REVENUE

January 1, 2019,

the Partnership adopted ASU

2016

02,

which created the new accounting standard

ASC Topic

842

- Leases

(“ASC

842”

), using the modified retrospective method. Results for reporting periods beginning on

January 1, 2019,

are presented under ASC

842,

while prior period amounts are

not

adjusted and continue to be reported in accordance with the Partnership’s historic accounting under

ASC Topic

840

- Leases

. The adoption of ASC

842

did

not

have a material effect on the Partnership’s revenue recognition. The primary impact is a change to the recognition of variable consideration that has both a service and lease component. Previously, the variable consideration related to the service component was estimated at the beginning of the contract year and recognized on a straight-line basis over the year. Under ASC

842,

the variable consideration related to the service component is treated as a change in estimate in the period when the facts and circumstances on which the variable payment is based occur.

There are

two

types of contracts in the asphalt terminalling segment: (i) operating lease contracts, under which customers operate the facilities, and (ii) storage, throughput and handling contracts, under which the Partnership operates the facilities. The operating lease contracts are accounted for in accordance with ASC

842

The storage, throughput and handling contracts contain both lease revenue and non-lease service revenue. In accordance with ASC

842

and

606,

fixed consideration is allocated to the lease and service components based on their relative stand-alone selling price. The stand-alone selling price of the lease component is calculated using the average internal rate of return under the operating lease agreements. The stand-alone selling price of the service component is calculated by applying an appropriate margin to the expected costs to operate the facility. The service component contains a single performance obligation that consists of a stand-ready obligation to perform activities as directed by the customer, and revenue is recognized on a straight-line basis over time as the customer receives and consumes benefits. The lease component is recognized on a straight-line basis over the term of the initial lease. Fixed consideration, consisting of the monthly storage and handling fees, is billed a month prior to the performance of services and is due by the

first

day of the month of service. Payments received in advance of the month of service are recorded as unearned revenue until the service is performed, and the service component is treated as a contract liability.

Asphalt storage, throughput and handling contracts also contain variable consideration in the form of reimbursements of utility, fuel and power expenses and throughput fees. Utility, fuel and power reimbursements are allocated entirely to the service component of the contracts. Utility, fuel and power reimbursements relate directly to the distinct monthly service that makes up the overall performance obligation and revenue is recognized in the period in which the service takes place. Variable consideration related to reimbursements of utility, fuel and power expenses is billed in the month subsequent to the period of service, and payment is due within

days of billing. Throughput fees are allocated to both the lease and service component of the contracts using the allocation percentages from contract inception. In accordance with ASC

842,

the lease component of variable throughput fees is recognized in the period when the changes in facts and circumstances on which the variable payment is based occur. Additionally, under ASC

842,

when variable consideration contains both a lease and non-lease service component, the service component cannot be recognized until the period in which the changes in facts and circumstances on which the variable payment is based occur. At that time, it can be recognized in accordance with ASC

606.

The service component of variable throughput fees is treated as a change in estimate in the period in when the changes in facts and circumstances on which the variable payment is based occur and is then recognized on a straight-line basis over time as the customer receives and consumes benefits. Payment on variable throughput consideration is due within

days of billing.

Certain asphalt storage, throughput and handling contracts contain provisions for reimbursement of specified major maintenance costs above a specified threshold over the life of the contract. Reimbursements of specified major maintenance costs are allocated to both the lease and service component of the contracts using the allocation percentages from contract inception. Reimbursements of specified major maintenance costs are reviewed and paid quarterly, which

may

result in overpayments that must be paid back to the customer in future years. As such, the service component of this consideration is constrained and recorded in unearned revenue (contract liability) until facts and circumstances indicate it is probable that the minimum threshold will be met. In the event the minimum threshold is

not

met, the Partnership will return the reimbursement to the customer.

The following table includes revenue associated with contractual commitments in place related to future performance obligations as of the end of the reporting period, which are expected to be recognized in revenue in the specified periods (in thousands):

	Revenue from Contracts with Customers(1)		Revenue from Leases
Remainder of 2019	$	7,756	$	14,012
2020		30,602		53,487
2021		27,253		49,244
2022		19,937		38,545
2023		14,533		29,609
Thereafter		9,142		22,342
Total revenue related to future performance obligations	$	109,223	$	207,239

____________________

(

)

Excluded from the table is revenue that is either constrained or related to performance obligations that are wholly unsatisfied as of

September 30, 2019.

Crude oil terminalling services contracts can be either short- or long-term written contracts. The contracts contain a single performance obligation that consists of a series of distinct services provided over time. Customers are billed a month prior to the performance of terminalling services and payment is due by the

first

day of the month of service. Payments received in advance of the month of service are recorded as unearned revenue (contract liability) until the service is performed. These contracts also contain provisions under which customers are invoiced for product throughput in the month following the month in which the service is provided. Payment on product throughput is due within

days. The Partnership has elected to use the right-to-invoice expedient on crude oil terminalling services contracts as the right to consideration corresponds directly with the value to the customer of performance completed to date.

There are primarily

two

types of contracts in the crude oil pipeline segment: (i) monthly transportation contracts and (ii) product sales contracts.

Under crude oil pipeline services monthly transportation contracts, customers submit nominations for transportation monthly and a contract is created upon the Partnership’s acceptance of the nomination under its published tariffs. Crude oil pipeline services contracts have a single performance obligation to perform the transportation service. The transportation service is provided to the customer in the same month in which the customer makes the related nomination. Revenue is recorded in the month of service and invoiced in the following month. Payment is due within

days. The Partnership has elected to use the right-to-invoice expedient on crude oil pipeline services contracts as the right to consideration corresponds directly with the value to the customer of performance completed to date.

The Partnership also purchases crude oil and resells to

third

parties under written product sales contracts. Product sales contracts have a single performance obligation, and revenue is recognized at the point in time that control is transferred to the customer. Control is considered transferred to the customer on the day of the sale. Customers are invoiced in the following month. Payment is due within

days. The Partnership has elected to use the right-to-invoice expedient on product sales contracts as the right to consideration corresponds directly with the value to the customer of performance completed to date.

Services in the crude oil trucking segment are provided under master service agreements with customers that include rate sheets. Contracts are initiated when a customer requests service and both parties are committed upon the Partnership’s acceptance of the customer’s request. Crude oil trucking contracts have a single performance obligation to perform the service, which is completed in a day. Revenue is recorded in the month of service and invoiced in the following month. Payment is due within

days. The Partnership has elected to use the right-to-invoice expedient on crude oil trucking revenues as the right to consideration corresponds directly with the value to the customer of performance completed to date.

Disaggregation of Revenue

Disaggregation of revenue from contracts with customers for each operating segment by revenue type is presented as follows (in thousands):

	Asphalt Terminalling Services		Crude Oil Terminalling Services		Crude Oil Pipeline Services		Crude Oil Trucking Services		Total
	Three Months ended September 30, 2018
Third-party revenue:
Fixed storage, throughput and other revenue	$	4,865	$	1,830	$	-	$	-	$	6,695
Variable throughput revenue		112		93		-		-		205
Variable reimbursement revenue		1,943		-		-		-		1,943
Crude oil transportation revenue		-		-		1,166		2,734		3,900
Crude oil product sales revenue		-		-		97,763		-		97,763
Related-party revenue:
Fixed storage, throughput and other revenue		3,011		-		83		-		3,094
Variable throughput revenue		762		-		-		-		762
Variable reimbursement revenue		1,439		-		101		-		1,540
Total revenue from contracts with customers	$	12,132	$	1,923	$	99,113	$	2,734	$	115,902

	Nine Months ended September 30, 2018
Third-party revenue:
Fixed storage, throughput and other revenue	$	13,038	$	8,679	$	-	$	-	$	21,717
Variable throughput revenue		471		739		-		-		1,210
Variable reimbursement revenue		5,184		-		-		-		5,184
Crude oil transportation revenue		-		-		4,270		11,783		16,053
Crude oil product sales revenue		-		-		146,882		10		146,892
Related-party revenue:
Fixed storage, throughput and other revenue		12,272		-		132		-		12,404
Variable throughput revenue		762				-		-		762
Variable reimbursement revenue		4,478		-		136		-		4,614
Total revenue from contracts with customers	$	36,205	$	9,418	$	151,420	$	11,793	$	208,836

	Three Months ended September 30, 2019
Third-party revenue:
Fixed storage, throughput and other revenue	$	5,138	$	3,509	$	-	$	-	$	8,647
Variable throughput revenue		518		716		-		-		1,234
Variable reimbursement revenue		1,729		-		-		-		1,729
Crude oil transportation revenue		-		-		1,284		2,822		4,106
Crude oil product sales revenue		-		-		55,213		-		55,213
Related-party revenue:
Fixed storage, throughput and other revenue		2,794		-		63		-		2,857
Variable reimbursement revenue		1,098		-		1		-		1,099
Total revenue from contracts with customers	$	11,277	$	4,225	$	56,561	$	2,822	$	74,885

	Nine Months ended September 30, 2019
Third-party revenue:
Fixed storage, throughput and other revenue	$	15,174	$	9,956	$	-	$	-	$	25,130
Variable throughput revenue		554		1,863		-		-		2,417
Variable reimbursement revenue		5,489		-		-		-		5,489
Crude oil transportation revenue		-		-		5,753		8,540		14,293
Crude oil product sales revenue		-		-		173,773		-		173,773
Related-party revenue:
Fixed storage, throughput and other revenue		8,500		-		229		-		8,729
Variable reimbursement revenue		3,491		-		37		-		3,528
Total revenue from contracts with customers	$	33,208	$	11,819	$	179,792	$	8,540	$	233,359

Contract Balances

The timing of revenue recognition, billings and cash collections result in billed accounts receivable and unearned revenue (contract liabilities) on the unaudited condensed consolidated balance sheets as noted in the contract discussions above. Accounts receivable are reflected in the line items “Accounts receivable” and “Receivables from related parties” on the unaudited condensed consolidated balance sheets. Unearned revenue is included in the line items “Unearned revenue,” “Unearned revenue with related parties,” “Long-term unearned revenue with related parties” and “Other long-term liabilities” on the unaudited condensed consolidated balance sheets.

Billed accounts receivable from contracts with customers were

$34.6

million and

$24.6

million at

December 31, 2018

, and

September 30, 2019

, respectively.

The Partnership records unearned revenues when cash payments are received in advance of performance. Unearned revenue related to contracts with customers was

$5.9

million and

$5.7

million at

December 31, 2018

, and

September 30, 2019

, respectively. The change in the unearned revenue balance for the

nine

months ended

September 30, 2019

, is driven by

$3.2

million in cash payments received in advance of satisfying performance obligations, partially offset by

$3.4

million of revenues recognized that were included in the unearned revenue balance at the beginning of the period.

Practical Expedients and Exemptions

The Partnership does

not

disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of

one

year or less and (ii) contracts for which revenue is recognized at the amount to which the Partnership has the right to invoice for services performed. The Partnership is using the right-to-invoice practical expedient on all contracts with customers in its crude oil terminalling services, crude oil pipeline services and crude oil trucking services segments.