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Investments in Unconsolidated Entities | 12 Months Ended
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Dec. 31, 2019
Equity Method Investments and Joint Ventures [Abstract] |
Investments in Unconsolidated Entities | Investments in Unconsolidated EntitiesInvestments 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, 2019 |  | Investment Balance December 31, |  |
Entity (1) |  | Type of Operation |  |  |  | 2019 |  | 2018
Advantage Pipeline Holdings LLC (“Advantage Joint Venture”) |  | Crude Oil Pipeline |  | 50% |  |  | $ | 76 |  |  | $ | 72 |
BridgeTex Pipeline Company, LLC (“BridgeTex”) |  | Crude Oil Pipeline |  | 20% |  |  | 431 |  |  | 435 |
Cactus II Pipeline LLC (“Cactus II”) |  | Crude Oil Pipeline |  | 65% |  |  | 738 |  |  | 455 |
Caddo Pipeline LLC |  | Crude Oil Pipeline |  | 50% |  |  | 65 |  |  | 65 |
Capline Pipeline Company LLC |  | Crude Oil Pipeline (2) (3) |  | 54% |  |  | 484 |  |  | — |
Cheyenne Pipeline LLC (“Cheyenne”) |  | Crude Oil Pipeline |  | 50% |  |  | 44 |  |  | 44 |
Cushing Connect Pipeline & Terminal LLC |  | Crude Oil Pipeline (3) and Terminal |  | 50% |  |  | 23 |  |  | — |
Diamond Pipeline LLC (“Diamond”) |  | Crude Oil Pipeline |  | 50% |  |  | 476 |  |  | 479 |
Eagle Ford Pipeline LLC (“Eagle Ford Pipeline”) |  | Crude Oil Pipeline |  | 50% |  |  | 382 |  |  | 383 |
Eagle Ford Terminals Corpus Christi LLC (“Eagle Ford Terminals”) |  | Crude Oil Terminal and Dock |  | 50% |  |  | 126 |  |  | 108 |
Midway Pipeline LLC |  | Crude Oil Pipeline |  | 50% |  |  | 76 |  |  | 78 |
Red Oak Pipeline LLC (“Red Oak”) |  | Crude Oil Pipeline (3) |  | 50% |  |  | 20 |  |  | — |
Saddlehorn Pipeline Company, LLC (“Saddlehorn”) |  | Crude Oil Pipeline |  | 40% |  |  | 234 |  |  | 215 |
Settoon Towing, LLC |  | Barge Transportation Services |  | 50% |  |  | 59 |  |  | 58 |
STACK Pipeline LLC (“STACK”) |  | Crude Oil Pipeline |  | 50% |  |  | 117 |  |  | 120 |
White Cliffs Pipeline, LLC |  | Crude Oil Pipeline |  | 36% |  |  | 196 |  |  | 190 |
Wink to Webster Pipeline LLC (“W2W Pipeline”) |  | Crude Oil Pipeline (3) |  | 16% |  |  | 136 |  |  | — |
Total Investments in Unconsolidated Entities |  |  |  |  |  | $ | 3,683 |  |  | $ | 2,702 |
(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)The Capline pipeline was taken out of service pending the reversal of the pipeline system. (3)Asset is currently under construction or development by the entity and has not yet been placed in service. Formations and Divestitures Capline LLC. During the first quarter of 2019, the owners of the Capline pipeline system contributed their undivided joint interests in the system to a newly formed entity, Capline Pipeline Company LLC (“Capline LLC”), in exchange for equity interests in such entity. After the contribution, Capline LLC owns 100% of the pipeline system. Each owner’s undivided joint interest in the Capline pipeline system prior to the transaction is equal to each owner’s equity interest in Capline LLC. Although we own a majority of Capline LLC’s equity, we do not have a controlling financial interest in Capline LLC because the other members have substantive participating rights. Therefore, we account for our ownership interest in Capline LLC as an equity method investment. Under applicable accounting rules, the transaction resulted in a “loss of control” of our undivided joint interest, which was derecognized and contributed to Capline LLC. The “loss of control” required us to measure our equity interest in Capline LLC at fair value. At the time of the transaction, our 54% undivided joint interest in the Capline pipeline system had a carrying value of $175 million, which primarily related to property and equipment included in our Transportation segment. We determined the fair value of our investment in Capline LLC to be approximately $444 million, resulting in the recognition of a gain of $269 million during the year ended December 31, 2019. Such gain is included in “Gain on investment in unconsolidated entities” on our Consolidated Statement of Operations. The fair value of our investment in Capline LLC was based on an income approach utilizing a discounted cash flow analysis. The cash flow forecasts require the use of various assumptions and estimates which include those related to the timing and amount of capital expenditures, the expected tariff rates and volumes of crude oil, and the terminal value. We probability-weighted various forecasted cash flow scenarios utilized in the analysis when we considered the possible outcomes. We used a discount rate representing our estimate of the risk adjusted discount rate that would be used by market participants. If shipper interest varies from the levels assumed in our model, the related cash flows, and thus the fair value of our investment, could be materially impacted. The fair value of our investment was determined using significant unobservable inputs, or Level 3 inputs in the fair value hierarchy. W2W Pipeline. In 2019, we participated in the formation of W2W Pipeline, a joint venture with subsidiaries of ExxonMobil, Lotus Midstream, LLC and three additional entities, in which we own a 16% interest. We account for our interest in W2W Pipeline under the equity method of accounting. W2W Pipeline 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 approximately 1.5 million barrels per day of crude oil and condensate capacity and is targeted to commence operations in 2021. W2W Pipeline has entered into an undivided joint-ownership arrangement with a subsidiary of Enterprise Products Partners, L.P. that has acquired 29% of the capacity of the pipeline segment from Midland, Texas to Webster, Texas, and W2W Pipeline now owns 71% of this segment of the pipeline. Red Oak. In June 2019, we announced the formation of Red Oak, a joint venture with a subsidiary of Phillips 66. We own a 50% interest in Red Oak, which is currently developing a new pipeline that will provide crude oil transportation service from Cushing, Oklahoma, and the Permian Basin in West Texas to multiple destinations along the Texas Gulf Coast, including Corpus Christi, Ingleside, Houston and Beaumont, Texas. The pipeline system will provide approximately 1 million barrels per day of capacity, and initial service from Cushing to the Gulf Coast is targeted to commence in the first half of 2021, subject to receipt of applicable permits and regulatory approvals. We account for our interest in Red Oak under the equity method of accounting. In addition to contributing cash for construction of the Red Oak pipeline system, we have also entered into a pipeline capacity lease agreement with Red Oak whereby Red Oak has agreed to lease 260,000 barrels of capacity on our Sunrise II pipeline once the Red Oak pipeline system is operational. Once the Red Oak pipeline system is operational, we will record (i) a $155 million increase to our investment in Red Oak associated with our deemed contribution of the value attributable to the capacity lease and (ii) corresponding deferred revenue that will be recognized on a straight-line basis over the initial lease term of 33 years. Cushing Connect. During the fourth quarter of 2019, we announced the formation of Cushing Connect Pipeline & Terminal LLC, a joint venture with Holly Energy Partners LP for (i) the development and construction of a new 160,000 barrel per day pipeline that will connect the Cushing, Oklahoma crude oil hub to the Tulsa, Oklahoma refining complex owned by a subsidiary of HollyFrontier Corporation and (ii) the ownership and operation of 1.5 million barrels of crude oil storage in Cushing, Oklahoma (the “JV Terminal”). We contributed the crude oil storage to Cushing Connect and own a 50% interest, which is accounted for under the equity method of accounting. The pipeline is expected to be in service during the first quarter of 2021. 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 is being recognized in revenue ratably over the life of the contracts. 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 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. 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. 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, 2019, 2018 and 2017, we made cash contributions of $504 million, $459 million and $398 million, respectively, to certain of our equity method investees. In addition, we capitalized interest of $20 million, $9 million and $18 million during the years ended December 31, 2019, 2018 and 2017, respectively, related to contributions to unconsolidated entities for projects under development and construction. We anticipate that we will make additional contributions in 2020 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 $349 million and $467 million at December 31, 2019 and 2018, 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, 2019 and 2018 was related to our ownership interest in BridgeTex. 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, |  |
| 2019 |  | 2018
Current assets | $ | 652 |  |  | $ | 357 |
Noncurrent assets | $ | 7,264 |  |  | $ | 4,861 |
Current liabilities | $ | 298 |  |  | $ | 170 |
Noncurrent liabilities | $ | 26 |  |  | $ | 30 |
| Year Ended December 31, |  |  |  |
| 2019 |  | 2018 |  | 2017
Revenues | $ | 1,469 |  |  | $ | 1,235 |  |  | $ | 938 |
Operating income | $ | 994 |  |  | $ | 824 |  |  | $ | 650 |
Net income | $ | 995 |  |  | $ | 824 |  |  | $ | 640 |

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- Definition The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -SubTopic 10 -Section S99 -Paragraph 4 -Subparagraph (SX 210.3A-04) -URI http://asc.fasb.org/extlink&oid=116822174&loc=d3e355119-122828 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 323 -URI http://asc.fasb.org/topic&trid=2196965 + Details
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