On January 1, 2018, we adopted Topic 606 and all related ASUs to this Topic (collectively, the “revenue standard”) by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with the revenue standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous GAAP.

Upon the adoption of the revenue standard, we recorded a non-cash cumulative effect transition adjustment to decrease opening deficit by $5 million, with the impact primarily due to the earlier recognition of revenue related to deficiency payments under minimum volume commitment contracts. As a result of adopting the revenue standard under the modified retrospective transition method on January 1, 2019 and 2018 by Amberjack and Mars, respectively, we recognized our proportionate share of each investment’s cumulative effect transition adjustment increasing the opening deficit in the amounts of $9 million and $7 million, respectively. See Note 5 — Equity Method Investments for additional information. These adjustments resulted in a total net increase to our total opening deficit of $9 million and $2 million in 2019 and 2018, respectively.

The revenue standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The revenue standard requires entities to recognize revenue through the application of a five-step model, which includes: identification of the contract; identification of the performance obligations; determination of the transaction price; allocation of the transaction price to the performance obligations; and recognition of revenue as the entity satisfies the performance obligations.

Our revenues are primarily generated from the transportation, terminaling and storage of crude oil, refinery gas and refined petroleum products through our pipelines, terminals and storage tanks. To identify the performance obligations, we considered

all the products or services promised in the contracts with customers, whether explicitly stated or implied based on customary business practices. Revenue is recognized when each performance obligation is satisfied under the terms of the contract.

Each barrel of product transported or day of services provided is considered a distinct service that represents a performance obligation that would be satisfied over time if it were accounted for separately. The services provided over the contract period are a series of distinct services that are substantially the same, have the same pattern of transfer to the customer, and therefore, qualify as a single performance obligation. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on a measure of progress of volumes transported for transportation services contracts or number of days elapsed for storage and terminaling services contracts.


	2019		2018		2017⁽¹⁾
Transportation services revenue – third parties	$	134	$	200	$	227
Transportation services revenue – related parties⁽²⁾	210		176		172
Storage services revenue – third parties	9		9		9
Storage services revenue – related parties	7		7		6
Terminaling services revenue – related parties⁽³⁾	47		46		—
Product revenue – third parties⁽⁴⁾	5		2		—
Product revenue – related parties⁽⁴⁾	35		29		—
Total Topic 606 revenue	447		469		414
Lease revenue – related parties	56		56		56
Total revenue	$	503	$	525	$	470

We have both long-term transportation contracts and month-to-month contracts for spot shippers that make nominations on our pipelines. Some of the long-term contracts entitle the customer to a specified amount of guaranteed capacity on the pipeline. Transportation services are charged at a per barrel rate or other applicable unit of measure. We apply the allocation exception guidance for variable consideration related to market indexing for long-term transportation contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service which is consistent with the allocation objective. Except for guaranteed capacity payments as discussed below, transportation services are billed monthly as services are rendered.

Our contracts and tariffs contain terms for the customer to reimburse us for losses from evaporation or other loss in transit in the form of allowance oil. Allowance oil represents the net difference between the tariff PLA volumes and the actual volumetric losses. We obtain control of the excess oil not lost during transportation, if any. Under the revenue standard, we include the excess oil retained during the period, if any, as non-cash consideration and include this amount in the transaction price for transportation services on a net basis. Our allowance oil revenue is valued at the average market price of the relevant type of crude oil during the month product was transported. Gains from pipeline operations that relate to allowance oil are recorded in Operations and maintenance expenses in the accompanying consolidated statements of income.

As a result of FERC regulations, revenues we collect may be subject to refund. We establish reserves for these potential refunds based on actual expected refund amounts on the specific facts and circumstances. We had no reserves for potential refunds as of December 31, 2019 and 2018.

Our FERC-approved transportation services agreements on Zydeco entitle the customer to a specified amount of guaranteed capacity on the pipeline. This capacity cannot be pro rated even if the pipeline is oversubscribed. In exchange, the customer makes a specified monthly payment regardless of the volume transported. If the customer does not ship its full guaranteed volume in a given month, it makes the full monthly cash payment (i.e., deficiency payments) and it may ship the unused volume in a later month for no additional cash payment for up to 12 months, subject to availability on the pipeline. The cash payment received is recognized as deferred revenue, a contract liability under the revenue standard. If there is insufficient capacity on the pipeline to allow the unused volume to be shipped, the customer forfeits its right to ship such unused volume. We do not refund any cash payments relating to unused volumes.

Prior to January 1, 2018, deferred revenue under these arrangements was previously recognized into revenue once all contingencies or potential performance obligations associated with the related volumes had been satisfied or expired. Under the revenue standard, we are required to estimate the likelihood that unused volumes will be shipped or forfeited at each reporting period based on additional data that becomes available and only to the extent that it is probable that a significant reversal of revenue will not occur. In some cases, this estimate could result in the earlier recognition of revenue.

Storage and terminaling services are provided under short-term and long-term contracts, with a fixed price per month for committed storage and terminaling capacity, or under a monthly spot-rate for uncommitted storage or terminaling. Since the customer simultaneously receives and consumes the benefits of services, we recognize revenue over time based on the number of days elapsed. We apply the allocation exception guidance for variable consideration related to market indexing for long-term contracts because (a) the variable payment relates specifically to our efforts to transfer the distinct service and (b) we allocate the variable amount of consideration entirely to the distinct service which is consistent with the allocation objective. Storage and terminaling services are billed monthly as services are rendered.

Under certain transportation, terminaling and storage service contracts, we receive reimbursements from customers to recover costs of construction, maintenance or operating costs either under a tariff surcharge per volume shipped or under separate reimbursement payments. Because we consider these amounts as consideration from customers associated with ongoing services to be provided to customers, we defer these payments in deferred revenue and recognize amounts in revenue over the life of the associated revenue contract as performance obligations are satisfied under the contract. We consider these payments to be revenue because control of the long-lived assets does not transfer to our customer upon completion. Our financial statements were not materially impacted by adoption of the revenue standard related to reimbursements from customers.

Certain of our long-term transportation and terminaling services contracts with related parties are accounted for as operating leases under Topic 840, Leases. These agreements have both a lease component and an implied operation and maintenance service component (“non-lease service component”). We allocate the arrangement consideration between the lease components that fall within the scope of Topic 840 and any non-lease service components within the scope of the revenue standard based on the relative stand-alone selling price of each component. We estimate the stand-alone selling price of the lease and non-lease service components based on an analysis of service-related and lease-related costs for each contract, adjusted for a representative profit margin. The contracts have a minimum fixed monthly payment for both the lease and non-lease service components. We present the non-lease service components under the revenue standard within Transportation, terminaling and storage services – related parties in the consolidated statement of income.

Revenues from the lease components of these agreements are recorded within Lease revenue – related parties in the consolidated statement of income. Certain of these agreements were each entered into for terms of ten years, with the option to extend for two additional five-year terms and we have additional agreements with an initial term of ten years with the option to extend for up to ten additional one-year terms. As of December 31, 2019, future minimum payments to be received under the ten-year contract term of these operating leases were estimated to be:

We generate revenue by selling accumulated allowance oil inventory to customers. Sale of allowance oil is recorded as product revenue, with specific cost based on a weighted average price per barrel recorded as cost of product sold.

Prior to the adoption of the revenue standard, allowance oil received was recorded as revenue on a gross basis with the resulting actual gain or loss recorded in operations and maintenance expenses. The subsequent sale of allowance oil, net of the product cost, was recorded as operations and maintenance expenses.

Under a certain joint tariff, revenues were historically recorded on a net basis as an agent prior to the adoption of the revenue standard. However, subsequent to the adoption of the revenue standard, because we control the transportation service before it is transferred to the customer, we are the principal and, therefore, record revenues from these agreements on a gross basis within Transportation, terminaling and storage services – third parties or related parties.


	2019
Consolidated Statement of Income	As Reported Under Topic 606		Amounts Without Adoption of Topic 606		Effect of Change Increase/(Decrease)
Revenue
Transportation, terminaling and storage services – third parties	$	143	$	142	$	1
Transportation, terminaling and storage services – related parties	264		215		49
Product revenue – third parties	5		—		5
Product revenue – related parties	35		—		35
Lease revenue – related parties	56		108		(52)
Costs and expenses
Operations and maintenance – third parties	65		64		1
Operations and maintenance – related parties	59		58		1
Cost of product sold – third parties	5		—		5
Cost of product sold – related parties	31		—		31
Net income	$	546	$	546	$	—


	2018
Consolidated Statement of Income	As Reported Under Topic 606		Amounts Without Adoption of Topic 606		Effect of Change Increase/(Decrease)
Revenue
Transportation, terminaling and storage services – third parties	$	209	$	209	$	—
Transportation, terminaling and storage services – related parties	229		183		46
Product revenue – third parties	2		—		2
Product revenue – related parties	29		—		29
Lease revenue – related parties	56		107		(51)
Costs and expenses
Operations and maintenance – third parties	108		107		1
Operations and maintenance – related parties	54		52		2
Cost of product sold – third parties	7		6		1
Cost of product sold – related parties	25		—		25
Net income	$	482	$	487	$	(5)

We perform our obligations under a contract with a customer by providing services in exchange for consideration from the customer. The timing of our performance may differ from the timing of the customer’s payment, which results in the recognition of a contract asset or a contract liability. Although we did not have any contract assets as of December 31, 2019 and 2018, we recognize a contract asset when we transfer goods or services to a customer and contractually bill an amount which is less than the revenue allocated to the related performance obligation. We recognize deferred revenue (contract liability) when the customer’s payment of consideration precedes our performance. The following table provides information about receivables and contract liabilities from contracts with customers:


	January 1, 2019		December 31, 2019
Receivables from contracts with customers – third parties	$	19	$	11
Receivables from contracts with customers – related parties	21		24
Deferred revenue – third parties	8		—
Deferred revenue – related party	3		—


	January 1, 2018		December 31, 2018
Receivables from contracts with customers – third parties	$	17	$	19
Receivables from contracts with customers – related parties	19		21
Deferred revenue – third parties	6		8
Deferred revenue – related party	9		3


	December 31, 2018		Transition Adjustment		Additions ⁽¹⁾		Reductions ⁽²⁾		December 31, 2019
Deferred revenue – third parties	$	8	$	—	$	—	$	(8)	$	—
Deferred revenue – related party	3		—		—		(3)		—

As of December 31, 2019, contracts with remaining performance obligations primarily include minimum volume commitment contracts, long-term storage contracts and the service component of transportation and terminaling services contracts accounted for as operating leases.

The following table includes revenue expected to be recognized in the future related to performance obligations exceeding one year of their initial terms that are unsatisfied or partially unsatisfied as of December 31, 2019:


	Total		2020		2021		2022		2023		2024 and beyond
Revenue expected to be recognized on multi-year committed shipper transportation contracts	$	577	$	106	$	63	$	63	$	63	$	282
Revenue expected to be recognized on other multi-year transportation service contracts ⁽¹⁾	40		5		5		5		5		20
Revenue expected to be recognized on multi-year storage service contracts	21		4		4		4		4		5
Revenue expected to be recognized on multi-year terminaling service contracts⁽¹⁾	378		48		48		48		48		186
Total	$	1,016	$	163	$	120	$	120	$	120	$	493

As an exemption, we do not disclose the amount of remaining performance obligations for contracts with an original expected duration of one year or less or for variable consideration that is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that forms part of a single performance obligation.