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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑-Q

(Mark One)

þ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31~~June 30, 2019

o☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______________to __________

Commission File Number 1‑001-35143

ANDEAVOR LOGISTICS LP

(Exact name of registrant as specified in its charter)

Delaware		27‑-4151603
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
200 East Hardin Street, Findlay, Ohio 45840
(Address of principal executive offices) (Zip Code)
419-421-2414
(Registrant’s telephone number, including area code)

200 East Hardin Street, Findlay, OH 45840

(Address of principal executive offices) (Zip Code)

419-421-2414

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Units Representing Limited Partnership Interests	-	NONE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large ~~accelerated~~Accelerated ~~filer~~Filer þ☑ Accelerated ~~filer~~Filer o☐ Non-~~accelerated~~Accelerated ~~filer~~Filer o☐ Smaller ~~reporting~~Reporting ~~company~~Company o☐ Emerging ~~growth~~Growth ~~company~~Company o☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐ No þ☑

~~Securities~~There ~~registered~~is ~~pursuant~~no topublic ~~Section~~market ~~12(b)~~for the registrant’s common units. All of the ~~Act:~~registrant’s common units are owned by MPLX LP.

Title of Each Class Trading Symbol Name of Each Exchange on Which Registered Common Units Representing Limited Partnership Interests ANDX New York Stock Exchange

There were 245,630,444 common units of the registrant outstanding at May 3, 2019.



Table of Contents

Andeavor Logistics LP

Quarterly Report on Form 10-Q

For the Quarterly Period Ended ~~March~~June 3130, 2019

Part I - Financial Information
3	Item 1. Financial Statements (Unaudited)
	3	Condensed Statements of Consolidated Operations
	4	Condensed Consolidated Balance Sheets
	5	Condensed Statements of Consolidated Cash Flows
	6	Notes to Condensed Consolidated Financial Statements
		6	Note 1 - Organization and Basis of Presentation
		8	Note 2 - Acquisitions
		9	Note 3 - Related-Party Transactions
		11	Note 4 - Leases
		10	Note 4 - Leases
		13	Note 5 - Debt
		13	Note 6 - Commitments and Contingencies
		13	Note 7 - Equity and Net Earnings per Unit
		16	Note 8 - Supplemental Cash Flow Information
		16	Note 9 - Revenues
		17	Note 10 - Operating Segments
		19	Note 11 - Subsequent Event
20	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	21	Business Strategy and Overview
	20	Recent Developments
	22	Results of Operations
	20	Business Overview
	21	Results of Operations
		26	Terminalling and Transportation Segment
		28	Gathering and Processing Segment
		29	Gathering and Processing Segment
		30	Wholesale Segment
		33	Wholesale Segment
	31	Capital Resources and Liquidity
	35	Capital Resources and Liquidity
	33	Non-GAAP Reconciliations
	37	Non-GAAP Reconciliations
	36	Important Information Regarding Forward-Looking Statements
	40	Important Information Regarding Forward-Looking Statements
37	Item 3. Quantitative and Qualitative Disclosures about Market Risk
41	Item 3. Quantitative and Qualitative Disclosures about Market Risk
37	Item 4. Controls and Procedures
41	Item 4. Controls and Procedures

Part II - Other Information
38	Item 1. Legal Proceedings
42	Item 1. Legal Proceedings
38	Item 1A. Risk Factors
42	Item 1A. Risk Factors
38	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
42	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
39	Item 6. Exhibits
43	Item 6. Exhibits
41	Signatures
44	Signatures

This Quarterly Report on Form 10-Q (including documents incorporated by reference herein) contains statements with respect to our expectations or beliefs as to future events. These types of statements are “forward-looking” and subject to uncertainties. See “Important Information Regarding Forward-Looking Statements” in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2.



2 \|



		Financial Statements

Part I - Financial Information

Item 1. Financial Statements

Andeavor Logistics LP

Condensed Statements of Consolidated Operations

(Unaudited)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
	(In millions, except per unit amounts)
Revenues:
Affiliate	$	~~444~~424		$	~~327~~389		$	868		$	716
Third-party	~~186~~177			~~219~~180			363			399
Total Revenues	~~630~~601			~~546~~569			1,231			1,115
Costs and Expenses:
NGL expense (excluding items shown separately below)	5933			4845			92			93
Operating expenses (excluding depreciation and amortization)	~~239~~237			~~201~~221			476			422
Depreciation and amortization expenses	~~101~~104			8993			205			182
General and administrative expenses	2018			3129			38			60
Operating Income	211			177
Loss on asset disposals and impairments	2			1			2			1
Interest and financing costs, net	(61		)	(55		)
Operating Income	207			180			418			357
Equity in earnings of equity method investments	7			8
Interest and financing costs, net	(63		)	(60		)	(124		)	(115		)
Other income, net	—			1
Equity in earnings of equity method investments	9			10			16			18
Net Earnings	$	157		$	131
Other income, net	7			2			7			3
Loss attributable to Predecessors	$	—		$	8
Net Earnings	$	160		$	132		$	317		$	263
Net Earnings Attributable to Partners	157			139
Loss attributable to Predecessors	$	—		$	16		$	—		$	24
Preferred unitholders’ interest in net earnings	(10		)	(14		)
Net Earnings Attributable to Partners	160			148			317			287
Limited Partners’ Interest in Net Earnings	$	147		$	125
Preferred unitholders’ interest in net earnings	(10		)	(10		)	(20		)	(24		)
Net earnings per limited partner unit:
Limited Partners’ Interest in Net Earnings	$	150		$	138		$	297		$	263
Common - basic	$	0.60		$	0.59
Net earnings per limited partner unit:
Common - diluted	$	0.60		$	0.59
Common - basic	$	0.65		$	0.63		$	1.29		$	1.23
Weighted average limited partner units outstanding:
Common - diluted	$	0.65		$	0.63		$	1.29		$	1.23
Common units - basic	245.5			217.2
Weighted average limited partner units outstanding:
Common units - diluted	245.7			217.4
Common units - basic	245.6			217.2			245.6			217.2
Common units - diluted	245.7			217.3			245.7			217.3


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~March~~June 3130, 2019 | 3



Financial Statements

Andeavor Logistics LP

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31, 2019			December 31, 2018
	June 30, 2019			December 31, 2018
	(In millions, except unit amounts)
Assets
Current Assets
Cash and cash equivalents	$	2925		$	10
Receivables, net of allowance for doubtful accounts
Trade and other	~~252~~202			195
Affiliate	~~309~~323			279
Prepayments and other current assets	5865			79
Total Current Assets	~~648~~615			563
Property, Plant and Equipment, Net
Property, plant and equipment, at cost	8,~~267~~409			8,145
Accumulated depreciation	(1,~~385~~480		)	(1,300		)
Property, Plant and Equipment, Net	6,~~882~~929			6,845
Acquired Intangibles, Net	1,~~091~~079			1,104
Goodwill	1,051			1,051
Equity Method Investments	~~602~~605			602
Other Noncurrent Assets, Net	~~260~~271			130
Total Assets	$	10,~~534~~550		$	10,295
Liabilities and Equity
Current Liabilities
Accounts payable
Trade and other	$	~~208~~196		$	214
Affiliate	~~274~~277			252
Accrued interest and financing costs	6941			41
Current maturities of debt	503			504
Other current liabilities	9193			81
Total Current Liabilities	1,~~145~~110			1,092
Debt, Net of Unamortized Issuance Costs	4,~~622~~720			4,460
Other Noncurrent Liabilities	~~177~~186			69
Total Liabilities	56,~~944~~016			5,621
Commitments and Contingencies (Note 6)
Equity
Preferred unitholders; 600,000 units issued and outstanding in 2019 and 2018	~~593~~603			604
Common unitholders; 245,562,963 units issued and outstanding (245,493,184 in 2018)	3,997			4,070
Common unitholders; 245,630,444 units issued and outstanding (245,493,184 in 2018)	3,931			4,070
Total Equity	4,~~590~~534			4,674
Total Liabilities and Equity	$	10,~~534~~550		$	10,295

The accompanying notes are an integral part of these condensed consolidated financial statements.



4 \|



		Financial Statements

Andeavor Logistics LP

Condensed Statements of Consolidated Cash Flows

(Unaudited)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2019			2018 (a)
	(In millions)
Cash Flows From (Used In) Operating Activities:
Net earnings	$	~~157~~317		$	~~131~~263
Adjustments to reconcile net earnings to net cash from operating activities:
Depreciation and amortization expenses	~~101~~205			89182
Other operating activities	4			8
Loss on asset disposals and impairments	2			1
Changes in current assets and liabilities	(18		)	58
Other operating activities	18			12
Changes in noncurrent assets and liabilities	(25		)	(20		)
Changes in current assets and liabilities	(45		)	100
Net cash from operating activities	219			266
Changes in noncurrent assets and liabilities	(14		)	(11		)
Cash Flows From (Used In) Investing Activities:
Net cash from operating activities	483			547
Capital expenditures	(119		)	(155		)
Cash Flows Used In Investing Activities:
Acquisitions, net of cash	—			(159		)
Capital expenditures	(252		)	(370		)
Deposits for acquisitions	—			(10		)
Acquisitions, net of cash	—			(378		)
Net cash used in investing activities	(119		)	(324		)
Contributions to equity method investments	(13		)	—
Net cash used in investing activities	(265		)	(748		)
Cash Flows From (Used In) Financing Activities:
Borrowings under revolving credit agreements	1,~~133~~631			~~150~~520
Repayments under revolving credit agreements	(~~974~~1,376		)	(~~130~~278		)
Distributions to common unitholders	(~~238~~480		)	(~~205~~411		)
Distributions to preferred unitholders	(21		)	(8		)
Sponsor contributions of equity to the Predecessors	—			~~197~~336
Capital contributions by affiliate	2045			914
Other financing activities	(12		)	(3		)
Net cash (used in) from financing activities	(81203		)	10170
Increase (Decrease) in Cash and Cash Equivalents	1915			(4831		)
Cash and Cash Equivalents, Beginning of Period	10			75
Cash and Cash Equivalents, End of Period	$	2925		$	2744

(a) Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~March~~June 3130, 2019 | 5



Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 - Organization and Basis of Presentation

Organization

Andeavor Logistics LP (“Andeavor Logistics”) is a fee-based, full-service, diversified Delaware limited partnership formed in December 2010 by Andeavor and its wholly-owned subsidiary, Tesoro Logistics GP, LLC (“TLGP”), ~~our general partner,~~ to own, operate, develop and acquire logistics and related assets and businesses. TLGP served as our general partner until the closing of the MPLX Merger on July 30, 2019, as described below. Effective upon the closing of the MPLX Merger, our general partner is Andeavor Logistics GP LLC (“ALGP”), a wholly-owned subsidiary of MPLX LP (“MPLX”). Unless the context otherwise requires, references in this report to our general partner refer to TLGP for all activity through the closing of the MPLX Merger and to ALGP for all activity thereafter. Unless the context otherwise requires, references in this report to “we,” “us,” “our,” or “ours” refer to Andeavor Logistics, one or more of its consolidated subsidiaries or all of them taken as a whole. Unless the context otherwise requires, references in this report to “Andeavor” or our “Sponsor” refer collectively to Andeavor for all activity through September 30, 2018, or Andeavor LLC, successor-by-merger to Andeavor effective October 1, 2018 and a wholly owned subsidiary of Marathon Petroleum Corporation, and any of Andeavor’s or Andeavor LLC’s subsidiaries, as applicable, other than Andeavor Logistics, its subsidiaries and its general partner. References in this report to “Marathon” or “MPC” refer to Marathon Petroleum Corporation, one or more of its consolidated subsidiaries, including Andeavor LLC, or all of them taken as a whole.

~~Marathon~~MPLX ~~Petroleum~~LP ~~Corporation~~ Merger

OnAs ~~October~~previously 1disclosed, ~~2018~~on May 7, ~~MPC~~2019, ~~completed~~Andeavor ~~its~~Logistics, ~~acquisition~~TLGP, MPLX, MPLX GP LLC, and MPLX MAX LLC, a wholly-owned subsidiary of ~~Andeavor~~MPLX (~~the~~ “~~MPC~~ Merger Sub”), inentered ~~accordance~~into ~~with~~an ~~the~~ Agreement and Plan of Merger, ~~dated~~(the as“Merger ofAgreement”) ~~April~~that 29provided for, ~~2018~~among other things, asthe ~~amended~~merger of Merger Sub with and into Andeavor Logistics (the “MPLX Merger”). ~~Following~~On July 30, 2019, the ~~MPC~~MPLX Merger was completed, ~~MPC~~and isAndeavor Logistics survived the ~~beneficial~~MPLX ~~owner~~Merger as a wholly-owned subsidiary of ~~156~~MPLX. ~~million~~At ~~common~~the ~~units~~effective ~~out~~time of ~~245~~the ~~million~~MPLX Merger, each common ~~units~~unit ~~outstanding~~held asby ofour ~~October~~public 1,unitholders ~~2018,~~was ~~representing~~converted ainto ~~64%~~the right to receive 1.135 common units representing limited partner ~~interest~~interests in MPLX (“MPLX Common Units”). ~~MPC~~Andeavor isLogistics ~~also~~common ~~the~~units ~~beneficial~~held ~~owner~~by ofTLGP ~~100%~~and ofWestern Refining Southwest, Inc. (“WR Southwest”) were converted into the ~~equity~~right ~~interests~~to ofreceive ~~TLGP~~1.0328 MPLX Common Units.

In connection with the completion of the MPLX Merger, we notified the New York Stock Exchange (“NYSE”) that each of our outstanding common units was converted into the right to receive MPLX Common Units in an amount determined by reference to the applicable exchange ratio. Upon our request, the NYSE filed a notification of removal from listing on Form 25 with the Securities and Exchange Commission (the “SEC”) with respect to our common units. Our common units ceased being traded prior to the opening of the market on July 30, 2019, and will no longer be listed on the NYSE. We continue to file with the SEC current and period reports that would be required by be filed with the SEC pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

MPC Merger

On October 1, 2018, MPC completed its acquisition of Andeavor (the “MPC Merger”) in accordance with the Agreement and Plan of Merger, dated as of April 29, 2018, as amended. Following the MPC Merger, MPC became the beneficial owner of 156 million common units out of 245 million common units outstanding as of October 1, 2018, which represented a 64% limited partner interest. MPC also acquired 100% of the equity interests of our general partner.

Principles of Consolidation and Basis of Presentation

Principles of Consolidation

Assets acquired from our Sponsor, and the associated liabilities and results of operations, are collectively referred to as the “Predecessors.” See Note 1 of our Annual Report on Form 10-K for the year ended December 31, 2018 and Note 2 for additional information regarding the assets acquired from our Sponsor.

Transfers of businesses between entities under common control are accounted for as if the transfer occurred at the beginning of the period, and prior periods are retrospectively adjusted to furnish comparative information. On August 6, 2018, we acquired assets from our Sponsor (the “2018 Drop Down”). See Note 2 for additional information. As an entity under common control with our Sponsor, we record the assets that we acquire from our Sponsor on our condensed consolidated balance sheet at our Sponsor’s historical basis instead of fair value. Accordingly, the accompanying financial statements and related notes of Andeavor Logistics have been retrospectively adjusted to include the historical results of the assets acquired prior to the effective date of the acquisition.

The financial statements of our Predecessors have been prepared from the separate records maintained by our Sponsor and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors had been operated as an unaffiliated entity. For the ~~three~~six months ended ~~March~~June 3130, 2018, our condensed statement of cash flows includes net cash from operating activities ~~includes~~of $3686 million and net cash used in investing activities of $~~233~~422 million from our Predecessors, offset by sponsor contributions of equity to the Predecessors in net cash from financing activities.

~~The~~6 interim condensed consolidated financial statements and notes thereto have been prepared by management without audit according to the rules and regulations of the Securities and Exchange Commission (“SEC”) and reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.|



Notes to Condensed Consolidated Financial Statements (Unaudited)

The interim condensed consolidated financial statements and notes thereto have been prepared by management without audit according to the rules and regulations of the SEC and reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of results for the periods presented. Such adjustments are of a normal recurring nature, unless otherwise disclosed.

Basis of Presentation

We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). However, certain information and notes normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to the SEC’s rules and regulations. Management believes that the disclosures presented herein are adequate to present the information fairly. The accompanying interim condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Certain prior year balances have been aggregated or disaggregated in order to conform to the current year presentation.

We are required under U.S. GAAP to make estimates and assumptions that affect the amounts of assets and liabilities and revenues and expenses reported as of and during the periods presented. We review our estimates on an ongoing basis using currently available information. Changes in facts and circumstances may result in revised estimates, and actual results could differ from those estimates. Our results of operations for any interim period are not necessarily indicative of results for the full year.

6 |

Notes to Condensed Consolidated Financial Statements (Unaudited)

Cost Classifications

Natural gas liquids (“NGL”) expense results from the cost of NGL purchases under our percent of proceeds (“POP”) arrangements as well as the non-cash acquisition of replacement dry gas under our keep-whole arrangements.

Operating expenses are comprised of direct operating costs, including costs incurred for direct labor, repairs and maintenance, outside services, chemicals and catalysts, utility costs, including the purchase of electricity and natural gas used by our facilities, property taxes, environmental compliance costs related to current period operations, rent expense and other direct operating expenses incurred in the provision of services.

Depreciation and amortization expenses consist of the depreciation and amortization of property, plant and equipment, deferred charges and intangible assets related to our operating segments along with our corporate operations. General and administrative expenses represent costs that are not directly or indirectly related to or otherwise are not allocated to our operations. NGL expense, direct operating expenses, and depreciation and amortization expenses recognized by our Terminalling and Transportation, Gathering and Processing, and Wholesale segments (refer to amounts disclosed in Note 10) constitute costs of revenue as defined by U.S. GAAP.

Financial Instruments

The fair value of our senior notes is based on prices from recent trade activity and is categorized in level 2 of the fair value hierarchy. The borrowings under our amended revolving credit facility (the “Revolving Credit Facility”), our dropdown credit facility (“Dropdown Credit Facility”) and our loan agreement with MPC (the “MPC Loan Agreement”), which include a variable interest rate, approximate fair value. The carrying value and fair value of our debt were ~~both~~ $5.23 billion and $5.4 billion as of ~~March~~June 3130, 2019, respectively, and were $5.0 billion and $4.9 billion at December 31, 2018, respectively. These carrying and fair values of our debt exclude unamortized issuance costs, which are netted against our total debt.

We believe the carrying value of our other financial instruments, including cash and cash equivalents, receivables, accounts payable and certain accrued liabilities, approximate fair value. Our fair value assessment incorporates a variety of considerations, including the short-term duration of the instruments and the expected future insignificance of bad debt expense, which includes an evaluation of counterparty credit risk.

New Accounting Standards and Disclosures

Leases

We adopted ~~ASU~~Accounting ~~No.~~Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASC 842”), as of January 1, 2019, using the optional transition method. The optional transition method permits entities to adopt the provisions of ~~ASU~~ASC ~~2016-02~~842 prospectively without adjusting comparative periods, which we have elected. As part of the adoption of ASC 842, we elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to grandfather the historical accounting conclusions until a reassessment event is present. We have also elected the practical expedient to not recognize short-term leases on the balance sheet, and the practical expedient related to right of way permits and land easements, allowing us to carry forward our accounting treatment for those existing agreements. Further, we have elected the practical expedient to not separate lease and non-lease components for the majority of our underlying classes of assets except for our third-party contractor service and equipment agreements in which we are the lessee. We did not elect the practical expedient to combine lease and non-lease components for arrangements in which we are the lessor. In instances where the practical expedient was not elected, lease and non-lease consideration is allocated based on relative standalone selling price.



		June 30, 2019 \| 7



Notes to Condensed Consolidated Financial Statements (Unaudited)

Right of use assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and convey the right to control during the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right of use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Payments that are not fixed at the commencement date are considered variable and are excluded from the right of use asset and lease liability calculated. We recognized right of use assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year. In the measurement of our right of use assets and lease liabilities, the fixed minimum lease payments in the agreement are discounted using a secured incremental borrowing rate provided by our financial service providers, as most of our leases do not provide an implicit rate, for a term similar to the duration of the lease. Operating lease expense is recognized on a straight-line basis over the lease term.

Adoption of the new standard resulted in the recording of additional right of use lease assets and lease liabilities of $131 million and $133 million, respectively, as of January 1, 2019, as further described in Note 4. The standard did not materially impact our condensed statements of consolidated operations or condensed statements of consolidated cash flows.

As a lessor under ASC 842, we may be required to re-classify existing contracts or operating leases to sales-type leases upon modification and reassessment of the contract. If such a modification were to occur, it may result in the de-recognition of existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by us under the contract, and recognition of a corresponding gain or loss in the period of change. We will evaluate the impact of a reassessment as modifications occur.

March 31, 2019 | 7

Notes to Condensed Consolidated Financial Statements (Unaudited)

Stock Compensation

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”, which expanded the scope of Topic 718 to include share-based payment awards to nonemployees and eliminated the classification differences for employee and nonemployee share-based payment awards. This guidance was effective for interim and annual periods beginning after December 15, 2018. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends guidance on the impairment of financial instruments. The ASU requires the estimation of credit losses based on expected losses and provides for a simplified accounting model for purchased financial assets with credit deterioration. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” that clarifies the scope of ASU 2016-13. isIn May 2019, the FASB issued ASU 2019-05, “Financial Instruments - Credit Losses (Topic 326) Targeted Transition Relief” to allow companies to irrevocably elect the fair value option on financial instruments that were previously recorded at amortized cost for eligible instruments. These ASUs are effective for annual reporting periods beginning after December 15, 2019, and interim reporting periods within those annual reporting periods. Early adoption is permitted for annual reporting periods beginning after December 15, 2018. While we are still evaluating the impact of ASU 2016-13, we do not expect to early adopt ASU 2016-13 nor expect the adoption of this standard to have a material impact on our consolidated financial statements.

Note 2 - Acquisitions

2018 Drop Down

On August 6, 2018, we completed the 2018 Drop Down for total consideration of $1.55 billion. These assets include gathering, storage and transportation assets in the Permian Basin; legacy Western Refining, Inc. assets and associated crude terminals; the majority of Andeavor’s remaining refining terminalling, transportation and storage assets; and equity method investments in Andeavor Logistics Rio Pipeline LLC (“ALRP”), Minnesota Pipe Line Company, LLC, and PNAC, LLC (“PNAC”). In addition, the Conan Crude Oil Gathering System and the Los Angeles Refinery Interconnect Pipeline (“LARIP”) were transferred at cost plus incurred interest. ~~In conjunction with the 2018 Drop Down, we entered into additional commercial agreements with our Sponsor. See Note 3 for further information regarding these agreements.~~

SLC Core Pipeline System

On May 1, 2018, we completed our acquisition of the SLC Core Pipeline System from Plains All American Pipeline, L.P. for total consideration of $180 million. The system consists of pipelines that transport crude oil to another third-party pipeline system that supplies Salt Lake City area refineries, including Marathon’s Salt Lake City refinery. We financed the acquisition using our Revolving Credit Facility. This acquisition is not material to our condensed consolidated financial statements and its operating results are reported in our Terminalling and Transportation segment.



8 \|



Notes to Condensed Consolidated Financial Statements (Unaudited)

Combined Consolidated Financial Information

As discussed further in Note 1, we refer to the historical results of the assets acquired from our Sponsor in the 2018 Drop Down (prior to August 6, 2018) as our “~~Predecessor~~Predecessors.” The following table presents our results of operations disaggregated to present results relating to us and the Predecessors for the assets acquired from our Sponsor and the total amounts included in our combined financial statements for the three and six months ended ~~March~~June 3130, 2018.

Reconciliation of Combined Financial Statements (in millions)

	Three Months Ended March 31, 2018
	Three Months Ended June 30, 2018									Six Months Ended June 30, 2018
	Combined			Andeavor Logistics LP			Predecessors			Combined			Andeavor Logistics			Predecessors
Revenues
Affiliate	$	~~327~~389		$	~~318~~381		$	98		$	716		$	699		$	17
Third-party	~~219~~180			~~217~~176			24			399			393			6
Total Revenues	~~546~~569			~~535~~557			1112			1,115			1,092			23
Costs and Expenses
NGL expense (exclusive of items shown separately below)	4845			4845			—			93			93			—
Operating expenses (exclusive of depreciation and amortization)	~~201~~221			~~190~~201			1120			422			391			31
Depreciation and amortization expenses	8993			8083			910			182			163			19
General and administrative expenses	3129			2725			4			60			52			8
Operating Income (Loss)	177			190			(13		)
Loss on asset disposals and impairments	1			1			—			1			1			—
Interest and financing costs, net	(55		)	(54		)	(1		)
Operating Income (Loss)	180			202			(22		)	357			392			(35		)
Equity in earnings of equity method investments	8			2			6
Interest and financing costs, net	(60		)	(58		)	(2		)	(115		)	(112		)	(3		)
Other income, net	1			1			—
Equity in earnings of equity method investments	10			3			7			18			5			13
Net Earnings (Loss)	$	131		$	139		$	(8	)
Other income, net	2			1			1			3			2			1
Loss attributable to Predecessors	8			—			8
Net Earnings (Loss)	$	132		$	148		$	(16	)	$	263		$	287		$	(24	)
Net Earnings Attributable to Partners	139			139			—
Loss attributable to Predecessors	$	16		$	—		$	16		$	24		$	—		$	24
Preferred unitholders’ interest in net earnings	(14		)	(14		)	—
Net Earnings Attributable to Partners	148			148			—			287			287			—
Limited Partners’ Interest in Net Earnings	$	125		$	125		$	—
Preferred unitholders’ interest in net earnings	(10		)	(10		)	—			(24		)	(24		)	—
Limited Partners’ Interest in Net Earnings	$	138		$	138		$	—		$	263		$	263		$	—

Note 3 - Related-Party Transactions

Affiliate Agreements

We have various long-term, fee-based commercial agreements with our Sponsor, under which we provide terminal distribution, storage services, pipeline transportation, crude oil, natural gas and produced water gathering and processing, wholesale, and trucking services to Marathon, and Marathon commits to provide us with minimum monthly throughput volumes of crude oil, refined products and other products. If, in any calendar month, Marathon fails to meet its minimum volume commitments under these agreements, it will be required to pay us a shortfall payment. For the NGLs that we handle under keep-whole agreements, we transfer the commodity price risk exposure associated with these keep-whole agreements to Marathon pursuant to the Keep-Whole Commodity Fee Agreement, as amended (the “Keep-Whole Commodity Agreement”). Under the Keep-Whole Commodity Agreement, Marathon pays us a processing fee for NGLs related to the keep-whole agreements and delivers replacement dry gas to the producers on our behalf. We then pay Marathon a marketing fee in exchange for assuming the commodity price risk. The terms and pricing of this agreement are subject to revision each year.

We have agreements for the provision of various general and administrative services by our Sponsor. Under our partnership agreement, we are required to reimburse ~~TLGP~~our general partner and its affiliates for all costs and expenses they incur on our behalf for managing and controlling our business and operations.

OnJune ~~January~~ 30, 2019, ~~TLGP~~| and certain of its indirect subsidiaries entered into a secondment agreement between us and certain of our subsidiaries and Marathon Petroleum Logistics Services LLC (“MPLS”) and a secondment agreement between us and certain of our subsidiaries and Marathon Refining Logistics Services LLC (“MRLS”) (collectively, the “2019 Secondment Agreements”). Under the 2019 Secondment Agreements, MPLS and MRLS second certain employees to occupy positions within our business and organization and to conduct business on our behalf.9

March 31, 2019 | 9



Notes to Condensed Consolidated Financial Statements (Unaudited)

On January 30, 2019, TLGP and certain of its indirect subsidiaries entered into a secondment agreement between us and certain of our subsidiaries and Marathon Petroleum Logistics Services LLC (“MPLS”) and a secondment agreement between us and certain of our subsidiaries and Marathon Refining Logistics Services LLC (“MRLS”) (collectively, the “2019 Secondment Agreements”). Under the 2019 Secondment Agreements, MPLS and MRLS second certain employees to occupy positions within our business and organization and to conduct business on our behalf.

While seconded by MPLS and MRLS to us, seconded employees remain on the payroll of MPLS or MRLS, as the case may be, and are eligible to participate in all MPLS or MRLS benefit plans that they would be eligible to participate in absent the secondment, but work for and are under our general direction, supervision and control. We reimburse MPLS or MRLS, as the case may be, for the payroll costs of the seconded employees, including base pay, bonuses and other incentive compensation plus a burden rate associated with benefits and other payroll costs for the portion of the employee’s time that is allocated to us. The 2019 Secondment Agreements are for a term of 10 years, but may be sooner terminated by us, MPLS or MRLS upon 60 days written notice. In connection with the entry into the 2019 Secondment Agreements, on January 30, 2019, our Sponsor entered into an agreement (the “Termination Agreement”) that terminated the Andeavor Secondment Agreement. The Termination Agreement had an effective date of January 1, 2019.

Except to the extent specified under our amended omnibus agreement (the “Amended Omnibus Agreement”) or the 2019 Secondment Agreements, TLGP determines the amount of these expenses. Under the terms of the Amended Omnibus Agreement in effect as of ~~March~~June 3130, 2019, we are required to pay our Sponsor an annual corporate services fee of $17 million for the provision of various centralized corporate services, including executive management, legal, accounting, treasury, human resources, health, safety and environmental, information technology, certain insurance coverage, administration and other corporate services.

Pursuant to the applicable secondment agreements in effect, our Sponsor charged us $24 million and $4 million during the three months ended ~~March~~June 3130, 2019 and 2018, ~~our~~respectively, ~~Sponsor~~and ~~charged us~~ $23 47 million and $610 million during the six months ended June 30, 2019 and 2018, respectively, reflecting increased services provided in conjunction with the assets acquired in the 2018 Drop Down. Additionally, pursuant to the Amended Omnibus Agreement and 2019 Secondment Agreements, we reimburse our Sponsor for any direct costs incurred by our Sponsor in providing other operational services with respect to certain of our other assets and operations.

Summary of Affiliate Transactions

Summary of Revenue and Expense Transactions with our Sponsor, ~~Including Predecessors~~ (in millions)

	Three Months Ended March 31,
	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)
Revenues (a)	$	444	$	327
Revenues (b)	$	424	$	389	$	868	$	716
Operating expenses (b)	90		62
Operating expenses (c)	113		72		217		134
General and administrative expenses	3015		2422		29		46

(a) ~~Represents~~Adjusted ~~70%~~to ~~and~~include ~~60%~~the ofhistorical ~~our~~results ~~total~~of ~~revenues for~~ the ~~three~~Predecessors. ~~months~~See ~~ended~~Note ~~March~~1 ~~31,~~for ~~2019~~further ~~and 2018, respectively~~discussion.

(b) ~~Excludes~~Represents ~~reimbursements~~71% ~~from~~and 68% of our ~~Sponsor~~total ~~pursuant~~revenues tofor the ~~Amended~~three ~~Omnibus~~months ~~Agreement,~~ended ~~the~~June ~~Carson~~30, ~~Assets~~2019 ~~Indemnity~~and ~~Agreement~~2018, respectively, and ~~other~~71% ~~affiliate~~and ~~agreements~~64% of $3our ~~million~~total ~~and~~revenues ~~$7 million~~ for the ~~three~~six months ended ~~March~~June 3130, 2019 and 2018, respectively.


(c)	Excludes reimbursements from our Sponsor pursuant to the Amended Omnibus Agreement, the Carson Assets Indemnity Agreement and other affiliate agreements of $7 million and $3 million for the three months ended June 30, 2019 and 2018, respectively, and $10 million for both the six months ended June 30, 2019 and 2018.

Distributions

~~In accordance with our partnership agreement, the unitholders of our limited partner interests are entitled to receive quarterly distributions of available cash.~~ During the ~~three~~six months ended ~~March~~June 3130, 2019, we paid quarterly cash distributions of $~~146~~294 million to our Sponsor. OnSee ~~April 29,~~Note ~~2019,~~7 ~~we declared a quarterly cash distribution of $1.03 per unit, which will be paid on May 15, 2019. The distribution will include a payment of $148 million to Marathon. TLGP’s distribution waivers~~ for ~~2019~~further ~~remain~~information inregarding ~~effect as instituted in 2017 under the terms of our partnership agreement~~distributions.

10 |

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 4 - Leases

For further information regarding the adoption of ASC 842, including the method of adoption and practical expedients elected,

see Note 1.

Lessee

We lease a wide variety of facilities and equipment under operating leases, including land and building space, office and field equipment, storage facilities and transportation equipment with remaining lease terms ranging from less than 1 year to 25 years. Some of our long-term leases include renewal options. Renewal options and termination options were not included in the measurement of right of use assets and lease liabilities since it was determined they were not reasonably certain to be exercised. The decision to renew or terminate the lease is at our sole discretion. Our lease agreements do not include any material residual value guarantees or restrictive covenants.

~~Maturities~~10 of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining noncancellable lease terms in excess of one year as of March 31, 2019 as well as the components of lease expense under ASC 842 are as follows:|



Notes to Condensed Consolidated Financial Statements (Unaudited)

measurement of right of use assets and lease liabilities since it was determined they were not reasonably certain to be exercised. The decision to renew or terminate the lease is at our sole discretion. Our lease agreements do not include any material residual value guarantees or restrictive covenants.

Maturities of lease liabilities for operating lease obligations and finance lease obligations having initial or remaining noncancellable lease terms in excess of one year as of June 30, 2019 as well as the components of lease expense under ASC 842 are as follows:

Lease Liabilities Maturities (in millions)

	Lease Obligations
	Operating			Finance
2019	$	106		$	32
2020	1718			3
2021	1415			32
2022	12			2
2023	12			2
2024 and thereafter	102			4
Gross lease payments	~~167~~165			1715
Less: imputed interest	(4645		)	(32		)
Total Lease Payments	$	~~121~~120		$	1413

Components of Lease Expense (in millions)

	Three Months Ended March 31, 2019
	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	35	$	8
Finance lease cost (a)	1
Finance lease cost:
Variable lease cost	1
Amortization of right-of-use assets	1		2
Short-term lease cost	6
Interest on lease liabilities	1		1
Total Lease Cost	$	11
Total finance lease cost	2		3
Variable lease cost	2		3
Short-term lease cost	9		15
Total Lease Cost	$	18	$	29

~~(a)~~June ~~Components~~30, of2019 ~~finance~~| ~~lease costs are primarily amortization of right of use assets as the interest on lease liabilities was immaterial.~~11

March 31, 2019 | 11



Notes to Condensed Consolidated Financial Statements (Unaudited)

Supplemental Balance Sheet Data (in millions, except lease term and discount rates)

	March 31, 2019
	June 30, 2019
Operating Leases
Right of use assets included in other noncurrent assets, net	$	~~122~~121
Operating lease liabilities included in other current liabilities	$	12
Long-term operating lease liabilities included in other noncurrent liabilities	~~109~~108
Total Operating Lease Liabilities	$	~~121~~120
Weighted average remaining lease term	1413 years
Weighted average discount rate	4.8283		%
Finance Leases
Property, plant and equipment, gross	$	1725
Accumulated depreciation	(514		)
Property, Plant and Equipment, Net	$	1211
Debt due within one year	$	43
Long-term debt	10
Total Finance Lease Liabilities	$	1413
Weighted average remaining lease term	65 years
Weighted average discount rate	5.4788		%

Lessor

We provide storage at several of our terminals as well as certain other services to our Sponsor in which we are considered to be the lessor in accordance with U.S. GAAP. We charge fixed fees based on the total storage capacity of our tanks under those agreements. During the three and six months ended June 30, 2019, we did not receive any material contingent lease payments. The term of the majority of the storage agreements is a primary term of ten years with two ~~five-year~~ renewal option periods of five years, with the primary term scheduled to expire from 2021 to 2028. Our revenue from implicit lease arrangements, excluding executory costs, totaled $~~136~~132 million and $8791 million for the three months ended ~~March~~June 3130, 2019 and 2018, respectively, and $268 million and $178 million for the six months ended June 30, 2019 and 2018, respectively.

Based on the changes presented in ASC 842, we, as a lessor, may be required to reclassify contracts or existing operating leases to sales-type leases upon modification and related reassessment of the contract. If such a modification were to occur, it may result in the derecognition of existing assets, recognition of a receivable in the amount of the present value of fixed payments expected to be received by us under the contract, and recognition of a corresponding gain or loss in the period of change. We will evaluate the impact of a reassessment as modifications occur.

Minimum Future Lease Revenue on Non-Cancellable Operating Leases (in millions)

	March 31, 2019 (a)
	June 30, 2019 (a)
2019	$	~~412~~268
2020	~~549~~535
2021	~~549~~533
2022	~~548~~533
2023	~~546~~532
2024 and thereafter	6,~~481~~292
Total Minimum Lease Revenue	$	98,~~085~~693


(a)	Includes minimum future lease revenue assuming all renewal option periods for each agreement are exercised.



12 \|



Notes to Condensed Consolidated Financial Statements (Unaudited)

Investment in Assets Held for Operating Leases (in millions)

	March 31, 2019			December 31, 2018
	June 30, 2019			December 31, 2018
Terminal and related assets	$	778		$	778
Terminals and related assets	$	847		$	778
Pipelines	110			110
Land and leasehold improvements	2829			28
Construction in progress	1921			15
Property, plant and equipment, at cost	~~935~~1,007			931
Accumulated depreciation	(~~247~~262		)	(238		)
Property, Plant and Equipment, Net	$	~~688~~745		$	693

Note 5 - Debt

Debt Balance, Net of Unamortized Issuance Costs (in millions)

	March 31, 2019			December 31, 2018
	June 30, 2019			December 31, 2018
Total debt	$	5,~~167~~263		$	5,010
Unamortized issuance costs	(4240		)	(46		)
Current maturities	(503		)	(504		)
Debt, Net of Current Maturities and Unamortized Issuance Costs	$	4,~~622~~720		$	4,460

Our debt is non-recourse to Marathon, except for TLGP and, with respect to borrowings under our Dropdown Credit Facility, ~~Western~~WR ~~Refining~~ Southwest~~, Inc~~.

Available Capacity Under Credit Facilities (in millions) (a)

	Total Capacity		Amount Borrowed as of ~~March~~June 3130, 2019		Outstanding Letters of Credit		Available Capacity as of ~~March~~June 3130, 2019		Weighted Average Interest Rate		Expiration
Revolving Credit Facility	$	1,100	$	~~999~~1,070	$	—	$	~~101~~30	43.2490	%	January 29, 2021
Dropdown Credit Facility	1,000		~~405~~430		—		~~595~~570		43.5292	%	January 29, 2021
MPC Loan Agreement	500		—		—		500		—	%	December 21, 2023
Total Credit Facilities	$	2,600	$	1,~~404~~500	$	—	$	1,~~196~~100


(a)	In conjunction with the MPLX Merger, on July 30, 2019, all outstanding borrowings and unpaid fees on our credit facilities were repaid and the agreements were terminated, including the MPC Loan Agreement.

Note 6 - Commitments and Contingencies

In the ordinary course of business, we may become party to lawsuits, disputes, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. The outcome of these matters cannot always be predicted accurately, but we will accrue liabilities for these matters if the amount is probable and can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, we believe there would be no material impact on our condensed consolidated financial statements.

Note 7 - Equity and Net Earnings per Unit

We had 89,~~389~~457,~~835~~316 common public units and 600,000 6.875% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units (the “Preferred Units”) outstanding as of ~~March~~June 3130, 2019. Additionally, Marathon owned 156,173,128 of our common units, constituting 64% ownership interest in us. Marathon also held 80,000 TexNew Mex units and all of the outstanding non-economic general partner units as of ~~March~~June 3130, 2019. See Note 1 for further discussion of the treatment of our common units in connection with the MPLX Merger. In addition, in connection with the MPLX Merger, our Preferred Units were exchanged for Series B Preferred Units of MPLX and our TexNew Mex units were converted into a new class of units of MPLX with substantially equivalent rights, powers, duties and obligations as our TexNew Mex Units.

~~March~~June 3130, 2019 | 13



Notes to Condensed Consolidated Financial Statements (Unaudited)

Changes to Equity (in millions)

	Three Months Ended March 31, 2019
	Three and Six Months Ended June 30, 2019
	Common			Preferred			Total
Balance at December 31, 2018	$	4,070		$	604		$	4,674
Distributions to common and preferred unitholders (a)	(240		)	(21		)	(261		)
Net earnings attributable to partners	147			10			157
Contributions (b)	19			—			19
Other	1			—			1
Balance at March 31, 2019	$3,997	~~3,997~~		$593	~~593~~		$4,590	~~4,590~~
Distributions to common unitholders (a)	(241		)	—			(241		)
Net earnings attributable to partners	150			10			160
Contributions (b)	25			—			25
Balance at June 30, 2019	$	3,931		$	603		$	4,534

	Three Months Ended March 31, 2018
	Three and Six Months Ended June 30, 2018
	Equity of Predecessors (c)			Andeavor Logistics						Total
				Common			Preferred
Balance at December 31, 2017	$	1,292		$	2,925		$	589		$	4,806
Sponsor contributions of assets to the Predecessors	197			—			—			197
Loss attributable to the Predecessors	(8		)	—			—			(8		)
Distributions to common and preferred unitholders (a)	—			(205		)	(8		)	(213		)
Net earnings attributable to partners	—			125			14			139
Contributions (b)	—			16			—			16
Cumulative effect of accounting standard adoption	—			(22		)	—			(22		)
Other	—			—			(1		)	(1		)
Balance at March 31, 2018	$1,481	~~1,481~~		$2,839	~~2,839~~		$594	~~594~~		$4,914	~~4,914~~
Sponsor contributions of assets to the Predecessors	139			—			—			139
Loss attributable to the Predecessors	(16		)	—			—			(16		)
Distributions to common unitholders (a)	—			(206		)	—			(206		)
Net earnings attributable to partners	—			138			10			148
Contributions (b)	—			7			—			7
Other	—			1			—			1
Balance at June 30, 2018	$	1,604		$	2,779		$	604		$	4,987

(a) Represents cash distributions declared and paid during the ~~three months ended March 31, 2019 and 2018~~period.


(b)	Includes Marathon and TLGP contributions to us primarily related to reimbursements for capital spending pursuant predominantly to the Amended Omnibus Agreement and the Carson Assets Indemnity Agreement.


(c)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

Cash Distributions

Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the limited partner unitholders will receive.

Quarterly Distributions on Common Units

Quarter Ended	Quarterly Distribution Per Common Unit		Total Cash Distribution(in millions)		Date of Distribution	Unitholders Record Date
December 31, 2018 (a)	$	1.03	$	238	February 14, 2019	February 5, 2019
March 31, 2019 (a)(b)	1.03		240		May 15, 2019	May 9, 2019
March 31, 2019 (a)	1.03		240		May 15, 2019	May 9, 2019

(a) This distribution is net of $12.5 million waived with respect to units held by our Sponsor and its affiliates for the three months ended March 31, 2019 and $15 million for the three months ended December 31, 2018. These distribution waivers were instituted in 2017 under the terms of our partnership agreement. ~~Units held by our Sponsor or its affiliates will remain subject to a $12.5 million quarterly distribution waiver through the quarterly period ending December 31, 2019.~~

(b) This distribution was declared on April 29, 2019 and will be paid on the date of distribution.

During the three months ended March 31, 2019 and 2018, we paid distributions of $21 million and $8 million, respectively, to holders of our Preferred Units.



14 \|



Notes to Condensed Consolidated Financial Statements (Unaudited)

During the period from the execution of the MPLX Merger Agreement to the date that the MPLX Merger was consummated, we coordinated the record dates of our quarterly distributions with MPLX so that no holder of our common units received distributions from both us and MPLX or failed to receive one distribution. As a result of the record date of the MPLX distribution occurring after the MPLX Merger, we did not declare a distribution for the second quarter of 2019.

During the six months ended June 30, 2019 and 2018, we paid distributions of $21 million and $8 million, respectively, to holders of our Preferred Units. Distributions on the Preferred Units are payable semi-annually in arrears on the 15th day of February and August of each year. Due to the timing of the MPLX Merger, exchange of Preferred Units and the record dates discussed above, we did not declare a distribution associated with the Preferred Units for the first half of 2019.

Net Earnings per Unit

We use the two-class method when calculating the net earnings per unit applicable to limited partners, because we have more than one participating security. At ~~March~~June 3130, 2019, our participating securities consisted of common units, Preferred Units and TexNew Mex units. Net earnings is allocated between the partners in accordance with our partnership agreement. We base our calculation of net earnings per unit on the weighted average number of common limited partner units outstanding during the period.

Diluted net earnings per unit include the effects of potentially dilutive units on our common units, which consist of unvested phantom units. Distributions less than or greater than earnings are allocated in accordance with our partnership agreement.

Net Earnings per Unit (in millions, except per unit amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
Net earnings	$	~~157~~160		$	~~131~~132		$	317		$	263
Distributions on Preferred Units (b)	~~(10~~—		)	(10		)	—			(20		)
Net earnings attributable to common units	~~147~~160			~~121~~122			317			243
Limited partners’ distributions on common units	(240		)	(205		)
Limited partners’ distributions on common units (c)	—			(209		)	(240		)	(414		)
Distributions on common units greater than earnings	$	(93	)	$	(84	)
Distributions on common units less (greater) than earnings	$	160		$	(87	)	$	77		$	(171	)
General partner’s earnings:
Allocation of distributions greater than earnings (c)	$	—		$	(8	)
Allocation of distributions greater than earnings (d)	$	—		$	(16	)	$	—		$	(24	)
Total general partner’s earnings	$	—		$	(8	)
Total general partner’s loss	$	—		$	(16	)	$	—		$	(24	)
Limited partners’ earnings on common units:
Distributions (d)	$	240		$	205
Distributions (c)(e)	$	—		$	209		$	240		$	414
Allocation of distributions greater than earnings	(93		)	(76		)
Allocation of distributions less (greater) than earnings	160			(71		)	77			(147		)
Total limited partners’ earnings on common units	$	~~147~~160		$	~~129~~138		$	317		$	267
Weighted average limited partner units outstanding:
Common units - basic	245.56			217.2			245.6			217.2
Common units - diluted (e)	245.7			217.4
Common units - diluted (f)	245.7			217.3			245.7			217.3
Net earnings per limited partner unit: (f)
Net earnings per limited partner unit: (g)
Common - basic	$	0.6065		$	0.5963		$	1.29		$	1.23
Common - diluted	$	0.6065		$	0.5963		$	1.29		$	1.23


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

(b) The Preferred Units entitle unitholders to receive preferred distributions on a semi-annual basis. Due to the MPLX Merger, we did not declare a distribution for the first half of 2019.

(c) We ~~have~~did ~~revised~~not ~~the~~declare ~~historical~~a ~~allocation~~distribution offor ~~general partner earnings to include~~ the ~~Predecessors’~~second ~~losses~~quarter of $82019 ~~million~~due ~~for~~to the ~~three~~MPLX ~~months ended March 31, 2018~~Merger.

(d) ~~Distributions~~We ofhave ~~earnings~~revised ~~for~~the ~~limited~~historical ~~partners’~~allocation ~~common~~of ~~units~~general ~~for~~partner ~~the~~earnings ~~three~~to ~~months~~include ~~ended~~the ~~March~~Predecessors’ ~~31,~~losses ~~2019~~of ~~and~~$16 ~~2018~~million isand ~~net~~$24 ofmillion afor ~~$12.5~~the ~~million~~three and ~~$15~~six ~~million~~months ~~waiver~~ended June 30, ~~respectively~~2018, ~~from our Sponsor~~respectively.

(e) ~~Diluted~~Distributions ~~net~~of earnings ~~per~~for ~~unit~~limited ~~include~~partners’ common units for the ~~effects~~three months ended June 30, 2018 is net of ~~potentially~~a ~~dilutive~~$15 ~~units~~million onwaiver and the six months ended June 30, 2019 and 2018 are net of a $12.5 million and $30 million waiver, respectively, from our ~~common~~Sponsor. ~~units~~There was no waiver for the three months ended June 30, ~~which~~2019 ~~consist~~because we did not declare a distribution for the second quarter of ~~unvested~~2019 ~~phantom~~due ~~units~~to the MPLX Merger.

(f) ~~Amounts~~Diluted ~~may~~net ~~not~~earnings ~~recalculate~~per ~~due~~unit toinclude ~~rounding~~the effects of ~~dollar~~potentially ~~and~~dilutive ~~unit~~units ~~information~~on our common units, which consist of unvested phantom units.

~~March~~(g) ~~31,~~Amounts ~~2019~~may |not 15recalculate due to rounding of dollar and unit information.



		June 30, 2019 \| 15



Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 8 - Supplemental Cash Flow Information

Supplemental Disclosures of ~~Non-~~Cash Activities (in millions)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2019		2018 (a)
Net cash from operating activities:
Interest paid (net of amounts capitalized)	$	30117	$	2378
Cash paid for amounts included in the measurement of lease liabilities:
Payments on operating leases	48		—
Right of use assets obtained in exchange for new operating lease obligations included in accrued liabilities	10		—
Right of use assets obtained in exchange for new operating lease obligations included in other noncurrent liabilities	121		—
Net cash used in investing activities:
Capital expenditures included in accounts payable	~~109~~113		4387
Net cash used in financing activities:
Receivable from affiliate for capital expenditures	78		92
Principal payments under finance lease obligations	12		—
Right of use assets obtained in exchange for new operating lease obligations	12		—
Right of use assets obtained in exchange for new financing lease obligations	1		—


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

Note 9 - Revenues

We recognize revenue upon transfer of control of promised products or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those products or services. For the three months ended March 31, 2019 and 2018, revenues from contracts with customers were $494 million and $459 million, respectively, which excludes lease revenues of $136 million and $87 million, respectively. Revenue is recognized net of amounts collected from customers for taxes assessed by governmental authorities on, and concurrent with, specific revenue-producing transactions.

Revenues (in millions)



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)
Revenues from contracts with customers	$	469	$	478	$	963	$	937
Lease revenues	132		91		268		178


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.

Service Revenue

We generate service revenue for gathering and transporting crude oil, natural gas and water; processing and fractionating natural gas and NGLs; and terminalling, transporting, and storing crude oil and refined products. We perform these services under various contractual arrangements with our customers. We recognize service revenue over time, as customers simultaneously receive and consume the related benefits of the services that we stand ready to provide. Where contracts contain provisions for minimum volume commitments, we assess the likelihood of insufficient volumes and recognize probable deficiency revenue ratably over the commitment or clawback period.

Product Revenue

We generate product revenue from the sale of NGLs and related products along with the sale of gasoline and diesel fuel within our wholesale business. We sell NGLs, shrink gas and condensate using natural gas we acquire from producers under our POP arrangements. We have certain fuel purchase and sale arrangements under which we receive certain minimum guaranteed margins with upside potential on a certain portion of our branded and unbranded fuel sales. Marathon retains control of fuel and is the principal in these affiliate arrangements. Therefore, we net the purchase and sale of fuel in our condensed consolidated statements of operations. Product revenues are recognized at a point-in-time, which generally occurs upon delivery and transfer of title to the customer.

Other Arrangements

Based on the terms of certain storage and other agreements in which the counterparty is primarily our Sponsor, we are considered to be the lessor under these implicit operating lease arrangements, as discussed in Note 4.

Customer Contract Assets

Our receivables are primarily associated with customer contracts. Our payment terms vary by product or service type, and the period between invoicing and payment is not significant. Included in our receivables are balances associated with commodity sales on behalf of our producer customers, for which we remit the net sales price back to the producer customers upon completion of each sale. These balances are commingled in our receivables, net of allowance for doubtful accounts in our consolidated balance sheets. Our contract assets include amounts recognized for deficiency payments associated with minimum volume commitments which have not been billed to customers. These contract assets are included in prepayments and other



16 \|



Notes to Condensed Consolidated Financial Statements (Unaudited)

~~current assets in our consolidated balance sheets and are shown in the "Summary of~~ Customer Contract Assets ~~and Liabilities" table below.~~

Customer Contract Liabilities

For certain products or services, we receive payment in advance of when performance obligations are satisfied. These liabilities from contracts with customers consist primarily of certain deficiency payments for minimum volume commitments and customer reimbursements of costs for capital projects. Customer advances for capital projects are generally recognized over the contract term. Payments for minimum volume commitments and other customer advances are included in deferred income within other current liabilities and other noncurrent liabilities based on timing of expected recognition, which may extend up to 15 years. During the three months ended ~~March~~June 3130, 2019 and 2018, we recognized $117 million and $6 million, respectively, and $1418 million and $20 million during the six months ended June 30, 2019 and 2018, respectively, in revenue from contract liabilities existing as of December 31, 2018 and January 1, 2018, respectively, after cumulative adjustments for the adoption of ASC 606.

Summary of Customer Contract Assets and Liabilities (in millions)

	March 31, 2019		December 31, 2018
	June 30, 2019		December 31, 2018
Other contract assets	$	1422	$	32
Deferred income, current	2325		24
Deferred income, noncurrent	5668		57

Remaining Performance Obligations

We do not disclose the value of unsatisfied performance obligations for contracts with original expected terms of one year or less or the value of variable consideration related to unsatisfied performance obligations, when such values are not required to be estimated for purposes of allocation and recognition. Revenues associated with remaining obligations under contracts with terms in excess of one year related primarily to arrangements for which the customer has agreed to fixed consideration based on minimum throughput volume commitments or capacity utilization. As of ~~March~~June 3130, 2019, we had $3.78 billion of expected revenues from remaining performance obligations.

The future revenues from our service arrangements with fixed fees or minimum throughput volume commitments will be recognized over the period of performance to which the fixed fee or commitment relates, which ranges from 1 year to 15 years. We expect approximately 85% of our total remaining obligations to be recognized within 5 years.

Disaggregation

Revenue is disaggregated by nature of revenue stream as presented in Note 10 because these categories depict how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors.

Note 10 - Operating Segments

Our revenues are derived from three operating segments: Terminalling and Transportation, Gathering and Processing, and Wholesale. We evaluate the performance of our segments based primarily on segment operating income and net earnings before interest, income taxes, depreciation and amortization expenses (“EBITDA”). For the purposes of our operating segment disclosure, we present operating income as it is the most comparable measure to the amounts presented in our condensed statements of consolidated operations. Segment operating income includes those revenues and expenses that are directly attributable to management of the respective segment. Certain general and administrative expenses and interest and financing costs are excluded from segment operating income as they are not directly attributable to a specific operating segment.

Our Terminalling and Transportation segment consists of pipeline systems, including regulated common carrier refined products pipeline systems and other pipelines, which transport products and crude oil primarily from Marathon’s refineries to nearby facilities, as well as crude oil and refined products terminals and storage facilities, marine terminals, stand-alone asphalt terminals as well as a 50% interest in PNAC, rail-car unloading facilities, an asphalt trucking operation and a petroleum coke handling and storage facility.



		June 30, 2019 \| 17



Notes to Condensed Consolidated Financial Statements (Unaudited)

Our Gathering and Processing segment consists of crude oil, natural gas, NGLs and produced water gathering systems in the Bakken Shale/Williston Basin area of North Dakota and Montana, the Green River Basin, Uinta Basin, and Vermillion Basin in the states of Utah, Colorado and Wyoming, the Delaware Basin in the Permian Basin area of West Texas and Southern New Mexico, and in the San Juan Basin in the Four Corners area of Northwestern New Mexico. It also consists of the Great Northern Midstream and Fryburg pipelines, crude trucking operations and gas processing and fractionation complexes.

Our Wholesale segment includes the operations of several bulk petroleum distribution plants and a fleet of refined product delivery trucks that distribute commercial wholesale petroleum products primarily in Arizona, Colorado, Nevada, New Mexico and Texas. The refined product trucking business delivers a significant portion of the volumes sold by our Wholesale segment.

March 31, 2019 | 17

Notes to Condensed Consolidated Financial Statements (Unaudited)

Segment Information (in millions)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
Revenues
Terminalling and Transportation:
Terminalling	$	~~245~~248		$	~~199~~209		$	493		$	408
Pipeline transportation	4647			3140			93			71
Other revenues	2			21			4			3
Total Terminalling and Transportation	~~293~~297			~~232~~250			590			482
Gathering and Processing:
NGL sales	~~122~~94			~~104~~95			216			199
Gas gathering and processing	7075			8582			145			167
Crude oil and water gathering	9779			7580			176			155
Pass-thru and other	3236			3544			68			79
Total Gathering and Processing	~~321~~284			~~299~~301			605			600
Wholesale:
Fuel sales	1217			915			29			24
Other wholesale	106			810			16			18
Total Wholesale	2223			1725			45			42
Intersegment wholesale revenues	(63		)	(27		)	(9		)	(9		)
Total Revenues	$	~~630~~601		$	~~546~~569		$	1,231		$	1,115
Segment Operating Income
Terminalling and Transportation	$	~~152~~146		$	~~104~~107		$	298		$	211
Gathering and Processing	6359			7769			122			146
Wholesale	512			411			17			15
Total Segment Operating Income	~~220~~217			~~185~~187			437			372
Unallocated general and administrative expenses	(910		)	(87		)	(19		)	(15		)
Operating Income	~~211~~207			~~177~~180			418			357
Interest and financing costs, net	(6163		)	(5560		)	(124		)	(115		)
Equity in earnings of equity method investments	79			810			16			18
Other income, net	—7			12			7			3
Net Earnings	$	~~157~~160		$	~~131~~132		$	317		$	263
Depreciation and Amortization Expenses
Terminalling and Transportation	$	36		$	33
Gathering and Processing	62			53
Wholesale	3			3
Total Depreciation and Amortization Expenses	$	101		$	89
Capital Expenditures
Terminalling and Transportation	$	25		$	46
Gathering and Processing	97			110
Wholesale	—			1
Total Capital Expenditures	$	122		$	157


(a)	Adjusted to include the historical results of the Predecessors. See Note 1 for further discussion.



18 \|



Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 11 - Subsequent Event



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)
Depreciation and Amortization Expenses
Terminalling and Transportation	$	38	$	37	$	74	$	70
Gathering and Processing	64		54		126		107
Wholesale	2		2		5		5
Total Depreciation and Amortization Expenses	$	104	$	93	$	205	$	182

Capital Expenditures
Terminalling and Transportation	$	26	$	33	$	51	$	79
Gathering and Processing	110		148		207		258
Wholesale	—		—		—		1
Total Capital Expenditures	$	136	$	181	$	258	$	338

~~On May 8, 2019, we, along with MPLX LP~~ (~~“MPLX”) and MPC, announced that we entered into~~ a ~~definitive merger agreement with MPLX (the “MPLX Merger Agreement”~~) ~~whereby~~Adjusted ~~MPLX~~to ~~will~~include ~~acquire us in a unit-for-unit transaction (~~the ~~“MPLX~~historical ~~Merger”).~~results ~~Under the terms~~ of the ~~MPLX Merger Agreement, our public unitholders will receive 1~~Predecessors.~~135~~ ~~MPLX~~See ~~common~~Note ~~units for each common unit of ours held and MPC will receive~~ 1~~.0328~~ ~~MPLX common units~~ for ~~each~~further ~~common unit of ours held~~discussion. The transaction has been approved by MPLX’s and our respective Conflicts Committees and both Boards of Directors. Subject to the satisfaction of customary closing conditions and receipt of regulatory approvals, the transaction is expected to close in the second half of 2019.

~~March~~June 3130, 2019 | 19



Management’s Discussion and Analysis

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, references in this report to “Andeavor Logistics,” “we,” “us,” “our,” or “ours” refer to Andeavor Logistics LP, one or more of its consolidated subsidiaries, or all of them taken as a whole. Unless the context otherwise requires, references in this report to our general partner refer to TLGP for all activity through the closing of the MPLX Merger and to ALGP for all activity thereafter. Unless the context otherwise requires, references in this report to “Sponsor” refer collectively to Andeavor and any of Andeavor’s subsidiaries for all activity through September 30, 2018, or Marathon or any of Marathon’s subsidiaries including Andeavor LLC, successor-by-merger to Andeavor effective October 1, 2018 and a wholly owned subsidiary of Marathon, as applicable, other than Andeavor Logistics, its subsidiaries and its general partner. References in this report to “Marathon” or “MPC” refer to Marathon Petroleum Corporation, one or more of its consolidated subsidiaries, including Andeavor LLC, or all of them taken as a whole. Unless the context otherwise requires, references in this report to “Predecessors” refer collectively to the acquired businesses from our Sponsor, and its assets, liabilities and results of operations.

Those statements in this section that are not historical in nature should be deemed forward-looking statements that are inherently uncertain. See “Important Information Regarding Forward-Looking Statements” section for a discussion of the factors that could cause actual results to differ materially from those projected in these statements.

This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.

Recent Developments

OnAs previously disclosed, on May 87, 2019, weAndeavor Logistics, ~~along~~TLGP, ~~with~~MPLX, MPLX ~~and~~GP ~~MPC~~LLC, ~~announced~~and ~~that~~Merger weSub, entered into the ~~MPLX~~ Merger Agreement, ~~whereby~~which ~~MPLX~~provided ~~will acquire us in a unit-~~for~~-unit~~, ~~transaction~~among atother athings, ~~blended~~the ~~exchange~~MPLX ~~ratio of 1~~Merger.~~07x.~~ ~~This~~On ~~represents~~July an30, ~~equity~~2019, ~~value~~the ofMPLX ~~approximately~~Merger $9was ~~billion~~completed, and anAndeavor ~~enterprise~~Logistics ~~value~~survived ofthe ~~approximately~~MPLX ~~$14~~Merger ~~billion~~as ~~for~~a ~~the~~wholly-owned ~~acquired~~subsidiary ~~entity~~of MPLX. ~~Under~~At the ~~terms~~effective time of the MPLX Merger ~~Agreement~~, ~~our public unitholders will receive 1.135 MPLX common units for~~ each common unit ofheld ~~ours~~by ~~held,~~our ~~representing~~public aunitholders ~~premium~~was ofconverted ~~7.3%,~~into ~~and~~the ~~MPC~~right ~~will~~to receive 1.~~0328~~135 MPLX ~~common~~Common ~~units~~Units. ~~for~~Each ~~each~~Andeavor Logistics common unit ofheld ~~ours~~by ~~held,~~TLGP ~~representing~~and aWR ~~2.4%~~Southwest ~~discount,~~was ~~based~~converted oninto ~~May~~the 2,right ~~2019~~to ~~closing~~receive ~~prices~~1.0328 MPLX Common Units.

The ~~anticipated~~ transaction ~~simplifies~~combines MPLX and us into a single listed entity to create a leading, large-scale, diversified midstream company anchored by fee-based cash flows. The combined entity ~~will~~has ~~have~~ an expanded geographic footprint that is expected to enhance its long-term growth opportunities and the sustainable cash flow profile of the business.

~~The~~In ~~transaction~~connection ~~has~~with ~~been~~the ~~approved~~completion byof the MPLX’s ~~and~~Merger, we notified the NYSE that each of our ~~respective~~outstanding ~~Conflicts~~common ~~Committees~~units ~~and~~was ~~both~~converted ~~Boards~~into the right to receive MPLX Common Units in an amount determined by reference to the applicable exchange ratio. Upon our request, the NYSE filed a notification of ~~Directors~~removal from listing on Form 25 with the SEC with respect to our common units. ~~Subject~~Our common units ceased being traded prior to the ~~satisfaction~~opening of ~~customary~~the ~~closing~~market ~~conditions~~on July 30, 2019, and ~~receipt~~will ofno ~~regulatory~~longer ~~approvals,~~be listed on the ~~transaction~~NYSE. isWe ~~expected~~continue to ~~close~~file inwith the ~~second~~SEC ~~half~~current and period reports that would be required by be filed with the SEC pursuant to Section 15(d) of ~~2019~~the Exchange Act.

~~The~~Business above discussion contains forward-looking statements with respect to the proposed transaction between Andeavor Logistics and MPLX. Factors that could affect the proposed transaction between Andeavor Logistics and MPLX include, but are not limited to: the ability to complete the proposed transaction between Andeavor Logistics and MPLX on the proposed terms and timetable; the ability to satisfy various conditions to the closing of the transaction contemplated by the merger agreement; the ability to obtain regulatory approvals for the proposed transaction on the proposed terms and schedule, and any conditions imposed on the combined entity in connection with the consummation of the proposed transaction; the risk that anticipated opportunities and any other synergies from or anticipated benefits of the proposed transaction may not be fully realized or may take longer to realize than expected, including whether the proposed transaction will be accretive within the expected timeframe or at all; disruption from the proposed transaction making it more difficult to maintain relationships with customers, employees or suppliers; risks relating to any unforeseen liabilities of Andeavor Logistics; the amount and timing of future distributions; negative capital market conditions, including an increase of the current yield on common units; the ability to achieve strategic and financial objectives, including with respect to distribution coverage, future distribution levels, proposed projects and completed transactions; adverse changes in laws including with respect to tax and regulatory matters; the adequacy of capital resources and liquidity, including, but not limited to, availability of sufficient cash flow to pay distributions and access to debt on commercially reasonable terms, and the ability to successfully execute business plans, growth strategies and self-funding models; the timing and extent of changes in commodity prices and demand for crude oil, refined products, feedstocks or other hydrocarbon-based products; continued/further volatility in and/or degradation of market and industry conditions; changes to the expected construction costs and timing of projects and planned investments, and the ability to obtain regulatory and other approvals with respect thereto; completion of midstream infrastructure by competitors; disruptions due to equipment interruption or failure, including electrical shortages and power grid failures; the suspension, reduction or termination of MPC’s obligations under Andeavor Logistics’ and MPLX’s commercial agreements; modifications to financial policies, capital budgets, and earnings and distributions; the ability to manage disruptions in credit markets or changes to credit ratings; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations and/or enforcement actions initiated thereunder; adverse results in litigation; other risk factors inherent to Andeavor Logistics’ and MPLX’s industry; and risks related to MPC. For additional information on forward-looking statements and risks that can affect our business, see “Important Information Regarding Forward-Looking Statements” and “Risk Factors” herein, together with the factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with Securities and Exchange Commission.Overview

20 |

Management’s Discussion and Analysis

Business Strategy and Overview

Overview

WePrior ~~are~~to the MPLX Merger, we were a fee-based, full-service, diversified Delaware limited partnership ~~formed by Andeavor~~ operating primarily in the western and inland regions of the United States. We own and operate networks of crude oil, refined products and natural gas pipelines, terminals with crude oil and refined product storage capacity, rail loading and offloading facilities, marine terminals, bulk petroleum distribution facilities, a trucking fleet and natural gas processing and fractionation complexes.

Our ~~assets~~revenues ~~are~~were ~~categorized~~derived ~~into~~from athree operating segments: Terminalling and Transportation ~~segment~~, a Gathering and Processing, ~~segment~~ and a Wholesale ~~segment~~. 7071% of our total revenues for both the three and six months ended ~~March~~June 3130, 2019 were derived from Marathon under various long-term, fee-based commercial agreements, the majority of which include minimum volume commitments.

On October 1, 2018, MPC completed its acquisition of Andeavor. Following the MPC Merger, MPC became the beneficial owner of 156 million common units out of 245 million common units outstanding as of October 1, 2018, ~~representing~~which represented a 64% limited partner interest. MPC is also ~~the~~acquired ~~beneficial owner of~~ 100% of the equity interests of ~~TLGP~~our general partner.

We generate revenues by charging fees for terminalling, transporting and storing crude oil, refined products and asphalt, gathering crude oil and produced water, gathering and processing natural gas and selling fuel through wholesale commercial contracts. We do not engage in the trading of crude oil, natural gas, NGLs or refined products; therefore, we have minimal direct exposure to risks associated with commodity price fluctuations as part of our normal operations. However, we have certain natural gas gathering and processing contracts structured as POP arrangements. Under these POP arrangements, we gather and process the producers’ natural gas, market the natural gas and return the majority of the proceeds to the producer. Under these arrangements, we have exposure to fluctuations in commodity prices; however, this exposure is not expected to be material to our results of operations. Also, we have a wholesale fuel business that has exposure to commodity prices while the refined product is being transported but are mitigated by fixed margin contracts.

~~Business~~20 ~~Strategy and Goals~~|

Our primary business objectives are to maintain and grow stable cash flows. On a standalone basis, we intend to accomplish these objectives by executing the following strategies:

Growing a stable, fee-based business that provides a competitive,full-service logistics offering to customers Optimizing Existing Asset Base ● Operating an incident free workplace● Improving operational efficiency and maximizing asset utilization● Expanding third-party business; delivering extraordinary customer service Pursuing Organic Expansion Opportunities ● Identifying and executing low-risk, high-return growth projects● Investing to capture the full commercial value of logistics assets● Growing asset capability to support Marathon value chain optimization Growing through Third-Party Acquisitions ● Pursuing assets and businesses in strategic U.S. geographies that support an integrated business model, delivering synergies and growth● Focusing on high quality assets that provide stable, fee-based income and enhancing organizational capacity Growing through Strategic Expansion ● Strategically partnering with Marathon on organic opportunities and acquisitions

March 31, 2019 | 21



Management’s Discussion and Analysis

We have completed or announced plans to expand our Terminalling and Transportation business across the western and inland U.S. through:

• increasing our terminalling volumes by expanding capacity and growing our third-party services at certain terminals;

• optimizing volumes and growing third-party throughput at our Terminalling and Transportation assets; and

• pursuing strategic assets in the western and inland U.S.

In addition, we have completed or announced plans to grow our assets in our Gathering and Processing segment in support of third-party demand for crude oil, natural gas and water gathering services and natural gas processing services, as well as serving Marathon’s demand for Bakken crude oil in the inland and west coast refining systems and providing crude oil supply to support Marathon’s southwest refining system through our Permian Basin logistics assets, including:

• further expanding capacity and capabilities as well as adding new origin and destination points for our common carrier pipelines in North Dakota and Montana;

• expanding our crude oil, natural gas and water gathering and associated gas processing footprint in the Bakken region to enhance and improve overall basin logistics efficiencies;

• expanding our crude oil gathering footprint in the Permian Basin; and

• pursuing strategic assets across the western and inland U.S.

Results of Operations

A discussion and analysis of the factors contributing to our results of operations presented below includes the financial results of our Predecessors and the consolidated financial results of Andeavor Logistics. The financial statements of our Predecessors were prepared from the separate records maintained by our Sponsor and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors had been operated as an unaffiliated entity. The financial statements, together with the following information, are intended to provide investors with a reasonable basis for assessing our historical operations, but should not serve as the only criteria for predicting future performance.

Operating Metrics

Management utilizes the following operating metrics to evaluate performance and compare profitability to other companies in the industry (amounts may not recalculate due to rounding of dollar and volume information):

• Average terminalling revenue per barrel - calculated as total terminalling revenue divided by terminalling throughput presented in thousands of barrels per day (“Mbpd”) multiplied by 1,000 and multiplied by the number of days in the period (9091 days for both the three months ended ~~March~~June 3130, 2019 (the “2019 Quarter”) and 2018 (the “2018 Quarter”) and 181 days for both the six months ended June 30, 2019 (the “2019 Period”) and 2018 (the “2018 Period”));


•	Average pipeline transportation revenue per barrel - calculated as total pipeline transportation revenue divided by pipeline transportation throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;


•	Average margin on NGL sales per barrel - calculated as the difference between the NGL sales revenues and the amounts recognized as NGL expense divided by our NGL sales volumes in barrels presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;


•	Average gas gathering and processing revenue per Million British thermal units (“MMBtu”) - calculated as total gathering and processing fee-based revenue divided by gas gathering throughput presented in thousands of MMBtu per day (“MMBtu/d”) multiplied by 1,000 and multiplied by the number of days in the period as outlined above;


•	Average crude oil and water gathering revenue per barrel - calculated as total crude oil and water gathering fee-based revenue divided by crude oil and water gathering throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above; and


•	Wholesale fuel sales per gallon - calculated as wholesale fuel revenues divided by our total wholesale fuel sales volume in gallons.

There are a variety of ways to calculate average revenue per barrel, average margin per barrel, average revenue per MMBtu, sales per gallon and average margin per gallon; other companies may calculate these in different ways.

22 |

Management’s Discussion and Analysis

Non-GAAP Measures

As a supplement to our financial information presented in accordance with U.S. GAAP, our management uses certain “non-GAAP” measures to analyze our results of operations, assess internal performance against budgeted and forecasted amounts and evaluate future impacts to our financial performance as a result of capital investments, acquisitions, divestitures and other strategic projects. These measures may be used to assess our operating results and profitability and include:


•	Financial non-GAAP measure of EBITDA - calculated as U.S. GAAP-based net earnings before interest, income taxes and depreciation and amortization expense;


•	Financial non-GAAP measure of Segment EBITDA - calculated as a segment’s U.S. GAAP-based operating income before depreciation and amortization expense plus equity in earnings (loss) of equity method investments and other income (expense), net;


•	Financial non-GAAP measure of distributable cash flow - calculated as U.S. GAAP-based net cash flow from EBITDA adjusted for amounts spent on maintenance capital net of reimbursements and other adjustments;


•	Liquidity non-GAAP measure of distributable cash flow - calculated as U.S. GAAP-based net cash flow from operating activities adjusted for changes in working capital, amounts spent on maintenance capital net of reimbursements and other adjustments not expected to settle in cash;


•	Liquidity and financial non-GAAP measure of distributable cash flow attributable to common unitholders - calculated as distributable cash flow minus distributions associated with the Preferred Units; and


•	Operating performance measure of average margin on NGL sales per barrel - calculated as the difference between the NGL sales revenues and the amounts recognized as NGL expense divided by our NGL sales volumes in barrels presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as previously outlined.



		June 30, 2019 \| 21



Management’s Discussion and Analysis

We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to:

• our operating performance as compared to ~~other~~ publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or financing methods;


•	the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;


•	our ability to incur and service debt and fund capital expenditures; and


•	the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Management also uses these measures to assess internal performance, and we believe they may provide meaningful supplemental information to the users of our financial statements. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings, operating income and net cash from operating activities. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures.

For further information regarding these non-GAAP measures, including the reconciliation of these non-GAAP measures to their most directly comparable U.S. GAAP financial measures, see the “Non-GAAP Reconciliations” section.

Items Impacting Comparability

~~Our~~As ~~financial~~previously ~~results~~mentioned, ~~may~~on ~~not~~August be6, ~~comparable~~2018, we completed the 2018 Drop Down for total consideration of $1.55 billion. As an entity under common control with our Sponsor, we accounted for the ~~reasons~~transfers ~~described~~of ~~below~~businesses as if the transfer occurred at the beginning of the period, and prior periods are retrospectively adjusted to furnish comparative information. Accordingly, the accompanying results of operations have been retrospectively adjusted to include the historical results of the assets acquired prior to the effective date of the acquisition. Other than certain assets acquired from the 2018 Drop Down, our Predecessors did not record revenues with our Sponsor and our Predecessors recorded general and administrative expenses and financed operations differently than we do. See “Items Impacting Comparability” in our Annual Report on Form 10-K for the year ended December 31, 2018 for further discussion.

As2019 ~~previously~~2nd ~~mentioned,~~Quarter onVersus ~~August 6,~~ 2018, we2nd completed the 2018 Drop Down for total consideration of $1.55 billion. As an entity under common control with our Sponsor, we accounted for the transfers of businesses as if the transfer occurred at the beginning of the period, and prior periods are retrospectively adjusted to furnish comparative information. Accordingly, the accompanying results of operations have been retrospectively adjusted to include the historical results of the assets acquired prior to the effective date of the acquisition.Quarter

~~March~~Highlights ~~31,~~(in ~~2019 | 23~~millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding these non-GAAP measures.



22 \|



Management’s Discussion and Analysis

~~2019~~Percentage ~~1st~~of ~~Quarter~~Segment ~~Versus~~Operating ~~2018~~Income ~~1st~~by ~~Quarter~~Operating Segment

Net Earnings Reconciliation (in millions)

Overview

Our net earnings for the 2019 Quarter increased $28 million to $160 million from $132 million for the 2018 Quarter and EBITDA increased $42 million primarily driven by the 2018 Drop Down and the acquisition of the SLC Core Pipeline System. Partially offsetting those contributions were increases in the related operating costs and depreciation and amortization expenses.

Segment Results

Operating income increased $27 million to $207 million during the 2019 Quarter compared to $180 million for the 2018 Quarter driven by the 2018 Drop Down and the SLC Core Pipeline System acquisition. Refer to our detailed discussion of each segment’s operating and financial results contained in this section.

Revenues

Revenues for the 2019 Quarter were $601 million, an increase of $32 million over the prior year, primarily driven by the contributions from the 2018 Drop Down and the SLC Core Pipeline System acquisition.

NGL Expense

NGL expense decreased $12 million for the 2019 Quarter compared to the 2018 Quarter primarily due to planned downtime during the 2019 Quarter for an expansion project at our Robinson Lake facility, which resulted in lower NGL production.

Operating Expenses

Operating expenses increased $16 million for the 2019 Quarter compared to the 2018 Quarter primarily due to higher expenses associated with the 2018 acquisitions and higher right-of-way costs.

Depreciation and Amortization

Depreciation and amortization increased $11 million for the 2019 Quarter compared to the 2018 Quarter primarily due to projects that were placed in service after the 2018 Quarter, including projects included in the 2018 Drop Down.



		June 30, 2019 \| 23



Management’s Discussion and Analysis

2019 Year to Date Period Versus 2018 Year to Date Period

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding these non-GAAP measures.

Percentage of Segment Operating Income by Operating Segment



24 \|



Management’s Discussion and Analysis

Net Earnings Reconciliation (in millions)

Overview

Our net earnings for the 2019 ~~Quarter~~Period increased $2654 million to $~~157~~317 million from $~~131~~263 million for the 2018 ~~Quarter~~Period and EBITDA increased $4486 million primarily driven by the 2018 Drop Down and the acquisition of the SLC Core Pipeline System. Partially offsetting those contributions were increases in the related operating costs and depreciation and amortization expenses.

Segment Results

Operating income increased $3461 million to $~~211~~ 418 million during the 2019 ~~Quarter~~Period compared to $~~177~~ 357 million for the 2018 ~~Quarter~~Period driven by the 2018 Drop Down and the SLC Core Pipeline System acquisition. Refer to our detailed discussion of each segment’s operating and financial results contained in this section.

Revenues

~~Revenues~~The ~~for the 2019 Quarter were~~ $~~630~~ 116 million, an increase ofin ~~$84~~revenue ~~million~~to ~~over~~$1.2 ~~the~~billion ~~prior~~was ~~year,~~ primarily driven by the contributions from the 2018 Drop Down and the SLC Core Pipeline System acquisition.

NGL Expense

NGL expense increased $11 million for the 2019 Quarter compared to the 2018 Quarter primarily due to a new contract associated with the North Dakota NGL Logistics Hub in the 2019 Quarter.

Operating Expenses

Operating expenses increased $3854 million for the 2019 ~~Quarter~~Period compared to the 2018 ~~Quarter~~Period primarily due to higher expenses associated with the 2018 acquisitions, a legal reserve ~~for~~to ansettle ~~ongoing~~a contract dispute, higher ~~labor~~right-of-way costs and higher ~~non-routine~~property ~~maintenance~~tax expenses.

Depreciation and Amortization Expense

Depreciation and amortization expenses increased $12 23 million for the 2019 ~~Quarter~~Period compared to the 2018 Period ~~Quarter~~ primarily due to projects that were placed in service after the 2018 ~~Quarter~~Period, including projects included in the 2018 Drop Down.

Interest and Financing Costs, Net

Net interest and financing costs increased $6 9 million in the 2019 ~~Quarter~~Period compared to the 2018 ~~Quarter~~Period primarily due to higher borrowings during the 2019 ~~Quarter~~Period on our Revolving Credit Facility, Dropdown Credit Facility and MPC Loan Agreement. We entered into the MPC Loan Agreement during the fourth quarter of 2018.

~~March~~June 3130, 2019 | 25



Management’s Discussion and Analysis

Segment Results of Operations

Terminalling and Transportation Segment

Our Terminalling and Transportation segment consists of pipeline systems, including regulated common carrier refined products pipeline systems and other pipelines, which transport products and crude oil primarily from Marathon’s refineries to nearby facilities, as well as crude oil and refined products terminals and storage facilities, marine terminals, asphalt terminals, rail-car unloading facilities, an asphalt trucking operation and a petroleum coke handling and storage facility.

2019 ~~1st~~2nd Quarter Versus 2018 ~~1st~~2nd Quarter

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.

Segment Volumetric Data

(a) Adjusted to include the historical results of the Predecessors.

Volumes

Terminalling throughput ~~volume~~and ~~increased~~pipeline 38transportation ~~Mbpd, or 2%, in the 2019 Quarter compared to the 2018 Quarter. The increase in the terminalling~~ throughput ~~volume~~volumes ~~was~~were ~~primarily~~relatively ~~attributable~~flat ~~to major planned maintenance at our Sponsor’s refineries~~ during the ~~2018 Quarter. Pipeline transportation throughput volume increased 190 Mbpd, or 22%, in the~~ 2019 Quarter ~~due~~as compared to ~~continued strong product demand, contributions from~~ the ~~SLC Core Pipeline System acquisition and major planned maintenance at our Sponsor’s refineries during the~~ 2018 Quarter.



26 \|



Management’s Discussion and Analysis

Terminalling and Transportation Segment Results (in millions, except per barrel amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,
	2019		2018 (a)
Revenues
Terminalling	$	~~245~~248	$	~~199~~209
Pipeline transportation	4647		3140
Other revenues	2		21
Total Revenues	~~293~~297		~~232~~250
Costs and Expenses
Operating expenses (excluding depreciation and amortization)	~~101~~107		8595
Depreciation and amortization expenses	3638		3337
General and administrative expenses	45		10
Operating Income	$	152	$	104
Loss on asset disposals and impairments	1		1
Segment EBITDA (b)	$	191	$	143
Operating Income	$	146	$	107
Segment EBITDA (b)	$	195	$	151
Rates (c)
Average terminalling revenue per barrel	$	1.53	$	1.2625
Average pipeline transportation revenue per barrel	$	0.4749	$	0.3943

Financial Results

The Terminalling and Transportation segment’s operating income increased $4839 million, or 4636%, and Segment EBITDA increased $4844 million, or 3429%, primarily driven by the 2018 Drop Down, the SLC Core Pipeline System acquisition, ~~the 2018 Drop Down~~ and organic growth.

The higher revenues in the 2019 Quarter compared to the 2018 Quarter were ~~also~~ due to ~~major planned maintenance in the 2018 Quarter at our Sponsor’s refineries as well as the~~ added storage revenues in 2019 from the 2018 Drop Down leading to a higher average terminalling revenue per barrel as our Predecessors did not record revenues for these services in 2018. The increase in revenues was also due to the LARIP operations full commissioning at the end of 2018. ~~As previously discussed, our Predecessors did not recognize revenue with our Sponsor.~~

Our operating expenses were higher for the 2019 Quarter as a result of the operations acquired in 2018 primarily in the form of higher labor costs ~~as well as periodic in-line inspection costs on certain of our pipelines during 2019~~.


(a)	Adjusted to include the historical results of the Predecessors.


(b)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(c)	Amounts may not recalculate due to rounding of dollar and volume information.

~~March~~2019 ~~31,~~Year ~~2019~~to |Date 27Period Versus 2018 Year to Date Period

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.



		June 30, 2019 \| 27



Management’s Discussion and Analysis

Segment Volumetric Data

Volumes

Terminalling throughput volumes were relatively flat during the 2019 Period as compared to the 2018 Period. Pipeline transportation throughput volumes increased 102 Mbpd, or 11%, in the 2019 Period due to continued strong product demand, contributions from the SLC Core Pipeline System acquisition as well as the 2018 Period being impacted by planned major maintenance at our Sponsor’s refineries.

Terminalling and Transportation Segment Results (in millions, except per barrel amounts)



	Six Months Ended June 30,
	2019		2018 (a)
Revenues
Terminalling	$	493	$	408
Pipeline transportation	93		71
Other revenues	4		3
Total Revenues	590		482
Costs and Expenses
Operating expenses (excluding depreciation and amortization)	208		180
Depreciation and amortization expenses	74		70
General and administrative expenses	9		20
Loss on asset disposals and impairments	1		1
Operating Income	$	298	$	211
Segment EBITDA (b)	$	386	$	294
Rates (c)
Average terminalling revenue per barrel	$	1.53	$	1.26
Average pipeline transportation revenue per barrel	$	0.48	$	0.41

Financial Results

The Terminalling and Transportation segment’s operating income increased $87 million, or 41%, and Segment EBITDA increased $92 million, or 31%, primarily driven by the 2018 Drop Down, the SLC Core Pipeline System acquisition and organic growth.

The higher revenues in the 2019 Period compared to the 2018 Period were also due to planned major maintenance in the 2018 Period at our Sponsor’s refineries as well as the added storage revenues in 2019 from the 2018 Drop Down leading to a higher average terminalling revenue per barrel. The increase in revenues was also due to the LARIP operations full commissioning at the end of 2018. As previously discussed, our Predecessors did not recognize revenue with our Sponsor.

Our operating expenses were higher for the 2019 Period as a result of the operations acquired in 2018.


(a)	Adjusted to include the historical results of the Predecessors.


(b)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(c)	Amounts may not recalculate due to rounding of dollar and volume information.



28 \|



Management’s Discussion and Analysis

Gathering and Processing Segment

Our Gathering and Processing segment consists of crude oil, natural gas, NGLs and produced water gathering systems in the Bakken Shale/Williston Basin area of North Dakota and Montana, the Green River Basin, Uinta Basin and Vermillion Basin in the states of Utah, Colorado and Wyoming (the “Rockies Region”), the Delaware Basin in the Permian Basin area of West Texas and Southern New Mexico, and in the San Juan Basin in the Four Corners area of Northwestern New Mexico. It also consists of gas processing and fractionation complexes in the Bakken Shale, Green River Basin, Uinta Basin and Vermillion Basin.

2019 ~~1st~~2nd Quarter Versus 2018 ~~1st~~2nd Quarter

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.

Segment Volumetric Data


(a)	Volumes represent barrels sold in keep-whole arrangements, net barrels retained in POP arrangements and other associated products.

(b) Adjusted to include the historical results of the Predecessors.

Volumes

NGL sales volumes decreased 51.09 Mbpd, or 4221%, in the 2019 Quarter as compared to the 2018 Quarter primarily due to ethane rejection in the Rockies ~~region~~Region in the 2019 Quarter and ethane recovery in the 2018 Quarter. Ethane recovery is the process of capturing ethane during the NGL processing stream, where it is then fractionated and sold. There was also planned downtime during the 2019 Quarter to enable an expansion project at our Robinson Lake facility. The decrease in gas gathering and processing throughput volumes of ~~132~~65 thousand MMBtu/d, or 168%, in the 2019 Quarter as compared to the 2018 Quarter was due to lower volumes in the Rockies ~~region~~Region as certain low-tariff processing agreements expired ~~beginning~~during in the second quarter of 2018 reducing our throughput approximately 45 thousand MMBtu/d. In certain regions in which we operate, low natural gas prices provide challenges to new volume growth. As a result, we encountered declining volumes during the period and certain ~~of our~~ assets were not operated at full capacity. The lower volumes in the Rockies ~~region~~Region were partially offset by higher volumes in the Bakken region driven by processing plant capacity expansions and new well connections. Crude oil and water throughput volumes increased ~~128~~161 Mbpd, or 3239%, in the 2019 Quarter ~~led by contributions from the 2018 Drop Down~~ primarily driven by the growth on the Conan Crude Oil Gathering System.

28June 30, 2019 | 29



Management’s Discussion and Analysis

Gathering and Processing ~~Segments~~Segment Results (in millions, except per barrel and per MMBtu amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,
	2019		2018 (a)
Revenues
NGL sales (b)	$	~~122~~94	$	~~104~~95
Gas gathering and processing	7075		8582
Crude oil and water gathering	9779		7580
Pass-thru and other	3236		3544
Total Revenues	~~321~~284		~~299~~301
Costs and Expenses
NGL expense (excluding items shown separately below) (b)	5933		4845
Operating expenses (excluding depreciation and amortization)	~~131~~124		~~108~~122
Depreciation and amortization expenses	6264		5354
General and administrative expenses	63		1311
Operating Income	$	63	$	77
Loss on asset disposals and impairments	1		—
Segment EBITDA (c)	$	129	$	133
Operating Income	$	59	$	69
Segment EBITDA (c)	$	128	$	128
Rates (d)
Average margin on NGL sales per barrel (b)(c)	$	~~103~~93.7651	$	5359.2277
Average gas gathering and processing revenue per MMBtu	$	1.1116	$	1.1316
Average crude oil and water gathering revenue per barrel	$	21.0351	$	2.0812

Financial Results

Our Gathering and Processing segment’s operating income decreased $1410 million, or 1814%, in the 2019 Quarter compared to the 2018 Quarter. ~~Segment~~driven ~~EBITDA~~by ~~decreased~~the $4 14 million, ornon-cash 3%adjustment discussed further below. However, insegment EBITDA remained consistent between the 2019 Quarter ~~compared~~and to the 2018 Quarter.

~~Revenues~~Gas ~~for~~gathering ~~our crude oil~~ and ~~water~~processing ~~gathering~~revenues ~~systems~~decreased ~~improved~~ due to ~~the~~lower ~~impact~~volumes ~~from operations obtained~~ in the ~~2018~~Rockies ~~Drop Down~~Region, ~~which~~partially ~~increased~~offset ~~the~~by ~~throughput~~higher ~~volumes~~revenues ~~and improved our tariff mix. Revenues also increased~~ due to ~~continued~~higher ~~strong~~volumes ~~volume~~in ~~growth~~the inBakken ~~our~~region ~~Permian~~from ~~crude~~expanded ~~oil~~capacity ~~gathering~~at ~~during~~our ~~the~~Robinson ~~2019~~Lake ~~Quarter~~facility.

~~NGL~~Crude ~~sales~~oil and ~~expenses~~water ~~increased~~gathering ~~primarily~~revenues decreased due to a ~~new~~non-cash, ~~contract~~out inof ~~the~~period ~~2019~~adjustment ~~Quarter~~to ~~associated~~reduce ~~with~~revenue ~~the~~recognized ~~North~~by ~~Dakota~~$14 ~~NGL~~million ~~Logistics~~for ~~Hub,~~a ~~which~~crude ~~offset~~oil ~~lower~~gathering ~~sales~~contract ~~and~~during ~~expenses~~the ~~due~~2019 toQuarter ~~ethane~~partially ~~rejection~~offset inby ~~the~~contributions ~~Rockies~~and ~~region~~growth ~~during~~from the ~~2019~~2018 ~~Quarter~~Drop Down assets.

~~Gas~~NGL ~~gathering~~expenses ~~and processing revenues~~ decreased due to ~~lower~~planned ~~volumes~~downtime induring the ~~Rockies~~2019 ~~region,~~Quarter ~~partially~~for ~~offset~~an byexpansion ~~higher~~project ~~revenues due to higher volumes in the Bakken region from expanded capacity~~ at our Robinson Lake facility~~. Also~~, ~~our~~which ~~Belfield~~resulted ~~facility had higher revenues due to new well connects~~ in ~~the~~lower ~~area~~NGL ~~during the 2019 Quarter~~production.

Operating expenses increased primarily due to the ~~acquired operations in~~ 2018, ~~higher~~Drop ~~expenses~~Down ~~associated~~assets ~~with a legal reserve for an ongoing contract dispute, higher labor costs~~ and ~~higher~~growth ~~volume-driven~~projects ~~crude~~placed ~~trucking~~into ~~expenses in the 2019 Quarter~~service. ~~In addition, we recorded higher transportation and fractionation costs in the Rockies region compared to prior year.~~

Depreciation and amortization expenses increased $9 10 million due to projects that were placed in service after the 2018 Quarter, including projects from the 2018 Drop Down.


(a)	Adjusted to include the historical results of the Predecessors.

(b) We had 2933.74 Mbpd and 2621.79 Mbpd of gross NGL sales under our agreements for POP and keep-whole arrangements for the 2019 Quarter and 2018 Quarter, respectively. We retained 67.82 Mbpd and 119.81 Mbpd under these arrangements, respectively. The difference between gross sales barrels and barrels retained is reflected in NGL expense resulting from the gross presentation required for the POP arrangements. The increase in average margin on NGL sales per barrel is driven by lower in NGL sales volumes primarily due to ethane rejection position in the Rockies ~~region~~Region during the 2019 Quarter compared to ethane recovery position during the 2018 Quarter.


(c)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(d)	Amounts may not recalculate due to rounding of dollar and volume information.

~~March~~2019 ~~31,~~Year ~~2019~~to |Date 29Period Versus 2018 Year to Date Period

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.



30 \|



Management’s Discussion and Analysis

Segment Volumetric Data


(a)	Volumes represent barrels sold in keep-whole arrangements, net barrels retained in POP arrangements and other associated products.

Volumes

NGL sales volumes decreased in the 2019 Period as compared to the 2018 Period primarily due to ethane rejection in the Rockies Region in the 2019 Period and ethane recovery in the 2018 Period. There was planned downtime during the 2019 Period to enable an expansion project at our Robinson Lake facility. The decrease in gas gathering and processing throughput volumes of 98 thousand MMBtu/d, or 12%, in the 2019 Period as compared to the 2018 Period was primarily due to lower volumes in the Rockies Region as certain low-tariff processing agreements expired during second quarter of 2018 reducing our throughput approximately 45 thousand MMBtu/d. In certain regions in which we operate, low natural gas prices provide challenges to new volume growth. As a result, we encountered declining volumes during the period and certain of our assets were not operated at full capacity. The lower volumes in the Rockies Region were partially offset by higher volumes in the Bakken region driven by processing plant capacity expansions and new well connections. Crude oil and water throughput volumes increased 146 Mbpd, or 36%, in the 2019 Period led by contributions from the 2018 Drop Down primarily driven by the growth on the Conan Crude Oil Gathering System.



		June 30, 2019 \| 31



Management’s Discussion and Analysis

Gathering and Processing Segment Results (in millions, except per barrel and per MMBtu amounts)



	Six Months Ended June 30,
	2019		2018 (a)
Revenues
NGL sales (b)	$	216	$	199
Gas gathering and processing	145		167
Crude oil and water gathering	176		155
Pass-thru and other	68		79
Total Revenues	605		600
Costs and Expenses
NGL expense (excluding items shown separately below) (b)	92		93
Operating expenses (excluding depreciation and amortization)	255		230
Depreciation and amortization expenses	126		107
General and administrative expenses	9		24
Loss on asset disposals and impairments	1		—
Operating Income	$	122	$	146
Segment EBITDA (c)	$	257	$	261
Rates (d)
Average margin on NGL sales per barrel (b)(c)	$	98.46	$	55.81
Average gas gathering and processing revenue per MMBtu	$	1.13	$	1.14
Average crude oil and water gathering revenue per barrel	$	1.76	$	2.11

Financial Results

Our Gathering and Processing segment’s operating income decreased $24 million, or 16%, in the 2019 Period compared to the 2018 Period primarily driven by the $14 million non-cash adjustment discussed further below. Segment EBITDA decreased $4 million, or 2%, in the 2019 Period compared to the 2018 Period.

NGL sales increased primarily due to a new contract in the 2019 Period associated with the North Dakota NGL Logistics Hub, which offset lower sales due to ethane rejection in the Rockies Region and planned downtime during the 2019 Period for an expansion project at our Robinson Lake facility.

Gas gathering and processing revenues decreased due to lower volumes in the Rockies Region, partially offset by higher revenues due to higher volumes in the Bakken region from expanded capacity at our Robinson Lake facility. Also, our Belfield facility had higher revenues due to new well connects in the area during the 2019 Period.

Revenues for our crude oil and water gathering systems improved due to contributions and growth from assets obtained in the 2018 Drop Down, but were partially offset by a non-cash, out of period adjustment to reduce revenue recognized by $14 million for a crude oil gathering contract during the 2019 Period.

Operating expenses increased primarily due to the 2018 Drop Down assets, growth projects placed into service and a legal reserve to settle a customer dispute.

Depreciation and amortization expenses increased $19 million due to projects that were placed in service after the 2018 Period, including projects from the 2018 Drop Down.


(a)	Adjusted to include the historical results of the Predecessors.

(b)

We had 31.6 Mbpd and 24.3 Mbpd of gross NGL sales under our agreements for POP and keep-whole arrangements for the 2019 Period and 2018 Period, respectively. We retained 7.0 Mbpd and 10.4 Mbpd under these arrangements, respectively. The difference between gross sales barrels and barrels retained is reflected in NGL expense resulting from the gross presentation required for the POP arrangements. The increase in average margin on NGL sales per barrel is driven by lower NGL sales volumes primarily due to ethane rejection position in the Rockies Region during the 2019 Period compared to ethane recovery position during the 2018 Period.


(c)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(d)	Amounts may not recalculate due to rounding of dollar and volume information.



32 \|



Management’s Discussion and Analysis

Wholesale

2019 ~~1st~~2nd Quarter Versus 2018 ~~1st~~2nd Quarter

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.

Wholesale Segment Operating Results and Data (in millions, except per gallon amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,
	2019			2018
Revenues
Fuel sales	$	1217		$	915
Other wholesale	106			810
Total Revenues	2223			1725
Costs and Expenses
Operating expenses (excluding depreciation and amortization)	139			1011
Depreciation and amortization expenses	32			32
General and administrative expenses	1—			—1
Operating Income	$	512		$	411
Segment EBITDA (a)	$	814		$	713
Volumes and Rates (b)
Fuel sales volumes (millions of gallons)	326			286
Fuel sales volume (millions of gallons)	334			306
Wholesale fuel sales per gallon		35.60	¢		35.10	¢

Financial Results

The Wholesale segment’s operating income was $512 million and $411 million for the 2019 Quarter and 2018 Quarter, respectively. Segment EBITDA was $814 million and $713 million, for the 2019 Quarter and 2018 Quarter, respectively.

The ~~increase~~decrease in revenues for the 2019 Quarter compared to the 2018 Quarter was ~~driven~~due byto alower ~~favorable~~revenue ~~wholesale~~associated ~~margin~~with ~~environment~~trucking ~~and~~services provided to our other segments, partially offset by higher fuel sales driven by higher fuel sales volumes.

Volumes

Fuel sales volumes increased 4028 million gallons in the 2019 Quarter as compared to the 2018 Quarter due to new customer contracts entered into after the 2018 Quarter.


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(b)	Amounts may not recalculate due to rounding of dollar and volume information.

June 30, 2019 | 33



Management’s Discussion and Analysis

2019 Year to Date Period Versus 2018 Year to Date Period

Highlights (in millions)


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.

Wholesale Segment Operating Results and Data (in millions, except per gallon amounts)



	Six Months Ended June 30,
	2019			2018
Revenues
Fuel sales	$	29		$	24
Other wholesale	16			18
Total Revenues	45			42
Costs and Expenses
Operating expenses (excluding depreciation and amortization)	22			21
Depreciation and amortization expenses	5			5
General and administrative expenses	1			1
Operating Income	$	17		$	15
Segment EBITDA (a)	$	22		$	20
Volumes and Rates (b)
Fuel sales volume (millions of gallons)	660			593
Wholesale fuel sales per gallon		4.3	¢		4.1	¢

Financial Results

The Wholesale segment’s operating income was $17 million and $15 million, and Segment EBITDA was $22 million and $20 million for the 2019 Period and 2018 Period, respectively.

The increase in revenues for the 2019 Period compared to the 2018 Period was driven by higher volumes and an improved wholesale margin environment.

Volumes

Fuel sales volumes increased 67 million gallons in the 2019 Period as compared to the 2018 Period primarily due to new customer contracts entered into after the 2018 Period.


(a)	See “Non-GAAP Reconciliations” section for further information regarding this non-GAAP measure.


(b)	Amounts may not recalculate due to rounding of dollar and volume information.



34 \|



Management’s Discussion and Analysis

Capital Resources and Liquidity

Overview

Our primary cash requirements relate to funding capital expenditures, acquisitions, meeting operational needs, servicing our debt and paying distributions to our unitholders. We expect our ongoing sources of liquidity to include cash generated from operations, reimbursement for certain maintenance and expansion expenditures and borrowings under our credit facilities~~, including the MPC Loan Agreement~~. We believe that cash generated from these sources will be sufficient to meet our short-term working capital, long-term capital expenditure, acquisition and debt servicing requirements and allow us to fund at least the minimum quarterly cash distributions. In addition, the ~~MPLX~~ Merger Agreement ~~restricts~~restricted us from incurring any additional indebtedness outside the ordinary course of business. The ~~MPLX~~ Merger Agreement ~~allows~~allowed the use of our revolving credit agreements, including the MPC Loan Agreement. See “Important Information Regarding Forward-Looking Statements” for further information related to risks and other factors. Future capital expenditures, as well as borrowings under our credit agreements and other sources of capital, may be affected by these conditions.

Capitalization

Capital Structure (in millions)

Debt, including current maturities:	~~March~~June 3130, 2019			December 31, 2018
Credit facilities	$	1,~~404~~500		$	1,245
Senior notes	3,750			3,750
Finance lease obligations	13			—
Capital lease obligations	—			15
Total Debt	5,~~167~~263			5,010
Unamortized Issuance Costs	(4240		)	(46		)
Debt, Net of Unamortized Issuance Costs	5,~~125~~223			4,964
Total Equity	4,~~590~~534			4,674
Total Capitalization	$	9,~~715~~757		$	9,638

Debt Overview and Available Liquidity

Our Revolving Credit Facility, Dropdown Credit Facility, MPC Loan Agreement and senior notes contain covenants that may, among other things, limit or restrict our ability (as well as the ability of our subsidiaries) to engage in certain activities. ~~There~~As of June 30, 2019, there have been no changes in these covenants from those described in our Annual Report on Form 10-K for the year ended December 31, 2018. As of ~~March~~June 3130, 2019, our Revolving Credit Facility is non-recourse to Marathon, except for TLGP, and our Dropdown Credit Facility is non-recourse to Marathon, except for TLGP and ~~Western~~WR ~~Refining~~ Southwest~~, Inc~~.

Available Capacity Under Credit Facilities (in millions) (a)

Credit Facility	Total Capacity		Amount Borrowed as of ~~March~~June 3130, 2019		Available Capacity as of ~~March~~June 3130, 2019		Weighted Average Interest Rate		Expiration
Revolving Credit Facility	$	1,100	$	~~999~~1,070	$	~~101~~30	43.2490	%	January 29, 2021
Dropdown Credit Facility	1,000		~~405~~430		~~595~~570		43.5292	%	January 29, 2021
MPC Loan Agreement	500		—		500		—	%	December 21, 2023
Total Credit Facilities	$	2,600	$	1,~~404~~500	$	1,~~196~~100

~~March~~(a) 31In conjunction with the MPLX Merger, on July 30, 2019, |all 31outstanding borrowings and unpaid fees on our credit facilities were repaid and the agreements were terminated, including the MPC Loan Agreement.



		June 30, 2019 \| 35



Management’s Discussion and Analysis

Revolving Credit Facilities Expense and Fees

Credit Facility	30 Day Eurodollar (LIBOR) Rate at ~~March~~June 3130, 2019	Eurodollar Margin	Base Rate	Base Rate Margin	Commitment Fee (unused portion)
Revolving Credit Facility (a)	2.4940%	1.7550%	5.50%	0.7550%	0.~~300~~250%
Dropdown Credit Facility (a)	2.4940%	1.7651%	5.50%	0.7651%	0.~~300~~250%
MPC Loan Agreement	2.4940%	1.75%

(a)

We have the option to elect whether our borrowings will bear interest at a base rate plus the base rate margin, or a Eurodollar rate, for the applicable period, plus the Eurodollar margin at the time of the borrowing. The applicable margin varies based upon a certain leverage ratio, as defined by the Revolving Credit Facility. We also incur commitment fees for the unused portion of the Revolving Credit Facility at an annual rate. Letters of credit outstanding under the Revolving Credit Facility incur fees at the Eurodollar margin rate.

Equity Overview

Our partnership agreement authorizes us to issue an unlimited number of additional partnership securities on the terms and conditions determined by our general partner without the approval of the unitholders. Costs associated with the issuance of securities are allocated to all unitholders’ capital accounts based on their ownership interest at the time of issuance. We had 89,~~389~~457,~~835~~316 common public units and 600,000 Preferred Units outstanding as of ~~March~~June 3130, 2019. Additionally, at that time, Marathon owned 156,173,128 of our common units, ~~constituting~~which constituted a 64% ownership interest in us. Marathon also held 80,000 TexNew Mex units and all of the outstanding non-economic general partner units as of ~~March~~June 3130, 2019. See Note 1 and Note 7 for discussion of the MPLX Merger.

Cash Flow Summary

Components of our Cash Flows (in millions)

	Three Months Ended March 31,
	Six Months Ended June 30,
	2019			2018 (a)
Cash Flows From (Used in):
Operating activities	$	~~219~~483		$	~~266~~547
Investing activities	(~~119~~265		)	(~~324~~748		)
Financing activities	(81203		)	10170
Increase (Decrease) in Cash and Cash Equivalents	$	1915		$	(4831	)


(a)	Adjusted to include the historical results of the Predecessors.

Operating Activities

Net cash from operating activities decreased $4764 million to $~~219~~483 million in the 2019 ~~Quarter~~Period compared to $~~266~~547 million for the 2018 ~~Quarter~~Period. The decrease in cash from operating activities was primarily driven by the change in working capital partially offset by an increase in net earnings from the 2018 ~~Quarter~~Period to the 2019 ~~Quarter~~Period.

Investing Activities

Net cash used in investing activities for the 2019 ~~Quarter~~Period was $~~119~~265 million compared to $~~324~~748 million in the 2018 ~~Quarter~~Period. The decrease in cash used was primarily due to the cash paid for acquisitions in each period. The 2018 ~~Quarter~~Period included the acquisition of the SLC Core Pipeline System and ownership interests in ALRP and PNAC, which were acquired by our Predecessors. There were no material acquisitions during the 2019 ~~Quarter~~Period. The decrease was also due to lower cash spend on capital expenditures during the 2019 ~~Quarter.~~Period, ~~See~~partially ~~“Capital~~offset ~~Expenditures”~~by ~~below~~contributions ~~for~~paid ato ~~discussion~~our ofALRP ~~the~~equity ~~expected~~method ~~capital~~investment ~~expenditures~~during ~~for~~ the ~~year~~2019 ~~ended~~Period ~~December 31,~~of ~~2019~~$13 million.

Financing Activities

The 2019 ~~Quarter~~Period had net cash used in financing activities of $81203 million compared to net cash from financing activities of $10170 million for the 2018 ~~Quarter~~Period. The use of our cash to make distributions to common and preferred unitholders increased $3369 million and $13 million, respectively. ~~There~~The ~~was~~2018 aPeriod ~~decrease~~also inincluded ~~cash~~a ~~from~~ sponsor ~~contributions~~contribution of equity to the Predecessors of $~~197~~336 million ~~due~~in toconnection with the 2018 Drop Down. Sources of cash such as net borrowings under our revolving credit facilities increased by $~~139~~13 million.

Capital Expenditures

Without giving effect to the proposed MPLX Merger, we expect our capital expenditures for the year ended December 31, 2019 to be approximately $800 million, or approximately $700 million net of reimbursements primarily from our Sponsor with whom we contract to provide services. During the 2019 ~~Quarter~~Period, we spent $~~100~~201 million on growth capital projects, net of $411 million in reimbursements primarily from our Sponsor, and $630 million on maintenance capital projects, net of $1216 million in reimbursements primarily from our Sponsor. ~~There have been no other material changes to committed amounts for capital projects discussed in our Annual Report on Form 10-K for the year ended December 31, 2018.~~

Distributions

Our partnership agreement, as amended, sets forth the calculation to be used to determine the amount and priority of cash distributions that the limited partner unitholders will receive.

32 |

Management’s Discussion and Analysis

Quarterly Distributions

For both the three months ended March 31, 2019 and December 31, 2018, we declared distributions of $1.03 per limited partnership common unit or $4.12 on an annualized basis, resulting in cash distributions of $240 million and $238 million, respectively. ~~The~~We did not declare a distribution for the second quarter ~~ended~~of ~~March 31,~~ 2019 ~~will~~due beto ~~paid~~the ~~May 15,~~MPLX ~~2019~~Merger. toSee ~~unitholders~~Note of7 ~~record~~for asfurther ofinformation ~~May 9,~~regarding ~~2019~~distributions.

~~During~~36 ~~the three months ended March 31, 2019 and 2018, we paid distributions of $21 million and $8 million, respectively, to holders of our Preferred Units.~~|



Management’s Discussion and Analysis

During the six months ended June 30, 2019 and 2018, we paid distributions of $21 million and $8 million, respectively, to holders of our Preferred Units. We did not declare a distribution associated with the Preferred Units for the first half of 2019 due to the MPLX Merger. See Note 7 for further information regarding distributions.

Environmental and Other Matters

Environmental Regulation

We are subject to extensive federal, state and local environmental laws and regulations. These laws, which change frequently, regulate the discharge of materials into the environment or otherwise relate to protection of the environment. Compliance with these laws and regulations may require us to remediate environmental damage from any discharge of petroleum, natural gas or chemical substances from our facilities or require us to install additional pollution control equipment on our equipment and facilities. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory and remedial liabilities, and the issuance of injunctions that may subject us to additional operational constraints.

Future expenditures may be required to comply with the federal, state and local environmental requirements for our various sites, including our storage facilities, pipelines, gas processing complexes and refined products terminals. The impact of these legislative and regulatory developments, if enacted or adopted, could result in increased compliance costs and additional operating restrictions on our business, each of which could have an adverse impact on our liquidity, financial position or results of operations. See our discussion of the Amended Omnibus Agreement and the Carson Assets Indemnity Agreement in Note 3 of our Annual Report on Form 10-K for the year ended December 31, 2018, for more information regarding the indemnification of certain environmental matters provided to us by our Sponsor and discussion of other certain environmental obligations.

Non-GAAP Reconciliations

Reconciliation of Net Earnings to EBITDA (in millions)



		June 30, 2019 \| 37



Management’s Discussion and Analysis

Reconciliation of Segment Operating Income to Segment EBITDA (in millions)

	Three Months Ended March 31,
	Three Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)		2019		2018
	Terminalling and Transportation				Gathering and Processing				Wholesale
Segment Operating Income	$	~~152~~146	$	~~104~~107	$	6359	$	7769	$	512	$	411
Depreciation and amortization expenses	3638		3337		6264		5354		32		32
Equity in earnings of equity method investments	34		5		45		35		—		—
Other income, net	—7		12		—		—		—		—
Segment EBITDA	$	~~191~~195	$	~~143~~151	$	~~129~~128	$	~~133~~128	$	814	$	713
	Six Months Ended June 30,
	2019		2018 (a)		2019		2018 (a)		2019		2018
	Terminalling and Transportation				Gathering and Processing				Wholesale
Segment Operating Income	$	298	$	211	$	122	$	146	$	17	$	15
Depreciation and amortization expenses	74		70		126		107		5		5
Equity in earnings of equity method investments	7		10		9		8		—		—
Other income, net	7		3		—		—		—		—
Segment EBITDA	$	386	$	294	$	257	$	261	$	22	$	20


(a)	Adjusted to include the historical results of the Predecessors.

March 31, 2019 | 33

Management’s Discussion and Analysis

Reconciliation of EBITDA to Distributable Cash Flow (in millions)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
EBITDA	$	~~319~~327		$	~~275~~285		$	646		$	560
Predecessors impact	—			29			—			11
Maintenance capital expenditures (b)	(2944		)	(22		)	(73		)	(44		)
Reimbursement for maintenance capital expenditures (b)	1521			6			36			12
Changes in deferred revenue (c)	114			(32		)	15			(5		)
Interest and financing costs, net	(61		)	(55		)
Loss on assets disposals and impairments	2			1			2			1
Amortized debt costs	2			3
Interest and financing costs, net	(63		)	(60		)	(124		)	(115		)
Adjustments for equity method investments	7			3
Amortized debt costs	3			2			5			5
Other (d)	11			—
Adjustments for equity method investments	3			5			10			8
Distributable Cash Flow	265			209
Other (d)	(4		)	—			7			—
Less: Preferred unit distributions (e)	(10		)	(10		)
Distributable Cash Flow	259			224			524			433
Distributable Cash Flow Attributable to Common Unitholders	$	255		$	199
Less: Preferred unit distributions (e)	(10		)	(10		)	(20		)	(20		)
Distributable Cash Flow Attributable to Common Unitholders	$	249		$	214		$	504		$	413


(a)	Adjusted to include the historical results of the Predecessors.


(b)	We adjust our reconciliation of distributable cash flows for maintenance capital expenditures, tank restoration costs and expenditures required to ensure the safety, reliability, integrity and regulatory compliance of our assets with an offset for any reimbursements received for such expenditures.


(c)	Included in changes in deferred revenue are adjustments to remove the impact of the adoption of the new revenue recognition accounting standard on January 1, 2018 as well as the impact from the timing of recognition with certain of our contracts that contain minimum volume commitment with clawback provisions.


(d)	Other includes transaction costs related to recent acquisitions and non-cash legal reserves.

(e) Represents the cash distributions earned by the Preferred Units for the three and six months ended ~~March~~June 3130, 2019 and 2018 assuming a distribution is declared by the Board, however, we did not declare a distribution for the first half of 2019 due to the MPLX Merger. Cash distributions to be paid to holders of the Preferred Units are not available to common unitholders.



38 \|



Management’s Discussion and Analysis

Reconciliation of Net Cash from Operating Activities to Distributable Cash Flow (in millions)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
Net Cash from Operating Activities	$	~~219~~264		$	~~266~~281		$	483		$	547
Changes in assets and liabilities	4316			(3851		)	59			(89		)
Predecessors impact	—			29			—			11
Maintenance capital expenditures (b)	(2944		)	(22		)	(73		)	(44		)
Reimbursement for maintenance capital expenditures (b)	1521			6			36			12
Changes in deferred revenue (c)	114			(32		)	15			(5		)
Adjustments for equity method investments	(7		)	(14		)	—			3
Other (d)	9(5		)	(1		)	4			(2		)
Distributable Cash Flow	~~265~~259			~~209~~224			524			433
Less: Preferred unit distributions (e)	(10		)	(10		)	(20		)	(20		)
Distributable Cash Flow Attributable to Common Unitholders	$	~~255~~249		$	~~199~~214		$	504		$	413


(a)	Adjusted to include the historical results of the Predecessors.


(b)	We adjust our reconciliation of distributable cash flows for maintenance capital expenditures, tank restoration costs and expenditures required to ensure the safety, reliability, integrity and regulatory compliance of our assets with an offset for any reimbursements received for such expenditures.


(c)	Included in changes in deferred revenue are adjustments to remove the impact of the adoption of the new revenue recognition accounting standard on January 1, 2018 as well as the impact from the timing of recognition with certain of our contracts that contain minimum volume commitment with clawback provisions.


(d)	Other includes transaction costs related to recent acquisitions and non-cash legal reserves.

34 |

Management’s Discussion and Analysis

Average Margin on NGL Sales per Barrel (in millions, except days and per barrel amounts)

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018 (a)			2019			2018 (a)
Segment Operating Income	$	6359		$	7769		$	122		$	146
Add back:
Operating expenses	~~131~~124			~~108~~122			255			230
General and administrative expenses	63			1311			9			24
Depreciation and amortization expenses	6264			5354			126			107
Subtract:
Loss on asset disposals and impairments	1			—			1			—
Gas gathering and processing revenues	(70		)	(85		)
Subtract:
Crude oil gathering revenues	(97		)	(75		)
Gas gathering and processing revenues	(75		)	(82		)	(145		)	(167		)
Pass-thru and other revenues	(32		)	(35		)
Crude oil gathering revenues	(79		)	(80		)	(176		)	(155		)
Margin on NGL Sales	$	63		$	56
Pass-thru and other revenues	(36		)	(44		)	(68		)	(79		)
Divided by Total Volumes for the Period:
Margin on NGL Sales	$	61		$	50		$	124		$	106
NGLs sales volumes (Mbpd)	6.8			11.8
Divided by Total Volumes for the Period:
Number of days in the period	90			90
NGLs sales volumes (Mbpd)	7.2			9.1			7.0			10.4
Total volumes for the period (thousands of barrels) (b)	612			1,062
Number of days in the period	91			91			181			181
Average Margin on NGL Sales per Barrel (b)	$	103.76		$	53.22
Total volumes for the period (thousands of barrels) (b)	655			828			1,267			1,882
Average Margin on NGL Sales per Barrel (b)	$	93.51		$	59.77		$	98.46		$	55.81


(a)	Adjusted to include the historical results of the Predecessors.


(b)	Amounts may not recalculate due to rounding of dollar and volume information.

~~March~~June 3130, 2019 | 3539



Management’s Discussion and Analysis

Important Information Regarding Forward-Looking Statements

This report (including information incorporated by reference) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact, including without limitation statements regarding expectations regarding revenues, cash flows, capital expenditures, and other financial items, our business strategy, goals and expectations concerning our market position, future operations and profitability, are forward-looking statements. Forward-looking statements may be identified by use of the words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” and similar terms and phrases. Although we believe our assumptions concerning future events are reasonable, a number of risks, uncertainties and other factors could cause actual results and trends to differ materially from those projected, including, but not limited to:

• ~~our~~risks ~~ability~~related to ~~achieve~~Marathon, ~~expected~~including ~~coverage~~those ~~improvement~~related ~~and~~to ~~distributable~~the ~~cash~~MPC ~~growth~~Merger or the MPLX Merger;

• our ability to execute a funding model with no additional equity issuances and limited parent support;

• risks related to Marathon, including those related to Marathon’s acquisition of Andeavor or the proposed MPLX Merger;


•	changes in the expected value of and benefits derived from acquisitions, including any inability to successfully integrate acquisitions, realize expected synergies or achieve operational efficiency and effectiveness;


•	the effects of changes in global economic conditions on our business, on the business of our key customers, and on our customers’ suppliers, business partners and credit lenders;


•	a material change in the crude oil and natural gas produced in the basins where we operate;


•	the ability of our key customers to remain in compliance with the terms of their outstanding indebtedness;


•	changes in insurance markets impacting costs and the level and types of coverage available;


•	regulatory and other requirements concerning the transportation of crude oil, natural gas, NGLs and refined products, particularly in the areas where we operate;


•	changes in the cost or availability of third-party vessels, pipelines and other means of delivering and transporting crude oil, feedstocks, natural gas, NGLs and refined products;


•	the coverage and ability to recover claims under our insurance policies;


•	the availability and costs of crude oil, other refinery feedstocks and refined products;


•	the timing and extent of changes in commodity prices and demand for refined products, natural gas and NGLs;


•	changes in our cash flow from operations;


•	changes in our tax status;


•	the ability of our largest customers to perform under the terms of our gathering agreements;


•	the risk of contract cancellation, non-renewal or failure to perform by those in our supply and distribution chains, and the ability to replace such contracts and/or customers;


•	the suspension, reduction or termination of Marathon’s obligations under our commercial agreements and our secondment agreements;


•	a material change in profitability among our customers;


•	direct or indirect effects on our business resulting from actual or threatened terrorist or activist incidents, cyber-security breaches or acts of war;


•	weather conditions, earthquakes or other natural disasters affecting operations by us or our key customers or the areas in which our customers operate;


•	disruptions due to equipment interruption or failure at our facilities, Marathon’s facilities or third-party facilities on which our key customers are dependent;


•	our inability to complete acquisitions on economically acceptable terms or within anticipated timeframes;


•	actions of customers and competitors;


•	changes in our credit profile;


•	changes to our capital budget;


•	state and federal environmental, economic, health and safety, energy and other policies and regulations, including those related to climate change, and any changes therein, and any legal or regulatory investigations, delays in obtaining necessary approvals and permits, compliance costs or other factors beyond our control;


•	operational hazards inherent in refining and natural gas processing operations and in transporting and storing crude oil, natural gas, NGLs and refined products;


•	changes in capital requirements or in expected timing, execution and benefits of planned capital projects;


•	seasonal variations in demand for natural gas and refined products;


•	adverse rulings, judgments, or settlements in litigation or other legal or tax matters, including unexpected environmental remediation costs in excess of any accruals, which affect us or Marathon;


•	risks related to labor relations and workplace safety;


•	political developments; and


•	the factors described in greater detail under “Competition” and “Risk Factors” in Items 1 and 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q, and our other filings with the SEC.

All forward-looking statements included in this report are based on information available to us on the date of this report. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.

3640 |



Quantitative and Qualitative Disclosures about Market Risk

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our market risks as of and for the ~~three~~six months ended ~~March~~June 3130, 2019 from the risks discussed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that the information that we are required to disclose in reports we file under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is accumulated and appropriately communicated to management. There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the ~~first~~second quarter of 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We carried out an evaluation required by Rule 13a-15(b) of the Exchange Act, under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures at the end of the reporting period. Based on that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the reporting period.

~~March~~June 3130, 2019 | 3741



Legal Proceedings, Risk Factors and Unregistered Sales of Equity Securities

Part II - Other Information

Item 1. Legal Proceedings

Litigation Matters

In the ordinary course of business, we may become party to lawsuits, administrative proceedings and governmental investigations, including environmental, regulatory and other matters. The outcome of these matters cannot always be predicted accurately, but we accrue liabilities for these matters if we have determined that it is probable a loss has been incurred and the loss can be reasonably estimated. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, we believe there would be no material impact on our liquidity, financial position or results of operations.

Merger-Related Litigation

As previously disclosed, on June 19, 2019, a purported holder of our common units filed a complaint in the United States District Court for the Southern District of New York, captioned Max Pyziur v. Andeavor Logistics LP et al., Case No. 1:19-CV-05714, alleging, among other things, an omission of material information in the registration statement filed by MPLX, including a consent statement/prospectus, in connection with the MPLX Merger. On June 24, 2019, the plaintiff filed a notice of dismissal with the court, voluntarily dismissing the complaint.

Environmental Matters

SEC regulations require us to report certain information about any proceeding arising under federal, state or local provisions regulating the discharge of materials into the environment or protecting the environment if a governmental authority is a party to the proceeding and we reasonably believe that the proceeding will result in monetary sanctions of $100,000 or more. There were no new proceedings during the ~~first~~second quarter of 2019. While it is not possible to predict the outcome of such proceedings, if one or more of them were decided against us, we believe there would be no material impact on our liquidity, financial position or results of operations.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 ~~other than the risks described below related to the pending MPLX Merger~~.

The pending merger between us and MPLX (the “MPLX Merger”) is subject to conditions, including certain conditions that may not be satisfied or completed on a timely basis, if at all. Failure to complete the MPLX Merger could have a material and adverse effect on us and, even if completed, the MPLX Merger may not achieve some or all of the anticipated benefits.

On May 8, 2019, we, together with MPLX and MPC, announced that we entered into the MPLX Merger Agreement. Completion of the MPLX Merger is subject to a number of customary conditions set forth in the MPLX Merger Agreement, including approval by a majority of our unitholders, MPLX’s registration statement on Form S-4 having become effective under the Securities Act of 1933, the approval to list MPLX units issuable in connection with the MPLX Merger on the New York Stock Exchange, the absence of any governmental order or law prohibiting the consummation of the MPLX Merger, the accuracy of each party’s representations and warranties under the MPLX Merger Agreement (subject to the materiality standards set forth in the MPLX Merger Agreement), our and MPLX’s performance of our respective obligations under the MPLX Merger Agreement in all material respects, and the receipt by both parties from their respective counsels of a written opinion regarding the U.S. federal income tax treatment of the transaction. These and other conditions to the closing of the MPLX Merger may not be fulfilled in a timely manner or at all, and, accordingly, the MPLX Merger may be delayed or may not be completed.

If the MPLX Merger is not completed, our ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the MPLX Merger, we will be subject to a number of risks, including the following:

• we will be required to pay our costs relating to the MPLX Merger, such as legal, accounting and financial advisory expenses, whether or not MPLX Merger is completed;

• time and resources committed by our management to matters relating to MPLX Merger could otherwise have been devoted to pursuing other beneficial opportunities; and

• the market price of our common units could decline to the extent that the current market price reflects a market assumption that the MPLX Merger will be completed.

In addition, even if completed there can be no assurance that the MPLX Merger will deliver the strategic, financial and operational benefits anticipated by us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We may acquire units to satisfy tax withholdings obligations in connection with the vesting of units issued to certain employees. There were no such units acquired during the three months ended ~~March~~June 3130, 2019.

3842 |



Exhibits

Item 6. Exhibits

(a) Exhibits

Exhibit Number		Incorporated by Reference (File No. 1-35143, unless otherwise indicated)
	Description of Exhibit	Form	Exhibit	Filing Date
2.1	Contribution, Conveyance and Assumption Agreement, dated as of August 6, 2018, by and among Andeavor Logistics LP, Tesoro Logistics Operations LLC, Tesoro Logistics Pipelines LLC, Western Refining Terminals, LLC, Western Refining Pipeline, LLC, Tesoro High Plains Pipeline Company LLC, Western Refining Logistics LP, Tesoro SoCal Pipeline Company LLC, WNRL Energy, LLC, Andeavor, Tesoro Refining & Marketing Company LLC, Western Refining Southwest, Inc., Tesoro Great Plains Gathering & Marketing LLC and Tesoro Great Plains Midstream LLC	8-K	2.1	8/7/2018
2.2	First Amendment to Contribution, Conveyance and Assumption Agreement, effective August 6, 2018, by and among Andeavor Logistics LP, Tesoro Logistics Operations LLC, Tesoro Logistics Pipelines LLC, Western Refining Terminals, LLC, Western Refining Pipeline, LLC, Tesoro High Plains Pipeline Company LLC, Western Refining Logistics LP, Tesoro SoCal Pipeline Company LLC, WNRL Energy, LLC, Andeavor, Tesoro Refining & Marketing Company LLC, Western Refining Southwest, Inc., Tesoro Great Plains Gathering & Marketing LLC and Tesoro Great Plains Midstream LLC	10-Q	2.5	11/7/2018
2.3†	Agreement and Plan of Merger, dated as of May 7, 2019, by and among Andeavor Logistics LP, Tesoro Logistics GP, LLC, MPLX LP, MPLX GP LLC and MPLX MAX LLC.	8-K	2.1	5/8/2019
3.1	Amended and Restated Certificate of Limited Partnership of Andeavor Logistics LP, dated ~~October~~as 17of July 30, ~~2018~~2019.	8-K	3.12	108/291/~~2018~~2019
3.2	~~Third~~Fourth Amended and Restated Agreement of Limited Partnership of Andeavor Logistics LP, dated ~~December~~as 1of July 30, ~~2017~~2019.	8-K	3.14	128/1/~~2017~~2019
3.3	First Amendment to Third Amended and Restated Agreement of Limited Partnership of Andeavor Logistics LP, dated October 1, 2018	8-K	3.2	10/2/2018
10.1	Support Agreement, dated as of May 7, 2019, by and among MPLX LP, Andeavor Logistics LP, Tesoro Logistics GP, LLC, Western Refining Southwest, Inc. and Marathon Petroleum Corporation	8-K	10.1	5/8/2019
*10.1	2011 Long-Term Incentive Plan Phantom Unit Award Agreement Officer - Grant (3-year Pro-rata vesting)
10.2	Waiver and Second Amendment to Fourth Amended and Restated Omnibus Agreement, dated as of July 29, 2019, by and among MPC, Andeavor Logistics LP, Tesoro Logistics GP, LLC, Tesoro Refining & Marketing Company LLC, Tesoro Companies, Inc., Tesoro Alaska Company LLC and Marathon Petroleum Company LP.	8-K	10.1	8/1/2019
10.2	Secondment Agreement, dated as of January 30, 2019, by and among Marathon Refining Logistics Services, LLC, Andeavor Logistics LP, Tesoro Logistics GP, LLC and certain other parties thereto	8-K	10.1	2/5/2019
10.3	Secondment Agreement, dated as of January 30, 2019, by and among Marathon Petroleum Logistics Services, LLC, Andeavor Logistics LP, Tesoro Logistics GP, LLC and certain other parties thereto	8.K	10.2	2/5/2019
10.4	First Amendment to Fourth Amended and Restated Omnibus Agreement, dated as of January 30, 2019, among Andeavor LLC, Marathon Petroleum Company LP, Tesoro Refining & Marketing Company LLC, Tesoro Companies, Inc., Tesoro Alaska Company LLC, Andeavor Logistics LP and Tesoro Logistics GP, LLC	10-K	10.147	2/28/2019
10.5	Support Agreement, dated as of May 7, 2019, by and among MPLX LP, Andeavor Logistics LP, Tesoro Logistics GP, LLC, Western Refining Southwest, Inc. and Marathon Petroleum Corporation	8-K	10.1	5/8/2019
*31.1	Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification by Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification by Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**101.INS	XBRL Instance Document
101.INS	The XBRL instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
**101.SCH	Inline XBRL Taxonomy Extension Schema Document
**101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~March~~* ~~31,~~Filed ~~2019 | 39~~herewith.

~~Exhibits~~** Submitted electronically herewith.

Exhibit Number		Incorporated by Reference (File No. 1-35143, unless otherwise indicated)
	Description of Exhibit	Form	Exhibit	Filing Date
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
**101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document


†	Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Andeavor Logistics LP hereby undertakes to furnish supplementally a copy of any omitted schedule upon request by the SEC.

*June ~~Filed~~30, ~~herewith~~2019 | 43

** Submitted electronically herewith

† Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. MPLX LP hereby undertakes to furnish supplementally a copy of any omitted schedule upon request by the SEC.

40 |

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		Andeavor Logistics LP
		By:	~~Tesoro~~Andeavor Logistics GP, LLC
			Its general partner
Date:	~~May~~August 95, 2019	By:	/s/ BLANE W. PEERY
			Blane W. Peery
			Vice President, Accounting and Systems Integration
			(Principal Accounting and Financial Officer and Duly Authorized Signatory)

~~March~~44 ~~31, 2019~~ | 41

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