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VALERO ENERGY PARTNERS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/08/2015 | 12:30pm US/Eastern
References in this report to "the Partnership," "we," "us," or "our" refer to
Valero Energy Partners LP, one or more of its subsidiaries, or all of them taken
as a whole. References in this report to "Valero" refer collectively to Valero
Energy Corporation and its subsidiaries, other than Valero Energy Partners LP,
any of its subsidiaries, or its general partner.
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
headings "OVERVIEW" and "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," "should," "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, or termination of Valero's obligation under our

commercial agreements and our services and secondment agreement;

• changes in global economic conditions and the effects of the global

economic downturn 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 ability to remain in compliance with the terms of its outstanding

       indebtedness;


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

• actions of customers and competitors;

• changes in our cash flows from operations;

• state and federal environmental, economic, health and safety, energy, and

other policies and regulations, including those related to climate change

       and any changes therein, and any 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 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; and

• political developments.



Any one of these factors, or a combination of these factors, could materially
affect our future results of operations and 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
We are a fee-based 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 transportation and logistics assets. As of
March 31, 2015, our assets consisted 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 seven of Valero's
refineries.
We acquired the Texas Crude Systems Business from Valero on July 1, 2014 for
total cash consideration of $154.0 million (the Texas Crude Systems
Acquisition), as further described in Note 3 of Condensed Notes to Consolidated
Financial Statements, and we began receiving fees for services provided by this
business commencing on July 1, 2014.
We acquired the Houston and St. Charles Terminal Services Business from Valero
on March 1, 2015 for total consideration of $671.2 million (the Houston and St.
Charles Terminal Acquisition). Consideration consisted of (i) a cash
distribution of $571.2 million and (ii) the issuance of 1,908,100 common units
representing limited partner interests in us and 38,941 general partner units
representing general partner interests in us to our general partner having an
aggregate value of $100.0 million. We funded the cash distribution to Valero
with $211.2 million of our cash on hand, $200.0 million of borrowings under our
revolving credit facility, and $160.0 million of proceeds from a subordinated
credit agreement with Valero. We began receiving fees for services provided by
this business commencing on March 1, 2015.



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The Houston and St. Charles Terminal Services Business is engaged in the
business of terminaling crude oil, intermediates, and refined petroleum products
at terminals in Texas and Louisiana. The Houston and St. Charles Terminal
Services Business consists of:
•      Houston Terminal. The Houston Terminal is a crude oil, intermediates, and
       refined petroleum products terminal that supports Valero's Houston, Texas
       refinery. The terminal is located on the Houston ship channel and has
       storage tanks with 3.6 million barrels of storage capacity.


•      St. Charles Terminal. The St. Charles Terminal is a crude oil,
       intermediates, and refined petroleum products terminal that supports

Valero's St. Charles Refinery located in Norco, Louisiana. The terminal is

located on the Mississippi River and has storage tanks with

10 million barrels of storage capacity.



The Texas Crude Systems Acquisition and the Houston and St. Charles Terminal
Acquisition (collectively, the Acquisitions) were each accounted for as
transfers of a business between entities under the common control of Valero.
Accordingly, our historical financial position, results of operations, and cash
flows have been retrospectively adjusted to include the historical financial
position, results of operations, and cash flows of the Texas Crude Systems
Business for periods prior to July 1, 2014 and of the Houston and St. Charles
Terminal Services Business for periods prior to March 1, 2015. We refer to the
historical results of the Acquisitions prior to their respective acquisition
dates as those of our "Predecessor." See Notes 1 and 3 of Condensed Notes to
Consolidated Financial Statements for a discussion of the basis of this
presentation.
Operating revenues include amounts attributable to our Predecessor. Prior to
being acquired by us, the Texas Crude Systems Business generated revenues by
providing fee-based transportation and terminaling services to Valero, but the
Houston and St. Charles Terminal Services Business did not charge Valero for
services provided and did not generate revenues. Effective with the date of each
of the Acquisitions, we entered into additional schedules to our commercial
agreements with Valero with respect to the services we provide to Valero using
the assets of the acquired businesses. This resulted in changes to pipeline and
terminaling throughput fees previously charged to Valero for the Texas Crude
Systems Business and in the recognition of terminaling revenues for the Houston
and St. Charles Terminal Services Business. Because of these new agreements, our
future results of operations may not be comparable to our historical results of
operations.
For the first quarter of 2015, we reported net income of $12.6 million, net
income attributable to partners of $22.1 million, and net income per limited
partner common unit of $0.37. This compares to net income of $4.5 million, net
income attributable to partners of $10.5 million, and net income per limited
partner common unit of $0.18 for the first quarter of 2014. The increase in net
income of $8.1 million and in net income attributable to partners of
$11.6 million in the first quarter of 2015 compared to the first quarter of 2014
is due primarily to $9.3 million of revenues generated by our Houston and St.
Charles terminals in March 2015. As discussed above, the Houston and St. Charles
Terminal Services Business did not charge Valero for services provided and did
not generate revenues prior to our acquisition of that business on March 1,
2015. In addition, the increase in net income attributable to partners is $3.5
million higher than the increase in net income due primarily to higher operating
expenses and depreciation expense in the first quarter of 2015, most of which is
associated with the Houston and St. Charles Terminal Services Business during
the period it was operated by our Predecessor.
Additional analysis of the changes in the components of net income is provided
below under "RESULTS OF OPERATIONS."



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OUTLOOK

Because our operating revenues are generated from fee-based arrangements with
Valero, the amount of operating revenues we generate primarily depends on the
volumes of crude oil and refined petroleum products that we transport through
our pipelines and handle at our terminals. These volumes are primarily affected
by refinery reliability and the supply of, and demand for, crude oil and refined
petroleum products in the markets served by our assets. We expect that Valero
will ship volumes in excess of its total minimum throughput commitments on our
pipeline systems and will throughput volumes in excess of its total minimum
throughput commitments at our terminals for the second quarter of 2015.


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RESULTS OF OPERATIONS
The following tables highlight our results of operations and our operating
performance. The statement of income, operating highlights, and capital
expenditures data have been retrospectively adjusted to include the historical
results of operations of the Texas Crude Systems Business for periods presented
prior to July 1, 2014 and the historical results of operations of the Houston
and St. Charles Terminal Services Business for periods presented prior to
March 1, 2015. See Notes 1 and 3 of Condensed Notes to Consolidated Financial
Statements for a discussion of the basis of this presentation. 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 March 31,
                                                    2015            2014          Change
Operating revenues - related party              $    41,886     $   29,489     $   12,397
Costs and expenses:
Operating expenses                                   17,864         16,237  

1,627

General and administrative expenses                   3,565          3,097            468
Depreciation expense                                  7,488          5,916          1,572
Total costs and expenses                             28,917         25,250          3,667
Operating income                                     12,969          4,239          8,730
Other income, net                                       111            666           (555 )
Interest and debt expense, net of capitalized
interest                                               (601 )         (228 )         (373 )
Income before income taxes                           12,479          4,677          7,802
Income tax expense (benefit)                           (126 )          157           (283 )
Net income                                           12,605          4,520          8,085
Less: Net loss attributable to Predecessor           (9,516 )       (5,962 )       (3,554 )
Net income attributable to partners                  22,121         10,482  

11,639

Less: General partner's interest in net
income                                                  852            210  

642

Limited partners' interest in net income $ 21,269 $ 10,272

$ 10,997


Net income per limited partner unit
(basic and diluted):
Common units                                    $      0.37     $     0.18
Subordinated units                              $      0.36     $     0.18

Weighted-average limited partner units
outstanding:
Common units - basic                                 29,426         28,790
Common units - diluted                               29,426         28,792
Subordinated units - basic and diluted               28,790         28,790




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              Operating Highlights and Other Financial Information
      (in thousands, except throughput, per barrel, and per unit amounts)
                                                         Three Months Ended March 31,
                                                      2015             2014          Change
Operating highlights:
Pipeline transportation:
Pipeline transportation revenues                $    19,875        $   15,234     $    4,641
Pipeline transportation throughput (BPD) (a)        979,821           810,352        169,469
Average pipeline transportation revenue per
barrel (b)                                      $      0.23        $     0.21     $     0.02

Terminaling:
Terminaling revenues                            $    21,876        $   13,967     $    7,909
Terminaling throughput (BPD)                        807,429           568,856        238,573
Average terminaling revenue per barrel (b)      $      0.30        $     0.27     $     0.03

Storage revenues                                $       135        $      288     $     (153 )

Total operating revenues - related party        $    41,886        $   29,489     $   12,397

Capital expenditures:
Maintenance                                     $     3,360        $    3,778     $     (418 )
Expansion                                             1,618            18,698        (17,080 )
Total capital expenditures                            4,978            22,476        (17,498 )
Less: Capital expenditures attributable to
Predecessor                                           3,693            21,612        (17,919 )
Capital expenditures attributable to
Partnership                                     $     1,285        $      

864 $ 421


Other financial information:
Distribution declared per unit                  $    0.2775        $   

0.2125


Distribution declared:
Limited partner units - public                  $     4,790        $    

3,667

Limited partner units - Valero                       11,721             

8,570

General partner units - Valero                          755               250
Total distribution declared                     $    17,266        $   12,487


____________________

(a) Represents the sum of volumes transported through each separately tariffed

pipeline segment.

(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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Operating revenues increased $12.4 million, or 42 percent, for the first quarter
of 2015 compared to the first quarter of 2014. The increase was due primarily
to:
•      An increase of $9.3 million at our newly acquired Houston and St. Charles

terminals. Prior to being acquired by us, the Houston and St. Charles

Terminal Services Business did not charge Valero for services provided and

did not generate revenues. Effective with the date of the Houston and

St. Charles Terminal Acquisition, we entered into additional schedules to

our commercial agreements with Valero with respect to the services we

provide to Valero using the assets of the acquired business and began

generating revenues with respect to these assets.

• An increase of $1.6 million at our Port Arthur logistics system driven by

higher utilization of our Lucas crude system resulting from higher

throughput of domestic crude oil at Valero's Port Arthur Refinery. In

addition, our Port Arthur products system benefited from increased volumes

on our pipelines and terminals due to increased production of refined

petroleum products at Valero's Port Arthur Refinery.

• An increase of $1.6 million at our Memphis logistics system as a result of

higher throughput volumes throughout the system due to increased crude

supply, and therefore production, at Valero's Memphis Refinery. During the

first quarter of 2014, refinery throughput volumes were lower as a result

of harsh winter weather conditions and the acceleration of a planned

turnaround.



Operating expenses increased $1.6 million, or 10 percent, for the first quarter
of 2015 compared to the first quarter of 2014 due primarily to an increase in
waste handling costs of $802,000 at the St. Charles terminal. Also, insurance
expense increased $331,000 as a result of the the assets of the acquired
businesses being covered under our own insurance policies. Prior to the
Acquisitions, our Predecessor was allocated a portion of Valero's insurance
costs.
General and administrative expenses increased $468,000, or 15 percent, for the
first quarter of 2015 compared to the first quarter of 2014 due primarily to
$546,000 in costs related to the acquisition of the Houston and St. Charles
Terminal Services Business.
Depreciation expense increased $1.6 million, or 27 percent, for the first
quarter of 2015 compared to the first quarter of 2014 due primarily to the
effect of assets placed in service during 2014, including the expansion of the
St. Charles terminal, the interconnection with TransCanada's Cushing Marketlink
pipeline, and the expansion of the Three Rivers crude system.
"Other income, net" decreased $555,000 for the first quarter of 2015 compared to
the first quarter of 2014 due to a decrease in scrap metal sales of $365,000 and
a decrease in interest income (net of bank fees) of $190,000 attributable to a
reduced cash balance during the first quarter of 2015.
"Interest and debt expense, net of capitalized interest" increased $373,000 for
the first quarter of 2015 compared to the first quarter of 2014 due primarily to
$240,000 and $190,000 in interest expense incurred on borrowings of $200.0
million under our revolving credit facility and $160.0 million under a
subordinated credit agreement with Valero, respectively, in connection with the
acquisition of the Houston and St. Charles Terminal Services Business.
Our income tax expense (benefit) is associated with the Texas margin tax. During
the first quarter of 2015, we reduced our deferred income tax liabilities due to
a reduction in the relative amount of revenue we generate in Texas compared to
our total revenue. This reduction was a result of the acquisition of the Houston
and St. Charles Terminal Services Business (which includes operations in
Louisiana).



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LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
We expect our ongoing sources of liquidity to include cash generated from
operations, borrowings under our revolving credit facility, and issuances of
additional debt and equity securities. 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.
Distributions
On April 21, 2015, the board of directors of our general partner declared a
distribution of $0.2775 per unit applicable to the first quarter of 2015, which
equates to $17.3 million based on the number of common, subordinated, and
general partner units outstanding as of March 31, 2015. This quarterly
distribution per unit is more than the minimum quarterly distribution of
$0.2125 per unit.
Our distributions are declared subsequent to quarter end. The table below
summarizes information related to our quarterly cash distributions:
                             Total
      Quarterly            Quarterly          Total Cash
       Period             Distribution       Distribution        Declaration           Record          Distribution
        Ended              (Per Unit)       (In Thousands)           Date               Date               Date

March 31, 2015 $ 0.2775 $ 17,266 April 21, 2015 May 1, 2015 May 12, 2015 December 31, 2014

               0.2660              15,829     January 26, 2015   February 5, 2015   February 12, 2015
September 30, 2014              0.2400              14,102     October 14, 2014   October 31, 2014   November 12, 2014
June 30, 2014                   0.2225              13,074      July 15, 2014      August 1, 2014     August 13, 2014
March 31, 2014                  0.2125              12,487      April 17, 2014      May 1, 2014        May 14, 2014
December 31, 2013 (a)           0.0370               2,174     January 20,

2014 January 31, 2014 February 12, 2014

____________________

(a) This quarterly distribution reflects the pro rata portion of the minimum
quarterly distribution rate of $0.2125 for the partial quarter beginning
December 16, 2013 and ending December 31, 2013.
Revolving Credit Facility
We have a $300.0 million senior unsecured revolving credit facility agreement
(the Revolver) with a group of lenders that matures in December 2018. The
Revolver includes sub-facilities for swingline loans and letters of credit.
Effective March 2, 2015, we borrowed $200.0 million under the Revolver in
connection with the Houston and St. Charles Terminal Acquisition. See Note 6 of
Condensed Notes to Consolidated Financial Statements for a description of the
Revolver.
Subordinated Credit Agreement
On March 2, 2015, we entered into our subordinated credit agreement with Valero
(the Loan Agreement) under which we borrowed $160.0 million to finance a portion
of the Houston and St. Charles Terminal Acquisition. See Note 6 of Condensed
Notes to Consolidated Financial Statements for a description of the Loan
Agreement.


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Cash Flows Summary
Components of our cash flows are set forth below (in thousands):
                                                        Three Months Ended
                                                            March 31,
                                                      2015             2014 

(a)

Cash flows provided by (used in):
Operating activities                            $       12,507      $     13,178
Investing activities                                  (301,087 )         (22,476 )
Financing activities                                    79,711            18,039
Net increase (decrease) in cash and cash
equivalents                                     $     (208,869 )    $      

8,741

(a) Prior period financial information has been retrospectively adjusted for the Acquisitions.



Operating Activities
Our operations generated $12.5 million in cash for the first three months of
2015 compared to $13.2 million for the first three months of 2014. The decline
in cash flows from operating activities was attributable primarily to an
increase in cash used for working capital, which was partially offset by an
increase in net income. Changes in cash provided by or used for working capital
during the first three months of 2015 and 2014 are shown in Note 11 of Condensed
Notes to Consolidated Financial Statements. The increase in net income is
discussed above under "RESULTS OF OPERATIONS."
Investing Activities
Cash used for investing activities for the first three months of 2015 was
primarily impacted by the Houston and St. Charles Terminal Acquisition effective
March 1, 2015. In connection with the Houston and St. Charles Terminal
Acquisition, we paid $571.2 million in cash to Valero, and of this amount
$296.1 million represented Valero's carrying value in the net assets transferred
to us, which was reflected as an investing activity. The remaining cash paid of
$275.1 million represented the excess purchase price paid over the carrying
value, which was reflected as a financing activity as described below. In
addition, we had capital expenditures of $5.0 million and $22.5 million during
the three months ended March 31, 2015 and 2014, respectively. See "Capital
Expenditures" below for a discussion of the various maintenance and expansion
projects.
Financing Activities
Cash provided by financing activities for the first three months of 2015
consisted primarily of the $200.0 million of borrowings under the Revolver and
$160.0 million of proceeds from the Loan Agreement in connection with the
Houston and St. Charles Terminal Acquisition. These cash inflows were offset by
the $275.1 million of excess purchase price paid over the carrying value for the
Houston and St. Charles Terminal Acquisition as described above under "Investing
Activities," and we paid $15.8 million in cash distributions to limited partners
and our general partner. Further, we reflected a net transfer from Valero of
$10.9 million related to the cash flows for the first two months of the year
associated with the assets acquired on March 1, 2015 in connection with the
Houston and St. Charles Terminal Acquisition.
For the first three months of 2014, our financing activities consisted primarily
of the payment of $3.2 million of offering costs related to our initial public
offering, $2.2 million of cash distributions to limited partners and our general
partner, and $1.1 million of debt issuance costs related to the Revolver. In
addition, we


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reflected a net transfer from Valero of $24.8 million related to the cash flows
for the first three months of the year associated with the assets acquired in
connection with the Acquisitions.
See Notes 3 and 11 of Condensed Notes to Consolidated Financial Statements for
additional information on the Acquisitions, including consideration paid and the
cash and noncash elements of the Acquisitions.
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):
                                                    Three Months Ended
                                                        March 31,
                                               2015                  2014 (a)
Maintenance                            $             3,360      $           3,778
Expansion                                            1,618                 18,698
Total capital expenditures             $             4,978      $          22,476

(a) Prior period financial information has been retrospectively adjusted for the Acquisitions.



Our capital expenditures for the first quarter of 2015 were primarily directed
toward the following activities:
•      the improvement of assets at the St. Charles terminal that will extend the

useful lives of the tanks;

• the expansion of the St. Charles and Houston terminals; and

• the enhancement of pipeline and terminal monitoring systems at our Memphis

products system.



Our capital expenditures for the first quarter of 2014 were primarily directed
toward the following activities:
•      the expansion and improvement of assets at the St. Charles and Houston

terminals;

• the enhancement of pipeline and terminal monitoring systems at our Memphis

products system; and

• the interconnection with TransCanada's Cushing Marketlink pipeline.



For the full year 2015, we expect our capital expenditures to be $12.5 million.
Our estimate consists of $7.0 million for maintenance capital expenditures and
$5.5 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 business acquisitions.
In addition to the above-mentioned capital expenditures, $4.5 million of capital
projects were funded by Valero related to the Houston and St. Charles Terminal
Services Business. Valero agreed to fund these projects


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as part of our acquisition of the Houston and St. Charles Terminal Services
Business. See Note 11 of Condensed Notes to Consolidated Financial Statements
for further description of the noncash activities.
Contractual Obligations
As of March 31, 2015, our contractual obligations included debt and capital
lease obligations, operating leases, purchase obligations, and other long-term
liabilities. In March 2015, we borrowed $200.0 million under the Revolver and
$160.0 million under the Loan Agreement with Valero in connection with the
Houston and St. Charles Terminal Acquisition. In addition, we entered into lease
and access agreements with Valero with respect to the land on which each
terminal is located. See Notes 3 and 6 of Condensed Notes to Consolidated
Financial Statements for a full description of the lease and access agreements
and the Revolver and Loan Agreement. There were no material changes outside the
ordinary course of business with respect to the contractual obligations during
the three months ended March 31, 2015.
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 December 31, 2014.
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 three months ended March 31, 2015.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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 March 31, 2015,
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, 2014 was
filed.


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