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Inventory, Linefill and Base Gas and Long-term Inventory

12 Months Ended

Dec. 31, 2019

Inventory, Linefill and Base Gas and Long-term Inventory

Inventory, Linefill and Base Gas and Long-term Inventory

Inventory, Linefill and Base Gas and Long-term Inventory

Inventory primarily consists of crude oil and NGL in pipelines, storage facilities and railcars that are valued at the lower of cost or net realizable value, 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. Any resulting adjustments are a component of “Purchases and related costs” on our accompanying Consolidated Statements of Operations. During the years ended December 31, 2019, 2018 and 2017, we recorded charges of $11 million, $8 million and $35 million, respectively, related to the writedown of our crude oil inventory due to declines in prices. A portion of these inventory valuation adjustments was offset by the recognition of gains on derivative instruments being utilized to hedge future sales of our crude oil inventory. Such gains were recorded to “Supply and Logistics segment revenues” in our accompanying Consolidated Statements of Operations. See Note 13 for discussion of our derivative and risk management activities.

Linefill and base gas 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 and caverns that we own and (iii) natural gas required to maintain the minimum operating pressure of natural gas storage facilities we own.

Linefill and base gas carrying amounts are reviewed for impairment in accordance with FASB guidance with respect to accounting for the impairment or disposal of long-lived assets. Carrying amounts that are not expected to be recoverable through future cash flows are written down to estimated fair value. See Note 6 for further discussion regarding impairment of long-lived assets. During 2019, 2018 and 2017, we did not recognize any impairments of linefill and base gas.

Minimum working inventory requirements in third-party assets and other working inventory in our assets that are 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 under “Other assets” on our Consolidated Balance Sheets.

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

			December 31, 2019																																													December 31, 2018
			Volumes						Unit of Measure						Carrying Value						Price/ Unit (1)									Volumes						Unit of Measure						Carrying Value						Price/ Unit (1)
Inventory
Crude oil			8,613						barrels						$	450					$	52.25								9,657						barrels						$	367					$	38.00
NGL			7,574						barrels						142						$	18.75								10,384						barrels						262						$	25.23
Other			N/A												12						N/A									N/A												11						N/A
Inventory subtotal															604																											640
Linefill and base gas
Crude oil			14,316						barrels						826						$	57.70								13,312						barrels						761						$	57.17
NGL			1,701						barrels						47						$	27.63								1,730						barrels						47						$	27.17
Natural gas			24,976						Mcf						108						$	4.32								24,976						Mcf						108						$	4.32
Linefill and base gas subtotal															981																											916
Long-term inventory
Crude oil			2,598						barrels						152						$	58.51								1,890						barrels						79						$	41.80
NGL			1,707						barrels						30						$	17.57								2,368						barrels						57						$	24.07
Long-term inventory subtotal															182																											136
Total															$	1,767																										$	1,692

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

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The complete disclosure related to inventory, linefill and base gas and long-term inventory. This may include, but is not limited to, the basis of stating inventory, linefill, and base gas and long-term inventory, the method of determining inventory, linefill and base gas and long-term inventory cost, the major classes of inventory, linefill and base gas and long-term inventory, and the nature of the cost elements included in inventory, linefill and base gas and long-term inventory. If inventory, linefill and base gas and long-term inventory is stated above cost, accrued net losses on firm purchase commitments for inventory, linefill and base gas and long-term inventory and losses resulting from valuing inventory, linefill and base gas and long-term inventory at the lower-of-cost-or-market may also be included.

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