Note 1 - Organization and Basis of Presentation

Description and Nature of Business

Andeavor Logistics LP (“Andeavor Logistics” or the “Partnership”) is a growth-oriented Delaware limited partnership formed in December 2010 by Andeavor and its wholly-owned subsidiary, TLGP, our general partner, to own, operate, develop and acquire logistics and related assets and businesses. Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours” refer to Andeavor Logistics LP, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless the context otherwise requires, references in this report to “Andeavor” or our “Sponsor” refer collectively to Andeavor for all activity through September 30, 2018, or Andeavor LLC, successor-by-merger to Andeavor effective October 1, 2018 and a wholly owned subsidiary of Marathon Petroleum Corporation, and any of Andeavor’s or Andeavor LLC’s subsidiaries, as applicable, other than Andeavor Logistics, its subsidiaries and its general partner. References in this report to “Marathon” or “MPC” refer to Marathon Petroleum Corporation, one or more of its consolidated subsidiaries, including Andeavor LLC, or all of them taken as a whole.

Our logistics assets are integral to the success of Marathon’s refining and marketing operations and are used to gather crude oil and to distribute, transport and store crude oil and refined products. We are a full service logistics company operating primarily in the western and mid-continent regions of the United States. We own and operate a network of crude oil, refined products and natural gas pipelines as well as operate crude oil and refined products truck and marine terminals and provide crude oil and refined product storage capacity. In addition, we own and operate bulk petroleum distribution facilities and natural gas processing and fractionation complexes. Our assets are categorized into the following segments: Terminalling and Transportation, Gathering and Processing, and Wholesale. See Note 14 for additional information regarding our segments.

We generate revenues by charging fees for terminalling, transporting and storing crude oil and refined products, gathering crude oil and produced water, gathering and processing natural gas and selling fuel through wholesale commercial contracts. We are generally not directly exposed to commodity price risk with respect to any of the crude oil, natural gas, NGLs or refined products that we handle as part of our normal operations. However, we may be subject to limited commodity risk exposure due to pipeline loss allowance provisions in many of our pipeline gathering and transportation contracts and a nominal amount of condensate retained as part of our natural gas gathering services. For the NGLs that we handle under keep-whole agreements, the Partnership has a fee-based processing agreement with our Sponsor, which minimizes the impact of commodity price movement during the annual period subsequent to renegotiation of terms and pricing each year. We do not engage in the trading of crude oil, natural gas, NGLs or refined products; therefore we have minimal direct exposure to risks associated with commodity price fluctuations. However, these risks indirectly influence our activities and results of operations over the long-term through their effects on our customers’ operations. As part of the WNRL Merger, we acquired a wholesale fuel business that has exposure to commodity prices while the refined product is being transported but is mitigated by fixed margin contracts. In the years ended December 31, 2018, 2017 and 2016, 67%, 44% and 51% of our revenue, respectively, was derived from our Sponsor under various long-term, fee-based commercial agreements, the majority of which include minimum volume commitments, and from wholesale fuel sales to our Sponsor. QEP Resources accounted for 13% of our total revenues in the year ended December 31, 2016. No single customer, other than our Sponsor, accounted for more than 10% of our total revenues for the years ended December 31, 2018 and 2017.

Our Terminalling and Transportation segment consists of the Northwest Pipeline System, which includes a regulated common carrier products pipeline running from Salt Lake City, Utah to Spokane, Washington and a jet fuel pipeline to the Salt Lake City International Airport; a regulated common carrier refined products pipeline system connecting Marathon’s Kenai refinery to our terminals in Anchorage, Alaska; tankage and related equipment at Marathon’s Kenai refinery; crude oil and refined products terminals and storage facilities in the western, southwest and midwestern U.S.; and storage facilities located at Marathon’s refineries. It also consists of marine terminals in California and in Washington; asphalt terminalling and processing services at our asphalt plant and terminal in El Paso, stand-alone asphalt terminals in the southwest as well as a 50% interest in PNAC. The segment also includes a rail-car unloading facility in Washington; a manifest rail facility in Washington; an asphalt trucking operation and a petroleum coke handling and storage facility in Los Angeles; and other pipelines that transport products and crude oil from Marathon’s refineries to nearby facilities in Salt Lake City and Los Angeles.

Our Gathering and Processing segment includes crude oil, natural gas, NGLs and produced water gathering systems in the Bakken Shale/Williston Basin area of the Bakken Region, the Green River Basin, the Rockies Region, the Permian Basin System and the Four Corners System. It also consists of the Great Northern Midstream and Fryburg pipelines, crude trucking operations and gas processing and fractionation complexes.

Our Wholesale segment includes the operations of several bulk petroleum distribution plants and a fleet of refined product delivery trucks that distribute commercial wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas. The refined product trucking business delivers a significant portion of the volumes sold by our Wholesale segment.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of Andeavor Logistics and its subsidiaries. All intercompany accounts and transactions have been eliminated. We have evaluated subsequent events through the filing of this Form 10-K. Any material subsequent events that occurred during this time have been properly recognized or disclosed in our financial statements. We have not reported comprehensive income due to the absence of items of other comprehensive income in the years presented.

In 2018, 2017 and 2016, we entered into various transactions with our Sponsor and our general partner, TLGP, pursuant to which we acquired from our Sponsor the following:

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gathering, storage and transportation assets in the Permian Basin; legacy Western Refining assets and associated crude terminals; the majority of our Sponsor’s remaining refining terminalling, transportation and storage assets; and equity method investments in ALRP, MPL and PNAC on August 6, 2018. In addition, the Conan Crude Oil Gathering System and LARIP were transferred at cost plus incurred interest;


•	crude oil, feedstock and refined products storage, the Anacortes marine terminal, a manifest rail facility and crude oil and refined products pipelines located in Anacortes, Washington on November 8, 2017;


•	logistic assets owned by WNRL, which consisted of pipelines, gathering, terminalling, storage, transportation and wholesale fuel distribution assets effective October 30, 2017;


•	tankage, refined product storage, marine terminal terminalling and storage assets, pipelines, causeway and ancillary equipment located in Martinez, California (the “Northern California Terminalling and Storage Assets”) effective November 21, 2016; and


•	all of the limited liability company interests in Tesoro Alaska Terminals, LLC, tankage, bulk tank farm, a truck rack and rail-loading facility, terminalling and other storage assets located in Kenai, Anchorage and Fairbanks, Alaska (the “Alaska Storage and Terminalling Assets”) completed in two stages on July 1, 2016 and September 16, 2016.

These transactions are collectively referred to as “Acquisitions from our Sponsor” and the related assets, liabilities and results of the operations are collectively referred to as the “Predecessors.”

The Acquisitions from our Sponsor were transfers between entities under common control. As an entity under common control with our Sponsor, we record the assets that we acquired from our Sponsor on our consolidated balance sheet at our Sponsor’s historical basis instead of fair value. Transfers of businesses between entities under common control are accounted for as if the transfer occurred at the beginning of the period, and prior periods are retrospectively adjusted to furnish comparative information. Accordingly, the accompanying financial statements and related notes of Andeavor Logistics have been retrospectively adjusted to include the historical results of the assets acquired in the Acquisitions from our Sponsor prior to the effective date of each acquisition. The acquisition of logistics assets located in Anacortes, Washington in 2017 was immaterial to our consolidated financial statements. While this acquisition is a common control transaction, prior periods have not been retrospectively adjusted as these assets do not constitute a business in accordance with ASU 2017-01, “Clarifying the Definition of a Business”. See Note 2 for additional information regarding the 2018, 2017 and 2016 acquisitions.

The accompanying financial statements and related notes present the combined financial position, results of operations, cash flows and equity of our Predecessors at historical cost. The financial statements of our Predecessors have been prepared from the separate records maintained by our Sponsor and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors had been operated as an unaffiliated entity. Other than WNRL and certain assets acquired from the 2018 Drop Down, our Predecessors did not record revenue for transactions with our Sponsor. Accordingly, the revenues in our Predecessors’ historical combined financial statements relate only to amounts received from third parties for these services.

Use of Estimates

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues and expenses reported and presented as of and for the periods ended. We review our estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates and actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include bank deposits and low-risk, short-term investments with original maturities of three months or less at the time of purchase. Cash equivalents are stated at cost, which approximates market value. We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. We had no cash and cash equivalents held in money market funds.

Receivables

A portion of the Partnership’s accounts receivable is due from our Affiliates. Credit for non-affiliated customers is extended based on an evaluation of each customer’s financial condition and in certain circumstances, collateral, such as letters of credit or guarantees, is required. Our allowance for doubtful accounts is based on various factors including current sales amounts, historical charge-offs and specific accounts identified as high risk. After reasonable efforts to collect the amounts have been exhausted, balances are deemed uncollectible and are charged against the allowance for doubtful accounts. Write-offs were immaterial in 2018, 2017 and 2016. We do not have any off-balance-sheet credit exposure related to our customers.

Property, Plant and Equipment

Property, plant and equipment are stated at the lower of historical cost less accumulated depreciation or fair value, if impaired. We capitalize all construction-related direct labor and material costs, as well as indirect construction costs. Indirect construction costs include general engineering and other allocated employee costs. Costs, including complete asset replacements and enhancements or upgrades that increase the original efficiency, productivity or capacity of property, plant and equipment, are also capitalized. The costs of repairs, minor replacements and maintenance projects that do not increase the original efficiency, productivity or capacity of property, plant and equipment are expensed as incurred. We capitalize interest as part of the cost of major projects during the construction period. Capitalized interest totaled $13 million, $8 million and $6 million for 2018, 2017 and 2016, respectively, and is recorded as a reduction to net interest and financing costs in our consolidated statements of operations.

We compute depreciation of property, plant and equipment using the straight-line method, based on the estimated useful life and salvage value of each asset. When assets are placed into service, we make estimates with respect to their useful lives that we believe are reasonable. However, factors such as maintenance levels, economic conditions impacting the demand for these assets and regulatory or environmental requirements could cause us to change our estimates, thus impacting the future calculation of depreciation. We depreciate leasehold improvements and property acquired under capital leases over the lesser of the lease term or the economic life of the asset. Depreciation expense totaled $310 million, $262 million and $202 million for 2018, 2017 and 2016, respectively.

When items of property, plant and equipment are sold or otherwise disposed of, any gains or losses are reported in net income. Gains on the disposal of property, plant and equipment are recognized when earned, which is generally at the time of closing. If a loss on disposal is expected, such losses are recognized when the assets are classified as held for sale.

Asset Retirement Obligations

We record AROs at fair value in the period in which we have a legal obligation to incur costs, whether by government action or contractual arrangement, to retire a tangible asset and can make a reasonable estimate of the fair value of the liability. AROs are calculated based on the present value of the estimated removal and other closure costs using our credit-adjusted risk-free rate given an estimated settlement date for the obligation. We estimate settlement dates by considering our past practice, industry practice, management’s intent and estimated economic lives. We cannot currently estimate the fair value for certain potential AROs primarily because we cannot estimate settlement dates (or range of dates) associated with these assets. These AROs include, but are not limited to, the removal or dismantlement of terminal facilities, pipelines and other buildings. AROs included in our consolidated balance sheets were $10 million and $11 million at December 31, 2018 and 2017, respectively.

Acquired Intangibles and Goodwill

Acquired intangibles are recorded at fair value as of the date acquired and consist of customer relationships obtained in connection with the acquisitions of WNRL, the North Dakota Gathering and Processing Assets, and Andeavor Field Services, LLC, (the “Rockies Natural Gas Business Acquisition”). The value for the identified customer relationships consists of cash flow expected from existing contracts and future arrangements from the existing customer base. We amortize acquired intangibles with finite lives on a straight-line basis over an estimated weighted average useful life of 31 years and we include the amortization in depreciation and amortization expenses on our consolidated statements of operations.

Goodwill represents the amount the purchase price exceeds the fair value of net assets acquired in a business combination. We do not amortize goodwill or indefinite-lived intangible assets. The goodwill recorded for the acquisition of WNRL represents goodwill recognized by our Sponsor. Goodwill represents future organic growth opportunities, anticipated synergies and intangible assets that did not qualify for separate recognition. We are required, however, to review goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events or changes in business circumstances indicate that the asset might be impaired. In such circumstances, we record the impairment in loss on asset disposals and impairments in our consolidated statements of operations. We review the recorded value of goodwill for impairment on November 1^st of each year, or sooner if events or changes in circumstances indicate the carrying amount may exceed fair value using qualitative and/or quantitative assessments at the reporting level. There were no impairments of goodwill during the years ended December 31, 2018, 2017 and 2016.

Impairment of Long-Lived Assets

We review property, plant and equipment and other long-lived assets, including acquired intangibles with finite lives, for impairment whenever events or changes in business circumstances indicate the net book values of the assets may not be recoverable. Impairment is indicated when the undiscounted cash flows estimated to be generated by those assets are less than the assets’ net book value. If this occurs, an impairment loss is recognized for the difference between the asset fair value and net book value. Factors that indicate potential impairment include: a significant decrease in the market value of the asset, operating or cash flow losses associated with the use of the asset and a significant change in the asset’s physical condition or use.

Equity Method Investments and Joint Ventures

For equity investments that are not required to be consolidated under the variable interest model, we evaluate the level of influence we are able to exercise over an entity’s operations to determine whether to use the equity method of accounting. We use equity method of accounting when we are able to have significant influence over an entity’s operations. Our judgment regarding the level of control over an equity method investment includes considering key factors such as our ownership interest, participation in policy-making and other significant decisions and material intercompany transactions. Amounts recognized for equity method investments are included in other noncurrent assets in our consolidated balance sheets and adjusted for our share of the net earnings or losses of the investee, which are presented separately in our statements of consolidated operations, capital contributions made and cash dividends received. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. An impairment loss is recorded in earnings in the current period to write down the carrying value of the investment to fair value if a decline in the value of an equity method investment is determined to be other than temporary. There were no impairments of our equity method investments during the years ended December 31, 2018, 2017 and 2016.

Financial Instruments

Financial instruments including cash and cash equivalents, receivables, accounts payable and accrued liabilities are recorded at their carrying value. We believe the carrying value of these financial instruments approximates fair value. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and the expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

The fair value of our senior notes is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The carrying value and fair value of our debt were $5.0 billion and $4.9 billion at December 31, 2018, respectively, and were $4.2 billion and $4.3 billion at December 31, 2017, respectively. These carrying and fair values of our debt do not consider the unamortized issuance costs, which are netted against our total debt.

Income Taxes

We are a limited partnership and, with the exception of three of our subsidiaries, are not subject to federal or state income taxes. Our taxable income or loss is included in the federal and state income tax returns of our partners. Taxable income may vary substantially from income or loss reported for financial reporting purposes due to differences in the tax bases and financial reporting bases of assets and liabilities, and due to certain taxable income allocation requirements of the partnership agreement. We are unable to readily determine the net difference in the bases of our assets and liabilities for financial and tax reporting purposes because individual unitholders have different investment bases depending upon the timing and price of acquisition of their partnership units.

Contingencies

Environmental Matters

We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect of the disposal or release of specified substances at current and former operating sites. Our environmental liabilities are estimates using internal and third-party assessments and available information to date. It is possible these estimates will change as additional information becomes available.

We capitalize environmental expenditures that extend the life or increase the capacity of facilities as well as expenditures that prevent environmental contamination. We expense costs that relate to an existing condition caused by past operations and that do not contribute to current or future revenue generation. We record liabilities when environmental assessments and/or remedial efforts are probable and can be reasonably estimated. Cost estimates are based on the expected timing and the extent of remedial actions required by governing agencies, experience gained from similar sites for which environmental assessments or remediation have been completed, and the amount of our anticipated liability considering the proportional liability and financial abilities of other responsible parties. Certain of our environmental liabilities, specific to long-term monitoring costs we believe are fixed and determinable, are recorded on a discounted basis. Where the available information is sufficient to estimate the amount of liability, that estimate is used. Where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than another, the lower end of the range is used. Possible recoveries of some of these costs from other parties are not recognized in the financial statements until they become probable. Legal costs associated with environmental remediation are included as part of the estimated liability. The majority of our environmental liabilities are recorded on an undiscounted basis.

Legal Matters

In the ordinary course of business, we become party to lawsuits, administrative proceedings and governmental investigations. These matters may involve large or unspecified damages or penalties that may be sought from us and may require years to resolve. We record a liability related to a loss contingency attributable to such legal matters in other current liabilities or other noncurrent liabilities on our consolidated balance sheets, depending on the classification as current or noncurrent if we determine the loss to be both probable and estimable. The liability is recorded for an amount that is management’s best estimate of the loss, or when a best estimate cannot be made, the minimum loss amount of a range of possible outcomes.

Acquisitions

We use the acquisition method of accounting for the recognition of assets acquired and liabilities assumed with acquisitions at their estimated fair values as of the date of acquisition, with the exception of the Acquisitions from our Sponsor. As an entity under common control with our Sponsor, we record the assets that we acquired from our Sponsor on our consolidated balance sheet at our Sponsor’s historical basis instead of fair value. Any excess consideration transferred over the estimated fair values of the identifiable net assets acquired from third parties is recorded as goodwill. While we use our best estimates and assumptions to measure the fair value of the identifiable assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, not to exceed one year from the date of acquisition, any changes in the estimated fair values of the net assets recorded for the acquisitions will result in an adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. Our acquisitions are discussed further in Note 2.

Revenue Recognition

See Note 13 for details of how we recognize revenue. See below for further discussion on our adoption of ASC 606.

Reimbursements

Pursuant to the Amended Omnibus Agreement and Carson Assets Indemnity Agreement, our Sponsor reimburses the Partnership for pressure testing, required repairs and maintenance identified as a result of the first inspection of certain pipeline and tank assets subsequent to the Acquisitions from our Sponsor, as well as maintenance projects identified in the Amended Omnibus Agreement for which the costs were not known at the date of the Acquisitions from our Sponsor. These amounts are recorded as a reduction to operating expense during the period the costs are incurred. These amounts were $15 million, $16 million and $17 million for the years ended December 31, 2018, 2017 and 2016, respectively.

In addition, our Sponsor reimburses the Partnership for capital projects identified in the Amended Omnibus Agreement. These amounts are recorded as a capital contribution by affiliate and were $51 million, $34 million and $29 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Imbalances

We experience volume gains and losses, which we sometimes refer to as imbalances, within our pipelines, terminals and storage facilities due to pressure and temperature changes, evaporation and variances in meter readings and in other measurement methods. On our crude oil gathering and transportation system in North Dakota and Montana (the “High Plains System”), we retain 0.20% of the crude oil shipped on our owned and operated common carrier pipelines in North Dakota and Montana and we bear any crude oil volume losses in excess of that amount. Under the Second Amended and Restated Master Terminalling Service Agreement, we retain 0.25% of the refined products we handle at certain of our terminals for Marathon, and bear any refined product volume losses in excess of that amount. The value of any crude oil or refined product imbalance settlements resulting from these tariffs or contractual provisions is determined by using the monthly average market prices for the applicable commodity, less a specified discount. The Partnership measures volume losses annually for the terminals and pipelines in the Northwest Pipeline System. We retain 0.125% of the distillates and 0.25% of the other refined products we handle at our terminals on the Northwest Pipeline System and we bear any refined product volume losses in excess of those amounts. The value of any refined product losses is determined by using the annual average market price for the applicable commodity. Any settlements under tariffs or contractual provisions where we bear any crude oil or refined product volume losses are recognized in the period they are realized.

There are pipeline loss allowance provisions associated with the pipeline agreements acquired in the WNRL Merger. There is a 0.20% pipeline loss allowance for the crude oil shipped on these pipeline systems. Each month we invoice our Sponsor for 0.20% of the volume delivered to us by our Sponsor for the month as a volume loss at a price equal to that month's calendar day average for WTI crude oil, as quoted on the New York Mercantile Exchange, less $8.00 per barrel. Following the end of the month, we calculate the actual volume loss and provide a credit to our Sponsor for the amount of actual volume loss at a price equal to the month's calendar day average for WTI crude oil, as quoted on the New York Mercantile Exchange, less $8.00 per barrel.

For all of our other terminals, and under our other commercial agreements with our Sponsor, we have no obligation to measure volume losses and have no liability for physical losses.

The consolidated balance sheets also include offsetting natural gas imbalance receivables or payables resulting from differences in gas volumes received by customers and gas volumes delivered to interstate pipelines. Natural gas volumes owed to or by the Partnership that are subject to tariffs are valued at market index prices, as of the balance sheet dates, and are subject to cash settlement procedures. Other natural gas volumes owed to or by the Partnership are valued at our weighted average cost of natural gas as of the balance sheet dates and are settled in-kind.

Cost Classification

Cost of fuel and other includes the purchase cost of refined products sold within our Wholesale segment and the cost of inbound transportation and distribution costs incurred to transport product to our customers. NGL expense results from the cost of NGL purchases under our POP arrangements as well as the non-cash acquisition of replacement dry gas under our keep-whole arrangements associated with the acquired crude oil, natural gas and produced water gathering systems and two natural gas processing facilities from the North Dakota Gathering and Processing Assets.

Operating expenses are comprised of direct operating costs including costs incurred for direct labor, repairs and maintenance, outside services, chemicals and catalysts, utility costs, including the purchase of electricity and natural gas used by our facilities, property taxes, environmental compliance costs related to current period operations, rent expense and other direct operating expenses incurred in the provision of services.

Depreciation and amortization expenses consist of the depreciation and amortization of property, plant and equipment, deferred charges and intangible assets related to our operating segments along with our corporate operations. General and administrative expenses represent costs that are not directly or indirectly related to or otherwise are not allocated to our operations. Cost of fuel and other, NGL expense, direct operating expenses, and depreciation and amortization expenses recognized by our Terminalling and Transportation, Gathering and Processing, and Wholesale segments (refer to amounts disclosed in Note 14) constitute costs of revenue as defined by U.S. GAAP.

Unit-Based Compensation

Our general partner provides unit-based compensation to officers and non-employee directors for the Partnership, which includes service and performance phantom unit awards. The fair value of our service phantom unit awards on the date of grant is equal to the market price of our common units. We estimate the grant date fair value of performance phantom unit awards using a Monte Carlo simulation at the inception of the award. We amortize the fair value over the vesting period using the straight-line method. The phantom unit awards are settled in Andeavor Logistics common units. Expenses related to unit-based compensation are included in general and administrative expenses in our consolidated statements of operations. Total unit-based compensation expense totaled $9 million for the years ended December 31, 2018 and 2017 and $6 million for the year ended December 31, 2016. The Partnership had 943,466 units available for future grants under the long-term incentive plan at December 31, 2018.

Net Earnings per Limited Partner Unit

Effective October 30, 2017, we closed the WNRL Merger. Prior to the WNRL Merger, we used the two-class method when calculating the net earnings per unit applicable to limited partners, because we had more than one participating security consisting of limited partner common units, general partner units and IDRs. Net earnings earned by the Partnership were allocated between the limited and general partners in accordance with our partnership agreement. However, as a result of the IDR/GP Transaction in October 2017, our general partner and its IDRs no longer participate in earnings or distributions. See Note 2 for additional information regarding the WNRL Merger.

We base our calculation of net earnings per limited partner common unit on the weighted average number of common limited partner units outstanding during the period. Diluted net earnings per unit includes the effects of potentially dilutive units on our common units, which consist of unvested service and performance phantom units.

New Accounting Standards and Disclosures

Revenue Recognition

In May 2014, the FASB issued ASC 606 to replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services for an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, ASC 606 requires expanded disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

We adopted ASC 606 on January 1, 2018 utilizing the modified retrospective method. We recognized a $17 million reduction to the opening balance of partners’ equity as of January 1, 2018 for the cumulative effect adjustment related to contracts in process but not substantially complete as of that date. We reflected the aggregate impact of all modifications executed and effective as of January 1, 2018 in applying the new standard to these contracts. The cumulative effect adjustment is primarily related to the period over which revenue is recognized on contracts for which customers pay minimum throughput volume commitments and claw-back provisions apply. Additionally, upon the adoption of ASC 606, the gross versus net presentation of certain contractual arrangements and taxes has changed as further described in Note 13. The current period results and balances are presented in accordance with ASC 606, while comparative periods continue to be presented in accordance with the accounting standards in effect for those periods.

For the year ended December 31, 2018, we recorded lower revenues of $2.6 billion and lower costs and expenses of $2.6 billion for presentation impacts of applying ASC 606. These impacts were primarily associated with the netting of revenues and costs associated with our fuel purchase and supply arrangements, as further described in Note 13. We recorded lower revenues of $6 million primarily associated with minimum volume commitments during the year ended December 31, 2018 as a result of applying the new standard. There were no material impacts during the period to the consolidated balance sheets or consolidated statement of consolidated cash flows, as a result of the adoption.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”) to record virtually all leases on the balance sheet. The ASU also requires expanded disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those years. We transitioned to the new guidance by recording leases on our balance sheet as of January 1, 2019. We evaluated the impact of this standard on our financial statements, disclosures, internal controls and accounting policies. This evaluation process included reviewing all forms of leases, performing a completeness assessment over the lease population and analyzing the practical expedients in order to determine the best path of implementing changes to existing processes and controls. We implemented a third-party supported lease accounting information system to account for our lease population in accordance with this new standard and established internal controls over the new system. We completed the design and testing of the new system and completed lease data loading and testing. We expect that adoption of the standard will result in the recognition of additional ROU assets and lease liabilities for operating leases in the range of approximately $115 million to $145 million.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends guidance on the impairment of financial instruments. The ASU requires the estimation of credit losses based on expected losses and provides for a simplified accounting model for purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. While we are still evaluating the impact of ASU 2016-13, we do not expect to early adopt ASU 2016-13 nor expect the adoption of this standard to have a material impact on our consolidated financial statements.

Restricted Cash

In November 2016, the FASB issued ASU 2016-18, "Restricted Cash" (“ASU 2016-18”), which clarifies how restricted cash and restricted cash equivalents are presented in the statements of cash flows. The ASU requires that changes in restricted cash that result from transfers between cash, cash equivalents and restricted cash should not be presented as cash flow activities in the statements of cash flows. ASU 2016-18 was effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within those annual reporting periods. We adopted ASU 2016-08 as of January 1, 2018 on a retrospective basis. Adoption of this standard resulted in an increase in cash and cash equivalents during the second quarter of 2017 of $14 million, but the restriction was released during the third quarter of 2017 as the cash was used to reinvest in assets used in our business and as a payment of debt. As a result, the adoption of this standard did not have an impact on our consolidated statement of cash flows for the year ended December 31, 2018.

Pension and Postretirement Costs

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”), which requires the current service-cost component of net benefit costs to be presented similarly with other current compensation costs for related employees on the statement of consolidated operations and stipulates that only the service cost component of net benefit cost is eligible for capitalization. Additionally, the Partnership will present other components of net benefit costs elsewhere on the consolidated statements of operations since these costs are allocated to the Partnership’s financial statements by Marathon. The amendments to the presentation of the consolidated statements of operations in this update should be applied retrospectively while the change in capitalized benefit cost is to be applied prospectively. We adopted ASU 2017-07 as of January 1, 2018. Adoption of the standard resulted in an increase to interest and financing costs of $7 million with a corresponding increase to other income of $7 million for the year ended December 31, 2017 with no impact to net earnings. ASU 2017-07 does not impact the consolidated balance sheets or consolidated statements of cash flows.

Stock Compensation

In June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment awards to nonemployees and eliminates the classification differences for employee and nonemployee share-based payment awards. This guidance is effective for interim and annual periods beginning after December 15, 2018. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.