
12.	VARIABLE INTEREST ENTITIES

Consolidated VIEs

In the normal course of business, we have financial interests in certain entities that have been determined to be VIEs. We consolidate a VIE when we have a variable interest in an entity for which we are the primary beneficiary such that we have (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of or the right to receive benefits from the VIE that could potentially be significant to the VIE. In order to make this determination, we evaluated our contractual arrangements with the VIEs, including arrangements for the use of assets, purchases of products and services, debt, equity, or management of operating activities.

The following discussion summarizes our involvement with our VIEs:

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Prior to the completion of the Merger Transaction with VLP on January 10, 2019 as discussed in Note 2, VLP was a publicly traded master limited partnership whose common limited partner units were traded on the New York Stock Exchange under the trading symbol “VLP.” VLP was formed by us to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets. VLP’s assets include crude oil and refined petroleum products pipeline and terminal systems in the U.S. Gulf Coast and U.S. Mid-Continent regions that are integral to the operations of ten of our refineries. As of December 31, 2018, we owned a 66.2 percent limited partner interest and a 2.0 percent general partner interest in VLP, and public unitholders owned a 31.8 percent limited partner interest.

We determined VLP was a VIE because the public limited partners of VLP (i.e., parties other than entities under common control with the general partner) lacked the power to direct the activities of VLP that most significantly impacted its economic performance because they did not have substantive kick-out rights over the general partner or substantive participating rights in VLP. Furthermore, we determined that we were the primary beneficiary of VLP because (i) we were the single decision maker and our general partner interest provides us with the sole power to direct the activities that most significantly impact VLP’s economic performance and (ii) our 66.2 percent limited partner interest and 2.0 percent general partner interest provides us with significant economic rights and obligations. Substantially all of VLP’s revenues were derived from us; therefore, there was limited risk to us associated with VLP’s operations.

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Diamond Green Diesel Holdings LLC (DGD) is a joint venture with Darling Green Energy LLC, a subsidiary of Darling Ingredients Inc., that was formed to construct and operate a biodiesel plant that processes animal fats, used cooking oils, and other vegetable oils into renewable green diesel. The plant is located next to our St. Charles Refinery and began operations in June 2013. Our significant agreements with DGD include an operations agreement that outlines our responsibilities as operator of the plant, a debt agreement whereby we financed approximately 60 percent of the construction costs of the plant, and a marketing agreement.

As operator, we operate the plant and perform certain day-to-day operating and management functions for DGD as an independent contractor. The operations agreement provides us (as operator) with certain power to direct the activities that most significantly impact DGD’s economic performance. Because this agreement conveys such power to us and is separate from our ownership rights, we determined that DGD was a VIE. For this reason and because we hold a 50 percent ownership interest that provides us with significant economic rights and obligations, we determined that we are the primary beneficiary of DGD. DGD has risk associated with its operations because it generates revenues from third-party customers.

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We have terminaling agreements with three subsidiaries of Infraestructura Energetica Nova, S.A.B. de C.V. (IEnova), a Mexican company and subsidiary of Sempra Energy, a U.S. public company. The three subsidiaries are collectively referred to as Central Mexico Terminals and were previously referred to by us as VPM Terminals. The terminaling agreements represent variable interests because we have determined them to be capital leases due to our exclusive use of the terminals. Although we do not have an ownership interest in the entities that own each of the three terminals, the capital leases convey to us (i) the power to direct the activities that most significantly impact the economic performance of all three terminals and (ii) the ability to influence the benefits received or the losses incurred by the terminals because of our use of the terminals. As a result, we determined each of the entities was a VIE and that we are the primary beneficiary of each. Substantially all of Central Mexico Terminals’ revenues will be derived from us; therefore, there is limited risk to us associated with Central Mexico Terminals’ operations.

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We also have financial interests in other entities that have been determined to be VIEs because the entities’ contractual arrangements transfer the power to us to direct the activities that most significantly impact their economic performance or reduce the exposure to operational variability and risk of loss created by the entity that otherwise would be held exclusively by the equity owners. Furthermore, we determined that we are the primary beneficiary of these VIEs because (i) certain contractual arrangements (exclusive of our ownership rights) provide us with the power to direct the activities that most significantly impact the economic performance of these entities and/or (ii) our 50 percent ownership interests provide us with significant economic rights and obligations. The financial position, results of operations, and cash flows of these VIEs are not material to us.

The VIEs’ assets can only be used to settle their own obligations and the VIEs’ creditors have no recourse to our assets. We do not provide financial guarantees to our VIEs. Although we have provided credit facilities to some of our VIEs in support of their construction or acquisition activities, these transactions are eliminated in consolidation. Our financial position, results of operations, and cash flows are impacted by our consolidated VIEs’ performance, net of intercompany eliminations, to the extent of our ownership interest in each VIE.

The following tables present summarized balance sheet information for the significant assets and liabilities of our VIEs, which are included in our balance sheets (in millions).



	December 31, 2018
	VLP		DGD		Central Mexico Terminals		Other		Total
Assets
Cash and cash equivalents	$	152	$	65	$	—	$	18	$	235
Other current assets	2		112		20		64		198
Property, plant, and equipment, net	1,409		576		156		113		2,254
Liabilities
Current liabilities, including current portion of debt and capital lease obligations	$	27	$	28	$	118	$	9	$	182
Debt and capital lease obligations, less current portion	990		—		—		34		1,024



	December 31, 2017
	VLP		DGD		Central Mexico Terminals		Other		Total
Assets
Cash and cash equivalents	$	42	$	123	$	1	$	13	$	179
Other current assets	2		66		4		—		72
Property, plant, and equipment, net	1,416		435		51		127		2,029
Liabilities
Current liabilities, including current portion of debt and capital lease obligations	$	27	$	33	$	26	$	9	$	95
Debt and capital lease obligations, less current portion	905		—		—		43		948

Non-Consolidated VIEs

We hold variable interests in VIEs that have not been consolidated because we are not considered the primary beneficiary. These non-consolidated VIEs are not material to our financial position or results of operations and are primarily accounted for as equity investments.

One of our non-consolidated VIEs is MVP, which is described in Note 10. We have a 50 percent membership interest in MVP, which was formed to construct, own, and operate the MVP Terminal. We determined MVP is a VIE because the power to direct the activities that most significantly impact its economic performance is not required to be held by its two members, but is held by Magellan, as operator under a construction, operating, and management agreement with MVP. For this reason and because Magellan holds a 50 percent interest in MVP that provides it with significant economic rights and obligations, we determined that we are not the primary beneficiary. As of December 31, 2018, our maximum exposure to loss was $247 million, which represents our equity investment in MVP. We have not provided any financial support to MVP other than amounts previously required by our membership interest.