Related-Party Transactions

3 Months Ended

Mar. 31, 2017


3.	RELATED-PARTY TRANSACTIONS

New Agreements

Agreement with Diamond Green Diesel

Effective March 31, 2017, we entered into an agreement with Diamond Green Diesel Holdings, LLC (DGD), a joint venture consolidated by Valero, to construct and operate a rail loading facility located at Valero’s St. Charles Refinery for the purpose of loading DGD’s renewable diesel onto railcars. In addition, we have agreed to construct a new 180,000 barrel storage tank and provide storage services to DGD. Construction of the rail loading facility is expected to be complete in the second quarter of 2017, and construction of the new tank is targeted for completion in the fourth quarter of 2017. The initial term of the agreement commences in the month following the respective construction completion dates and ends on June 30, 2033.

Agreements with Valero

Effective March 31, 2017 and in connection with the DGD agreement described above, we amended our land and access agreement with Valero related to our St. Charles terminal to include our use of Valero’s rail loading facility.

Concurrent with the acquisition of the Red River crude system as described in Note 2, we entered into a 10-year throughput agreement under which we provide transportation services to Valero. The agreement provides Valero an option to renew for one additional five-year term, unless terminated by Valero upon at least 180 days’ prior written notice before the end of the initial term, and it contains minimum throughput requirements and inflation escalators.

Summary of Transactions

The amounts shown in our balance sheets as “deferred revenue – related party” represent the unearned revenues from Valero associated with Valero’s quarterly deficiency payment, which is the result of Valero not meeting its minimum quarterly throughput commitments under certain schedules of our master transportation services agreement and master terminal services agreement (collectively, the commercial agreements).

All of our operating revenues are generated by providing services to Valero under our commercial agreements with Valero. The cost of services provided to us by Valero, including the cost of financing provided to us by Valero in connection with certain acquisitions from Valero as more fully described in Notes 2 and 5, are reflected in the supplemental information disclosure on our statements of income.

Concentration Risk

All of our operating revenues were derived from transactions with Valero and all of the “receivables – related party” were due from Valero. Therefore, we are subject to the business risks associated with Valero’s business.

Operating Leases – Lessor

Certain schedules under our commercial agreements with Valero are considered operating leases under U.S. GAAP. These agreements contain minimum throughput requirements and escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. These lease revenues are recorded within “operating revenues – related party” in our statements of income. The components of our lease revenues are as follows (in thousands):



	Three Months Ended March 31,
	2017		2016
Minimum rental revenues	$	68,448	$	48,249
Contingent rental revenues	12,529		8,337
Total lease revenues	$	80,977	$	56,586

As of March 31, 2017, future minimum rentals to be received related to these noncancelable commercial agreements were as follows (in thousands):



Remainder of 2017	$	211,001
2018	280,056
2019	280,056
2020	280,824
2021	280,056
Thereafter	2,394,350
Total minimum rental payments	$	3,726,343