|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018|
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition to the effects of recently enacted tax reforms, our valuation estimate for the Liquidity Option at December 31, 2017 is based on several inputs that are not readily observable in the market (i.e., Level 3 inputs) such as the following:
Furthermore, our valuation estimate incorporates probability-weighted scenarios reflecting the likelihood that M&B may elect to divest a portion of the Enterprise common units held by OTA prior to exercise of the option. At December 31, 2017, based on these scenarios, we expect that OTA would own approximately 89% of the 54,807,352 Enterprise common units it received in Step 1 when the option period begins in February 2020. If our valuation estimate at December 31, 2017 had assumed that OTA owned all of the Enterprise common units it received in Step 1 at the time of exercise (and all other inputs remained the same), the estimated fair value of the Liquidity Option liability would have increased by $40.2 million.
At December 31, 2017, Centennial’s debt obligations consisted of $50.0 million borrowed under a master shelf loan agreement. Borrowings under the master shelf agreement mature in May 2024 and are collateralized by substantially all of Centennial’s assets and severally guaranteed 50% by us and 50% by our joint venture partner in Centennial. If Centennial were to default on its debt obligations, we and our joint venture partner would each be required to make an approximate $25.0 million payment to Centennial’s lenders in connection with the guarantee agreements (based on Centennial’s debt principal outstanding at December 31, 2017). We recognized a liability of $3.7 million for our share of the Centennial debt guaranty at December 31, 2017.
In lieu of Centennial procuring insurance to satisfy third party claims arising from a catastrophic event, we and Centennial’s other joint venture partner have entered a limited cash call agreement. We are obligated to contribute up to a maximum of $50.0 million in the event of a catastrophic event. At December 31, 2017, we have a recorded liability of $1.6 million representing the estimated fair value of our cash call guaranty. Our cash contributions to Centennial under the agreement may be covered by our other insurance policies depending on the nature of the catastrophic event.
Nature of Operations
We operate predominantly in the midstream energy industry, which includes gathering, transporting, processing, fractionating and storing natural gas, NGLs, crude oil, petrochemical and refined products. As such, changes in the prices of hydrocarbon products and in the relative price levels among hydrocarbon products could have a material adverse effect on our financial position, results of operations and cash flows. Changes in prices may impact demand for hydrocarbon products, which in turn may impact production, demand and the volumes of products for which we provide services. In addition, decreases in demand may be caused by other factors, including prevailing economic conditions, reduced demand by consumers for the end products made with hydrocarbon products, increased competition, adverse weather conditions and government regulations affecting prices and production levels.