Energy Transfer 2015 Annual Report Download - page 114

Table of Contents
Impairment of Long-Lived Assets and Goodwill Long-lived assets are required to be tested for recoverability whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. Goodwill and intangibles with indefinite lives must be tested for impairment annually
or more frequently if events or changes in circumstances indicate that the related asset might be impaired. An impairment loss should be recognized only if
the carrying amount of the asset/goodwill is not recoverable and exceeds its fair value.
In order to test for recoverability when performing a quantitative impairment test, we must make estimates of projected cash flows related to the asset, which
include, but are not limited to, assumptions about the use or disposition of the asset, estimated remaining life of the asset, and future expenditures necessary
to maintain the asset’s existing service potential. In order to determine fair value, we make certain estimates and assumptions, including, among other things,
changes in general economic conditions in regions in which our markets are located, the availability and prices of natural gas, our ability to negotiate
favorable sales agreements, the risks that natural gas exploration and production activities will not occur or be successful, our dependence on certain
significant customers and producers of natural gas, and competition from other companies, including major energy producers. While we believe we have
made reasonable assumptions to calculate the fair value, if future results are not consistent with our estimates, we could be exposed to future impairment
losses that could be material to our results of operations.
Property, Plant and Equipment Expenditures for maintenance and repairs that do not add capacity or extend the useful life are expensed as incurred.
Expenditures to refurbish assets that either extend the useful lives of the asset or prevent environmental contamination are capitalized and depreciated over
the remaining useful life of the asset. Additionally, we capitalize certain costs directly related to the construction of assets including internal labor costs,
interest and engineering costs. Upon disposition or retirement of pipeline components or natural gas plant components, any gain or loss is recorded to
accumulated depreciation. When entire pipeline systems, gas plants or other property and equipment are retired or sold, any gain or loss is included in the
consolidated statement of operations. Depreciation of property, plant and equipment is provided using the straight-line method based on their estimated
useful lives ranging from 1 to 99 years. Changes in the estimated useful lives of the assets could have a material effect on our results of operation. We do not
anticipate future changes in the estimated useful lives of our property, plant and equipment.
Asset Retirement Obligations. We have determined that we are obligated by contractual or regulatory requirements to remove facilities or perform other
remediation upon retirement of certain assets. The fair value of any ARO is determined based on estimates and assumptions related to retirement costs, which
the Partnership bases on historical retirement costs, future inflation rates and credit-adjusted risk-free interest rates. These fair value assessments are
considered to be level 3 measurements, as they are based on both observable and unobservable inputs. Changes in the liability are recorded for the passage of
time (accretion) or for revisions to cash flows originally estimated to settle the ARO.
An ARO is required to be recorded when a legal obligation to retire an asset exists and such obligation can be reasonably estimated. We will record an asset
retirement obligation in the periods in which management can reasonably estimate the settlement dates.
Except for certain amounts recorded by Panhandle, Sunoco Logistics and our retail marketing operations, discussed below, management was not able to
reasonably measure the fair value of asset retirement obligations as of December 31, 2015 and 2014, in most cases because the settlement dates were
indeterminable. Although a number of other onshore assets in Panhandle’s system are subject to agreements or regulations that give rise to an ARO upon
Panhandle’s discontinued use of these assets, AROs were not recorded because these assets have an indeterminate removal or abandonment date given the
expected continued use of the assets with proper maintenance or replacement. Sunoco, Inc. has legal asset retirement obligations for several other assets at its
refineries, pipelines and terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the retirement obligations for
these assets cannot be measured at this time. At the end of the useful life of these underlying assets, Sunoco, Inc. is legally or contractually required to
abandon in place or remove the asset. Sunoco Logistics believes it may have additional asset retirement obligations related to its pipeline assets and storage
tanks, for which it is not possible to estimate whether or when the retirement obligations will be settled. Consequently, these retirement obligations cannot be
measured at this time.
Individual component assets have been and will continue to be replaced, but the pipeline and the natural gas gathering and processing systems will continue
in operation as long as supply and demand for natural gas exists. Based on the widespread use of natural gas in industrial and power generation activities,
management expects supply and demand to exist for the foreseeable future. We have in place a rigorous repair and maintenance program that keeps the
pipelines and the natural gas gathering and processing systems in good working order. Therefore, although some of the individual assets may be replaced, the
pipelines and the natural gas gathering and processing systems themselves will remain intact indefinitely
Long-lived assets related to AROs aggregated $18 million and were reflected as property, plant and equipment on our balance sheet as of December 31, 2015
and 2014. In addition, the Partnership had $6 million legally restricted for the purpose of settling AROs that was reflected as other non-current assets as of
December 31, 2015.
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