Leases

12 Months Ended

Dec. 31, 2022

We have both lessee and lessor arrangements. Our leases are evaluated at inception or at any subsequent modification. Depending on the terms, leases are classified as either operating or finance leases if we are the lessee, or as operating, sales-type or direct financing leases if we are the lessor, as appropriate under ASC 842, Leases. Our lessee arrangements primarily include a terminalling and storage contract where we have exclusive use of dedicated tankage, leased pipelines and office buildings. Our lessor arrangements include pipeline capacity and storage contracts and our condensate splitter tolling agreement that qualify as operating leases under ASC 842. In addition, we have a long-term throughput and deficiency agreement with a customer that is being accounted for as a sales-type lease under ASC 842.

In accordance with ASC 842, we have made an accounting policy election to not apply the standard to lessee arrangements with a term of one year or less and no purchase option that is reasonably certain of exercise. We will continue to account for these short-term arrangements by recognizing payments and expenses as incurred, without recording a lease liability and right-of-use asset.

We have also made an accounting policy election for both our lessee and lessor arrangements to combine lease and non-lease components. This election is applied to all of our lease arrangements as our non-lease components do not result in significant timing differences in the recognition of rental expenses or income.

Operating Leases – Lessee

We recognize a lease liability for each lease based on the present value of remaining minimum fixed rental payments (which includes payments under any renewal option that we are reasonably certain to exercise), using a discount rate that approximates the rate of interest we would have to pay to borrow on a collateralized basis over a similar term. We also recognize a right-of-use asset for each lease, valued at the lease liability, adjusted for prepaid or accrued rent balances existing at the time of initial recognition. The lease liability and right-of-use asset are reduced over the term of the lease as payments are made and the assets are used.

Related Party Operating Lease. We entered into a long-term terminalling and storage contract with Seabrook for exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast.

Minimum fixed rental payments are recognized on a straight-line basis over the life of the lease as costs and expenses in our consolidated statements of income. Variable and short-term rental payments are recognized as costs and expenses as they are incurred. Variable payments consist of amounts that exceed the contractual minimum rental payment (for example, payment increases tied to a change in a market index). Future minimum rental payments under operating leases with initial terms greater than one year as of December 31, 2022 are as follows (in millions):


	Third Party Leases		Seabrook Lease		All Leases
2023	$	21.6	$	9.9	$	31.5
2024	21.9		9.7		31.6
2025	22.0		6.6		28.6
2026	12.6		6.6		19.2
2027	9.4		6.6		16.0
Thereafter	24.7		11.0		35.7
Total future minimum rental payments	112.2		50.4		162.6
Present value discount	8.8		5.9		14.7
Total operating lease liability	$	103.4	$	44.5	$	147.9

The following tables provide a summary of the effect on our consolidated statements of income for the years ended December 31, 2020, 2021 and 2022 (in millions):


	Year Ended December 31, 2020
	Third Party Leases		Seabrook Lease		All Leases
Fixed lease expense	$	19.2	$	14.3	$	33.5
Short-term lease expense	1.3		—		1.3
Variable lease expense	4.1		14.8		18.9
Total lease expense	$	24.6	$	29.1	$	53.7


	Year Ended December 31, 2021
	Third Party Leases		Seabrook Lease		All Leases
Fixed lease expense	$	21.0	$	12.7	$	33.7
Short-term lease expense	1.7		—		1.7
Variable lease expense	3.4		6.8		10.2
Total lease expense	$	26.1	$	19.5	$	45.6


	Year Ended December 31, 2022
	Third Party Leases		Seabrook Lease		All Leases
Fixed lease expense	$	20.9	$	9.9	$	30.8
Short-term lease expense	2.0		—		2.0
Variable lease expense	1.9		7.6		9.5
Total lease expense	$	24.8	$	17.5	$	42.3

The following table provides a summary of the effect on our consolidated balance sheets as of December 31, 2021 and 2022 (dollars in millions):


	As of and for the Year Ended
	December 31, 2021									December 31, 2022
	Third Party Leases			Seabrook Lease			All Leases			Third Party Leases			Seabrook Lease			All Leases
Current lease liability	$	17.8		$	8.0		$	25.8		$	21.2		$	9.8		$	31.0
Long-term lease liability	$	102.8		$	44.5		$	147.3		$	82.1		$	34.8		$	116.9
Right-of-use asset	$	121.7		$	52.5		$	174.2		$	104.9		$	44.5		$	149.4

Operating cash flows for operating leases	$	26.2		$	19.5		$	45.7		$	25.2		$	17.5		$	42.7
Weighted average remaining lease term (years)	7			7			7			6			6			6
Weighted average discount rate	3.0		%	4.1		%	3.4		%	3.0		%	4.2		%	3.4		%

Operating Leases – Lessor

We recognize fixed rental income on a straight-line basis over the life of the lease as revenue in our consolidated statements of income. Variable rental payments are recognized as revenue in the period in which the circumstances on which the variable lease payments are based occur.

Future minimum payments receivable under operating leases with initial terms greater than one year as of December 31, 2022 are estimated as follows (in millions):


2023	$	35.3
2024	35.3
2025	23.9
2026	23.9
2027	23.0
Thereafter	54.4
Total	$	195.8

We recognized variable lease revenue of $61.4 million, $61.0 million and $66.2 million, respectively, for the years ended December 31, 2020, 2021 and 2022, primarily related to our condensate splitter.

At December 31, 2022, property, plant and equipment utilized by our customers in operating lease arrangements consisted of: $211.4 million of processing equipment; $64.6 million of storage tanks; $46.6 million of pipeline and station equipment; and $27.6 million of other assets. The processing equipment primarily relates to our condensate splitter.

Sales-Type Lease – Lessor

We entered into a long-term throughput and deficiency agreement with a customer on a pipeline and related assets that we constructed in Texas and New Mexico, which contains minimum volume commitments. Our customer has the option to purchase this pipeline and related assets at the end of the lease term for a nominal amount. This agreement is accounted for as a sales-type lease under ASC 842. The net investment under this arrangement as of December 31, 2021 and 2022 was as follows (in millions):


	December 31, 2021		December 31, 2022
Total minimum lease payments receivable	$	12.2	$	10.5
Less: Unearned income	1.8		1.3
Recorded net investment in sales-type lease	$	10.4	$	9.2

The net investment in this sales-type lease was classified in the consolidated balance sheets as follows (in millions):


	December 31, 2021		December 31, 2022
Other accounts receivable	$	1.3	$	1.4
Long-term receivables	9.1		7.8
Total	$	10.4	$	9.2

Future minimum payments receivable under this sales-type lease for the next five years are $1.7 million each year with $1.7 million due thereafter.