Impairments and Losses (Gains) on Divestitures

During the years ended December 31, 2018, 2017, and 2016, we recorded impairments of certain equity investments, long-lived assets, and intangible assets, and net gains and losses on divestitures totaling $437 million, $172 million, and $1,013 million, respectively. During 2016, and to a lesser degree in 2017 and 2018, a sustained lower commodity price environment, and negative outlook for certain long-term transportation contracts, led us to cancel certain construction projects, divest of certain assets, write-down certain assets and investments to fair value.

These impairments were driven by market conditions that existed at the time and required management to estimate the fair value of these assets. The estimates of fair value are based on Level 3 valuation estimates using industry standard income approach valuation methodologies which include assumptions primarily involving management’s significant judgments and estimates with respect to general economic conditions and the related demand for products handled or transported by our assets as well as assumptions regarding commodity prices, future cash flows based on rate and volume assumptions, terminal values and discount rates. We typically use discounted cash flow analyses to determine the fair value of our assets. We may probability weight various forecasted cash flow scenarios utilized in the analysis as we consider the possible outcomes. We use discount rates representing our estimate of the risk-adjusted discount rates that would be used by market participants specific to the particular asset.

In January 2019, Pacific Gas and Electric (PG&E) filed for Chapter 11 bankruptcy protection. Our exposure to PG&E is limited to our $750 million equity investment in Ruby and an approximate $55 million note receivable from Ruby, where PG&E is Ruby’s largest customer. PG&E represents approximately $93 million of annual revenues on Ruby, and our partner’s preferred equity interest in Ruby is senior to our interest. Despite the bankruptcy filing, Ruby continues to perform under its existing service contracts with PG&E and PG&E has provided credit support on its trade payables to Ruby through a prepayment arrangement. While the ultimate outcome of the bankruptcy proceedings remains uncertain, there is the potential for Ruby’s existing contracts with PG&E to be canceled in the bankruptcy process. Any cancellation of these contracts could negatively impact Ruby’s future revenues and require us to evaluate our investment in Ruby for an other than temporary impairment. This could result in a material impairment of our investment in Ruby at the time such events become known.

We may identify additional triggering events requiring future evaluations of the recoverability of the carrying value of our long-lived assets, investments and goodwill. Because certain assets and investments have been written down to fair value in the last few years, any deterioration in fair value relative to our carrying value increases the likelihood of further impairments. Such non-cash impairments could have a significant effect on our results of operations, which would be recognized in the period in which the carrying value is determined to be not fully recoverable.

We recognized the following non-cash pre-tax impairment charges and losses (gains) on divestitures of assets (in millions):



	Year Ended December 31,
	2018			2017			2016
Natural Gas Pipelines
Impairments of long-lived assets(a)	$	600		$	30		$	106
(Gains) losses on divestitures of long-lived assets(b)	(6		)	—			94
Impairment of equity investments(c)	270			150			606
Impairment at equity investee(d)	—			10			7
Products Pipelines
Impairments of long-lived assets(e)	36			—			66
Losses on divestitures of long-lived assets	—			—			10
Gain on divestiture of equity investment	—			—			(12		)
Terminals
Impairments of long-lived assets(f)	59			3			19
(Gains) losses on divestitures of long-lived assets(g)	(6		)	(18		)	80
Losses on impairments and divestitures of equity investments, net	—			—			16
CO₂
Impairments of long-lived assets(h)	79			(1		)	20
Gain on divestitures of long-lived assets	—			—			(1		)
Impairment at equity investee	—			(4		)	9
Kinder Morgan Canada
Gain on divestiture of long-lived assets(i)	(595		)	—			—

Other losses (gains) on divestitures of long-lived assets	—			2			(7		)
Pre-tax losses on impairments and divestitures, net	$	437		$	172		$	1,013

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(a) 2018 amount represents the non-cash impairment associated with certain gathering and processing assets in Oklahoma. 2017 amount represents the impairment of our Colden storage facility, of which $3 million is included in “Costs of sales” on our accompanying consolidated statement of income. 2016 amount represents the project write-off of our portion of the Northeast Energy Direct Market project.

(b) 2016 amount primarily relates to our sale of a 50% interest in SNG.

(c) 2018 amount represents the non-cash impairment of our investment in Gulf LNG Holdings Group, LLC (Gulf LNG) which was driven by a ruling by an arbitration panel affecting a customer contract. Our share of earnings recognized by Gulf LNG on the respective customer contract is included in “Earnings from equity investments” on our accompanying consolidated statement of income for the year ended December 31, 2018. 2017 amount represents the non-cash impairment of our investment in FEP. 2016 amount includes a $350 million non-cash impairment of our investment in MEP and a $250 million non-cash impairment of our investment in Ruby.

(d) 2017 and 2016 amounts represent losses on impairments recorded by equity investees and are included in “Earnings from equity investments” on our accompanying consolidated statements of income.

(e) 2018 amount represents a project write-off associated with the Utica Marcellus Texas pipeline. 2016 amount represents project write-offs associated with the canceled Palmetto project.

(f) 2018 amount primarily relates to non-cash impairments of certain Northeast terminal assets.

(g) 2017 amount includes a $23 million gain related to the sale of a 40% membership interest in the Deeprock Development joint venture. 2016 amount primarily relates to the sale of 20 bulk terminals that handle mostly coal and steel products, predominately located along the inland river system.

(h) 2018 amount represents impairments of oil and gas properties.

(i) 2018 amount represents the gain on the TMPL Sale.

Our largest impairment for the year ended December 31, 2018 was a $600 million non-cash impairment in our Natural Gas Pipelines business segment driven by reduced cash flow estimates for some of our gathering and processing assets in Oklahoma identified during the period as a result of our decision to redirect our focus to other areas of our portfolio. These reduced estimates triggered an impairment analysis as we determined that our carrying value may no longer be recoverable. The impairment analysis for long-lived assets was based upon a two-step process as prescribed in the accounting standards. Step 1 involved comparing the undiscounted future cash flows to be derived from the asset group to the carrying value of the asset group. Based on the results of our step 1 test, we determined that the undiscounted future cash flows were less than the carrying value of the asset group. Step 2 involved using the income approach to calculate the fair value of the asset group and comparing it to the carrying value. The impairment that we recorded represented the difference between the fair and carrying values.