REVENUE

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

REVENUE

2. REVENUE

The majority of our service-based revenue is derived from fee-based transportation, terminalling, and storage services that we provide to our customers. We also generate revenue from the marketing and sale of petroleum products. We recognize revenues from customer fees for services rendered or by selling petroleum products. Under ASC 606, 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 our customer. A performance obligation is a promise in a contract to transfer goods or services to the customer. The contract transaction price is allocated to each performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In certain situations, we recognize revenue pursuant to accounting standards other than ASC 606. These situations primarily relate to leases and derivatives. We have appropriately applied the guidance in ASC Topic 340-40, Other Assets and Deferred Costs: Contracts with Customers, for determining whether to capitalize costs to fulfill a contract.

Contract Balances

At September 30, 2019 and December 31, 2018, receivables from contracts with customers was $201.4 million and $199.3 million, respectively. The following table presents the activity in our contract assets and contract liabilities (in thousands):

	Nine Months Ended September 30,
	2019			2018
Contract Assets:
Balance as of January 1	$	16,989		$	13,999
Additions	20,292			23,818
Transfers to accounts receivable	(16,890		)	(13,875		)
Balance as of September 30	$	20,391		$	23,942
Contract Liabilities:
Balance as of January 1	$	(26,999	)	$	(15,778	)
Additions	(35,667		)	(16,035		)
Transfers to revenues(1)	14,206			7,427
Balance as of September 30	$	(48,460	)	$	(24,386	)

⁽¹⁾ For the three months ended September 30, 2019 and 2018, $1.8 million and $0.8 million, respectively, related to contract liabilities were transferred to revenue.

Contract assets and liabilities are included in Prepaid and other current assets and Other non-current liabilities, respectively, with the current portion of contract liabilities included in Accrued and other current liabilities, on our unaudited condensed consolidated balance sheets.

The following table includes estimated revenue associated with contractual commitments in place related to future performance obligations as of the end of the reporting period, which are expected to be recognized in revenue in the specified periods (in thousands):

	Revenue from Contracts with Customers		Revenue from Leases		Total
Remainder of 2019	$	108,118	$	56,710	$	164,828
2020	298,021		224,215		522,236
2021	200,775		198,071		398,846
2022	109,390		142,593		251,983
2023	97,307		27,428		124,735
Thereafter	473,355		24,283		497,638
Total	$	1,286,966	$	673,300	$	1,960,266

Our contractually committed revenue disclosure, for purposes of the tabular presentation above, excludes estimates of variable rate escalation clauses in our contracts with customers and is generally limited to our contracts with fixed pricing and minimum volume components. Our contractually committed revenue disclosure generally excludes remaining performance obligations on contracts with index-based pricing or variable volume attributes.

Lessor

We account for certain customer contracts for tolling, storage, and pipeline transportation services as leases in which we are the lessor. Accordingly, such revenues are presented separately in the revenue disaggregation tables in Note 17 - Business Segments.

As of September 30, 2019, assets recorded under revenue operating leases were $238.6 million and accumulated depreciation associated with operating leases was $33.3 million. Depreciation expense was $1.0 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, and $2.8 million and $2.7 million for the nine months ended September 30, 2019 and 2018, respectively. These assets primarily consist of our pipelines and terminals, docks and processing facilities.

We determined the contracts referenced above contain leases because their commercial provisions convey to the customers the right to effectively control the use of the underlying identified property and equipment assets through the right to obtain substantially all of the economic benefit from the use of the assets and the right to direct the use of these assets, despite our continued operatorship of the assets. Our lessor lease population is classified as revenue operating leases and does not currently have any material sales-type or financing leases. None of these customers are related parties. We have lease contracts with lease and non-lease components, which we account for separately.

Our lessor leases do not have variable minimum lease payments; however, the lease payments under these contracts are subject to additional revenues, correlated only to excess product volumes processed, stored, or transported. Certain of our leases include one or more customer options to renew the lease term beyond the initial term of the agreement. Some of our lease terms also include the option for our customers to extend or terminate the lease. Following the end of the lease term, control of the use of these assets reverts to us, and considering our continued ownership of the assets, as well as the assets’ remaining useful lives, we have the ability to seek further commercial opportunities to derive revenue from these assets.

As noted above, we operate these assets for customers’ benefit during the lease period and upon contract expiration, we retain ownership and control of the use of these assets. Accordingly, we have the ability to monitor the residual value of these assets. Generally, the lease period is only a small portion of the economic life of the asset under lease.