Western Refining Logistics, LP
Western Refining Logistics, LP (Form: 10-Q, Received: 11/03/2016 06:13:09)


 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 30, 2016
OR
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: 001-36114
WNRLCOLORA06.JPG
WESTERN REFINING LOGISTICS, LP
(Exact name of registrant as specified in its charter)
Delaware
 
46-3205923
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
123 W. Mills Avenue., Suite 200
 
79901
El Paso, Texas
 
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code: ( 915) 534-1400
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer þ
 
Non-accelerated filer o
 
Smaller reporting company 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
As of October 28, 2016 , there were 38,074,324 common units and 22,811,000 subordinated units outstanding.
 
 
 
 
 




WESTERN REFINING LOGISTICS, LP

TABLE OF CONTENTS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101



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FORWARD-LOOKING STATEMENTS
Certain statements included throughout this Quarterly Report on Form 10-Q and in particular under the section entitled Part I — Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations relating to matters that are not historical fact are forward-looking statements that represent management’s beliefs and assumptions based on currently available information. These forward-looking statements relate to matters such as our industry including the regulation of our industry, the expected outcomes of legal proceedings involving us or Western Refining, Inc. ("Western"), business strategy, future operations, acquisition opportunities, volatility of commodity prices, access to crude oil, demand for refined products, seasonality, gross margins, volumes, taxes, capital expenditures, liquidity and capital resources, sources of financing for acquisitions, maintenance and capital expenditures, distributions and other financial and operating information. Forward-looking statements give our current expectations, contain projections of results of operations or of financial condition or forecasts of future events. We have used the words “anticipate,” “assume,” “believe,” “budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “potential,” “predict,” “project,” “strategy,” “will,” “future” and similar terms and phrases to identify forward-looking statements in this report.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect or that are affected by unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. In addition, our business and operations involve numerous risks and uncertainties, many that are beyond our control that could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Quarterly Report on Form 10-Q. Actual events, results and outcomes may differ materially from our expectations due to a variety of factors. Although it is not possible to predict or identify all of these factors, they include, among others, the following:
changes in the business strategy or activity levels of Western that may be impacted by a variety of factors, including changes in crack spreads, changes in the spread between West Texas Intermediate ("WTI") crude oil and West Texas Sour ("WTS") crude oil, also known as the sweet/sour spread, changes in the spread between Western Canadian Select ("WCS") and WTI crude oil, changes in the spread between WTI crude oil and Dated Brent crude oil and between WTI Cushing crude oil and WTI Midland crude oil, and Western's post-merger integration with Northern Tier Energy LP;
changes in general economic conditions, including the price volatility of crude oil;
competitive conditions in our industry;
actions taken by third-party operators, processors and transporters;
the demand for crude oil, refined and other products and transportation and storage services;
the supply of crude oil in the regions in which we and Western operate;
interest rates;
labor relations;
changes in the availability and cost of capital;
changes in tax status;
operating hazards, natural disasters, weather-related delays, casualty losses and other matters, including those that may result in a force majeure event under our commercial agreements with Western, that may be beyond our control;
the effects of existing and future laws and governmental regulations and the manner in which they are interpreted and implemented;
changes in insurance markets impacting costs and the level and types of coverage available;
disruptions due to equipment interruption or failure at our facilities, Western’s facilities or third-party facilities on which our business is dependent;
our ability to successfully implement our business plan;
the effects of future litigation; and

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other factors discussed in more detail herein and under Part I. — Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015 .
Any one of these factors or a combination of these factors could materially affect our financial condition, results of operations or cash flows and could influence whether any forward-looking statements ultimately prove to be accurate. You are urged to consider these factors carefully in evaluating our forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements.
Although we believe the forward-looking statements we make in this report related to our plans, intentions and expectations are reasonable, we can provide no assurance that such plans, intentions or expectations will be achieved. These statements are based on assumptions made by us based on our experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate in the circumstances. Such statements are subject to a number of risks and uncertainties, many that are beyond our control. The forward-looking statements included herein are made only as of the date of this report and we are not required to (and will not) update any information to reflect events or circumstances that may occur after the date of this report, except as required by applicable law.

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Part I. Financial Information

Item 1.
Financial Statements
WESTERN REFINING LOGISTICS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except unit data)
 
September 30,
2016
 
December 31,
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
16,542

 
$
44,605

Accounts receivable:
 
 
 
Affiliate
54,176

 
44,014

Third-party, net of a reserve for doubtful accounts of $156 and $106, respectively
57,065

 
55,053

Inventories
11,130

 
15,200

Prepaid expenses
5,523

 
4,133

Other current assets
6,066

 
5,943

Total current assets
150,502

 
168,948

Property, plant and equipment, net
422,006

 
430,141

Intangible assets, net
6,813

 
7,757

Other assets
3,409

 
3,376

Total assets
$
582,730

 
$
610,222

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable:
 
 
 
Affiliate
$
122,091

 
$
92,031

Third-party
9,171

 
10,501

Accrued liabilities
34,181

 
30,624

Total current liabilities
165,443

 
133,156

Long-term liabilities:
 
 
 
Long-term debt
312,835

 
437,467

Other liabilities
9

 
9

Total long-term liabilities
312,844

 
437,476

Commitments and contingencies


 


Equity (Deficit):
 
 
 
Division equity

 
108,013

General Partner
(3,942
)
 
(1,085
)
TexNew Mex unitholders (80,000 units issued and outstanding)
(310
)
 
(310
)
Common unitholders - Public (28,866,477 and 15,866,761 units issued and outstanding, respectively)
601,991

 
327,351

Common unitholders - Western (9,207,847 and 8,579,623 units issued and outstanding, respectively)
(132,047
)
 
(105,090
)
Subordinated unitholders - Western (22,811,000 units issued and outstanding)
(361,249
)
 
(289,289
)
Total equity
104,443

 
39,590

Total liabilities and equity
$
582,730

 
$
610,222



Prior-period financial information has been retrospectively adjusted for the St. Paul Park Logistics Transaction.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WESTERN REFINING LOGISTICS, LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per unit data)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Fee based:
 
 
 
 
 
 
 
Affiliate
$
51,749

 
$
58,111

 
$
157,642

 
$
151,054

Third-party
814

 
787

 
2,181

 
2,089

Sales based:
 
 
 
 
 
 
 
Affiliate
131,405

 
158,848

 
355,459

 
456,195

Third-party
385,293

 
462,924

 
1,100,620

 
1,414,632

Total revenues
569,261

 
680,670

 
1,615,902


2,023,970

Operating costs and expenses:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Affiliate
128,792

 
156,388

 
347,811

 
449,087

Third-party
366,744

 
445,169

 
1,047,571

 
1,358,197

Operating and maintenance expenses
43,454

 
45,927

 
131,103

 
131,156

Selling, general and administrative expenses
6,483

 
5,812

 
17,854

 
18,517

Gain on disposal of assets, net
(62
)
 
(13
)
 
(963
)
 
(257
)
Depreciation and amortization
10,579

 
8,963

 
29,470

 
25,816

Total operating costs and expenses
555,990

 
662,246

 
1,572,846

 
1,982,516

Operating income
13,271

 
18,424

 
43,056

 
41,454

Other income (expense):
 
 
 
 
 
 
 
Interest and debt expense
(6,148
)
 
(6,204
)
 
(19,614
)
 
(16,416
)
Other income (expense), net
17

 
16

 
(87
)
 
51

Net income before income taxes
7,140

 
12,236

 
23,355

 
25,089

Provision for income taxes
(282
)
 
(3
)
 
(760
)
 
(354
)
Net income
6,858

 
12,233

 
22,595

 
24,735

Less net loss attributable to General Partner
(7,165
)
 
(4,260
)
 
(23,309
)
 
(22,996
)
Net income attributable to limited partners
$
14,023

 
$
16,493

 
$
45,904

 
$
47,731

 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
Common - basic
$
0.23

 
$
0.35

 
$
0.83

 
$
1.01

Common - diluted
0.23

 
0.35

 
0.83

 
1.01

Subordinated - basic and diluted
0.25

 
0.35

 
0.89

 
1.01

 
 
 
 
 
 
 
 
Weighted-average limited partner units outstanding:
 
 
 
 
 
 
 
Common - basic
30,884

 
24,017

 
27,260

 
24,006

Common - diluted
30,901

 
24,024

 
27,274

 
24,024

Subordinated - basic and diluted
22,811

 
22,811

 
22,811

 
22,811

 
 
 
 
 
 
 
 
Cash distributions declared per common unit
$
0.4125

 
$
0.3650

 
$
1.2075

 
$
1.0450


Prior-period financial information has been retrospectively adjusted for the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline Transaction.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WESTERN REFINING LOGISTICS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
22,595

 
$
24,735

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,470

 
25,816

Reserve for doubtful accounts
50

 
16

Amortization of loan fees
1,071

 
925

Unit-based compensation expense
2,014

 
1,476

Gain on disposal of assets, net
(963
)
 
(257
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable - Third-party
(2,562
)
 
(6,582
)
Accounts receivable - Affiliate
(10,162
)
 
9,886

Inventories
4,070

 
(2,961
)
Prepaid expenses
(1,390
)
 
(589
)
Other assets
4,373

 
(2,131
)
Accounts payable and accrued liabilities
32,143

 
3,076

Net cash provided by operating activities
80,709

 
53,410

Cash flows from investing activities:
 
 
 
Capital expenditures
(24,618
)
 
(53,708
)
Proceeds from sale of assets
1,005

 
453

Net cash used in investing activities
(23,613
)
 
(53,255
)
Cash flows from financing activities:
 
 
 
Additions to long-term debt

 
300,000

Borrowings on revolving credit facility
54,400

 

Payments on revolving credit facility
(179,100
)
 
(269,000
)
Proceeds from issuance of common units
277,751

 

Offering costs for issuance of common units
(417
)
 

Deferred financing costs
(1,002
)
 
(6,820
)
Quarterly distributions to Western
(41,071
)
 
(32,845
)
Quarterly distributions to common unitholders - public
(21,006
)
 
(16,560
)
Contributions from affiliate
20,286

 
42,144

Distribution to Western due to acquisitions
(195,000
)
 

Net cash provided by (used in) financing activities
(85,159
)

16,919

Net change in cash and cash equivalents
(28,063
)
 
17,074

Cash and cash equivalents at beginning of period
44,605

 
54,298

Cash and cash equivalents at end of period
$
16,542

 
$
71,372

Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
24,777

 
$
12,690

Income taxes paid
244

 
737

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
2,266

 
$
2,793

Transfer of capital spares from other assets to fixed assets
161

 

Accrued offering costs for issuance of WNRL common units
60

 

Acquisition of net assets from affiliate
104,990

 


Prior-period financial information has been retrospectively adjusted for the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline Transaction.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Organization
Western Refining Logistics, LP ("WNRL" or the "Partnership"), "we," "us," "our" and the "Company" refer to Western Refining Logistics, LP, and, unless the context otherwise requires, our subsidiaries. References to “Western” refer to Western Refining, Inc. WNRL is a Delaware limited partnership formed in July 2013, by Western Refining Logistics GP, LLC ("WRGP" or the "General Partner"), our general partner. WRGP is 100% owned by Western and holds all general partner interests in WNRL, all of which are non-economic interests. As of September 30, 2016 , Western owned 52.6% of the limited partner interest in WNRL and public unitholders held the remaining 47.4% . See Note 11, Equity , for additional information.
WNRL is principally a fee-based growth-oriented partnership that was formed to own, operate, develop and acquire logistics and related assets and businesses including terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. WNRL's businesses include 692 miles of pipelines, 12.4 million barrels of active terminal and pipeline storage capacity, distribution of wholesale petroleum products and crude oil and asphalt trucking.
On September 15, 2016 , we acquired certain terminalling, transportation and storage assets from a wholly-owned subsidiary of Western consisting of the Cottage Grove tank farm and certain terminals and storage assets located on site at Western's St. Paul Park refinery ("St. Paul Park Logistics Assets"). The St. Paul Park Logistics Assets primarily receive, store and distribute crude oil, feedstock and refined products associated with Western's St. Paul Park refinery . We acquired the St. Paul Park Logistics Assets from Western in exchange for $195 million in cash and 628,224 common units representing limited partner interests in WNRL. We refer to this transaction as the " St. Paul Park Logistics Transaction ." This transaction was between entities under common control and we recorded the purchase of the St. Paul Park Logistics Assets at Western's historical book value as required by GAAP . We funded the cash portion of the consideration through a combination of $20.3 million in direct borrowings under our revolving credit facility and $174.7 million of cash on hand, primarily generated from our equity offering of 8,625,000 common units during the third quarter of 2016. See Note 3, Acquisitions of Common Control Assets , for additional information.
On September 7, 2016 , we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 7,500,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on September 13, 2016. We also granted the underwriter an option to purchase additional common units on the same terms which was exercised in full and closed on September 30, 2016 , for 1,125,000 additional common units. See Note 11, Equity , for additional information.
On May 16, 2016, we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 3,750,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on May 20, 2016. We also granted the underwriters an option to purchase up to 562,500 additional common units on the same terms, which was exercised in full and closed on June 1, 2016. See Note 11, Equity , for additional information.
On October 30, 2015, WNRL acquired a segment of the TexNew Mex Pipeline system from Western that currently extends from our crude oil station in Star Lake, New Mexico, in the Four Corners region to our T station in Eddy County, New Mexico (the " TexNew Mex Pipeline System "). We also acquired an 80,000 barrel crude oil storage tank located at our crude oil pumping station in Star Lake, New Mexico and certain other related assets ("TexNew Mex Pipeline Acquisition") from Western. We acquired these assets in exchange for $170 million in cash, 421,031 common units representing limited partner interests in WNRL and 80,000 units of a class of limited partner interests in WNRL referred to as the "TexNew Mex Units." This transaction was between entities under common control and we recorded the purchase of the TexNew Mex Pipeline System assets at Western's historical book value as required by U.S. generally accepted accounting principles ("GAAP"). See Note 3, Acquisitions of Common Control Assets , for additional information.
The financial statements presented in this Quarterly Report on Form 10-Q have been retrospectively adjusted to include the combined financial results of the St. Paul Park Logistics Assets prior to September 15, 2016 , and the TexNew Mex Pipeline System prior to October 30, 2015. The historical operations of the St. Paul Park Logistics Assets prior to the St. Paul Park Logistics Transaction generally recorded operating costs and other expenses associated with storage and terminalling services and recorded no revenue. For periods subsequent to the St. Paul Park Logistics Transaction , the results of operations for the St. Paul Park Logistics Assets will reflect revenues based on contractual rates set forth in our commercial agreements with Western. See Note 17, Related Party Transactions , for additional information.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Our operations include two reporting segments: the logistics segment and the wholesale segment. See Note 4, Segment Information , for further discussion of our business segments.
2. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2016 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2016 , or for any other period. We have not reported comprehensive income due to the absence of items of other comprehensive income or loss during the periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015 .
Financial Instruments and Fair Value
Financial instruments that potentially subject us to concentrations of credit risk consist of accounts receivable. We believe that our credit risk is minimized as a result of the credit quality of our customer base. The carrying amounts of cash and cash equivalents, which we consider Level 1 assets, approximated their fair values at September 30, 2016 and December 31, 2015 , due to their short-term maturities.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
Effective January 1, 2016, we adopted the accounting and reporting requirements included in the Accounting Standards Codification ("ASC") for consolidation of limited partnerships or similar entities. We have applied the new standards retrospectively. The adoption of these revised standards did not result in any change to our consolidation conclusions or impact our financial position, results of operations or cash flows.
From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on our accounting and reporting. We are currently evaluating the effect that certain of these new accounting requirements may have on our accounting and related reporting and disclosures in our condensed consolidated financial statements.
Recognition and reporting of revenues - the requirements were amended to remove inconsistencies in revenue requirements and to provide a more complete framework for addressing revenue issues across a broad range of industries and transaction types. The revised standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The revised standard also addresses principal versus agent considerations and indicators related to transfer of control over specified goods. These provisions are effective January 1, 2018, and are to be applied retrospectively, with early adoption permitted for periods beginning after December 15, 2016, and interim periods thereafter.
Lease accounting - the requirements were amended with regard to recognizing lease assets and lease liabilities on the balance sheet and disclosing information about leasing arrangements. The core principle is that a lessee should recognize the assets and liabilities that arise from leases. These provisions are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted.
Employee share-based payment accounting - the requirements involve several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, classification in the statement of cash flows and forfeiture rate calculations. These provisions are effective for annual periods beginning after December 15, 2016, including interim periods within those annual periods. Early adoption is permitted in any interim or annual period.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Cash flow statement - the requirements address certain classification issues related to the statement of cash flows. These provisions are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is permitted in any interim or annual period.
Contingent put and call options in debt instruments - the requirements will reduce diversity of practice in identifying embedded derivatives in debt instruments and clarify the nature of an exercise contingency is not subject to the “clearly and closely” criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, with early adoption permitted subject to certain requirements.
3. Acquisitions of Common Control Assets
The transactions described below are acquisitions in which we purchased assets from wholly-owned subsidiaries of Western. Each transaction represents a transfer of assets between entities under common control and, as such, we have recorded the transactions at the historical book value of the assets as required by GAAP. The financial statements presented in this Quarterly Report on Form 10-Q have been retrospectively adjusted to include the combined financial results of the assets related to the following common control transactions.
St. Paul Park Logistics Transaction
On September 15, 2016 , we acquired the St. Paul Park Logistics Assets from Western in exchange for $195 million in cash and 628,224 common units representing limited partner interests in WNRL.
The St. Paul Park Logistics Assets acquired by WNRL included approximately 4.0 million barrels of refined product and crude oil storage tanks, a light products terminal, a heavy products loading rack, certain rail and barge facilities, certain other related logistics assets and two crude oil pipeline segments and one pipeline segment not currently in service, each of which is approximately 2.5  miles and extends from Western's refinery in St. Paul Park, Minnesota to Western's tank farm in Cottage Grove, Minnesota.
In connection with the St. Paul Park Logistics Transaction , we entered into a terminalling, transportation and storage services agreement with Western (the " St. Paul Park Terminalling Agreement "). Pursuant to the St. Paul Park Terminalling Agreement , we agreed to provide product storage services, product throughput services and product additive and blending services at the terminal facilities located at or near Western's refinery in St. Paul Park, Minnesota. In exchange for such services, Western has agreed to certain minimum volume commitments and to pay certain fees. The St. Paul Park Terminalling Agreement has an initial term of ten years, which may be extended for up to two renewal terms of five years each upon the mutual agreement of the parties. See Note 17, Related Party Transactions , for additional information.
TexNew Mex Pipeline Acquisition
On October 30, 2015, WNRL acquired the TexNew Mex Pipeline System in exchange for $170 million in cash, 421,031 common units representing limited partner interests in WNRL and 80,000 TexNew Mex Units. We entered into an amendment to our pipeline and gathering services agreement with Western in connection with the TexNew Mex Pipeline Acquisition.
4. Segment Information
Our operations are organized into two operating segments based on marketing criteria and the nature of our products and services and our types of customers. These segments are logistics and wholesale.
Logistics. Our pipeline and gathering assets are positioned to support crude oil supply for Western's El Paso, Gallup and St. Paul Park refineries as well as third parties and consist of crude oil pipelines and gathering assets located primarily in the Delaware Basin, in the Four Corners area of Northwestern New Mexico and in the Upper Great Plains region. These systems gather and transport crude oil by pipeline from various production locations to Western’s refineries utilizing 692 miles of pipeline; 33 crude oil storage tanks with a total combined active shell storage capacity of 959,000 barrels, eight truck loading and unloading locations and 15 pump stations.
Our terminalling, transportation and storage assets support crude oil supply and refined product distribution for Western's El Paso, Gallup and St. Paul Park refineries as well as third parties and primarily consist of storage tanks, terminals, transportation and other assets located in El Paso, Texas; Gallup, Bloomfield and Albuquerque, New Mexico; Phoenix and Tucson, Arizona and the Upper Great Plains region. These assets include crude oil, feedstock, blendstock, refined product and

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

asphalt storage tanks with a total combined shell storage capacity of 11.4 million barrels; truck, railcar and barge loading racks; pump stations and pipeline and related logistics assets to service Western’s operations.
We recorded the purchase of the St. Paul Park Logistics Assets and the TexNew Mex Pipeline System assets at Western's historical book value as required by GAAP. We have retrospectively adjusted the financial information for WNRL, to include the historical results of the assets acquired, for periods prior to the effective date of the transactions.
Wholesale.  Our wholesale segment includes the operations of several lubricant and bulk petroleum distribution plants and a fleet of crude oil, refined product, asphalt and lubricant delivery trucks. Our wholesale segment distributes commercial wholesale petroleum products primarily in Arizona, California, Colorado, Nevada, New Mexico and Texas. The wholesale segment purchases petroleum fuels and lubricants from Western's refining segment and from third-party suppliers.
During the second and third quarters of 2016, we disposed of certain assets related to our lubricant sales in California. In connection with these asset disposals, we reported employee severance costs of $0.4 million within direct operating expenses and selling, general and administrative expenses in our Condensed Consolidated Statement of Operations for the nine months ended September 30, 2016 . A gain of $0.6 million has been included in gain on disposal of assets, net for the nine months ended September 30, 2016 , in the Condensed Consolidated Statements of Operations.
Segment Accounting Principles.  Operating income for each segment consists of net revenues less cost of products sold; direct operating expenses; selling, general and administrative expenses; net impact of the disposal of assets and depreciation and amortization.
Activities of our business that are not included in the two segments mentioned above are included in the Other category. Other activities consist primarily of corporate staff operations and items that are not specific to the normal business of any one of our two operating segments.
The total assets of each segment consist primarily of cash and cash equivalents; inventories; net accounts receivable; net property, plant and equipment; net intangible assets and net other assets directly associated with the individual segment’s operations. Included in the total assets of the corporate operations are cash and cash equivalents, various net accounts receivable, prepaid expenses, other current assets and other long-term assets.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Disclosures regarding our reportable segments with reconciliations to consolidated totals for the three and nine months ended September 30, 2016 and 2015 , are presented below. Prior-period financial information has been retrospectively adjusted for the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline Transaction:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Operating Results:
 
 
 
 
 
 
 
Logistics:
 
 
 
 
 
 
 
Revenues: Affiliate
$
42,319

 
$
46,669

 
$
126,288

 
$
117,723

Revenues: Third-party
814

 
787

 
2,181

 
2,089

Total revenues
43,133

 
47,456

 
128,469

 
119,812

Wholesale:
 
 
 
 
 
 
 
Revenues: Affiliate
140,835

 
170,290

 
386,813

 
489,526

Revenues: Third-party
385,293

 
462,924

 
1,100,620

 
1,414,632

Total revenues
526,128

 
633,214

 
1,487,433

 
1,904,158

 
 
 
 
 
 
 
 
Consolidated revenues
$
569,261

 
$
680,670

 
$
1,615,902

 
$
2,023,970

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Logistics
$
8,694

 
$
13,149

 
$
25,671

 
$
21,413

Wholesale
8,366

 
8,515

 
27,116

 
29,675

Other
(3,789
)
 
(3,240
)
 
(9,731
)
 
(9,634
)
Operating income from segments
13,271

 
18,424

 
43,056

 
41,454

Other expense, net
(6,131
)
 
(6,188
)
 
(19,701
)
 
(16,365
)
Consolidated income before income taxes
$
7,140

 
$
12,236

 
$
23,355

 
$
25,089

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Logistics
$
8,581

 
$
7,817

 
$
25,083

 
$
22,486

Wholesale
1,998

 
1,146

 
4,387

 
3,330

Consolidated depreciation and amortization
$
10,579

 
$
8,963

 
$
29,470

 
$
25,816

 
 
 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
 
 
Logistics
$
7,623

 
$
10,700

 
$
22,310

 
$
48,804

Wholesale
907

 
858

 
2,308

 
4,904

Consolidated capital expenditures
$
8,530

 
$
11,558

 
$
24,618

 
$
53,708

 
 
 
 
 
 
 
 
Total assets:
 
 
 
 
 
 
 
Logistics
 
 
 
 
$
413,135

 
$
410,419

Wholesale
 
 
 
 
152,578

 
158,680

Other
 
 
 
 
17,017

 
74,286

Consolidated total assets
 
 
 
 
$
582,730

 
$
643,385



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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Earnings Per Unit
Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income or loss allocations used in the calculation of earnings per unit.
Diluted earnings per unit includes the effects of potentially dilutive units of our common units that consist of unvested phantom units. These units are non-participating securities due to the forfeitable nature of their associated distribution equivalent rights prior to vesting. We do not consider these units under the two-class method when calculating earnings per unit. Basic and diluted earnings per unit applicable to subordinated limited partners are the same because there are no potentially dilutive subordinated units outstanding.
In addition to the common and subordinated units, we have identified the general partner interest, incentive distribution rights and distributions associated with the TexNew Mex Units as participating securities and use the two-class method when calculating earnings per unit applicable to limited partners that is based on the weighted-average number of common units outstanding during the period. We make incentive distribution payments to our General Partner when our per unit distribution amount exceeds the target distribution. During the three and nine months ended September 30, 2016 and 2015 , we made incentive distribution right payments to our General Partner of $1.2 million , $2.9 million , $0.3 million and $0.5 million , respectively. Refer to Note 11, Equity , for further information regarding incentive distribution rights.
To the extent there is sufficient available cash from operating surplus under the Second Amended and Restated Partnership Agreement (the "Second A&R Partnership Agreement"), the holder of the TexNew Mex Units will be entitled to receive a distribution equal to 80% of the excess of TexNew Mex Shared Segment Distributable Cash Flow over the TexNew Mex Base Amount (as such terms are defined in the Second A&R Partnership Agreement). To the extent the holder of a TexNew Mex Unit is entitled to such a distribution, that distribution will be preferential to all other unit holder distributions. During the three and nine months ended September 30, 2016 and 2015 , the TexNew Mex unitholders were not entitled to any distributions. Refer to Note 11, Equity , for further information.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The calculation of net income per unit for the three and nine months ended September 30, 2016 and 2015 , respectively, is as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per unit data)
Net income
$
6,858

 
$
12,233

 
$
22,595

 
$
24,735

Net loss attributable to General Partner (1)
(7,165
)
 
(4,260
)
 
(23,309
)
 
(22,996
)
Net income attributable to limited partners
14,023

 
16,493

 
45,904

 
47,731

General Partner distributions
(1,175
)
 
(326
)
 
(2,857
)
 
(481
)
Limited partners' distributions on common units
(11,913
)
 
(8,766
)
 
(31,366
)
 
(25,086
)
Limited partners' distributions on subordinated units
(9,409
)
 
(8,326
)
 
(27,544
)
 
(23,838
)
Distributions greater than earnings
$
(8,474
)
 
$
(925
)
 
$
(15,863
)
 
$
(1,674
)
 
 
 
 
 
 
 
 
General Partners' earnings:
 
 
 
 
 
 
 
Distributions
$
1,175

 
$
326

 
$
2,857

 
$
481

Net loss attributable to General Partner (1)
(7,165
)
 
(4,260
)
 
(23,309
)
 
(22,996
)
Total General Partners' loss
$
(5,990
)
 
$
(3,934
)
 
$
(20,452
)
 
$
(22,515
)
 
 
 
 
 
 
 
 
Limited partners' earnings on common units:
 
 
 
 
 
 
 
Distributions
$
11,913

 
$
8,766

 
$
31,366

 
$
25,086

Allocation of distributions greater than earnings
(4,874
)
 
(474
)
 
(8,636
)
 
(858
)
Total limited partners' earnings on common units
$
7,039

 
$
8,292

 
$
22,730

 
$
24,228

 
 
 
 
 
 
 
 
Limited partners' earnings on subordinated units:
 
 
 
 
 
 
 
Distributions
$
9,409

 
$
8,326

 
$
27,544

 
$
23,838

Allocation of distributions greater than earnings
(3,600
)
 
(451
)
 
(7,227
)
 
(816
)
Total limited partners' earnings on subordinated units
$
5,809

 
$
7,875

 
$
20,317

 
$
23,022

 
 
 
 
 
 
 
 
Weighted-average limited partner units outstanding:
 
 
 
 
 
 
 
 Common units - basic
30,884

 
24,017

 
27,260

 
24,006

 Common units - diluted
30,901

 
24,024

 
27,274

 
24,024

 Subordinated units - basic and diluted
22,811

 
22,811

 
22,811

 
22,811

 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
 Common - basic
$
0.23

 
$
0.35

 
$
0.83

 
$
1.01

 Common - diluted
0.23

 
0.35

 
0.83

 
1.01

 Subordinated - basic and diluted
0.25

 
0.35

 
0.89

 
1.01

(1)
We apply the two-class method to calculate earnings per unit and allocate the results of operations of the St. Paul Park Logistics Assets prior to the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline System prior to the TexNew Mex Pipeline Acquisition entirely to our general partner. The limited partners had no rights to the results of operations before these acquisitions.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Inventories
Inventories were as follows:
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Lubricants
$
11,078

 
$
14,959

Refined products
52

 
241

Inventories
$
11,130

 
$
15,200

7. Property, Plant and Equipment, Net
Property, plant and equipment, net was as follows:
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Buildings and improvements
$
34,863

 
$
38,454

Pipelines and related assets
261,574

 
241,222

Terminals and related assets
242,932

 
237,234

Asphalt plant, terminals and related assets
26,805

 
26,898

Wholesale and related assets
29,721

 
32,248

 
595,895

 
576,056

Accumulated depreciation
(179,563
)
 
(157,328
)
 
416,332

 
418,728

Construction in progress
5,674

 
11,413

Property, plant and equipment, net
$
422,006

 
$
430,141

Depreciation expense was $10.3 million , $28.6 million , $8.7 million and $24.9 million for the three and nine months ended September 30, 2016 and 2015 , respectively.
8. Intangible Assets, Net
A summary of intangible assets, net, is presented in the table below:
 
September 30, 2016
 
December 31, 2015
 
Weighted-Average Amortization Period (Years)
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
Gross Carrying Value
 
Accumulated Amortization
 
Net Carrying Value
 
 
(In thousands)
Customer relationships
$
7,172

 
$
(4,102
)
 
$
3,070

 
$
7,551

 
$
(3,921
)
 
$
3,630

 
5.1
Pipeline rights-of-way
6,527

 
(2,784
)
 
3,743

 
6,414

 
(2,287
)
 
4,127

 
5.8
Intangible assets, net
$
13,699

 
$
(6,886
)
 
$
6,813

 
$
13,965

 
$
(6,208
)
 
$
7,757

 
 
Intangible asset amortization expense was $0.3 million and $0.9 million for the three and nine months ended September 30, 2016 , respectively, based upon estimates of useful lives ranging from 1 to 35  years. Intangible asset amortization expense was $0.3 million and $0.9 million for the three and nine months ended September 30, 2015 , respectively, based upon estimates of useful lives ranging from 1 to 20  years.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Estimated amortization expense for the indicated periods is as follows (in thousands):
Remainder of 2016
$
289

2017
1,087

2018
1,087

2019
1,087

2020
792

2021
639

9. Accrued Liabilities
Accrued liabilities were as follows:
 
September 30,
2016
 
December 31,
2015
 
(In thousands)
Deferred revenue - affiliate
$
18,268

 
$
10,130

Excise and other taxes
6,613

 
5,335

Payroll and related costs
3,775

 
4,000

Interest
2,815

 
8,438

Property taxes
1,584

 
1,500

Branding
269

 
633

Other
857

 
588

Accrued liabilities
$
34,181

 
$
30,624

10. Debt
Revolving Credit Facility
In connection with the St. Paul Park Logistics Transaction , on September 15, 2016, we entered into a Commitment Increase and First Amendment to Credit Agreement (the “Amendment”) to our senior secured revolving credit facility (the "Revolving Credit Facility") to bring the total commitment to $500.0 million . The Revolving Credit Facility will mature on October 16, 2018. We have the ability to increase the total commitment of our Revolving Credit Facility by up to $150.0 million for a total facility size of up to $650.0 million , subject to receiving increased commitments from lenders and to the satisfaction of certain conditions. The Revolving Credit Facility includes a $25.0 million sub-limit for standby letters of credit and a $10.0 million sub-limit for swing line loans. Obligations under the Revolving Credit Facility and certain cash management and hedging obligations are guaranteed by all of our subsidiaries and are secured by a first priority lien on substantially all of our and our subsidiaries' significant assets. Our creditors under the Revolving Credit Facility have no recourse to Western's assets. Borrowings under our Revolving Credit Facility bear interest at either a base rate plus an applicable margin ranging from 0.75% to 1.75% , or at LIBOR plus an applicable margin ranging from 1.75% to 2.75% . The applicable margin will vary based on our Consolidated Total Leverage Ratio, as defined in the Revolving Credit Facility.
Pursuant to the Amendment, certain existing lenders and new lenders agreed to provide incremental commitments in an aggregate principal amount of $200.0 million . In addition, the Amendment amended the Revolving Credit Facility by, among other things, (a) adding an anti-cash hoarding provision and (b) permitting the Partnership to increase the total leverage ratio permitted thereunder from 4.50 : 1.00 to 5.00 : 1.00 following any material permitted acquisition through the last day of the second full fiscal quarter following such acquisition. The incremental commitments established by the Amendment benefit from the same covenants, events of default, guarantees and security as the existing commitments under the Revolving Credit Facility. We incurred financing costs associated with the Amendment of $1.0 million .
On October 15, 2014, to partially fund the purchase of certain assets from Western, we borrowed $269.0 million under the Revolving Credit Facility. On February 11, 2015, we repaid our outstanding direct borrowings under the Revolving Credit Facility with a portion of the proceeds from the issuance of our 7.5% Senior Notes, discussed below. On October 30, 2015, we borrowed $145.0 million under the Revolving Credit Facility to partially fund the TexNew Mex Pipeline Acquisition. During the nine months ended September 30, 2016 , we repaid these direct borrowings using the net proceeds generated from our equity

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

offering during the second quarter of 2016 and from cash-on-hand. On September 15, 2016, we borrowed $20.3 million under the Revolving Credit Facility, to partially fund the St. Paul Park Logistics Transaction .
As of September 30, 2016 , the availability under the Revolving Credit Facility was $479.0 million . This availability is net of $20.3 million in direct borrowings and $0.7 million in outstanding letters of credit. We had no swing line borrowings outstanding under our Revolving Credit Facility as of September 30, 2016 . The estimated fair value of the Revolving Credit Facility approximates its carrying amount. The interest rate for the borrowings under the Revolving Credit Facility was 4.50% as of September 30, 2016 . The unamortized financings costs of $2.0 million and $1.5 million as of September 30, 2016 and December 31, 2015 , respectively, are included in long-term debt, less current portion, in the Condensed Consolidated Balance Sheets. The effective rate of interest, including contractual interest and amortization of loan fees, on the Revolving Credit Facility was 3.34% as of September 30, 2016 .
The Revolving Credit Facility contains covenants that limit or restrict our ability to make cash distributions. We are required to maintain certain financial ratios; each tested on a quarterly basis for the immediately preceding four quarter period.
7.5% Senior Notes
On February 11, 2015, we entered into an Indenture (the “Indenture”) among the Partnership, WNRL Finance Corp., a Delaware corporation and 100% owned subsidiary of the Partnership (“Finance Corp.” and together with the Partnership, the “Issuers”), the Guarantors named therein and U.S. Bank National Association, as trustee (the “Trustee”) under which the Issuers issued $300.0 million in aggregate principal amount of 7.5% Senior Notes due 2023 (the "WNRL 2023 Senior Notes"). The Partnership will pay interest on the WNRL 2023 Senior Notes semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2015. The WNRL 2023 Senior Notes will mature on February 15, 2023. Proceeds from the WNRL 2023 Senior Notes were used to repay $269.0 million of then outstanding borrowings under our Revolving Credit Facility. The estimated fair value of the WNRL 2023 Senior Notes was $310.5 million as of September 30, 2016 . We incurred financing costs associated with the issuance of the WNRL 2023 Senior Notes of $6.8 million . Unamortized financings costs of $5.4 million and $6.1 million as of September 30, 2016 and December 31, 2015 , respectively, are included in long-term debt, less current portion, in the Condensed Consolidated Balance Sheets. The effective rate of interest, including contractual interest and amortization of loan fees, on the 7.5% Senior Notes was 7.78% as of September 30, 2016 .
The WNRL 2023 Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by all of WNRL's current 100% owned subsidiaries, with the exception of Finance Corp. Finance Corp. is a minor subsidiary of WNRL and is a co-issuer of the WNRL 2023 Senior Notes. The co-issuance between WNRL and Finance Corp. is on a joint and several basis. WNRL has no independent assets or operations. There are no significant restrictions on the ability of WNRL or its subsidiary guarantors and Finance Corp. to obtain or transfer funds from its subsidiary guarantors by dividend or loan. None of the subsidiary guarantors’ or Finance Corp.'s assets represent restricted assets.
The subsidiary guarantees of the WNRL 2023 Senior Notes are subject to certain automatic customary releases, including upon the sale, disposition or transfer of capital stock or all or substantially all of the assets (including by way of merger or consolidation) of a subsidiary guarantor to a person other than the Partnership or one of its restricted subsidiaries, designation of a subsidiary guarantor as an unrestricted subsidiary in accordance with the Indenture, a legal defeasance or covenant defeasance, liquidation or dissolution of the subsidiary guarantor and a subsidiary guarantor ceasing to guarantee debt of the Partnership, Finance Corp. or any other guarantor under a credit facility other than the WNRL 2023 Senior Notes. The Partnership’s subsidiaries may not sell or otherwise dispose of all or substantially all of their properties or assets to, or consolidate with or merge into, another company if such a sale would cause a default under the Indenture.
The Indenture contains covenants that limit WNRL’s and its restricted subsidiaries’ ability to, among other things: (i) incur, assume or guarantee additional indebtedness or issue preferred units, (ii) create liens to secure indebtedness, (iii) pay distributions on equity securities, repurchase equity securities or redeem subordinated indebtedness, (iv) make investments, (v) effect distributions, loans or other asset transfers from the Partnership’s restricted subsidiaries, (vi) consolidate with or merge with or into, or sell substantially all of the Partnership’s properties to, another person, (vii) sell or otherwise dispose of assets, including equity interests in subsidiaries and (viii) enter into transactions with affiliates. These covenants are subject to a number of limitations and exceptions. The Indenture would permit or require the principal, premium, if any, and interest on all the then outstanding WNRL 2023 Senior Notes to be due and payable immediately in the event of default.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Equity
We had 28,866,477 publicly held outstanding common units as of September 30, 2016 , including the net settlement and issuance of 62,216 common units upon the vesting of phantom units from our Western Refining Logistics, LP 2013 Long-Term Incentive Plan (the "LTIP") during the nine months ended September 30, 2016 . Western owned 9,207,847 of our common units and 22,811,000 of our subordinated units constituting an aggregate limited partner interest of 52.6% as of September 30, 2016 .
On September 7, 2016 , we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 7,500,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on September 13, 2016. We also granted the underwriter an option to purchase additional common units on the same terms which was exercised in full and closed on September 30, 2016 , for 1,125,000 additional common units. We used the net proceeds generated from our equity offering to partially fund the St. Paul Park Logistics Transaction and to repay a portion of the outstanding borrowings under the Revolving Credit Facility.
On May 16, 2016, we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 3,750,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on May 20, 2016. We also granted the underwriters an option to purchase up to 562,500 additional common units on the same terms, which was exercised in full and closed on June 1, 2016. We used the net proceeds generated from our equity offering to repay a portion of the outstanding balance on our Revolving Credit Facility during the period.
In accordance with our partnership agreement, Western's subordinated units will convert to common units once we have met specified distribution targets and successfully met other criteria set forth in our Second A&R Partnership Agreement. 
Changes to equity during the nine months ended September 30, 2016 , were as follows:
 
Division
 
General
 
TexNew Mex -
 
Common -
 
Common -
 
Subordinated -
 
 
 
Equity
 
Partner
 
Western
 
Public
 
Western
 
Western
 
Total
 
(In thousands)
Balance at December 31, 2015
$
108,013

 
$
(1,085
)
 
$
(310
)
 
$
327,351

 
$
(105,090
)
 
$
(289,289
)
 
$
39,590

Unit-based compensation

 

 

 
1,465

 

 

 
1,465

Issuance of common units

 

 

 
277,751

 

 

 
277,751

Offering costs for issuance of common units

 

 

 
(477
)
 

 

 
(477
)
Net loss attributable to General Partner
(23,309
)
 

 

 

 

 

 
(23,309
)
Contributions from affiliate
20,286

 

 

 

 

 

 
20,286

Allocation of net investment of St. Paul Park Logistics Transaction
(104,990
)
 

 

 

 
28,696

 
76,294

 

Consideration paid for St. Paul Park Logistics Transaction

 

 

 

 
(53,235
)
 
(141,765
)
 
(195,000
)
Distributions to partners declared

 
(2,857
)
 

 
(21,006
)
 
(10,360
)
 
(27,544
)
 
(61,767
)
Net income attributable to limited partners

 

 

 
16,907

 
7,942

 
21,055

 
45,904

Balance at September 30, 2016
$

 
$
(3,942
)
 
$
(310
)
 
$
601,991

 
$
(132,047
)
 
$
(361,249
)
 
$
104,443


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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

TexNew Mex Units
The Second A&R Partnership Agreement created the TexNew Mex Shared Segment and the TexNew Mex Units. The TexNew Mex units are generally entitled to participate in 80% of the economics attributable to the TexNew Mex Shared Segment resulting from crude oil throughput on the TexNew Mex shared segment above the 13,000 bpd. To the extent there is sufficient available cash from operating surplus under the Second A&R Partnership Agreement, the holder of the TexNew Mex Units will be entitled to receive a distribution equal to 80% of the excess of TexNew Mex Shared Segment Distributable Cash Flow over the TexNew Mex Base Amount (as such terms are defined in the Second A&R Partnership Agreement). To the extent the holder of a TexNew Mex Unit is entitled to such a distribution, that distribution will be preferential to all other unit holder distributions. We declared no distributions to TexNew Mex unitholders related to our operating results for the three and nine months ended September 30, 2016 and 2015 .
Holders of TexNew Mex Units generally do not have voting rights, except for limited voting rights related to amendments to the rights of holders of the TexNew Mex Units, the issuance of additional TexNew Mex Units or partnership securities with distribution rights senior to or on a parity with the TexNew Mex Units, the sale of any material portion of the TexNew Mex Pipeline and the reservation by the Partnership of any distribution amounts to which the holders of TexNew Mex Units are otherwise entitled.
The TexNew Mex Units are perpetual and have no rights of redemption or of conversion. No holder of any TexNew Mex Unit may transfer any or all of the TexNew Mex Units held by such holder without the prior written approval of the General Partner, unless the transfer either is to an affiliate of the holder or is to any person who is, or will be substantially concurrently with the completion of the transfer, an affiliate of the General Partner.
Issuance of Additional Interests
Our partnership agreement authorizes us to issue additional partnership interests for consideration and on the terms and conditions determined by our General Partner without the approval of the unitholders. We may fund future acquisitions through the issuance of additional common units, subordinated units or other partnership interests. Holders of any additional common units we issue will be entitled to share proportionally in accordance with their respective percentage interests with the then-existing common unitholders in our distributions of available cash.
Allocations of Net Income and Loss
The Second A&R Partnership Agreement contains provisions for the allocation of net income and loss to the unitholders and the General Partner. For purposes of maintaining partner capital accounts, the Second A&R Partnership Agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive distribution right payments allocated 100% to the General Partner.
Percentage Allocations of Available Cash from Operating Surplus
The following table illustrates the percentage allocations of available cash from operating surplus between the unitholders and our General Partner (as the holder of our incentive distribution rights) based on the specified target distribution levels, subject to the preferential distribution rights of holders of the TexNew Mex Units. The amounts set forth under the column heading "Marginal Percentage Interest in Distributions" are the percentage interests of our General Partner and the unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column "Total Quarterly Distribution per Unit Target Amount." The percentage interests shown for our unitholders and our General Partner for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. The percentage interests set forth below assume our General Partner has not transferred its incentive distribution rights and there are no arrearages on common units.
 
 
Total Quarterly Distribution
per Unit Target Amount
 
Marginal Percentage
Interest in Distributions
 
 
Unitholders
 
General Partner
Minimum Quarterly Distribution
 
$0.2875
 
100.0
%
 

First Target Distribution
 
above $0.2875 up to $0.3306
 
100.0
%
 

Second Target Distribution
 
above $0.3306 up to $0.3594
 
85.0
%
 
15.0
%
Third Target Distribution
 
above $0.3594 up to $0.4313
 
75.0
%
 
25.0
%
Thereafter
 
above $0.4313
 
50.0
%
 
50.0
%

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Our Second A&R Partnership Agreement sets forth the calculation to be used to determine the amount and priority of cash distributions that the common and subordinated unitholders and general partner will receive. We declare distributions subsequent to quarter end. The table below summarizes our 2016 quarterly distribution declarations, payments and scheduled payments:
Declaration Date
 
Record Date
 
Payment Date
 
Distribution per Common and Subordinated Unit
February 1, 2016
 
February 11, 2016
 
February 26, 2016
 
$
0.3925

April 25, 2016
 
May 13, 2016
 
May 27, 2016
 
0.4025

July 26, 2016
 
August 12, 2016
 
August 26, 2016
 
0.4125

October 24, 2016
 
November 7, 2016
 
November 23, 2016
 
0.4225

Total
 
$
1.6300

During 2015 and 2016, we declared and paid distributions that were in excess of the target distribution amounts set forth in our partnership agreement, resulting in distributions to our General Partner as the holder of incentive distribution rights. The total quarterly cash distributions for the three and nine months ended September 30, 2016 and 2015 , respectively, were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except per unit data)
TexNew Mex Unit distributions:
 
 
 
 
 
 
 
TexNew Mex Unit distributions
$

 
$

 
$
310

 
$

Total TexNew Mex Unit distributions
$

 
$

 
$
310

 
$

 
 
 
 
 
 
 
 
General Partners' distributions:
 
 
 
 
 
 
 
General Partner's incentive distribution rights
$
1,175

 
$
326

 
$
2,857

 
$
481

Total General Partner's distributions
$
1,175

 
$
326

 
$
2,857

 
$
481

 
 
 
 
 
 
 
 
Limited partners' distributions:
 
 
 
 
 
 
 
Common
$
11,913

 
$
8,766

 
$
31,366

 
$
25,086

Subordinated
9,409

 
8,326

 
27,544

 
23,838

 Total limited partners' distributions
21,322

 
17,092

 
58,910

 
48,924

Total cash distributions
$
22,497

 
$
17,418

 
$
62,077

 
$
49,405

 
 
 
 
 
 
 
 
Cash distributions per limited partner unit
$
0.4125

 
$
0.3650

 
$
1.2075

 
$
1.0450

We currently have an effective universal shelf Registration Statement on Form S-3 that provides for the registration and sale of up to $1 billion of equity or debt securities of us and certain of our subsidiaries. We may over time, and subject to market conditions, in one or more offerings, offer and sell any combination of the securities described in the prospectus. During the second and third quarter of 2016, we completed equity offerings pursuant to the shelf registration statement and resulted in reduced availability. The current availability under our shelf Registration Statement on Form S-3 is $713.8 million .
12. Equity-Based Compensation
Our General Partner's board of directors adopted the LTIP for the benefit of employees, consultants and non-employee directors of our General Partner and its affiliates. Awards granted under the LTIP vest over a scheduled vesting period and their market value at the date of the grant is amortized over the restricted period on a straight-line basis.
At September 30, 2016 , there were 4,098,368 phantom units reserved for future grants under the LTIP.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The fair value of the phantom units is determined based on the closing price of WNRL common units on the grant date. The estimated fair value of the phantom units is amortized on a straight-line basis over the scheduled vesting periods of individual awards. We incurred unit-based compensation expense of $0.7 million , $2.0 million , $0.6 million and $1.5 million for the three and nine months ended September 30, 2016 and 2015 , respectively.
The aggregate grant date fair value of nonvested phantom units outstanding as of September 30, 2016 , was $7.5 million . The aggregate intrinsic value of such phantom units was $6.6 million . Total unrecognized compensation cost related to our non-vested phantom units totaled $6.2 million at September 30, 2016 , which we expect to recognize over a weighted-average period of approximately 2.6 years .
A summary of our unit award activity for the nine months ended September 30, 2016 , is set forth below:
 
Number of Phantom Units
 
Weighted-Average
Grant Date
Fair Value
Not vested at December 31, 2015
279,787

 
$
28.06

Awards granted
101,955

 
22.69

Awards vested
(86,406
)
 
25.80

Awards forfeited
(10,181
)
 
31.87

Not vested at September 30, 2016
285,155

 
26.42

13. Risk Concentration
We are part of the consolidated operations of Western and we derive a significant portion of our revenue from transactions with Western and its affiliates. Western accounted for 32.2% , 31.8% , 31.9% and 30.0% , respectively, of our total revenues for the three and nine months ended September 30, 2016 and 2015 .
We sell a variety of refined products to a diverse customer base. Sales to Kroger Company accounted for 19.3% , 20.2% , 23.1% and 23.8% of total revenues for the three and nine months ended September 30, 2016 and 2015 , respectively. Sales to Western’s retail and unmanned fleet fueling sites accounted for 24.4% , 23.8% , 27.8% and 26.6% of total revenues for the three and nine months ended September 30, 2016 and 2015 , respectively.
See Note 17, Related Party Transactions , for detailed information on our agreements with Western.
14. Income Taxes
WNRL is treated as a publicly-traded partnership for federal and state income tax purposes, however, Western Refining Product Transport, LLC (a wholly-owned subsidiary) is taxed as a corporation for federal and state tax purposes. Taxes on our net income for WNRL and its subsidiaries generally are borne by our partners through the allocation of taxable income. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined as we do not have access to information about each partner's tax attributes in us. Our income tax expense results from our taxable subsidiary and state laws that apply to entities organized as partnerships, primarily in the state of Texas and from federal and state laws for corporations. For the three and nine months ended September 30, 2016 and 2015 , our income tax expense was $0.3 million , $0.8 million , $0.003 million and $0.4 million , respectively. Our effective tax rates for the three and nine months ended September 30, 2016 and 2015 , were 3.9% , 3.3% , 0.02% and 1.4% , respectively.
As of September 30, 2016 and December 31, 2015 , we had no unrecognized tax benefit liability. No interest or penalties were recognized related to income taxes during the three and nine months ended September 30, 2016 and 2015 .

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

15. Commitments
We have commitments under various operating leases with initial terms greater than one year for property, machinery and facilities. These leases have terms that will expire on various dates through 2026 . We expect that in the normal course of business, these leases will be renewed or replaced by other leases. Rent expense for operating leases that provide for periodic rent escalations or rent holidays over the term of the lease is recognized on a straight-line basis. We also have commitments to purchase minimum volumes of refined product from Western under commercial agreements that we have entered into with Western. See Note 17, Related Party Transactions , for further discussion of these agreements.
The following table presents our annual minimum rental payments under non-cancelable operating leases that have lease terms of one year or more (in thousands) as of September 30, 2016 :
Remaining 2016
$
1,796

2017
6,238

2018
3,472

2019
1,378

2020
378

2021 and thereafter
677

 
$
13,939

Total rental expense was $2.3 million , $7.2 million , $2.3 million and $6.9 million for the three and nine months ended September 30, 2016 and 2015 , respectively. Contingent rentals and subleases were not significant in any year.
16. Contingencies
Like other operators of petroleum-related storage and transportation facilities, our operations are subject to extensive and periodically changing federal and state environmental regulations governing air emissions, wastewater discharges and solid and hazardous waste management activities. Many of these regulations are becoming increasingly stringent and we expect the cost of compliance to increase over time. Our policy is to accrue environmental and clean-up related costs of a non-capital nature when it is probable that a liability exists and when we can reasonably estimate the amount. We may revise such estimates in the future as regulations and other conditions change. We may receive communications from various federal, state and local governmental authorities asserting violations of environmental laws and/or regulations. These governmental entities may also propose or assess fines or require corrective action for such asserted violations. We intend to respond in a timely manner to all such communications and to take appropriate corrective action.
We are not currently aware of any environmental or other asserted or unasserted claims against us that would be expected to have a material effect on our financial condition, results of operations or cash flows.
17. Related Party Transactions
Certain of our employees are shared employees with Western. We are party to a services agreement with Western under which Western shares certain employees with us. These employees are responsible for operation and maintenance of and other services related to the assets we own and operate. Western employees provide these services under our direction, supervision and control pursuant to this services agreement. Western also provides us with support for accounting, legal, human resources and various other administrative functions.

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

We have incurred indirect charges from Western for the allocation of services including executive oversight, accounting, treasury, tax, legal, procurement, engineering, logistics, maintenance, information technology and similar items. We classify these indirect charges between operating and maintenance expenses and selling, general and administrative expenses based on the functional nature of the employee and other services that Western provides for our operations. Indirect charges from Western that we include within our selling, general and administrative and operating and maintenance expenses were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Indirect charges:
 
 
 
 
 
 
 
Operating and maintenance expenses
$
10,580

 
$
10,441

 
$
31,039

 
$
28,128

Selling, general and administrative expenses
2,292

 
1,929

 
6,205

 
6,199

Total indirect charges
$
12,872

 
$
12,370

 
$
37,244

 
$
34,327

Our management believes the indirect charges allocated to us from Western are a reasonable reflection of our utilization of Western's service in connection with our operations. We also incur direct charges to support our operations and administration. The indirect allocations noted above may not fully reflect the additional expenses that we would have incurred had we been a stand-alone company during the periods presented.
Commercial Agreements with Western
Logistics Segment Agreements
We derive substantially all of our logistics revenues from three fee-based agreements with Western, each with initial ten-year terms subject to extension, supported by minimum volume commitments and annual adjustments to fees that we and Western may renew for two additional five-year periods upon mutual agreement. Western has committed to provide us with minimum fees based on minimum monthly throughput volumes of crude oil and refined and other products and reserved storage capacity.
Pipeline and Gathering Services Agreement
We are party to a pipeline and gathering services agreement, as amended, with Western under which we transport crude oil on our Permian Basin system primarily for use at Western's El Paso refinery and on our Four Corners system to Western's Gallup refinery. We charge Western fees for pipeline movements, truck offloading and product storage.
In connection with the TexNew Mex Pipeline Acquisition, WNRL entered into Amendment No. 1 to the Pipeline and Gathering Services Agreement, dated as of October 16, 2013, with Western (the "Amendment of the Pipeline Agreement"). Among other things, the Amendment of the Pipeline Agreement amends the scope of the existing agreement to include the provision of storage services and a minimum volume commitment of 80,000 barrels of storage at the Star Lake storage site. In this Amendment of the Pipeline Agreement, Western provided a minimum volume commitment of 13,000 bpd of crude oil on the TexNew Mex Pipeline for 10 years from the date of the Amendment of the Pipeline Agreement.
In connection with the TexNew Mex Pipeline Acquisition, the General Partner adopted certain amendments to the First Amended and Restated Agreement of Limited Partnership of the Partnership by adopting the Second A&R Partnership Agreement. The amendments contained in the Second A&R Partnership Agreement create a new class of limited partner interests in the Partnership, referred to as the TexNew Mex Units, and set forth the rights, preferences and obligations of the TexNew Mex Units.
The Second A&R Partnership Agreement created the TexNew Mex Shared Segment and the TexNew Mex Units. The TexNew Mex units are generally entitled to participate in 80% of the economics attributable to the TexNew Mex Shared Segment resulting from crude oil throughput on the TexNew Mex shared segment above the 13,000 bpd. To the extent there is sufficient available cash from operating surplus under the Second A&R Partnership Agreement, the holder of the TexNew Mex Units will be entitled to receive a distribution equal to 80% of the excess of TexNew Mex Shared Segment Distributable Cash Flow over the TexNew Mex Base Amount (as such terms are defined in the Second A&R Partnership Agreement). To the extent the holder of a TexNew Mex Unit is entitled to such a distribution, that distribution will be preferential to all other unit holder

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WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

distributions. During the three and nine months ended September 30, 2016 and 2015 , the TexNew Mex Units were not entitled to any distributions. See Note 11, Equity , for further discussion.
Terminalling, Transportation and Storage Services Agreements
Southwest
We entered into a terminalling, transportation and storage services agreement, as amended, with Western under which we have agreed to, among other things, distribute products produced at Western’s Southwest refineries, connect Western’s Southwest refineries to third-party pipelines and systems and provide fee-based asphalt terminalling and processing services. For the use of our network of crude oil and refined products terminals and related assets and storage facilities, we charge Western fees for crude oil, blendstock and refined product storage, shipments into and out of storage and additive and blending services. For the use of our asphalt plant and terminal in El Paso and our three stand-alone asphalt terminals, we charge Western fees for asphalt storage, shipments into and out of asphalt storage and asphalt processing and blending.
St. Paul Park
In connection with the St. Paul Park Logistics Transaction , we entered into the St. Paul Park Terminalling Agreement . Pursuant to the St. Paul Park Terminalling Agreement , we agreed to provide product storage services, product throughput services and product additive and blending services at the terminal facilities located at or near Western's refinery in St. Paul Park, Minnesota. In exchange for such services, Western has agreed to certain minimum volume commitments and to pay certain fees. The St. Paul Park Terminalling Agreement will have an initial term of ten years, which may be extended for up to two renewal terms of five years each upon the mutual agreement of the parties.
Wholesale Segment Agreements
In connection with WNRL's purchase of all of the outstanding limited liability company interests of Western Refining Wholesale, LLC from Western on October 15, 2014 (the "Wholesale Acquisitions"), we entered into the following 10-year agreements with Western. These agreements include certain minimum volume commitments by Western.
Product Supply Agreement
Under the product supply agreement, as amended, Western supplies, and we purchase, 79,000 bpd of refined products. The price per barrel is based upon OPIS or Platts indices on the day of delivery. Pricing is subject to annual revision based on mutual agreement between us and Western. The agreement provides for make-up payments to us in any month that our average margin on non-delivered rack sales is less than a certain amount.
Fuel Distribution and Supply Agreement
Western purchases all of its retail requirements for branded and unbranded motor fuels for its retail and unmanned fleet fueling sites at a price per gallon that is $0.03 above our cost. Western purchases a minimum of 645,000 barrels per month of branded and unbranded motor fuels for its retail and unmanned fleet fueling sites. In any month that Western doesn’t purchase the minimum volume, Western will pay us $0.03 per gallon shortfall. In any month in which Western purchases volumes in excess of the minimum, we will pay Western $0.03 p er gallon over the minimum until the balance of the trailing twelve month shortfall payments is reduced to $0 .
Crude Oil Trucking Transportation Services Agreement
Under the crude oil trucking and transportation services agreement, as amended, Western pays a flat rate per mile per barrel plus monthly fuel adjustments and customary applicable surcharges. The rates are subject to adjustment annually based on mutual agreement between us and Western. Western has agreed to contract a minimum of 1.525 million barrels of crude oil to us for hauling each month.
Asphalt Trucking Transportation Services Agreement
On May 4, 2016 , our subsidiary, Western Refining Wholesale, LLC, entered into an Asphalt Trucking Transportation Services Agreement with two subsidiaries of Western, Western Refining Company, L.P., a Delaware limited partnership, and, for certain limited purposes stated therein, Western Refining Southwest, Inc., an Arizona corporation. Under the Asphalt Trucking Transportation Services Agreement, Western will pay us a flat rate per mile per ton plus monthly fuel adjustments and customary applicable surcharges for transporting asphalt volumes for Western. The rates are subject to adjustment annually based on mutual agreement between us and Western. Volumes of asphalt transported pursuant to this agreement will be credited, on a barrel per barrel basis, towards Western’s contract minimum under the Crude Oil Trucking Transportation Services

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Table of Contents

WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Agreement. Under this Agreement, Western has given us the first option to transport all asphalt volumes Western transports by truck.
Western’s obligations under all of our commercial agreements will not terminate if Western no longer controls our general partner. Our commercial agreements include provisions that permit Western to suspend, reduce or terminate its obligations under the applicable agreement if certain events occur. These events include Western deciding to permanently or indefinitely suspend refining operations at one or all of its refineries, as well as our being subject to certain force majeure events that would prevent us from performing required services under the applicable agreement.

Other Agreements with Western
Omnibus Agreement
We entered into an omnibus agreement with Western, certain of its subsidiaries and our general partner. The omnibus agreement addresses the following items:
our obligation to reimburse Western for the provision by Western of certain general and administrative services (this reimbursement is in addition to certain expenses of our general partner and its affiliates that are reimbursed under our partnership agreement and services agreement), as well as certain other direct or allocated costs and expenses incurred by Western on our behalf;
our rights of first offer to acquire certain logistics assets from Western;
an indemnity by Western for certain environmental and other liabilities, and our obligation to indemnify Western for events and conditions associated with the operation of our assets that occur after closing of the Offering and for environmental liabilities related to our assets to the extent Western is not required to indemnify us;
Western’s transfer of certain environmental permits related to our assets to us and our use of such permits prior to the transfer thereof; and
the granting of a license from Western to us with respect to use of certain Western trademarks and our granting of a license to Western with respect to use of certain of our trademarks.
The omnibus agreement generally terminates in the event of a change of control of us or our general partner.
Contribution, Conveyance and Assumption Agreement dated September 25, 2014
We entered into a contribution agreement with Western on September 25, 2014, under which we acquired all of the outstanding limited liability company interests of Western Refining Wholesale, LLC (“WRW”), which owned substantially all of Western’s southwest wholesale assets. Among other things, Western agreed to indemnify us with respect to liabilities related to certain historical assets and operations of WRW that were not contributed to us in the Wholesale Acquisition. In addition, Western made certain representations and warranties regarding the assets of WRW, including with respect to environmental matters, and agreed to indemnify us for breaches of those representations and warranties, subject to specified deductibles, caps and other limitations.
Contribution, Conveyance and Assumption Agreement dated October 30, 2015
We entered into a Contribution, Conveyance and Assumption Agreement with Western in connection with the TexNew Mex Pipeline Acquisition. Western made certain representations and warranties regarding the acquired assets, including with respect to environmental matters, and agreed to indemnify us for breaches of those representations and warranties, subject to specified deductibles, caps and other limitations.
Contribution, Conveyance and Assumption Agreement dated September 7, 2016
We entered into a Contribution, Conveyance and Assumption Agreement with Western in connection with the St. Paul Park Logistics Transaction . Western made certain representations and warranties regarding the acquired assets and the St. Paul Park Logistics Transaction , as well as customary covenants and indemnity provisions. The parties agreed to indemnify each other with regards to breaches of their respective representations, warranties and covenants set forth in the agreement. The parties have also agreed, subject to certain limitations, to indemnify each other with regards to environmental losses arising from the operation of the St. Paul Park Logistics Assets during the parties’ respective periods of ownership of the St. Paul Park Logistics Assets . In addition, WNRL has agreed, subject to certain exceptions, to assume the liabilities arising from the

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Table of Contents

WESTERN REFINING LOGISTICS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

ownership and operation of the St. Paul Park Logistics Assets and has agreed to indemnify Western with respect to such assumed liabilities.
Services Agreements
We entered into a services agreement with Western under which we reimburse Western for its provision to us of certain personnel to provide operational services to us and under our supervision in support of our pipelines and gathering assets and terminalling and storage facilities, including routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and such other services as we and Western may mutually agree upon from time to time. Western will prepare a maintenance, operating and capital budget on an annual basis subject to our approval. Western submits actual expenditures for reimbursement on a monthly basis, and we reimburse Western for providing these services.
We may terminate any of the services provided by the personnel provided by Western upon 30 days prior written notice. Either party may terminate this agreement upon prior written notice if the other party is in material default under the agreement and such party fails to cure the material default within 20 business days. The services agreement has an initial term of ten years and may be renewed by two additional five-year terms upon our agreement with Western evidenced in writing prior to the end of the initial term of ten years or the first renewal term of five years. If a force majeure event prevents a party from carrying out its obligations (other than to make payments due) under the agreement, such obligations, to the extent affected by force majeure, will be suspended during the continuation of the force majeure event. These force majeure events include acts of God, strikes, lockouts or other industrial disturbances, wars, riots, fires, floods, storms, orders of courts or governmental authorities, explosions, terrorist acts, accidental disruption of service, breakage, breakdown of machinery, storage tanks or lines of pipe and inability to obtain or unavoidable delays in obtaining material or equipment and any other circumstances not reasonably within the control of the party claiming suspension and that by the exercise of due diligence such party is unable to prevent or overcome.
On May 4, 2015, we entered into a Joinder Agreement with Western and Northern Tier Energy LP ("NTI") that joined us as a party to the Shared Services Agreement, dated October 30, 2014, between Western and NTI and under which Western and NTI provide services to each other in support of their operations. Under the Joinder Agreement, we provide certain scheduling and other services in support of NTI’s operations and NTI reimburses us for the costs associated with providing such services. During the three and nine months ended September 30, 2016 and 2015 , we incurred expenses of $0.1 million , $0.3 million , $0.1 million and $0.2 million , respectively, that are reimbursable from NTI under the Shared Services Agreement.
Leasing Agreements
We entered into three separate ground lease and access agreements with Western. All three agreements are for 10-year terms with provision for automatic renewal of up to four consecutive 10-year periods. Under each separate agreement, WNRL pays nominal annual rents. Rents due under these three agreements in the aggregate are less than $0.1 million over the initial term of the agreements.

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Table of Contents

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with the financial statements and the notes thereto included elsewhere in this report. This discussion contains forward-looking statements that are based on current expectations, estimates and projections about our business and operations. The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under Part I, Item 1A. "Risk Factors" included in our Annual Report on Form 10-K for the year ended December 31, 2015 (" 2015 Form 10-K") and elsewhere in this report. You should read "Risk Factors" and "Forward-Looking Statements" in this report. In this quarterly report, all references to "WNRL," "the Partnership," "we," "us," and "our" or like terms refer to Western Refining Logistics, LP and its consolidated subsidiaries, unless the context otherwise requires or where otherwise indicated. References to "Western" refer to Western Refining, Inc.

Overview
WNRL is a Delaware master limited partnership that commenced operations in October 2013. Western Refining Logistics GP, LLC ("WRGP"), our general partner, holds all general partner interests, which are non-economic, in WNRL and is owned 100% by Western.
WNRL is principally a fee-based, growth-oriented partnership that owns, operates, develops and acquires logistics and related assets and businesses including terminals, storage tanks, pipelines and other logistics assets related to the terminalling, transportation, storage and distribution of crude oil and refined products. WNRL's assets and operations include 692 miles of pipelines, 12.4 million barrels ("bbls") of active storage capacity, distribution of wholesale petroleum products and crude oil and asphalt trucking.
On September 15, 2016 , we acquired certain terminalling, transportation and storage assets from a wholly-owned subsidiary of Western consisting of the Cottage Grove tank farm and certain terminals and storage assets located on site at Western's St. Paul Park refinery ("St. Paul Park Logistics Assets"). The St. Paul Park Logistics Assets primarily receive, store and distribute crude oil, feedstock and refined products associated with Western's St. Paul Park refinery (the " St. Paul Park Logistics Assets "). We acquired the St. Paul Park Logistics Assets from Western in exchange for $195 million in cash and 628,224 common units representing limited partner interests in WNRL. We refer to this transaction as the " St. Paul Park Logistics Transaction ." This transaction was between entities under common control. See Note 3, Acquisitions of Common Control Assets , in the Notes to Condensed Consolidated Financial Statements for further discussion.
On September 7, 2016 , we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 7,500,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on September 13, 2016. We also granted the underwriter an option to purchase additional common units on the same terms which was exercised in full and closed on September 30, 2016 , for 1,125,000 additional common units.
On May 16, 2016, we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 3,750,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on May 20, 2016. We also granted the underwriter an option to purchase up to 562,500 additional common units on the same terms, which was exercised in full and closed on June 1, 2016.
On October 30, 2015, WNRL acquired a segment of the TexNew Mex Pipeline system from Western that extends from our crude oil station in Star Lake, New Mexico, in the Four Corners region to our T station in Eddy County, New Mexico (the "TexNew Mex Pipeline System"). We also acquired an 80,000 barrel crude oil storage tank located at our crude oil pumping station in Star Lake, New Mexico and certain other related assets ("TexNew Mex Pipeline Acquisition"). We acquired these assets in exchange for $170 million in cash, 421,031 common units representing limited partner interests in WNRL and 80,000 units of a newly created class of limited partner interests in WNRL, referred to as the "TexNew Mex Units." This purchase was between entities under common control. See Note 3, Acquisitions of Common Control Assets , in the Notes to Condensed Consolidated Financial Statements for further discussion.
We recorded the purchase of the St. Paul Park Logistics Assets and the TexNew Mex Pipeline System assets at Western's historical book value. U.S. generally accepted accounting principles ("GAAP") require that we treat these purchases as transactions between entities under common control. We have retrospectively adjusted the financial information for WNRL, to include the historical results of the assets acquired, for periods prior to the effective date of the transactions.

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Table of Contents

Major Influences on Results of Operations
Supply and Demand for Crude Oil and Refined Products. We generate a significant portion of our revenues under fee-based agreements with Western. These contracts generally provide for stable and predictable cash flows and limit our direct exposure to commodity price fluctuations related to the loss allowance provisions in our commercial agreements. We typically do not have exposure to variability in the prices of the hydrocarbons and other products we handle on Western's behalf, although these risks indirectly influence our activities and results of operations over the long term because of their impact on Western's operations. Our terminal throughput volumes depend primarily on the volume of refined and other products produced at Western’s refineries that, in turn, is ultimately dependent on Western’s refining margins.
Refining margins depend on both the price of crude oil or other feedstock and the price of refined products. Factors affecting the prices of petroleum based commodities include supply and demand in crude oil, gasoline and other refined products. Supply and demand for these products depend on changes in domestic and foreign economies, weather conditions, domestic and foreign political affairs, production levels, logistics constraints, availability of imports, marketing of competitive fuels, crude oil price differentials and government regulation.
A significant portion of our wholesale fuel sales and all of our lubricants sales are to third-party customers. We purchase substantially all of our fuel from Western on the same day that we sell it, which minimizes our exposure to commodity price fluctuations. The margins we earn on these sales are dependent on a number of factors that are outside of our control, including the overall supply of refined products and lubricants in the regions that we serve as well as the demand for these products by our customers. Among other factors, the margins we earn through these activities would likely be adversely impacted in the event of excess supply of refined products or lubricants and corresponding customer demand that is below historical norms. These supply and demand dynamics are subject to day-to-day variability and may result in volatility in the margins that our wholesale business achieves. Extended periods of market conditions that result in earning margins that are lower than anticipated could adversely affect our financial condition, results of operations and cash flows.
Acquisition Opportunities. We may acquire additional logistics assets from Western or third parties. Under our omnibus agreement, subject to certain exceptions, we have rights of first offer on certain logistics assets owned by Western to the extent Western decides to sell, transfer or otherwise dispose of any of those assets. We also have rights of first offer to acquire additional logistics assets in the Permian Basin or the Four Corners area that Western may construct or acquire in the future. We plan to pursue strategic asset acquisitions from third parties to the extent such acquisitions complement our or Western’s existing asset base or provide attractive potential returns in new areas within our geographic footprint. We believe that we are well-positioned to acquire logistics assets from Western and third parties should such opportunities arise. Identifying and executing acquisitions is a key part of our strategy. If we do not make acquisitions on economically acceptable terms, our future growth will be limited and the acquisitions we do make may reduce, rather than increase, our cash available for distribution. These acquisitions could also affect the comparability of our results from period to period. We expect to fund future growth capital expenditures primarily from a combination of cash-on-hand, borrowings under our Revolving Credit Facility and the issuance of additional equity or debt securities. To the extent we issue additional units to fund future acquisitions or discretionary capital expenditures, the payments of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level.
Factors Affecting the Comparability of Our Financial Results
On September 7, 2016 , we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 7,500,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on September 13, 2016. We also granted the underwriter an option to purchase additional common units on the same terms which was exercised in full and closed on September 30, 2016 , for 1,125,000 additional common units.
On May 16, 2016, we entered into an underwriting agreement relating to the issuance and sale by the Partnership of 3,750,000 common units representing limited partner interests in the Partnership. The closing of the offering occurred on May 20, 2016. We also granted the underwriter an option to purchase up to 562,500 additional common units on the same terms, which was exercised in full and closed on June 1, 2016.
We did not record revenue related to the operations of the St. Paul Park Logistics Assets prior to the St. Paul Park Logistics Transaction on September 15, 2016. Revenues generated and reported by the TexNew Mex Pipeline System, prior to the TexNew Mex Pipeline Acquisition on October 30, 2015, were minimal and were for amounts required to be recorded for Western for regulatory reporting. We did not record intercompany revenues related to the operation of the TexNew Mex Pipeline System and related assets for the benefit of Western prior to the TexNew Mex Pipeline Acquisition.
The financial statements presented in this Quarterly Report on Form 10-Q have been retrospectively adjusted to include the combined financial results of the St. Paul Park Logistics Assets prior to September 15, 2016 and the TexNew Mex Pipeline System prior to October 30, 2015.

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Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with GAAP. In order to apply these principles, we must make judgments, assumptions and estimates based on the best available information at the time. Actual results may differ based on the continuing development of the information utilized and subsequent events, some of which we may have little or no control over. Our critical accounting policies could materially affect the amounts recorded in our financial statements. Our critical accounting policies, estimates and recent accounting pronouncements that potentially impact us are discussed in detail under Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2015 Form 10-K.
Recent Accounting Pronouncements. From time to time, new accounting pronouncements are issued by various standard setting bodies that may have an impact on our accounting and reporting. We are currently evaluating the effect that certain of these new accounting requirements may have on our accounting and related reporting and disclosures in our condensed consolidated financial statements. For further discussion on recent accounting pronouncements, see Note 2, Basis of Presentation and Significant Accounting Policies , in the Notes to Condensed Consolidated Financial Statements included in this quarterly report.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include but are not limited to pipeline throughput and terminal volumes; wholesale volumes and margins; operating and maintenance expenses; EBITDA and distributable cash flow.
Logistics Volumes. The amount of revenue we generate depends on the volumes of crude oil and refined and other products that we handle with our pipeline and gathering operations and our terminalling, transportation and storage assets. These volumes are primarily affected by the supply of and demand for crude oil, refined products and asphalt in the markets served directly or indirectly by our assets. Although Western has committed to minimum volumes under our commercial agreements, we expect over time that Western will ship volumes in excess of its minimum volume commitment on our pipeline and gathering systems and will terminal volumes in excess of its minimum volume commitments at our terminals. Our results of operations will be impacted by whether or not Western ships and terminals such incremental volumes and by the amount of volumes we handle for third parties.
Wholesale Volumes and Margins. Revenues, earnings and cash flows from our wholesale business are primarily affected by sales volumes and margins for gasoline, diesel fuel and lubricants sold and crude oil and asphalt trucking volumes. We primarily use fuel margin per gallon and fuel gallons sold to evaluate the operating results of the wholesale segment. Our fuel margin per gallon is not generally correlated with changes in absolute price per gallon. Sales volumes of gasoline, diesel fuel and lubricants are affected primarily by demand and competition. Crude oil trucking volumes can fluctuate based on local production, competition and demand. Refined product margins are equal to the sales price, net of discounts, less total cost of sales and are measured on a cents per gallon basis. Factors that influence margins include local supply, demand and competition, and the impact to margin of our commercial agreements with Western.
Operating and Maintenance Expenses. Our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses. These expenses primarily consist of labor and employee expenses, lease costs, utility costs, cost of insurance, maintenance materials, supplies, repairs and related expenses and property taxes. These expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the level of maintenance related activities performed during that period and the timing of such expenses.
Our maintenance costs are generally cyclical in nature. Our terminal facilities are subject to recurring maintenance for normal wear and related maintenance costs are generally consistent from period to period. Our routine service cycle for tank inspections and maintenance at our storage facilities is generally every 10 years. Our pipelines are also subject to routine periodic inspections and maintenance. When a storage tank change in service occurs, maintenance costs will generally be greater due to increased costs of tank cleaning and hazardous material disposal. The cost of our maintenance is dependent upon the level of repairs deemed necessary as a result of the inspection of the specific asset. We manage our maintenance expenditures on our pipelines, terminals, truck fleet and other distribution assets by scheduling maintenance over time to avoid significant variability and minimize impact on our cash flows.
Results of Operations
The following tables summarize our consolidated and operating segment financial data and key operating statistics for the three and nine months ended September 30, 2016 and 2015 , respectively. The following data should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this quarterly report.

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The assets acquired in the St. Paul Park Logistics Transaction and the TexNew Mex Pipeline Acquisition are reflected at Western's historical book value as the purchases were transactions between entities under common control. We have retrospectively adjusted the financial information for WNRL to include the historical results of the St. Paul Park Logistics Assets and the TexNew Mex Pipeline System acquired for periods prior to the effective date of the acquisitions.
Our operations are organized into two operating segments based on marketing criteria and the nature of our products and services and our types of customers. These segments are logistics and wholesale. See Note 4, Segment Information , in the Notes to Condensed Consolidated Financial Statements for further discussion.
Consolidated
Three Months Ended September 30, 2016 , Compared to the Three Months Ended September 30, 2015
 
Three Months Ended
 
September 30,
 
2016
 
2015
 
Change
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
Fee based:
 
 
 
 
 
Affiliate
$
51,749

 
$
58,111

 
$
(6,362
)
Third-party
814

 
787

 
27

Sales based:
 
 
 
 
 
Affiliate
131,405

 
158,848

 
(27,443
)
Third-party
385,293

 
462,924

 
(77,631
)
Total revenues
569,261

 
680,670

 
(111,409
)
Operating costs and expenses:
 

 
 

 
 

Cost of products sold:
 
 
 
 
 
Affiliate
128,792

 
156,388

 
(27,596
)
Third-party
366,744

 
445,169

 
(78,425
)
Operating and maintenance expenses
43,454

 
45,927

 
(2,473
)
Selling, general and administrative expenses
6,483

 
5,812

 
671

Gain on disposal of assets, net
(62
)
 
(13
)
 
(49
)
Depreciation and amortization
10,579

 
8,963

 
1,616

Total operating costs and expenses
555,990

 
662,246

 
(106,256
)
Operating income
13,271

 
18,424

 
(5,153
)
Other income (expense):
 
 
 
 
 
Interest and debt expense
(6,148
)
 
(6,204
)
 
56

Other, net
17

 
16

 
1

Net income before income taxes
7,140

 
12,236

 
(5,096
)
Provision for income taxes
(282
)
 
(3
)
 
(279
)
Net income
6,858

 
12,233

 
(5,375
)
Less net loss attributable to General Partner
(7,165
)
 
(4,260
)
 
(2,905
)
Net income attributable to limited partners
$
14,023

 
$
16,493

 
$
(2,470
)
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
Common - basic
$
0.23

 
$
0.35

 
$
(0.12
)
Common - diluted
0.23

 
0.35

 
(0.12
)
Subordinated - basic and diluted
0.25

 
0.35

 
(0.10
)
 
 
 
 
 
 
Weighted-average limited partner units outstanding:
 
 
 
 
 
Common - basic
30,884

 
24,017

 
6,867

Common - diluted
30,901

 
24,024

 
6,877

Subordinated - basic and diluted
22,811

 
22,811

 


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Three Months Ended
 
September 30,
 
2016
  <