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Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related party transactions include transactions with SPLC and Shell, including those entities in which Shell has an ownership interest but does not have control.

Acquisition Agreements

Refer to Note 2—Acquisitions for a description of agreements applicable to the current reporting periods. For a description of all other applicable agreements, see Note 4—Acquisitions and Divestiture in the Notes to Consolidated Financial Statements of our 2018 Annual Report.

2019 Omnibus Agreement

On November 3, 2014, we entered into an Omnibus Agreement with SPLC and our general partner concerning our payment of an annual general and administrative services fee to SPLC as well as our reimbursement of certain costs incurred by SPLC on our behalf. On February 19, 2019, we, our general partner, SPLC, Operating Company and Shell Oil Company terminated the Omnibus Agreement effective as of February 1, 2019, and we, our general partner, SPLC and Operating Company entered into a new Omnibus Agreement effective February 1, 2019 (the “2019 Omnibus Agreement”).

The 2019 Omnibus Agreement addresses, among other things, the following matters:

•our payment of an annual general and administrative fee of approximately $11 million for the provision of certain services by SPLC;

•our obligation to reimburse SPLC for certain direct or allocated costs and expenses incurred by SPLC on our behalf; and

•our obligation to reimburse SPLC for all expenses incurred by SPLC as a result of us becoming and continuing as a publicly traded entity; we will reimburse our general partner for these expenses to the extent the fees relating to such services are not included in the general and administrative fee.

Under the 2019 Omnibus Agreement, SPLC agreed to indemnify us against tax liabilities relating to our assets acquired at initial public offering (our “initial assets”) that are identified prior to the date that is 60 days after the expiration of the statute of limitations applicable to such liabilities. This obligation has no threshold or cap. We in turn agreed to indemnify SPLC against events and conditions associated with the ownership or operation of our initial assets (other than any liabilities against which SPLC is specifically required to indemnify us as described above).

During the six months ended June 30, 2019, neither we nor SPLC made any claims for indemnification under the 2019 Omnibus Agreement.

Trade Marks License Agreement

We, our general partner and SPLC entered into a Trade Marks License Agreement with Shell Trademark Management Inc. effective as of February 1, 2019. The Trade Marks License Agreement grants us the use of certain Shell trademarks and trade names and expires on January 1, 2024 unless earlier terminated by either party upon 360 days’ notice.

Tax Sharing Agreement

For a discussion of the Tax Sharing Agreement, see Note 3—Related Party Transactions—Tax Sharing Agreement in the Notes to Consolidated Financial Statements of our 2018 Annual Report.

Other Agreements

We have entered into several customary agreements with SPLC and Shell. These agreements include pipeline operating agreements, reimbursement agreements and services agreements. See Note 3—Related Party Transactions—Other Agreements in the Notes to Consolidated Financial Statements of our 2018 Annual Report.

Partnership Agreement

On December 21, 2018, we executed Amendment No. 2 (the “Second Amendment”) to the Partnership’s First Amended and

Restated Agreement of Limited Partnership dated November 3, 2014. Under the Second Amendment, our sponsor agreed to

waive $50 million of distributions in 2019 by agreeing to reduce distributions to holders of the incentive distribution rights (“IDR’s”) by: (1) $17 million for the three months ended March 31, 2019, (2) $17 million for the three months ended June 30, 2019 and (3) $16 million for the three months ending September 30, 2019.

Noncontrolling Interests

For Zydeco, noncontrolling interest consists of SPLC’s 7.5% retained ownership interest as of both June 30, 2019 and December 31, 2018. For Odyssey, noncontrolling interest consists of GEL Offshore Pipeline LLC’s (“GEL”) 29.0% retained ownership interest as of both June 30, 2019 and December 31, 2018.

Other Related Party Balances

Other related party balances consist of the following:


	June 30, 2019		December 31, 2018
Accounts receivable	$	39	$	29
Prepaid expenses	6		15
Other assets	2		3
Accounts payable⁽¹⁾	8		9
Deferred revenue	—		3
Accrued liabilities⁽²⁾	17		16
Debt payable ⁽³⁾	2,691		2,091

⁽¹⁾ Accounts payable reflects amounts owed to SPLC for reimbursement of third-party expenses incurred by SPLC for our benefit.

⁽²⁾ As of June 30, 2019, accrued liabilities reflects $16 million accrued interest and $1 million other accrued liabilities. As of December 31, 2018, accrued liabilities reflects $14 million accrued interest and $2 million other accrued liabilities.

⁽³⁾Debt payable reflects borrowings outstanding after taking into account unamortized debt issuance costs of $3 million as of both June 30, 2019 and December 31, 2018.

Related Party Credit Facilities

We have entered into five credit facilities with STCW: the Ten Year Fixed Facility, the Seven Year Fixed Facility, the Five Year Revolver due July 2023, the Five Year Revolver due December 2022 and the Five Year Fixed Facility. Zydeco has also entered into the Zydeco Revolver with STCW. For definitions and additional information regarding these credit facilities, see Note 7 – Related Party Debt in this report and Note 9 – Related Party Debt in the Notes to Consolidated Financial Statements of our 2018 Annual Report.

Related Party Revenues and Expenses

We provide crude oil transportation, terminaling and storage services to related parties under long-term contracts. We entered into these contracts in the normal course of our business. Our revenue from related parties for the three and six months ended June 30, 2019 and June 30, 2018 are disclosed in Note 11 – Revenue Recognition.

In the three and six months ended June 30, 2019, we converted excess allowance oil to cash through sales to affiliates of Shell of $1 million and $3 million net proceeds, respectively. In the three and six months ended June 30, 2018, we converted excess allowance oil to cash through sales to affiliates of Shell of $1 million and $2 million net proceeds, respectively. We include the revenue in Product revenue – related parties and the cost in Cost of product sold – related parties.

The majority of our insurance coverage is provided by a wholly owned subsidiary of Shell with the remaining coverage provided by third-party insurers. The related party portion of insurance expense, which is included within Operations and maintenance – related parties, was $5 million and $9 million for the three and six months ended June 30, 2019, respectively, and $3 million and $7 million for the three and six months ended June 30, 2018, respectively.

The following table shows related party expenses, including certain personnel costs, incurred by Shell and SPLC on our behalf that are reflected in the accompanying unaudited consolidated statements of income for the indicated periods. Included in these amounts, and disclosed below, is our share of operating and general corporate expenses, as well as the fees paid to SPLC under certain agreements.


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Operations and maintenance – related parties	$	16	$	13	$	30	$	26
General and administrative – related parties	12		14		23		27

Allocated operating expenses	$	3	$	3	$	8	$	7
Allocated general corporate expenses	6		8		13		16
Management Agreement fee	2		2		4		4
Omnibus Agreement fee	2		2		5		4

For a discussion of services performed by Shell on our behalf, see Note 1 – Description of Business and Basis of Presentation – Basis of Presentation in the Notes to Consolidated Financial Statements of our 2018 Annual Report.

Pension and Retirement Savings Plans

Employees who directly or indirectly support our operations participate in the pension, postretirement health and life insurance, and defined contribution benefit plans sponsored by Shell, which include other Shell subsidiaries. Our share of pension and postretirement health and life insurance costs for the three and six months ended June 30, 2019 were $2 million and $3 million, respectively. Our share of pension and postretirement health and life insurance costs for the three and six months ended June 30, 2018 were $2 million and $3 million, respectively. Our share of defined contribution benefit plan costs for the three months ended June 30, 2019 were less than $1 million and for the six months ended June 30, 2019 was $1 million. Our share of defined contribution benefit plan costs for the three and six months ended June 30, 2018 were $1 million and $2 million, respectively. Pension and defined contribution benefit plan expenses are included in either General and administrative – related parties or Operations and maintenance – related parties, depending on the nature of the employee’s role in our operations.

Share-based Compensation

Certain SPLC and Shell employees supporting our operations as well as other Shell operations were historically granted awards

under the Performance Share Plan, Shell’s incentive compensation program. Share-based compensation expense is

included in General and administrative – related parties in the accompanying unaudited consolidated statements of income. These costs for both the three and six months ended June 30, 2019 and June 30, 2018 were not material.

Equity and Other Investments

We have equity and other investments in various entities. As of June 30, 2019, SPLC no longer owns an interest in any of these entities. See Note 2 – Acquisitions for additional details. In some cases, we may be required to make capital contributions or other payments to these entities. See Note 4 – Equity Method Investments for additional details.

Reimbursements

The following table reflects reimbursements from our Parent for the three and six months ended June 30, 2019 and June 30, 2018:


	Three Months Ended June 30,						Six Months Ended June 30,
	2019		2018		2019		2018
Cash received ⁽¹⁾	$	3	$	5	$	10	$	6
Changes in receivable from Parent ⁽²⁾	—		(3)		—		—
Total reimbursements ⁽³⁾	$	3	$	2	$	10	$	6

⁽¹⁾These reimbursements are included in Other contributions from Parent in the accompanying unaudited consolidated statements of cash flows.

⁽²⁾These reimbursements are included in Other non-cash contributions from Parent in the accompanying unaudited consolidated statements of cash flows.

⁽³⁾These reimbursements are included in Other contributions from Parent in the accompanying unaudited consolidated statements of (deficit) equity and are exclusive of zero and $1 million for the six months ended June 30, 2019 and June 30, 2018, respectively, related to contributions from Parent.

During the three and six months ended June 30, 2019, we filed claims for reimbursement from our Parent of $3 million and $10 million, respectively. During the three and six months ended June 30, 2018, we filed claims for reimbursement from our Parent of $2 million and $6 million, respectively. For each of these periods, this reflects our proportionate share of Zydeco directional drill project costs and expenses.