Acquisitions and Divestitures

On May 10, 2017, we acquired a 100% interest in Delta, Na Kika and Refinery Gas Pipeline for $630.0 million in consideration (the “May 2017 Acquisition”). As part of the May 2017 Acquisition, SPLC and Shell GOM Pipeline Company LP (“Shell GOM”) contributed all but the working capital of Delta and Na Kika to Pecten, and Shell Chemical LP (“Shell Chemical”) contributed all but the working capital of Refinery Gas Pipeline to Sand Dollar. The May 2017 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 4, 2017 (the “May 2017 Purchase and Sale Agreement”), among the Operating Company, us, Shell Chemical, Shell GOM and SPLC. Shell Chemical, Shell GOM and SPLC are each wholly owned subsidiaries of Shell. We funded the May 2017 Acquisition with $50.0 million of cash on hand, $73.1 million in borrowings under our Five Year Revolver (as defined in Note 7—Related Party Debt), and $506.9 million in borrowings under our Five Year Fixed Facility (as defined in Note 7—Related Party Debt) with Shell Treasury Center (West) Inc. (“STCW”), an affiliate of Shell. Total transaction costs of $0.8 million were expensed as incurred. The terms of the May 2017 Acquisition were approved by the Board of Directors of our general partner (the “Board”) and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the May 2017 Purchase and Sale Agreement, Shell Chemical has agreed to reimburse us for costs and expenses incurred in connection with the conversion of a section of pipe from the Convent refinery to Sorrento from refinery gas service to butane service. The May 2017 Purchase and Sale Agreement contains other customary representations, warranties and covenants.

In connection with the May 2017 Purchase and Sale Agreement, we granted Shell Chemical a purchase option and right of first refusal with respect to Refinery Gas Pipeline and certain other related assets and the ownership interests in Sand Dollar. The purchase option may be triggered by, among other things, (i) a third party obtaining the right to use any or all of a Refinery Gas Pipeline; (ii) the loss of all volume on a Refinery Gas Pipeline that would result in it being permanently shutdown for two years or more; (iii) the termination of a transportation services agreement between Shell Chemical and Sand Dollar (“Refinery Gas Pipeline Agreement”); (iv) the expiration of the term of a Refinery Gas Pipeline Agreement; or (v) a change of control of our general partner; provided, however, that in the case of (i) through (iv), the purchase option would only be applicable to the Refinery Gas Pipeline impacted by such event. In addition, in the event that Sand Dollar receives an offer to sell all or a portion of the Refinery Gas Pipelines or the ownership interests in Sand Dollar from a third party, Shell Chemical has a right of first refusal with respect to such Refinery Gas Pipelines or ownership interests, as applicable, for so long as any Refinery Gas Pipeline Agreement between Shell Chemical and Sand Dollar is in effect.

In connection with the May 2017 Acquisition we acquired historical carrying value of property, plant and equipment, net and other assets under common control as follows:



Delta	$	40.1
Na Kika	26.0
Refinery Gas Pipeline	134.6
May 2017 Acquisition	$	200.7

We recognized $429.3 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. During the three months ended September 30, 2017, we adjusted the historical carrying value of property, plant and equipment acquired in connection with the May 2017 Acquisition. The adjustment resulted in a decrease to property, plant and equipment of $9.9 million with a corresponding increase to the capital distribution to our general partner. For the period from closing through September 30, 2017, we recognized $40.1 million in revenues and $18.9 million of net earnings related to the assets acquired.

Retrospective adjusted information tables

The following tables present our financial position and our results of operations and of cash flows giving effect to the May 2017 Acquisition of the Delta, Na Kika and Refinery Gas Pipeline Operations. The results of Delta, Na Kika and Refinery Gas Pipeline prior to the closing date of the acquisition are included in “Delta, Na Kika and Refinery Gas Pipeline Operations” and the consolidated results are included in “Consolidated Results” within the tables below:



	December 31, 2016
	Shell Midstream Partners, L.P.⁽¹⁾			Delta, Na Kika and Refinery Gas Pipeline Operations ⁽²⁾		Consolidated Results
ASSETS
Current assets
Cash and cash equivalents	$	121.9		$	—	$	121.9
Accounts receivable – third parties, net	18.4			2.4		20.8
Accounts receivable – related parties	10.1			2.0		12.1
Allowance oil	9.0			2.7		11.7
Prepaid expenses	6.0			0.5		6.5
Total current assets	165.4			7.6		173.0
Equity method investments	262.4			—		262.4
Property, plant and equipment, net	398.0			212.6		610.6
Cost investments	39.8			—		39.8
Other assets	—			0.6		0.6
Total assets	$	865.6		$	220.8	$	1,086.4
LIABILITIES
Current liabilities
Accounts payable – third parties	$	1.5		$	2.6	$	4.1
Accounts payable – related parties	5.2			0.2		5.4
Deferred revenue – third parties	6.0			—		6.0
Deferred revenue – related parties	7.9			—		7.9
Accrued liabilities – third parties	5.6			1.3		6.9
Accrued liabilities – related parties	5.1			—		5.1
Total current liabilities	31.3			4.1		35.4
Noncurrent liabilities
Debt payable – related party	686.0			—		686.0
Lease liability – related party	24.9			—		24.9
Asset retirement obligations	1.4			—		1.4
Other unearned income	2.1			—		2.1
Total noncurrent liabilities	714.4			—		714.4
Total liabilities	745.7			4.1		749.8
Commitments and Contingencies (Note 11)
EQUITY
Common unitholders – public	2,485.7			—		2,485.7
Common unitholder – SPLC	(124.1		)	—		(124.1		)
Subordinated unitholder	(389.6		)	—		(389.6		)
General partner – SPLC	(1,873.7		)	—		(1,873.7		)
Total partners' capital	98.3			—		98.3
Noncontrolling interest	21.6			—		21.6
Net parent investment	—			216.7		216.7
Total equity	119.9			216.7		336.6
Total liabilities and equity	$	865.6		$	220.8	$	1,086.4

⁽¹⁾ As previously reported in our Annual Report on Form 10-K for 2016.

⁽²⁾ The financial position of the Delta, Na Kika and Refinery Gas Pipeline Operations as of December 31, 2016.



	Three Months Ended September 30, 2016
	Shell Midstream Partners, L.P.⁽¹⁾		Delta, Na Kika and Refinery Gas Pipeline Operations ⁽²⁾		Consolidated Results

Revenue
Third parties	$	46.1	$	7.7	$	53.8
Related parties	21.8		6.3		28.1
Total revenue	67.9		14.0		81.9
Costs and expenses
Operations and maintenance – third parties	11.4		2.7		14.1
Operations and maintenance – related parties	5.3		2.2		7.5
General and administrative – third parties	2.2		—		2.2
General and administrative – related parties	5.7		1.7		7.4
Depreciation, amortization and accretion	6.0		3.1		9.1
Property and other taxes	1.3		1.3		2.6
Total costs and expenses	31.9		11.0		42.9
Operating income	36.0		3.0		39.0
Income from equity investments	21.4		—		21.4
Dividend income from cost investments	4.2		—		4.2
Investment and dividend income	25.6		—		25.6
Interest expense, net	2.8		—		2.8
Income before income taxes	58.8		3.0		61.8
Income tax expense	—		—		—
Net income	58.8		3.0		61.8
Less: Net income attributable to Parent	—		3.0		3.0
Less: Net income attributable to noncontrolling interests	2.5		—		2.5
Net income attributable to the Partnership	$	56.3	$	—	$	56.3

⁽¹⁾ As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016.

⁽²⁾ Our Parents' results of the Delta, Na Kika and Refinery Gas Pipeline Operations from July 1, 2016 through September 30, 2016.



	Nine Months Ended September 30, 2016
	Shell Midstream Partners, L.P.⁽¹⁾		Delta, Na Kika and Refinery Gas Pipeline Operations ⁽²⁾		Consolidated Results

Revenue
Third parties	$	149.8	$	25.1	$	174.9
Related parties	65.9		20.1		86.0
Total revenue	215.7		45.2		260.9
Costs and expenses
Operations and maintenance – third parties	33.1		8.6		41.7
Operations and maintenance – related parties	15.9		6.7		22.6
General and administrative – third parties	6.2		0.2		6.4
General and administrative – related parties	17.3		5.0		22.3
Depreciation, amortization and accretion	17.7		9.4		27.1
Property and other taxes	6.4		3.9		10.3
Total costs and expenses	96.6		33.8		130.4
Operating income	119.1		11.4		130.5
Income from equity investments	70.2		—		70.2
Dividend income from cost investments	11.6		—		11.6
Investment and dividend income	81.8		—		81.8
Interest expense, net	7.8		—		7.8
Income before income taxes	193.1		11.4		204.5
Income tax expense	—		—		—
Net income	193.1		11.4		204.5
Less: Net income attributable to Parent	—		11.4		11.4
Less: Net income attributable to noncontrolling interests	17.7		—		17.7
Net income attributable to the Partnership	$	175.4	$	—	$	175.4

⁽¹⁾ As previously reported in our Quarterly Report on Form 10-Q for the nine month period ended September 30, 2016.

⁽²⁾ Our Parents' results of the Delta, Na Kika and Refinery Gas Pipeline Operations from January 1, 2016 through September 30, 2016.



	Nine Months Ended September 30, 2016
	Shell Midstream Partners, L.P.⁽¹⁾			Delta, Na Kika and Refinery Gas Pipeline Operations ⁽²⁾			Consolidated Results

Cash flows from operating activities
Net income	$	193.1		$	11.4		$	204.5
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion	17.7			9.4			27.1
Non-cash interest expense	0.2			—			0.2
Undistributed equity earnings	2.7			—			2.7
Changes in operating assets and liabilities
Accounts receivable	6.6			0.7			7.3
Allowance oil	(3.6		)	(0.2		)	(3.8		)
Prepaid expenses	4.3			0.7			5.0
Accounts payable	(1.6		)	(0.7		)	(2.3		)
Deferred revenue	(0.4		)	—			(0.4		)
Accrued liabilities	5.1			3.1			8.2
Net cash provided by operating activities	224.1			24.4			248.5
Cash flows from investing activities
Capital expenditures	(21.3		)	(7.5		)	(28.8		)
Acquisitions	(120.0		)	—			(120.0		)
Return of investment	9.6			—			9.6
Net cash used in investing activities	(131.7		)	(7.5		)	(139.2		)
Cash flows from financing activities
Net proceeds from public offerings	818.1			—			818.1
Borrowing under credit facility	296.7			—			296.7
Contributions from general partner	9.8			—			9.8
Repayment of credit facilities	(410.0		)	—			(410.0		)
Capital distributions to general partner	(599.2		)	—			(599.2		)
Distributions to noncontrolling interest	(17.1		)	—			(17.1		)
Distributions to unitholders and general partner	(126.0		)	—			(126.0		)
Net distributions to Parent	—			(16.9		)	(16.9		)
Other contribution from Parent	3.1			—			3.1
Net cash used in financing activities	(24.6		)	(16.9		)	(41.5		)
Net increase in cash and cash equivalents	67.8			—			67.8
Cash and cash equivalents at beginning of the period	93.0			—			93.0
Cash and cash equivalents at end of the period	$	160.8		$	—		$	160.8
Supplemental Cash Flow Information
Non-cash investing and financing transactions
Change in accrued capital expenditures	$	(1.1	)	$	(4.2	)	$	(5.3	)
Other non-cash contributions from Parent	0.3			—			0.3
Other non-cash capital distributions to general partner	(7.1		)	—			(7.1		)
Other non-cash contribution from general partner	7.1			—			7.1
Other non-cash credit facilities issuance costs	(0.6		)	—			(0.6		)

⁽¹⁾ As previously reported in our Quarterly Report on Form 10-Q for the nine month period ended September 30, 2016.

⁽²⁾ Our Parents' results of the Delta, Na Kika and Refinery Gas Pipeline Operations from January 1, 2016 through September 30, 2016.

On April 28, 2017, Zydeco divested a small segment of its pipeline system (the “April 2017 Divestiture”) to Equilon Enterprises LLC d/b/a Shell Oil Products US (“SOPUS”) as part of the Motiva JV separation. The April 2017 Divestiture closed pursuant to a Pipeline Sale and Purchase Agreement (the “April 2017 Pipeline Sale and Purchase Agreement”) dated April 28, 2017 among Zydeco and SOPUS. We received $21.0 million in cash consideration for this sale, of which $19.4 million is attributable to the Partnership. The cash consideration represents $0.8 million for the book value of net assets divested, and $20.2 million in excess proceeds received from our Parent. The April 2017 Pipeline Sale and Purchase Agreement contained customary representations and warranties and indemnification by SOPUS.

On August 9, 2016, we acquired a 2.62% equity interest in Explorer from SPLC (the “August 2016 Acquisition”) for $26.2 million. The August 2016 Acquisition was made in connection with SPLC’s right, as a current shareholder of Explorer, to acquire a portion of the equity interest being divested by another shareholder of Explorer. SPLC separately owns a 35.97% equity interest in Explorer. The August 2016 Acquisition closed on August 9, 2016 pursuant to a Share Purchase and Sale Agreement among us, the Operating Company and SPLC, and is accounted for as a transaction between entities under common control. We funded the August 2016 Acquisition with $26.3 million of cash on hand. Total transaction costs of $0.1 million were incurred. The terms of the August 2016 Acquisition were approved by the Board.

On May 23, 2016, we acquired an additional 30.0% interest in Zydeco, an additional 1.0% interest in Bengal and an additional 3.0% interest in Colonial for $700.0 million in consideration (the “May 2016 Acquisition”). The May 2016 Acquisition closed pursuant to a Contribution Agreement (the “May 2016 Contribution Agreement”) dated May 17, 2016 among us, the Operating Company and SPLC and became effective on April 1, 2016, and is accounted for as a transaction between entities under common control. We funded the May 2016 Acquisition with $345.8 million from the net proceeds of a registered public offering of 10,500,000 common units representing limited partner interests in us (the “May 2016 Offering”), $50.4 million of cash on hand and $296.7 million in borrowings under the Five Year Revolver (as defined in Note 7—Related Party Debt) with STCW, an affiliate of Shell. The remaining $7.1 million in consideration consisted of an issuance of 214,285 general partner units to our general partner in order to maintain its 2.0% general partner interest in us. Total transaction costs of $0.4 million were incurred in association with the May 2016 Acquisition. The terms of the May 2016 Acquisition were approved by the Board and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the May 2016 Contribution Agreement, SPLC has agreed to reimburse us for our proportionate share of certain costs and expenses incurred by Zydeco after April 1, 2016 with respect to a directional drill project to address soil erosion over a two-mile section of our 22-inch diameter pipeline under the Atchafalaya River and Bayou Shaffer in Louisiana. Such reimbursements will be treated as an additional capital contribution from the general partner at the time of payment. The May 2016 Contribution Agreement contained customary representations and warranties and indemnification by SPLC.

In connection with the May 2016 Acquisition we acquired book value of net assets under common control as follows:



Cost investment⁽¹⁾	$	5.2
Equity method investments⁽²⁾	1.5
Partner's capital ⁽³⁾	87.0
May 2016 Acquisition	$	93.7


⁽¹⁾	Book value of 3.0% additional interest in Colonial contributed by SPLC.


⁽²⁾	Book value of 1.0% additional interest in Bengal contributed by SPLC.


⁽³⁾	Book value of 30.0% additional interest in Zydeco from SPLC’s noncontrolling interest.

We recognized $606.3 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. This capital distribution was comprised of $599.2 million in cash and $7.1 million in general partner units issued.