Revenue Recognition

9 Months Ended

Sep. 30, 2020

Revenue from Contract with Customer [Abstract]

Revenue Recognition

2. Revenue Recognition

We recognize revenue over time or at a point in time, depending on the nature of the performance obligations contained in the respective contract with customers. A performance obligation is our unit of account and it represents a promise in a contract to transfer goods or services to the customer. The contract transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is allocated to each performance obligation and recognized as revenue when or as the performance obligation is satisfied. The following is an overview of our significant revenue stream, including a description of the respective performance obligations and related methods of revenue recognition.

Pipeline Transportation

Revenue from pipeline transportation is comprised of tariffs and fees associated with the transportation of liquid petroleum products, generally at published tariffs and in certain instances, revenue from MVC contracts at negotiated rates. Tariff revenue is recognized either at the point of delivery or at the point of receipt, pursuant to specifications outlined in the respective tariffs. We record revenue for crude oil, refined products and diluent transportation during the period in which they are earned (i.e., either physical delivery of product has taken place or the services designated in the contract have been performed). Partnership services are typically billed on a monthly basis, and we generally do not offer extended payment terms. We accrue revenue based on services rendered but not billed for that accounting month.

Billings to BP Products North America Inc. ("BP Products") for deficiency volumes under its MVCs, if any, are recorded as deferred revenue and credits, a contract liability, on the condensed consolidated balance sheets, as BP Products has the right to make up the deficiency volumes within the measurement period specified by the agreements. Deferred revenue under these arrangements is recognized into revenue once it is deemed remote that the customer will meet its required annual MVC. If the customer does satisfy its minimum volume commitment by shipping the deficiency volumes within the same calendar year, it may receive a refund of excess payments.

We recognized $5.1 million and $11.1 million of deficiency revenue under the throughput and deficiency agreements with BP Products for the three and nine months ended September 30, 2020, respectively. We recognized $2.4 million of deficiency revenue under the throughput and deficiency agreements with BP Products for the three and nine months ended September 30, 2019.

Allowance Oil

The tariff for crude oil transportation at BP2 includes a fixed loss allowance (“FLA”). An FLA factor per barrel, a fixed percentage, is a separate fee that is considered a part of the transaction price under the applicable crude oil tariff to cover

evaporation and other losses in transit. The amount of revenue recognized is a product of the quantity transported, the applicable FLA factor and the settlement price during the month the product is transported.

We recognized revenue of $1.6 million and $3.9 million in the three and nine months ended September 30, 2020, respectively, related to the FLA arrangements with our Parent. In the three and nine months ended September 30, 2019, we recognized revenue of $2.7 million and $7.8 million, respectively, related to FLA arrangements with our Parent.

Disaggregation of Revenue

The following table provides information about disaggregated revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Transportation services revenue - third parties	$	0.6	$	0.7	$	2.4	$	2.2
Transportation services revenue - related parties	33.1		33.9		93.5		91.2
Total revenue	$	33.7	$	34.6	$	95.9	$	93.4

Future Performance Obligations

The values in the table below represent the fixed portion of the MVC arrangements with our existing customer contracts, summarized as future performance obligations as of September 30, 2020. The unfulfilled performance obligations included in the table below are expected to be recognized in revenue in the specified periods:

	As of September 30, 2020
Remainder of 2020	$	28.9
2021	1.7
Total	$	30.6

See Note 13 - Subsequent Events for additional information on new MVC arrangements.

Contract Balances

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. Contract liabilities or deferred revenue and credits primarily relate to consideration received from customers for temporary deficiency quantities under minimum volume contracts that the customer has the right to make up in a future period, which we subsequently recognize as revenue or amounts we credit back to the customer in a future period.

The following table provides information about receivables from contracts with customers, contract assets and contract liabilities:

	September 30, 2020		December 31, 2019
Receivables from contracts with customers - third parties	$	0.2	$	0.6
Receivables from contracts with customers - related parties	10.7		11.3
Deferred revenue and credits - related parties	1.6		1.5