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EX-32.2 - EXHIBIT 32.2 - Shell Midstream Partners, L.P.a06302016-ex322.htm
EX-32.1 - EXHIBIT 32.1 - Shell Midstream Partners, L.P.a06302016-ex321.htm
EX-31.2 - EXHIBIT 31.2 - Shell Midstream Partners, L.P.a06302016-ex312.htm
EX-31.1 - EXHIBIT 31.1 - Shell Midstream Partners, L.P.a06302016-ex311.htm


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

or

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

For the transition period from                      to                         

Commission file number: 001-36710
 
 
 
Shell Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
46-5223743
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

One Shell Plaza, 910 Louisiana Street, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 241-6161
(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

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

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

The registrant had 109,842,376 common units and 67,475,068 subordinated units outstanding as of August 4, 2016.
 




SHELL MIDSTREAM PARTNERS, L.P.
TABLE OF CONTENTS
 





PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
June 30,
2016
 
December 31,
2015
 
 
(in millions of dollars)
ASSETS
Current assets
 
 

 
 

Cash and cash equivalents
 
$
168.6

 
$
93.0

Accounts receivable – third parties, net
 
17.7

 
18.8

Accounts receivable – related parties
 
6.7

 
9.8

Allowance oil
 
5.0

 
4.2

Prepaid expenses
 
1.8

 
5.0

Total current assets
 
199.8

 
130.8

Equity method investments
 
177.5

 
185.0

Property, plant and equipment, net
 
394.4

 
392.9

Cost investment
 
11.4

 
6.2

Total assets
 
$
783.1

 
$
714.9

LIABILITIES
Current liabilities
 
 

 
 

Accounts payable – third parties
 
$
2.6

 
$
0.2

Accounts payable – related parties
 
4.1

 
9.3

Deferred revenue – third parties
 
2.3

 
2.6

Deferred revenue – related parties
 
2.2

 
3.6

Accrued liabilities – third parties
 
6.8

 
6.8

Accrued liabilities – related parties
 
2.6

 
3.6

Total current liabilities
 
20.6

 
26.1

Noncurrent liabilities
 
 
 
 
Debt payable – related party
 
344.4

 
457.6

Lease liability – related party
 
24.5

 
22.8

Asset retirement obligations
 
1.4

 
1.3

Total noncurrent liabilities
 
370.3

 
481.7

Total liabilities
 
390.9

 
507.8

Commitments and Contingencies (Note 11)
 


 


EQUITY
Common unitholders – public (88,367,308  and 62,892,308 units issued and outstanding as of June 30, 2016 and December 31, 2015)
 
2,476.4

 
1,637.5

Common unitholder – SPLC (21,475,068 units issued and
outstanding as of June 30, 2016 and December 31, 2015)
 
(126.1
)
 
(130.4
)
Subordinated unitholder – SPLC (67,475,068 units issued and
outstanding as of June 30, 2016 and December 31, 2015)
 
(396.1
)
 
(409.8
)
General partner – SPLC (3,618,723  and 3,098,825 units issued and
outstanding as of June 30, 2016 and December 31, 2015)
 
(1,584.2
)
 
(998.6
)
Total partners' capital
 
370.0

 
98.7

Noncontrolling interest
 
22.2

 
108.4

Total equity
 
392.2

 
207.1

Total liabilities and equity
 
$
783.1

 
$
714.9

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

3



SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015 (1)
 
2016
 
2015 (1)
 
 
(in millions of dollars, except per unit data)
Revenue
 
 

 
 
 
 
 
 
Third parties
 
$
52.4

 
$
53.6

 
$
103.7

 
$
100.1

Related parties
 
18.7

 
26.2

 
44.1

 
45.6

Total revenue
 
71.1

 
79.8

 
147.8

 
145.7

Costs and expenses
 
 

 
 

 
 

 
 

Operations and maintenance – third parties
 
12.3

 
10.4

 
21.7

 
19.8

Operations and maintenance – related parties
 
5.2

 
4.5

 
10.6

 
9.7

General and administrative – third parties
 
1.9

 
3.5

 
4.0

 
5.2

General and administrative – related parties
 
5.9

 
5.8

 
11.6

 
11.4

Depreciation, amortization and accretion
 
5.8

 
5.3

 
11.7

 
10.5

Property and other taxes
 
1.9

 
3.3

 
5.1

 
6.7

Total costs and expenses
 
33.0

 
32.8

 
64.7

 
63.3

Operating income
 
38.1

 
47.0

 
83.1

 
82.4

Income from equity investments
 
25.6

 
10.8

 
48.8

 
23.3

Dividend income from investment
 
4.6

 
2.3

 
7.4

 
3.9

Other income
 

 
1.0

 

 
1.0

Investment, dividend and other income
 
30.2

 
14.1

 
56.2

 
28.2

Interest expense, net
 
2.0

 
0.3

 
5.0

 
0.5

Income before income taxes
 
66.3

 
60.8

 
134.3

 
110.1

Income tax expense
 

 
0.1

 

 
0.3

Net income
 
66.3

 
60.7

 
134.3

 
109.8

Less: Net income attributable to Parent
 

 
15.4

 

 
23.1

Less: Net income attributable to noncontrolling interests
 
2.5

 
13.1

 
15.2

 
30.9

Net income attributable to the Partnership
 
$
63.8

 
$
32.2

 
$
119.1

 
$
55.8

General partner's interest in net income attributable to the Partnership
 
$
5.0

 
$
0.7

 
$
8.1

 
$
1.2

Limited Partners' interest in net income attributable to the Partnership
 
$
58.8

 
$
31.5

 
$
111.0

 
$
54.6

 
 
 
 
 
 
 
 
 
Net income per Limited Partner Unit - Basic and Diluted (in dollars):
 
 

 
 

 
 
 
 
Common
 
$
0.35

 
$
0.22

 
$
0.71

 
$
0.39

Subordinated
 
$
0.34

 
$
0.22

 
$
0.66

 
$
0.39

 
 
 
 
 
 
 
 
 
Distributions per Limited Partner Unit (in dollars)
 
$
0.2500

 
$
0.1900

 
$
0.4850

 
$
0.3650

 
 
 
 
 
 
 
 
 
Weighted average Limited Partner Units outstanding - Basic and Diluted (in millions):
 
 

 
 

 
 
 
 
Common units – public
 
81.1

 
53.7

 
72.3

 
49.8

Common units – SPLC
 
21.5

 
21.5

 
21.5

 
21.5

Subordinated units – SPLC
 
67.5

 
67.5

 
67.5

 
67.5


 (1) The 2015 financial information has been retrospectively adjusted for the acquisition of the Shell Auger and Lockport Operations.

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

4


SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
 
 
Six Months Ended June 30,
 
 
2016
 
2015 (1)
 
 
(in millions of dollars)
Cash flows from operating activities
 
 

 
 

Net income
 
$
134.3

 
$
109.8

Adjustments to reconcile net income to net cash provided by operating activities
 
 

 
 

Depreciation, amortization and accretion
 
11.7

 
10.5

Amortization of debt interest cost
 
0.1

 

Undistributed equity earnings
 
1.0

 

Changes in operating assets and liabilities
 
 

 
 

Accounts receivable
 
4.3

 
4.1

Allowance oil
 
(0.8
)
 
(0.6
)
Prepaid expenses
 
3.2

 
3.0

Accounts payable
 
(3.5
)
 
(6.0
)
Deferred revenue
 
(1.7
)
 
7.1

Accrued liabilities
 
2.1

 
8.9

Net cash provided by operating activities
 
150.7

 
136.8

Cash flows from investing activities
 
 

 
 

Capital expenditures
 
(13.8
)
 
(4.7
)
May 2015 Acquisition
 

 
(55.4
)
May 2016 Acquisition
 
(93.7
)
 

Return of investment
 
8.0

 
5.4

Payment of pre-IPO distributions from investments to SPLC
 

 
(11.9
)
Net cash used in investing activities
 
(99.5
)
 
(66.6
)
Cash flows from financing activities
 
 

 
 

Net proceeds from private placement
 

 
297.7

Net proceeds from public offerings
 
818.1

 

Borrowing under credit facility
 
296.7

 
70.8

Contributions from general partner
 
9.8

 
6.1

Repayment of credit facilities
 
(410.0
)
 

Capital distributions to general partner
 
(599.2
)
 
(392.6
)
Distributions to noncontrolling interest
 
(14.4
)
 
(25.1
)
Distributions to unitholders and general partner
 
(77.0
)
 
(38.5
)
Other contribution from Parent
 
0.4

 

Net distribution to Parent
 

 
(25.5
)
Credit facilities issuance costs
 

 
(0.3
)
Net cash provided by (used in) financing activities
 
24.4

 
(107.4
)
Net increase (decrease) in cash and cash equivalents
 
75.6

 
(37.2
)
Cash and cash equivalents at beginning of the period
 
93.0

 
150.2

Cash and cash equivalents at end of the period
 
$
168.6

 
$
113.0

Supplemental Cash Flow Information
 
 

 
 

Non-cash investing and financing transactions
 
 

 
 

Distribution payable to noncontrolling interest
 
$

 
$
(15.8
)
Change in accrued capital expenditures
 
(0.6
)
 
1.0

Other non-cash contributions from Parent
 
0.1

 

Other non-cash capital distributions to general partner
 
(7.1
)
 

Other non-cash contribution from general partner
 
7.1

 

 (1) The 2015 financial information has been retrospectively adjusted for the acquisition of the Shell Auger and Lockport Operations.
The accompanying notes are an integral part of the condensed consolidated financial statements.

5



SHELL MIDSTREAM PARTNERS, L.P.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 
 
Partnership
 
 
 
 
(in millions of dollars)
Common Unitholders Public
 
Common Unitholder SPLC
 
Subordinated Unitholder SPLC
 
General Partner SPLC
 
Non- controlling Interest
 
Total
Balance as of December 31, 2015
$
1,637.5

 
$
(130.4
)
 
$
(409.8
)
 
$
(998.6
)
 
$
108.4

 
$
207.1

Net income
52.5

 
14.1

 
44.4

 
8.1

 
15.2

 
134.3

Net proceeds from public offerings
818.1

 

 

 

 

 
818.1

Contributions from general partner

 

 

 
16.9

 

 
16.9

Other contribution from parent

 

 

 
0.5

 

 
0.5

Distributions to unitholders and general partner
(31.7
)
 
(9.8
)
 
(30.7
)
 
(4.8
)
 

 
(77.0
)
Distribution to noncontrolling interest

 

 

 

 
(14.4
)
 
(14.4
)
Capital distributions to general partner

 

 

 
(606.3
)
 

 
(606.3
)
Acquisition of noncontrolling interest

 

 

 

 
(87.0
)
 
(87.0
)
Balance as of June 30, 2016
$
2,476.4

 
$
(126.1
)
 
$
(396.1
)
 
$
(1,584.2
)
 
$
22.2

 
$
392.2

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


6



SHELL MIDSTREAM PARTNERS, L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 

Except as noted within the context of each note disclosure, the dollar amounts presented in the tabular data within these note disclosures are stated in millions of dollars. The financial information for the three and six months ended June 30, 2015 has been retrospectively adjusted for the acquisition of the Shell Auger and Lockport Operations (see Note 2—Acquisitions).

1. Description of Business and Basis of Presentation

Shell Midstream Partners, L.P. (“we,” “us,” “our” or the “Partnership”) is a Delaware limited partnership formed on March 19, 2014 to own and operate assets, including certain assets received from Shell Pipeline Company LP (“SPLC”). We conduct our operations through our wholly owned subsidiary, Shell Midstream Operating, LLC (“Operating Company”). Our general partner is Shell Midstream Partners GP LLC (“general partner”). References to “Shell” or “Parent” refer collectively to Royal Dutch Shell plc (“RDS”) and its controlled affiliates, other than us, our subsidiaries and our general partner.
 
Description of Business

We are a fee-based, growth-oriented master limited partnership formed by Shell to own, operate, develop and acquire pipelines and other midstream assets. Our assets consist of interests in entities that own crude oil and refined products pipelines serving as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and to deliver refined products from those markets to major demand centers. As of June 30, 2016, we own interests in four crude oil pipeline systems, two refined products systems and a crude storage terminal. The crude oil pipeline systems, which are held by Zydeco Pipeline Company LLC (“Zydeco”), Mars Oil Pipeline Company (“Mars”), Poseidon Oil Pipeline Company, LLC (“Poseidon”) and the Auger Pipeline System (“Auger”), are strategically located along the Texas and Louisiana Gulf Coast and in the Gulf of Mexico. These systems link major onshore and offshore production areas with key refining markets. The refined products pipeline systems, which are held by Bengal Pipeline Company LLC (“Bengal”) and Colonial Pipeline Company (“Colonial”), connect Gulf Coast and southeastern U.S. refineries to major demand centers from Alabama to New York. The crude storage terminal, called the Lockport Terminal (“Lockport”), is located southwest of Chicago and serves Midwest refineries. Auger and Lockport are owned by our wholly owned subsidiary, Pecten Midstream LLC (“Pecten”).

As of June 30, 2016, we own a 100% interest in Pecten, a 92.5% interest in Zydeco, a 28.6% interest in Mars, a 36.0% interest in Poseidon, a 50.0% interest in Bengal and a 6.0% interest in Colonial. Each of Pecten and Zydeco is consolidated within our condensed consolidated financial statements as a subsidiary. The 7.5% ownership interest in Zydeco retained by SPLC is reflected as noncontrolling interest in our condensed consolidated financial statements. We account for each of our investments in Mars, Bengal and Poseidon using the equity method of accounting, and we account for our investment in Colonial using the cost method of accounting.

We generate the majority of our revenue under long-term agreements by charging fees for the transportation and storage of crude oil and refined products through our pipelines and storage tanks. Our operations consist of one reportable segment.

Basis of Presentation

Our condensed consolidated financial statements include all majority owned and non-majority owned subsidiaries required to be consolidated under generally accepted accounting principles in the United States (“GAAP”). Our reporting currency is U.S. dollars, and all references to dollars are U.S. dollars. The accompanying unaudited condensed consolidated financial statements and related notes have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete annual financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. During interim periods, we follow the accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015 (our “2015 Annual Report”), filed with the United States Securities and Exchange Commission (“SEC”). The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2016 and 2015 include all adjustments we believe are necessary for a fair statement of the results for the interim periods. These adjustments are of a normal recurring nature unless otherwise disclosed. Operating results for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2016. These unaudited condensed consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto included in our 2015 Annual Report.
 

7



The June 30, 2015 condensed consolidated financial statements have been retrospectively adjusted for the acquisition of the Shell Auger and Lockport Operations. These retrospective adjustments include expense allocations for certain functions historically performed by our Parent on behalf of the Shell Auger and Lockport Operations, including allocations of general corporate expenses related to finance, legal, information technology, human resources, communications, ethics and compliance, shared services, employee benefits and incentives, insurance, and share-based compensation. See Note 2—Acquisitions to our condensed consolidated financial statements.

Prior to the contribution of fixed assets and certain agreements on October 1, 2015 related to the Shell Auger and Lockport Operations, the cash generated and used by these operations was deposited to SPLC’s centralized account which was comingled with the cash of other pipeline entities controlled by SPLC. SPLC funded these operating and investing activities as needed. Accordingly, we did not record any cash and cash equivalents held by SPLC on behalf of the Shell Auger and Lockport Operations for any period prior to October 1, 2015. We reflected the cash generated by these operations and expenses paid by SPLC on behalf of these operations as Net distributions to Parent within the accompanying condensed consolidated statements of cash flows.

Our asset acquisitions are accounted for prospectively from the effective date of the transaction. The condensed consolidated financial statements as of and for the six months ended June 30, 2016 and 2015 reflect the results of the following assets acquired prospectively from the dates indicated:

The increased interests in Zydeco, Bengal and Colonial acquired effective April 1, 2016;
The increased interests in Zydeco and Colonial acquired effective April 1, 2015, and
The interest in Poseidon acquired effective July 1, 2015.

See Note 2—Acquisitions to our condensed consolidated financial statements.

Summary of Significant Accounting Policies

The accounting policies are set forth in Note 2—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of our 2015 Annual Report. There have been no significant changes to these policies during the six months ended June 30, 2016.

Recent Accounting Pronouncements

For additional information on accounting pronouncements issued prior to June 2016, refer to Note 2—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements of our 2015 Annual Report.

In March 2016, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (ASU 2016-07) to topic 323, Investments – Equity Method and Joint Ventures, to eliminate the need for an entity to retroactively adopt the equity method of accounting when an investment becomes qualified for the use of the equity method of accounting due to an increase in level of ownership or degree of influence. This provision is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. We are currently evaluating the effect of adoption of this guidance on our financial position or results of operations.
 
In February 2015, the FASB issued an accounting standards update (ASU 2015-02) making targeted changes to the current consolidation guidance. The new standard changes the considerations related to substantive rights, related parties, and decision making fees when applying the variable interest entity consolidation model and eliminates certain guidance for limited partnerships and similar entities under the voting interest consolidation model. The update is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2015. Adoption of this standard did not have a material impact on the consolidated results of operations, financial position or cash flows.
 
2. Acquisitions

On May 23, 2016, we acquired an additional 30.0% interest in Zydeco, an additional 1.0% interest in Bengal and an additional 3.0% interest in Colonial for $700.0 million in consideration (the “May 2016 Acquisition”). The May 2016 Acquisition closed pursuant to a Contribution Agreement (the “May 2016 Contribution Agreement”) dated May 17, 2016 among the Operating Company, us and SPLC and became effective on April 1, 2016, and is accounted for as a transaction between entities under common control. We funded the May 2016 Acquisition with $345.8 million from the net proceeds of a registered public offering of 10,500,000 common units representing limited partner interests in us (the “May 2016 Offering”), $50.4 million of cash on hand and $296.7 million in borrowings under our Five Year Revolver (as defined in Note 7—Related

8



Party Debt). The remaining $7.1 million in consideration consisted of an issuance of 214,285 general partner units to our general partner in order to maintain its 2.0% general partner interest in us. Total transaction costs of $0.4 million were incurred in association with the May 2016 Acquisition. The terms of the May 2016 Acquisition were approved by the Board of Directors of our general partner (the “Board”) and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the May 2016 Contribution Agreement, SPLC has agreed to reimburse us for our proportionate share of certain costs and expenses incurred by Zydeco after April 1, 2016 with respect to a directional drill project to address soil erosion over a two-mile section of our 22-inch diameter pipeline under the Atchafalaya River and Bayou Shaffer in Louisiana. Such reimbursements will be treated as an additional capital contribution from the general partner at the time of payment. The May 2016 Contribution Agreement contained customary representations and warranties and indemnification by SPLC.

In connection with the May 2016 Acquisition we acquired book value of net assets under common control as follows:


Cost investment  (1)
$
5.2

Equity method investments(2)
1.5

Partner's capital (3)
87.0

May 2016 Acquisition
$
93.7


(1) 
Book value of 3.0% additional interest in Colonial contributed by SPLC.
(2) 
Book value of 1.0% additional interest in Bengal contributed by SPLC.
(3) 
Book value of 30.0% additional interest in Zydeco from SPLC’s noncontrolling interest.

We recognized $606.3 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions. This capital distribution is comprised of $599.2 million in cash and $7.1 million in general partner units issued.

On May 18, 2015, we acquired an additional 19.5% interest in Zydeco and an additional 1.388% interest in Colonial for $448.0 million in cash (the “May 2015 Acquisition”). The May 2015 Acquisition closed pursuant to a Purchase and Sale Agreement dated May 12, 2015 (“Purchase and Sale Agreement”) among the Operating Company, us and SPLC and became effective on April 1, 2015, and was accounted for as a transaction between entities under common control. We funded the May 2015 Acquisition with $297.7 million from the Private Placement (as defined in Note 8—Equity), $80.0 million of cash on hand and $70.8 million in borrowings under our Five Year Revolver (as defined in Note 7—Related Party Debt) with Shell Treasury Center (West) Inc. (“STCW”), an affiliate of Shell. Total transaction costs of $0.5 million were incurred in association with the May 2015 Acquisition. The terms of the May 2015 Acquisition were approved by the Board and by the conflicts committee of the Board, which consists entirely of independent directors. The conflicts committee engaged an independent financial advisor and legal counsel. In accordance with the Purchase and Sale Agreement, SPLC agreed to reimburse us for our proportionate share of certain costs and expenses incurred by Zydeco after April 1, 2015 with respect to a directional drill project to address soil erosion over a two-mile section of our 22-inch diameter pipeline under the Atchafalaya River and Bayou Shaffer in Louisiana. Such reimbursements will be treated as an additional capital contribution from the general partner at the time of payment.

In connection with the May 2015 Acquisition we acquired book value of net assets under common control as follows:

Cost investment  (1)
$
2.5

Partner's capital (2)
52.9

May 2015 Acquisition
$
55.4



(1) Book value of 1.388% additional interest in Colonial contributed by SPLC.
(2) Book value of 19.5% additional interest in Zydeco from SPLC's noncontrolling interest.

We recognized $392.6 million of consideration in excess of the book value of net assets acquired as a capital distribution to our general partner in accordance with our policy for common control transactions.


9



Effective July 1, 2015, Shell Oil Products US (“SOPUS”) conveyed to us its 36.0% interest in Poseidon (the “July 2015 Acquisition”) for $350.0 million in cash. The July 2015 Acquisition closed pursuant to a contribution agreement dated July 1, 2015 (the “Poseidon Contribution Agreement”) among the Operating Company, the Partnership and SOPUS and is accounted for as a transaction between entities under common control. We have recorded this asset acquisition prospectively from the effective date. Poseidon is a Delaware Limited Liability Company formed in February 1996 to design, construct, own and operate a non-Federal Energy Regulatory Commission (“FERC”) regulated crude oil pipeline system located offshore Louisiana in the central region of the Gulf of Mexico. We account for our interest in Poseidon using the equity method of accounting.

On November 17, 2015, we acquired from SPLC a 100% interest in Pecten, which holds the Shell Auger and Lockport Operations. The acquisition of Pecten was a transfer of a business between entities under common control, which requires it to be accounted for as if the transfer had occurred at the beginning of the period of transfer, with prior periods retrospectively adjusted to furnish comparative financial information. Accordingly, the accompanying financial statements and notes for the three and six months ended June 30, 2015 have been retrospectively adjusted to include the historical results of the business of Auger and Lockport (the “Shell Auger and Lockport Operations”) prior to the acquisition's effective date of October 1, 2015. See Note 2 – Summary of Significant Accounting Policies – Common Control Transactions in the Notes to Consolidated Financial Statements of our 2015 Annual Report for further discussion of how we account for the acquisition of assets and businesses under common control. See Note 3 – Acquisitions in the Notes to Consolidated Financial Statements of our 2015 Annual Report for further discussion of this acquisition.

The following tables present our condensed consolidated statement of income and condensed consolidated statement of cash flows for the three and six ended June 30, 2015 giving effect to the acquisition of Pecten. The results of Pecten prior to the effective date of the acquisition are included in “Shell Auger and Lockport Operations” and the consolidated results are included in “Consolidated Results” within the tables below:



10



Condensed Consolidated Statement of Income
Three Months Ended June 30, 2015
 
 
 
Shell Auger
 
 
 
Shell Midstream
 
and Lockport
 
Consolidated
 
Partners, L.P. (1)
 
Operations (2)
 
Results
 
 
 
 
 
 
Revenue
 
 
 
 
 
Third parties
$
46.5

 
$
7.1

 
$
53.6

Related parties
11.1

 
15.1

 
26.2

Total revenue
57.6

 
22.2

 
79.8

Costs and expenses
 
 
 
 
 
Operations and maintenance – third parties
7.7

 
2.7

 
10.4

Operations and maintenance – related parties
3.4

 
1.1

 
4.5

General and administrative – third parties
3.4

 
0.1

 
3.5

General and administrative – related parties
4.8

 
1.0

 
5.8

Depreciation, amortization and accretion
3.5

 
1.8

 
5.3

Property and other taxes
3.2

 
0.1

 
3.3

Total costs and expenses
26.0

 
6.8

 
32.8

Operating income
31.6

 
15.4

 
47.0

Income from equity investments
10.8

 

 
10.8

Dividend income from investment
2.3

 

 
2.3

Other income
1.0

 

 
1.0

Investment, dividend and other income
14.1

 

 
14.1

Interest expense, net
0.3

 

 
0.3

Income before income taxes
45.4

 
15.4

 
60.8

Income tax expense
0.1

 

 
0.1

Net income
45.3

 
15.4

 
60.7

Less: Net income attributable to Parent

 
15.4

 
15.4

Less: Net income attributable to noncontrolling interests
13.1

 

 
13.1

Net income attributable to the Partnership
$
32.2

 
$

 
$
32.2


(1) As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.
(2) Results of the Shell Auger and Lockport Operations from April 1, 2015 through June 30, 2015.






11



Condensed Consolidated Statement of Income
Six Months Ended June 30, 2015
 
 
 
Shell Auger
 
 
 
Shell Midstream
 
and Lockport
 
Consolidated
 
Partners, L.P. (1)
 
Operations (2)
 
Results
Revenue
 
 
 
 
 
Third parties
$
87.8

 
$
12.3

 
$
100.1

Related parties
21.5

 
24.1

 
45.6

Total revenue
109.3

 
36.4

 
145.7

Costs and expenses
 
 
 
 
 
Operations and maintenance – third parties
14.6

 
5.2

 
19.8

Operations and maintenance – related parties
7.3

 
2.4

 
9.7

General and administrative – third parties
5.0

 
0.2

 
5.2

General and administrative – related parties
9.8

 
1.6

 
11.4

Depreciation, amortization and accretion
6.9

 
3.6

 
10.5

Property and other taxes
6.4

 
0.3

 
6.7

Total costs and expenses
50.0

 
13.3

 
63.3

Operating income
59.3

 
23.1

 
82.4

Income from equity investments
23.3

 

 
23.3

Dividend income from investment
3.9

 

 
3.9

Other income
1.0

 

 
1.0

Investment, dividend and other income
28.2

 

 
28.2

Interest expense, net
0.5

 

 
0.5

Income before income taxes
87.0

 
23.1

 
110.1

Income tax expense
0.3

 

 
0.3

Net income
86.7

 
23.1

 
109.8

Less: Net income attributable to Parent

 
23.1

 
23.1

Less: Net income attributable to noncontrolling interests
30.9

 

 
30.9

Net income attributable to the Partnership
$
55.8

 
$

 
$
55.8


(1) As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.
(2) Results of the Shell Auger and Lockport Operations from January 1, 2015 through June 30, 2015.


12



Condensed Consolidated Statement of Cash Flows
Six Months Ended June 30, 2015
 
 
 
Shell Auger
 
 
 
Shell Midstream
 
and Lockport
 
Consolidated
 
Partners, L.P. (1)
 
Operations (2)
 
Results
Cash flows from operating activities
 
 
 
 
 
Net income
$
86.7

 
$
23.1

 
$
109.8

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 

Depreciation, amortization and accretion
6.9

 
3.6

 
10.5

Changes in operating assets and liabilities
 
 
 
 
 
Accounts receivable
4.2

 
(0.1
)
 
4.1

Allowance oil
0.1

 
(0.7
)
 
(0.6
)
Prepaid expenses
2.3

 
0.7

 
3.0

Accounts payable
(5.7
)
 
(0.3
)
 
(6.0
)
Deferred revenue
7.1

 

 
7.1

Accrued liabilities
8.6

 
0.3

 
8.9

Net cash provided by operating activities
110.2

 
26.6

 
136.8

Cash flows from investing activities
 
 
 
 
 
Capital expenditures
(3.6
)
 
(1.1
)
 
(4.7
)
May 2015 Acquisition
(55.4
)
 

 
(55.4
)
Return of investment
5.4

 

 
5.4

Payment of pre-IPO distributions from investments to SPLC
(11.9
)
 

 
(11.9
)
Net cash used in investing activities
(65.5
)
 
(1.1
)
 
(66.6
)
Cash flows from financing activities
 
 
 
 
 
Borrowing under credit facilities
70.8

 

 
70.8

Net proceeds from private placement
297.7

 

 
297.7

Contribution from general partner
6.1

 

 
6.1

Capital distributions to general partner
(392.6
)
 

 
(392.6
)
Distributions to noncontrolling interest
(25.1
)
 

 
(25.1
)
Distributions to unitholders and general partner
(38.5
)
 

 
(38.5
)
Credit facilities issuance costs
(0.3
)
 

 
(0.3
)
Net distribution to Parent

 
(25.5
)
 
(25.5
)
Net cash used in financing activities
(81.9
)
 
(25.5
)
 
(107.4
)
Net increase in cash and cash equivalents
(37.2
)
 

 
(37.2
)
Cash and cash equivalents at beginning of the period
150.2

 

 
150.2

Cash and cash equivalents at end of the period
$
113.0

 
$

 
$
113.0

Supplemental Cash Flow Information
 
 
 
 
 
Non-cash investing transactions
 
 
 
 
 
Change in accrued capital expenditures
$
1.0

 
$

 
$
1.0

Distribution payable to noncontrolling interest
(15.8
)
 

 
(15.8
)

(1) As previously reported in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2015.
(2) Results of the Shell Auger and Lockport Operations from January 1, 2015 through June 30, 2015.






13





3. Related Party Transactions

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

See the description of the May 2015 Purchase and Sale Agreement related to the May 2015 Acquisition as well as the May 2016 Contribution Agreement relating to the May 2016 Acquisition as further described in Note 2—Acquisitions.

Termination Agreement

On November 3, 2014, we entered into a voting agreement with SPLC regarding the governance of Bengal (the “Voting Agreement”). On May 23, 2016, in connection with the May 2016 Acquisition, we and SPLC entered into a Termination of Bengal Voting Agreement (the “Termination Agreement”), under which the Voting Agreement was terminated.

Commercial Agreements

For a discussion of the following related party commercial agreements, see Note 4—Related Party Transactions in the Notes to Consolidated Financial Statements of our 2015 Annual Report.

Omnibus Agreement

Pursuant to the omnibus agreement we entered into on November 3, 2014 with SPLC (the “Omnibus Agreement”):

we are required to pay an annual general and administrative fee for the provision of certain services by SPLC;
we are obligated to reimburse SPLC for certain direct or allocated costs and expenses incurred by SPLC on our behalf;
we are obligated 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; and
Shell granted a license to us with respect to the use of certain Shell trademarks and trade names.

Expenses related to our obligations under the Omnibus Agreement during the six months ended June 30, 2016 and 2015 are reflected in related party general and administrative expenses disclosed below.

Under the Omnibus Agreement, certain of our costs are indemnified by SPLC. The legal and environmental indemnifications are subject to individual $0.5 million deductibles, while we have an aggregate limit of $15.0 million, of which $10.7 million is remaining. As of June 30, 2016, only the environmental indemnification remains and it will expire in November 2017. During the three and six months ended June 30, 2016, we did not make any claims for indemnification.


 Zydeco  

In connection with our initial public offering (“IPO”) of common units, and the formation of Zydeco, we entered into various agreements with SPLC and Shell. For a discussion of these agreements, see Note 4—Related Party Transactions in the Notes to Consolidated Financial Statements of our 2015 Annual Report.

 Noncontrolling Interest

Noncontrolling interest consists of SPLC's 7.5% retained ownership in Zydeco as of June 30, 2016 and 37.5% retained ownership as of December 31, 2015. During the three months ended June 30, 2016 and March 31, 2016, SPLC owned a 7.5% and 37.5% noncontrolling interest in Zydeco, respectively. During the three months ended June 30, 2015 and March 31, 2015, SPLC owned a 37.5% and 57.0% noncontrolling interest in Zydeco, respectively.

14




Other Related Party Balances

Other related party balances consist of the following:

 
 
June 30, 2016
 
December 31, 2015
Accounts receivable
 
$
6.7

 
$
9.8

Prepaid expenses
 
1.0

 
2.8

Accounts payable (1)
 
4.1

 
9.3

Deferred revenue
 
2.2

 
3.6

Accrued liabilities
 
2.6

 
3.6

Debt payable (2)
 
344.4

 
457.6

Lease liability
 
24.5

 
22.8

 
(1) Accounts payable reflects amounts owed to SPLC for reimbursement of third-party expenses incurred by SPLC for our benefit.
(2) Debt payable reflects borrowings outstanding after taking into account unamortized debt issuance costs of $0.5 million and $0.6 million as of June 30, 2016 and December 31, 2015, respectively.


Related Party Revolving Credit Facilities

We have entered into two revolving credit facilities with STCW: the Five Year Revolver and the 364-Day Revolver. Zydeco entered into a senior unsecured revolving credit facility with STCW. For definitions and additional information regarding these credit facilities, see Note 7—Related Party Debt.

Related Party Revenues and Expenses

We provide crude oil transportation and storage services to related parties under long-term contracts. We entered into these contracts in the normal course of our business and the services are based on terms consistent with those provided to third parties. Our transportation services revenue from related parties was $16.6 million and $39.9 million for the three and six months ended June 30, 2016, respectively, and $24.2 million and $41.9 million for the three and six months ended June 30, 2015, respectively. Revenues related to storage services from related parties were $2.1 million and $4.2 million for the three and six months ended June 30, 2016, respectively, and $2.0 million and $3.7 million for the three and six months ended June 30, 2015, respectively.

During the three and six months ended June 30, 2016, Zydeco, Mars, Bengal, Poseidon and Colonial paid cash distributions to us of $61.2 million and $110.9 million, respectively, of which $25.0 million and $45.6 million, respectively, related to Zydeco. During the three and six months ended June 30, 2015, Zydeco, Mars, Bengal, and Colonial paid cash distributions to us of $41.6 million and $77.8 million, respectively, of which $26.3 million and $45.2 million, respectively, related to Zydeco.

For a discussion of services performed by SPLC and Shell on our behalf, see Note 1—Description of Business and Basis of Presentation—Basis of Presentation. During the three and six months ended June 30, 2016, we were allocated $1.7 million and $3.0 million, respectively, and during the three and six months ended June 30, 2015, we were allocated $1.6 million and $2.8 million, respectively, of indirect general corporate expenses incurred by SPLC and Shell which are included within general and administrative expenses in the condensed consolidated statements of income.  

Beginning July 1, 2014, Zydeco entered into an operating and management agreement with SPLC (the “Zydeco Management Agreement”) under which SPLC provides general management and administrative services to us. Zydeco no longer receives allocated corporate expenses from SPLC or Shell. Zydeco will continue to receive direct and allocated field and regional expenses, including payroll expenses not covered under the Zydeco Management Agreement.

In addition, beginning October 1, 2015, Pecten entered into an operating and management agreement under which we receive direct and allocated field and regional expenses from SPLC (the “Pecten Management Agreement”). Under the Zydeco Management Agreement and the Pecten Management Agreement, these expenses are primarily allocated to us on the basis of headcount, labor or other measure. These expense allocations have been determined on a basis that both SPLC and we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented.

15



For a discussion of these agreements and other agreements between Pecten and SPLC, see Note 4—Related Party Transactions in the Notes to Consolidated Financial Statements of our 2015 Annual Report.

A portion of our insurance coverage is provided by Shell with the remaining coverage by third-party insurers. The related party portion of insurance expense for the three and six months ended June 30, 2016 was $0.9 million and $1.8 million, respectively. The related party portion of insurance expense for the three and six months ended June 30, 2015 was $0.8 million and $1.7 million respectively.

The following table shows related party expenses, including personnel costs described above, incurred by Shell and SPLC on our behalf that are reflected in the accompanying condensed consolidated statements of income for the indicated periods:
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Operations and maintenance - related parties
 
$
5.2

 
$
4.5

 
$
10.6

 
$
9.7

General and administrative - related parties (1)
 
5.9

 
5.8

 
11.6

 
11.4


(1) For the three and six months ended June 30, 2016 we incurred $1.9 million and $3.9 million, respectively, under the Zydeco Management Agreement, and $2.1 million and $4.2 million, respectively, under the Omnibus Agreement for the general and administrative fee. For the three and six months ended June 30, 2015 we incurred $1.8 million and $3.6 million, respectively, under the Zydeco Management Agreement, and $2.2 million and $4.3 million, respectively, under the Omnibus Agreement for the general and administrative fee.


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, 2016 was $0.7 million and $1.3 million, respectively, and for the three and six months ended June 30, 2015 was $1.1 million and $2.2 million, respectively. Our share of defined contribution benefit plan costs for the three and six months ended June 30, 2016 was $0.3 million and $0.6 million, respectively, and for the three and six months ended June 30, 2015 was $0.2 million and $0.5 million, respectively. Pension and defined contribution benefit plan expenses are included in either general and administrative expenses or operations and maintenance expenses in the accompanying condensed consolidated statements of income, depending on the nature of the employee’s role in our operations.


Equity and Cost Method Investments

We have equity method investments in Mars, Bengal and Poseidon, as well as a cost investment in Colonial. SPLC also owns interests in Mars and Colonial. In some cases we may make capital contributions or other payments to these entities. No such capital contributions were made for the three and six months ended June 30, 2016 and June 30, 2015. See Note 4—Equity Method Investments for additional details.

4. Equity Method Investments

 As of June 30, 2016, our equity method investments consist of a 28.6% interest in Mars, 50.0% interest in Bengal and 36.0% interest in Poseidon.  As of December 31, 2015, our equity method investments consist of a 28.6% interest in Mars, 49.0% interest in Bengal and 36.0% interest in Poseidon.

16




Equity investments in affiliates comprise the following as of the dates indicated:

 
 
June 30, 2016 (1)
 
December 31, 2015 (2)
Mars
 
$
84.2

 
$
84.0

Bengal
 
74.4

 
75.6

Poseidon
 
18.9

 
25.4

 
 
$
177.5

 
$
185.0

 
(1) As of June 30, 2016, the unamortized positive basis differences included in our equity investments in Mars and Poseidon were $10.6 million and $9.9 million, respectively. As of June 30, 2016, the unamortized negative basis difference included in our equity investment in Bengal was $5.9 million. These basis differences between our cost of the initial investments and our equity interests in the separate net assets within the financial statements of the investees at the date of the investments are amortized into net income over the remaining useful lives of the underlying assets.
(2) As of December 31, 2015, the unamortized positive basis differences included in our equity investments in Mars and Poseidon were $11.1 million and $10.3 million, respectively. As of December 31, 2015, the unamortized negative basis difference included in our equity investment in Bengal was $6.0 million. These basis differences between our cost of the initial investments and our equity interests in the separate net assets within the financial statements of the investees at the date of the investments are amortized into net income over the remaining useful lives of the underlying assets.


Our equity investments in affiliates balance was affected by the following during the periods indicated:

 
 
Three Months Ended June 30, 2016
 
 
Mars
 
Bengal
 
Poseidon
 
Total
Distributions received
 
$
13.1

 
$
7.1

 
$
11.3

 
$
31.5

Income from equity investments (1)
 
12.2

 
5.3

 
8.1

 
25.6

 
 
 
Six Months Ended June 30, 2016
 
 
Mars
 
Bengal
 
Poseidon
 
Total
Distributions received
 
$
23.0

 
$
13.4

 
$
21.4

 
$
57.8

Income from equity investments (1)
 
23.1

 
10.7

 
15.0

 
48.8


 
 
Three Months Ended June 30, 2015
 
 
Mars
 
Bengal
 
Total
Distributions received
 
$
8.6

 
$
4.4

 
$
13.0

Income from equity investments (1)
 
5.7

 
5.1

 
10.8


 
 
Six Months Ended June 30, 2015
 
 
Mars
 
Bengal
 
Total
Distributions received
 
$
17.2

 
$
11.5

 
$
28.7

Income from equity investments (1)
 
13.1

 
10.2

 
23.3



(1) Unamortized differences in the basis of the initial investments and our interest in the separate net assets within the financial statements of the investees, are amortized into net income over the remaining useful lives of the underlying assets. For the three months ended June 30, 2016, amortization expense (income) for Mars, Bengal and Poseidon was $0.2 million, $(0.1) million and $0.2 million, respectively, and for the six months ended June 30, 2016, was $0.5 million, $(0.1) million and $0.4 million, respectively, which is included in the condensed consolidated statements of income. For the three months ended June 30, 2015, amortization expense (income) for Mars and Bengal was $0.2 million and $(0.1) million, respectively, and for the six months ended June 30, 2015 was $0.5 million and $(0.1) million, respectively, which is included in the condensed consolidated statements of income.



17





Summarized Financial Information

The following tables present aggregated selected unaudited income statement data for our equity method investments in Mars, Bengal and Poseidon, on a 100% basis:
 
 
 
Three Months Ended June 30, 2016
 
 
Mars
 
Bengal
 
Poseidon
Statements of Income
 
 
 
 
 
 
Total revenues
 
$
64.2

 
$
17.6

 
$
32.0

Total operating expenses
 
20.5

 
7.1

 
7.7

Operating income
 
$
43.7

 
$
10.5

 
$
24.3

Net income (1)
 
$
43.7

 
$
10.4

 
$
23.0


 
 
Six Months Ended June 30, 2016
 
 
Mars
 
Bengal
 
Poseidon
Statements of Income
 
 
 
 
 
 
Total revenues
 
$
121.5

 
$
35.0

 
$
59.4

Total operating expenses
 
39.0

 
13.5

 
14.3

Operating income
 
$
82.5

 
$
21.5

 
$
45.1

Net income (1)
 
$
82.5

 
$
21.4

 
$
42.7





 
 
Three Months Ended June 30, 2015
 
 
Mars
 
Bengal
Statements of Income
 
 
 
 
Total revenues
 
$
46.9

 
$
17.3

Total operating expenses
 
26.3

 
6.9

Operating income
 
$
20.6

 
$
10.4

Net income (1)
 
$
20.7

 
$
10.4


 
 
Six Months Ended June 30, 2015
 
 
Mars
 
Bengal
Statements of Income
 
 
 
 
Total revenues
 
$
91.9

 
$
33.6

Total operating expenses
 
43.8

 
13.0

Operating income
 
$
48.1

 
$
20.6

Net income (1)
 
$
48.2

 
$
20.5


(1) Difference between Operating income and Net income represents interest expense or interest income.






18



5. Property, Plant and Equipment

Property, plant and equipment consist of the following as of the dates indicated:
 
 
 
Depreciable
Life
 
June 30, 2016
 
December 31, 2015
Land
 

 
$
1.4

 
$
1.4

Building and improvements
 
10 - 40 years

 
19.5

 
19.5

Pipeline and equipment (1)
 
10 - 30 years

 
572.4

 
572.4

Other
 
5 - 25 years

 
5.9

 
5.6

 
 
 
 
599.2

 
598.9

Accumulated depreciation and amortization (2)
 
 
 
(227.9
)
 
(216.2
)
 
 
 
 
371.3

 
382.7

Construction in progress
 
 
 
23.1

 
10.2

Property, plant and equipment, net
 
 
 
$
394.4

 
$
392.9


(1) As of June 30, 2016 and December 31, 2015, includes cost of $22.8 million related to assets under capital lease.
(2) As of June 30, 2016 and December 31, 2015, includes accumulated depreciation of $0.8 million and $0.1 million related to assets under capital lease, respectively.

Depreciation and amortization expense on property, plant and equipment for the three and six months ended June 30, 2016 of $5.8 million and $11.7 million, respectively, is included in cost and expenses in the accompanying condensed consolidated statements of income. Depreciation and amortization expense on property, plant and equipment for the three and six months ended June 30, 2015 of $5.3 million and $10.5 million, respectively, is included in cost and expenses in the accompanying condensed consolidated statements of income. Depreciation and amortization expense on property, plant and equipment includes amounts pertaining to assets under capital lease.


6. Accrued Liabilities - Third Parties

Accrued liabilities - third parties consist of the following as of the dates indicated:
 
 
 
June 30, 2016
 
December 31, 2015
Transportation, project engineering
 
$
0.4

 
$
3.0

Property taxes
 
4.2

 
0.3

FERC accrual
 

 
1.7

Professional fees
 
0.3

 
1.2

Other accrued liabilities
 
1.9

 
0.6

Accrued liabilities - third parties
 
$
6.8

 
$
6.8

 
For a discussion of accrued liabilities - related parties, see Note 3—Related Party Transactions.


7. Related Party Debt

Partnership's Revolving Credit Facility Agreements

We have a five year unsecured revolving credit facility with STCW with a borrowing capacity of $400.0 million (“Five Year Revolver”). On February 22, 2016, we and STCW amended and restated the Five Year Revolver to provide that loans advanced under the facility have maturity dates selected by us up to October 31, 2019, the maturity date of the Five Year Revolver. Borrowings under the Five Year Revolver bear interest at the three-month LIBOR rate plus a margin. The weighted average interest rate for the six months ended June 30, 2016 was 2.0%. The weighted average interest rate includes drawn and undrawn interest fees, but does not consider the amortization of debt issuance costs.


19



We have a 364-day unsecured revolving credit facility with STCW with a borrowing capacity of $180.0 million (“364-Day Revolver”). On February 22, 2016, we amended and restated the 364-Day Revolver with STCW to extend its maturity to March 1, 2017. Borrowings under the 364-Day Revolver bear interest at the three-month LIBOR rate plus a margin. The weighted average interest rate for the six months ended June 30, 2016 was 1.8%. The weighted average interest rate includes drawn and undrawn interest fees, but does not consider the amortization of debt issuance costs.

Zydeco Revolving Credit Facility Agreement

Zydeco has a senior unsecured revolving credit facility with STCW with a borrowing capacity of $30.0 million (the “Zydeco Revolver”). Borrowings under the Zydeco Revolver bear interest at the three-month LIBOR rate plus a margin.

Consolidated related party debt obligations comprise the following as of the dates indicated:

 
 
June 30, 2016
 
December 31, 2015
Five Year Revolver, variable rate, due October 31, 2019 (1)
 
$
344.9

 
$
320.8

364-Day Revolver, variable rate, due March 1, 2017 (2)
 

 
137.4

Zydeco Revolver, variable rate, due August 6, 2019 (3)
 

 

Unamortized debt issuance costs
 
(0.5
)
 
(0.6
)
Debt payable – related party
 
$
344.4

 
$
457.6

 

(1) 
As of June 30, 2016, availability under the $400.0 million Five Year Revolver was $55.1 million.
(2) 
As of June 30, 2016, the entire $180.0 million capacity was available under the 364-Day Revolver.
(3) 
As of June 30, 2016, the entire $30.0 million capacity was available under the Zydeco Revolver.

On May 23, 2016, we partially funded the cash portion of the May 2016 Acquisition with $296.7 million in borrowings under our Five Year Revolver.

On March 29, 2016, we used cash on hand and net proceeds from sales of common units to third parties to repay $272.6 million of borrowings outstanding under the Five Year Revolver and all $137.4 million of borrowings outstanding under the 364-Day Revolver.

During the three months ended June 30, 2015, we borrowed $70.8 million to partially fund the May 2015 Acquisition. Total transaction costs of $0.5 million were incurred in association with the May 2015 Acquisition.

As of June 30, 2016, we were in compliance with the covenants contained in the Five Year Revolver and the 364-Day Revolver, and Zydeco was in compliance with the covenants contained in the Zydeco Revolver.

8. Equity

At-the-Market Program

On March 2, 2016, we commenced an “at-the-market” equity distribution program pursuant to which we may issue and sell common units for up to $300.0 million in gross proceeds. This program is registered with the SEC on an effective registration statement on Form S-3. During the quarter ended March 31, 2016, we completed the sale of 750,000 common units under this program for $25.4 million net proceeds ($25.5 million gross proceeds, or an average price of $34.00 per common unit, less $0.1 million of transaction fees). In connection with the issuance of the common units, we issued 15,307 general partner units to our general partner for $0.5 million in order to maintain its 2.0% general partner interest in us. We used the net proceeds from these sales of common units and from our general partner’s proportionate capital contribution to repay borrowings outstanding under our Five Year Revolver and our 364-Day Revolver and for general partnership purposes.

During the quarter ended June 30, 2016, we did not complete a sale of common units under this program.
 
Public Offering
 
On March 29, 2016, we completed the sale of 12,650,000 common units in a registered public offering (the "March 2016 Offering") for $395.1 million net proceeds ($401.6 million gross proceeds, or $31.75 per common unit, less $6.3 million of underwriter's fees and $0.2 million of transaction fees). In connection with the issuance of the common units, we issued

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258,163 general partner units to our general partner for $8.2 million in order to maintain its 2.0% general partner interest in us. We used the net proceeds from the March 2016 Offering and from our general partner’s proportionate capital contribution to repay borrowings outstanding under our Five Year Revolver and our 364-Day Revolver and for general partnership purposes.

On May 23, 2016, in conjunction with the May 2016 Acquisition, we completed the sale of 10,500,000 common units in a registered public offering for $345.8 million net proceeds ($349.1 million gross proceeds, or $33.25 per common unit, less $2.9 million of underwriter's fees and $0.4 million of transaction fees). In connection with the issuance of common units, we issued 214,285 general partner units to our general partner as non-cash consideration of $7.1 million in order to maintain its 2.0% general partner interest in us. We used the net proceeds from the May 2016 Offering and from our general partner's proportionate capital contribution to partially fund the May 2016 Acquisition.

As part of the registered public offering on May 23, 2016, the underwriters received an option to purchase an additional 1,575,000 common units, which they exercised in full on June 9, 2016 for $51.8 million net proceeds ($52.4 million gross proceeds, or $33.25 per common unit, less $0.5 million in underwriter's fees and $0.1 million of transaction fees). In connection with the issuance of common units, we issued 32,143 general partner units to our general partner for $1.1 million in order to maintain its 2.0% general partner interest in us.

2015 Private Placement

On the May 18, 2015, the Partnership completed the sale of 7,692,308 common units in a private placement ("Private Placement") for $297.7 million net proceeds ($300.0 million gross proceeds, or $39.00 per common unit, less $2.3 million of placement agent fees). In connection with the issuance of common units, we issued 156,986 general partner units to our general partner for $6.1 million in order to maintain its 2.0% general partner interest in us.

Units Outstanding

As of June 30, 2016, we had 109,842,376 common units outstanding, of which 88,367,308 were publicly owned. SPLC owned 21,475,068 common units and 67,475,068 subordinated units, representing an aggregate 49.2% limited partner interest in us, all of the incentive distribution rights, and 3,618,723 general partner units, representing a 2.0% general partner interest in us.

The changes in the number of units outstanding from December 31, 2015 through June 30, 2016 are as follows:
 
 
 
Public
 
SPLC
 
SPLC
 
General
 
 
(in units)
 
Common
 
Common
 
Subordinated
 
Partner
 
Total
Balance as of December 31, 2015
 
62,892,308

 
21,475,068

 
67,475,068

 
3,098,825

 
154,941,269

Units issued in connection with ATM program
 
750,000

 

 

 
15,307

 
765,307

Units issued in connection with public offerings
 
24,725,000

 

 

 
504,591

 
25,229,591

Balance as of June 30, 2016
 
88,367,308

 
21,475,068

 
67,475,068

 
3,618,723

 
180,936,167



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Distributions to our Unitholders

The following table details the distributions declared and/or paid for the periods presented:

Date Paid or
 
 
 
Public
 
SPLC
 
SPLC
 
General Partner
 
 
 
Distributions
per Limited
Partner Unit
to be Paid
 
Three Months Ended
 
Common
 
Common
 
Subordinated
 
Incentive
 
2%
 
Total
 
 
 
 
 
(in millions, except per unit amounts)
February 12, 2015
 
December 31, 2014 (1)
 
$
4.8

 
$
2.2

 
$
7.1

 
$

 
$
0.3

 
$
14.4

 
$
0.1042

May 14, 2015
 
March 31, 2015
 
8.0

 
3.8

 
11.8

 

 
0.5

 
24.1

 
0.1750

August 13, 2015
 
June 30, 2015
 
10.2

 
4.1

 
12.8

 
0.1

 
0.5

 
27.7

 
0.1900

November 12, 2015
 
September 30, 2015
 
11.0

 
4.4

 
13.9

 
0.4

 
0.6

 
30.3

 
0.2050

February 11, 2016
 
December 31, 2015
 
13.8

 
4.7

 
14.9

 
1.2

 
0.7

 
35.3

 
0.2200

May 12, 2016
 
March 31, 2016
 
17.9

 
5.1

 
15.8

 
2.0

 
0.9

 
41.7

 
0.2350

August 12, 2016 (2)
 
June 30, 2016
 
22.0

 
5.4

 
16.9

 
3.7

 
1.0

 
49.0

 
0.2500

 
(1) The fourth quarter 2014 minimum quarterly distribution was prorated for the 59-day period from November 3, 2014 to December 31, 2015 in accordance with the Partnership Agreement.
(2) For more information see Note 12 Subsequent Events.


Distributions to Noncontrolling Interest

Distributions to SPLC for its noncontrolling interest in Zydeco, was $2.0 million and $14.4 million, respectively, for the three and six months ended June 30, 2016 and $15.8 million and $40.9 million, respectively, for the three and six months ended June 30, 2015.

9. Net Income Per Limited Partner Unit

Net income per unit applicable to common limited partner units and to subordinated limited partner units is computed by dividing the respective limited partners’ interest in net income attributable to the Partnership for the period by the weighted average number of common units and subordinated units, respectively, outstanding for the period. Because we have more than one class of participating securities, we use the two-class method when calculating the net income per unit applicable to limited partners. The classes of participating securities include common units, subordinated units, general partner units and incentive distribution rights. Basic and diluted net income per unit are the same because we do not have any potentially dilutive units outstanding for the period presented.

Our net income for 2015 includes earnings of our Parent related to acquired businesses for periods prior to their acquisition by us. Under the two class method these earnings must be allocated entirely to our general partner. We have allocated these earnings of our Parent to our general partner.



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The following tables show the allocation of net income attributable to the Partnership to arrive at net income per limited partner unit:
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
66.3

 
$
60.7

 
$
134.3

 
$
109.8

Less:
 
 
 
 
 
 
 
 
Net income attributable to Parent
 

 
15.4

 

 
23.1

Net income attributable to noncontrolling interests
 
2.5

 
13.1

 
15.2

 
30.9

Net income attributable to the Partnership
 
63.8

 
32.2

 
119.1

 
55.8

Less:
 
 

 
 

 
 

 
 

General Partner's distribution declared
 
4.7

 
0.6

 
7.6

 
1.1

Limited Partners' distribution declared on common units
 
27.4

 
14.3

 
50.4

 
26.1

Limited Partners' distribution declared on subordinated units
 
16.9

 
12.8

 
32.7

 
24.6

Income in excess of distributions
 
$
14.8

 
$
4.5

 
$
28.4

 
$
4.0



 
 
Three Months Ended June 30, 2016
 
 
General
 
Limited Partners'
 
Limited Partners'
 
 
 
 
Partner
 
Common Units
 
Subordinated Units
 
Total
 
 
(in millions of dollars, except per unit data)
Distributions declared
 
$
4.7

 
$
27.4

 
$
16.9

 
$
49.0

Income in excess of distributions
 
0.3

 
8.7

 
5.8

 
14.8

Net income attributable to the Partnership
 
$
5.0

 
$
36.1

 
$
22.7

 
$
63.8

Weighted average units outstanding (in millions):
 
 

 
 

 
 

 
 

Basic and diluted
 


 
102.6

 
67.5

 


Net income per Limited Partner Unit (in dollars):
 
 

 
 

 
 

 


Basic and diluted
 
 

 
$
0.35

 
$
0.34

 
 




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Six Months Ended June 30, 2016
 
 
General
 
Limited Partners'
 
Limited Partners'
 
 
 
 
Partner
 
Common Units
 
Subordinated Units
 
Total
 
 
(in millions of dollars, except per unit data)
Distributions declared
 
$
7.6

 
$
50.4

 
$
32.7

 
$
90.7

Income in excess of distributions
 
0.5

 
16.2

 
11.7

 
28.4

Net income attributable to the Partnership
 
$
8.1

 
$
66.6

 
$
44.4

 
$
119.1