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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2019
Commitments and Contingencies [Abstract] |
Commitments and Contingencies | Note 15. 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. At March 31, 2019 and December 31, 2018, our accruals for litigation contingencies were $0.5 million and $0.5 million, respectively, and recorded in our Unaudited Condensed Consolidated Balance Sheets as a component of “Other current liabilities.” 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 July18, 2017, a panel of the Dallas 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. 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 (“OPD”), 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. Contractual Obligations Scheduled Maturities of Debt We have long-term and short-term payment obligations under debt agreements. In total, the principal amount of our consolidated debt obligations were $27.12 billion and $26.42 billion at March 31, 2019 and December 31, 2018, respectively. See Note 7 for additional information regarding our scheduled future maturities of debt principal. Lease Accounting Matters The following table presents information regarding our operating leases where we are the lessee at March 31, 2019:
Asset Category |  | ROU Asset Carrying Value (1) |  |  | Lease Liability Carrying Value (2) |  | Weighted- Average Remaining Term |  | Weighted- Average Discount Rate (3) |
Storage and pipeline facilities |  | $ | 147.0 |  |  | $ | 147.6 |  | 16 years |  | 4.3% |
Transportation equipment |  |  | 60.9 |  |  |  | 63.3 |  | 4 years |  | 3.6% |
Office and warehouse space |  |  | 28.4 |  |  |  | 27.1 |  | 3 years |  | 3.5% |
Total |  | $ | 236.3 |  |  | $ | 238.0 |  |  |  |  |  |
(1) ROU asset amounts are a component of “Other assets” on our consolidated balance sheet. (2) At March 31, 2019, lease liabilities of $38.2 million and $199.8 million were included within “Other current liabilities” and “Other liabilities,” respectively. (3) The discount rate for each category of assets represents the weighted average of either (i) the implicit rate applicable to the underlying leases (where determinable) or (ii) our incremental borrowing rate adjusted for collateralization (if the implicit rate is not determinable). In general, the discount rates are based on either (i) information available at the lease commencement date or (ii) January 1, 2019 for leases existing at the adoption date for ASC 842. |
The following table disaggregates our operating lease expense for the three months ended March 31, 2019:
Long-term operating leases: |  |  |
Fixed lease expense |  | $ | 13.4 |
Variable lease expense |  |  | 1.8 |
Subtotal operating lease expense |  |  | 15.2 |
Short-term lease expense |  |  | 11.8 |
Total operating lease expense |  | $ | 27.0 |
In total, operating lease expense was $27.0 million and $25.6 million for the three months ended March 31, 2019 and 2018, respectively. Operating lease expense represents less than 1% of “Operating costs and expenses” as presented on our consolidated statements of operations. Fixed lease expense is charged to earnings on a straight-line basis over the contractual term, with any variable lease payments expensed as incurred. Short-term lease expense is expensed as incurred. We recognized $246.1 million in ROU assets and lease liabilities for long-term operating leases at January 1, 2019 in connection with the adoption of ASC 842. These amounts represented less than 1% of our total consolidated assets and liabilities, respectively, at the adoption date. On an undiscounted basis, our long-term operating lease obligations aggregated to $314.4 million at January 1, 2019. Under ASC 842, lessors classify leases as either operating, direct financing or sales-type. We do not have any significant operating or direct financing leases. Our operating lease income for the three months ended March 31, 2019 was $4.8 million, which represented less than 1% of our consolidated revenues. We do not have any sales-type leases. Our operating lease commitments at March 31, 2019 did not differ materially from those reported in our 2018 Form 10-K. Purchase Obligations During the first quarter of 2019, we entered into additional long-term purchase commitments for NGLs with third party suppliers. On a combined basis, these new agreements increased our estimated long-term purchase obligations by $3.2 billion, with $1.1 billion committed over the next five years and $2.1 billion thereafter. At March 31, 2019, our estimated long-term purchase obligations totaled $13.5 billion after reflecting the agreements added in the first quarter of 2019 and those commitments that expired during the quarter. At December 31, 2018, our estimated long-term purchase obligations totaled $10.8 billion. Liquidity Option Agreement We entered into a put option agreement (the “Liquidity Option Agreement” or “Liquidity Option”) with Oiltanking Holding Americas, Inc. (“OTA”) and Marquard & Bahls AG (“M&B”), a German corporation and the ultimate parent company of OTA, in connection with the first step of the Oiltanking acquisition in 2014 (“Step 1”). 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 carrying value of the Liquidity Option Agreement, which is a component of “Other long-term liabilities” on our Consolidated Balance Sheet, was $447.8 million and $390.0 million at March 31, 2019 and December 31, 2018, 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 three months ended March 31, 2019 and 2018 include $57.8 million and $7.5 million, respectively, of aggregate non-cash expense attributable to accretion and changes in management estimates regarding inputs to the valuation model. Expense recognized for the first quarter of 2019 is primarily due to an approximate 1% decrease in the industry weighted-average cost of capital, which is used as the discount factor in determining the present value of the liability, since December 31, 2018. The remainder of the inputs to the valuation model have not changed since those reported under Note 17 of the 2018 Form 10-K. 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 March 31, 2019, based on these scenarios, we expect that OTA would own approximately 96% 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 March 31, 2019 would increase by $20.1 million.

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