Sunoco 2014 Annual Report Download - page 92

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Credit Risk Management
The Partnership maintains credit policies with regard to its counterparties that management believes minimize the overall
credit risk through credit analysis, credit approvals, credit limits and monitoring procedures. The credit positions of the
Partnership's customers are analyzed prior to the extension of credit and periodically after credit has been extended. The
Partnership's counterparties consist primarily of financial institutions and major integrated oil companies. This concentration of
counterparties may impact the Partnership's overall exposure to credit risk, either positively or negatively, as the counterparties
may be similarly affected by changes in economic, regulatory or other conditions.
Interest Rate Risk Management
The Partnership has interest rate risk exposure for changes in interest rates related to its outstanding borrowings. The
Partnership manages its exposure to changes in interest rates through the use of a combination of fixed-rate and variable-rate
debt. At December 31, 2014, the Partnership had $185 million of consolidated variable-rate borrowings under its revolving
credit facilities.
16. Fair Value Measurements
The estimated fair value of the Partnership's financial instruments has been determined based on management's
assessment of available market information and appropriate valuation methodologies. The Partnership's current assets (other
than derivatives and inventories) and current liabilities (other than derivatives) are financial instruments and most of these
items are recorded at cost in the consolidated balance sheets. The estimated fair value of these financial instruments
approximates their carrying value due to their short-term nature. The Partnership's derivatives are measured and recorded at fair
value based on observable market prices. The estimated fair value of the Partnership's senior notes is determined using
observable market prices, as these notes are actively traded (level 1). The estimated aggregate fair value of the senior notes at
December 31, 2014 was $4.09 billion, compared to the carrying amount of $4.08 billion. The estimated aggregate fair value of
the senior notes at December 31, 2013 was $2.17 billion, compared to the carrying amount of $2.27 billion.
For further information regarding the Partnership's fair value measurements, see Notes 1, 2 and 15.
17. Concentration of Credit Risk
The Partnership's trade relationships are primarily with major integrated oil companies, independent oil companies and
other pipelines and wholesalers. These concentrations of customers may affect the Partnership's overall credit risk as the
customers may be similarly affected by changes in economic, regulatory or other factors. The Partnership maintains credit
policies with regard to its counterparties that management believes minimize the overall credit risk through credit analysis,
credit approvals, credit limits and monitoring procedures. The credit positions of the Partnership's customers are analyzed prior
to the extension of credit and periodically after it has been extended. For certain transactions, the Partnership may utilize letters
of credit, prepayments and guarantees.
In 2014 and 2013, approximately 17 and 15 percent of the Partnership's total revenues, respectively, were derived from
crude oil sales to an individual customer. While this concentration has the ability to negatively impact revenues going forward,
management does not anticipate a material adverse effect in the Partnership's financial position, results of operations or cash
flows as the absolute price levels for crude oil normally do not bear a relationship to gross profit. In addition, the customer is
subject to netting arrangements which allow the Partnership to offset payable activities and mitigate credit exposure.
18. Business Segment Information
The Partnership operates in 35 states throughout the United States and in four principal business segments: Crude Oil
Pipelines, Crude Oil Acquisition and Marketing, Terminal Facilities and Products Pipelines.
• The Crude Oil Pipelines segment transports crude oil principally in Oklahoma and Texas. The segment consists of
approximately 5,300 miles of crude oil trunk pipelines and approximately 500 miles of crude oil gathering lines that
supply the trunk pipelines. The pipelines receive fees for transporting crude oil to and from trading hubs, other
pipelines and refineries in the southwest and midwest United States. The segment also includes a joint venture interest
in a crude oil pipeline company in Texas, which is expected to be operational in 2015.
• The Crude Oil Acquisition and Marketing segment gathers, purchases, markets and sells crude oil principally in the
mid-continent United States. The segment consists of approximately 335 crude oil transport trucks and approximately
135 crude oil truck unloading facilities.