10-Q 1 q12017form10-q.htm 10-Q Document


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission file number 1-31219
 ENERGY TRANSFER PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
 
23-3096839
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
8111 Westchester Drive, Suite 600,
Dallas, TX
 
75225
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (214) 981-0700
Sunoco Logistics Partners L.P.
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.             Yes  ☒      No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).        Yes  ☒      No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "non-accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
  
Accelerated filer
 
 
Emerging growth company
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   ☐   No   ☒
At May 1, 2017, the number of the registrant's Common Units outstanding were 1,167,434,453.
 
 
 
 
 




ENERGY TRANSFER PARTNERS, L.P.
INDEX
 
 
 
 
 
 
Page
Number
 
PART I. FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements
 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
    March 31, 2017 and 2016 (unaudited)
 
 
 
 
Condensed Consolidated Statements of Equity for the Three Months Ended
    March 31, 2017 and 2016 (unaudited)
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
SIGNATURE

1



PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
ENERGY TRANSFER PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions, except per unit amounts, unaudited)
 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Revenues
 
 
 
 
Sales and other operating revenue:
 
 
 
 
Unaffiliated customers
 
$
3,071

 
$
1,668

Affiliates (Note 4)
 
148

 
109

Gain on sale of investment in affiliate (Note 2)
 
483

 

Total Revenues
 
3,702

 
1,777

Costs and Expenses
 
 
 
 
Cost of products sold
 
2,891

 
1,413

Operating expenses
 
21

 
23

Selling, general and administrative expenses
 
32

 
26

Depreciation and amortization expense
 
125

 
106

Impairment charge and other matters (Notes 6 and 16)
 
(2
)
 
26

Total Costs and Expenses
 
3,067

 
1,594

Operating Income
 
635

 
183

Interest cost and debt expense, net
 
(73
)
 
(65
)
Capitalized interest
 
33

 
26

Other income
 
10

 
7

Income Before Provision for Income Taxes
 
605

 
151

Provision for income taxes (Note 8)
 
(10
)
 
(5
)
Net Income
 
595

 
146

Net income attributable to noncontrolling interests
 
(10
)
 
(1
)
Net Income Attributable to Partners
 
585

 
145

Less: General Partner's interest
 
(113
)
 
(90
)
Limited Partners' interest
 
$
472

 
$
55

 
 
 
 
 
Net Income Attributable to Partners per Limited Partner unit (Note 5):
 
 
 

Basic
 
$
1.42

 
$
0.18

Diluted
 
$
1.42

 
$
0.18

 
 
 
 
 
Weighted average Limited Partners' units outstanding (Note 5):
 
 
 

Basic
 
331.8

 
282.5

Diluted
 
332.8

 
283.1

 
 
 
 
 
Net Income
 
$
595

 
$
146

Adjustment to affiliate's pension funded status
 
1

 
1

Other Comprehensive Income
 
1

 
1

Comprehensive Income
 
596

 
147

Less: Comprehensive income attributable to
        noncontrolling interests
 
(10
)
 
(1
)
Comprehensive Income Attributable to Partners L.P.
 
$
586

 
$
146

(See Accompanying Notes)

2



ENERGY TRANSFER PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, unaudited)
 
 
 
March 31, 2017
 
December 31, 2016
Assets
 
 
 
 
Cash and cash equivalents
 
$
38

 
$
41

Accounts receivable, net
 
1,877

 
1,555

Accounts receivable, affiliated companies (Note 4)
 
40

 
44

Inventories (Note 6)
 
967

 
934

Note receivable, affiliated companies (Note 4)
 

 
301

Other current assets
 
9

 
31

Total Current Assets
 
2,931

 
2,906

Properties, plants and equipment
 
14,480

 
13,551

Less accumulated depreciation and amortization
 
(1,331
)
 
(1,227
)
Properties, plants and equipment, net
 
13,149

 
12,324

Investment in affiliates
 
662

 
952

Goodwill
 
1,613

 
1,609

Intangible assets, net (Note 7)
 
1,504

 
977

Other assets
 
77

 
81

Total Assets
 
$
19,936

 
$
18,849

Liabilities and Equity
 
 
 
 
Accounts payable
 
$
2,017

 
$
1,750

Accounts payable, affiliated companies (Note 4)
 
78

 
63

Accrued liabilities
 
330

 
287

Accrued taxes payable (Note 8)
 
44

 
38

Total Current Liabilities
 
2,469

 
2,138

Long-term debt (Note 9)
 
6,760

 
7,313

Other deferred credits and liabilities
 
130

 
133

Deferred income taxes (Note 8)
 
256

 
257

Total Liabilities
 
9,615

 
9,841

Commitments and contingent liabilities (Note 10)
 


 


Redeemable noncontrolling interests
 
15

 
15

Redeemable Limited Partners' interests (Notes 1 and 2)
 
300

 
300

Total Equity
 
10,006

 
8,693

Total Liabilities and Equity
 
$
19,936

 
$
18,849

(See Accompanying Notes)


3



ENERGY TRANSFER PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions, unaudited)
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Cash Flows from Operating Activities:
 
 
 
 
Net Income
 
$
595

 
$
146

Adjustments to reconcile net income to net cash provided by
operating activities:
 
 
 
 
Depreciation and amortization expense
 
125

 
106

Impairment charge and other matters
 
(2
)
 
26

Gain on sale of investment in affiliate
 
(483
)
 

Deferred income tax expense (benefit)
 
(1
)
 

Amortization of bond premium
 
(2
)
 
(3
)
Non-cash compensation expense
 
6

 
5

Equity in earnings of unconsolidated affiliates
 
(9
)
 
(8
)
Distributions from unconsolidated affiliates
 
8

 
5

Changes in working capital pertaining to operating activities:
 
 
 
 
Accounts receivable, net
 
(337
)
 
(6
)
Accounts receivable, affiliated companies
 
4

 
(23
)
Inventories
 
(31
)
 
(102
)
Accounts payable, affiliated companies
 
15

 
(19
)
Accounts payable and accrued liabilities
 
246

 
(16
)
Accrued taxes payable
 
6

 
(11
)
Unrealized (gains) losses on commodity risk management activities
 
(24
)
 
13

Other
 
1

 
7

Net cash provided by operating activities
 
117

 
120

Cash Flows from Investing Activities:
 
 
 
 
Capital expenditures
 
(395
)
 
(580
)
Proceeds from sale of investment in affiliate
 
800

 

Change in note receivable, affiliated companies
 
301

 

Change in long-term note receivable
 
(1
)
 
(1
)
Net cash provided by (used in) investing activities
 
705

 
(581
)
Cash Flows from Financing Activities:
 
 
 
 
Distributions paid to limited and general partners
 
(272
)
 
(216
)
Distributions paid to noncontrolling interests
 
(4
)
 
(1
)
Net proceeds from issuance of limited partner units
 

 
301

Repayments under credit facilities
 
(1,725
)
 
(813
)
Borrowings under credit facilities
 
1,173

 
1,193

Contributions attributable to acquisition from affiliate
 
1

 
3

Contributions from noncontrolling interests
 
2

 

Net cash provided by (used in) financing activities
 
(825
)
 
467

Net change in cash and cash equivalents
 
(3
)
 
6

Cash and cash equivalents at beginning of period
 
41

 
37

Cash and cash equivalents at end of period
 
$
38

 
$
43

(See Accompanying Notes)

4



ENERGY TRANSFER PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in millions, unaudited)
 
 
 
Limited
Partners
 
General
Partner
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
 
$
6,577

 
$
944

 
$

 
$
34

 
$
7,555

Net Income
 
55

 
90

 

 
1

 
146

Adjustment to affiliate's pension funded status
 

 

 
1

 

 
1

Total comprehensive income (loss)
 
55

 
90

 
1

 
1

 
147

Issuance of limited partner units to the public
 
301

 

 

 

 
301

Non-cash compensation expense
 
5

 

 

 

 
5

Distribution equivalent rights
 
(1
)
 

 

 

 
(1
)
Distributions
 
(131
)
 
(85
)
 

 
(1
)
 
(217
)
Contributions attributable to acquisition from affiliate
 
3

 

 

 

 
3

Decrease attributable to Class B units
 
(4
)
 

 

 

 
(4
)
Other
 

 
1

 

 

 
1

Balance at March 31, 2016
 
$
6,805

 
$
950

 
$
1

 
$
34

 
$
7,790

 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2017
 
$
7,700

 
$
960

 
$

 
$
33

 
$
8,693

Net Income
 
472

 
113

 

 
10

 
595

Adjustment to affiliate's pension funded status
 

 

 
1

 

 
1

Total comprehensive income
 
472

 
113

 
1

 
10

 
596

Non-cash compensation expense
 
6

 

 

 

 
6

Distribution equivalent rights
 
(2
)
 

 

 

 
(2
)
Distributions
 
(167
)
 
(105
)
 

 
(4
)
 
(276
)
Contributions attributable to acquisition from affiliate
 
1

 

 

 

 
1

Contributions from noncontrolling interests
 

 

 

 
988

 
988

Balance at March 31, 2017
 
$
8,010

 
$
968

 
$
1

 
$
1,027

 
$
10,006

(See Accompanying Notes)

5



ENERGY TRANSFER PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Organization and Basis of Presentation
Energy Transfer Partners, L.P. (formerly named "Sunoco Logistics Partners L.P.", as discussed below) is a consolidated subsidiary of Energy Transfer Equity, L.P. ("ETE"). 
In April 2017, Sunoco Logistics Partners L.P. ("SXL") and Energy Transfer Partners, L.P. ("ETP") completed the previously announced merger (the "Merger") of an indirect subsidiary of SXL, with and into ETP, with ETP surviving the merger as a wholly-owned subsidiary of SXL. Concurrent with the Merger, SXL’s general partner, Sunoco Partners LLC ("SXL GP"), merged with ETP’s general partner, Energy Transfer Partners GP, L.P. ("ETP GP"), with ETP GP surviving and becoming the general partner of SXL, owning the general partner interest and incentive distribution rights in SXL, which remain unchanged following the Merger. In connection with the Merger, each ETP common unit converted into the right to receive 1.5 SXL common units. Based on the ETP units outstanding, SXL issued approximately 845 million SXL common units to ETP unitholders. The outstanding ETP Class E units, Class G units, Class I units and Class K units at the effective time of the Merger were converted into an equal number of newly created classes of SXL units, with the same rights, preferences, privileges, duties and obligations as such classes of ETP units had immediately prior to the closing of the Merger. Additionally, the outstanding SXL common units and SXL Class B units owned by ETP at the effective time of the Merger were cancelled.
As part of the completion of the merger, Sunoco Logistics Partners L.P. changed its name to Energy Transfer Partners, L.P., and its common units began trading on the New York Stock Exchange ("NYSE") under the "ETP" ticker symbol on May 1, 2017. Also effective with the completion of the merger, ETP ceased to be a publicly traded partnership, and its common units discontinued trading on the NYSE.
For purposes of maintaining clarity, the following references are used herein:

References to "SXL" and the "Partnership" refer to the entity named Sunoco Logistics Partners L.P. prior to the close of the Merger;
References to "ETP" refer to the entity named Energy Transfer Partners, L.P. prior to the close of the Merger; and
References to "Post-Merger ETP" refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the close of the Merger.
Unless otherwise noted, the disclosures and financial information included in this report for the periods ended March 31, 2017 and 2016, and as of March 31, 2017 and December 31, 2016, reflect that of SXL.
SXL is a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of geographically diverse portfolio of integrated pipeline, terminalling, and acquisition and marketing assets which are used to facilitate the purchase and sale of crude oil, natural gas liquids ("NGLs") and refined products. The Partnership conducts its business activities in 39 states located throughout the United States. The Partnership reports the financial results of its activities in the following segments: Crude Oil, Natural Gas Liquids and Refined Products; which provide investors with a view consistent with Management's strategic decision making process and resource allocation methodology.
The consolidated financial statements reflect the results of the Partnership and its wholly-owned subsidiaries, the proportionate shares of the Partnership's undivided interests in assets, and the accounts of entities in which the Partnership has a controlling financial interest. A controlling financial interest is evidenced by either a voting interest greater than 50 percent or a risk and rewards model that identifies the Partnership or one of its subsidiaries as the primary beneficiary of a variable interest entity. The Partnership currently holds a controlling financial interest in Inland Corporation ("Inland"), Mid-Valley Pipeline Company ("Mid-Valley"), Price River Terminal, LLC ("PRT"), and, effective February 1, 2017, Permian Express Partners LLC ("PEP"), a joint venture with ExxonMobil. These entities are reflected as consolidated subsidiaries of the Partnership. The Partnership is not the primary beneficiary of any variable-interest entities ("VIEs"). All significant intercompany accounts and transactions are eliminated in consolidation, and noncontrolling interests in net income and equity are shown separately in the condensed consolidated statements of comprehensive income and equity. Equity ownership interests in corporate joint ventures in which the Partnership does not have a controlling financial interest, but over which the Partnership can exercise significant influence, are accounted for under the equity method of accounting.



6



In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, which created Topic 842, Leases, and will supersede the requirements in Topic 840. The objective of ASU 2016-02 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Partnership is currently evaluating the impact that it will have on its consolidated financial statements and related disclosures.
In May 2014, the FASB codified guidance in ASU 2014-09 related to the recognition of revenue from contracts with customers, and has since released associated clarifying guidance in subsequent periods. The new standards outline the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those reporting periods, with early adoption permitted. The Partnership expects to adopt ASU 2014-09 in the first quarter of 2018 and will apply the cumulative catchup transition method.
The Partnership is in the process of evaluating its revenue contracts by segment and fee type to determine the potential impact of adopting the new standard. At this point in the evaluation process, it has been determined that the timing and/or amount of revenue recognized on certain contracts will be impacted by the adoption of the new standard; however, the process of quantifying these impacts is ongoing and an assessment of materiality in relation to the financial statements has not yet been determined. In addition, the Partnership is in the process of implementing appropriate changes to its business processes, systems and controls to support recognition and disclosure under the new standard. The Partnership will continue to monitor for additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing conclusions on specific interpretative issues to other peers in the industry, to the extent that such information is available.
The accompanying condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States for interim financial reporting. They do not include all disclosures normally made in annual financial statements contained in Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2016 has been derived from the Partnership's audited financial statements for the year ended December 31, 2016. In management's opinion, all adjustments necessary for a fair presentation of the results of operations, financial position and cash flows for the periods shown have been made. All such adjustments are of a normal, recurring nature. The Partnership expects the interim increase in the quantity of its crude oil inventory to decline by year end and therefore has adjusted its interim LIFO calculation to produce a reasonable matching of the most recently incurred costs with current revenues. Results for the three months ended March 31, 2017 are not necessarily indicative of results for the full year 2017.
Certain amounts in the prior year condensed consolidated financial statements have been reclassified to conform to the current year presentation.

2. Changes in Business and Other Matters
Bayou Bridge Pipeline
The Partnership is party to an agreement with ETP and Phillips 66 to participate in the ownership of the Bayou Bridge Pipeline project. The Partnership maintains a 30 percent economic interest in the project which, combined with ETP's 30 percent interest, is reflected as a consolidated subsidiary of ETP. The project consists of a newly constructed pipeline that will deliver crude oil from Nederland, Texas to refinery markets in Louisiana. Commercial operations from Nederland, Texas to Lake Charles, Louisiana commenced in the second quarter 2016, with continued progress on an extension of the pipeline segment to St. James, Louisiana, which is expected to commence operations in the fourth quarter 2017. The Partnership is the operator of the pipeline and will continue to fund its proportionate share of the cost of the project, which is accounted for as an equity method investment within the Partnership's Crude Oil segment.






7



Bakken Pipeline
In October 2015, the Partnership finalized its participation in the Bakken Pipeline project with Energy Transfer Partners, L.P. ("ETP") and Phillips 66. The Partnership obtained a 30 percent economic interest in the project which is a consolidated subsidiary of ETP. The project consists of existing and newly constructed pipelines that are expected to provide aggregate takeaway capacity of approximately 450 thousand barrels per day of crude oil from the Bakken/Three Forks production area in North Dakota to key refinery and terminalling hubs in the Midwest and Gulf Coast, including the Partnership's Nederland terminal. The ultimate takeaway capacity target for the project is 570 thousand barrels per day. Commercial operations are expected to commence in the second quarter of 2017. The Partnership's investment in the Bakken Pipeline project is reflected as an equity method investment within the Crude Oil segment.
In exchange for its 30 percent economic interest in the project, the Partnership issued 9.4 million Class B units to ETP, representing limited partner interests in the Partnership, and paid $382 million in cash to cover the Partnership's proportionate share of contributions at the time of closing. Since the interest in the project was acquired from a related party, the Partnership's initial investment was recorded at ETP's historical carrying value. See Note 1 for additional information on the termination of the Class B units resulting from the Partnership's merger with ETP in April 2017.
In August 2016, the Bakken entities' established a $2.5 billion credit facility which is anticipated to provide substantially all of the remaining capital necessary to complete the project. The facility was limited to $1.1 billion in borrowings until attainment of certain closing conditions, which were met in February 2017. The joint partners agreed to provide the Bakken entities with a short-term loan until the full capacity of the $2.5 billion credit facility was available. The loan was made by the partners in proportion to their respective ownership interests. The note receivable due to the Partnership amounted to $301 million at December 31, 2016, and was repaid in February 2017.
Borrowings under the credit facility are secured by all assets of the Bakken entities, as well as the ownership interests maintained by the joint partners. At March 31, 2017, there was $2.5 billion outstanding under the Bakken credit facility.
In February 2017, the Partnership and ETP completed the sale of 49 percent of their respective interests in the Bakken Pipeline project for $2.0 billion to MarEn Bakken Company LLC, an entity jointly owned by MPLX LP and Enbridge Energy Partners, L.P. The Partnership received $800 million for its interest, resulting in a gain of $483 million on the proportionate carrying value of the Partnership's previously held equity interest. Subsequent to closing, the Partnership's ownership interest in the Bakken Pipeline project was 15.3 percent. ETP continues to consolidate the Bakken Pipeline project, and its total ownership interest, including the Partnership's interest, was 38.25 percent after the sale.
Permian Express Partners
In February 2017, the Partnership formed Permian Express Partners LLC ("PEP"), a strategic joint venture, with ExxonMobil. The Partnership contributed its Permian Express 1, Permian Express 2 and Permian Longview and Louisiana Access pipelines. ExxonMobil contributed its Longview to Louisiana and Pegasus pipelines; Hawkins gathering system; an idle pipeline in southern Oklahoma; and its Patoka, Illinois terminal. The Partnership's initial ownership percentage is approximately 85 percent. Upon commencement of operations on the Bakken pipeline, the Partnership will contribute its investment in the project, with a corresponding increase in its ownership percentage in PEP. The Partnership maintains a controlling financial and voting interest in PEP and operates all of the entity's assets. As a result, PEP is reflected as a consolidated subsidiary of the Partnership with its operating results included in the Crude Oil segment.
The Partnership recognized the following preliminary fair value amounts in its condensed consolidated balance sheet in connection with the formation of PEP: cash and cash equivalents ($2 million); properties, plants and equipment ($435 million); intangible assets ($547 million) attributable to customer relationships; goodwill ($4 million); and noncontrolling interest ($988 million).
No pro forma information has been presented, as the impact of these investments was not material to the Partnership's consolidated financial position or results of operations.









8



3. Acquisitions
In November 2016, the Partnership completed an acquisition from Vitol, Inc. ("Vitol") of an integrated crude oil business in West Texas for $760 million plus working capital. The acquisition provided the Partnership with an approximately 2 million barrel crude oil terminal in Midland, Texas, a crude oil gathering and mainline pipeline system in the Midland Basin, including a significant acreage dedication from an investment-grade Permian producer, and crude oil inventories related to Vitol's crude oil purchasing and marketing business in West Texas. The acquisition also included the purchase of a 50 percent interest in Permian Express Terminal LLC ("PET"), formerly named SunVit Pipeline LLC, which increased the Partnership's overall ownership of PET to 100 percent. PET connects the Midland terminal to the Partnership's Permian Express 2 pipeline, a key takeaway to bring Permian crude oil to multiple markets. The acquisition is included in the Crude Oil segment.
The $769 million purchase price, net of cash received, consisted primarily of the following preliminary fair value allocations: net working capital ($13 million) largely attributable to inventory and receivables; properties, plants and equipment ($286 million) primarily related to pipeline and terminalling assets; intangible assets ($313 million) attributable to customer relationships; and an increase to goodwill ($251 million). The consolidation of PET resulted in a $41 million gain which represented the difference between the carrying value of the Partnership's previously held equity interest and the fair value on the date of acquisition.
No pro forma information has been presented, as the impact of the acquisitions was not material in relation to the Partnership's consolidated financial position or results of operations in 2016.

4. Related Party Transactions
At March 31, 2017, the Partnership was a consolidated subsidiary of ETP. ETP and one of its affiliates owned Sunoco Partners LLC, the Partnership's general partner, and a 23 percent limited partner interest in the Partnership, including the Class B units issued in October 2015. The Partnership has various operating and administrative agreements with ETP and its affiliates, which include the agreements described below.
Administrative Services
The Partnership has no employees. The operations of the Partnership are carried out by employees of the general partner. The Partnership reimburses the general partner and its affiliates for certain costs and direct expenses incurred on the Partnership's behalf. These costs may be increased if the acquisition or construction of new businesses or assets requires an increase in the level of services received by the Partnership.
The Partnership pays ETP and its affiliates an annual administrative fee for expenses incurred by ETP and its affiliates to perform certain centralized corporate functions, such as legal, accounting, information technology, insurance, office space rental, and other corporate services, including the administration of employee benefit plans. This fee does not include the salaries or wages of employees of the general partner, or the cost of employee benefits or shared insurance.
The Partnership's share of allocated ETP employee benefit plan expenses, including defined contribution 401(k) plans, employee and retiree medical, dental and life insurance plans, incentive compensation plans and other such benefits are reflected in operating expenses and selling, general and administrative expenses in the condensed consolidated statements of comprehensive income.
Affiliated Revenues and Accounts Receivable, Affiliated Companies
The Partnership is party to various agreements with ETP and its affiliates to supply crude oil, NGLs and refined products, as well as to provide pipeline and terminalling services. The revenues associated with these activities are reflected as affiliated revenues in the condensed consolidated statements of comprehensive income.
Acquisitions
See Note 2 for additional information related to the Partnership's participation in the Bayou Bridge and Bakken pipeline projects.




9



5. Net Income Attributable to Partners per Limited Partner Unit
The general partner's interest in net income attributable to partners consists of its general partner interest and "incentive distributions," which are increasing percentages of up to 50 percent of quarterly distributions in excess of $0.0833 per common unit. In September 2016, the Partnership entered into an amendment of its Limited Partnership Agreement to temporarily reduce the incentive distributions received by the general partner over a two-year period, beginning in the third quarter 2016 (see Note 12). The general partner was allocated net income attributable to partners of $113 and $90 million (representing 19 and 62 percent of total net income attributable to partners) for the three months ended March 31, 2017 and 2016, respectively. Diluted net income attributable to partners per limited partner unit is calculated by dividing the limited partners' interest in net income attributable to partners by the sum of the weighted average number of common and Class B units outstanding and the dilutive effect of unvested incentive unit awards (see Note 13).
For the three months ended March 31, 2016, net income attributable to partners was reduced by $4 million in determining earnings per limited partner unit in accordance with accounting guidance applicable to the Class B units, which are reflected as redeemable limited partner interests.
The following table sets forth the reconciliation of the weighted average number of limited partner and Class B units used to compute basic net income attributable to partners per limited partner unit to those used to compute diluted net income attributable to partners per limited partner unit for the three months ended March 31, 2017 and 2016:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(in millions)
Weighted average number of units outstanding, basic
 
331.8

 
282.5

Add effect of dilutive incentive awards
 
1.0

 
0.6

Weighted average number of units, diluted
 
332.8

 
283.1


6. Inventories
The components of inventories are as follows:
 
 
March 31, 2017
 
December 31, 2016
 
 
(in millions)
Crude oil
 
$
784

 
$
683

NGLs
 
84

 
126

Refined products
 
84

 
110

Refined products additives
 
2

 
3

Materials, supplies and other
 
13

 
12

Total Inventories
 
$
967

 
$
934

The Partnership's lower of cost or market ("LCM") reserves totaled $226 and $22 million, respectively, on its crude oil and NGLs inventories at March 31, 2017. At December 31, 2016, the LCM reserves totaled $233 and $17 million on the Partnership's crude oil and NGLs inventories, respectively. See Note 16 for additional information on the LCM adjustments related to the Partnership's LIFO inventory balances, which are reported as impairment charge and other matters within the condensed consolidated statement of comprehensive income.


10



7. Goodwill and Intangible Assets
Intangible Assets
The components of intangible assets are as follows:
 
 
Weighted Average
Amortization Period
 
March 31, 2017
 
December 31, 2016
 
 
(in years)
 
(in millions)
Gross
 
 
 
 
 
 
Customer relationships
 
20
 
$
1,696

 
$
1,149

Technology
 
10
 
47

 
47

Total gross
 
 
 
1,743

 
1,196

Accumulated amortization
 
 
 
 
 
 
Customer relationships
 
 
 
(218
)
 
(199
)
Technology
 
 
 
(21
)
 
(20
)
Total accumulated amortization
 
 
 
(239
)
 
(219
)
Total Net
 
 
 
$
1,504

 
$
977

The $547 million increase in the Partnership's intangible assets is attributable to customer relationships that were recorded in connection with the formation of PEP. See Notes 2 and 11 for additional information.
Amortization expense was $20 and $13 million for the three months ended March 31, 2017 and 2016, respectively. The Partnership forecasts annual amortization expense of $89 million in year 2017, and $91 million of annual amortization expense for each year thereafter through 2021, for these intangible assets.
Intangible assets associated with rights of way are included in properties, plants and equipment in the Partnership's condensed consolidated balance sheets.
Goodwill
Goodwill, which represents the excess of the purchase price in a business combination over the fair value of net assets acquired, is tested for impairment annually in the fourth quarter, or more often if events or changes in circumstances indicate that the carrying value of goodwill may exceed its estimated fair value. The Partnership's goodwill balance was $1,613 and $1,609 million at March 31, 2017 and December 31, 2016, respectively. The $4 million increase was attributable to the formation of PEP.
The Partnership will continue to monitor the volatility in the energy markets and the impact it could have on the estimated fair value of its reporting segments. It is possible that continued negative volatility within these markets could change the Partnership's conclusion regarding whether goodwill is impaired.

8. Income Taxes
The Partnership is not a taxable entity for U.S. federal income tax purposes, or for the majority of states that impose income taxes. Rather, income taxes are generally assessed at the partner level. There are some states in which the Partnership operates where it is subject to state and local income taxes. Substantially all of the income tax amounts reflected in the Partnership's condensed consolidated financial statements are related to the operations of Inland, Mid-Valley and West Texas Gulf, all of which are entities subject to income taxes for federal and state purposes at the corporate level. The effective tax rates for these entities approximate the federal statutory rate of 35 percent.
In taxable jurisdictions, the Partnership records deferred income taxes on all significant temporary differences between the book basis and the tax basis of assets and liabilities. The net deferred tax liabilities reflected in the condensed consolidated balance sheets are derived principally from the differences in the book and tax bases of properties, plants and equipment of Inland, Mid-Valley and West Texas Gulf.



11



9. Debt
The components of the Partnership's debt balance are as follows:
 
 
March 31, 2017
 
December 31, 2016
 
 
 
Credit Facilities
 
(in millions)
$2.50 billion Credit Facility, due March 2020 (1)
 
$
740

 
$
1,292

$1.0 billion 364-Day Credit Facility, due December 2017 (2)
 
630

 
630

 
 
 
 
 
Senior Notes
 
 
 
 
Senior Notes - 5.50%, due February 2020
 
250

 
250

Senior Notes - 4.40%, due April 2021
 
600

 
600

Senior Notes - 4.65%, due February 2022
 
300

 
300

Senior Notes - 3.45%, due January 2023
 
350

 
350

Senior Notes - 4.25% due April 2024
 
500

 
500

Senior Notes - 5.95%, due December 2025
 
400

 
400

Senior Notes - 3.90%, due July 2026
 
550

 
550

Senior Notes - 6.85%, due February 2040
 
250

 
250

Senior Notes - 6.10%, due February 2042
 
300

 
300

Senior Notes - 4.95%, due January 2043
 
350

 
350

Senior Notes - 5.30% due April 2044
 
700

 
700

Senior Notes - 5.35% due May 2045
 
800

 
800

Unamortized fair value adjustments (3)
 
82

 
84

Total debt
 
6,802

 
7,356

Less:
 
 
 
 
Unamortized bond discount and debt issuance costs
 
(42
)
 
(43
)
Long-term debt
 
$
6,760

 
$
7,313

(1) 
Includes $128 and $50 million of commercial paper outstanding at March 31, 2017 and December 31, 2016, respectively.
(2) 
The $1.0 billion 364-Day Credit Facility, including its $630 million term loan, is classified as long-term debt at March 31, 2017 as the Partnership has the ability and intent to refinance such borrowings on a long-term basis.
(3) 
Represents fair value adjustments on senior notes resulting from the application of push-down accounting in connection with the acquisition of the Partnership's general partner by ETP on October 5, 2012.
Credit Facilities
The Partnership maintains a $2.50 billion unsecured revolving credit facility (the "$2.50 billion Credit Facility") which matures in March 2020. The $2.50 billion Credit Facility is used to fund the Partnership's working capital requirements, finance acquisitions and capital projects, and be used for general partnership purposes. The $2.50 billion Credit Facility contains an "accordion" feature, under which the total aggregate commitment may be extended to $3.25 billion under certain conditions. The $2.50 billion Credit Facility includes a segregated tranche of borrowings that are guaranteed by ETP, as well as a commercial paper program that is subject to the borrowing limits under the $2.50 billion Credit Facility. The $2.50 billion Credit Facility bears interest at LIBOR or the Base Rate (as defined in the facility), each plus an applicable margin. The credit facility may be repaid at any time.
The $2.50 billion Credit Facility contains various covenants, including limitations on the creation of indebtedness and liens, and related to the operation and conduct of the business of the Partnership and its subsidiaries. The credit facility also limits the Partnership, on a rolling four quarter basis, to a maximum total consolidated debt to consolidated Adjusted EBITDA ratio, as defined in the underlying credit agreement, of 5.0 to 1, which can generally be increased to 5.5 to 1 during an acquisition period. The Partnership's ratio of total consolidated debt, excluding net unamortized fair value adjustments, to consolidated Adjusted EBITDA was 4.2 to 1 at March 31, 2017, as calculated in accordance with the credit agreement.
In December 2016, the Partnership entered into an agreement for a 364-day maturity credit facility ("364-Day Credit Facility") with a total lending capacity of $1.0 billion, including a $630 million term loan. The terms of the 364-Day Credit Facility are similar to those of the $2.50 billion Credit Facility, including limitations on the creation of indebtedness, liens and financial covenants. The 364-Day Credit Facility is used to fund the Partnership's working capital requirements and for general partnership purposes. The facility bears interest at LIBOR or the Base Rate, as defined in the facility, each plus an applicable

12



margin. In connection with the Partnership's merger with ETP, the 364-Day Credit Facility is expected to be terminated and repaid in the second quarter 2017.
See Note 2 for additional information on the Bakken Pipeline project-level financing.
Senior Notes
The Partnership had $175 million of 6.125 percent Senior Notes which matured and were repaid in May 2016, using borrowings under the $2.50 billion Credit Facility.
In July 2016, the Partnership issued $550 million of 3.90 percent Senior Notes (the "2026 Senior Notes"), due July 2026, for net proceeds of $544 million. The terms and conditions of the 2026 Senior Notes are comparable to those of the Partnership's other outstanding senior notes. The net proceeds from this offering were used to repay outstanding credit facility borrowings and for general partnership purposes.

10. Commitments and Contingent Liabilities
The Partnership is subject to numerous federal, state and local laws which regulate the discharge of materials into the environment or otherwise relate to the protection of the environment. These laws and regulations can result in liabilities and loss contingencies for remediation at the Partnership's facilities and at third-party or formerly owned sites. At March 31, 2017 and December 31, 2016, there were accrued liabilities for environmental remediation in the condensed consolidated balance sheets of $6 and $4 million, respectively. The accrued liabilities for environmental remediation do not include any amounts attributable to unasserted claims, since there are no unasserted claims that are probable of settlement or are reasonably estimable, nor have any recoveries from insurance been assumed. Charges against income for environmental remediation totaled $3 and $2 million for the three months ended March 31, 2017 and 2016, respectively. The Partnership maintains insurance programs that cover certain of its existing or potential environmental liabilities. Claims for recovery of environmental liabilities and previous expenditures that are probable of realization were not material in relation to the Partnership's consolidated financial position at March 31, 2017.
Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional sites; the determination of the extent of the contamination at each site; the timing and nature of required remedial actions; the technology available and needed to meet the various existing legal requirements; the nature and extent of future environmental laws, inflation rates and the determination of the Partnership's liability at multi-party sites, if any, in light of uncertainties with respect to joint and several liability; and the number, participation levels and financial viability of other parties. Management believes it is reasonably possible that additional environmental remediation losses will be incurred. At March 31, 2017, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites, totaled $14 million.
The Partnership is a party to certain pending and threatened claims. Although the ultimate outcome of these claims cannot be ascertained at this time, nor can a range of reasonably possible losses be determined, it is reasonably possible that some portion of them could be resolved unfavorably for the Partnership. Management does not believe that any liabilities which may arise from such claims or the environmental matters discussed above would be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2017. Furthermore, management does not believe that the overall costs for such matters will have a material impact, over an extended period of time, on the Partnership's financial position, results of operations or cash flows.
Sunoco, Inc. ("Sunoco") has indemnified the Partnership for 30 years for environmental and toxic tort liabilities related to the assets contributed to the Partnership that arose from the operation of such assets prior to the closing of the February 2002 initial public offering ("IPO"). Sunoco has also indemnified the Partnership for 100 percent of all losses asserted within the first 21 years after the closing of the IPO. Sunoco's share of the liability for claims asserted thereafter will decrease by 10 percent per year. For example, for a claim asserted during the twenty-third year after the closing of the IPO, Sunoco would be required to indemnify the Partnership for 80 percent of its loss. There is no monetary cap on the amount of indemnity coverage provided by Sunoco. The Partnership has agreed to indemnify Sunoco for events and conditions associated with the operation of the Partnership's assets that occur on or after the closing of the IPO and for environmental and toxic tort liabilities to the extent that Sunoco is not required to indemnify the Partnership.
Management of the Partnership does not believe that any liabilities which may arise from claims indemnified by Sunoco would be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2017. There are certain other pending legal proceedings related to matters arising after the IPO that are not indemnified by Sunoco. Management believes that any liabilities that may arise from these legal proceedings will not be material in relation to the Partnership's financial position, results of operations or cash flows at March 31, 2017.

13



11. Equity
The changes in the number of common units outstanding from January 1, 2016 through March 31, 2017 are as follows:
 
 
Common Units
 
 
(in millions)
Balance at January 1, 2016
 
268.8

Units issued in public offering
 
24.2

Units issued under ATM program
 
29.1

Units issued under incentive plans
 
0.3

Balance at December 31, 2016
 
322.4

Units issued in public offering
 

Units issued under ATM program
 

Units issued under incentive plans
 

Balance at March 31, 2017
 
322.4

The Partnership maintains an at-the-market equity offering program ("ATM" program) which allows it to issue common units directly to the public and raise capital in a timely and efficient manner to finance its growth capital program, while supporting the Partnership's investment grade credit ratings. There was no activity under the ATM program for the three months ended March 31, 2017. For the three months ended March 31, 2016, the Partnership issued 12.1 million common units under this program, for proceeds of $301 million, net of $3 million in fees and commissions to managers.
In September and October 2016, the Partnership completed a public offering of 24.2 million total common units for net proceeds of $644 million. The net proceeds from this offering were used to partially fund the acquisition from Vitol (Note 3).
Formation of Permian Express Partners
In connection with the formation of PEP in February 2017, the Partnership recognized a noncontrolling interest of $988 million attributable to the fair value of ExxonMobil's proportionate ownership interest. See Note 2 for additional information.

12. Cash Distributions
Within 45 days after the end of each quarter, the Partnership distributes all cash on hand at the end of the quarter, less reserves established by the general partner at its discretion. This is defined as "available cash" in the partnership agreement. The general partner has broad discretion to establish cash reserves that it determines are necessary or appropriate to properly conduct the Partnership's business. The Partnership will make quarterly distributions to the extent there is sufficient cash from operations after the establishment of cash reserves and the payment of fees and expenses, including payments to the general partner.
If cash distributions exceed $0.0833 per unit in a quarter, the general partner will receive increasing percentages, up to 50 percent, of the cash distributed in excess of that amount. These distributions are referred to as "incentive distributions." The percentage interests for the unitholders and the general partner for the minimum quarterly distribution are also applicable to the quarterly distribution amounts that are less than the minimum quarterly distribution.











14



The following table shows the target distribution levels and distribution "splits" between the general partner and the holders of the Partnership's common units through March 31, 2017:
 
 
 
 
Marginal Percentage Interest in Distributions
 
Total Quarterly
Distribution Target Amount
 
General Partner
 
Unitholders
Minimum Quarterly Distribution
 
$0.0750
 
1
%
 
 
99
%
First Target Distribution
up to
$0.0833
 
1
%
 
 
99
%
Second Target Distribution
above
$0.0833
 
14
%
(1) 
86
%
up to
$0.0958
 
Third Target Distribution
above
$0.0958
 
36
%
(1) 
64
%
up to
$0.2638
 
Thereafter
above
$0.2638
 
49
%
(1) 
51
%
(1) 
Includes general partner interest.

The distributions paid by the Partnership for the periods presented were as follows:
Cash Distribution Payment Date
 
Cash Distribution
per Limited Partner Unit
 
Total Cash Distribution
to the Limited Partners
 
Total Cash Distribution
to the General Partner
 
 
 
 
(in millions)
 
(in millions)
February 14, 2017
 
$
0.5200

 
$
167

 
$
105

November 14, 2016
 
$
0.5100

 
$
164

 
$
102

August 12, 2016
 
$
0.5000

 
$
149

 
$
98

May 13, 2016
 
$
0.4890

 
$
140

 
$
92

February 12, 2016
 
$
0.4790

 
$
131

 
$
85

In connection with the acquisition from Vitol, the Partnership's general partner executed an amendment to the Partnership's Third Amended and Restated Agreement of Limited Partnership in September 2016, which provides for a reduction to the incentive distributions the general partner receives from the Partnership. The reductions will total $60 million over a two-year period, recognized ratably over eight quarters, beginning with the third quarter 2016 cash distribution.
On April 28, 2017, Post-Merger ETP announced a quarterly cash distribution for the first quarter ended March 31, 2017 of $0.535 per common unit ($2.14 on an annualized basis). This cash distribution will be paid on May 15, 2017 to unitholders of record as of the close of business on May 10, 2017.

13. Management Incentive Plan
Sunoco Partners LLC, the general partner of SXL, has adopted the Sunoco Partners LLC Long-Term Incentive Plan, as amended and restated ("LTIP"). The LTIP, which was approved by unitholders and the board of directors in the fourth quarter 2015, authorized an additional 10.0 million common units to be available under the plan; added additional types of awards that can be granted under the plan, such as phantom unit awards, unit appreciation rights, unrestricted unit awards and other unit-based awards ("plan awards"); added a prohibition on repricing of unit options and unit appreciation rights without the approval of the unitholders; provided for termination of the plan at the earliest date it is terminated by the board of directors, the date no more units remain available for grants, and December 1, 2025; and incorporated certain other administrative changes.
The LTIP benefits eligible employees and directors of the general partner and its affiliates who perform services for the Partnership. The LTIP is administered by the independent directors of the Compensation Committee of the general partner's board of directors with respect to employee awards, and by the general partner's board of directors with respect to awards granted to the independent directors. The LTIP currently permits the grant of restricted units and unit options covering an additional 8.6 million common units.


15



The Partnership issued less than 0.1 and 0.1 million common units under its long-term incentive plan, and recognized share-based compensation expense of $6 and $5 million for the three months ended March 31, 2017 and 2016, respectively. Each of the outstanding restricted unit grants have tandem distribution equivalent rights which are recognized as a reduction to equity when earned.

14. Derivatives and Risk Management
The Partnership is exposed to various risks, including volatility in the prices of the products that the Partnership markets, counterparty credit risk and changes in interest rates.
Price Risk Management
The Partnership is exposed to risks associated with changes in the market price of crude oil, NGLs and refined products. These risks are primarily associated with price volatility related to pre-existing or anticipated purchases, sales and storage. Price changes are often caused by shifts in the supply and demand for these commodities, as well as their locations. In order to manage such exposure, the Partnership's policy is (i) to only purchase crude oil, NGLs and refined products for which sales contracts have been executed or for which ready markets exist, (ii) to structure sales contracts so that price fluctuations do not materially impact the margins earned, and (iii) to not acquire and hold physical inventory, futures contracts or other derivative instruments for the purpose of speculating on commodity price changes. Although the Partnership seeks to maintain a balanced inventory position within its commodity inventories, net unbalances may occur for short periods of time due to production, transportation and delivery variances. When physical inventory builds or draws do occur, the Partnership continuously manages the variance to a balanced position over a period of time.
The physical contracts related to the Partnership's commodity purchase and sale activities that qualify as derivatives have been designated as normal purchases and sales and are accounted for using accrual accounting under the United States' generally accepted accounting principles. The Partnership accounts for derivatives that do not qualify as normal purchases or sales at fair value. The Partnership currently does not utilize derivative instruments to manage its exposure to prices related to crude oil purchase and sale activities. All derivative balances are presented on a gross basis.
Pursuant to the Partnership's approved risk management policy, derivative contracts, such as swaps, futures and other derivative instruments, may be used to hedge or reduce exposure to price risk associated with acquired inventory or forecasted physical transactions. The Partnership utilizes derivative instruments to mitigate the risk associated with market movements in the price of NGLs, refined products, and other commodities as necessary. These derivative contracts act as a hedging mechanism against the volatility of prices by allowing the Partnership to transfer this price risk to counterparties who are able and willing to bear it. The Partnership has not designated any of its derivative contracts as hedges for accounting purposes, therefore, all realized and unrealized gains and losses from these derivative contracts are recognized in the consolidated statement of comprehensive income in the period in which they occur. All realized gains and losses associated with the Partnership's derivative contracts are recorded in earnings in the same line item associated with the forecasted transaction (either sales and other operating revenue, cost of products sold or operating expenses).
The Partnership had open derivative positions on approximately 3.9 and 9.2 million barrels of crude oil, NGLs and refined products at March 31, 2017 and December 31, 2016, respectively. The derivatives outstanding as of March 31, 2017 vary in duration but do not extend beyond one year. The Partnership records its derivatives at fair value based on observable market prices (levels 1 and 2). As of March 31, 2017, the fair value of the Partnership's derivative assets and liabilities were approximately $3 and $4 million, respectively, compared to $19 and $46 million at December 31, 2016. Derivative asset and liability balances are recorded in accounts receivable and accrued liabilities, respectively, in the condensed consolidated balance sheets.








16



The following table sets forth the impact of derivatives on the Partnership's results of operations for the three months ended March 31, 2017 and 2016:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
Location of Gains (Losses) Recognized in Earnings
 
(in millions)
Commodity contracts not designated as cash flow hedging instruments:
 
 
 
 
Sales and other operating revenue
 
$
(14
)
 
$
3

Cost of products sold
 
(3
)
 
(1
)
 
 
$
(17
)
 
$
2

Credit Risk Management
The Partnership maintains credit policies with regard to its counterparties that management believes minimize the overall credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. The credit positions of the Partnership's customers are analyzed prior to the extension of credit and periodically after credit has been extended. The Partnership's counterparties consist primarily of financial institutions and major integrated oil companies. This concentration of counterparties may impact the Partnership's overall exposure to credit risk, either positively or negatively, as the counterparties may be similarly affected by changes in economic, regulatory or other conditions.
Interest Rate Risk Management
The Partnership has interest rate risk exposure for changes in interest rates related to its outstanding borrowings. The Partnership manages its exposure to changes in interest rates through the use of a combination of fixed-rate and variable-rate debt. At March 31, 2017, the Partnership had $1.4 billion of consolidated variable-rate borrowings under its credit facilities, including $128 million of commercial paper products and the $630 million term loan.

15. Fair Value Measurements
The Partnership applies fair value accounting for all assets and liabilities that are required to be measured at fair value under current accounting rules. The assets and liabilities measured at fair value on a recurring basis are comprised primarily of derivative instruments.
The Partnership determines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Partnership utilizes valuation techniques that maximize the use of observable inputs (levels 1 and 2) and minimize the use of unobservable inputs (level 3) within the fair value hierarchy established by the FASB. The Partnership generally applies a "market approach" to determine fair value. This method uses pricing and other information generated by market transactions for identical or comparable assets and liabilities. Assets and liabilities are classified within the fair value hierarchy based on the lowest level (least observable) input that is significant to the measurement in its entirety.
The estimated fair value of the Partnership's financial instruments has been determined based on management's assessment of available market information and appropriate valuation methodologies. The Partnership's current assets (other than derivatives and inventories) and current liabilities (other than derivatives) are financial instruments and most of these items are recorded at cost in the condensed consolidated balance sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The Partnership's derivatives are measured and recorded at fair value based on observable market prices (Note 14). The estimated fair value of the Partnership's senior notes is determined using observable market prices, as these notes are actively traded (level 1). The estimated aggregate fair value of the senior notes at March 31, 2017 was $5.4 billion, compared to the carrying amount of $5.4 billion. The estimated aggregate fair value of the senior notes at December 31, 2016 was $5.4 billion, compared to the carrying amount of $5.4 billion.
For further information regarding the Partnership's fair value measurements, see Notes 2, 3 and 14.



17



16. Business Segment Information
The following tables summarize condensed consolidated statements of comprehensive income information for the Partnership's business segments and reconcile total segment Adjusted EBITDA to net income attributable to the Partnership for the three months ended March 31, 2017 and 2016, respectively: 
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(in millions)
Sales and other operating revenue (1)
 
 
 
 
Crude Oil
 
$
2,557

 
$
1,380

Natural Gas Liquids
 
385

 
233

Refined Products
 
277

 
164

Total sales and other operating revenue
 
$
3,219

 
$
1,777

 
 
 
 
 
Depreciation and amortization
 
 
 
 
Crude Oil
 
$
73

 
$
59

Natural Gas Liquids
 
27

 
21

Refined Products
 
25

 
26

Total depreciation and amortization
 
$
125

 
$
106

 
 
 
 
 
Impairment charge and other matters
 
 
 
 
Crude Oil
 
$
(7
)
 
$
24

Natural Gas Liquids
 
5

 
4

Refined Products
 

 
(2
)
Total impairment charge and other matters
 
$
(2
)
 
$
26

 
 
 
 
 
Adjusted EBITDA
 
 
 
 
Crude Oil
 
$
147

 
$
224

Natural Gas Liquids
 
82

 
74

Refined Products
 
49

 
51

Total Adjusted EBITDA
 
278

 
349

Interest expense, net
 
(40
)
 
(39
)
Depreciation and amortization expense
 
(125
)
 
(106
)
Impairment charge and other matters

 
2

 
(26
)
Provision for income taxes
 
(10
)
 
(5
)
Non-cash compensation expense
 
(6
)
 
(5
)
Unrealized gains (losses) on commodity risk management activities
 
24

 
(13
)
Amortization of excess equity method investment
 
(1
)
 
(1
)
Proportionate share of unconsolidated affiliates' interest, depreciation and provision for income taxes
 
(10
)
 
(8
)
Gain on sale of investment in affiliate
 
483

 

Net Income
 
595

 
146

Less: Net income attributable to noncontrolling interests
 
(10
)
 
(1
)
Net Income attributable to Partners
 
$
585

 
$
145

(1) 
Sales and other operating revenue includes the following amounts from ETP and its affiliates for the three months ended March 31, 2017 and 2016:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
 
 
(in millions)
Crude Oil
 
$
5

 
$
4

Natural Gas Liquids
 
49

 
49

Refined Products
 
94

 
56

Total sales and other operating revenue
 
$
148

 
$
109



18



The following table summarizes the identifiable assets for each segment as of March 31, 2017 and December 31, 2016:
 
 
March 31, 2017
 
December 31, 2016
 
 
(in millions)
Crude Oil
 
$
11,720

 
$
10,939

Natural Gas Liquids
 
5,290

 
4,937

Refined Products
 
2,740

 
2,795

Corporate and other assets (1)
 
186

 
178

Total identifiable assets
 
$
19,936

 
$
18,849

(1) 
Corporate and other assets consist of cash and cash equivalents, properties, plants and equipment and other assets.

17. Supplemental Condensed Consolidating Financial Information
The Partnership serves as guarantor of the senior notes. These guarantees are full and unconditional. For the purposes of this footnote, Sunoco Logistics Partners L.P. is referred to as "Parent Guarantor" and Sunoco Logistics Partners Operations L.P. is referred to as "Subsidiary Issuer." All other consolidated subsidiaries of the Partnership are collectively referred to as "Non-Guarantor Subsidiaries."
The following supplemental condensed consolidating financial information reflects the Parent Guarantor's separate accounts, the Subsidiary Issuer's separate accounts, the combined accounts of the Non-Guarantor Subsidiaries, the combined consolidating adjustments and eliminations, and the Parent Guarantor's consolidated accounts for the dates and periods indicated. For purposes of the following condensed consolidating information, the Parent Guarantor's investments in its subsidiaries and the Subsidiary Issuer's investments in its subsidiaries are accounted for under the equity method of accounting.

19



Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended March 31, 2017
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
3,071

 
$

 
$
3,071

Affiliates
 

 

 
148

 

 
148

Gain on sale of investment in affiliate
 

 

 
483

 

 
483

Total Revenues
 

 

 
3,702

 

 
3,702

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
2,891

 

 
2,891

Operating expenses
 

 

 
21

 

 
21

Selling, general and administrative expenses
 

 

 
32

 

 
32

Depreciation and amortization expense
 

 

 
125

 

 
125

Impairment charge and other matters
 

 

 
(2
)
 

 
(2
)
Total Costs and Expenses
 

 

 
3,067

 

 
3,067

Operating Income
 

 

 
635

 

 
635

Interest cost and debt expense, net
 

 
(75
)
 
2

 

 
(73
)
Capitalized interest
 

 
33

 

 

 
33

Other income
 

 

 
10

 

 
10

Equity in earnings of subsidiaries
 
585

 
628

 

 
(1,213
)
 

Income (Loss) Before Provision for Income Taxes
 
585

 
586

 
647

 
(1,213
)
 
605

Provision for income taxes
 

 

 
(10
)
 

 
(10
)
Net Income (Loss)
 
585

 
586

 
637

 
(1,213
)
 
595

Less: Net income attributable to noncontrolling interests
 

 

 
(10
)
 

 
(10
)
Net Income (Loss) Attributable to Partners
 
$
585

 
$
586

 
$
627

 
$
(1,213
)
 
$
585

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
585

 
$
586


$
638

 
$
(1,213
)
 
$
596

Less: Comprehensive income attributable to noncontrolling interests
 

 

 
(10
)
 

 
(10
)
Comprehensive Income (Loss) Attributable to Partners
 
$
585

 
$
586

 
$
628

 
$
(1,213
)
 
$
586


20



Condensed Consolidating Statement of Comprehensive Income (Loss)
Three Months Ended March 31, 2016
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
 
 
 
 
 
 
 
 
 
 
Sales and other operating revenue:
 
 
 
 
 
 
 
 
 
 
Unaffiliated customers
 
$

 
$

 
$
1,668

 
$

 
$
1,668

Affiliates
 

 

 
109

 

 
109

Total Revenues
 

 

 
1,777

 

 
1,777

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
Cost of products sold
 

 

 
1,413

 

 
1,413

Operating expenses
 

 

 
23

 

 
23

Selling, general and administrative expenses
 

 

 
26

 

 
26

Depreciation and amortization expense
 

 

 
106

 

 
106

Impairment charge and other matters
 

 

 
26

 

 
26

Total Costs and Expenses
 

 

 
1,594

 

 
1,594

Operating Income (Loss)
 

 

 
183

 

 
183

Interest cost and debt expense, net
 

 
(64
)
 
(1
)
 

 
(65
)
Capitalized interest
 

 
26

 

 

 
26

Other income
 

 

 
7

 

 
7

Equity in earnings of subsidiaries
 
145

 
183

 

 
(328
)
 

Income (Loss) Before Provision for Income Taxes
 
145

 
145

 
189

 
(328
)
 
151

Provision for income taxes
 

 

 
(5
)
 

 
(5
)
Net Income (Loss)
 
145

 
145

 
184

 
(328
)
 
146

Less: Net income attributable to noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Net Income (Loss) Attributable to Partners
 
$
145

 
$
145

 
$
183

 
$
(328
)
 
$
145

 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income (Loss)
 
$
145

 
$
145

 
$
185

 
$
(328
)
 
$
147

Less: Comprehensive income attributable to noncontrolling interests
 

 

 
(1
)
 

 
(1
)
Comprehensive Income (Loss) Attributable to Partners
 
$
145

 
$
145

 
$
184

 
$
(328
)
 
$
146



 



21



Condensed Consolidating Balance Sheet
March 31, 2017
(in millions, unaudited)
 
 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
38

 
$

 
$

 
$
38

Accounts receivable, net
 

 

 
1,877

 

 
1,877

Accounts receivable, affiliated companies
 

 

 
40

 

 
40

Inventories
 

 

 
967

 

 
967

Other current assets
 

 
2

 
7

 

 
9

Total Current Assets
 

 
40

 
2,891

 

 
2,931

Properties, plants and equipment, net
 

 

 
13,149

 

 
13,149

Investment in affiliates
 
7,787

 
11,325

 
662

 
(19,112
)
 
662

Goodwill
 

 

 
1,613

 

 
1,613

Intangible assets, net
 

 

 
1,504

 

 
1,504

Other assets
 

 
4

 
73

 

 
77

Total Assets
 
$
7,787

 
$
11,369

 
$
19,892

 
$
(19,112
)
 
$
19,936

Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$

 
$
2,017

 
$

 
$
2,017

Accounts payable, affiliated companies
 

 
4

 
74

 

 
78

Accrued liabilities
 

 
25

 
305

 

 
330

Accrued taxes payable
 

 

 
44

 

 
44

Intercompany
 
(1,492
)
 
(3,207
)
 
4,699

 

 

Total Current Liabilities
 
(1,492
)
 
(3,178
)
 
7,139

 

 
2,469

Long-term debt
 

 
6,760

 

 

 
6,760

Other deferred credits and liabilities
 

 

 
130

 

 
130

Deferred income taxes
 

 

 
256

 

 
256

Total Liabilities
 
(1,492
)
 
3,582

 
7,525

 

 
9,615

Redeemable noncontrolling interests
 

 

 
15

 

 
15

Redeemable Limited Partners' interests
 
300

 

 

 

 
300

Total Equity
 
8,979

 
7,787

 
12,352

 
(19,112
)
 
10,006

Total Liabilities and Equity
 
$
7,787

 
$
11,369

 
$
19,892

 
$
(19,112
)
 
$
19,936


22



Condensed Consolidating Balance Sheet
December 31, 2016
(in millions, audited)

 
 
Parent
Guarantor
 
Subsidiary
Issuer
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
41

 
$

 
$

 
$
41

Accounts receivable, net
 

 

 
1,555

 

 
1,555

Accounts receivable, affiliated companies
 

 

 
44

 

 
44

Inventories
 

 

 
934

 

 
934

Note receivable, affiliated companies
 

 

 
301

 

 
301

Other current assets
 

 
2

 
29

 

 
31

Total Current Assets
 

 
43

 
2,863

 

 
2,906

Properties, plants and equipment, net
 

 

 
12,324

 

 
12,324

Investment in affiliates
 
7,199

 
10,664

 
952

 
(17,863
)
 
952

Goodwill
 

 

 
1,609

 

 
1,609

Intangible assets, net
 

 

 
977

 

 
977

Other assets
 

 
5

 
76

 

 
81

Total Assets
 
$
7,199

 
$
10,712

 
$
18,801

 
$
(17,863
)
 
$
18,849

Liabilities and Equity
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$

 
$

 
$
1,750

 
$

 
$
1,750

Accounts payable, affiliated companies
 

 
4

 
59

 

 
63

Accrued liabilities
 

 
49

 
238

 

 
287

Accrued taxes payable
 

 

 
38

 

 
38

Intercompany
 
(1,761
)
 
(3,853
)
 
5,614

 

 

Total Current Liabilities
 
(1,761
)
 
(3,800
)
 
7,699

 

 
2,138

Long-term debt
 

 
7,313