
10.	COMMITMENTS AND CONTINGENCIES

Operating Leases

We have long-term operating lease commitments for land and office facilities; time charters for ocean-going tankers and coastal vessels (i.e., marine transportation assets); railcars; facilities and equipment related to industrial gases and power used in our operations; machinery and equipment used in our refining and ethanol operations; and various facilities and equipment used in the storage, transportation, production, and sale of refinery feedstock, refined petroleum product and corn inventories.

In addition to minimum lease payments, some arrangements contain provisions for contingent lease payments. Certain leases for the storage and transportation of feedstock and refined petroleum products provide for contingent lease payments based on throughput volumes in excess of a base amount, while other leases for time charters of ocean-going tankers and coastal vessels contain payment provisions that are contingent on usage. Additionally, rental increases that are not scheduled in the lease are considered contingent lease payments. In most cases, we expect that in the normal course of business, our leases will be renewed or replaced by other leases.

As of December 31, 2018, our future minimum rentals for leases having initial or remaining noncancelable lease terms in excess of one year were as follows (in millions):



2019	$	359
2020	245
2021	178
2022	146
2023	123
Thereafter	514
Total minimum rental payments	$	1,565

Rental expense, net of sublease rental income was as follows (in millions):



	Year Ended December 31,
	2018		2017		2016
Minimum rental expense	$	515	$	691	$	739
Contingent rental expense	19		21		70
Total rental expense	534		712		809
Less sublease rental income	31		54		31
Rental expense, net of sublease rental income	$	503	$	658	$	778

Purchase Obligations

We have various purchase obligations under certain crude oil and other feedstock supply arrangements, industrial gas supply arrangements (such as hydrogen supply arrangements), natural gas supply arrangements, and various throughput, transportation and terminaling agreements. We enter into these contracts to ensure an adequate supply of feedstock and utilities and adequate storage capacity to operate our refineries and ethanol plants. Substantially all of our purchase obligations are based on market prices or adjustments based on market indices. Certain of these purchase obligations include fixed or minimum volume requirements, while others are based on our usage requirements. None of these obligations is associated with suppliers’ financing arrangements. These purchase obligations are not reflected as liabilities.

Other Commitments

MVP Terminal

We have a 50 percent membership interest in MVP Terminalling, LLC (MVP), a Delaware limited liability company formed in September 2017 with a subsidiary of Magellan Midstream Partners LP (Magellan), to construct, own, and operate the Magellan Valero Pasadena marine terminal (MVP Terminal) located adjacent to the Houston Ship Channel in Pasadena, Texas. The MVP Terminal will contain (i) approximately 5 million barrels of storage capacity, (ii) a dock with two ship berths, and (iii) a three-bay truck rack facility. In connection with our terminaling agreement with MVP, described below, we will have dedicated use of (i) approximately 4 million barrels of storage, (ii) one ship berth, and (iii) the three-bay truck rack facility. Construction of phases one and two of the project began in 2017 with a total estimated cost of approximately $840 million, of which we have committed to contribute 50 percent (approximately $420 million). The project could expand up to four phases with a total project cost of approximately $1.4 billion if warranted by additional demand and agreed to by Magellan and us. Since inception, we have contributed $247 million to MVP, of which $166 million was contributed during the year ended December 31, 2018.

Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of phase two, which is expected to occur in early 2020. The terminaling agreement has an initial term of 12 years with two five-year automatic renewals, and year-to-year renewals thereafter.

Due to our membership interest in MVP and because we determined that the terminaling agreement was a capital lease, we are the accounting owner of the MVP Terminal during the construction period. Accordingly, as of December 31, 2018, we recorded an asset of $539 million in property, plant, and equipment representing 100 percent of the construction costs incurred by MVP, as well as capitalized interest incurred by us, and a long-term liability of $292 million payable to Magellan. The amounts recorded for the portion of the construction costs associated with the payable to Magellan are noncash investing and financing items, respectively.

On January 1, 2019, as a result of our adoption of Topic 842 as described in Note 1, we derecognized the asset and liability related to MVP discussed above and recorded our equity investment in MVP of $247 million, which will be included in deferred charges and other assets. We will recognize a finance lease asset and liability upon commencement of our terminaling arrangement with MVP as described above.

Central Texas Pipeline

We have committed to a 40 percent undivided interest in a project with a subsidiary of Magellan to jointly build an estimated 130-mile, 20-inch refined petroleum products pipeline with a capacity of up to 150,000 barrels per day from Houston to Hearne, Texas. The pipeline is expected to be completed in mid-2019. The estimated cost of our 40 percent undivided interest in this pipeline is $170 million. Since inception, expenditures have totaled $80 million, of which $73 million was spent during the year ended December 31, 2018.

Sunrise Pipeline System

Effective January 31, 2018, we entered into a joint ownership agreement with Sunrise Pipeline LLC, a subsidiary of Plains All American Pipeline, L.P. (Plains), that provides us a 20 percent undivided interest in the Sunrise Pipeline System expansion to be constructed by Plains. The Sunrise Pipeline System contains (i) a 262-mile, 24-inch crude oil pipeline (the Sunrise Pipeline) that originates at Plains’ terminal in Midland, Texas and terminates at Plains’ station in Wichita Falls, Texas with throughput capacity of approximately 500,000 barrels per day, and (ii) two 270,000 shell barrel capacity tanks located at the Colorado City, Texas station. The Sunrise Pipeline System expansion was placed in service in the fourth quarter of 2018. Expenditures totaled $139 million for the year ended December 31, 2018.

Environmental Matters

We are involved, together with several other companies, in an environmental cleanup in the Village of Hartford, Illinois (the Village) and during 2015, one of these companies assumed the ongoing environmental cleanup in the Village pursuant to a federal court order. We had previously conducted an initial response in the Village, along with other companies, pursuant to an administrative order issued by the U.S. EPA. The parties involved in the initial response may have further claims among themselves for costs already incurred.

We also continue to be engaged in site assessment and interim measures at the shutdown refinery site, which is adjacent to the Village. In 2018, we entered into a consent order with the Illinois EPA that was approved by the Illinois state court on July 26, 2018. In the consent order, we assumed the underlying liability for full cleanup of the shutdown refinery site, and we recorded an adjustment to our existing environmental liability related to this matter, which did not materially affect our financial position or results of operations as of or for the year ended December 31, 2018. We continue to seek contribution under Illinois law in state court and are pursuing claims under the Comprehensive Environmental Response, Compensation and Liability Act in federal court from other potentially responsible parties. Factors underlying the expected cost of the cleanup are subject to change from time to time, and actual results may vary significantly from the current estimate.

Self-Insurance

We are self-insured for certain medical and dental, workers’ compensation, automobile liability, general liability, and property liability claims up to applicable retention limits. Liabilities are accrued for self-insured claims, or when estimated losses exceed coverage limits, and when sufficient information is available to reasonably estimate the amount of the loss. These liabilities are included in accrued expenses and other long-term liabilities.