Investments in Unconsolidated Entities

Investments in entities over which we have significant influence but not control are accounted for under the equity method. We do not consolidate any part of the assets or liabilities of our equity investees. Our share of net income or loss is reflected as one line item on our Consolidated Statements of Operations entitled “Equity earnings in unconsolidated entities” and will increase or decrease, as applicable, the carrying value of our investments in unconsolidated entities on our Consolidated Balance Sheets. We evaluate our equity investments for impairment in accordance with FASB guidance with respect to the equity method of accounting for investments in common stock. An impairment of an equity investment results when factors indicate that the investment’s fair value is less than its carrying value and the reduction in value is other than temporary in nature.

Our investments in unconsolidated entities consisted of the following (in millions, except percentage data):



		Ownership Interest at December 31, 2018	December 31,
Entity ⁽¹⁾	Type of Operation	Ownership Interest at December 31, 2018	2018		2017
Advantage Pipeline Holdings LLC (“Advantage Joint Venture”)	Crude Oil Pipeline	50%	$	72	$	69
BridgeTex Pipeline Company, LLC (“BridgeTex”)	Crude Oil Pipeline	20%	435		1,093
Cactus II Pipeline LLC (“Cactus II”)	Crude Oil Pipeline ⁽²⁾	65%	455		—
Caddo Pipeline LLC	Crude Oil Pipeline	50%	65		67
Cheyenne Pipeline LLC (“Cheyenne”)	Crude Oil Pipeline	50%	44		29
Diamond Pipeline LLC (“Diamond”)	Crude Oil Pipeline	50%	479		467
Eagle Ford Pipeline LLC (“Eagle Ford Pipeline”)	Crude Oil Pipeline	50%	383		378
Eagle Ford Terminals Corpus Christi LLC (“Eagle Ford Terminals”)	Crude Oil Terminal and Dock ⁽²⁾	50%	108		75
Midway Pipeline LLC	Crude Oil Pipeline	50%	78		20
Saddlehorn Pipeline Company, LLC	Crude Oil Pipeline	40%	215		217
Settoon Towing, LLC	Barge Transportation Services	50%	58		69
STACK Pipeline LLC (“STACK”)	Crude Oil Pipeline	50%	120		73
White Cliffs Pipeline, LLC	Crude Oil Pipeline	36%	190		199
Total Investments in Unconsolidated Entities			$	2,702	$	2,756


⁽¹⁾	Except for Eagle Ford Terminals, which is reported in our Facilities segment, the financial results from the entities are reported in our Transportation segment.


⁽²⁾	Asset is currently under construction by the entity and has not yet been placed in service.

Formations and Divestitures

Cactus II. In the second quarter of 2018, a subsidiary of Oxy and another third party each exercised their purchase options for a 20% interest and a 15% interest, respectively, in Cactus II, which owns the Cactus II pipeline system that is currently under construction. Although we own a majority of Cactus II’s equity, we do not have a controlling financial interest in Cactus II because the other members have substantive participating rights. Therefore, we account for our ownership interest in Cactus II as an equity method investment. Following the exercise of the purchase options, we deconsolidated Cactus II resulting in a reduction of property and equipment of $74 million (which was representative of the costs incurred to date to construct the pipeline and equivalent to fair value), and we received $26 million of cash from Cactus II, which represented the other members’ portion of the property and equipment.

In addition, during the second quarter of 2018, we received a $100 million advance cash payment from Cactus II associated with pipeline capacity agreements, which is recorded as long-term deferred revenue within “Other long-term liabilities and deferred credits” on our Consolidated Balance Sheet. Such amount will be recognized in revenue ratably over the life of the contracts beginning once the Cactus II pipeline system has been placed into service.

BridgeTex. During the third quarter of 2018, we sold a 30% interest in BridgeTex for proceeds of $868 million, including working capital adjustments, and have retained a 20% interest. We recorded a gain of $200 million related to this sale, which is included in “Gain on sale of investment in unconsolidated entities” on our Consolidated Statement of Operations. We continue to account for our remaining interest under the equity method of accounting.

Advantage Joint Venture. On April 3, 2017, we and an affiliate of Noble completed the acquisition of Advantage Pipeline, L.L.C. for a purchase price of $133 million through a newly formed 50/50 joint venture (the “Advantage Joint Venture”). For our 50% share ($66.5 million), we contributed approximately 1.3 million common units with a value of approximately $40 million and approximately $26 million in cash. Through the acquisition, the Advantage Joint Venture owns a 70-mile, 16-inch crude oil pipeline located in the southern Delaware Basin (the “Advantage Pipeline”), which is contractually supported by a third-party acreage dedication and a volume commitment from our wholly-owned marketing subsidiary. Noble serves as operator of the Advantage Pipeline. We account for our interest in the Advantage Joint Venture under the equity method of accounting.

Midway Pipeline LLC. During the fourth quarter of 2017, we and an affiliate of CVR Refining, LP (“CVR Refining”) formed a 50/50 joint venture, Midway Pipeline LLC, which acquired from us the Cushing to Broome crude oil pipeline system. The Cushing to Broome pipeline system connects CVR Refining’s Coffeyville, Kansas refinery to the Cushing, Oklahoma oil hub. We continue to serve as operator of the pipeline. We account for our interest in Midway Pipeline LLC under the equity method of accounting.

Other. In June 2016, we sold 50% of our investment in Cheyenne, and in August 2016 we sold 50% of our investment in STACK. As a result of these transactions, we now account for our remaining 50% equity interest in such entities under the equity method of accounting.

See Note 7 for additional information related to certain of these transactions.

Capline Pipeline Company LLC. As of December 31, 2018 we owned a 54% undivided joint interest in the Capline pipeline system, which originates in St. James, Louisiana and terminates in Patoka, Illinois. In January 2019, the owners converted their undivided joint interests into a limited liability company.

Wink to Webster Pipeline LLC. In January 2019, we announced the formation of Wink to Webster Pipeline LLC (“W2W Pipeline”), a joint venture with subsidiaries of ExxonMobil and Lotus Midstream, LLC. We own a 20% interest in W2W Pipeline, which is currently developing a new pipeline system that will originate in the Permian Basin in West Texas and transport crude oil to the Texas Gulf Coast. The pipeline system will provide more than 1 million barrels per day of crude oil and condensate capacity, and the project is targeted to commence operations in the first half of 2021.

Distributions

Distributions received from unconsolidated entities are classified based on the nature of the distribution approach, which looks to the activity that generated the distribution. We consider distributions received from unconsolidated entities as a return on investment in those entities to the extent that the distribution was generated through operating results, and therefore classify these distributions as cash flows from operating activities in our Consolidated Statement of Cash Flows. Other distributions received from unconsolidated entities are considered a return of investment and classified as cash flows from investing activities on the Consolidated Statement of Cash Flows. During the year ended December 31, 2018, we received $10 million as a return of investment. During the year ended December 31, 2017, we received $21 million as a return of investment from Settoon Towing, LLC related to the sale of certain of its marine assets.

Contributions

We generally fund our portion of development, construction or capital expansion projects of our equity method investees through capital contributions. Our contributions to these entities increase the carrying value of our investments and are reflected in our Consolidated Statements of Cash Flows as cash used in investing activities. During the years ended December 31, 2018, 2017 and 2016, we made cash contributions of $459 million, $398 million and $288 million, respectively, to certain of our equity method investees. In addition, we capitalized interest of $9 million, $18 million and $13 million during the years ended December 31, 2018, 2017 and 2016, respectively, related to contributions to unconsolidated entities for projects under development and construction. We anticipate that we will make additional contributions in 2019 related to ongoing projects.

Basis Differences

Our investments in unconsolidated entities exceeded our share of the underlying equity in the net assets of such entities by $467 million and $736 million at December 31, 2018 and 2017, respectively. Such basis differences are included in the carrying values of our investments on our Consolidated Balance Sheets. The portion of the basis differences attributable to depreciable or amortizable assets is amortized on a straight-line basis over the estimated useful life of the related assets, which reduces “Equity earnings in unconsolidated entities” on our Consolidated Statements of Operations. The portion of the basis differences attributable to goodwill is not amortized. The majority of the basis difference at both December 31, 2018 and 2017 was related to our interest in BridgeTex and decreased from 2017 to 2018 due to our sale of 30% of such interest during the third quarter of 2018.

Summarized Financial Information of Unconsolidated Entities

Combined summarized financial information for all of our unconsolidated entities is shown in the tables below (in millions). None of our unconsolidated entities have noncontrolling interests.



	December 31,
	2018		2017
Current assets	$	357	$	311
Noncurrent assets	$	4,861	$	4,162
Current liabilities	$	170	$	129
Noncurrent liabilities	$	30	$	41



	Year Ended December 31,
	2018		2017		2016
Revenues	$	1,235	$	938	$	802
Operating income	$	824	$	650	$	469
Net income	$	824	$	640	$	452