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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2019
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, 2019 and 2018, our accruals for litigation contingencies were $0.2 million and $0.5 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 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 filed their respective submittals. On June 28, 2019, the Supreme Court of Texas requested oral argument, which was held on October 8, 2019. On January 31, 2020, the Supreme Court of Texas issued a unanimous opinion affirming the judgment of the Dallas Court of Appeals. We did not record a provision for this matter at December 31, 2019 as management believed that payment of damages by us was not probable. 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 initial propane dehydrogenation (“PDH 1”) 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 1 project. In December 2015, Enterprise engaged a second contractor, Optimized Process Designs LLC, to complete the construction and installation of PDH 1. 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, 2019, we had approximately 8.9 trillion British thermal units (“TBtus”) of natural gas, 20.4 MMBbls of crude oil, and 38.1 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 attributable to 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, 2019. A description of each type of contractual obligation follows:
|  | Payment or Settlement due by Period |
Contractual Obligations |  | Total |  |  | 2020 |  |  | 2021 |  |  | 2022 |  |  | 2023 |  |  | 2024 |  |  | Thereafter |
Scheduled maturities of debt obligations |  | $ | 27,878.4 |  |  | $ | 1,982.0 |  |  | $ | 1,325.0 |  |  | $ | 1,400.0 |  |  | $ | 1,250.0 |  |  | $ | 850.0 |  |  | $ | 21,071.4 |
Estimated cash interest payments |  | $ | 26,264.5 |  |  | $ | 1,224.7 |  |  | $ | 1,154.0 |  |  | $ | 1,101.2 |  |  | $ | 1,061.1 |  |  | $ | 1,023.0 |  |  | $ | 20,700.5 |
Operating lease obligations |  | $ | 271.2 |  |  | $ | 45.2 |  |  | $ | 40.1 |  |  | $ | 28.6 |  |  | $ | 20.2 |  |  | $ | 15.7 |  |  | $ | 121.4 |
Purchase obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Product purchase commitments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Estimated payment obligations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | $ | 610.2 |  |  | $ | 345.4 |  |  | $ | 264.8 |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |
NGLs |  | $ | 5,534.7 |  |  | $ | 844.0 |  |  | $ | 911.1 |  |  | $ | 627.5 |  |  | $ | 548.1 |  |  | $ | 513.5 |  |  | $ | 2,090.5 |
Crude oil |  | $ | 14,025.5 |  |  | $ | 1,436.9 |  |  | $ | 1,677.2 |  |  | $ | 1,659.8 |  |  | $ | 1,532.1 |  |  | $ | 1,536.3 |  |  | $ | 6,183.2 |
Petrochemicals and refined products |  | $ | 384.0 |  |  | $ | 164.1 |  |  | $ | 77.2 |  |  | $ | 48.9 |  |  | $ | 48.9 |  |  | $ | 44.9 |  |  | $ | – |
Other |  | $ | 19.6 |  |  | $ | 7.6 |  |  | $ | 4.8 |  |  | $ | 2.8 |  |  | $ | 2.9 |  |  | $ | 1.5 |  |  | $ | – |
Service payment commitments |  | $ | 335.7 |  |  | $ | 66.6 |  |  | $ | 59.7 |  |  | $ | 57.7 |  |  | $ | 43.3 |  |  | $ | 14.5 |  |  | $ | 93.9 |
Capital expenditure commitments |  | $ | 45.8 |  |  | $ | 45.8 |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |
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, 2019, the contractually scheduled maturities of such balances, and the applicable interest rates. Our estimated cash payments for interest are influenced by the long-term maturities of our $2.65 billion in junior subordinated notes (due June 2067 through February 2078). The estimated cash payments assume that (i) the junior subordinated notes are not repaid prior to their respective maturity dates and (ii) the amount of interest paid on the junior subordinated notes is based on either (a) the current fixed interest rate charged or (b) the weighted-average variable rate paid in 2019, as applicable, for each note through the respective maturity date. See Note 7 for information regarding fixed and weighted-average variable interest rates charged in 2019. 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) office space leased from affiliates of EPCO. These lease agreements have terms that range from 5 to 30 years. The agreements to lease office space from affiliates of EPCO and those relating to 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. The following table presents information regarding operating leases where we are the lessee at December 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 |  | $ | 137.9 |  |  | $ | 138.6 |  | 16 years |  |  | 4.3 | %
Transportation equipment |  |  | 49.9 |  |  |  | 52.4 |  | 3 years |  |  | 3.5 | %
Office and warehouse space |  |  | 22.4 |  |  |  | 21.0 |  | 2 years |  |  | 3.4 | %
Total |  | $ | 210.2 |  |  | $ | 212.0 |  |  |  |  |  |
(1) | ROU asset amounts are a component of “Other assets” on our consolidated balance sheet.
(2) | At December 31, 2019, lease liabilities of $40.4 million and $171.6 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.
In total, operating lease expense was $106.6 million, $86.4 million and $103.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. The following table disaggregates our total operating lease expense for year ended December 31, 2019:
Long-term operating leases: |  |  |
Fixed lease expense: |  |  |
Non-cash lease expense (amortization of ROU assets) |  | $ | 42.8 |
Related accretion expense on lease liability balances |  |  | 9.0 |
Total fixed lease expense |  |  | 51.8 |
Variable lease expense |  |  | 6.2 |
Subtotal operating lease expense |  |  | 58.0 |
Short-term operating leases |  |  | 48.6 |
Total operating lease expense |  | $ | 106.6 |
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 operating lease expense is expensed as incurred. Cash paid for operating lease liabilities recorded on our balance sheet was $48.1 million for the year ended December 31, 2019. 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. On an undiscounted basis, our long-term operating lease obligations aggregated to $314.4 million at January 1, 2019. We do not have any significant operating or direct financing leases where we are the lessor. Our operating lease income for the year ended December 31, 2019 was $14.4 million. We do not have any sales-type leases. 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 (i) fixed or minimum quantities to be purchased, (ii) fixed, minimum or variable price provisions and (iii) 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, and 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 presents our estimated future payment obligations under these contracts based on the contractual price in each agreement at December 31, 2019 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, including those attributable to 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 expenditures, 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 We are obligated to spend up to an aggregate $270 million over a ten-year period ending in 2025 on specified midstream gathering assets for certain producers utilizing our EFS Midstream System. If constructed, these new assets would be owned by us and be a component of the EFS Midstream System. As of December 31, 2019, 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, |
|  | 2019 |  |  | 2018 |
Noncurrent portion of AROs (see Note 4) |  | $ | 126.9 |  |  | $ | 121.4 |
Deferred revenues – non-current portion (see Note 9) |  |  | 197.0 |  |  |  | 210.3 |
Liquidity Option liability |  |  | 509.6 |  |  |  | 390.0 |
Lease liability – non-current portion |  |  | 171.6 |  |  |  | – |
Derivative liabilities |  |  | 7.3 |  |  |  | 14.2 |
Other |  |  | 20.0 |  |  |  | 15.7 |
Total |  | $ | 1,032.4 |  |  | $ | 751.6 |
We classify the Liquidity Option liability as long-term since we expect that it will be replaced by a long-term deferred tax liability of similar amount upon exercise of the Liquidity Option. See the following discussion titled “Liquidity Option” within this Note 17. Liquidity Option In October 2014, we acquired approximately 65.9% of the limited partner interests of Oiltanking Partners, L.P. (“Oiltanking”), all of the member interests of OTLP GP, LLC, the general partner of Oiltanking (“Oiltanking GP”), and the incentive distribution rights held by Oiltanking GP from Oiltanking Holding Americas, Inc. (“OTA”), a U.S. corporation, as the first step (“Step 1”) of a two-step acquisition of Oiltanking. In February 2015, we completed the second step of this transaction consisting of the acquisition of the noncontrolling interests in Oiltanking. In order to fund the equity consideration paid in Step 1 of the Oiltanking acquisition, we issued 54,807,352 common units to OTA on October 1, 2014 in a transaction exempt from the registration requirements of the Securities Act of 1933 (the “Securities Act”), as amended, pursuant to Section 4(a)(2) thereof. We also entered into a put option agreement (the “Liquidity Option Agreement” or “Liquidity Option”) with OTA and Marquard & Bahls AG (“M&B”), a German corporation and the ultimate parent company of OTA, in connection with Step 1. Under the Liquidity Option Agreement, the Partnership granted M&B the option to sell to the Partnership 100% of the issued and outstanding capital stock of OTA at any time within a 90-day period commencing on February 1, 2020. On February 25, 2020, the Partnership received notice from M&B of M&B’s election to exercise its Liquidity Option right. The Liquidity Option Agreement permits M&B to allow deferred tax liabilities to remain with OTA, including tax liabilities existing at the time of the sale of Oiltanking to us in 2014, and for M&B to directly receive EPD common units upon settlement of the Liquidity Option exercise that are unencumbered by any such liabilities. As a result, the liquidity of M&B is enhanced following exercise and settlement of the option, when compared to its financial position prior thereto (hence the name “Liquidity Option”). Under the terms of the Liquidity Option Agreement, the aggregate consideration to be paid by the Partnership for OTA’s capital stock at settlement will equal the volume-weighted sales price of EPD common units for the 10-trading day period immediately preceding the exercise notice date, multiplied by the 54,807,352 EPD common units owned by OTA. The consideration paid by the Partnership may be in the form of newly issued EPD common units, cash or any mix thereof, as determined solely by the Partnership. Settlement of the option exercise transaction is expected to occur on March 5, 2020. The Partnership currently expects that it will elect to deliver to M&B (or its designated affiliate) 54,807,352 newly issued EPD common units (in lieu of any cash) in connection with such settlement. Upon settlement of the Liquidity Option exercise, we will indirectly acquire the 54,807,352 EPD common units owned by OTA, and assume all future income tax obligations of OTA associated with (i) owning EPD common units encumbered by the entity-level taxes of a U.S. corporation and (ii) the deferred tax liability as of the settlement date. In total, the partners’ capital balance for common units as presented on the Consolidated Balance Sheet will increase by the market value of the new EPD common units issued to M&B at settlement. Assuming that we issue only EPD common units to M&B as consideration (in lieu of any cash consideration), the number of EPD common units outstanding would not increase as the 54,807,352 newly issued units would be offset by the 54,807,352 EPD common units held by OTA that are reclassified to treasury units. The new EPD common units issued to M&B upon settlement of the Liquidity Option will constitute “restricted securities” in the meaning of Rule 144 under the Securities Act and may not be resold except pursuant to an effective registration statement or an available exemption under the Securities Act. M&B will have the right to request that we prepare and file a registration statement to permit and otherwise facilitate the public resale of all or a portion of such EPD common units that M&B and its affiliates then own. Our obligation to M&B to effect such transactions is limited to five registration statements and underwritten offerings. The acquisition of OTA upon settlement of the Liquidity Option will be accounted for as the purchase of treasury units and the assumption of related deferred income taxes. OTA does not meet the definition of a business as described in ASC 805, Business Combinations. In consolidation, the 54,807,352 EPD common units will be presented as treasury units held at cost, with cost measured as the fair value of consideration paid or issued to M&B in connection with exercise of the Liquidity Option. At December 31, 2019 and 2018, we estimated that our liability under the Liquidity Option Agreement, which is a component of “Other long-term liabilities” on our Consolidated Balance Sheet was $509.6 million and $390.0 million, respectively. The Liquidity Option liability, at any measurement date, represents the present value of estimated federal and state income taxes that we believe a market participant would incur due to ownership of OTA, including its deferred income tax liabilities. Our valuation estimate for the Liquidity Option liability at December 31, 2019 incorporates several estimates that are not readily observable in the market (i.e., Level 3 inputs) such as: (i) a discount rate of 5.7%; (ii) a blended federal and state income tax rate of approximately 22.8%; (iii) forecasted annual growth rates in our taxable earnings ranging from approximately 0.7% to 2.2%; (iv) allocations of Partnership income to OTA ranging from approximately 2.3% to 2.5%; and (v) the length of time that OTA is in existence following exercise of the option (up to 30 years). The valuation estimate reflects the most recent U.S. federal income tax reforms along with certain tax planning strategies that we believe could be employed by a market participant. 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, 2019, 2018 and 2017 include $119.6 million, $56.1 million and $64.3 million, respectively, of aggregate non-cash expense attributable to accretion and changes in management estimates regarding inputs to the valuation model. The higher level of expense recognized in 2019 is primarily due to a decrease in the discount factor used in determining the present value of the liability since December 31, 2018. The discount rate is based on a weighted-average cost of capital, which declined over the course of 2019 due to lower U.S. interest rates. When the Liquidity Option is exercised, the Liquidity Option liability will be replaced by the deferred income tax liabilities of OTA as calculated in accordance with ASC 740, Income Taxes. If OTA’s deferred tax liabilities exceed the then-current book value of the Liquidity Option liability at the exercise date, we will recognize expense for the difference. Conversely, if the book value of the Liquidity Option exceeds the deferred tax liabilities, we will recognize a benefit. Based on our current estimates, we do not believe that this difference will be material to our consolidated financial statements.

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