SEC Filing | Energy Transfer

View:

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-32740

ENERGY TRANSFER LP

(Exact name of registrant as specified in its charter)



Delaware		30-0108820
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8111 Westchester Drive, Suite 600, Dallas, Texas 75225

(Address of principal executive offices) (zip code)

(214) 981-0700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	☐
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units	ET	New York Stock Exchange

At May 7, 2020, the registrant had 2,694,308,251 Common Units outstanding.

Table of Contents

FORM 10-Q

ENERGY TRANSFER LP AND SUBSIDIARIES

TABLE OF CONTENTS



PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Consolidated Balance Sheets	1

Consolidated Statements of Operations	3

Consolidated Statements of Comprehensive Income (Loss)	4

Consolidated Statements of Equity	5

Consolidated Statements of Cash Flows	6

Notes to Consolidated Financial Statements	7

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	35

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	57

ITEM 4. CONTROLS AND PROCEDURES	59

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	60

ITEM 1A. RISK FACTORS	60

ITEM 6. EXHIBITS	62

SIGNATURE	63

Table of Contents

Definitions

References to the “Partnership” or “ET” refer to Energy Transfer LP. In addition, the following is a list of certain acronyms and terms used throughout this document:



	/d		per day

	AOCI		accumulated other comprehensive income (loss)

	BBtu		billion British thermal units

	Btu		British thermal unit, an energy measurement used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy content

	CDM		CDM Resource Management LLC and CDM Environmental & Technical Services LLC, collectively

	Citrus		Citrus, LLC

	DOJ		U.S. Department of Justice

	EPA		U.S. Environmental Protection Agency

	ETC Sunoco		ETC Sunoco Holdings LLC (formerly Sunoco, Inc.), a wholly-owned subsidiary of ETO

	ETO		Energy Transfer Operating, L.P..

	ETP GP		Energy Transfer Partners GP, L.P., the general partner of ETO

	ETO Series A Preferred Units		ETO’s 6.250% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	ETO Series B Preferred Units		ETO’s 6.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	ETO Series C Preferred Units		ETO’s 7.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	ETO Series D Preferred Units		ETO’s 7.625% Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	ETO Series E Preferred Units		ETO’s 7.600% Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	ETO Series F Preferred Units		ETO’s 6.750% Series F Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units

	ETO Series G Preferred Units		ETO’s 7.125% Series G Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units

	Exchange Act		Securities Exchange Act of 1934

	FEP		Fayetteville Express Pipeline LLC

	FERC		Federal Energy Regulatory Commission

	FGT		Florida Gas Transmission Company, LLC, a wholly-owned subsidiary of Citrus

	GAAP		accounting principles generally accepted in the United States of America

	IDRs		incentive distribution rights

	Lake Charles LNG		Lake Charles LNG Company, LLC (previously named Trunkline LNG Company, LLC), a wholly-owned subsidiary of ETO

	LIBOR		London Interbank Offered Rate

	MBbls		thousand barrels

	MEP		Midcontinent Express Pipeline LLC

	MTBE		methyl tertiary butyl ether

Table of Contents



	NGL		natural gas liquid, such as propane, butane and natural gasoline

	NYMEX		New York Mercantile Exchange

	OSHA		Federal Occupational Safety and Health Act

	OTC		over-the-counter

	Panhandle		Panhandle Eastern Pipe Line Company, LP and its subsidiaries, wholly-owned by ETO

	PES		Philadelphia Energy Solutions Refining and Marketing LLC

	Regency		Regency Energy Partners LP

	RIGS		Regency Interstate Gas LP

	Rover		Rover Pipeline LLC

	SEC		Securities and Exchange Commission

	SemGroup		SemGroup Corporation

	Series A Convertible Preferred Units		ET Series A convertible preferred units

	Sunoco Logistics Operations		Sunoco Logistics Partners Operations L.P, a wholly-owned subsidiary of ETO

	Sunoco LP Series A Preferred Units		Sunoco LP Series A Preferred Units previously held by ET

	Sunoco R&M		Sunoco (R&M), LLC (formerly Sunoco, Inc. (R&M))

	Southwest Gas		Pan Gas Storage LLC (d.b.a. Southwest Gas Storage Company)

	Transwestern		Transwestern Pipeline Company, LLC, a wholly-owned subsidiary of ETO

	Trunkline		Trunkline Gas Company, LLC, a wholly-owned subsidiary of Panhandle

	USAC		USA Compression Partners, LP, a wholly-owned subsidiary of ETO

	USAC Preferred Units		USAC Series A Preferred Units

	White Cliffs		White Cliffs Pipeline

iii

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)



	March 31, 2020			December 31, 2019*
ASSETS
Current assets:
Cash and cash equivalents	$	196		$	291
Accounts receivable, net	3,371			5,038
Accounts receivable from related companies	132			159
Inventories	1,024			1,532
Income taxes receivable	115			146
Derivative assets	25			23
Other current assets	256			275
Total current assets	5,119			7,464

Property, plant and equipment	90,959			89,790
Accumulated depreciation and depletion	(16,373		)	(15,597		)
	74,586			74,193

Advances to and investments in unconsolidated affiliates	3,337			3,460
Lease right-of-use assets, net	1,033			964
Other non-current assets, net	1,515			1,571
Intangible assets, net	6,116			6,154
Goodwill	3,835			5,167
Total assets	$	95,541		$	98,973

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in million)

(unaudited)



	March 31, 2020			December 31, 2019*
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,399		$	4,118
Accounts payable to related companies	9			31
Derivative liabilities	9			147
Operating lease current liabilities	54			60
Accrued and other current liabilities	3,662			3,342
Current maturities of long-term debt	33			26
Total current liabilities	6,166			7,724

Long-term debt, less current maturities	50,299			51,028
Non-current derivative liabilities	573			273
Non-current operating lease liabilities	821			901
Deferred income taxes	3,214			3,208
Other non-current liabilities	1,193			1,162

Commitments and contingencies
Redeemable noncontrolling interests	745			739

Equity:
Limited Partners:
Common Unitholders	19,512			21,935
General Partner	(6		)	(4		)
Accumulated other comprehensive loss	(59		)	(11		)
Total partners’ capital	19,447			21,920
Noncontrolling interests	13,083			12,018
Total equity	32,530			33,938
Total liabilities and equity	$	95,541		$	98,973

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per unit data)

(unaudited)



	Three Months Ended March 31,
	2020			2019*
REVENUES:
Refined product sales	$	3,232		$	3,726
Crude sales	3,543			3,525
NGL sales	1,689			2,402
Gathering, transportation and other fees	2,385			2,267
Natural gas sales	588			964
Other	190			237
Total revenues	11,627			13,121
COSTS AND EXPENSES:
Cost of products sold	8,291			9,477
Operating expenses	879			808
Depreciation, depletion and amortization	867			774
Selling, general and administrative	204			147
Impairment losses	1,325			50
Total costs and expenses	11,566			11,256
OPERATING INCOME	61			1,865
OTHER INCOME (EXPENSE):
Interest expense, net of interest capitalized	(602		)	(590		)
Equity in earnings (losses) of unconsolidated affiliates	(7		)	65
Losses on extinguishments of debt	(62		)	(18		)
Losses on interest rate derivatives	(329		)	(74		)
Other, net	3			(4		)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	(936		)	1,244
Income tax expense	28			126
NET INCOME (LOSS)	(964		)	1,118
Less: Net income (loss) attributable to noncontrolling interests	(121		)	297
Less: Net income attributable to redeemable noncontrolling interests	12			13
NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS	(855		)	808
General Partner’s interest in net income (loss)	(1		)	1
Limited Partners’ interest in net income (loss)	$	(854	)	$	807
NET INCOME (LOSS) PER LIMITED PARTNER UNIT:
Basic	$	(0.32	)	$	0.31
Diluted	$	(0.32	)	$	0.31

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(unaudited)



	Three Months Ended March 31,
	2020			2019*
Net income (loss)	$	(964	)	$	1,118
Other comprehensive income (loss), net of tax:
Change in value of available-for-sale securities	(9		)	5
Actuarial gain related to pension and other postretirement benefit plans	3			7
Foreign currency translation adjustments	(64		)	—
Change in other comprehensive loss from unconsolidated affiliates	(16		)	(4		)
	(86		)	8
Comprehensive income (loss)	(1,050		)	1,126
Less: Comprehensive income (loss) attributable to noncontrolling interests	(121		)	297
Less: Comprehensive income attributable to redeemable noncontrolling interests	12			13
Comprehensive income (loss) attributable to partners	$	(941	)	$	816

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(Dollars in millions)

(unaudited)



	Common Unitholders			General Partner			AOCI			Noncontrolling Interests			Total
Balance, December 31, 2019*	$	21,935		$	(4	)	$	(11	)	$	12,018		$	33,938
Distributions to partners	(1,591		)	(1		)	—			—			(1,592		)
Distributions to noncontrolling interests	—			—			—			(444		)	(444		)
Subsidiary units issued	—			—			—			1,580			1,580
Capital contributions from noncontrolling interests	—			—			—			95			95
Other comprehensive loss, net of tax	—			—			(48		)	(38		)	(86		)
Other, net	22			—			—			(7		)	15
Net loss, excluding amounts attributable to redeemable noncontrolling interests	(854		)	(1		)	—			(121		)	(976		)
Balance, March 31, 2020	$	19,512		$	(6	)	$	(59	)	$	13,083		$	32,530



	Common Unitholders			General Partner			AOCI			Noncontrolling Interests			Total
Balance, December 31, 2018*	$	20,773		$	(5	)	$	(42	)	$	10,291		$	31,017
Distributions to partners	(799		)	(1		)	—			—			(800		)
Distributions to noncontrolling interests	—			—			—			(425		)	(425		)
Capital contributions from noncontrolling interests	—			—			—			140			140
Sale of noncontrolling interest in subsidiary	—			—			—			93			93
Other comprehensive income, net of tax	—			—			8			—			8
Other, net	17			—			—			12			29
Net income, excluding amounts attributable to redeemable noncontrolling interests	807			1			—			297			1,105
Balance, March 31, 2019*	$	20,798		$	(5	)	$	(34	)	$	10,408		$	31,167

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(unaudited)



	Three Months Ended March 31,
	2020			2019*
OPERATING ACTIVITIES
Net income (loss)	$	(964	)	$	1,118
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	867			774
Deferred income taxes	42			98
Inventory valuation adjustments	227			(93		)
Non-cash compensation expense	22			29
Impairment losses	1,325			50
Losses on extinguishments of debt	62			18
Distributions on unvested awards	(11		)	(8		)
Equity in (earnings) losses of unconsolidated affiliates	7			(65		)
Distributions from unconsolidated affiliates	58			66
Other non-cash	17			107
Net change in operating assets and liabilities, net of effects of acquisitions	164			(279		)
Net cash provided by operating activities	1,816			1,815
INVESTING ACTIVITIES
Cash proceeds from sale of noncontrolling interest in subsidiary	—			93
Cash paid for all other acquisitions, net of cash received	—			(5		)
Capital expenditures, excluding allowance for equity funds used during construction	(1,621		)	(1,150		)
Contributions in aid of construction costs	25			15
Contributions to unconsolidated affiliates	(9		)	(28		)
Distributions from unconsolidated affiliates in excess of cumulative earnings	52			13
Proceeds from the sale of other assets	2			4
Other	(6		)	(40		)
Net cash used in investing activities	(1,557		)	(1,098		)
FINANCING ACTIVITIES
Proceeds from borrowings	12,134			11,295
Repayments of debt	(12,898		)	(10,733		)
Subsidiary units issued for cash	1,580			—
Capital contributions from noncontrolling interests	95			140
Distributions to partners	(770		)	(800		)
Distributions to noncontrolling interests	(444		)	(425		)
Debt issuance costs	(51		)	(84		)
Net cash used in financing activities	(354		)	(607		)
Increase (decrease) in cash and cash equivalents	(95		)	110
Cash and cash equivalents, beginning of period	291			419
Cash and cash equivalents, end of period	$	196		$	529

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER LP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollar and unit amounts, except per unit data, are in millions)

(unaudited)


1.	ORGANIZATION AND BASIS OF PRESENTATION

Organization

The consolidated financial statements presented herein contain the results of Energy Transfer LP and its subsidiaries (the “Partnership,” “we,” “us,” “our” or “ET”). References to the “Parent Company” mean Energy Transfer LP on a stand-alone basis.

In December 2019, we completed the acquisition of SemGroup. In connection with the transaction, a wholly owned subsidiary of ET merged with and into SemGroup, with SemGroup surviving the merger. During the first quarter of 2020, ET contributed certain former SemGroup subsidiaries to ETO through sale and contribution transactions (together, the “SemGroup Transaction”).

Substantially all of the Partnership’s cash flows are derived from distributions related to its investment in ETO, whose cash flows are derived from its subsidiaries, including ETO’s investments in Sunoco LP and USAC. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ET’s subsidiaries.

Our financial statements reflect the following reportable segments:

•intrastate transportation and storage;

•interstate transportation and storage;

•midstream;

•NGL and refined products transportation and services;

•crude oil transportation and services;

•investment in Sunoco LP;

•investment in USAC; and

•corporate and other, including the following:


•	activities of the Parent Company; and


•	certain operations and investments that are not separately reflected as reportable segments.

Basis of Presentation

The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.

The consolidated financial statements of ET presented herein include the results of operations of:


•	the Parent Company;


•	our controlled subsidiary, ETO;


•	ETP GP, the general partner of ETO, and Energy Transfer Partners, L.L.C. (“ETP LLC”), the general partner of ETP GP; and


•	our subsidiary, SemCAMS.

Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company,

Table of Contents

joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities.

Certain prior period amounts have also been reclassified to conform to the current period presentation. These reclassifications had no impact on net income or total equity.

Change in Accounting Policy

Effective January 1, 2020, the Partnership elected to change its accounting policy related to certain barrels of crude oil that were previously accounted for as inventory. Under the revised accounting policy, certain amounts of crude oil that are not available for sale have been reclassified from inventory to non-current assets. These crude oil barrels, which are owned by the Partnership’s crude oil acquisition and marketing business, include pipeline linefill and tank bottoms and are not considered to be available for sale because the volumes must be maintained in order to continue normal operation of the related pipelines or tanks and because there is no expectation of liquidation or sale of these volumes in the near term.

Under the previous accounting policy, all crude oil barrels were recorded as inventory under the weighted-average cost method. Under the revised accounting policy, barrels related to pipeline linefill and tank bottoms are accounted for as long-lived assets and reflected as non-current assets on the consolidated balance sheet. These crude oil barrels will be tested for impairment consistent with the Partnership’s existing accounting policy for impairments of long-lived assets. The Partnership’s management believes that the change in accounting policy is preferable as it more closely aligns the accounting policies across the consolidated entity, given that similar assets in the Partnership’s natural gas, NGLs and refined products businesses are accounted for as non-current assets. In addition, management believes that reflecting these crude oil barrels as non-current assets better represents the economic results of the Partnership’s crude oil acquisition and marketing business by reducing volatility resulting from market price adjustments to crude oil barrels that are not expected to be sold or liquidated in the near term.

The impact of this accounting policy change on the Partnership’s net income for three months ended March 31, 2020, was approximately $265 million, or $0.10 per limited partner unit. As a result of this change in accounting policy, the Partnership’s consolidated balance sheets for prior periods have been retrospectively adjusted as follows:



	December 31, 2019							December 31, 2018
	As Originally Reported		Effect of Change			As Adjusted		As Originally Reported		Effect of Change			As Adjusted
Inventories	$	1,935	$	(403	)	$	1,532	$	1,677	$	(305	)	$	1,372
Total current assets	7,867		(403		)	7,464		6,750		(305		)	6,445
Other non-current assets, net	1,075		496			1,571		1,006		472			1,478
Total assets	98,880		93			98,973		88,246		167			88,413
Total partners’ capital	21,827		93			21,920		20,559		167			20,726

Table of Contents

In addition, the Partnership’s consolidated statements of operations, comprehensive income and cash flows for prior periods have been retrospectively adjusted as follows:



	Year Ended December 31,						Three Months Ended March 31,
	2019			2018			2019
As originally reported:
Consolidated Statements of Operations and Comprehensive Income
Cost of products sold	$	39,727		$	41,658		$	9,415
Operating income	7,277			5,348			1,927
Income from continuing operations before income tax expense (benefit)	5,094			3,634			1,306
Net income	4,899			3,365			1,180
Net income per limited partner unit	1.37			1.16			0.33
Comprehensive income	4,930			3,322			1,188
Comprehensive income attributable to partners	3,623			1,651			878

Consolidated Statements of Cash Flows
Net income	4,899			3,365			1,180
Net change in operating assets and liabilities	(518		)	289			(341		)

Effect of change:
Consolidated Statements of Operations and Comprehensive Income
Cost of products sold	74			(55		)	62
Operating income	(74		)	55			(62		)
Income from continuing operations before income tax expense (benefit)	(74		)	55			(62		)
Net income	(74		)	55			(62		)
Net income per limited partner unit	(0.03		)	0.04			(0.02		)
Comprehensive income	(74		)	55			(62		)
Comprehensive income attributable to partners	(74		)	55			(62		)

Consolidated Statements of Cash Flows
Net income	(74		)	55			(62		)
Net change in operating assets and liabilities	74			(55		)	62

As adjusted:
Consolidated Statements of Operations and Comprehensive Income
Cost of products sold	39,801			41,603			9,477
Operating income	7,203			5,403			1,865
Income from continuing operations before income tax expense (benefit)	5,020			3,689			1,244
Net income	4,825			3,420			1,118
Net income per limited partner unit	1.34			1.20			0.31
Comprehensive income	4,856			3,377			1,126
Comprehensive income attributable to partners	3,549			1,706			816

Consolidated Statements of Cash Flows
Net income	4,825			3,420			1,118
Net change in operating assets and liabilities	(444		)	234			(279		)

Use of Estimates

The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses

Table of Contents

and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.

Recent Accounting Pronouncements

Effective January 1, 2020, the Partnership adopted Accounting Standards Update (“ASU”) 2016-13 "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The impact of adoption was immaterial to the Partnership. However, due in large part to the global economic impacts of COVID-19, the Partnership and its subsidiaries recorded an aggregate $16 million of current expected credit losses for the three months ended March 31, 2020.

Goodwill

During the first quarter of 2020, due to the impacts of the COVID-19 pandemic, the decline in commodity prices and the decreases in the Partnership’s market capitalization, we determined that interim impairment testing should be performed on certain reporting units. We performed the interim impairment tests consistent with our approach for annual impairment testing, including using similar models, inputs and assumptions. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $483 million related to our Arklatex and South Texas operations within the midstream segment, a goodwill impairment of $183 million related to our Lake Charles LNG regasification operations within the interstate transportation and storage segment due to a contractual reduction in payments for the remainder of the contract term, and a goodwill impairment of $40 million related to our all other operations primarily due to decreases in projected future revenues and cash flows as a result of the overall market demand decline. In addition, USAC recognized a goodwill impairment of $619 million during the three months ended March 31, 2020, which is included in the Partnership's consolidated results of operations. No other impairments of the Partnership’s goodwill were identified.

In connection with aforementioned impairments, the Partnership determined the fair value of our reporting units using the income approach. The income approach is based on the present value of future cash flows, which are derived from our long-term financial forecasts, and requires significant assumptions including, among others, revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Cash flow projections are derived from one-year budgeted amounts and three-year operating forecasts plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur.

Of the $3.84 billion of goodwill on the Partnership’s consolidated balance sheet as of March 31, 2020, approximately $1.2 billion is recorded in reporting units for which the estimated fair value exceeded the carrying value by less than 20% in the most recent quantitative test. Management believes that all of the $1.2 billion is at significant risk of impairment, if commodity prices and/or overall market demand remains low. In addition, as of March 31, 2020, the Partnership’s goodwill balance includes approximately $265 million of goodwill related to the SemGroup assets that were acquired in December 2019; these goodwill balances are subject to change as the purchase price allocation has not been finalized. Any future adjustments to the SemGroup-related goodwill balances could also increase the likelihood of a future goodwill impairment.

Changes in the carrying amount of goodwill were as follows:



	Intrastate Transportation and Storage		Interstate Transportation and Storage			Midstream			NGL and Refined Products Transportation and Services		Crude Oil Transportation and Services		Investment in Sunoco LP		Investment in USAC			All Other			Total
Balance, December 31, 2019	$	10	$	226		$	483		$	693	$	1,397	$	1,555	$	619		$	184		$	5,167
Impaired	—		(183		)	(483		)	—		—		—		(619		)	(40		)	(1,325		)
Other	—		—			—			—		—		—		—			(7		)	(7		)
Balance, March 31, 2020	$	10	$	43		$	—		$	693	$	1,397	$	1,555	$	—		$	137		$	3,835

Table of Contents


2.	CASH AND CASH EQUIVALENTS

Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. The Partnership’s balance sheets did not include any material amounts of restricted cash as of March 31, 2020 or December 31, 2019.

We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.

The net change in operating assets and liabilities (net of effects of acquisitions) included in cash flows from operating activities is comprised as follows:



	Three Months Ended March 31,
	2020			2019
Accounts receivable	$	1,667		$	(302	)
Accounts receivable from related companies	(20		)	(38		)
Inventories	281			135
Other current assets	110			99
Other non-current assets, net	(101		)	(34		)
Accounts payable	(1,704		)	321
Accounts payable to related companies	(21		)	(10		)
Accrued and other current liabilities	(233		)	(406		)
Other non-current liabilities	25			(31		)
Derivative assets and liabilities, net	160			(13		)
Net change in operating assets and liabilities, net of effects of acquisitions	$	164		$	(279	)

Non-cash activities are as follows:



	Three Months Ended March 31,
	2020		2019
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued capital expenditures	$	1,015	$	630
Accrued distributions to partners	822		—
Lease assets obtained in exchange for new lease liabilities	17		8


3.	INVENTORIES

As further discussed in Note 1, the Partnership elected to change its accounting policy related to certain barrels of crude oil that were previously accounted for as inventory. As a result of this change in accounting policy, the Partnership’s inventory balance for the prior period has been retrospectively adjusted. Inventories consisted of the following:



	March 31, 2020		December 31, 2019
Natural gas, NGLs and refined products	$	463	$	833
Crude oil	105		251
Spare parts and other	456		448
Total inventories	$	1,024	$	1,532

Table of Contents

We utilize commodity derivatives to manage price volatility associated with its natural gas inventories. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.


4.	FAIR VALUE MEASURES

Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of March 31, 2020 were $43.92 billion and $50.33 billion, respectively. As of December 31, 2019, the aggregate fair value and carrying amount of our consolidated debt obligations were $54.79 billion and $51.05 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the respective debt obligations’ observable inputs used for similar liabilities.

We have commodity derivatives and interest rate derivatives that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. During the three months ended March 31, 2020, no transfers were made between any levels within the fair value hierarchy.

Table of Contents

The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 based on inputs used to derive their fair values:



			Fair Value Measurements at March 31, 2020
	Fair Value Total		Level 1		Level 2
Assets:
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX	$	108	$	108	$	—