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Leases

9 Months Ended

Sep. 30, 2019

Lessor

We evaluate all agreements entered into or modified after the date of adoption of Topic 842 that convey to others the use of property or equipment for a term to determine whether the agreement is or contains a lease. Significant judgment is required when determining whether a customer obtains the right to direct the use of identified property or equipment. The underlying assets associated with these agreements are evaluated for future use beyond the lease term.

Our Facilities and Transportation segments enter into agreements to conduct fee-based activities associated with (i) providing storage services primarily for crude oil, NGL and natural gas and (ii) transporting crude oil and NGL. Certain of these agreements convey counterparties the right to direct the operation of physically distinct assets. Such agreements include (i) fixed consideration, which is measured based on an available capacity during the period multiplied by the rate in the agreement, or (ii) a fixed monthly fee and variable consideration based on usage. These agreements often include options to extend or terminate the lease, with advance notice. These agreements are operating leases under Topic 842. For the three and nine months ended September 30, 2019, our lease revenue was not material.

The table below presents the maturity of lease payments for operating lease agreements in effect as of September 30, 2019. This presentation includes minimum fixed lease payments and does not include an estimate of variable lease consideration. These agreements have remaining lease terms ranging from two years to 23 years. The following table presents the undiscounted cash flows expected to be received related to these agreements (in millions):



	Remainder of 2019		2020		2021		2022		2023		Thereafter
Lease revenue	$	5	$	19	$	22	$	25	$	21	$	226

Lessee, Finance Leases

Leases

Lessee

We evaluate all agreements entered into or modified after the date of adoption of Topic 842 that convey to us the use of property or equipment for a term to determine whether the agreement is or contains a lease. We lease certain property and equipment under noncancelable and cancelable operating and finance leases. Our operating leases primarily relate to railcars, office space, land, vehicles, and storage tanks, and our finance leases primarily relate to tractor trailers, vehicles and land. For leases with an initial term of greater than 12 months, we recognize a right-of-use asset and lease liability on the balance sheet. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Our lease agreements have remaining lease terms ranging from one year to approximately 60 years. When applicable, this range includes additional terms associated with leases for which we are reasonably certain to exercise the option to renew and such renewal options are recognized as part of our right-of-use assets and lease liabilities. We have renewal options for leases with terms ranging from one year to 40 years that are not recognized as part of our right-of-use assets or lease liabilities as we have determined we are not reasonably certain to exercise the option to renew.

Certain of our leases have variable lease payments, many of which are based on changes in market indices such as the Consumer Price Index. Our lease agreements for our tractor trailers contain residual value guarantees equal to the fair market value of the tractor trailers at the end of the lease term in the event that we elect not to purchase the asset for an amount equal to the fair value. Our lease agreements do not contain any material restrictive covenants.

For determining the present value of lease payments, we use the discount rate implicit in the lease when readily determinable; however, such rate is not readily determinable for most of our leases. For those leases for which the discount rate is not readily determinable, we utilize incremental borrowing rates that reflect collateralized borrowing with payments and terms that mirror our lease portfolio to discount the lease payments based on information available at the lease commencement date.

The following table presents components of lease cost, including both amounts recognized in income and amounts capitalized (in millions):



Lease Cost	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost	$	32		$	95
Short-term lease cost	11			32
Other ⁽¹⁾	(1		)	—
Total lease cost	$	42		$	127


⁽¹⁾	Includes immaterial finance lease costs, variable lease costs and sublease income.

The following table presents information related to cash flows arising from lease transactions (in millions):



	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	101
Financing cash flows for finance leases	$	13

Non-cash change in lease liabilities arising from obtaining new right of use assets or modifications:
Operating leases	$	16
Finance leases	$	10

Information related to the weighted-average remaining lease term and discount rate is presented in the table below:



	September 30, 2019
Weighted-average remaining lease term (in years):
Operating leases	10.2
Finance leases	3.6

Weighted-average discount rate:
Operating leases	4.5%
Finance leases	2.4%

The following table presents the amount and location of our operating and finance lease right-of-use assets and liabilities on our Condensed Consolidated Balance Sheet (in millions):



Leases	Balance Sheet Location	September 30, 2019
Assets
Operating lease right-of-use assets	Long-term operating lease right-of-use assets, net	$	443

Finance lease right-of-use assets	Property and equipment	$	110
	Accumulated depreciation	(15		)
	Property and equipment, net	$	95

Total lease right-of-use assets		$	538

Liabilities
Operating lease liabilities
Current	Other current liabilities	$	103
Noncurrent	Long-term operating lease liabilities	348
Total operating lease liabilities		$	451

Finance lease liabilities
Current	Short-term debt	$	19
Noncurrent	Other long-term debt, net	37
Total finance lease liabilities		$	56

Total lease liabilities		$	507

The following table presents the maturity of undiscounted cash flows for future minimum lease payments under noncancelable leases as of September 30, 2019 reconciled to our lease liabilities on our Condensed Consolidated Balance Sheet (amounts in millions):



	Operating			Finance
Future minimum lease payments⁽¹⁾:
Remainder of 2019	$	31		$	5
2020	113			18
2021	93			9
2022	78			10
2023	54			7
Thereafter	247			10
Total	616			59
Less: Present value discount	(165		)	(3		)
Lease liabilities	$	451		$	56

⁽¹⁾

Excludes future minimum payments for short-term and other immaterial leases not included on our Condensed Consolidated Balance Sheet.

Lessee, Operating Leases