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Related Party Agreements and Transactions | 12 Months Ended
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Dec. 31, 2018
Related Party Transactions [Abstract] |
Related Party Agreements and Transactions | Related Party Agreements and Transactions MPLX’s material related parties include:
• | MPC, which refines, markets and transports crude oil and petroleum products, primarily in the Midwest, Gulf Coast, East Coast and Southeast regions of the United States.
• | MarkWest Utica EMG, in which MPLX LP has a 56 percent interest as of December 31, 2018. MarkWest Utica EMG is engaged in natural gas processing and NGL fractionation, transportation and marketing in Ohio.
• | Ohio Gathering, in which MPLX LP has a 34 percent indirect interest as of December 31, 2018. Ohio Gathering is a subsidiary of MarkWest Utica EMG providing natural gas gathering service in the Utica Shale region of eastern Ohio.
• | Sherwood Midstream, in which MPLX LP has a 50 percent interest as of December 31, 2018. Sherwood Midstream supports the development of Antero Resources’ Marcellus Shale acreage in the rich-gas corridor of West Virginia.
• | Sherwood Midstream Holdings, in which MPLX LP has an 80 percent total direct and indirect interest as of December 31, 2018. Sherwood Midstream Holdings owns certain infrastructure at the Sherwood Complex that is shared by and supports the operation of both the Sherwood Midstream and MPLX gas processing plants and de-ethanization facilities.
• | MarkWest EMG Jefferson Dry Gas Gathering Company, L.L.C. (“Jefferson Dry Gas”), in which MPLX LP has a 67 percent interest as of December 31, 2018. Jefferson Dry Gas provides natural dry gas gathering and related services in the Utica Shale region of Ohio.
Commercial Agreements MPLX has various long-term, fee-based commercial agreements with MPC. Under these agreements, MPLX provides transportation, terminal, fuels distribution, marketing and storage services to MPC. MPC has committed to provide MPLX with minimum quarterly throughput volumes on crude oil and refined products systems in addition to fees for storage capacity. MPC has also committed to provide a fixed fee for 100 percent of available capacity for boats, barges and third-party chartered equipment under the marine transportation service agreement. The commercial agreements with MPC include:
• | Fuels distribution services agreement – Fuels Distribution is a party to a services agreement with MPC in connection with the dropdown of the fuels distribution services. Under this agreement, Fuels Distribution provides services related to the scheduling and marketing of certain petroleum products to MPC. Fuels Distribution does not provide the same services to third parties without the prior written consent of MPC. This agreement has an initial term of 10 years, subject to a five-year renewal period under terms to be renegotiated at that time.
Under the Fuels Distribution Services Agreement, MPC pays MPLX a tiered monthly fee-based on the volume of MPC’s products sold by MPLX each month, subject to a maximum annual volume. MPLX has agreed to use commercially reasonable efforts to sell not less than a minimum quarterly volume of MPC’s products during each calendar quarter. If MPLX sells less than the minimum quarterly volume of MPC’s products during any calendar quarter despite its commercially reasonable efforts, MPC will pay MPLX a deficiency payment equal to the volume deficiency multiplied by the applicable tiered fee. The dollar amount of actual sales volume of MPC’s products that exceeds the minimum quarterly volume (an “Excess Sale”) for a particular quarter will be applied as a credit, on a first-in-first-out basis, against any future deficiency payment owed by MPC to MPLX during the four calendar quarters immediately following the calendar quarter in which the Excess Sale occurs.
• | Transportation services agreements – MPLX has various separate transportation services agreements with terms ranging from five to 15 years, under which MPC pays MPLX fees for transporting crude oil and refined products on various of MPLX’s crude oil and refined product pipelines. MPLX also has a five-year agreement under which MPC pays MPLX fees for handling crude oil and products at MPLX’s Wood River, Illinois barge dock, and a six-year transportation services agreement under which MPC pays MPLX fees for providing marine transportation of crude oil, feedstocks and refined petroleum products, and related services.
All of the transportation services agreements include automatic renewal terms ranging from two to five years, unless terminated by either party. Under the terms of these agreements, with the exception of the marine agreement, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay MPLX a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect (the “Quarterly Deficiency Payment”). The amount of any Quarterly Deficiency Payment paid by MPC may be applied as a credit for any volumes transported on the applicable pipeline in excess of MPC’s minimum volume commitment during any of the succeeding four quarters, or eight quarters in the case of the transportation services agreements covering the Wood River to Patoka crude pipeline and the Wood River barge dock, after which time any unused credits will expire. Upon the expiration or termination of a transportation services agreement, MPC will have the opportunity to apply any such remaining credit amounts until the completion of any such four-quarter or eight-quarter period, as applicable. Any such remaining credits may be used against any volumes shipped by MPC on the applicable pipeline, without regard to any minimum volume commitment that may have been in place during the term of the agreement.
• | Storage services agreements – MPLX has three storage services agreements, with 10-year, 10-year, and 17-year terms, under which MPC pays MPLX fees for providing storage services at MPLX’s Neal, West Virginia butane cavern; Robinson, Illinois butane cavern; and Woodhaven, Michigan butane and propane caverns, respectively. MPLX has various separate three-year storage services agreements under which MPC pays MPLX fees for providing storage services at MPLX’s tank farms, and various separate three-year storage services agreements under which MPC pays MPLX fees for providing storage services at MPLX’s storage tanks associated with MPLX’s crude oil and refined product pipelines. MPLX also has various separate storage services agreements with each of MPC’s refineries under which MPLX provides certain services exclusively to MPC related to the receipt, storage, throughput, custody and delivery of petroleum products in and through certain storage and logistical facilities and assets associated with MPC’s refineries. These agreements have initial terms of 10 years.
MPLX’s cavern storage services agreements with MPC contain various automatic renewal terms ranging from zero to 10 years. MPLX’s tank farm storage services agreements with MPC automatically renew for additional one-year terms unless terminated by either party. Under the terms of these agreements, MPLX is obligated to make available to MPC, on a firm basis, the available storage capacity at MPLX LP’s tank farms and caverns. MPC pays MPLX a per-barrel fee for such storage capacity, regardless of whether MPC fully utilizes the available capacity. MPLX’s refinery storage services agreements with MPC are subject to five-year renewal periods under terms to be renegotiated at that time. MPC pays MPLX monthly fees for refinery storage and logistical services calculated as set forth in the agreements. The refinery storage and logistical facilities subject to the agreements are to be allocated exclusively to MPC for the term of the agreements.
• | Terminal services agreement – MPLX has a 10-year terminal services agreement under which MPC pays MPLX fees for terminal storage for refined petroleum products.
The terminal services agreement with MPC includes automatic renewal terms ranging from two to five years, unless terminated by either party. Under the terms of the agreement, MPC pays MPLX monthly based on contractual fees relating to MPC product deliveries as well as any viscosity surcharges, loading, handling, transfers or other related charges. If MPC fails to meet its quarterly minimum volume throughput commitments, MPC will pay a deficiency payment equal to the volume of the deficiency multiplied by the rate then in effect. If the average daily capacity of a terminal falls below the level of MPC’s commitment during a quarter, depending on the cause of the reduction in capacity, MPC’s throughput commitment will be reduced to equal the average daily capacity available during such quarter. Operating Agreements MPLX operates various pipelines owned by MPC under operating services agreements. Under these operating services agreements, MPLX receives an operating fee for operating the assets and is reimbursed for all direct and indirect costs associated with operating the assets. Most of these agreements are indexed for inflation. These agreements range from one to five years in length and automatically renew unless terminated by either party. Co-location services agreements MPLX is party to co-location services agreements with each of MPC’s refineries in connection with the dropdown of the refining logistics assets. Under these agreements, MPC provides management, operational and other services to the subsidiaries of Refining Logistics. Refining Logistics pays MPC monthly fixed fees and direct reimbursements for such services calculated as set forth in the agreements. These agreements have initial terms of 50 years. Ground lease agreements MPLX is party to ground lease agreements with each of MPC’s refineries in connection with the dropdown of the Refining Logistics assets. Under these agreements, MPLX is the lessor of certain sections of property which contain facilities owned by Refining Logistics and are within the premises of MPC’s refineries. Refining Logistics pays MPC monthly fixed fees under these ground leases. These agreements have initial terms of 50 years. Management Services Agreement MPLX, through its subsidiary, HSM, has a management services agreement with MPC under which it provides management services to assist MPC in the oversight and management of the marine business. HSM receives a fixed annual fee for providing the required management services. This fee is adjusted annually on the anniversary of the contract for inflation and any changes in the scope of the management services provided. This agreement is set to expire on January 1, 2021 and automatically renews for two additional renewal terms of five years each unless terminated by either party. Omnibus Agreement MPLX has an omnibus agreement with MPC that addresses its payment of a fixed annual fee to MPC for the provision of executive management services by certain executive officers of the general partner and MPLX’s reimbursement of MPC for the provision of certain general and administrative services to it. It also provides for MPC’s indemnification of MPLX for certain matters, including environmental, title and tax matters; as well as our indemnification of MPC for certain matters under this agreement. Employee Services Agreements MPLX has various employee services agreements with MPC under which MPLX reimburses MPC for employee benefit expenses, along with the provision of operational and management services in support of both our L&S and G&P segments’ operations. Loan Agreement MPLX is party to a loan agreement with MPC Investment (the “MPC Loan Agreement”). Under the terms of the agreement, MPC Investment makes a loan or loans to MPLX on a revolving basis as requested by MPLX and as agreed to by MPC Investment. On April 27, 2018, MPLX and MPC Investment entered into an amendment to the MPC Loan Agreement to increase the borrowing capacity under the MPC Loan Agreement from $500 million to $1 billion in aggregate principal amount of all loans outstanding at any one time. The entire unpaid principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), shall become due and payable on December 4, 2020. MPC Investment may demand payment of all or any portion of the outstanding principal amount of the loan, together with all accrued and unpaid interest and other amounts (if any), at any time prior to December 4, 2020. Borrowings under the loan will bear interest at LIBOR plus 1.50 percent. During 2018, MPLX borrowed $4.0 billion and repaid $4.3 billion, resulting in no outstanding balance at December 31, 2018. During 2017, MPLX borrowed $2.4 billion and repaid $2.0 billion, resulting in $386 million outstanding balance at December 31, 2017, which is included in “Payables - related parties” on the Consolidated Balance Sheets. Borrowings were at an average interest rate of 3.473 percent and 2.777 percent for 2018 and 2017, respectively. Related Party Transactions Related party sales to MPC consisted of crude oil and refined products pipeline transportation services based on tariff rates, storage, terminal and fuels distribution services based on contracted rates; and marine transportation services. Related party sales to MPC also consist of revenue related to volume deficiency credits. Revenue received from related parties related to service, rental, and product sales were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Service revenue |  |  |  |  |  |
MPC |  | $ | 2,159 |  |  | $ | 1,082 |  |  | $ | 936 |
Rental income |  |  |  |  |  |
MPC |  | 718 |  |  | 279 |  |  | 235 |
Product sales(1) |  |  |  |  |  |
MPC |  | $ | 49 |  |  | $ | 8 |  |  | $ | 11 |
(1) | There were additional product sales to MPC that net to zero within the consolidated financial statements as the transactions are recorded net due to the terms of the agreements under which such product was sold. For 2018, 2017, and 2016, these sales totaled $440 million, $254 million and $46 million, respectively.
MPLX has operating agreements with MPC under which it receives a fee for operating MPC’s retained pipeline assets, a fixed annual fee for providing oversight and management services required to run the marine business and is also reimbursed for personnel services. MPLX also receives management fee revenue for engineering, construction and administrative services for operating certain of its equity method investments. The revenue received from these related parties, included in “Other income - related parties” on the Consolidated Statements of Income, was as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
MPC |  | $ | 41 |  |  | $ | 40 |  |  | $ | 45 |
MarkWest Utica EMG |  | 17 |  |  | 17 |  |  | 16 |
Ohio Gathering |  | 16 |  |  | 16 |  |  | 15 |
Jefferson Dry Gas |  | 6 |  |  | 6 |  |  | 3 |
Sherwood Midstream |  | 12 |  |  | 8 |  |  | — |
Other |  | 7 |  |  | 5 |  |  | 7 |
Total |  | $ | 99 |  |  | $ | 92 |  |  | $ | 86 |
MPC provides executive management services and certain general and administrative services to MPLX under the terms of an omnibus agreement. Expenses incurred under this agreement are shown in the table below by the income statement line where they were recorded. Charges for services included in “Purchases - related parties” primarily relate to services that support MPLX’s operations and maintenance activities, as well as compensation expenses. Charges for services included in “General and administrative expenses” primarily relate to services that support MPLX’s executive management, accounting and human resources activities. These charges were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Rental cost of sales - related parties |  | $ | 2 |  |  | $ | 1 |  |  | $ | 1 |
Purchases - related parties |  | 164 |  |  | 67 |  |  | 39 |
General and administrative expenses |  | 68 |  |  | 37 |  |  | 45 |
Total |  | $ | 234 |  |  | $ | 105 |  |  | $ | 85 |
MPLX obtains employee services from MPC under employee services agreements. Expenses incurred under these agreements are shown in the table below by the income statement line where they were recorded. The costs of personnel directly involved in or supporting operations and maintenance activities related to rental services are classified as “Rental cost of sales - related parties.” The costs of personnel directly involved in or supporting operations and maintenance activities related to other services are classified as “Purchases - related parties.” The costs of personnel involved in executive management, accounting and human resources activities are classified as “General and administrative expenses” on the Consolidated Statements of Income. These charges were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
Rental cost of sales - related parties |  | $ | 3 |  |  | $ | 1 |  |  | $ | — |
Purchases - related parties |  | 528 |  |  | 385 |  |  | 349 |
General and administrative expenses |  | 109 |  |  | 101 |  |  | 100 |
Total |  | $ | 640 |  |  | $ | 487 |  |  | $ | 449 |
Also under terms of the omnibus and employee services agreements, some service costs related to engineering services are associated with assets under construction. These costs added to “Property, plant and equipment, net” were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
MPC |  | $ | 151 |  |  | $ | 42 |  |  | $ | 47 |
Purchases of products from MPC are classified as “Purchases - related parties.” These purchases include product purchases, payments made to MPC in its capacity as general contractor to MPLX, and certain rent and lease agreements. These purchases were as follows:
(In millions) |  | 2018 |  | 2017 |  | 2016
MPC |  | $ | 168 |  |  | $ | 3 |  |  | $ | — |
Receivables from related parties were as follows:
|  | December 31,
(In millions) |  | 2018 |  | 2017
MPC |  | $ | 281 |  |  | $ | 153 |
Other |  | 8 |  |  | 7 |
Total |  | $ | 289 |  |  | $ | 160 |
Long-term receivables with related parties, which includes straight-line rental income, were as follows:
| December 31,
(In millions) | 2018 |  | 2017
MPC | $ | 24 |  |  | $ | 20 |
Payables to related parties were as follows:
|  | December 31,
(In millions) |  | 2018 |  | 2017
MPC(1) |  | $ | 131 |  |  | $ | 470 |
MarkWest Utica EMG |  | 51 |  |  | 29 |
Ohio Gathering |  | 5 |  |  | 8 |
Sherwood Midstream |  | 16 |  |  | 8 |
Other |  | — |  |  | 1 |
Total |  | $ | 203 |  |  | $ | 516 |
(1) | Balance includes $386 million related to the MPC Loan Agreement as of December 31, 2017. There was no outstanding balance on the MPC Loan Agreement as of December 31, 2018.
“Other current assets” included $1 million and $8 million of related party prepaid insurance as of December 31, 2018 and December 31, 2017, respectively. From time to time, MPLX may also sell to or purchase from related parties assets and inventory at the lesser of average unit cost or net realizable value. Sales to related parties during the years ended December 31, 2018 and 2017 were $5 million and $11 million, respectively. Purchases from related parties during the years ended December 31, 2018 and 2017 were approximately $8 million and $44 million, respectively. During 2018 and 2017, MPC did not ship its minimum committed volumes on certain pipelines. Under MPLX’s pipeline transportation services agreements, if MPC fails to transport its minimum throughput volumes during any quarter, then MPC will pay MPLX a deficiency payment equal to the volume of the deficiency multiplied by the tariff rate then in effect. The deficiency amounts are recorded as “Deferred revenue-related parties.” MPC may then apply the amount of any such deficiency payments as a credit for volumes transported on the applicable pipeline in excess of its minimum volume commitment during the following four or eight quarters under the terms of the applicable transportation services agreement. MPLX recognizes related party revenues for the deficiency payments when credits are used for volumes transported in excess of minimum quarterly volume commitments, when it becomes impossible to physically transport volumes necessary to utilize the credits or upon the expiration of the credits. The use or expiration of the credits is a decrease in “Deferred revenue-related parties.” In addition, capital projects MPLX is undertaking at the request of MPC are reimbursed in cash and recognized in income over the remaining term of the applicable agreements. The “Deferred revenue-related parties” balance associated with the minimum volume deficiencies and project reimbursements were as follows:
| December 31,
(In millions) | 2018 |  | 2017
Minimum volume deficiencies - MPC | $ | 44 |  |  | $ | 53 |
Project reimbursements - MPC | 50 |  |  | 33 |
Total | $ | 94 |  |  | $ | 86 |

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- Definition The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 850 -URI http://asc.fasb.org/topic&trid=2122745 + Details
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