Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

LEASES

5.    LEASES

Lease Costs and Other Supplemental Information

Our total lease cost comprises costs that are included in our income statement, as well as costs capitalized as part of an item of property, plant, and equipment or inventory. Total lease cost by class of underlying asset was as follows (in millions):

	Pipelines, Terminals, and Tanks		Transportation				Feedstock Processing Equipment		Energy and Gases		Real Estate		Other		Total
			Marine		Rail
Three months ended September 30, 2020
Finance lease cost:
Amortization of right-of-use (ROU) assets	$	29	$	—	$	1	$	3	$	1	$	—	$	—	$	34
Interest on lease liabilities	24		—		—		1		1		—		—		26
Operating lease cost	39		39		16		4		2		7		1		108
Variable lease cost	14		4		—		—		—		—		—		18
Short-term lease cost	2		8		—		9		—		—		—		19
Sublease income	—		(2)		—		—		—		(1)		—		(3)
Total lease cost	$	108	$	49	$	17	$	17	$	4	$	6	$	1	$	202
Three months ended September 30, 2019
Finance lease cost:
Amortization of ROU assets	$	12	$	—	$	—	$	2	$	—	$	—	$	—	$	14
Interest on lease liabilities	13		—		—		—		—		—		—		13
Operating lease cost	46		39		14		4		3		7		1		114
Variable lease cost	20		4		—		1		—		1		—		26
Short-term lease cost	1		13		—		8		—		—		—		22
Sublease income	—		(8)		—		—		—		(1)		—		(9)
Total lease cost	$	92	$	48	$	14	$	15	$	3	$	7	$	1	$	180

	Pipelines, Terminals, and Tanks		Transportation				Feedstock Processing Equipment		Energy and Gases		Real Estate		Other		Total
			Marine		Rail
Nine months ended September 30, 2020
Finance lease cost:
Amortization of ROU assets	$	79	$	—	$	1	$	9	$	3	$	—	$	—	$	92
Interest on lease liabilities	70		—		—		2		2		—		—		74
Operating lease cost	123		115		46		12		6		19		3		324
Variable lease cost	47		37		1		1		—		1		—		87
Short-term lease cost	8		44		—		30		—		—		—		82
Sublease income	—		(10)		—		—		—		(1)		—		(11)
Total lease cost	$	327	$	186	$	48	$	54	$	11	$	19	$	3	$	648
Nine months ended September 30, 2019
Finance lease cost:
Amortization of ROU assets	$	32	$	—	$	—	$	4	$	2	$	—	$	—	$	38
Interest on lease liabilities	35		—		—		1		2		—		—		38
Operating lease cost	140		107		38		16		7		21		3		332
Variable lease cost	53		21		—		1		—		1		—		76
Short-term lease cost	8		39		—		22		—		—		—		69
Sublease income	—		(24)		—		—		—		(3)		—		(27)
Total lease cost	$	268	$	143	$	38	$	44	$	11	$	19	$	3	$	526

The following table presents additional information related to our operating and finance leases (in millions, except for lease terms and discount rates):

	September 30, 2020						December 31, 2019
	Operating Leases			Finance Leases			Operating Leases			Finance Leases
Supplemental balance sheet information
ROU assets, net reflected in the following balance sheet line items:
Property, plant, and equipment, net	$	—		$	2,208		$	—		$	790
Deferred charges and other assets, net	1,234			—			1,329			—
Total ROU assets, net	$	1,234		$	2,208		$	1,329		$	790
Current lease liabilities reflected in the following balance sheet line items:
Current portion of debt and finance lease obligations	$	—		$	80		$	—		$	41
Accrued expenses	301			—			331			—
Noncurrent lease liabilities reflected in the following balance sheet line items:
Debt and finance lease obligations, less current portion	—			2,166			—			750
Other long-term liabilities	904			—			959			—
Total lease liabilities	$	1,205		$	2,246		$	1,290		$	791
Other supplemental information
Weighted-average remaining lease term	7.6 years			22.1 years			7.7 years			19.7 years
Weighted-average discount rate	4.7		%	4.3		%	4.9		%	5.2		%

Supplemental cash flow information related to our operating and finance leases is presented in Note 13.

Significant Lease Commencement

We have a 50 percent membership interest in MVP Terminalling, LLC (MVP), an unconsolidated joint venture formed in September 2017 with a subsidiary of Magellan Midstream Partners LP, to construct, own, and operate the Magellan Valero Pasadena marine terminal (MVP Terminal) located adjacent to the Houston Ship Channel in Pasadena, Texas. Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of the initial two phases of construction, which occurred in the first quarter of 2020. During the nine months ended September 30, 2020, we recognized a finance lease ROU asset and related liability of approximately $1.4 billion in connection with this agreement. The terminaling agreement has an initial term of 12 years with two five-year automatic renewals, and year-to-year renewals thereafter.

Maturity Analysis

The remaining minimum lease payments due under our long-term leases were as follows (in millions):

	September 30, 2020				December 31, 2019
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
2020 (a)	$	103	$	45	$	376	$	88
2021	302		179		250		86
2022	223		174		194		87
2023	187		179		160		91
2024	150		170		125		82
Thereafter	525		2,925		498		1,011
Total undiscounted lease payments	1,490		3,672		1,603		1,445
Less: Amount associated with discounting	285		1,426		313		654
Total lease liabilities	$	1,205	$	2,246	$	1,290	$	791

____________________

(a)    The amounts as of September 30, 2020 are for the remaining three months of 2020.

LEASES

5.    LEASES

Lease Costs and Other Supplemental Information

Our total lease cost comprises costs that are included in our income statement, as well as costs capitalized as part of an item of property, plant, and equipment or inventory. Total lease cost by class of underlying asset was as follows (in millions):

	Pipelines, Terminals, and Tanks		Transportation				Feedstock Processing Equipment		Energy and Gases		Real Estate		Other		Total
			Marine		Rail
Three months ended September 30, 2020
Finance lease cost:
Amortization of right-of-use (ROU) assets	$	29	$	—	$	1	$	3	$	1	$	—	$	—	$	34
Interest on lease liabilities	24		—		—		1		1		—		—		26
Operating lease cost	39		39		16		4		2		7		1		108
Variable lease cost	14		4		—		—		—		—		—		18
Short-term lease cost	2		8		—		9		—		—		—		19
Sublease income	—		(2)		—		—		—		(1)		—		(3)
Total lease cost	$	108	$	49	$	17	$	17	$	4	$	6	$	1	$	202
Three months ended September 30, 2019
Finance lease cost:
Amortization of ROU assets	$	12	$	—	$	—	$	2	$	—	$	—	$	—	$	14
Interest on lease liabilities	13		—		—		—		—		—		—		13
Operating lease cost	46		39		14		4		3		7		1		114
Variable lease cost	20		4		—		1		—		1		—		26
Short-term lease cost	1		13		—		8		—		—		—		22
Sublease income	—		(8)		—		—		—		(1)		—		(9)
Total lease cost	$	92	$	48	$	14	$	15	$	3	$	7	$	1	$	180

	Pipelines, Terminals, and Tanks		Transportation				Feedstock Processing Equipment		Energy and Gases		Real Estate		Other		Total
			Marine		Rail
Nine months ended September 30, 2020
Finance lease cost:
Amortization of ROU assets	$	79	$	—	$	1	$	9	$	3	$	—	$	—	$	92
Interest on lease liabilities	70		—		—		2		2		—		—		74
Operating lease cost	123		115		46		12		6		19		3		324
Variable lease cost	47		37		1		1		—		1		—		87
Short-term lease cost	8		44		—		30		—		—		—		82
Sublease income	—		(10)		—		—		—		(1)		—		(11)
Total lease cost	$	327	$	186	$	48	$	54	$	11	$	19	$	3	$	648
Nine months ended September 30, 2019
Finance lease cost:
Amortization of ROU assets	$	32	$	—	$	—	$	4	$	2	$	—	$	—	$	38
Interest on lease liabilities	35		—		—		1		2		—		—		38
Operating lease cost	140		107		38		16		7		21		3		332
Variable lease cost	53		21		—		1		—		1		—		76
Short-term lease cost	8		39		—		22		—		—		—		69
Sublease income	—		(24)		—		—		—		(3)		—		(27)
Total lease cost	$	268	$	143	$	38	$	44	$	11	$	19	$	3	$	526

The following table presents additional information related to our operating and finance leases (in millions, except for lease terms and discount rates):

	September 30, 2020						December 31, 2019
	Operating Leases			Finance Leases			Operating Leases			Finance Leases
Supplemental balance sheet information
ROU assets, net reflected in the following balance sheet line items:
Property, plant, and equipment, net	$	—		$	2,208		$	—		$	790
Deferred charges and other assets, net	1,234			—			1,329			—
Total ROU assets, net	$	1,234		$	2,208		$	1,329		$	790
Current lease liabilities reflected in the following balance sheet line items:
Current portion of debt and finance lease obligations	$	—		$	80		$	—		$	41
Accrued expenses	301			—			331			—
Noncurrent lease liabilities reflected in the following balance sheet line items:
Debt and finance lease obligations, less current portion	—			2,166			—			750
Other long-term liabilities	904			—			959			—
Total lease liabilities	$	1,205		$	2,246		$	1,290		$	791
Other supplemental information
Weighted-average remaining lease term	7.6 years			22.1 years			7.7 years			19.7 years
Weighted-average discount rate	4.7		%	4.3		%	4.9		%	5.2		%

Supplemental cash flow information related to our operating and finance leases is presented in Note 13.

Significant Lease Commencement

We have a 50 percent membership interest in MVP Terminalling, LLC (MVP), an unconsolidated joint venture formed in September 2017 with a subsidiary of Magellan Midstream Partners LP, to construct, own, and operate the Magellan Valero Pasadena marine terminal (MVP Terminal) located adjacent to the Houston Ship Channel in Pasadena, Texas. Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of the initial two phases of construction, which occurred in the first quarter of 2020. During the nine months ended September 30, 2020, we recognized a finance lease ROU asset and related liability of approximately $1.4 billion in connection with this agreement. The terminaling agreement has an initial term of 12 years with two five-year automatic renewals, and year-to-year renewals thereafter.

Maturity Analysis

The remaining minimum lease payments due under our long-term leases were as follows (in millions):

	September 30, 2020				December 31, 2019
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
2020 (a)	$	103	$	45	$	376	$	88
2021	302		179		250		86
2022	223		174		194		87
2023	187		179		160		91
2024	150		170		125		82
Thereafter	525		2,925		498		1,011
Total undiscounted lease payments	1,490		3,672		1,603		1,445
Less: Amount associated with discounting	285		1,426		313		654
Total lease liabilities	$	1,205	$	2,246	$	1,290	$	791

____________________

(a)    The amounts as of September 30, 2020 are for the remaining three months of 2020.