Revenues and Accounts Receivable

Revenue Recognition

On January 1, 2018, we adopted Topic 606 using the modified retrospective approach applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605, Revenue Recognition.

There was no material impact to opening retained earnings as of January 1, 2018 due to the adoption of Topic 606. There also was no material impact to revenues, or any other financial statement line items, for the year ended December 31, 2018 as a result of applying Topic 606.

Under Topic 606, we disaggregate our revenues by segment and type of activity. These categories depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.

Supply and Logistics Segment Revenues from Contracts with Customers. The following table presents our Supply and Logistics segment revenues from contracts with customers disaggregated by type of activity (in millions):



	Year Ended December 31, 2018
Supply and Logistics segment revenues from contracts with customers
Crude oil transactions	$	29,592
NGL and other transactions	3,108
Total Supply and Logistics segment revenues from contracts with customers	$	32,700

Revenues from sales of crude oil, NGL and natural gas are recognized at the time title to the product sold transfers to the purchaser, which occurs upon delivery of the product to the purchaser or its designee. Sales of crude oil and NGL consist of outright sales contracts. The consideration received under these contracts is variable based on commodity prices. Inventory exchanges under buy/sell transactions are excluded from Supply and Logistics segment revenues in our Consolidated Statements of Operations. Revenues recognized by our Supply and Logistics segment primarily represent margin based activities.

In addition, we have certain crude oil sales agreements that are entered into in conjunction with storage arrangements and future inventory exchanges. The revenues under these agreements are deferred until all performance obligations associated with the related agreements are completed. The inventory that has been sold under these crude oil sales agreements is reflected in “Other current assets” on our Consolidated Balance Sheet until all of our performance obligations are complete. At that time, the inventory that has been sold is removed from our Consolidated Balance Sheet and recorded as “Purchases and related costs” in our Consolidated Statement of Operations. At December 31, 2018, other current assets and deferred revenue associated with these agreements was approximately $115 million and $116 million, respectively. See Contract Balances below for further discussion of contract liabilities associated with these agreements.

We may also utilize derivatives in connection with the transactions described above. Derivative revenue is not included as a component of revenue from contracts with customers, but is included in other items in revenue. The change in the fair value of derivatives that are not designated or do not qualify for hedge accounting is recognized in revenues each period.

Transportation Segment Revenues from Contracts with Customers. The following table presents our Transportation segment revenues from contracts with customers disaggregated by type of activity (in millions):



	Year Ended December 31, 2018
Transportation segment revenues from contracts with customers
Tariff activities:
Crude oil pipelines	$	1,724
NGL pipelines	103
Total tariff activities	1,827
Trucking	149
Total Transportation segment revenues from contracts with customers	$	1,976

Our Transportation segment operations generally consist of fee-based activities associated with transporting crude oil and NGL on pipelines, gathering systems and trucks. Revenues from pipeline tariffs and fees are associated with the transportation of crude oil and NGL at a published tariff. We primarily recognize pipeline tariff and fee revenues over time as services are rendered, based on the volumes transported. As is common in the pipeline transportation industry, our tariffs incorporate a loss allowance factor. We recognize the allowance volumes collected as part of the transaction price and record this non-cash consideration at fair value, measured as of the contract inception date.

Facilities Segment Revenues from Contracts with Customers. The following table presents our Facilities segment revenues from contracts with customers disaggregated by type of activity (in millions):



	Year Ended December 31, 2018
Facilities segment revenues from contracts with customers
Crude oil, NGL and other terminalling and storage	$	688
NGL and natural gas processing and fractionation	364
Rail load / unload	84
Total Facilities segment revenues from contracts with customers	$	1,136

Our Facilities segment operations generally consist of fee-based activities associated with providing storage, terminalling and throughput services primarily for crude oil, NGL and natural gas, as well as NGL fractionation and isomerization services and natural gas and condensate processing services. Revenues generated in this segment include (i) fees that are generated when we receive liquids from one connecting source and deliver the applicable product to another connecting carrier, fees from storage capacity agreements and fees associated with natural gas storage related activities (collectively “Crude oil, NGL and other terminalling and storage”), (ii) fees from natural gas and condensate processing services and from NGL fractionation and isomerization services (collectively, “NGL and natural gas processing and fractionation”) and (iii) loading and unloading fees at our rail terminals.

We generate revenue through a combination of month-to-month and multi-year agreements and processing arrangements. Storage fees are typically recognized in revenue ratably over the term of the contract regardless of the actual storage capacity utilized as our performance obligation is to make available storage capacity for a period of time. Terminal fees (including throughput and rail fees) are recognized as the liquids enter or exit the terminal and are received from or delivered to the connecting carrier or third-party terminal, as applicable. Fees from NGL fractionation and isomerization services and gas processing services are recognized in the period when the services are performed. Natural gas storage related activities fees are recognized in the period the natural gas moves across our header system. We recognize rail loading and unloading fees when the volumes are delivered or received.

Reconciliation to Total Revenues of Reportable Segments. Topic 606 requires us to provide information about the relationship between the disaggregated revenues presented above and segment revenues. These disclosures only include information regarding revenues associated with consolidated entities, and revenues from entities accounted for by the equity method are not included in the disclosures. The following table presents the reconciliation of our revenues from contracts with customers (as described above for each segment) to segment revenues and total revenues as disclosed in our Consolidated Statement of Operations (in millions):



Year Ended December 31, 2018	Transportation		Facilities		Supply and Logistics		Total
Revenues from contracts with customers	$	1,976	$	1,136	$	32,700	$	35,812
Other items in revenues	14		25		122		161
Total revenues of reportable segments	$	1,990	$	1,161	$	32,822	$	35,973
Intersegment revenues							(1,918		)
Total revenues							$	34,055

Minimum Volume Commitments. We have certain agreements that require counterparties to transport or throughput a minimum volume over an agreed upon period. Some of these agreements include make-up rights if the minimum volume is not met. We record a receivable from the counterparty in the period that services are provided or when the transaction occurs, including amounts for deficiency obligations from counterparties associated with minimum volume commitments. If a counterparty has a make-up right associated with a deficiency, we defer the revenue attributable to the counterparty’s make-up right as a contract liability and subsequently recognize the revenue at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the counterparty’s ability to utilize the make-up right is remote.

At December 31, 2018 and December 31, 2017, counterparty deficiencies associated with agreements (including buy/sell arrangements) that include minimum volume commitments totaled $62 million and $57 million, respectively, of which $40 million and $37 million, respectively, was recorded as a contract liability, which we refer to as deferred revenue. The remaining balance of $22 million and $20 million at December 31, 2018 and December 31, 2017, respectively, was related to deficiencies for which the counterparties had not met their contractual minimum commitments and were not reflected in our Consolidated Financial Statements as we had not yet billed or collected such amounts.

Contract Balances. Our contract balances consist of amounts received associated with services or sales for which we have not yet completed the related performance obligation. The following table presents the change in the contract liability balance during the year ended December 31, 2018 (in millions):



	Contract Liabilities
Balance at December 31, 2017	$	90
Amounts recognized as revenue	(81		)
Additions ^{(1) (2)}	332
Other	(3		)
Balance at December 31, 2018	$	338


⁽¹⁾	Includes approximately $116 million associated with crude oil sales agreements that are entered into in conjunction with storage arrangements and future inventory exchanges. Such amount is expected to be recognized as revenue in the first quarter of 2019.


⁽²⁾	Includes $100 million associated with long-term capacity agreements with Cactus II Pipeline LLC. See Note 9 for additional information.

Remaining Performance Obligations. Topic 606 requires a presentation of information about partially and wholly unsatisfied performance obligations under contracts that exist as of the end of the period. The information includes the amount of consideration allocated to those remaining performance obligations and the timing of revenue recognition of those remaining performance obligations. Certain contracts meet the requirements for the presentation as remaining performance obligations. These arrangements include a fixed minimum level of service, typically a set volume of service, and do not contain any variability other than expected timing within a limited range. These contracts are all within the scope of Topic 606. The following table presents the amount of consideration associated with remaining performance obligations for the population of contracts with external customers meeting the presentation requirements as of December 31, 2018 (in millions):



	2019		2020		2021		2022		2023		2024 and Thereafter
Pipeline revenues supported by minimum volume commitments and long-term capacity agreements ⁽¹⁾	$	157	$	198	$	189	$	188	$	188	$	635
Long-term storage, terminalling and throughput agreement revenues	389		312		225		168		132		436
Total	$	546	$	510	$	414	$	356	$	320	$	1,071


⁽¹⁾	Includes revenues from certain contracts for which the amount and timing of revenue is subject to the completion of underlying construction projects.

The presentation above does not include (i) expected revenues from legacy shippers not underpinned by minimum volume commitments, including pipelines where there are no or limited alternative pipeline transportation options, (ii) intersegment revenues and (iii) the amount of consideration associated with certain income generating contracts, which include a fixed minimum level of service, that are either not within the scope of Topic 606 or do not meet the requirements for presentation as remaining performance obligations under Topic 606. The following are examples of contracts that are not included in the table above because they are not within the scope of Topic 606 or do not meet the Topic 606 requirements for presentation:


•	Minimum volume commitments related to the assets of equity method investees — Contracts include those related to the Eagle Ford, BridgeTex, STACK, Caddo, Saddlehorn, White Cliffs, Cheyenne, Diamond and Cactus II pipeline systems;


•	Acreage dedications — Contracts include those related to the Permian Basin, Eagle Ford, Central, Rocky Mountain and Canada regions;


•	Supply and Logistics buy/sell arrangements — Contracts include agreements with future committed volumes on certain Permian Basin, Eagle Ford, Central and Canada region systems;


•	All other Supply and Logistics contracts, due to the election of practical expedients related to variable consideration and short-term contracts, as discussed below;


•	Transportation and Facilities contracts that are short-term, as discussed below;


•	Contracts within the scope of ASC Topic 840, Leases; and


•	Contracts within the scope of ASC Topic 815, Derivatives and Hedging.

We have elected practical expedients to exclude the presentation of remaining performance obligations for variable consideration which relates to wholly unsatisfied performance obligations. Certain contracts do not meet the requirements for presentation of remaining performance obligations under Topic 606 due to variability in amount of performance obligation remaining, variability in the timing of recognition or variability in consideration. Acreage dedications do require us to perform future services but do not contain a minimum level of services and are therefore excluded from this presentation. Long-term supply and logistics arrangements contain variable timing, volumes and/or consideration and are excluded from this presentation. The duration of these contracts varies across the periods presented above.

Additionally, we have elected practical expedients to exclude contracts with terms of one year or less, and therefore exclude the presentation of remaining performance obligations for short-term transportation, storage and processing services, supply and logistics arrangements, including the non-cancelable period of evergreen arrangements, and any other types of arrangements with terms of one year or less.

Trade Accounts Receivable and Other Receivables, Net

Our accounts receivable are primarily from purchasers and shippers of crude oil and, to a lesser extent, purchasers of NGL and natural gas. These purchasers include, but are not limited to, refiners, producers, marketing and trading companies and financial institutions. The majority of our accounts receivable relate to our crude oil supply and logistics activities that can generally be described as high volume and low margin activities, in many cases involving exchanges of crude oil volumes.

Prices for crude oil, natural gas and NGLs can fluctuate widely. For example, over a less than three month time period during 2018, NYMEX West Texas Intermediate oil prices decreased by 44% from a high of $76.41 in early October 2018 to a low of $42.53 in late December 2018. Price volatility has caused liquidity and leverage issues throughout the energy industry, which in turn has increased the potential credit risks associated with certain counterparties with which we do business. To mitigate credit risk related to our accounts receivable, we utilize a rigorous credit review process. We closely monitor market conditions and perform credit reviews of each customer to make a determination with respect to the amount, if any, of open credit to be extended to any given customer and the form and amount of financial performance assurances we require. Such financial assurances are commonly provided to us in the form of advance cash payments, standby letters of credit, credit insurance or parental guarantees. As of December 31, 2018 and December 31, 2017, we had received $140 million and $117 million, respectively, of advance cash payments from third parties to mitigate credit risk. We also received $117 million and $54 million as of December 31, 2018 and December 31, 2017, respectively, of standby letters of credit to support obligations due from third parties, a portion of which applies to future business. Additionally, in an effort to mitigate credit risk, a significant portion of our transactions with counterparties are settled on a net-cash basis. For a majority of these net-cash arrangements, we also enter into netting agreements (contractual agreements that allow us to offset receivables and payables with those counterparties against each other on our balance sheet).

We generally invoice customers in the month following that in which products or services were provided and generally require payment within 30 days of the invoice date. We review all outstanding accounts receivable balances on a monthly basis and record a reserve for amounts that we expect will not be fully recovered. We do not apply actual balances against the reserve until we have exhausted substantially all collection efforts. At December 31, 2018 and December 31, 2017, substantially all of our trade accounts receivable (net of allowance for doubtful accounts) were less than 30 days past their scheduled invoice date. Our allowance for doubtful accounts receivable totaled $3 million at both December 31, 2018 and December 31, 2017. Although we consider our allowance for doubtful accounts receivable to be adequate, actual amounts could vary significantly from estimated amounts.

The following is a reconciliation of trade accounts receivable from revenues from contracts with customers to total Trade accounts receivable and other receivables, net as presented on our Consolidated Balance Sheet (in millions):



	December 31,
	2018			2017
Trade accounts receivable arising from revenues from contracts with customers	$	2,277		$	2,584
Other trade accounts receivables and other receivables ⁽¹⁾	2,732			3,709
Impact due to contractual rights of offset with counterparties	(2,555		)	(3,264		)
Trade accounts receivable and other receivables, net	$	2,454		$	3,029


⁽¹⁾	The balance is comprised primarily of accounts receivable associated with buy/sell arrangements that are not within the scope of Topic 606.