Revenue

Effect of ASC 606 Adoption

MPLX adopted ASC 606 on January 1, 2018 for all contracts that were not yet completed as of the date of adoption. The details of significant changes and quantitative impact of the new revenue standard are disclosed below.


•	Third-party reimbursements – Third-party reimbursements, such as electricity costs, are presented gross on the income statement rather than net within cost of revenues. The gross-up for third-party reimbursements (e.g., increase in “Service revenue”; increase in “Cost of revenues”) was $369 million for the year ended December 31, 2018.

MPLX updated the allocation between lease and non-lease components for implicit leases as a result of this ASC 606 gross up. As a result, “Rental income” and “Rental cost of sales” increased by $65 million for the year ended December 31, 2018.

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Noncash consideration – Under certain processing agreements, MPLX is entitled to retain NGLs or other liquids from the customer. We obtain control of these NGLs and are able to direct the use of the goods. Service revenues are recorded based on the value of the NGLs received on the date the services are performed. Historically, revenue was not recorded on these arrangements until the product was sold. The impact to this change was an increase of $52 million to “Service revenue - product related” for the year ended December 31, 2018. NGL inventory related to keep-whole volumes was also revalued as a result of this change, with a cumulative effect adjustment of $1 million and an increase to inventory of $2 million as of December 31, 2018. The increase in the inventory basis increased “Purchased product costs” by $50 million for the year ended December 31, 2018.

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Percent-of-proceeds revenues – MPLX’s percentage of proceeds revenue received was historically recorded in product revenues. Upon adoption of ASC 606, these revenues have been classified in service revenue, as the performance obligation related to these contracts is to provide gathering and processing services. Revenues will continue to be recorded net under these arrangements as MPLX does not control the product prior to sale. For the year ended December 31, 2018, $146 million was recorded in “Service revenue - product related” as opposed to “Product sales.”

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Imbalances – Historically, all imbalances were recorded net. In certain instances, MPLX’s arrangements are structured such that imbalances are cashed-out each period end which results in the transfer of control of a commodity and creates a purchase and/or sale of a commodity under ASC 606. Thus, certain imbalances will be grossed up as a result of adoption. The impact of this change was an increase of $55 million to “Product sales” and “Purchased product costs” for the year ended December 31, 2018.

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Aid in construction – Historically, all aid in construction amounts received were deferred and recognized into revenue. Payments received from non-customers will no longer be deferred as the accounting will not be subject to ASC 606. Such payments will be recorded as a reduction to “Property, plant and equipment, net.” The cumulative adjustment wrote down $3 million of “Property, plant and equipment, net.”

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Oil Allowances – Historically, oil allowances were recorded when received as consideration for services performed. Under ASC 606, MPLX does not believe such amounts represent consideration from a customer. Any excess product obtained and sold as a result of these allowances is recorded as product sales. This change decreased “Service revenues” and “Service revenues - related party” by $7 million, and increased “Product sales” and “Product sales related party” by $7 million for the year ended December 31, 2018.

The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 was as follows:



(In millions)	Balance at December 31, 2017		ASC 606 Adjustment			Balance at January 1, 2018
Assets
Inventories	$	65	$	1		$	66
Property, plant and equipment, net	12,187		(3		)	12,184
Liabilities
Long-term deferred revenue	42		(3		)	39
Equity
Common unitholders - public	$	8,379	$	1		$	8,380

Aside from the adjustments to the opening balances noted above, the impact of adoption on the Consolidated Balance Sheets for the year ended December 31, 2018 was approximately a $2 million adjustment to “Inventories.” The disclosure of the impact of adoption on the Consolidated Statements of Income for the year ended December 31, 2018 was as follows:



	December 31, 2018
(In millions)	ASC 606 Balance		ASC 605 Balance		Effect of Change Higher/ (Lower)
Revenues and other income:
Service revenue	$	1,704	$	1,342	$	362
Service revenue - related parties	2,159		2,166		(7		)
Service revenue - product related	198		—		198
Rental income	349		284		65
Product sales⁽¹⁾	897		982		(85		)
Product sales - related parties	49		42		7
Costs and expenses:
Cost of revenues⁽²⁾	948		579		369
Purchased product costs	845		740		105
Rental cost of sales	135		70		65
Depreciation and amortization	766		767		(1		)
Net income	$	1,834	$	1,832	$	2


(1)	G&P “Product sales” for the year ended December 31, 2018 excludes approximately $5 million of impact related to derivative gains and mark-to-market adjustments.


(2)	Excludes “Purchased product costs,” “Rental cost of sales,” “Purchases,” “Depreciation and amortization,” “General and administrative expenses,” and “Other taxes.”

Disaggregation of Revenue

The following table represents a disaggregation of revenue for each reportable segment for the year ended December 31, 2018:



	December 31, 2018
(In millions)	L&S		G&P		Total
Revenues and other income:
Service revenue	$	130	$	1,574	$	1,704
Service revenue - related parties	2,159		—		2,159
Service revenue - product related	—		198		198
Product sales⁽¹⁾	7		890		897
Product sales - related parties	7		42		49
Total revenues from contracts with customers	$	2,303	$	2,704	5,007
Non-ASC 606 revenue⁽²⁾					1,418
Total revenues and other income					$	6,425


(1)	G&P “Product sales” for the year ended December 31, 2018 excludes approximately $5 million of impact related to derivative gains and mark-to-market adjustments.


(2)	Non-ASC 606 Revenue includes rental income, income from equity method investments, derivative gains and losses, mark-to-market adjustments, and other income.

Contract Balances

Contract assets typically relate to aid in construction agreements where the revenue recognized and MPLX’s rights to consideration for work completed exceeds the amount billed to the customer. Contract assets are generally classified as current and included in “Other current assets” on the Consolidated Balance Sheets.

Contract liabilities, which we refer to as “Deferred revenue” and “Long-term deferred revenue,” typically relate to advance payments for aid in construction agreements and deferred customer credits associated with makeup rights and minimum volume commitments. Related to minimum volume commitments, breakage is estimated and recognized into service revenue in instances where it is probable the customer will not use the credit in future periods. We classify contract liabilities as current or long-term based on the timing of when we expect to recognize revenue.

“Receivables, net” primarily relate to our commodity sales. Portions of the “Receivables, net” balance are attributed to the sale of commodity product controlled by MPLX prior to sale while a significant portion of the balance relates to the sale of commodity product on behalf of our producer customers. The sales and related “Receivables, net” are commingled and excluded from the table below. MPLX remits the net sales price back to our producer customers upon completion of the sale. Each period end, certain amounts within accounts payable relate to our payments to producer customers. Such amounts are not deemed material at period end as a result of when we settle with each producer.

The table below reflects the changes in our contract balances for the year ended December 31, 2018:



(In millions)	Balance at January 1, 2018⁽¹⁾		Additions/ (Deletions)			Revenue Recognized⁽²⁾			Balance at December 31, 2018
Contract assets	$	4	$	—		$	—		$	4
Deferred revenue	5		8			(9		)	4
Deferred revenue - related parties	42		40			(32		)	50
Long-term deferred revenue	5		5			—			10
Long-term deferred revenue - related parties	$	43	$	(1	)	$	—		$	42


(1)	Balance represents ASC 606 portion of each respective line item.


(2)	$1 million revenue was recognized related to past performance obligations in the current year.

Remaining Performance Obligations

The table below includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

As of December 31, 2018, the amounts allocated to contract assets and contract liabilities on the Consolidated Balance Sheets are $105 million and are reflected in the amounts below. This will be recognized as revenue as the obligations are satisfied, which is expected to occur over the next 25 years. Further, MPLX does not disclose variable consideration due to volume variability in the table below.



(In millions)
2019	$	1,146
2020	1,152
2021	1,166
2022	1,151
2023 and thereafter	5,524
Total revenue on remaining performance obligations^(1)(2)(3)	$	10,139


(1)	All fixed consideration from contracts with customers is included in the amounts presented above. Variable consideration that is constrained or not required to be estimated as it reflects our efforts to perform is excluded.


(2)	Arrangements deemed implicit leases are included in “Rental income” and are excluded from this table.


(3)	Only minimum volume commitments that are deemed fixed are included in the table above. MPLX has various minimum volume commitments in processing arrangements that vary based on the actual Btu content of the gas received. These amounts are deemed variable consideration and are excluded from the table above.

Practical Expedients

We do not disclose information on the future performance obligations for any contract with an original expected duration of

one year or less.