Note 5—Inventory, Linefill and Base Gas and Long-term Inventory

Inventory primarily consists of crude oil, NGL and natural gas in pipelines, storage facilities and railcars that are valued at the lower of cost or market, with cost determined using an average cost method within specific inventory pools. At the end of each reporting period, we assess the carrying value of our inventory and make any adjustments necessary to reduce the carrying value to the applicable net realizable value. We recorded non-cash charges of approximately $7 million and $128 million for the years ended December 31, 2013 and 2012, respectively related to the writedown of our crude oil and NGL inventory due to declines in prices during the period. As of December 31, 2013 and 2012, a majority of the inventory subject to writedown in each period had been liquidated and the applicable derivative instruments had been settled by the end of each year. The recognition of these adjustments in 2013 and 2012, which are a component of “Purchases and related costs” in our accompanying Consolidated Statement of Operations, was substantially offset by the recognition of gains on derivative instruments being utilized to hedge the future sales of our crude oil and NGL inventory. Substantially all of such gains were recorded to “Supply and Logistics segment revenues” in our Consolidated Statement of Operations. See Note 11 for discussion of our derivative and risk management activities. We did not recognize a material writedown of inventory during 2011.

Linefill and base gas and minimum working inventory requirements in assets we own are recorded at historical cost and consist of crude oil, NGL and natural gas. We classify as linefill or base gas (i) our proportionate share of barrels used to fill a pipeline that we own such that when an incremental barrel is pumped into or enters a pipeline it forces product out at another location, (ii) barrels that represent the minimum working requirements in tanks that we own and (iii) natural gas required to maintain the minimum operating pressure of natural gas storage facilities we own. During 2013, 2012 and 2011, we recorded gains of approximately $7 million, $19 million and $21 million, respectively, on the sale of linefill and base gas for proceeds of approximately $40 million, $65 million and $56 million, respectively.

Minimum working inventory requirements in third-party assets and other working inventory in our assets that is needed for our commercial operations are included within specific inventory pools in inventory (a current asset) in determining the average cost of operating inventory. At the end of each period, we reclassify the inventory not expected to be liquidated within the succeeding twelve months out of inventory, at the average cost of the applicable inventory pools, and into long-term inventory, which is reflected as a separate line item in “Other assets” on our Consolidated Balance Sheet.

Inventory, linefill and base gas and long-term inventory consisted of the following as of the dates indicated (barrels and natural gas volumes in thousands and carrying value in millions):

	December 31, 2013						December 31, 2012
	Volumes	Unit of Measure	Carrying Value		Price/ Unit (1)		Volumes	Unit of Measure	Carrying Value		Price/ Unit (1)
Inventory
Crude oil	6,951	barrels	$	540	$	77.69	9,492	barrels	$	737	$	77.64
NGL	8,061	barrels	352		$	43.67	9,472	barrels	388		$	40.96
Natural gas	40,505	Mcf	150		$	3.70	20,374	Mcf	60		$	2.94
Other	N/A		23		N/A		N/A		24		N/A
Inventory subtotal			1,065						1,209

Linefill and base gas
Crude oil	10,966	barrels	679		$	61.92	9,919	barrels	583		$	58.78
NGL	1,341	barrels	62		$	46.23	1,400	barrels	70		$	50.00
Natural gas	16,615	Mcf	57		$	3.43	15,755	Mcf	54		$	3.43
Linefill and base gas subtotal			798						707

Long-term inventory
Crude oil	2,498	barrels	202		$	80.86	1,962	barrels	149		$	75.94
NGL	1,161	barrels	49		$	42.20	3,238	barrels	125		$	38.60
Long-term inventory subtotal			251						274

Total			$	2,114					$	2,190

(1) Price per unit of measure represents a weighted average associated with various grades, qualities and locations. Accordingly, these prices may not coincide with any published benchmarks for such products.