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Intangible Assets and Goodwill | 12 Months Ended
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Dec. 31, 2016
Intangible Assets and Goodwill [Abstract] |
Intangible Assets and Goodwill | Note 7. Intangible Assets and Goodwill Identifiable Intangible Assets The following table summarizes our intangible assets by business segment at the dates indicated:
|  | December 31, 2016 |  |  | December 31, 2015 |
|  | Gross Value |  |  | Accumulated Amortization |  |  | Carrying Value |  |  | Gross Value |  |  | Accumulated Amortization |  |  | Carrying Value |
NGL Pipelines & Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationship intangibles |  | $ | 447.4 |  |  | $ | (172.7 | ) |  | $ | 274.7 |  |  | $ | 447.4 |  |  | $ | (156.9 | ) |  | $ | 290.5 |
Contract-based intangibles |  |  | 279.9 |  |  |  | (204.4 | ) |  |  | 75.5 |  |  |  | 283.0 |  |  |  | (193.2 | ) |  |  | 89.8 |
Segment total |  |  | 727.3 |  |  |  | (377.1 | ) |  |  | 350.2 |  |  |  | 730.4 |  |  |  | (350.1 | ) |  |  | 380.3 |
Crude Oil Pipelines & Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationship intangibles |  |  | 2,204.4 |  |  |  | (84.5 | ) |  |  | 2,119.9 |  |  |  | 2,204.4 |  |  |  | (39.1 | ) |  |  | 2,165.3 |
Contract-based intangibles |  |  | 281.0 |  |  |  | (121.9 | ) |  |  | 159.1 |  |  |  | 281.4 |  |  |  | (69.2 | ) |  |  | 212.2 |
Segment total |  |  | 2,485.4 |  |  |  | (206.4 | ) |  |  | 2,279.0 |  |  |  | 2,485.8 |  |  |  | (108.3 | ) |  |  | 2,377.5 |
Natural Gas Pipelines & Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationship intangibles |  |  | 1,350.3 |  |  |  | (390.0 | ) |  |  | 960.3 |  |  |  | 1,350.3 |  |  |  | (366.3 | ) |  |  | 984.0 |
Contract-based intangibles |  |  | 464.7 |  |  |  | (370.5 | ) |  |  | 94.2 |  |  |  | 464.7 |  |  |  | (361.0 | ) |  |  | 103.7 |
Segment total |  |  | 1,815.0 |  |  |  | (760.5 | ) |  |  | 1,054.5 |  |  |  | 1,815.0 |  |  |  | (727.3 | ) |  |  | 1,087.7 |
Petrochemical & Refined Products Services: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer relationship intangibles |  |  | 185.5 |  |  |  | (43.9 | ) |  |  | 141.6 |  |  |  | 185.5 |  |  |  | (38.3 | ) |  |  | 147.2 |
Contract-based intangibles |  |  | 54.0 |  |  |  | (15.2 | ) |  |  | 38.8 |  |  |  | 56.3 |  |  |  | (11.8 | ) |  |  | 44.5 |
Segment total |  |  | 239.5 |  |  |  | (59.1 | ) |  |  | 180.4 |  |  |  | 241.8 |  |  |  | (50.1 | ) |  |  | 191.7 |
Total intangible assets |  | $ | 5,267.2 |  |  | $ | (1,403.1 | ) |  | $ | 3,864.1 |  |  | $ | 5,273.0 |  |  | $ | (1,235.8 | ) |  | $ | 4,037.2 |
The following table presents the amortization expense of our intangible assets by business segment for the periods indicated:
|  | For the Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
NGL Pipelines & Services |  | $ | 30.6 |  |  | $ | 33.6 |  |  | $ | 33.1 |
Crude Oil Pipelines & Services |  |  | 98.4 |  |  |  | 87.1 |  |  |  | 15.7 |
Natural Gas Pipelines & Services |  |  | 33.2 |  |  |  | 40.0 |  |  |  | 45.0 |
Petrochemical & Refined Products Services |  |  | 9.1 |  |  |  | 8.9 |  |  |  | 6.9 |
Offshore Pipelines & Services |  |  | -- |  |  |  | 4.5 |  |  |  | 9.9 |
Total |  | $ | 171.3 |  |  | $ | 174.1 |  |  | $ | 110.6 |
The following table presents our forecast of amortization expense associated with existing intangible assets for the years indicated:
2017 |  |  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2021 |
$ | 161.7 |  |  | $ | 163.8 |  |  | $ | 157.7 |  |  | $ | 152.8 |  |  | $ | 163.2 |
In general, our intangible assets fall within two categories – customer relationship and contract-based intangible assets. The values assigned to such intangible assets are amortized to earnings using either (i) a straight-line approach or (ii) other methods that closely resemble the pattern in which the economic benefits are estimated to be consumed or otherwise used, as appropriate. Customer relationship intangible assets. Customer relationship intangible assets represent the estimated economic value assigned to commercial relationships acquired in connection with business combinations. Our customer relationship intangible assets can be classified as either (i) basin-specific or (ii) general. In certain instances, the acquisition of these intangible assets represents obtaining access to customers in a defined resource basin analogous to having a franchise in a particular area. Efficient operation of the acquired assets (e.g., a natural gas gathering system) helps to support commercial relationships with existing producers and provides us with opportunities to establish new ones within our existing asset footprint. The duration of such customer relationships is limited by the estimated economic life of the associated resource basin. In other situations, the acquisition of a customer relationship intangible asset provides us with access to customers whose hydrocarbon volumes are not attributable to specific resource basins. As with basin-specific customer relationships, efficient operation of the associated assets (e.g., a marine terminal that handles volumes originating from multiple sources) helps to support commercial relationships with existing customers and provides us with opportunities to establish new ones. The duration of these general customer relationships is typically limited to the term of the underlying service contracts, including assumed renewals. Amortization expense attributable to customer relationships is recorded in a manner that closely resembles the pattern in which we expect to benefit from providing services to customers. At December 31, 2016, the carrying value of our portfolio of customer relationship intangible assets was $3.5 billion, the principal components of which are as follows:
| Weighted Average Remaining Amortization Period at December 31, 2016 |  | December 31, 2016 |
|  | Gross Value |  |  | Accumulated Amortization |  |  | Carrying Value |
Basin-specific customer relationships: |  |  |  |  |  |  |  |  |  |
EFS Midstream (1) | 25.4 years |  | $ | 1,409.8 |  |  | $ | (60.2 | ) |  | $ | 1,349.6 |
State Line and Fairplay (2) | 30.2 years |  |  | 895.0 |  |  |  | (150.9 | ) |  |  | 744.1 |
San Juan Gathering (3) | 22.8 years |  |  | 331.3 |  |  |  | (207.6 | ) |  |  | 123.7 |
Encinal (4) | 10.0 years |  |  | 132.9 |  |  |  | (92.9 | ) |  |  | 40.0 |
General customer relationships: |  |  |  |  |  |  |  |  |  |  |  |  |
Oiltanking (5) | 27.0 years |  |  | 1,192.5 |  |  |  | (32.5 | ) |  |  | 1,160.0 |
(1)We acquired these intangible assets in connection with our acquisition of EFS Midstream in July 2015 (see Note 12 for additional information). (2)These customer relationships are associated with our State Line and Fairplay Gathering Systems, which we acquired in 2010. The State Line system serves producers in the Haynesville and Bossier Shale supply basins and the Cotton Valley formation in Louisiana and eastern Texas. The Fairplay system serves producers in the Cotton Valley formation within Panola and Rusk counties in East Texas. (3)These customer relationships are associated with our San Juan Gathering System, which serves producers in the San Juan Basin of northern New Mexico and southern Colorado. We acquired this intangible asset in 2004. (4)These customer relationships are associated with our Encinal Gathering System, which serves producers in the Olmos and Wilcox formations in South Texas. We acquired this intangible asset in 2006. (5)We acquired these intangible assets in connection with our acquisition of Oiltanking in October 2014 (see Note 12 for additional information). |
EFS Midstream customer relationships The EFS Midstream System serves producers in the Eagle Ford Shale, providing condensate gathering and processing services as well as gathering, treating and compression services for associated natural gas. The estimated fair value of these customer relationship intangible assets was determined using an income approach, specifically a discounted cash flow analysis. The EFS Midstream customer relationships provide us with long-term access to the natural gas, NGL and condensate resources served by EFS Midstream. Infrastructure like that owned by EFS Midstream requires a significant investment, both in terms of initial construction costs and ongoing maintenance, and is generally supported by long-term contracts with producers (e.g., PXD and Reliance) that establish a customer base. The level of expenditures involved in constructing these asset networks can create significant economic barriers to entry that effectively limit competition. The long-term nature of the underlying producer contracts and limited risk of competition ensure a long commercial relationship with existing producers. The discounted cash flow analysis used to estimate the fair value of the EFS Midstream customer relationships relied on Level 3 fair value inputs, including long-range cash flow forecasts that extend for the estimated economic life of the hydrocarbon resource base served by the asset network, anticipated service contract renewals and resource base depletion rates. A discount rate of 15% was applied to the resulting cash flows. Oiltanking customer relationships These intangible assets represent the estimated value of the expected patronage of Oiltanking’s third party storage and terminal customers. We valued the customer relationships using an income approach, specifically a discounted cash flow analysis. Our analysis was based on forecasting revenue for the existing terminal customers, including assumed service contract renewals, and then adjusting for expected customer attrition rates. The operating cash flows were then reduced by contributory asset charges. The cash flow projections were based on forecasts used to price the Oiltanking acquisition. The discounted cash flow analysis used to estimate the fair value of the Oiltanking customer relationships relied on Level 3 fair value inputs, including long-range cash flow forecasts that extend for the estimated economic life of the terminal assets and anticipated service contract renewals. A discount rate of 6.5% was applied to the resulting cash flows. Contract-based intangible assets. Contract-based intangible assets represent specific commercial rights we acquired in connection with business combinations or asset purchases. At December 31, 2016, the carrying value of our contract-based intangible assets was $367.6 million. Our most significant contract-based intangible assets are the Oiltanking customer contracts and the Jonah natural gas gathering agreements. Oiltanking customer contracts We recorded $297.4 million of contract-based intangible assets in connection with our acquisition of Oiltanking in October 2014. These intangible assets represent the estimated value of specific commercial rights we acquired in connection with third party customer storage and terminal contracts at the Houston and Beaumont terminals. We valued the contracts using an income approach. If a contract was in its renewal period and had not been cancelled, we assumed the contract was renewed on equivalent terms to the prior contract. We only valued those contracts that specified a minimum monthly fee, excluding contracts with a de minimis fee. At December 31, 2016, the carrying value of this group of intangible assets was $169.8 million and the weighted average remaining amortization period for the group was 4.6 years. Amortization expense attributable to these contracts is recorded using a straight-line approach over the terms of the underlying contracts. Jonah natural gas gathering agreements These intangible assets represent the value attributed to certain natural gas gathering contracts on the Jonah Gathering System. At December 31, 2016, the carrying value of this group of intangible assets was $69.9 million and the weighted average remaining amortization period for the group was 25 years. Amortization expense attributable to these intangible assets is recorded using a units-of-production method based on gathering volumes. Goodwill Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in the transaction. Goodwill is not amortized; however, it is subject to annual impairment testing at the end of each fiscal year, and more frequently, if circumstances indicate it is probable that the fair value of goodwill is below its carrying amount. The following table presents changes in the carrying amount of goodwill during the periods indicated:
|  | NGL Pipelines & Services |  |  | Crude Oil Pipelines & Services |  |  | Natural Gas Pipelines & Services |  |  | Petrochemical & Refined Products Services |  |  | Offshore Pipelines & Services |  |  | Consolidated Total |
Balance at January 1, 2014 |  | $ | 341.2 |  |  | $ | 305.1 |  |  | $ | 296.3 |  |  | $ | 1,055.3 |  |  | $ | 82.1 |  |  | $ | 2,080.0 |
Reclassification of goodwill between segments |  |  | 520.0 |  |  |  | -- |  |  |  | -- |  |  |  | (520.0 | ) |  |  | -- |  |  |  | -- |
Reduction in goodwill related to the sale of assets |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | (0.1 | ) |  |  | (0.1 | )
Addition to goodwill related to the acquisition of Oiltanking |  |  | 1,349.0 |  |  |  | 613.6 |  |  |  | -- |  |  |  | 257.7 |  |  |  | -- |  |  |  | 2,220.3 |
Balance at December 31, 2014 |  |  | 2,210.2 |  |  |  | 918.7 |  |  |  | 296.3 |  |  |  | 793.0 |  |  |  | 82.0 |  |  |  | 4,300.2 |
Reclassification of Oiltanking IDR balances to goodwill in connection with the cancellation of such rights in February 2015 and other adjustments |  |  | 432.6 |  |  |  | 850.7 |  |  |  | -- |  |  |  | 170.8 |  |  |  | -- |  |  |  | 1,454.1 |
Reduction in goodwill related to the sale of assets |  |  | -- |  |  |  | (2.1 | ) |  |  | -- |  |  |  | -- |  |  |  | (82.0 | ) |  |  | (84.1 | )
Addition to goodwill related to the acquisition of EFS Midstream |  |  | 8.9 |  |  |  | 73.7 |  |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 82.6 |
Goodwill reclassified to assets held-for-sale |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | (7.6 | ) |  |  | -- |  |  |  | (7.6 | )
Balance at December 31, 2015 |  |  | 2,651.7 |  |  |  | 1,841.0 |  |  |  | 296.3 |  |  |  | 956.2 |  |  |  | -- |  |  |  | 5,745.2 |
Balance at December 31, 2016 |  | $ | 2,651.7 |  |  | $ | 1,841.0 |  |  | $ | 296.3 |  |  | $ | 956.2 |  |  | $ | -- |  |  | $ | 5,745.2 |
We did not record any goodwill impairment charges during the years ended December 31, 2016, 2015 or 2014. Based on our most recent goodwill impairment test at December 31, 2016, each reporting unit’s fair value was substantially in excess of its carrying value (i.e., by at least 10%). Upon completion of Step 1 of the Oiltanking acquisition in October 2014, we recorded $2.22 billion of goodwill. This amount includes retrospective adjustments to the fair value of the Liquidity Option Agreement made in 2015 (see Note 17). Upon completion of Step 2 of the Oiltanking acquisition in February 2015, the IDRs of Oiltanking were cancelled and the associated $1.45 billion carrying value of this identifiable intangible asset was reclassified to goodwill. In the aggregate, we recorded $3.67 billion of goodwill in connection with the Oiltanking acquisition. Factors contributing to the recognition of goodwill in the Oiltanking acquisition include (i) opportunities for new business and repurposing existing assets for “best use” in order to meet anticipated increased demand for export and logistical services related to North American crude oil, condensate and NGL production, (ii) securing ownership and control of assets that are essential to our other midstream assets and (iii) cost savings from integrating Oiltanking’s operations into our midstream asset network. See Note 12 for additional information regarding the Oiltanking acquisition. In July 2015, we recorded $82.6 million of goodwill in connection with our acquisition of EFS Midstream (see Note 12). In general, we attribute this goodwill to our ability to leverage the acquired business with our existing midstream asset network to create future business opportunities. In July 2015, we removed $82.0 million of goodwill in connection with sale of the Offshore Business (see Note 5).

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- Definition The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16373-109275 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16265-109275 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66006027&loc=d3e16323-109275 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13816-109267 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 350 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35741047&loc=d3e13854-109267 + Details
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