Inventory, Linefill and Base Gas and Long-term Inventory

12 Months Ended

Dec. 31, 2020

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, including long-term 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, 2020, 2019 and 2018, we recorded charges of $233 million (of which $40 million was associated with our long-term inventory), $11 million and $8 million, respectively, related to the write down of our crude oil and NGL 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 and NGL 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 2020, 2019 and 2018, we did not recognize any material 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, 2020						December 31, 2019
	Volumes	Unit of Measure	Carrying Value		Price/ Unit (1)		Volumes	Unit of Measure	Carrying Value		Price/ Unit (1)
Inventory
Crude oil	13,450	barrels	$	441	$	32.79	8,613	barrels	$	450	$	52.25
NGL	12,302	barrels	199		$	16.18	7,574	barrels	142		$	18.75
Other	N/A		7		N/A		N/A		12		N/A
Inventory subtotal			647						604
Linefill and base gas
Crude oil	14,669	barrels	828		$	56.45	14,316	barrels	826		$	57.70
NGL	1,640	barrels	44		$	26.83	1,701	barrels	47		$	27.63
Natural gas	25,576	Mcf	110		$	4.30	24,976	Mcf	108		$	4.32
Linefill and base gas subtotal			982						981
Long-term inventory
Crude oil	2,499	barrels	111		$	44.42	2,598	barrels	152		$	58.51
NGL	1,185	barrels	19		$	16.03	1,707	barrels	30		$	17.57
Long-term inventory subtotal			130						182
Total			$	1,759					$	1,767

(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.