VALERO L.P. AND VALERO LOGISTICS OPERATIONS, L.P.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS - (Continued)
NOTE 5: Related Party Transactions
The Partnership has related party transactions with Valero Energy for pipeline
tariff and terminalling fee revenues, certain employee costs, insurance costs,
administrative costs and interest expense on the debt due to parent (for the
period January 1, 2001 to April 15, 2001). The receivable from parent represents
the net amount due from Valero Energy for these related party transactions and
the net cash collected under Valero Energy's centralized cash management program
on the Partnership's behalf.
The following table summarizes transactions with Valero Energy:
Three Months Ended
Revenues.................................... $ 25,910 $ 23,272
Operating expenses.......................... 3,407 2,683
General and administrative expenses......... 1,300 1,300
Interest expense on debt due to parent...... - 2,154
Under the Services Agreement with the Partnership, Valero Energy has agreed to
provide the corporate functions of legal, accounting, treasury, information
technology and other services for an annual fee of $5,200,000 until July 2008.
The $5,200,000 is adjustable annually based on the Consumer Price Index
published by the U.S. Department of Labor, and may also be adjusted to take into
account additional service levels necessitated by the acquisition or
construction of additional assets. This annual fee is in addition to the
incremental general and administrative costs to be incurred from third parties
as a result of the Partnership being a publicly held entity.
The Services Agreement also requires that the Partnership reimburse Valero
Energy for various recurring costs of employees who work exclusively within the
pipeline, terminalling and storage operations and for certain other costs
incurred by Valero Energy relating solely to the Partnership. These employee
costs include salary, wages and benefit costs.
Under the Pipelines and Terminals Usage Agreement with the Partnership, Valero
Energy has agreed to use the Partnership's pipelines to transport at least 75%
of the crude oil shipped to and at least 75% of the refined products shipped
from the McKee, Three Rivers and Ardmore refineries and to use the Partnership's
refined product terminals for terminalling services for at least 50% of all
refined products shipped from these refineries until at least April 2008. For
the three months ended March 31, 2002, Valero Energy used the Partnership's
pipelines to transport 91% of its crude oil shipped to and 79% of the refined
products shipped from the McKee, Three Rivers and Ardmore refineries and Valero
Energy used the Partnership's terminalling services for 63% of all refined
products shipped from these refineries.
If market conditions change, either with respect to the transportation of crude
oil or refined products or to the end markets in which Valero Energy sells
refined products, in a material manner such that Valero Energy would suffer a
material adverse effect if it were to continue to use the Partnership's
pipelines and terminals at the required levels, Valero Energy's obligation to
the Partnership will be suspended during the period of the change in market
conditions to the extent required to avoid the material adverse effect. The
economic-based production cutbacks at the McKee, Three Rivers and Ardmore
refineries during the first quarter of 2002 were not considered a triggering
event under the Pipelines and Terminals Usage Agreement.