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Note 12 - Related-party Transactions
12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Related Party Transactions Disclosure [Text Block]

12.

RELATED-PARTY TRANSACTIONS

 

The Partnership leases facilities to Ergon and provides liquid asphalt terminalling services to Ergon. For the years ended December 31, 2020 and 2021, the Partnership recognized revenues of $44.4 million and $49.6 million, respectively, for services provided to Ergon. See additional discussion below regarding material asphalt operating lease contracts and storage, throughput and handling contracts. As of December 31, 2020 and 2021, the Partnership had receivables from Ergon of $0.5 million and $0.4 million, respectively. 

 

As of December 31, 2020 and 2021, the Partnership has unearned revenues from Ergon of $8.8 million and $9.3 million, respectively, which primarily relates to cash received in December for the following  January lease and storage fees, and capital project reimbursements and deductibles that are being recognized straight-line over the term of the existing revenue contracts. 

 

Effective April 1, 2018, the Partnership entered into an agreement with Ergon under which the Partnership purchases crude oil in connection with its crude oil marketing operations. For the years ended December 31, 2020 and 2021, the Partnership made purchases of crude oil under this agreement totaling $92.1 million and $9.5 million, respectively. This agreement terminated upon the closing of the sale of the crude oil pipeline services business on February 1, 2021.

 

As of December 31, 2019, the Partnership had a contingent liability to Ergon of $12.2 million related to the Cimarron Express project, a previously disclosed joint venture between Kingfisher Midstream and Ergon's development company (“DEVCO”) that was cancelled in December 2018. The contingent liability reflected Ergon's investment in the joint venture and accrued interest, for which the Partnership, in accordance with the membership interest purchase agreement with Ergon, was meant to bear the risk of loss related to DEVCO’s portion of the project. The Partnership paid this liability in full on January 3, 2020, and it is reflected as an acquisition of the DEVCO on the consolidated statement of cash flows for the year ended December 31, 2020.

 

Ergon 2020 Master Storage, Throughput and Handling Agreement

 

In August 2020, the Partnership and Ergon entered into the “2020 Master Storage, Throughput and Handling Agreement”, effective August 1, 2020, which replaced the three agreements noted below and all related amendments. Pursuant to this agreement, the Partnership provides Ergon with storage and terminalling services at 22 facilities through December 31, 2027. The Board’s conflicts committee reviewed and approved this agreement in accordance with the Partnership’s procedures for approval of related-party transactions and the provisions of the partnership agreement. During the years ended December 31, 2020 and 2021, the Partnership generated revenues under this agreement of $16.8 million and $39.5 million, respectively.

 

 

 

Ergon Operating and Maintenance Agreement

 

In August 2020, the Partnership and Ergon also entered into the Operating and Maintenance Agreement, effective August 1, 2020, pursuant to which Ergon will provide certain operations and maintenance services to the 22 facilities also under the 2020 Master Storage, Throughput and Handling Agreement through  December 31, 2025, with automatic one-year renewals unless either party cancels. The Board’s conflicts committee reviewed and approved this agreement in accordance with the Partnership’s procedures for approval of related-party transactions and the provisions of the partnership agreement. During the years ended December 31, 2020 and 2021, the Partnership recognized expense under this agreement of $7.7 million and $18.6 million, respectively.

 

Ergon Lessee Operated Facility Lease Agreement and Previous Agreements

 

In March 2019, the Partnership and Ergon entered into a facilities lease agreement (the “Ergon Lessee Operated Facility Lease Agreement”) covering 12 facilities. The facilities covered by this agreement were previously accounted for under two separate agreements. This agreement was effective January 1, 2019, and on August 1, 2020, was replaced with the Ergon 2020 Master Storage, Throughput and Handling Agreement discussed above. The Board’s conflicts committee reviewed and approved this agreement in accordance with the Partnership’s procedures for approval of related-party transactions and the provisions of the partnership agreement. During the year ended December 31, 2020, the Partnership generated revenues under this agreement of $4.4 million.

 

Ergon 2016 Storage and Handling Agreement

 

In October 2016, the Partnership and Ergon entered into a storage, throughput and handling agreement (the “Ergon 2016 Storage and Handling Agreement”) pursuant to which the Partnership provides Ergon storage and terminalling services at nine asphalt facilities. In July 2018, the Partnership sold one of the facilities to Ergon and the agreement was amended accordingly. The term of the Ergon 2016 Storage, Throughput and Handling Agreement commenced on October 5, 2016, and in August 2020, was replaced with the Ergon 2020 Master Storage, Throughput and Handling Agreement discussed above. The Board’s conflicts committee reviewed and approved this agreement in accordance with the Partnership’s procedures for approval of related-party transactions and the provisions of the partnership agreement. During the year ended  December 31, 2020, the Partnership generated revenue under this agreement of $12.0 million.

 

Ergon Fontana and Las Vegas Storage Throughput and Handling Agreement

 

In October 2016, the Partnership and Ergon entered into a storage, throughput and handling agreement (the “Ergon Fontana and Las Vegas Storage Throughput and Handling Agreement”) pursuant to which the Partnership provides Ergon storage and terminalling services at two asphalt facilities. The original Ergon Fontana and Las Vegas Master Facilities Lease Agreement commenced on May 18, 2009, and was a part of previous agreement that expired in 2018. A new agreement was executed in March 2019 with an effective date of January 1, 2019, and, on  August 1, 2020, was replaced with the Ergon 2020 Master Storage, Throughput and Handling Agreement discussed above. The Board’s conflicts committee reviewed and approved these agreements in accordance with the Partnership’s procedures for approval of related-party transactions and the provisions of the partnership agreement. During the year ended December 31, 2020, the Partnership generated revenues under this agreement of $3.5 million.