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Leases

6 Months Ended

Jun. 30, 2020

Lease Costs and Other Supplemental Information

Our total lease cost comprises costs that are included in our income statement, as well as costs capitalized as part of an item of property, plant, and equipment or inventory. Total lease cost by class of underlying asset was as follows (in millions):



	Pipelines, Terminals, and Tanks		Transportation					Feedstock Processing Equipment		Energy and Gases		Real Estate			Other		Total
	Pipelines, Terminals, and Tanks		Marine			Rail		Feedstock Processing Equipment		Energy and Gases		Real Estate			Other		Total
Three months ended June 30, 2020
Finance lease cost:
Amortization of right-of-use (ROU) assets	$	28	$	—		$	—	$	3	$	1	$	—		$	—	$	32
Interest on lease liabilities	25		—			—		1		—		—			—		26
Operating lease cost	42		37			15		4		2		6			1		107
Variable lease cost	17		15			—		—		—		1			—		33
Short-term lease cost	2		14			—		7		—		—			—		23
Sublease income	—		(2		)	—		—		—		—			—		(2		)
Total lease cost	$	114	$	64		$	15	$	15	$	3	$	7		$	1	$	219

Three months ended June 30, 2019
Finance lease cost:
Amortization of ROU assets	$	12	$	—		$	—	$	1	$	1	$	—		$	—	$	14
Interest on lease liabilities	12		—			—		1		1		—			—		14
Operating lease cost	47		34			13		5		2		10			2		113
Variable lease cost	15		7			—		—		—		—			—		22
Short-term lease cost	4		12			—		8		—		—			—		24
Sublease income	—		(15		)	—		—		—		(1		)	—		(16		)
Total lease cost	$	90	$	38		$	13	$	15	$	4	$	9		$	2	$	171



	Pipelines, Terminals, and Tanks		Transportation					Feedstock Processing Equipment		Energy and Gases		Real Estate			Other		Total
	Pipelines, Terminals, and Tanks		Marine			Rail		Feedstock Processing Equipment		Energy and Gases		Real Estate			Other		Total
Six months ended June 30, 2020
Finance lease cost:
Amortization of ROU assets	$	50	$	—		$	—	$	6	$	2	$	—		$	—	$	58
Interest on lease liabilities	46		—			—		1		1		—			—		48
Operating lease cost	84		76			30		8		4		12			2		216
Variable lease cost	33		33			1		1		—		1			—		69
Short-term lease cost	6		36			—		21		—		—			—		63
Sublease income	—		(8		)	—		—		—		—			—		(8		)
Total lease cost	$	219	$	137		$	31	$	37	$	7	$	13		$	2	$	446

Six months ended June 30, 2019
Finance lease cost:
Amortization of ROU assets	$	20	$	—		$	—	$	2	$	2	$	—		$	—	$	24
Interest on lease liabilities	22		—			—		1		2		—			—		25
Operating lease cost	94		68			24		12		4		14			2		218
Variable lease cost	33		17			—		—		—		—			—		50
Short-term lease cost	7		26			—		14		—		—			—		47
Sublease income	—		(16		)	—		—		—		(2		)	—		(18		)
Total lease cost	$	176	$	95		$	24	$	29	$	8	$	12		$	2	$	346

The following table presents additional information related to our operating and finance leases (in millions, except for lease terms and discount rates):



	June 30, 2020						December 31, 2019
	Operating Leases			Finance Leases			Operating Leases			Finance Leases
Supplemental balance sheet information
ROU assets, net reflected in the following balance sheet line items:
Property, plant, and equipment, net	$	—		$	2,225		$	—		$	790
Deferred charges and other assets, net	1,273			—			1,329			—
Total ROU assets, net	$	1,273		$	2,225		$	1,329		$	790

Current lease liabilities reflected in the following balance sheet line items:
Current portion of debt and finance lease obligations	$	—		$	71		$	—		$	41
Accrued expenses	325			—			331			—
Noncurrent lease liabilities reflected in the following balance sheet line items:
Debt and finance lease obligations, less current portion	—			2,177			—			750
Other long-term liabilities	920			—			959			—
Total lease liabilities	$	1,245		$	2,248		$	1,290		$	791

Other supplemental information
Weighted-average remaining lease term	7.5 years			22.4 years			7.7 years			19.7 years
Weighted-average discount rate	4.7		%	4.3		%	4.9		%	5.2		%

Supplemental cash flow information related to our operating and finance leases is presented in Note 13.

Significant Lease Commencement

We have a 50 percent membership interest in MVP Terminalling, LLC (MVP), an unconsolidated joint venture formed in September 2017 with a subsidiary of Magellan Midstream Partners LP, to construct, own, and operate the Magellan Valero Pasadena marine terminal (MVP Terminal) located adjacent to the Houston Ship Channel in Pasadena, Texas. Concurrent with the formation of MVP, we entered into a terminaling agreement with MVP to utilize the MVP Terminal upon completion of the initial two phases of construction, which occurred in the first quarter of 2020. During the six months ended June 30, 2020, we recognized a finance lease ROU asset and related liability of approximately $1.4 billion in connection with this agreement. The terminaling agreement has an initial term of 12 years with two five-year automatic renewals, and year-to-year renewals thereafter.

Maturity Analysis

The remaining minimum lease payments due under our long-term leases were as follows (in millions):



	June 30, 2020				December 31, 2019
	Operating Leases		Finance Leases		Operating Leases		Finance Leases
2020 (a)	$	207	$	85	$	376	$	88
2021	287		171		250		86
2022	214		173		194		87
2023	179		178		160		91
2024	142		170		125		82
Thereafter	510		2,922		498		1,011
Total undiscounted lease payments	1,539		3,699		1,603		1,445
Less: Amount associated with discounting	294		1,451		313		654
Total lease liabilities	$	1,245	$	2,248	$	1,290	$	791

____________________

(a)

The amounts as of June 30, 2020 are for the remaining six months of 2020.

LEASES