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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2018
Commitments and Contingencies [Abstract] |
Commitments and Contingencies | Note 17. 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, 2018 and 2017, our accruals for litigation contingencies were $0.5 million and $4.5 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. Energy Transfer Matter In connection with a proposed pipeline project, we and 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 trial court entered judgment against us in an aggregate amount of $535.8 million, which included (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 trial court also awarded post-judgment interest on such aggregate amount, to accrue at a rate of 5%, compounded annually. We filed our Brief of the Appellant in the Court of Appeals for the Fifth District of Dallas, Texas on March 30, 2015 and ETP filed its Brief of Appellees on June 29, 2015. We filed our Reply Brief of Appellant on September 18, 2015. Oral argument was conducted on April 20, 2016, and the case was then submitted to the Court of Appeals for its consideration. On July 18, 2017, a panel of the Court of Appeals issued a unanimous opinion reversing the trial court’s judgment as to all of ETP’s claims against us, rendering judgment that ETP take nothing on those claims, and affirming our counterclaim against ETP of $0.8 million, plus interest. On August 31, 2017, ETP filed a motion for rehearing before the Dallas Court of Appeals, which was denied on September 13, 2017. On December 27, 2017, ETP filed its Petition for Review with the Supreme Court of Texas and we filed our Response to the Petition for Review on February 26, 2018. On June 8, 2018, the Supreme Court of Texas requested that the parties file briefs on the merits, and the parties have filed their respective submittals. As of December 31, 2018, we have not recorded a provision for this matter as management continues to believe that payment of damages by us in this case is not probable. We continue to monitor developments involving this matter. PDH Litigation In July 2013, we executed a contract with Foster Wheeler USA Corporation (“Foster Wheeler”) pursuant to which Foster Wheeler was to serve as the general contractor responsible for the engineering, procurement, construction and installation of our propane dehydrogenation (“PDH”) facility. In November 2014, Foster Wheeler was acquired by an affiliate of AMEC plc to form Amec Foster Wheeler plc, and Foster Wheeler is now known as Amec Foster Wheeler USA Corporation (“AFW”). In December 2015, Enterprise and AFW entered into a transition services agreement under which AFW was partially terminated from the PDH project. In December 2015, Enterprise engaged a second contractor, Optimized Process Designs LLC, to complete the construction and installation of the PDH facility. On September 2, 2016, we terminated AFW for cause and filed a lawsuit in the 151st Judicial Civil District Court of Harris County, Texas against AFW and its parent company, Amec Foster Wheeler plc, asserting claims for breach of contract, breach of warranty, fraudulent inducement, string-along fraud, gross negligence, professional negligence, negligent misrepresentation and attorneys’ fees. We intend to diligently prosecute these claims and seek all direct, consequential, and exemplary damages to which we may be entitled. 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, 2018, we had approximately 7.7 trillion British thermal units (“TBtus”) of natural gas, 18.4 MMBbls of crude oil, and 38.5 MMBbls of NGL and petrochemical products in our custody that were owned by third parties. We maintain insurance coverage in connection with such volumes that is consistent with our exposure. See Note 18 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 employees who perform management, administrative and operating functions for us. See Notes 13 and 15 for additional information regarding our accounting for equity-based awards and related party information, respectively. Contractual Obligations The following table summarizes our various contractual obligations at December 31, 2018. A description of each type of contractual obligation follows:
|  | Payment or Settlement due by Period |
Contractual Obligations |  | Total |  |  | 2019 |  |  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | Thereafter |
Scheduled maturities of debt obligations |  | $ | 26,420.6 |  |  | $ | 1,500.0 |  |  | $ | 1,500.0 |  |  | $ | 1,325.0 |  |  | $ | 1,400.0 |  |  | $ | 1,250.0 |  |  | $ | 19,445.6 |
Estimated cash interest payments |  | $ | 25,520.2 |  |  | $ | 1,190.4 |  |  | $ | 1,132.5 |  |  | $ | 1,062.9 |  |  | $ | 1,010.1 |  |  | $ | 969.9 |  |  | $ | 20,154.4 |
Operating lease obligations |  | $ | 324.8 |  |  | $ | 50.5 |  |  | $ | 45.6 |  |  | $ | 38.7 |  |  | $ | 30.8 |  |  | $ | 20.9 |  |  | $ | 138.3 |
Purchase obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product purchase commitments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Estimated payment obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | $ | 1,631.2 |  |  | $ | 572.0 |  |  | $ | 599.4 |  |  | $ | 459.8 |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |
NGLs |  | $ | 3,437.2 |  |  | $ | 760.6 |  |  | $ | 739.4 |  |  | $ | 620.3 |  |  | $ | 527.7 |  |  | $ | 310.3 |  |  | $ | 478.9 |
Crude oil |  | $ | 4,778.2 |  |  | $ | 1,038.6 |  |  | $ | 771.3 |  |  | $ | 557.1 |  |  | $ | 543.1 |  |  | $ | 438.1 |  |  | $ | 1,430.0 |
Petrochemicals & refined products |  | $ | 399.7 |  |  | $ | 179.0 |  |  | $ | 178.3 |  |  | $ | 42.4 |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |
Other |  | $ | 27.4 |  |  | $ | 8.2 |  |  | $ | 8.3 |  |  | $ | 4.3 |  |  | $ | 2.3 |  |  | $ | 2.4 |  |  | $ | 1.9 |
Service payment commitments |  | $ | 403.8 |  |  | $ | 75.1 |  |  | $ | 72.2 |  |  | $ | 55.3 |  |  | $ | 53.7 |  |  | $ | 38.9 |  |  | $ | 108.6 |
Capital expenditure commitments |  | $ | 171.8 |  |  | $ | 171.8 |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |
Scheduled Maturities of 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 years indicated. See Note 7 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, 2018, the contractually scheduled maturities of such balances, and the applicable interest rates. Our estimated cash payments for interest are significantly influenced by the long-term maturities of our $2.67 billion in junior subordinated notes (due June 2067 through February 2078). Our estimated cash payments for interest assume that these subordinated notes are not repaid prior to their respective maturity dates. Our estimated cash payments for interest with respect to each junior subordinated note are based on either the current fixed interest rate charged or the weighted-average variable rate paid in 2018, as applicable, for each note applied to the remaining term through the respective maturity date. See Note 7 for information regarding fixed and weighted-average variable interest rates charged in 2018. 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) land held pursuant to property leases, (ii) the lease of underground storage caverns for natural gas and NGLs, (iii) the lease of transportation equipment used in our operations, and (iv) leased office space with affiliates of EPCO. 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. Consolidated costs and expenses include lease and rental expense amounts of $86.4 million, $103.6 million and $110.1 million during the years ended December 31, 2018, 2017 and 2016, respectively. Purchase Obligations We define purchase obligations as agreements with remaining terms in excess of one year 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-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 estimated payment obligations under these contracts for the years indicated. Our estimated future payment obligations are based on the contractual price in each agreement at December 31, 2018 applied to all future volume commitments. Actual future payment obligations may vary depending on prices at the time of delivery.
§ | We have long-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 investment program, including our share of the capital expenditures of unconsolidated affiliates. These commitments represent unconditional payment obligations for services to be rendered or products to be delivered in connection with capital projects.
Other Commitments In connection with our acquisition of the EFS Midstream System in 2015, we are obligated to spend up to an aggregate of $270 million on specified midstream gathering assets for certain producers, over a ten-year period. If constructed, these new assets would be owned by us and be a component of the EFS Midstream System. As of December 31, 2018, we have spent $151 million of the $270 million commitment. Other Long-Term Liabilities The following table summarizes the components of “Other long-term liabilities” as presented on our Consolidated Balance Sheets at the dates indicated:
|  | December 31, |
|  | 2018 |  |  | 2017 |
Noncurrent portion of AROs (see Note 4) |  | $ | 121.4 |  |  | $ | 81.1 |
Deferred revenues – non-current portion (see Note 9) |  |  | 210.3 |  |  |  | 135.5 |
Liquidity Option Agreement |  |  | 390.0 |  |  |  | 333.9 |
Derivative liabilities |  |  | 14.2 |  |  |  | 10.4 |
Centennial guarantees |  |  | 3.6 |  |  |  | 4.5 |
Other |  |  | 12.1 |  |  |  | 13.0 |
Total |  | $ | 751.6 |  |  | $ | 578.4 |
Liquidity Option Agreement We entered into a put option agreement (the “Liquidity Option Agreement” or “Liquidity Option”) with OTA and Marquard & Bahls AG, a German corporation and the ultimate parent company of OTA (“M&B”), in connection with the Oiltanking acquisition. Under the Liquidity Option Agreement, 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. If the Liquidity Option is exercised during this period, we would indirectly acquire the Enterprise common units then owned by OTA, currently 54,807,352 units, and assume all future income tax obligations of OTA associated with (i) owning common units encumbered by the entity-level taxes of a U.S. corporation and (ii) any associated net deferred taxes. If we assume net deferred tax liabilities that exceed the then current book value of the Liquidity Option liability at the exercise date, we will recognize expense for the difference. 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 consideration paid may be in the form of newly issued Enterprise common units, cash or any mix thereof, as determined solely by us. We have the ability to issue the requisite number of common units needed to satisfy any potential obligation under the Liquidity Option. The Liquidity Option may be exercised prior to February 2020 if a Trigger Event (as defined in the underlying agreements) occurs. The exercise period for a Trigger Event is 135 days following the notice of such event. Trigger Events include, among other scenarios, any Enterprise Tax Event (as defined in the underlying agreements), which includes certain events in which OTA would recognize a taxable gain on the Enterprise common units that it owns. The carrying value of the Liquidity Option Agreement, which is a component of “Other long-term liabilities” on our Consolidated Balance Sheet, was $390.0 million and $333.9 million at December 31, 2018 and 2017, respectively. The fair value of the Liquidity Option, at any measurement date, represents the present value of estimated federal and state income tax payments that we believe a market participant would incur on the future taxable income of OTA. 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 certain tax planning strategies we believe could be employed. Changes in the fair value of the Liquidity Option are recognized in earnings as a component of other income (expense) on our Statements of Consolidated Operations. Results for the years ended December 31, 2018, 2017 and 2016 include $56.1 million, $64.3 million and $24.5 million, respectively, of aggregate non-cash expense attributable to accretion and changes in management estimates regarding inputs to the valuation model. In addition to the effects of recently enacted tax reforms, our valuation estimate for the Liquidity Option at December 31, 2018 is based on several inputs that are not readily observable in the market (i.e., Level 3 inputs) such as the following:
§ | OTA remains in existence (i.e., is not dissolved and its assets sold) between one and 30 years following exercise of the Liquidity Option, depending on the liquidity preference of its owner. An equal probability that OTA will be dissolved was assigned to each year in the 30-year forecast period;
§ | Forecasted annual growth rates of Enterprise’s taxable earnings before interest, taxes, depreciation and amortization ranging from 1.9% to 5.6%;
§ | OTA’s ownership interest in Enterprise common units is assumed to be diluted over time in connection with Enterprise’s issuance of equity for general company reasons. For purposes of the valuation at December 31, 2018, we used ownership interests ranging from 2.3% to 2.5%;
§ | OTA pays an aggregate federal and state income tax rate of 24% on its taxable income; and
§ | A discount rate of 7.9% based on our weighted-average cost of capital at December 31, 2018.
Furthermore, our valuation estimate incorporates probability-weighted scenarios 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 (see Note 8 for information regarding the Registration Rights Agreement granted to OTA). At December 31, 2018, based on these scenarios, we expect that OTA would own approximately 94% of the 54,807,352 Enterprise common units it received in Step 1 when the option period begins in February 2020. If our valuation estimate assumed that OTA owned all of the Enterprise common units it received in Step 1 at the time of exercise (and all other inputs remained the same), the estimated fair value of the Liquidity Option liability at December 31, 2018 would increase by $23.1 million. Centennial Guarantees At December 31, 2018, Centennial’s debt obligations consisted of $41.8 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 $20.9 million payment to Centennial’s lenders in connection with the guarantee agreements (based on Centennial’s debt principal outstanding at December 31, 2018). We recognized a liability of $3.1 million for our share of the Centennial debt guaranty at December 31, 2018. 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, 2018, we have a recorded liability of $1.3 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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