VALERO ENERGY PARTNERS LP - FORM 10-Q

Attached files

file	filename
EX-32.01 - EXHIBIT 32.01 - VALERO ENERGY PARTNERS LP	vlpexh3201-06302018.htm
EX-31.02 - EXHIBIT 31.02 - VALERO ENERGY PARTNERS LP	vlpexh3102-06302018.htm
EX-31.01 - EXHIBIT 31.01 - VALERO ENERGY PARTNERS LP	vlpexh3101-06302018.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2018



o	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 1-36232

VALERO ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)



Delaware	90-1006559
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

One Valero Way

San Antonio, Texas

(Address of principal executive offices)

78249

(Zip Code)

(210) 345-2000

(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 þ No o

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 þ Accelerated filer o Non-accelerated filer o

Smaller reporting company o Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The registrant had 69,262,070 common units representing limited partner interests and 1,413,511 general partner units outstanding as of July 31, 2018.

VALERO ENERGY PARTNERS LP

TABLE OF CONTENTS




	Page
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	1
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017	2
Consolidated Statements of Partners’ Capital for the Six Months Ended June 30, 2018 and 2017	3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	4
Condensed Notes to Consolidated Financial Statements	5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
ITEM 4. CONTROLS AND PROCEDURES	36
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	36
ITEM 1A. RISK FACTORS	36
ITEM 6. EXHIBITS	36
SIGNATURE	37

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VALERO ENERGY PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(in thousands)



	June 30, 2018			December 31, 2017

ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	100,094		$	42,052
Receivables – related party	45,121			46,496
Receivables	205			781
Prepaid expenses and other	683			720
Total current assets	146,103			90,049
Property and equipment, at cost	1,997,162			1,969,233
Accumulated depreciation	(584,476		)	(552,817		)
Property and equipment, net	1,412,686			1,416,416
Deferred charges and other assets, net	10,059			10,887
Total assets	$	1,568,848		$	1,517,352
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	14,363		$	18,633
Accounts payable – related party	7,640			3,944
Accrued liabilities	885			1,007
Accrued liabilities – related party	413			1,128
Accrued interest payable	6,666			2,558
Accrued interest payable – related party	827			911
Taxes other than income taxes payable	5,134			5,141
Total current liabilities	35,928			33,322
Debt	989,380			905,283
Notes payable – related party	285,000			370,000
Other long-term liabilities	3,148			2,950
Commitments and contingencies
Partners’ capital:
Limited partners:
Common unitholders – public (22,493,484 and 22,487,586 units outstanding)	607,611			596,047
Common unitholder – Valero (46,768,586 and 46,768,586 units outstanding)	(347,174		)	(382,652		)
General partner – Valero (1,413,511 and 1,413,391 units outstanding)	(5,045		)	(7,598		)
Total partners’ capital	255,392			205,797
Total liabilities and partners’ capital	$	1,568,848		$	1,517,352

See Condensed Notes to Consolidated Financial Statements.

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VALERO ENERGY PARTNERS LP

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per unit amounts)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues – related party:
Revenues from lease contracts	$	108,251		$	84,657		$	213,577		$	165,769
Revenues from contracts with customer	26,376			25,888			52,992			50,592
Total revenues – related party	134,627			110,545			266,569			216,361
Costs and expenses:
Cost of revenues from lease contracts (excluding depreciation expense reflected below) (a)	26,596			20,848			51,114			39,368
Cost of revenues from contracts with customer (excluding depreciation expense reflected below) (b)	6,758			6,207			13,541			11,232
Depreciation expense associated with lease contracts	15,849			9,450			31,438			18,480
Depreciation expense associated with contracts with customer	3,016			3,055			5,967			5,800
General and administrative expenses (c)	4,158			3,863			8,270			7,693
Total costs and expenses	56,377			43,423			110,330			82,573
Operating income	78,250			67,122			156,239			133,788
Other income, net	411			182			793			246
Interest and debt expense, net of capitalized interest (d)	(14,271		)	(8,551		)	(26,179		)	(16,840		)
Income before income tax expense	64,390			58,753			130,853			117,194
Income tax expense	371			310			755			614
Net income	64,019			58,443			130,098			116,580
Less: General partner’s interest in net income	18,077			11,419			34,632			20,886
Limited partners’ interest in net income	$	45,942		$	47,024		$	95,466		$	95,694

Net income per limited partner common unit – basic and diluted	$	0.66		$	0.69		$	1.38		$	1.41

Weighted-average limited partner common units outstanding – basic and diluted	69,251			68,157			69,250			67,912

Cash distribution declared per unit	$	0.5510		$	0.4550		$	1.0785		$	0.8825

Supplemental information – each income statement line item reflected below includes costs of revenues, expenses, or financing activities provided by related party as follows:
(a) Cost of revenues from lease contracts (excluding depreciation expense) – related party	$	17,075		$	14,369		$	35,010		$	28,715
(b) Cost of revenues from contracts with customer (excluding depreciation expense) – related party	$	2,018		$	1,767		$	4,139		$	3,053
(c) General and administrative expenses – related party	$	3,361		$	3,185		$	6,722		$	6,371
(d) Interest and debt expense – related party	$	2,464		$	2,343		$	5,310		$	4,450

See Condensed Notes to Consolidated Financial Statements.

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VALERO ENERGY PARTNERS LP

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

(unaudited)



	Limited Partners
	Common Unitholders Public			Common Unitholder Valero			General Partner Valero			Total
Balance as of December 31, 2016	$	548,619		$	(482,197	)	$	(10,598	)	$	55,824
Net income	31,311			64,383			20,886			116,580
Unit issuance	33,505			—			748			34,253
Transfers to (from) partners	(16,097		)	19,816			(3,719		)	—
Noncash capital contributions from Valero Energy Corporation	—			18,890			386			19,276
Cash distributions to unitholders and distribution equivalent right payments	(18,482		)	(38,102		)	(16,354		)	(72,938		)
Unit-based compensation	146			—			—			146
Balance as of June 30, 2017	$	579,002		$	(417,210	)	$	(8,651	)	$	153,141

Balance as of December 31, 2017	$	596,047		$	(382,652	)	$	(7,598	)	$	205,797
Net income	30,992			64,474			34,632			130,098
Unit issuance	—			—			5			5
Transfers to (from) partners	3,730			(2,396		)	(1,334		)	—
Noncash capital contributions from Valero Energy Corporation	—			21,872			445			22,317
Cash distributions to unitholders and distribution equivalent right payments	(23,281		)	(48,406		)	(31,194		)	(102,881		)
Unit-based compensation	123			—			—			123
Other	—			(66		)	(1		)	(67		)
Balance as of June 30, 2018	$	607,611		$	(347,174	)	$	(5,045	)	$	255,392

See Condensed Notes to Consolidated Financial Statements.

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VALERO ENERGY PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Six Months Ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	130,098		$	116,580
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense	37,405			24,280
Changes in current assets and current liabilities	6,101			(734		)
Changes in deferred charges and credits and other operating activities, net	1,553			856
Net cash provided by operating activities	175,157			140,982
Cash flows from investing activities:
Capital expenditures	(13,083		)	(15,240		)
Acquisition of undivided interest in Red River crude system	—			(71,793		)
Other investing activities, net	8			8
Net cash used in investing activities	(13,075		)	(87,025		)
Cash flows from financing activities:
Proceeds from issuance of senior notes	498,300			—
Repayment of debt and note payable – related party	(495,000		)	—
Payment of debt issuance costs	(4,464		)	(492		)
Proceeds from issuance of common units	—			35,728
Proceeds from issuance of general partner units	5			748
Payment of offering costs	—			(517		)
Cash distributions to unitholders and distribution equivalent right payments	(102,881		)	(72,938		)
Net cash used in financing activities	(104,040		)	(37,471		)
Net increase in cash and cash equivalents	58,042			16,486
Cash and cash equivalents at beginning of period	42,052			71,491
Cash and cash equivalents at end of period	$	100,094		$	87,977

See Condensed Notes to Consolidated Financial Statements.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION, AND SIGNIFICANT ACCOUNTING POLICIES

Description of Business

As used in this report, the terms “Partnership,” “we,” “our,” or “us” refer to Valero Energy Partners LP, one or more of its subsidiaries, or all of them taken as a whole. Our “general partner” refers to Valero Energy Partners GP LLC, an indirect wholly owned subsidiary of Valero Energy Corporation, and “Valero” refers collectively to Valero Energy Corporation and its subsidiaries, other than Valero Energy Partners LP, any of its subsidiaries, or its general partner.

We are a master limited partnership formed by Valero in July 2013 to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other logistics assets. Our assets consist of crude oil and refined petroleum products pipeline and terminal systems in the United States (U.S.) Gulf Coast and U.S. Mid-Continent regions that are integral to the operations of ten of Valero’s refineries. We generate revenues from fee-based transportation and terminaling activities.

Basis of Presentation

General

These unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature unless disclosed otherwise. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

The balance sheet as of December 31, 2017 has been derived from our audited financial statements as of that date. For further information, refer to our financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2017.

Acquisitions from Valero

The acquisitions of the Parkway pipeline and the Port Arthur terminal (both defined in Note 2) from Valero on November 1, 2017 were accounted for as transfers of assets between entities under the common control of Valero. Accordingly, we recorded these asset acquisitions on our balance sheet at Valero’s carrying value as of the acquisition date, and our prior period financial statements and financial information were not retrospectively adjusted for these acquisitions.

Reclassifications

In connection with our adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” (Topic 606) on January 1, 2018, which is more fully described below, we have separately reflected (i) revenues from lease contracts and (ii) revenues from contracts with our customer. Because of this presentation of our revenues, we have also separately reflected cost of revenues and depreciation expense associated with lease contracts and contracts with our customer and have reclassified prior period amounts to conform to the 2018 presentation.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In addition, certain amounts reported for the six months ended June 30, 2017 and as of December 31, 2017 have been reclassified to conform to the 2018 presentation.

Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. On an ongoing basis, we review our estimates based on currently available information. Changes in facts and circumstances may result in revised estimates.

Revenue Recognition

We adopted the provisions of Topic 606 on January 1, 2018, as described below in “Accounting Pronouncements Adopted on January 1, 2018.” Accordingly, our revenue recognition accounting policy has been revised to reflect the adoption of this standard.

General

We generate revenues from fee-based transportation and terminaling activities to transport and store crude oil and refined petroleum products using our pipelines and terminals under commercial agreements with Valero. Certain schedules under these agreements are classified as operating leases under existing lease accounting standards, with such revenues reflected as revenues from lease contracts on our statements of income. The remaining schedules under these agreements are service arrangements accounted for as revenues from contracts with our customer, and are reflected as revenues from contracts with customer on our statements of income.

Revenue from Lease Contracts

Lease revenues are recognized on a straight-line basis over the lease term. Contingent lease revenues are recognized for volumes in excess of minimum throughput commitments.

Revenue from Contracts with Customer

At contract inception, we assess the services promised in our contracts and identify a performance obligation for each promise to transfer to our customer a service (or bundle of services) that is distinct. Revenue from contracts with our customer is recognized over time at the amount of consideration we expect to receive as our performance obligation is satisfied.

Our service primarily includes the delivery of crude oil and refined petroleum products that are ratably lifted by or delivered to our customer for its future use or future sale to its end customers. Under our transportation service agreements, the service provided is the delivery of crude oil and refined petroleum products to various points in our pipeline system. Although the products are delivered on a batch basis, we deliver a series of similar goods consecutively over time, therefore, the service is treated as a single performance obligation. Under our terminaling service agreement, the services provided for each terminal are the receipt, storage, and delivery of crude oil and refined petroleum products. These services are treated as a single performance obligation as we perform the service with the same pattern of transfer to our customer over time for which progress towards satisfying the performance obligation can be measured uniformly. The above performance obligations under the transportation service agreements and the terminaling service agreement are satisfied over time because (i) our customer simultaneously receives and consumes the benefits provided by our

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

performance and (ii) another entity would not need to substantially reperform the work that we have completed to date.

Our transaction price is based on a contractual rate, which may vary depending on volumes transported on a quarterly basis within each quarterly period. Some schedules contain a quarterly tier-pricing structure, whereby one rate is charged for volumes up to a certain number of average barrels per day and a reduced rate is charged for excess average barrels per day. For schedules that include such variable consideration, we estimate the factors driving the variable consideration to determine the transaction price. Our schedule with our customer states the final terms of the sale, including the description, quantity, and price of each service delivered. We invoice our customer the contractual rate based on the greater of throughput volumes or minimum throughput commitments. Payment is typically due in full within 10 days of receipt of billing, which occurs monthly. In the normal course of business, we do not have obligations for returns or refunds.

Accounting Pronouncements Adopted on January 1, 2018

Topic 606

Effective January 1, 2018, we adopted the provisions of Topic 606, which clarifies the principles for recognizing revenue and supersedes previous revenue recognition requirements under “Revenue Recognition (Topic 605),” using the modified retrospective method of adoption as permitted by the standard. Under this method, the cumulative effect of initially applying the standard is recognized as an adjustment to the opening balance of partners’ capital, and revenues reported in the periods prior to the date of adoption are not changed. We elected to apply the transition guidance for Topic 606 to individual contracts with our customer that were not completed as of the date of adoption. There was no material impact to our financial position as a result of adopting Topic 606; therefore, there was no cumulative-effect adjustment to partners’ capital as of January 1, 2018. Additionally, there was no material impact to our financial position or results of operations as of and for the three and six months ended June 30, 2018. See “Revenue Recognition” above for a discussion of our accounting policy affected by our adoption of Topic 606. Also see Note 5 for further information on our revenues. We implemented new processes in order to monitor ongoing compliance with accounting and disclosure requirements.

ASU No. 2016-01

In January 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-01, “Financial Instruments—Overall (Subtopic 825-10),” (ASU No. 2016-01) to enhance the reporting model for financial instruments regarding certain aspects of recognition, measurement, presentation, and disclosure. Effective January 1, 2018, we adopted the provisions of ASU No. 2016-01 using the cumulative-effect method of adoption as required by the ASU. The adoption of this ASU did not affect our financial position or our results of operations as of or for the three and six months ended June 30, 2018, but it resulted in reduced disclosures as it eliminated the requirement to disclose the methods and significant assumptions used to estimate the fair value of financial instruments.

Accounting Pronouncement Not Yet Adopted

Topic 842

In February 2016, the FASB issued “Leases (Topic 842)” (Topic 842) to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This new standard is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within those annual periods, with early adoption permitted. We will adopt this new standard on January 1, 2019, and we expect to use the

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

optional transition method, which allows us to recognize a cumulative-effect adjustment to the opening balance of partners’ capital at the date of adoption. We are enhancing our contracting and lease evaluation systems and related processes, and we are developing a new lease accounting system to capture our leases and support the required disclosures. During the remainder of 2018, we will continue to monitor the adoption process to ensure compliance with accounting and disclosure requirements. We also continue the integration of our lease accounting system with our general ledger, and we will make modifications to the related procurement and payment processes. We anticipate this standard will have a material impact on our financial position by increasing our assets and liabilities by equal amounts through the recognition of right-of-use assets and lease liabilities for our operating leases. However, we do not expect adoption to have a material impact on our results of operations or liquidity.


2.	ACQUISITIONS

In connection with the following acquisitions, we entered into various agreements with Valero, including additional schedules to our commercial agreements, an omnibus agreement, a services and secondment agreement, and lease agreements for the use of land on which our assets are located.

Red River Crude System

On January 18, 2017, we acquired a 40 percent undivided interest in (i) the Hewitt segment of Plains All American Pipeline, L.P.’s (Plains) Red River pipeline (the Hewitt segment), (ii) two 150,000 shell barrel capacity tanks located at Hewitt Station in Hewitt, Oklahoma (the Hewitt Storage Tanks), and (iii) a pipeline connection from Hewitt Station to Wasson Station (the Wasson Interconnect) (collectively, the Red River crude system) for total cash consideration of $71.8 million, which we funded with our cash on hand. This acquisition was accounted for as an acquisition of assets.

The Hewitt segment consists of an approximately 138-mile, 16-inch crude oil pipeline with 150,000 barrels per day of throughput capacity that originates at Plains Marketing L.P.’s Cushing, Oklahoma terminal and ends at Hewitt Station. The pipeline supports Valero’s Ardmore Refinery and began supplying crude oil to Valero in January 2017. We retain a right to participate in any future expansions of the pipeline.

We also entered into a Joint Ownership Agreement (JOA) and an Operating and Administrative Services Agreement with Plains concurrent with this acquisition. The JOA provides us with access to the remaining 60 percent of the capacity of the Hewitt Storage Tanks and the Wasson Interconnect and continues until terminated by mutual agreement. This access arrangement is accounted for as an operating lease. The administrative agreement facilitates the day-to-day operations and management functions of the pipeline for an initial five-year term and automatically renews for successive five-year terms.

Parkway Pipeline

On November 1, 2017, we acquired Parkway Pipeline LLC, a subsidiary of Valero, that owns and operates an approximately 140-mile, 16-inch refined petroleum products pipeline (Parkway pipeline) with 110,000 barrels per day of capacity that transports refined petroleum products from Valero’s St. Charles Refinery, located in Norco, Louisiana, to Collins, Mississippi for supply into the Plantation and Colonial pipeline systems. We paid to Valero cash consideration of $200.0 million. We funded the cash distribution with $82.0 million of our cash on hand and $118.0 million of borrowings under the Revolver (defined in Note 4). This acquisition was accounted for as a transfer of assets between entities under the common control of Valero.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Port Arthur Terminal

On November 1, 2017, we acquired Valero Partners Port Arthur, LLC, a subsidiary of Valero that owns certain terminaling assets (Port Arthur terminal) that support Valero’s Port Arthur Refinery for total consideration of $308.0 million, which consisted of (i) a cash distribution of $262.0 million and (ii) the issuance of 1,081,315 common units and 22,068 general partner units to Valero having an aggregate value of $46.0 million. We funded the cash distribution with $262.0 million of borrowings under the Revolver. This acquisition was accounted for as a transfer of assets between entities under the common control of Valero.


3.	RELATED-PARTY TRANSACTIONS

Summary of Transactions

Related-Party Agreements

Effective March 31, 2017, we entered into a commercial agreement with Diamond Green Diesel Holdings LLC (DGD), a joint venture consolidated by Valero, to construct and operate a rail loading facility located at Valero’s St. Charles Refinery for the purpose of loading DGD’s renewable diesel onto railcars. The construction of the rail loading facility was completed in April 2017, and we began providing services to DGD in May 2017. In addition, we constructed a new 180,000 barrel storage tank and began leasing to DGD in April 2018. This commercial agreement, which includes both the rail loading facility and the storage tank, has an initial term that ends on June 30, 2033, and contains minimum commitments for DGD’s use of the assets.

Revenues – Related Party

Revenues – related party include revenues from lease contracts and revenues from contracts with our customer, as further described in Note 5.

Related-Party Expenses

The related-party expenses include costs of revenues, expenses, or financing activities provided to us by Valero and are reflected in the supplemental information disclosure on our statements of income.

Concentration Risk

All of our related-party balances resulted from transactions with Valero. Therefore, we are subject to the business risks associated with Valero’s business.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


4.	DEBT AND NOTES PAYABLE – RELATED PARTY

Debt

Debt, at stated values consisted of the following (in thousands):



	Maturity Date	June 30, 2018			December 31, 2017
	Maturity Date	June 30, 2018			December 31, 2017
Revolver	November 2020	$	—		$	410,000
Senior Notes, 4.375%	December 2026	500,000			500,000
Senior Notes, 4.5%	March 2028	500,000			—
Net unamortized discount and debt issuance costs		(10,620		)	(4,717		)
Debt		$	989,380		$	905,283

Revolver

We have a $750.0 million senior unsecured revolving credit facility agreement (the Revolver) that matures in November 2020. We have the option to increase the aggregate commitments under the Revolver to $1.0 billion, subject to certain restrictions. The Revolver also provides for the issuance of letters of credit of up to $100.0 million. Borrowings under the Revolver bear interest at a variable rate.

On March 29, 2018, we repaid the outstanding balance of $410.0 million on the Revolver as discussed below. There was no activity related to the Revolver during the six months ended June 30, 2017.

Senior Notes

On March 29, 2018, we issued in a public offering $500.0 million aggregate principal amount of 4.5 percent Senior Notes due March 15, 2028 (4.5 percent Senior Notes). Gross proceeds from this debt issuance totaled $498.3 million before deducting the underwriting discount and other debt issuance costs totaling $4.5 million. We used the proceeds to repay the outstanding balance of $410.0 million under the Revolver and a portion of the outstanding balance under one of our Loan Agreements (defined below) with Valero.

The 4.5 percent Senior Notes are unsecured and contain various customary restrictive covenants that, among other things, limit our ability to create or permit to exist liens, or to enter into any sale and leaseback transactions, with respect to principal properties, and limit our ability to merge or consolidate with any other entity or transfer or dispose of all or substantially all of our assets. These covenants will be subject to a number of important qualifications and limitations. The 4.5 percent Senior Notes are not currently guaranteed by any of our subsidiaries. If in the future any of our subsidiaries becomes a borrower or guarantor under, or grants any lien to secure any obligations pursuant to, the Revolver, then we will cause such subsidiary to guarantee the 4.5 percent Senior Notes. Interest is payable semi-annually on March 15 and September 15, commencing on September 15, 2018.

Notes Payable – Related Party

We have two subordinated credit agreements with Valero (the Loan Agreements). Borrowings on the Loan Agreements bear interest at a variable rate, which was 3.48246 percent and 2.86069 percent as of June 30, 2018 and December 31, 2017, respectively.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

On March 29, 2018, we paid down $85.0 million under one of the Loan Agreements. There was no activity under the Loan Agreements for the six months ended June 30, 2017. The outstanding balance of these Loan Agreements was $285.0 million and $370.0 million as of June 30, 2018 and December 31, 2017, respectively.

Other Disclosures

Interest and debt expense, net of capitalized interest was as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Interest and debt expense incurred	$	14,349	$	8,653	$	26,367	$	17,045
Less: Capitalized interest	78		102		188		205
Interest and debt expense, net of capitalized interest	$	14,271	$	8,551	$	26,179	$	16,840


5.	REVENUES

Disaggregation of Revenues

Revenues – related party disaggregated by activity type were as follows (in thousands):



	Pipeline Transportation		Terminaling		Storage and Other		Total
Three Months Ended June 30, 2018:
Revenues from lease contracts	$	17,635	$	90,118	$	498	$	108,251
Revenues from contracts with customer	12,672		12,275		1,429		26,376
Total revenues – related party	$	30,307	$	102,393	$	1,927	$	134,627

Three Months Ended June 30, 2017:
Revenues from lease contracts	$	11,832	$	72,690	$	135	$	84,657
Revenues from contracts with customer	13,027		12,107		754		25,888
Total revenues – related party	$	24,859	$	84,797	$	889	$	110,545

Six Months Ended June 30, 2018:
Revenues from lease contracts	$	35,882	$	177,059	$	636	$	213,577
Revenues from contracts with customer	25,793		24,608		2,591		52,992
Total revenues – related party	$	61,675	$	201,667	$	3,227	$	266,569

Six Months Ended June 30, 2017:
Revenues from lease contracts	$	22,182	$	143,317	$	270	$	165,769
Revenues from contracts with customer	25,852		23,986		754		50,592
Total revenues – related party	$	48,034	$	167,303	$	1,024	$	216,361

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Operating Leases – Lessor

As described in Note 1, certain schedules under our commercial agreements with Valero are considered operating leases under U.S. GAAP. These agreements contain minimum throughput commitments and escalation clauses to adjust transportation tariffs and terminaling and storage fees to reflect changes in price indices. Revenues from lease contracts are reflected separately on our statements of income. The components of our revenues from lease contracts were as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Minimum lease revenues	$	90,074	$	69,823	$	179,198	$	138,271
Contingent lease revenues	18,177		14,834		34,379		27,498
Revenues from lease contracts	$	108,251	$	84,657	$	213,577	$	165,769

Receivables from Contracts with Customer

Our receivables from contracts with our customer are included in receivables – related party. These balances were $8.4 million and $8.3 million as of June 30, 2018 and January 1, 2018, respectively.

Future Minimum Rentals and Remaining Performance Obligations

As of June 30, 2018, future minimum rentals to be received for operating leases (described above) having initial or remaining noncancelable lease terms in excess of one year are shown below under “Lease Contracts,” and future revenues expected to be recognized from our remaining performance obligations from contracts with our customer with an original expected duration of greater than one year are shown below under “Contracts with Customer” (in thousands):



	Lease Contracts		Contracts with Customer
Remainder of 2018	$	182,120	$	40,924
2019	361,282		81,215
2020	362,268		81,426
2021	361,282		81,215
2022	361,282		81,215
Thereafter	2,914,596		116,994
Total	$	4,542,830	$	482,989

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


6.	CASH DISTRIBUTIONS

Our partnership agreement prescribes the amount and priority of cash distributions that our limited partners and general partner will receive. Our distributions are declared subsequent to quarter end. The table below summarizes information related to our quarterly cash distributions that have been declared since January 1, 2017:

Quarterly

Period

Ended

Total
Quarterly
Distribution
(per unit)

Total Cash
Distribution
(in thousands)

Declaration
Date

Record
Date

Distribution
Date

June 30, 2018

0.5510

56,081

July 23, 2018

August 3, 2018

August 13, 2018

March 31, 2018

0.5275

52,826

April 19, 2018

May 1, 2018

May 9, 2018

December 31, 2017

0.5075

50,055

January 24, 2018

February 5, 2018

February 13, 2018

September 30, 2017

0.4800

46,242

October 19, 2017

November 1, 2017

November 9, 2017

June 30, 2017

0.4550

42,111

July 19, 2017

August 1, 2017

August 10, 2017

March 31, 2017

0.4275

38,043

April 20, 2017

May 2, 2017

May 11, 2017

December 31, 2016

0.4065

34,895

January 20, 2017

February 2, 2017

February 10, 2017

The following table reflects the allocation of total cash distributions to the general and limited partners and distribution equivalent right (DER) payments applicable to the period in which the distributions and DERs were earned (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
General partner:
Distributions, excluding incentive distribution rights (IDRs)	$	1,122	$	842	$	2,178	$	1,437
IDRs	16,796		10,250		32,030		18,557
Total general partner’s distributions	17,918		11,092		34,208		19,994
Limited partners:
Common – public	12,387		10,226		24,246		19,831
Common – Valero	25,769		20,788		50,440		40,319
Total limited partners’ distributions	38,156		31,014		74,686		60,150
DERs	7		5		13		10
Total cash distributions	$	56,081	$	42,111	$	108,907	$	80,154

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


7.	NET INCOME PER LIMITED PARTNER UNIT

We calculate net income available to limited partners based on the distributions pertaining to each period’s net income. After considering the appropriate period’s distributions, the remaining undistributed earnings or excess distributions over earnings, if any, are allocated to the general partner, limited partners, and other participating securities in accordance with the contractual terms of our partnership agreement and as prescribed under the two-class method. Participating securities include IDRs and awards under our Valero Energy Partners LP 2013 Incentive Compensation Plan that receive DERs. However, the terms of our partnership agreement limit the general partner’s incentive distribution to the amount of available cash, which, as defined in our partnership agreement, is net of reserves deemed appropriate. As such, IDRs are not allocated undistributed earnings or distributions in excess of earnings in the calculation of net income per limited partner unit.

Basic net income per limited partner unit is determined pursuant to the two-class method for master limited partnerships. The two-class method is an earnings allocation formula that is used to determine earnings to our general partner, common unitholders, and participating securities according to (i) distributions pertaining to each period’s net income and (ii) participation rights in undistributed earnings.

Diluted net income per limited partner unit is also determined using the two-class method, unless the treasury stock method is more dilutive. For the three and six months ended June 30, 2018 and 2017, we used the two-class method to determine diluted net income per limited partner unit. We did not have any potentially dilutive instruments outstanding during the three and six months ended June 30, 2018 and 2017.

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Net income per unit was computed as follows (in thousands, except per unit amounts):



	General Partner		Limited Partners Common Units		Restricted Units		Total
Three Months Ended June 30, 2018:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	1,122	$	38,156	$	—	$	39,278
General partner’s IDRs	16,796		—		—		16,796
DERs	—		—		7		7
Distributions and DERs declared	17,918		38,156		7		56,081
Undistributed earnings	159		7,778		1		7,938
Net income available to limited partners – basic and diluted	$	18,077	$	45,934	$	8	$	64,019

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			69,251
Net income per limited partner common unit – basic and diluted			$	0.66



Three Months Ended June 30, 2017:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	842	$	31,014	$	—	$	31,856
General partner’s IDRs	10,250		—		—		10,250
DERs	—		—		5		5
Distributions and DERs declared	11,092		31,014		5		42,111
Undistributed earnings	327		16,002		3		16,332
Net income available to limited partners – basic and diluted	$	11,419	$	47,016	$	8	$	58,443

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			68,157
Net income per limited partner common unit – basic and diluted			$	0.69

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



	General Partner		Limited Partners Common Units		Restricted Units		Total
Six Months Ended June 30, 2018:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	2,178	$	74,686	$	—	$	76,864
General partner’s IDRs	32,030		—		—		32,030
DERs	—		—		13		13
Distributions and DERs declared	34,208		74,686		13		108,907
Undistributed earnings	424		20,764		3		21,191
Net income available to limited partners – basic and diluted	$	34,632	$	95,450	$	16	$	130,098

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			69,250
Net income per limited partner common unit – basic and diluted			$	1.38



Six Months Ended June 30, 2017:
Allocation of net income to determine net income available to limited partners:
Distributions, excluding general partner’s IDRs	$	1,437	$	60,150	$	—	$	61,587
General partner’s IDRs	18,557		—		—		18,557
DERs	—		—		10		10
Distributions and DERs declared	19,994		60,150		10		80,154
Undistributed earnings	892		35,527		7		36,426
Net income available to limited partners – basic and diluted	$	20,886	$	95,677	$	17	$	116,580

Net income per limited partner common unit – basic and diluted:
Weighted-average units outstanding			67,912
Net income per limited partner common unit – basic and diluted			$	1.41

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


8.	PARTNERS’ CAPITAL

Unit Activity

Activity in the number of units was as follows:



	Limited Partners		General Partner Valero
	Common Unitholders Public	Common Unitholder Valero	General Partner Valero	Total
Balance as of December 31, 2016	21,738,692	45,687,271	1,375,721	68,801,684
Unit-based compensation	5,997	—	—	5,997
Units issued under ATM Program	742,897	—	—	742,897
General partner units issued to maintain 2% interest	—	—	15,602	15,602
Balance as of June 30, 2017	22,487,586	45,687,271	1,391,323	69,566,180

Balance as of December 31, 2017	22,487,586	46,768,586	1,413,391	70,669,563
Unit-based compensation	5,898	—	—	5,898
General partner units issued to maintain 2% interest	—	—	120	120
Balance as of June 30, 2018	22,493,484	46,768,586	1,413,511	70,675,581

ATM Program

On September 16, 2016, we entered into an equity distribution agreement pursuant to which we may offer and sell from time to time our common units having an aggregate offering price of up to $350.0 million based on amounts, at prices, and on terms to be determined by market conditions and other factors at the time of our offerings (such continuous offering program, or at-the-market program, referred to as our “ATM Program”). As of June 30, 2018, we have sold common units having an aggregate value of $45.5 million under our ATM Program, resulting in $304.5 million remaining available.

There were no issuances of common units under our ATM Program for the six months ended June 30, 2018. The table below summarizes activities of the common units issued under our ATM Program and general partner units issued to maintain the 2.0 percent general partner interest in the Partnership for the six months ended June 30, 2017 (in thousands, except unit amounts):



	Units Issued	Total Proceeds		Offering Costs		Net Proceeds
Common – public	742,897	$	35,728	$	517	$	35,211
General partner	15,602	748		—		748

Transfers to (from) Partners

Subsequent to the expiration of the subordination period on August 10, 2016, all of our common units have equal rights, including rights to distributions and to our net assets in the event of liquidation. As a result, a reallocation of the carrying values of our public common unitholders’ interest in us and Valero’s common

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

unitholder interest in us is required when a change in ownership occurs in order for the portion of those carrying values associated with activity subsequent to the subordination period to be equal to the respective unitholders’ ownership interests (in units) in us.


9.	SUPPLEMENTAL CASH FLOW INFORMATION

In order to determine net cash provided by operating activities, net income is adjusted by, among other things, changes in current assets and current liabilities as follows (in thousands):



	Six Months Ended June 30,
	2018			2017
Decrease (increase) in current assets:
Receivables – related party	$	1,375		$	1,450
Receivables	576			(216		)
Prepaid expenses and other	37			366
Increase (decrease) in current liabilities:
Accounts payable	(2,763		)	738
Accounts payable – related party	3,696			(655		)
Accrued liabilities	(122		)	(118		)
Accrued liabilities – related party	(715		)	(3,171		)
Accrued interest payable	4,108			(304		)
Accrued interest payable – related party	(84		)	739
Taxes other than income taxes payable	(7		)	437
Changes in current assets and current liabilities	$	6,101		$	(734	)

Cash flows related to interest and income taxes paid were as follows (in thousands):



	Six Months Ended June 30,
	2018		2017
Interest paid	$	21,641	$	16,044
Income taxes paid	918		695

Noncash investing and financing activities that affected recognized assets or liabilities were as follows (in thousands):



	Six Months Ended June 30,
	2018			2017
Decrease in accounts payable related to capital expenditures	$	(1,718	)	$	(1,721	)
Noncash capital contributions from Valero for capital projects	22,317			19,276

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VALERO ENERGY PARTNERS LP

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In addition to the activities in the preceding table, noncash financing activities for the six months ended June 30, 2018 and 2017 included the transfers to (from) partners to reflect the impact of ownership changes occurring as a result of the grant of restricted units made to each of our three independent directors and the issuance of equity under our ATM Program, respectively, as described in Note 8.


10.	FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments that we recognize in our balance sheets at their carrying amounts are shown in the table below along with their associated fair values (in thousands):



	Fair Value Hierarchy	June 30, 2018				December 31, 2017
	Fair Value Hierarchy	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	Level 1	$	100,094	$	100,094	$	42,052	$	42,052
Financial liabilities:
Debt:
Revolver	Level 2	—		—		410,000		410,000
Senior Notes	Level 2	989,380		986,930		495,283		523,800
Notes payable – related party	Level 2	285,000		285,000		370,000		370,000

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

CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Form 10-Q, including without limitation our disclosures below under the heading “OUTLOOK,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify our forward-looking statements by the words “anticipate,” “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “projection,” “predict,” “budget,” “forecast,” “goal,” “guidance,” “target,” “could,” “would,” “should,” “will,” “may,” and similar expressions.

Although we believe the assumptions upon which these forward-looking statements are based are reasonable, any of these assumptions could prove to be inaccurate and the forward-looking statements based on these assumptions could be incorrect. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results and trends to differ materially from those made, projected, or implied in or by the forward-looking statements depending on a variety of uncertainties or other factors including, but not limited to:


•	the suspension, reduction, cessation, or termination of Valero’s obligation under our commercial agreements, omnibus agreement, and services and secondment agreement;


•	changes in global economic conditions on Valero’s business and the business of its suppliers, customers, business partners, and credit lenders;


•	a material decrease in Valero’s profitability;


•	disruptions due to equipment interruption or failure at our facilities, Valero’s facilities, or third-party facilities on which our business or Valero’s business is dependent;


•	the risk of contract cancellation, non-renewal, or failure to perform by Valero’s customers, and Valero’s inability to replace such contracts and/or customers;


•	Valero’s and our ability to remain in compliance with the terms of its and our outstanding indebtedness;


•	the timing and extent of changes in commodity prices and demand for Valero’s refined petroleum products;


•	our ability to obtain credit and financing on acceptable terms in light of uncertainty and illiquidity in credit and capital markets;


•	actions of customers and competitors;


•	changes in our cash flows from operations;


•	changes in state and federal policies and regulations relating to tariffs, environmental, economic, health and safety, energy, and other matters;


•	legal or regulatory investigations, delays, or other factors beyond our control;


•	operational hazards inherent in refining operations and in transporting and storing crude oil and refined petroleum products;


•	earthquakes or other natural disasters affecting operations;


•	changes in capital requirements or in execution of planned capital projects;


•	the availability and costs of crude oil, other refinery feedstocks, and refined petroleum products;

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•	changes in the cost or availability of third-party vessels, pipelines, and other means of delivering and transporting crude oil, feedstocks, and refined petroleum products;


•	direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war;


•	weather conditions affecting our or Valero’s operations or the areas in which Valero markets its refined petroleum products;


•	seasonal variations in demand for refined petroleum products;


•	adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any accruals, which affect us or Valero;


•	risks related to labor relations and workplace safety;


•	changes in insurance markets impacting costs and the level and types of coverage available;


•	political developments; and


•	other factors generally described in the “Risk Factors” section included in our annual report on Form 10-K for the year ended December 31, 2017, and in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2018, both of which are incorporated by reference herein.

Any one of these factors, or a combination of these factors, could materially affect our future results of operations and affect whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements are not guarantees of future performance, and actual results and future performance may differ materially from those suggested in any forward-looking statements. We do not intend to update these statements unless we are required by the securities laws to do so.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to publicly release any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

OVERVIEW

2018 Developments

On March 29, 2018, we issued $500.0 million of 4.5 percent Senior Notes. Gross proceeds from the debt issuance totaled $498.3 million. As discussed in Note 4 of Condensed Notes to Consolidated Financial Statements, we used the proceeds to repay the outstanding balance of $410.0 million under the Revolver and $85.0 million of the outstanding balance under one of the Loan Agreements with Valero.

Second Quarter and First Six Months Results

We reported net income of $64.0 million in the second quarter of 2018 and $130.1 million in the first six months of 2018. This compares to net income of $58.4 million in the second quarter of 2017 and $116.6 million in the first six months of 2017.

The increase in net income of $5.6 million in the second quarter of 2018 compared to the second quarter of 2017 and $13.5 million in the first six months of 2018 compared to the first six months of 2017 was due primarily to an $11.1 million and $22.5 million increase, respectively, in operating income driven by contributions from our Port Arthur terminal and Parkway pipeline, which we acquired from Valero in November 2017, as further described in Note 2 of Condensed Notes to Consolidated Financial Statements. The increase in operating income was partially offset by a $5.7 million and $9.3 million increase, respectively, in interest and debt expense, net of capitalized interest that resulted from incremental borrowings of $380.0 million used to fund a portion of the amount paid to acquire the Port Arthur terminal and Parkway

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pipeline, as well as a higher effective interest rate in 2018 due to higher interest rates on our variable rate debt.

Additional analysis of the changes in the components of net income is provided below under “RESULTS OF OPERATIONS.”

OUTLOOK

All of our revenues are generated from fee-based commercial agreements with Valero, and the amount of revenues we generate depends on the volumes of crude oil and refined petroleum products owned by Valero that we transport through our pipelines and handle at our terminals. These volumes are primarily affected by the reliability of Valero’s refineries served by our pipelines and terminals as well as the supply of, and demand for, crude oil and refined petroleum products in the markets served by our assets. However, our commercial agreements with Valero contain minimum throughput commitments that require Valero to ship minimum volumes during each calendar quarter or pay us a deficiency payment. Valero has historically met or exceeded most of its minimum throughput commitments, and we expect that Valero will transport volumes through our pipelines and throughput volumes at our terminals in 2018 generally consistent with historical levels.

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RESULTS OF OPERATIONS

The following tables highlight our results of operations and our operating performance for the three and six months ended June 30, 2018 and 2017. The narrative following these tables provides an analysis of our results of operations.

Results of Operations

(in thousands, except per unit amounts)



	Three Months Ended June 30,
	2018			2017			Change
Revenues – related party:
Revenues from lease contracts	$	108,251		$	84,657		$	23,594
Revenues from contracts with customer	26,376			25,888			488
Total revenues – related party	134,627			110,545			24,082
Costs and expenses:
Cost of revenues from lease contracts (excluding depreciation expense reflected below)	26,596			20,848			5,748
Cost of revenues from contracts with customer (excluding depreciation expense reflected below)	6,758			6,207			551
Depreciation expense associated with lease contracts	15,849			9,450			6,399
Depreciation expense associated with contracts with customer	3,016			3,055			(39		)
General and administrative expenses	4,158			3,863			295
Total costs and expenses	56,377			43,423			12,954
Operating income	78,250			67,122			11,128
Other income, net	411			182			229
Interest and debt expense, net of capitalized interest	(14,271		)	(8,551		)	(5,720		)
Income before income tax expense	64,390			58,753			5,637
Income tax expense	371			310			61
Net income	64,019			58,443			5,576
Less: General partner’s interest in net income	18,077			11,419			6,658
Limited partners’ interest in net income	$	45,942		$	47,024		$	(1,082	)

Net income per limited partner common unit – basic and diluted	$	0.66		$	0.69

Weighted-average limited partner common units outstanding – basic and diluted	69,251			68,157

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Operating Highlights and Other Financial Information

(in thousands, except throughput, per barrel, and per unit amounts)



	Three Months Ended June 30,
	2018		2017		Change
Operating highlights:
Pipeline transportation:
Pipeline transportation revenues	$	30,307	$	24,859	$	5,448
Pipeline transportation throughput (BPD) (a)	1,032,687		1,003,320		29,367
Average pipeline transportation revenue per barrel (b)	$	0.32	$	0.27	$	0.05

Terminaling:
Terminaling revenues	$	102,393	$	84,797	$	17,596
Terminaling throughput (BPD)	3,561,961		2,852,182		709,779
Average terminaling revenue per barrel (b)	$	0.32	$	0.33	$	(0.01	)

Storage and other revenues	$	1,927	$	889	$	1,038

Total revenues – related party	$	134,627	$	110,545	$	24,082

Capital expenditures:
Maintenance	$	2,613	$	1,335	$	1,278
Expansion	4,097		4,888		(791		)
Total capital expenditures	$	6,710	$	6,223	$	487

Other financial information:
Distribution declared per unit	$	0.5510	$	0.4550

Distribution declared:
Limited partner units – public	$	12,394	$	10,231
Limited partner units – Valero	25,769		20,788
General partner units – Valero	17,918		11,092
Total distribution declared	$	56,081	$	42,111

____________________


(a)	Represents the sum of volumes transported through each separately tariffed pipeline segment divided by the number of days in the period.


(b)	Average revenue per barrel is calculated as revenue divided by throughput for the period. Throughput is derived by multiplying the throughput barrels per day (BPD) by the number of days in the period.

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Total revenues – related party increased $24.1 million, or 22 percent, in the second quarter of 2018 compared to the second quarter of 2017. The increase was due primarily to the following:

•

Revenues from a terminal and pipeline system acquired from Valero in November 2017. We generated revenues of $15.8 million and $6.1 million in the second quarter of 2018 from the operations of our Port Arthur terminal and Parkway pipeline, respectively. The volumes handled at and transported through these assets were the primary contributors to the increase in our overall terminaling and pipeline transportation throughput in the second quarter of 2018 compared to the second quarter of 2017. Average pipeline transportation revenue per barrel was higher in the second quarter of 2018 compared to the second quarter of 2017 due primarily to higher revenue per barrel generated by our Parkway pipeline compared to the average revenue per barrel generated by our other pipelines. Average terminaling revenue per barrel was lower in the second quarter of 2018 compared to the second quarter of 2017 due primarily to lower revenue per barrel generated by our Port Arthur terminal compared to the average revenue per barrel generated by our other terminals.


•	Incremental revenues from our DGD rail loading facility and storage tank placed in service in May 2017 and April 2018, respectively. Our DGD rail loading facility and new storage tank generated combined incremental revenues of $1.0 million in the second quarter of 2018 compared to the second quarter of 2017.


•	Incremental throughput at our Red River crude system acquired in January 2017. We generated incremental revenues of $1.0 million due to higher throughput at our Red River crude system in the second quarter of 2018 compared to the second quarter of 2017.

Total cost of revenues (excluding depreciation expense) increased $6.3 million, or 23 percent, in the second quarter of 2018 compared to the second quarter of 2017 due primarily to expenses of $3.8 million and $2.3 million related to the operations of our Port Arthur terminal and Parkway pipeline, respectively, which were acquired in November 2017.

Total depreciation expense increased $6.4 million, or 51 percent, in the second quarter of 2018 compared to the second quarter of 2017 due primarily to depreciation expense of $3.8 million and $2.0 million associated with the assets that compose our Port Arthur terminal and Parkway pipeline, respectively, which were acquired in November 2017.

General and administrative expenses increased $295,000, or 8 percent, in the second quarter of 2018 compared to the second quarter of 2017 due primarily to incremental costs of $173,000 related to the management fee charged to us by Valero for additional services provided to us as a result of our acquisition of our Port Arthur terminal and Parkway pipeline, which were acquired in November 2017, and an increase of $122,000 in professional fees.

Interest and debt expense, net of capitalized interest increased $5.7 million, or 67 percent, in the second quarter of 2018 compared to the second quarter of 2017 due primarily to the following:


•	Incremental borrowings in connection with acquisitions. In connection with the acquisitions of the Port Arthur terminal and Parkway pipeline in November 2017, we borrowed $380.0 million under the Revolver. Interest expense on the incremental borrowings was $3.4 million in the second quarter of 2018.

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•

Incremental interest expense on the 4.5 percent Senior Notes. In March 2018, we issued $500.0 million of 4.5 percent Senior Notes. We used the gross proceeds of $498.3 million to repay the outstanding balance of $410.0 million under the Revolver and $85.0 million on a portion of the outstanding balance under one of the Loan Agreements with Valero. The interest rate on the 4.5 percent Senior Notes is higher than the interest rates on the Revolver and the Loan Agreements with Valero, thereby increasing our effective interest rate in 2018. Incremental interest expense resulting from the 4.5 percent Senior Notes was approximately $1.4 million in the second quarter of 2018.


•	Higher interest rates in 2018. Borrowings under the Loan Agreements with Valero bear interest at variable rates. We incurred additional interest of $636,000 in the second quarter of 2018 on these borrowings due to higher interest rates in 2018 compared to 2017.

While the above describes the primary changes contributing to the $5.6 million increase in net income in the second quarter of 2018 compared to the second quarter of 2017, the limited partners’ interest in net income did not increase by an equal amount because of an increase in the general partner’s interest in net income. Our general partner currently holds IDRs that entitle it to receive increasing percentages, up to a maximum of 48 percent, of the cash we distribute from operating surplus (as defined in our partnership agreement). The distribution per unit related to the second quarter of 2018 and 2017 was $0.5510 and $0.4550, respectively; therefore, a higher percentage of our net income was allocated to the general partner in the second quarter of 2018 resulting in a decrease of $1.1 million in the limited partners’ interest in our net income in the second quarter of 2018 compared to the second quarter of 2017.

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Results of Operations

(in thousands, except per unit amounts)



	Six Months Ended June 30,
	2018			2017			Change
Revenues – related party:
Revenues from lease contracts	$	213,577		$	165,769		$	47,808
Revenues from contracts with customer	52,992			50,592			2,400
Total revenues – related party	266,569			216,361			50,208
Costs and expenses:
Cost of revenues from lease contracts (excluding depreciation expense reflected below)	51,114			39,368			11,746
Cost of revenues from contracts with customer (excluding depreciation expense reflected below)	13,541			11,232			2,309
Depreciation expense associated with lease contracts	31,438			18,480			12,958
Depreciation expense associated with contracts with customer	5,967			5,800			167
General and administrative expenses	8,270			7,693			577
Total costs and expenses	110,330			82,573			27,757
Operating income	156,239			133,788			22,451
Other income, net	793			246			547
Interest and debt expense, net of capitalized interest	(26,179		)	(16,840		)	(9,339		)
Income before income tax expense	130,853			117,194			13,659
Income tax expense	755			614			141
Net income	130,098			116,580			13,518
Less: General partner’s interest in net income	34,632			20,886			13,746
Limited partners’ interest in net income	$	95,466		$	95,694		$	(228	)

Net income per limited partner common unit – basic and diluted	$	1.38		$	1.41

Weighted-average limited partner common units outstanding – basic and diluted	69,250			67,912

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Operating Highlights and Other Financial Information

(in thousands, except throughput, per barrel, and per unit amounts)



	Six Months Ended June 30,
	2018		2017		Change
Operating highlights:
Pipeline transportation:
Pipeline transportation revenues	$	61,675	$	48,034	$	13,641
Pipeline transportation throughput (BPD) (a)	1,047,313		982,873		64,440
Average pipeline transportation revenue per barrel (b)	$	0.33	$	0.27	$	0.06

Terminaling:
Terminaling revenues	$	201,667	$	167,303	$	34,364
Terminaling throughput (BPD)	3,479,487		2,793,654		685,833
Average terminaling revenue per barrel (b)	$	0.32	$	0.33	$	(0.01	)

Storage and other revenues	$	3,227	$	1,024	$	2,203

Total revenues – related party	$	266,569	$	216,361	$	50,208

Capital expenditures:
Maintenance	$	4,925	$	3,373	$	1,552
Expansion	8,158		11,867		(3,709		)
Total capital expenditures	$	13,083	$	15,240	$	(2,157	)

Other financial information:
Distribution declared per unit	$	1.0785	$	0.8825

Distribution declared:
Limited partner units – public	$	24,259	$	19,841
Limited partner units – Valero	50,440		40,319
General partner units – Valero	34,208		19,994
Total distribution declared	$	108,907	$	80,154

____________________


(a)	Represents the sum of volumes transported through each separately tariffed pipeline segment divided by the number of days in the period.


(b)	Average revenue per barrel is calculated as revenue divided by throughput for the period. Throughput is derived by multiplying the throughput barrels per day by the number of days in the period.

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Total revenues – related party increased $50.2 million, or 23 percent, in the first six months of 2018 compared to the first six months of 2017. The increase was due primarily to the following:

•

Revenues from a terminal and pipeline system acquired from Valero in November 2017. We generated revenues of $31.2 million and $12.6 million in the first six months of 2018 from the operations of our Port Arthur terminal and Parkway pipeline, respectively. The volumes handled at and transported through these assets were the primary contributors to the increase in our overall terminaling and pipeline transportation throughput in the first six months of 2018 compared to the first six months of 2017. Average pipeline transportation revenue per barrel was higher in the first six months of 2018 compared to the first six months of 2017 due primarily to higher revenue per barrel generated by our Parkway pipeline compared to the average revenue per barrel generated by our other pipelines. Average terminaling revenue per barrel was lower in the first six months of 2018 compared to the first six months of 2017 due primarily to lower revenue per barrel generated by our Port Arthur terminal compared to the average revenue per barrel generated by our other terminals.


•	Incremental revenues from our DGD rail loading facility and storage tank placed in service in May 2017 and April 2018, respectively. Our DGD rail loading facility and new storage tank generated combined incremental revenues of $2.2 million in the first six months of 2018 compared to the first six months of 2017.


•	Incremental throughput at our Red River crude system acquired in January 2017. We generated incremental revenues of $2.9 million due to higher throughput at our Red River crude system in the first six months of 2018 compared to the first six months of 2017.

Total cost of revenues (excluding depreciation expense) increased $14.1 million, or 28 percent, in the first six months of 2018 compared to the first six months of 2017. The increase was due primarily to expenses of $8.4 million and $4.5 million related to the operations of our Port Arthur terminal and Parkway pipeline, respectively, which were acquired in November 2017.

Total depreciation expense increased $13.1 million, or 54 percent, in the first six months of 2018 compared to the first six months of 2017 due primarily to depreciation expense of $7.7 million and $4.1 million associated with the assets that compose our Port Arthur terminal and Parkway pipeline, respectively, which were acquired in November 2017.

General and administrative expenses increased $577,000, or 8 percent, in the first six months of 2018 compared to the first six months of 2017 due primarily to incremental costs of $345,000 related to the management fee charged to us by Valero for additional services provided to us as a result of our acquisition of our Port Arthur terminal and Parkway pipeline, which were acquired in November 2017, and an increase of $202,000 in professional fees.

Interest and debt expense, net of capitalized interest increased $9.3 million, or 55 percent, in the first six months of 2018 compared to the first six months of 2017 due to the following:


•	Incremental borrowings in connection with acquisitions. In connection with the acquisitions of the Port Arthur terminal and Parkway pipeline in November 2017, we borrowed $380.0 million under the Revolver. Interest expense on the incremental borrowings was $6.3 million in the first six months of 2018.


•	Incremental interest expense on the 4.5 percent Senior Notes. In March 2018, we issued $500.0 million of 4.5 percent Senior Notes. We used the gross proceeds of $498.3 million to repay the outstanding balance of $410.0 million under the Revolver and $85.0 million on a portion of the

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outstanding balance under one of the Loan Agreements with Valero. The interest rate on the 4.5 percent Senior Notes is higher than the interest rates on the Revolver and the Loan Agreements with Valero, thereby increasing our effective interest rate in 2018. Incremental interest expense resulting from the 4.5 percent Senior Notes was approximately $1.4 million in the first six months of 2018.


•	Higher interest rates in 2018. Borrowings under the Revolver and the Loan Agreements with Valero bear interest at variable rates. We incurred additional interest of $1.4 million in the first six months of 2018 on these borrowings due to higher interest rates in 2018 compared to 2017.

While the above describes the primary changes contributing to the $13.5 million increase in net income in the first six months of 2018 compared to the first six months of 2017, the limited partners’ interest in net income did not increase by an equal amount because of an increase in the general partner’s interest in net income. Our general partner currently holds IDRs that entitle it to receive increasing percentages, up to a maximum of 48 percent, of the cash we distribute from operating surplus (as defined in our partnership agreement). The distribution per unit related to the first six months of 2018 and 2017 was $1.0785 and $0.8825, respectively; therefore, a higher percentage of our net income was allocated to the general partner in the first six months of 2018 resulting in a decrease of $228,000 in the limited partners’ interest in our net income in the first six months of 2018 compared to the first six months of 2017.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

We expect our ongoing sources of liquidity to include cash generated from operations, borrowings under the Revolver, and issuances of additional debt and equity securities under suitable market conditions. We may also enter into financing transactions with Valero in connection with acquisitions. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions.

Our liquidity consisted of the following as of June 30, 2018 (in thousands):



	Facility Amount		Borrowings		Availability
Revolver	$	750,000	$	—	$	750,000
Cash and cash equivalents	N/A		N/A		100,094
Total liquidity					$	850,094

Revolver

The Revolver consists of aggregate commitments of $750.0 million and matures in November 2020. We have the option to increase the aggregate commitments under the Revolver to $1.0 billion, subject to certain restrictions. The Revolver also provides for the issuance of letters of credit of up to $100.0 million. As of June 30, 2018, we had no borrowings and no letters of credit outstanding under the Revolver. As a result, we had $750.0 million of available capacity.

ATM Program

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“ATM Program”). As of June 30, 2018, we have sold common units having an aggregate value of $45.5 million under our ATM Program, resulting in $304.5 million remaining available. There were no issuances of common units under our ATM Program for the six months ended June 30, 2018.

Cash Flows Summary

Components of our cash flows are set forth below (in thousands):



	Six Months Ended June 30,
	2018			2017
Cash flows provided by (used in):
Operating activities	$	175,157		$	140,982
Investing activities	(13,075		)	(87,025		)
Financing activities	(104,040		)	(37,471		)
Net increase (decrease) in cash and cash equivalents	$	58,042		$	16,486

Cash Flows for the Six Months Ended June 30, 2018

Our operations generated $175.2 million of cash in the first six months of 2018, driven primarily by net income of $130.1 million plus noncash adjustments (primarily for depreciation expense) of $39.0 million and a favorable change in working capital of $6.1 million. See “RESULTS OF OPERATIONS” for further discussion of our operations. The change in our working capital is further described in Note 9 of Condensed Notes to Consolidated Financial Statements and mainly resulted from:


•	an increase in accrued interest payable of $4.1 million due primarily to interest expense incurred on our 4.5 percent Senior Notes, which is paid semi-annually on March 15 and September 15;


•	an increase in accounts payable – related party of $3.7 million attributable primarily to the timing of invoices from Valero for services provided by Valero to our general partner under our services and secondment agreement; partially offset by


•	a decrease in accounts payable of $2.8 million attributable primarily to liabilities assumed in connection with our acquisition of the Parkway pipeline in November 2017.

The $175.2 million of cash generated by our operations, along with $498.3 million in gross proceeds from the issuance of our 4.5 percent Senior Notes, were used mainly to:


•	make debt repayments of $495.0 million, of which $410.0 million and $85.0 million related to the Revolver and one of the Loan Agreements, respectively;


•	pay $102.9 million in cash distributions to limited partners and our general partner;


•	fund $13.1 million in capital expenditures; and


•	pay $4.5 million in debt issuance costs.

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Cash Flows for the Six Months Ended June 30, 2017

Our operations generated $141.0 million of cash in the first six months of 2017, driven primarily by net income of $116.6 million plus noncash adjustments (primarily for depreciation expense) of $25.1 million and an unfavorable change in working capital of $734,000. See “RESULTS OF OPERATIONS” for further discussion of our operations. The change in our working capital is further described in Note 9 of Condensed Notes to Consolidated Financial Statements and mainly resulted from:


•	a decrease in accrued liabilities – related party of $3.2 million due primarily to Valero’s use of deficiency payments that it had paid to us in previous periods associated with its minimum volume commitments to us; partially offset by


•	a decrease in accounts receivable – related party of $1.5 million due primarily to lower billings related to our Three Rivers terminal, which experienced lower volumes in the period as a result of planned maintenance at Valero’s Three Rivers Refinery;


•	an increase in accrued interest payable – related party of $739,000 due primarily to higher interest rates in 2017 on our Loan Agreements with Valero, which bear interest at variable rates; and


•	an increase in accounts payable of $738,000 due primarily to timing of project expenditures.

The $141.0 million of cash generated by our operations, along with $36.5 million in proceeds received in connection with the issuance of common units under our ATM Program, were used mainly to:


•	pay $72.9 million in cash distributions to limited partners and our general partner;


•	fund the $71.8 million acquisition of the Red River crude system;


•	fund $15.2 million in capital expenditures; and


•	pay $1.0 million in debt issuance and offering costs.

Capital Resources

Capital Expenditures

Our operations can be capital intensive, requiring investments to expand, upgrade, or enhance existing operations and to meet environmental and operational regulations. Our capital requirements consist of maintenance capital expenditures and expansion capital expenditures as those terms are defined in our partnership agreement. Examples of maintenance capital expenditures are those made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives, or other capital expenditures that are incurred in maintaining existing system volumes and related cash flows. In contrast, examples of expansion capital expenditures include those made to expand and upgrade our systems and facilities and to construct or acquire new systems or facilities to grow our business.

Our capital expenditures were as follows (in thousands):



	Six Months Ended June 30,
	2018		2017
Maintenance	$	4,925	$	3,373
Expansion (a)	8,158		11,867
Total capital expenditures	$	13,083	$	15,240

(a) This table excludes amounts paid for our acquisitions. See Note 2 of Condensed Notes to Consolidated Financial Statements for further discussion of our acquisitions.

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Our capital expenditures in the first six months of 2018 were primarily for:


•	the construction of a new tank at our Meraux terminal;


•	the construction of a new tank at the St. Charles terminal to be used by DGD;


•	the construction of a new tank and improvement of assets at our Port Arthur products system; and


•	the upgrade of certain pipelines at our Collierville crude system that will enhance the flexibility of crude oil receipts and shipments.

Our capital expenditures in the first six months of 2017 were primarily for:


•	the construction of the DGD rail loading facility and a new tank at the St. Charles terminal; and


•	the construction of a new tank at our Port Arthur products system.

In addition to the above-mentioned capital expenditures, $22.3 million of capital projects were funded by Valero in the first six months of 2018 primarily related to our Port Arthur, St. Charles, Corpus Christi, Meraux, Three Rivers, McKee, and Houston terminals. Valero agreed to fund these projects in connection with our acquisition of these terminals from Valero.

For 2018, we expect our capital expenditures to range from $35.0 million to $45.0 million. Our estimate consists of approximately $20.0 million to $25.0 million for maintenance capital expenditures and approximately $15.0 million to $20.0 million for expansion capital expenditures. We continuously evaluate our capital budget and make changes as conditions warrant. We anticipate that these capital expenditures will be funded from cash flows from operations. The foregoing capital expenditure estimate does not include any amounts related to strategic acquisitions that may occur.

Distributions

On July 23, 2018, the board of directors of our general partner declared a distribution of $0.5510 per unit applicable to the second quarter of 2018, which equates to $56.1 million in total distributions to unitholders of record as of August 3, 2018.

CONTRACTUAL OBLIGATIONS AND OTHER

Contractual Obligations

As of June 30, 2018, our contractual obligations included debt and notes payable – related party, operating lease obligations, purchase obligations, and other long-term liabilities. In March 2018, we (i) issued in a public offering $500.0 million aggregate principal amount of our 4.5 percent Senior Notes, (ii) made a debt repayment of $410.0 million related to the Revolver, and (iii) paid $85.0 million under one of the Loan Agreements with Valero. See Note 4 of Condensed Notes to Consolidated Financial Statements for further description of these activities. There were no other material changes outside the ordinary course of business with respect to our contractual obligations during the six months ended June 30, 2018.

Regulatory Matters

Rate and Other Regulations

Our interstate common carrier crude oil and refined petroleum products pipeline operations are subject to rate regulation by the Federal Energy Regulatory Commission under the Interstate Commerce Act and Energy Policy Act. Our pipelines and terminal operations are also subject to safety regulations adopted by the Department of Transportation, as well as to state regulations. For more information on federal and state regulations affecting our business, please read our annual report on Form 10-K for the year ended

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December 31, 2017 and the risk factor included in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2018.

Environmental Matters and Compliance Costs

We are subject to extensive federal, state, and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum or chemical substances from our facilities or require us to install additional pollution control equipment on our equipment and facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil, or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of injunctions that may subject us to additional operational constraints.

There were no significant changes to our environmental matters and compliance costs during the six months ended June 30, 2018.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. As of June 30, 2018, there were no significant changes to our critical accounting estimates since the date our annual report on Form 10-K for the year ended December 31, 2017 was filed.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates and prices. Because we do not take ownership of or receive any payments based on the value of the crude oil or refined petroleum products that we handle and do not engage in the trading of any commodities, we have no direct exposure to commodity price fluctuations.

Our commercial agreements with Valero are indexed to inflation to mitigate our exposure to increases in the cost of labor and materials used in our business.

The following table provides information about our debt obligations (dollars in thousands), the fair values of which are sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented.



	June 30, 2018
	Expected Maturity Dates
	2018			2019			2020			2021			2022			There- after			Total (a)			Fair Value
Fixed rate	$	—		$	—		$	—		$	—		$	—		$	1,000,000		$	1,000,000		$	986,930
Average interest rate	—		%	—		%	—		%	—		%	—		%	4.44		%	4.44		%
Variable rate	$	—		$	—		$	285,000		$	—		$	—		$	—		$	285,000		$	285,000
Average interest rate	—		%	—		%	3.48		%	—		%	—		%	—		%	3.48		%



	December 31, 2017
	Expected Maturity Dates
	2018			2019			2020			2021			2022			There- after			Total (a)			Fair Value
Fixed rate	$	—		$	—		$	—		$	—		$	—		$	500,000		$	500,000		$	523,800
Average interest rate	—		%	—		%	—		%	—		%	—		%	4.38		%	4.38		%
Variable rate	$	—		$	—		$	780,000		$	—		$	—		$	—		$	780,000		$	780,000
Average interest rate	—		%	—		%	2.87		%	—		%	—		%	—		%	2.87		%

(a) Excludes unamortized discount and deferred issuance costs.

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ITEM 4. CONTROLS AND PROCEDURES


(a)	Evaluation of disclosure controls and procedures

Our management has evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 (e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective as of June 30, 2018.


(b)	Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We continue the implementation process to prepare for the adoption of Topic 842, which we discuss in Note 1 of Condensed Notes to Consolidated Financial Statements. We expect that there will be changes affecting our internal control over financial reporting in conjunction with adopting this standard. The most significant changes we expect relate to the implementation of a lease evaluation system and a lease accounting system, including the integration of our lease accounting system with our general ledger and modifications to the related procurement and payment processes.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There have been no new proceedings or material developments in proceedings that we previously reported in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2018.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2017, and our quarterly report on Form 10-Q for the quarterly period ended March 31, 2018.

ITEM 6. EXHIBITS



Exhibit No.		Description

*31.01		Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal executive officer.

*31.02		Rule 13a-14(a) Certification (under Section 302 of the Sarbanes-Oxley Act of 2002) of principal financial officer.

**32.01		Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002).

***101		Interactive Data Files

______________


*	Filed herewith.


**	Furnished herewith.


***	Submitted electronically herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.




	VALERO ENERGY PARTNERS LP
	(Registrant)

	By:	Valero Energy Partners GP LLC
		its general partner


	By:	/s/ Donna M. Titzman
		Donna M. Titzman
		Executive Vice President and
		Chief Financial Officer
		(Duly Authorized Officer and Principal
		Financial and Accounting Officer)

Date: August 3, 2018

VALERO ENERGY PARTNERS LP - FORM 10-Q - August 3, 2018

Attached files

VALERO ENERGY PARTNERS LP Reports