Revenues (Notes)

6 Months Ended

Jun. 30, 2019

We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services. Revenue is recognized net of amounts collected from customers for taxes assessed by governmental authorities on, and concurrent with, specific revenue-producing transactions.

Revenues (in millions)



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)
Revenues from contracts with customers	$	469	$	478	$	963	$	937
Lease revenues	132		91		268		178


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

Service Revenue

We generate service revenue for gathering and transporting crude oil, natural gas and water; processing and fractionating natural gas and NGLs; and terminalling, transporting, and storing crude oil and refined products. We perform these services under various contractual arrangements with our customers. We recognize service revenue over time, as customers simultaneously receive and consume the related benefits of the services that we stand ready to provide. Where contracts contain provisions for minimum volume commitments, we assess the likelihood of insufficient volumes and recognize probable deficiency revenue ratably over the commitment or clawback period.

Product Revenue

We generate product revenue from the sale of NGLs and related products along with the sale of gasoline and diesel fuel within our wholesale business. We sell NGLs, shrink gas and condensate using natural gas we acquire from producers under our POP arrangements. We have certain fuel purchase and sale arrangements under which we receive certain minimum guaranteed margins with upside potential on a certain portion of our branded and unbranded fuel sales. Marathon retains control of fuel and is the principal in these affiliate arrangements. Therefore, we net the purchase and sale of fuel in our condensed consolidated statements of operations. Product revenues are recognized at a point-in-time, which generally occurs upon delivery and transfer of title to the customer.

Other Arrangements

Based on the terms of certain storage and other agreements in which the counterparty is primarily our Sponsor, we are considered to be the lessor under these implicit operating lease arrangements, as discussed in Note 4.

Customer Contract Assets

Our receivables are primarily associated with customer contracts. Our payment terms vary by product or service type, and the period between invoicing and payment is not significant. Included in our receivables are balances associated with commodity sales on behalf of our producer customers, for which we remit the net sales price back to the producer customers upon completion of each sale. These balances are commingled in our receivables, net of allowance for doubtful accounts in our consolidated balance sheets. Our contract assets include amounts recognized for deficiency payments associated with minimum volume commitments which have not been billed to customers. These contract assets are included in prepayments and other current assets in our consolidated balance sheets and are shown in the "Summary of Customer Contract Assets and Liabilities" table below.

Customer Contract Liabilities

For certain products or services, we receive payment in advance of when performance obligations are satisfied. These liabilities from contracts with customers consist primarily of certain deficiency payments for minimum volume commitments and customer reimbursements of costs for capital projects. Customer advances for capital projects are generally recognized over the contract term. Payments for minimum volume commitments and other customer advances are included in deferred income within other current liabilities and other noncurrent liabilities based on timing of expected recognition, which may extend up to 15 years. During the three months ended June 30, 2019 and 2018, we recognized $7 million and $6 million, respectively, and $18 million and $20 million during the six months ended June 30, 2019 and 2018, respectively, in revenue from contract liabilities existing as of December 31, 2018 and January 1, 2018, respectively, after cumulative adjustments for the adoption of ASC 606.

Summary of Customer Contract Assets and Liabilities (in millions)



	June 30, 2019		December 31, 2018
Other contract assets	$	22	$	32
Deferred income, current	25		24
Deferred income, noncurrent	68		57

Remaining Performance Obligations

We do not disclose the value of unsatisfied performance obligations for contracts with original expected terms of one year or less or the value of variable consideration related to unsatisfied performance obligations, when such values are not required to be estimated for purposes of allocation and recognition. Revenues associated with remaining obligations under contracts with terms in excess of one year related primarily to arrangements for which the customer has agreed to fixed consideration based on minimum throughput volume commitments or capacity utilization. As of June 30, 2019, we had $3.8 billion of expected revenues from remaining performance obligations.

The future revenues from our service arrangements with fixed fees or minimum throughput volume commitments will be recognized over the period of performance to which the fixed fee or commitment relates, which ranges from 1 year to 15 years. We expect approximately 85% of our total remaining obligations to be recognized within 5 years.

Disaggregation

Revenue is disaggregated by nature of revenue stream as presented in Note 10 because these categories depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.