliate after the date of the Liquidity Option Agreement; or
§ | any "Enterprise Tax Event" as defined in the agreement, which includes certain events in which OTA would recognize taxable gain on the Enterprise common units owned by OTA.
The aggregate consideration to be paid by us for the Option Securities in connection with an exercise of the option due to a Trigger Event will be solely cash, determined in the same manner as the price otherwise payable upon the exercise of the Liquidity Option in the absence of a Trigger Event. Based on currently available information, we assigned a provisional fair value of $119.4 million to the Liquidity Option Agreement using an income approach, specifically, a discounted cash flow analysis. This amount represents the present value of estimated federal and state income tax payments that we would make on the taxable income of OTA, a corporation, over a stated period of time following exercise of the option. We expect that OTA's taxable income would, in turn, be based on an allocation of our partnership's taxable income to the common units held by OTA and reflect any tax mitigation strategies we believe could be employed. Our provisional valuation estimate method is based on significant inputs that are not observable in the market (i.e., Level 3 inputs). Key assumptions in our base case include:
§ | OTA remains in existence for 30 years following exercise of option;
§ | Annual growth rates of our partnership's earnings before interest, taxes, depreciation and amortization ranging from 3% to 14%;
§ | OTA ownership interest in Enterprise common units ranging from 1.9% to 2.8%;
§ | OTA assumes approximately $2.2 billion of long-term debt (30-year maturity) from EPO immediately after the option is exercised. The interest rate on this debt approximates 4.9% and is based on a recently completed debt offering with a similar tenure;
§ | Forecasted yield on Enterprise common units of 4% to 5.5%;
§ | OTA pays an aggregate federal and state income tax rate of 38% on its taxable income; and
§ | Discount rate of 7.4% based on our weighted-average cost of capital at October 1, 2014.
Furthermore, our valuation estimate incorporates five probability weighted cases reflecting the likelihood that M&B may elect to divest a portion of the Enterprise common units held by OTA prior to exercise of the option. The following table summarizes these additional assumptions and presents their impact on the determining the provisional valuation estimate:
Scenario |  | Number of Enterprise Common Units Held at Exercise Date |  |  | Discounted Cash Flows |  |  | Probability Assigned to Each Scenario |  |  | Probability Weighted Cash Flows |
|  | (in millions) |  |  |  |  |  |  |  |  |  |
M&B exercises option; OTA owns 100% of units |  | 54.8 |  |  | $ | 164.7 |  |  | 50% |  |  | $ | 82.4 |
M&B exercises option; OTA owns 75% of units |  | 41.1 |  |  |  | 123.5 |  |  | 20% |  |  |  | 24.7 |
M&B exercises option; OTA owns 50% of units |  | 27.4 |  |  |  | 82.4 |  |  | 10% |  |  |  | 8.2 |
M&B exercises option; OTA owns 25% of units |  | 13.7 |  |  |  | 41.2 |  |  | 10% |  |  |  | 4.1 |
M&B does not exercise option |  | -- |  |  |  | -- |  |  | 10% |  |  |  | -- |
Totals |  |  |  |  |  |  |  |  |  | 100% |  |  | $ | 119.4 |
We believe the information gathered to date provides a reasonable basis for estimating the fair value of the Liquidity Option Agreement, but we are awaiting the availability of certain 2014 federal income tax return calculations that are necessary to finalize our fair value estimate. Thus, our provisional measurement of fair value of $119.4 million is subject to change. We expect to finalize the initial fair value for the Liquidity Option Agreement as soon as practicable but no later than one year from the acquisition date. The liability recorded for the Liquidity Option Agreement is a component of "Other long-term liabilities" on our Consolidated Balance Sheet at December 31, 2014. Subsequent changes in the fair value of this option (other than those attributable to the finalization of our purchase price allocation as discussed in Note 10) will be recorded in earnings each reporting period until the option expires or is exercised. Centennial guarantees At December 31, 2014, Centennial's debt obligations consisted of $75.8 million borrowed under a master shelf loan agreement. Borrowings under the master shelf agreement mature in May 2024 and are collateralized by substantially all of Centennial's assets and severally guaranteed 50% by us and 50% by our joint venture partner in Centennial. If Centennial were to default on its debt obligations, we and our joint venture partner would each be required to make an approximate $37.9 million payment to Centennial's lenders in connection with the guarantee agreements (based on Centennial's debt principal outstanding at December 31, 2014). We recognized a liability of $5.4 million for our share of the Centennial debt guaranty at December 31, 2014. In lieu of Centennial procuring insurance to satisfy third party claims arising from a catastrophic event, we and Centennial's other joint venture partner have entered a limited cash call agreement. We are obligated to contribute up to a maximum of $50.0 million in the event of a catastrophic event. At December 31, 2014, we have a recorded liability of $2.4 million representing the estimated fair value of our cash call guaranty. Our cash contributions to Centennial under the agreement may be covered by our other insurance policies depending on the nature of the catastrophic event.

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