Western Refining Logistics, LP
Western Refining Logistics, LP (Form: 10-K, Received: 03/01/2017 16:36:25)
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the fiscal year ended December 31, 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
WNRLCOLORA07.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.)
 
 
 
212 N. Clark Dr.
 
79905
El Paso, Texas
 
(Zip Code)
(Address of principal executive offices)
 
 
Registrant’s telephone number, including area code: ( 915) 775-3300
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Units Representing Limited Partner Interests
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  o       No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes  o   No  þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   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
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed based on the New York Stock Exchange closing price on June 30, 2016 (the last business day of the registrant’s most recently completed second fiscal quarter) was $503,069,908 .
As of February 24, 2017 , there were 38,074,324 common units and 22,811,000 subordinated units outstanding.


Table of Contents

WESTERN REFINING LOGISTICS, LP

TABLE OF CONTENTS
 
PART I
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
PART II
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Item 9B.
 
 
 
 
PART III
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
PART IV
 
Item 15.
Item 16.
 
 
 
 
 
 EX-12.1
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
 EX-101




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References in this report to “Western Refining Logistics, LP,” “WNRL,” and “we,” “our,” “us,” the “Partnership” or like terms used in context of periods on or after October 16, 2013, refer to Western Refining Logistics, LP and its subsidiaries.
EXPLANATORY NOTE
Western Refining Logistics, LP is a publicly-traded Delaware limited partnership that commenced operations on October 16, 2013 in connection with its initial public offering (the "Offering"). In conjunction with the Offering, Western Refining, Inc. ("Western") and certain of its subsidiaries contributed to us certain logistics assets that we currently operate.
On September 15, 2016, WNRL acquired certain terminalling, transportation and storage assets from a wholly-owned subsidiary of Western consisting of the Cottage Grove tank farm and certain terminals, storage assets, pipelines and other logistics assets located on site at Western's St. Paul Park refinery (" St. Paul Park Logistics Assets "). We refer to this transaction as the " St. Paul Park Logistics Transaction ."
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 (the " TexNew Mex Pipeline Acquisition ").
On October 15, 2014, WNRL purchased all of the outstanding limited liability company interests of Western Refining Wholesale, LLC ("WRW") from Western (the "Wholesale Acquisition").
These transactions were between entities under common control. The financial position, results of operations and operating statistics of our accounting predecessor for the contributed Southwest logistics assets for periods prior to the Offering are contained herein. In addition, our accounting predecessor contains the financial position and results of operations of the TexNew Mex Pipeline System assets that were not contributed at the time of the Offering. We refer to the financial position, results of operations and operating statistics of these contributed and non-contributed assets, for periods prior to October 16, 2013 as the "WNRL Predecessor."
The information contained herein for the WNRL Predecessor and WNRL has been retrospectively adjusted to include the historical results of the WRW assets acquired for periods prior to the effective date of the Wholesale Acquisition. We refer to the collective entity of the WNRL Predecessor with the retrospective adjustment for the Wholesale Acquisition as our "Predecessor" for periods prior to October 16, 2013. The results of WNRL contain the retrospective adjustment for the Wholesale Acquisition, the TexNew Mex Pipeline Acquisition beginning October 16, 2013, the date WNRL commenced operations, and the St. Paul Park Logistics Transaction beginning November 12, 2013, the date on which St. Paul Park Logistics became subject to the common control of Western. Because the WNRL Predecessor has always contained the financial position and results of operations and operating statistics of the TexNew Mex Pipeline System , the retrospective adjustments related to the TexNew Mex Pipeline Acquisition are applied to WNRL only.
See  Note 1, Organization and Basis of Presentation , and Note 3, Acquisitions , in the Notes to Consolidated Financial Statements included in this annual report for detailed information.
FORWARD-LOOKING STATEMENTS
Certain statements included throughout this Annual Report on Form 10-K and in particular under the sections entitled Item 1. Business , Item 3. Legal Proceedings and Item 7. 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, business strategies, future operations, acquisition opportunities, volatility of crude oil prices, 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.

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When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Form 10-K. 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, Western's post-merger integration with Northern Tier Energy LP and Western's announced merger with Tesoro Corporation, a Delaware corporation (the "Tesoro Merger");
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;
the closing of the Tesoro Merger; and
other factors discussed in more detail under Part I. - Item 1A Risk Factors of this report that are incorporated herein by this reference.
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
Item 1. Business
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 of the non-economic general partner interests in WNRL and is owned 100% by Western and Western's limited partner interest in WNRL was 52.6% at December 31, 2016 . Our units trade on the New York Stock Exchange (“NYSE”) under the symbol “WNRL.”
WNRL is principally a fee-based, growth-oriented partnership that owns, operates, develops and acquires logistics and related assets and businesses to include 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 705 miles of pipelines, approximately 12.4 million barrels ("bbls") of active storage capacity, distribution of wholesale petroleum products and crude oil and asphalt trucking.
On November 16, 2016, Western entered into an Agreement and Plan of Merger (the “Tesoro Merger Agreement”) with Tesoro Corporation, a Delaware corporation (“Tesoro”), Tahoe Merger Sub 1, Inc., a Delaware corporation and wholly-owned subsidiary of Tesoro (“Merger Sub 1”), and Tahoe Merger Sub 2, LLC, a Delaware limited liability company and wholly owned subsidiary of Tesoro ("Merger Sub 2"), pursuant to which Merger Sub 1 will merge with and into Western (the “First Tesoro Merger,” and, if a second merger election as discussed below is not made, the “Tesoro Merger”), with Western surviving the First Tesoro Merger as a wholly-owned subsidiary of Tesoro. The Tesoro Merger Agreement permits either Western or Tesoro, for tax considerations, to require the surviving corporation of the First Tesoro Merger be merged with and into Merger Sub 2 immediately following the effective time of the First Tesoro Merger, with Merger Sub 2 being the surviving company from the second merger (the “Second Tesoro Merger,” and if the second merger election is made, collectively with the First Tesoro Merger, the “Tesoro Merger”). We will continue as a public entity and our debt will remain outstanding following the completion of the Tesoro Merger.
On September 15, 2016, we acquired the 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 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.
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, we acquired 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. We acquired these assets in exchange for $170 million in cash, 421,031 common units representing limited partner interests in WNRL and 80,000 TexNew Mex Units . This transaction was between entities under common control.
On October 15, 2014, we acquired all of the outstanding limited liability company interests of WRW, which owned substantially all of Western’s wholesale assets in the Southwest U.S. We acquired these interests in exchange for $320 million in cash and 1,160,092 of our common units. The issuance of these additional units to Western increased Western's limited partner interest in WNRL to 66.2% . We funded the cash payment through $269 million in new borrowings under our revolving credit facility and $51 million from cash on hand.

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The following simplified diagram depicts our organizational structure as of December 31, 2016 :
WNRLORGCHARTA02.JPG
All of our incentive distribution rights are held by our general partner and our units are held as follows:
Public Common Units
47.4
%
Common Units held by Western
15.1
%
Subordinated Units held by Western (1)
37.5
%
Non-Economic General Partner Interest held by Western Refining Logistics GP, LLC

TexNew Mex Units held by Western

Total
100.0
%
(1)
On the first business day following the payment of the distribution for the fourth quarter of 2016 on March 1, 2017 , the subordinated units held by Western will convert into common units on a one-for-one basis and the resulting common units will continue to be owned by Western.
We report our operating results in two reportable segments: logistics and wholesale. See Note 4, Segment Information , in the Notes to Consolidated Financial Statements included in this annual report for detailed information on our operating results by segment.
We operate our logistics business under commercial and service agreements with Western, as described below, and we currently generate substantially all logistics segment revenues under fee-based agreements with Western. As a result of our fee-based arrangements with Western, we generally do not have exposure to variability in the prices of the hydrocarbons and other products we handle, although these risks indirectly influence our activities and results of operations over the long term.
Our wholesale business operates under commercial and service agreements with Western, as described below, and sells refined products to third parties. Revenues, earnings and cash flows from our wholesale segment are primarily affected by the sales volumes and margins of gasoline, diesel fuel and lubricants sold. These margins are equal to the sales price, net of discounts, less total cost of sales and are measured on a cents per gallon ("cpg") basis. Factors that

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influence margins include local supply, demand and competition and the impact to margin of our commercial agreements with Western.
Our agreements with Western (the "Commercial Agreements") have initial ten-year terms:
Pipeline and Gathering Services Agreement: We entered into a pipeline and gathering services agreement, as amended, with Western under which we agreed to transport crude oil on our Permian Basin system primarily for use at Western’s El Paso refinery (the "El Paso Refinery") and on our Four Corners system primarily for use at Western’s Gallup refinery (the "Gallup Refinery").
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 to the Pipeline Agreement"). Among other things, the Amendment to 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 tank. In the Amendment to the Pipeline Agreement, Western also committed to a minimum volume of 13,000 barrels per day ("bpd") throughput of crude oil on the TexNew Mex Pipeline for ten years from the date of the Amendment to the Pipeline Agreement.
In connection with the TexNew Mex Pipeline Acquisition , our general partner adopted certain amendments to the First Amended and Restated Agreement of Limited Partnership of the Partnership by adopting the Second Amended and Restated Agreement of Limited Partnership (the “Second A&R Partnership Agreement”). The amendments contained in the Second A&R Partnership Agreement create a new class of 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 provides for the creation of the “TexNew Mex Shared Segment” that will reflect the financial and operating results of the TexNew Mex Pipeline. 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 Pipeline above the 13,000 barrels per day contemplated by the commitment in the Amendment to the Pipeline Agreement. 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). The TexNew Mex Unit distributions are preferential to all other unit holder distributions.
Terminalling, Transportation and Storage Services Agreement: We agreed to, among other things, distribute products produced at Western’s refineries, connect Western’s refineries to third-party pipelines and systems and provide fee-based asphalt terminalling and processing services. At 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. At 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 services.
We entered into another terminalling, transportation and storage services agreement with Western (the " St. Paul Park Terminalling Agreement "), under which we agreed to provide product storage services, product throughput services and product additive and blending services at the terminal facilities located at or near the St. Paul Park Refinery. 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.
The fees under each of these agreements are indexed for inflation and apply only to services WNRL provides to Western. These 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 either of its refineries as well as certain extraordinary events beyond the control of us or Western that would prevent us from performing required services under the applicable agreement.
Product Supply Agreement: We entered into a product supply agreement, as amended, under which Western supplies, and we purchase, approximately 79,000 bpd of refined products for sale to our wholesale customers. The agreement includes product pricing based upon OPIS or Platts indices on the day of delivery. The agreement also contains, subject to certain exceptions, a covenant restricting Western's ability to compete in certain wholesale activities in the Southwest. The agreement provides for make-up payments to the Partnership in any month that the Partnership’s average margin on non-delivered rack sales is below a per gallon threshold.
Fuel Distribution and Supply Agreement: Western agreed to purchase a minimum of 645,000 bbls per month of branded and unbranded motor fuels for its retail and automated commercial fueling sites ("cardlocks") at a price equal

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to our product cost at each terminal, plus actual transportation costs, plus a margin of $0.03 per gallon. Under the fuel distribution agreement, a subsidiary of Western is obligated to offer us the first opportunity to satisfy all of its incremental branded and unbranded motor fuel requirements.
Crude Oil Trucking Transportation Services Agreement: Western has agreed to utilize our crude oil trucks to haul a minimum of 1.525 million bbls of crude oil each month. Western pays a flat rate per barrel based on the distance between the applicable pick-up and delivery points, plus monthly fuel adjustments and customary applicable surcharges.
Asphalt Trucking Transportation Services Agreement: Western has agreed to utilize our asphalt trucks and pay a flat rate per mile per ton (with market adjustments) based on the distance between the applicable pick-up and delivery points, plus monthly fuel adjustments and customary applicable surcharges. 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 Agreement.
Western will remain obligated under the Commercial Agreements even if Western no longer controls our general partner.
We entered into a services agreement, as amended, with Western under which Western provides certain personnel for operational services under our supervision in support of our pipeline and gathering assets and terminalling and storage facilities. We reimburse Western for the cost of these services, including routine and emergency maintenance and repair services, routine operational activities, routine administrative services, construction and related services and other services as we and Western may mutually agree. Western prepares a maintenance, operating and capital budget on an annual basis subject to our approval. Western submits actual expenditures to us monthly for reimbursement. Under the agreement, Western indemnifies us from any claims, losses or liabilities that we incur, including third-party claims, arising from Western’s performance of the agreement to the extent caused by Western’s breach of contract, gross negligence or willful misconduct. We have agreed to indemnify Western from any claims, losses or liabilities that Western incurs, including any third-party claims, arising from Western’s performance of the agreement or from our breach of the agreement, except to the extent such claims, losses or liabilities are caused by Western’s breach of contract, gross negligence or willful misconduct.
We have also entered in an omnibus agreement with Western through which Western provides, and we in turn reimburse Western, for 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. Western has also indemnified us for certain environmental and other liabilities, and we have indemnified Western for events and conditions associated with our operations and for environmental liabilities related to our assets. The omnibus agreement generally terminates if we or our general partner experience change in control.
See Note 21, Related Party Transactions , in the Notes to Consolidated Financial Statements included in this annual report for detailed information on our agreements with Western.

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Our Assets and Operations
Logistics Segment
Our logistics assets consist of pipeline and gathering infrastructure and terminalling, transportation and storage assets in the Southwest and the Upper Great Plains region, including 705 miles of pipelines and approximately 12.4 million bbls of active storage capacity, as well as other assets. Most of our assets are integral to the operations of the El Paso Refinery, Gallup Refinery and St. Paul Park Refinery. We generate substantially all of our logistics revenue from fees charged for services provided to Western under the logistics Commercial Agreements.
The following map depicts the locations of our assets (not to scale):
WNRLASSETMAPS.JPG

Pipeline and Gathering
Our pipeline and gathering assets are strategically positioned to support crude oil supply options for the El Paso Refinery, the Gallup Refinery and the St. Paul Park Refinery as well as third parties and consist of crude oil pipelines and gathering assets located primarily in the Delaware Basin in the Permian Basin area of West Texas and Southern New Mexico (the "Delaware Basin"), the Four Corners area of Northwestern New Mexico and in the Upper Great Plains region. Through these systems, we gather and transport crude oil by pipeline and trucks from various production locations to Western’s refineries utilizing 705  miles of pipeline, 33  crude oil storage tanks with a total combined active shell storage capacity of approximately 959,000  bbls, eight truck loading and unloading locations and 15  pump stations.
Our pipeline and gathering assets consist of the following:
  Permian Basin System. Our Permian Basin system includes our Delaware Basin system and other crude oil gathering assets in West Texas. The primary components of our Permian Basin system include:
Delaware Basin System . Our Delaware Basin system includes 39 miles of 10-inch and 12-inch mainlines located in Southeast New Mexico and West Texas and handles crude oil produced in the Delaware Basin. The Main 12-

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inch pipeline and the East 10-inch pipeline were placed into service in July 2013. The West 10-inch pipeline was placed into service in August 2013. The Delaware Basin system is designed to handle up to approximately 154,000 bpd, comprised of a mainline capacity of approximately 100,000 bpd and truck unloading capacity of approximately 54,000 bpd and is operated from a central control station located in Bloomfield, New Mexico. Its primary components include:
Main 12-inch Pipeline . This 12-inch crude oil pipeline is 20 miles in length and connects our Mason Station crude oil facility to our T Station crude oil facility;
West 10-inch Pipeline and CR-285 Crude Oil Station . This 10-inch crude oil pipeline is 7 miles in length and has a capacity in excess of approximately 75,000 bpd. It extends westward from our T Station crude oil facility. This west segment of the system includes a four-bay truck loading and unloading location and associated storage permitting truck deliveries of up to approximately 24,000 bpd;
East 10-inch Pipeline and CR-1 Crude Oil Station . This 10-inch crude oil pipeline is 12 miles in length and has a capacity in excess of approximately 75,000 bpd. It extends eastward from our T Station crude oil facility. This east segment of the system includes a six-bay truck loading and unloading location and associated storage permitting truck deliveries of up to approximately 36,000 bpd;
T Station Crude Oil Facility . Our T Station crude oil facility operates as a station for aggregating crude oil deliveries from the West 10-inch pipeline and East 10-inch pipeline and contains two staging tanks with a combined shell storage capacity of approximately 111,000 bbls; and
Mason Station Crude Oil Facility . Our Mason Station crude oil facility is located in Reeves County, Texas and receives crude oil produced in Southern New Mexico and West Texas. This facility consists of three 80,000 bbl crude oil storage tanks and a nine-bay truck loading and unloading location. This facility has a capacity of up to approximately 54,000 bpd by truck and a capacity of up to 100,000 bpd from our Main 12-inch pipeline. Our Mason Station crude oil facility is connected to Kinder Morgan Energy Partners, LP's ("Kinder Morgan") Mason Junction pump station that injects crude oil into the Kinder Morgan Wink pipeline for delivery to the El Paso Refinery and Western's Bobcat pipeline.
Other Permian Basin Crude Gathering Assets . We own other crude gathering assets in West Texas that handle crude oil produced in the Permian Basin with an aggregate capacity of approximately 8,000 bpd.
McCamey Crude Oil Station . Our McCamey crude oil station is located in Upton County, Texas and receives crude oil produced in West Texas. This station consists of a four-bay truck rack and crude receipt tanks. This facility has a capacity of up to approximately 5,700 bpd by truck. Our McCamey crude oil station is connected to Plains All American Pipeline, LP’s (“Plains”) McCamey crude oil terminal that either injects crude oil into the Kinder Morgan Wink pipeline for delivery to the El Paso Refinery or into Plains’ McCamey crude oil terminal for delivery to Midland, Texas; and
Riverbend 4-inch Gathering Pipeline . Our four-inch crude oil pipeline is three miles in length and connects the Riverbend crude oil tanks in Crane County, Texas owned by third parties to the Kinder Morgan Wink pipeline for delivery to the El Paso Refinery via Kinder Morgan’s Cordona Lake gathering system.
Four Corners System . Our Four Corners system includes 270 miles of pipeline in Northwestern New Mexico that gather and transport crude oil and condensate produced in the San Juan and Paradox Basin areas of Colorado, New Mexico and Utah (referred to, collectively as, “Four Corners area crude oil”) and deliver it to the Gallup Refinery or into our TexNew Mex Pipeline System . This Four Corners area crude oil is received at our Bloomfield terminal and at crude oil stations we own located in Bisti, Lybrook, Pettigrew and Star Lake, New Mexico. This system has a delivery capacity of up to approximately 31,600 bpd to the Gallup Refinery. The Four Corners system’s primary components include:
San Juan 6-inch Pipeline . This six-inch crude oil pipeline is 17 miles in length, connects our Bloomfield terminal to our Bisti crude oil station and handles Four Corners area crude oil;
West 6-inch Pipeline . This six-inch crude oil pipeline is 77 miles in length, connects our Bisti crude oil station to the Gallup Refinery and handles Four Corners area crude oil;
TexNew Mex 16" Pipeline Segment. This portion of the 16-inch crude pipeline is 43 miles in length, connects our Bisti crude oil station to our Star Lake crude oil station and handles Four Corners area crude oil;
East 6 and 4-inch Pipeline . This pipeline consists of a six-inch crude oil pipeline portion that is 70 miles in length and a four-inch crude oil pipeline portion that is 35 miles in length. It connects our Pettigrew crude oil station to our Star Lake crude oil station and also the Gallup Refinery and handles Four Corners area crude oil;

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Wingate 4-inch NGL Pipeline . This four-inch natural gas liquids ("NGL") pipeline is 14 miles in length and connects Western's NGL plant located in Gallup to the Gallup Refinery. It transports NGLs for the Gallup Refinery;
Lybrook 10-inch Pipeline . This ten-inch crude oil pipeline is 14 miles in length and connects the Lybrook station to the TexNew Mex 16-inch crude oil pipeline and handles Four Corners area crude oil; and
Other . The Bisti, Star Lake, Lybrook and Pettigrew Stations combine to have  16 crude oil storage and breakout tanks with a total combined capacity of approximately 485,400 bbls; four truck receipt locations and a connection point with the Navajo Nation Oil and Gas Company's Running Horse pipeline.
TexNew Mex Pipeline System , including 76 mile extension . Our TexNew Mex pipeline extends 299 miles from our crude oil station in Star Lake, New Mexico in the Four Corners area to near Maljamar, New Mexico in the Delaware Basin. In addition, a 76 mile pipeline was constructed to connect the TexNew Mex 16-inch pipeline from Maljamar to our Delaware Basin system.
St. Paul Park Refinery System . Our St. Paul Park Refinery pipeline that was acquired in the St. Paul Park Logistics Transaction includes two crude oil pipeline segments and one pipeline segment not currently in service, each of which is 2.5 miles and extends from the St. Paul Park Refinery to Western’s tank farm in Cottage Grove, Minnesota.
The following tables provide certain approximate information regarding our pipeline and gathering assets:
 
 
Summary of Assets
 
 
Length
(miles)
 
Capacity
Mainline Movements (bpd)
 
 
 
 
Delaware Basin
 
39

 
100,000

Four Corners (1)
 
270

 
58,800

TexNew Mex
 
375

 
70,000

Other (2)
 
21

 

Total
 
 
 
228,800

Gathering (Truck Offloading) (bpd)
 
 
 
 
Mason Station
 

 
54,000

CR-285 (3)
 

 
24,000

CR-1 (3)
 

 
36,000

McCamey Station
 

 
5,700

Four Corners
 

 
28,800

Total Gathering Capacity
 
 
 
148,500

Pipeline Tank Storage (bbls)
 
 
 
 
Delaware Basin
 

 
473,736

Four Corners
 

 
485,351

Total Pipeline Tank Storage
 
 
 
959,087

(1)
The total capacity to transport crude oil to the Gallup Refinery on the West 6-inch and East 6-inch pipelines is approximately 31,600 bpd.
(2)
These pipeline assets include the St. Paul Park Refinery system and various gathering lines.
(3)
These volumes ship on the Delaware Basin mainline and are included in the 100,000 bpd capacity.
Terminalling, Transportation, Storage and Distribution
Our terminalling, transportation and storage assets support crude oil supply and refined product distribution for the El Paso Refinery, the Gallup Refinery and the St. Paul Park Refinery 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 St. Paul Park, Minnesota. These assets include crude oil, feedstock, blendstock, refined product and asphalt storage tanks with a total combined shell storage capacity of approximately 11.4 million bbls, truck loading racks, railcar loading racks, pump stations and pipeline and related logistics assets to service Western’s operations.
Our terminalling, transportation and storage assets consist of the following:
El Paso Tank Farm . Our El Paso tank farm provides the El Paso Refinery with storage, transfer and blending services required to support the refinery’s operations. The tank farm consists of storage tanks with an aggregate

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shell storage capacity of approximately 5.1 million bbls operating on land leased from Western under a 10-year agreement. The storage tanks handle refinery feedstock, jet fuel, gasoline, ultra-low sulfur diesel, blending components, crude oil, asphalt, slop oil and NGLs. Short pipelines on the tank farm transfer products to and from the refinery and storage tanks and ultimately to terminals or distribution pipelines. The El Paso tank farm also includes a rail loading facility located on the Burlington Northern Santa Fe and Union Pacific railroads and has railcar manifest loading capability. The rail loading facility handles asphalt, NGLs, feedstock, sulfuric acid and fuel oil.
El Paso Refined Products Terminal . Our El Paso refined products terminal distributes refined products supplied by the El Paso Refinery from a six-bay truck loading rack with a capacity to handle approximately 45,000  bpd of gasoline, diesel and jet fuel with associated ethanol, biodiesel and additive blending capabilities. The terminal includes storage tanks with a combined shell storage capacity of 74,900 bbls operating on land leased from Western under a 10-year agreement. The storage tanks handle gasoline, transmix, jet fuel, ultra-low sulfur diesel, bio-diesel, blending components and NGLs.
Gallup Tank Farm . Our Gallup tank farm provides the Gallup Refinery with storage and transfer services required to support the refinery’s operations. The tank farm consists of storage tanks with a combined shell storage capacity of approximately 887,100 bbls operating on land leased from Western under a 10-year agreement. The storage tanks handle refined products including ultra-low sulfur diesel, blending components, NGLs and gasoline and refinery feedstocks including crude oil, slop oil, intermediate feedstock and transmix. The Gallup tank farm also includes a railcar manifest loading facility located on the Burlington Northern Santa Fe railroad. The rail loading facility handles crude oil, intermediate feedstock, NGLs, fuel oil, ethanol and biodiesel.
Gallup Refined Products Terminal . Our Gallup refined products terminal distributes refined products supplied by the Gallup Refinery from a six-bay truck loading rack with a capacity to handle approximately 34,000  bpd of gasoline and ultra-low sulfur diesel with associated ethanol, biodiesel and additive blending capabilities. The terminal includes storage tanks with a combined active shell storage capacity of approximately 23,400 bbls operating on land leased from Western under a 10-year agreement.
St. Paul Park Cottage Grove Tank Farm . Our Cottage Grove tank farm provides the St. Paul Park Refinery with storage and transfer services required to support the refinery's operations. The tank farm consists of storage tanks with a combined shell storage capacity of approximately 864,700 bbls.
St. Paul Park Refined Products Terminal . Our St. Paul Park refined products terminal distributes feedstocks and refined products supplied by the St. Paul Park Refinery from a light products terminal, a heavy products loading rack, certain rail and barge facilities and certain other related logistics assets, and includes storage tanks with a combined shell storage capacity of 3,106,500 bbls.
Bloomfield Terminal . Our Bloomfield terminal is a crude oil gathering and refined products distribution facility serving Western and third-party customers. The Bloomfield terminal includes storage tanks with combined shell storage capacity of approximately 696,000 bbls operating on land leased from Western under a 10-year agreement. The storage tanks handle Four Corners area crude oil, gasoline, ultra-low sulfur diesel and blending components. The terminal receives crude oil across a four-bay truck unloading rack, de-waters the crude oil and stores it for shipment on our San Juan 6-inch pipeline to our crude oil station in Bisti for further transport to the Gallup Refinery. Our Bloomfield terminal distributes refined products for Western and third-party customers over a four-bay truck loading rack that has ethanol and additive blending capabilities. A pipeline from Artesia, New Mexico, owned by Holly Energy Partners LP provides primary supply to the terminal. The terminal also receives supply by trucks from other locations.
Albuquerque Refined Products Terminal . Our Albuquerque refined products terminal distributes approximately 9,000 bpd of gasoline, diesel fuel and ethanol from a two-bay truck loading rack for Western and third-party customers. The truck loading rack has a capacity of up to approximately 27,500 bpd with associated ethanol and additive blending capabilities. The terminal includes storage tanks with a combined shell storage capacity of approximately 185,700 bbls operating on land that we own. The El Paso Refinery supplies this terminal via the Magellan common carrier pipeline, owned by Magellan Midstream Partners, LP (“Magellan”), as well as by truck from the Gallup Refinery, our Bloomfield terminal and other locations. Our Albuquerque refined products terminal is also capable of receiving ethanol by truck and rail. The rail loading facility is located on the Burlington Northern Santa Fe railroad.
Asphalt Plant and Terminals . We provide fee-based asphalt terminalling and processing services at our asphalt plant and terminal in El Paso, as well as at three stand-alone asphalt terminals in Albuquerque, New Mexico and Phoenix and Tucson, Arizona. Our El Paso asphalt plant is located adjacent to the El Paso Refinery. The plant has the ability to modify asphalt with polymer and polyphosphoric acid that allows for flexibility in meeting stringent

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performance grade asphalt specifications. The asphalt plant can process up to approximately 1,650 tons per day (“tpd”) of asphalt. The related El Paso asphalt terminal distributes asphalt to customers by rail (through its six rail locations) and by truck over a five-bay truck loading rack. Both the El Paso asphalt plant and the related terminal operate on land leased from Western under a 10-year agreement. Our three other asphalt terminals located in Albuquerque, New Mexico and Phoenix and Tucson, Arizona are throughput terminals for finished asphalt with an aggregate terminalling capacity of up to 2,250 tpd. The asphalt plant and terminals have a combined shell storage capacity of approximately 473,000 bbls.
The following table describes the capacities of our terminal and storage assets:
 
Tank Shell Storage
Capacity
Crude Oil, Intermediates and Refined Products (bbls)
 
El Paso Tank Farm
5,065,600

El Paso Refined Products Terminal
74,900

Gallup Tank Farm
887,100

Gallup Refined Products Terminal
23,400

St. Paul Park Cottage Grove Tank Farm
864,700

St. Paul Park Refined Products Terminal
3,106,500

Bloomfield Terminal
696,000

Albuquerque Refined Products Terminal
185,700

Total
10,903,900

Asphalt (tpd)
 
El Paso Asphalt Plant
202,000

Albuquerque Asphalt Terminal
38,500

Tucson Asphalt Terminal
208,700

Phoenix Asphalt Terminal
23,800

Total
473,000

Wholesale Segment
Our wholesale business purchases substantially all of its petroleum fuels from Western and all of its lubricants and additional petroleum fuels from third-party suppliers. In addition to our sales to Western, our principal customers are retail fuel distributors and the mining, construction, utility, manufacturing, transportation, aviation and agricultural industries. We compete with other wholesale petroleum products distributors on product sales pricing and distribution services in the Southwest such as Pro Petroleum, Inc.; Southern Counties Fuels; Synergy Petroleum, LLC; SoCo Group, Inc.; C&R Distributing, Inc.; and Brewer Petroleum Services, Inc. Our sales and services to Western generally accounted for 26% of our fuel volumes and 82% of our fuel trucking volumes for the year ended December 31, 2016 . Among our third-party customers, sales to Kroger Company accounted for 20.1% , 23.5% , and 23.0% of consolidated revenues for the years ended December 31, 2016 , 2015 and 2014 , respectively.
Our wholesale segment consists of the following operations:
Fuel Distribution
Our wholesale segment purchases petroleum fuels primarily from Western’s refining group and sells these fuels. We have entered into a product supply agreement, as amended, with Western and certain of its affiliates, pursuant to which Western has agreed to sell, and we have agreed to buy, between 90% and 110% of 79,000 bpd of Western’s refined products based upon forecasts provided each month by us. The products are purchased according to a predetermined formula based upon OPIS or Platts indices on the day of delivery and the applicable terminal location. Western will provide us margin shortfall support for non-delivered rack sales. The product supply agreement contains customary payment terms that may be extended if our net working capital requirements grow significantly over time.
As part of this fuel distributions business, we have entered into a fuel distribution and supply agreement with Western. Under this arrangement, we are required to sell and deliver to Western, and Western is required to purchase and accept delivery from us, 645,000 bbls per month of branded and unbranded motor fuels to Western retail and cardlock locations in the Southwest. In exchange for the sale and delivery of branded and unbranded motor fuels, Western will pay us an amount equal to our product cost at each terminal, plus applicable taxes and fees, actual transportation costs and a margin of $0.03 per gallon. In the event that Western fails to purchase the committed volume of branded and unbranded motor fuels, Western

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will pay $0.03 per gallon for each gallon below the committed volume. Western will receive a credit for excess volumes purchased in subsequent months to the extent that shortfall payments were made in the prior twelve months. Our net cost per gallon will be determined based on the prices paid under the product supply agreement.
This business includes the operation of a fleet of finished products trucks that deliver a significant portion of the volumes sold by our wholesale segment.
Crude Trucking
Our wholesale segment operates a fleet of crude oil trucks, which are utilized to support crude oil supply options for the El Paso Refinery and the Gallup Refinery. We have entered into a crude oil trucking transportation services agreement, as amended, with Western under which we have agreed to, among other things, gather, transport and deliver crude oil from collection points in Colorado, New Mexico and Utah to the El Paso Refinery and the Gallup Refinery and their interconnected pipelines. Western has agreed to utilize our crude oil trucking fleet to transport a minimum volume of 1.525 million bbls per month.
In exchange for the gathering and transportation services performed under the crude trucking agreement, Western has agreed to pay us a flat rate per barrel (with market adjustments) based on the distance between the applicable pick-up and delivery points, plus monthly fuel adjustments and customary applicable surcharges.
Asphalt Trucking
Our wholesale segment operates a fleet of asphalt trucks, which are utilized to deliver asphalt to Western's asphalt terminals and third party customers. We have entered into an asphalt trucking transportation services agreement with Western under which we have agreed to, among other things, transport and deliver asphalt from the El Paso Refinery to asphalt terminals in Texas, New Mexico and Arizona. 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 Agreement. Under this Agreement, Western has given us the first option to transport all asphalt volumes Western transports by truck.
In exchange for the transportation services performed under the asphalt trucking transportation agreement, Western has agreed to pay us a flat rate per ton (with market adjustments) based on the distance between the applicable pick-up and delivery points, plus monthly fuel adjustments and customary applicable surcharges.
Lubricants Distribution
Our wholesale segment purchases and distributes lubricants to various third-party customers. As part of this business, our wholesale segment operates several lubricants distribution facilities and a fleet of lubricants transports.
During the fourth quarter of 2016, we completed an evaluation of our lubricant operations. After careful consideration, having concluded that lubricants are not strategic to our core operations, we have taken steps to divest the remaining assets associated with this business. We anticipate a completed sale within the first half of 2017. Assets held for sale in our Consolidated Balance Sheet at December 31, 2016 include $10.1 million in inventories and $7.3 million in property, plant and equipment. These assets and associated results from operations are presented in our Wholesale segment. We expect proceeds from this divestiture to result in a gain on disposal of assets; however, no amounts related to this anticipated transaction have been recorded in the Consolidated Statements of Operations for the year ended December 31, 2016 .
Environmental Regulation
General
Our operations are subject to extensive and periodically changing federal, state and local laws, regulations and ordinances relating to the protection of the environment, worker health and safety, and natural resources. Among other things, these laws and regulations govern the emission or discharge of pollutants into or onto the land, air and water, the handling and disposal of solid and hazardous wastes, the remediation of contamination and protection of endangered and threatened species. Compliance with existing and anticipated environmental laws and regulations increases our overall cost of business, including our capital costs to develop, maintain, operate and upgrade equipment and facilities. We do not believe that compliance with existing environmental laws and regulations will have a material adverse effect on our operations. However, these laws and regulations are subject to changes, or to changes in the interpretation (including enforcement policies) of such laws and regulations, by regulatory authorities and continued and future compliance with such laws and regulations may require us to incur significant expenditures. Additionally, violation of environmental laws, regulations and permits can result in the imposition of significant administrative, civil and criminal penalties, injunctions limiting or prohibiting our operations, investigatory or remedial liabilities, or construction bans or delays in the development of additional facilities or equipment. In particular, a release of hydrocarbons or hazardous substances into the environment could, to the extent the event is not insured, subject us to substantial expenses, including costs to comply with applicable laws and regulations and to resolve claims by third parties for personal injury or property damage, or by the U.S. federal government or state governments for natural resources damages. In

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addition, many environmental laws contain citizen suit provisions, allowing environmental groups to bring suits to enforce compliance with environmental laws. Environmental groups frequently challenge pipeline infrastructure projects. These issues could directly and indirectly affect our business and may have an adverse impact on our financial position, results of operations and liquidity. We cannot currently determine the amounts of such future impact.
Indemnification
Under our omnibus agreement with Western, Western indemnifies us for all known and certain unknown environmental liabilities that are associated with the ownership or operation of our assets and due to occurrences on or before the closing of the Offering. Indemnification for any unknown environmental liabilities is limited to liabilities due to occurrences on or before the closing of the Offering and identified prior to the fifth anniversary of the closing of the Offering and will be subject to a deductible of $100,000 per claim. There is no limit on the amount for which Western indemnifies us under the omnibus agreement once we meet the deductible, if applicable. Western will also indemnify us for failure to obtain certain consents, licenses and permits necessary to conduct our business, including the cost of curing any such condition and litigation matters, in each case that are identified prior to the fifth anniversary of the closing of the Offering. These claims will be subject to an aggregate deductible of $200,000 .
We have agreed to indemnify Western for environmental liabilities related to our assets to the extent Western is not required to indemnify us as described above. There is no limit on the amount for which we will indemnify Western under the omnibus agreement.
Under the separate contribution agreements related to the Wholesale Acquisition, the TexNew Mex Pipeline Acquisition and the St. Paul Park Logistics Transaction , Western agreed to indemnify us with respect to liabilities related to certain historical assets and operations of WRW, the TexNew Mex Pipeline System and the St. Paul Park Logistics Assets that were not contributed to us in the respective acquisitions. In addition, Western made certain representations and warranties regarding the assets of WRW, the TexNew Mex Pipeline System and the St. Paul Park Logistics 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.
Air Emissions and Climate Change
Our operations are subject to the Clean Air Act and its regulations and comparable state and local statutes and regulations in connection with air emissions from our operations. Under these laws, permits may be required before construction can commence on a new source of potentially significant air emissions and operating permits may be required for sources that are already constructed. These permits may require controls on our air emission sources and we may become subject to more stringent regulations requiring the installation of additional emission control technologies, the costs of which could be significant.
In addition, various legislative and regulatory measures to address greenhouse gas emissions (including carbon dioxide, methane and other gases) are in various phases of discussion or implementation, including reporting and permitting of greenhouse gas emissions and state and regional cap-and-trade programs. The impact of future regulatory and legislative developments, if adopted or enacted, including any cap-and-trade program or programs, is likely to result in increased compliance costs, increased utility costs, additional operating restrictions on our business and an increase in the cost of products generally. The extent and magnitude of that impact cannot be reliably or accurately estimated due to the present uncertainty regarding the additional measures and how they will be implemented. Some scientists have concluded that increasing concentrations of greenhouse gas in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts and floods and other climatic events. Such climatic events could have an adverse effect on our financial condition and results of operations.
Waste Management and Related Liabilities
Several of the environmental laws and regulations affecting our operations relate to the release of hazardous substances or solid wastes into soils, groundwater and surface water and include measures to control pollution of the environment. These laws generally regulate the generation, storage, treatment, transportation and disposal of solid and hazardous waste. They also require corrective action, including investigation and remediation, at a facility where such waste may have been released or disposed. Pursuant to our omnibus agreement, Western indemnifies us and will fund all of the costs of required remedial action for Western's known historical and legacy spills and releases and, subject to a deductible per claim of $100,000 , for spills and releases, if any, existing but unknown at the time of closing of the Offering to the extent such existing but unknown spills and releases are identified within five years after closing of the Offering.
CERCLA . The Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), or the Superfund law, and analogous state laws, impose joint and several liability, without regard to fault or the legality of the original conduct, on certain classes of potentially responsible persons for releases of hazardous substances into the environment. These persons

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include the owner or operator of a site and companies that disposed or arranged for the disposal of the hazardous substances found at the site. By operation of law, if we are determined to be a potentially responsible person, we may be responsible under CERCLA for all or part of the costs required to clean up sites at which such materials are present, in addition to providing compensation for any natural resource damages. We have not been determined to be a potentially responsible party at any sites.
RCRA . We also generate solid wastes, including hazardous wastes, within the tank cleaning process that are subject to the requirements of the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes. While RCRA regulates both solid and hazardous wastes, it imposes strict requirements on the generation, storage, treatment, transportation and disposal of hazardous wastes. In the course of our operations, we generate petroleum product wastes and ordinary industrial wastes such as paint wastes, waste solvents and waste oils that are regulated as hazardous wastes. Certain materials generated in the exploration, development or production of crude oil and natural gas are excluded from RCRA’s hazardous waste regulations. However, it is possible that future changes in law or regulation could result in these wastes, including wastes currently generated by our operations, being designated as “hazardous wastes” and therefore subject to more rigorous and costly disposal requirements. For example, in December 2016, the EPA and certain environmental organizations entered into a consent decree to address EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. The consent decree requires EPA to propose a rulemaking no later than March 15, 2019 for revision of certain Subtitle D criteria regulations pertaining to oil and gas wastes or to sign a determination that revision of the regulations is not necessary. Any such changes in laws and regulations could have a material adverse effect on our capital expenditures and operating expenses.
Hydrocarbon Wastes . We currently own and lease properties where hydrocarbons are being or for many years have been handled. Although operating and disposal practices that were standard in the industry at the time were utilized, hydrocarbons or other waste may have been disposed of or released on or under the properties owned or leased by us or on or under other locations where these wastes have been taken for disposal. These properties and wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater) or to perform remedial operations to prevent further contamination, the costs of which could be significant.
Water
Our operations can result in the discharge of pollutants, including crude oil and other products that we handle, store or transport in the course of our operations. Regulations under the Water Pollution Control Act of 1972 (“Clean Water Act”), the Oil Pollution Act of 1990 (the "Oil Pollution Act") and state laws impose regulatory burdens on our operations. Spill prevention control and countermeasure ("SPCC") requirements of federal laws and some state laws require containment to mitigate or prevent contamination of navigable waters in the event of an oil overflow, rupture or leak.
In addition, the transportation and storage of crude oil and products over and adjacent to water involves risk and subjects us to the provisions of the Oil Pollution Act and related state requirements. In case of any such release, the Oil Pollution Act requires the responsible company to pay resulting removal costs and natural resource damages. We operate facilities and transport crude oil and products where releases in water of oil and hazardous substances could occur. We have implemented emergency oil response plans for all of our components and facilities covered by the Oil Pollution Act and we have established SPCC plans for facilities subject to Clean Water Act SPCC requirements.
Construction or maintenance of our pipelines, terminals and storage facilities may impact wetlands or surface waters that are regulated under the Clean Water Act by the U.S. Environmental Protection Agency (the "EPA") and the U.S. Army Corps of Engineers. Regulatory requirements governing wetlands (including associated mitigation projects) and surface water crossings may result in the delay of our pipeline projects while we obtain necessary permits and may increase the cost of new projects and maintenance activities. In addition, in September 2015, the EPA and U.S. Army Corps of Engineers issued a rule defining the scope of the EPA’s and the Corps’ jurisdiction over waters of the United States. To the extent the rule expands the scope of jurisdiction of the Clean Water Act, we could face increased costs and delays with respect to obtaining permits for dredge and fill activities in wetland areas. The rule has been challenged in court on the grounds that it unlawfully expands the reach of Clean Water Act programs, and implementation of the rule has been stayed pending resolution of the court challenge.
Endangered Species
The Endangered Species Act and analogous state laws restrict activities that may affect endangered or threatened species or their habitats. The designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause us to incur increased costs arising from species protection measures or could result in limitations on our operating activities that could have an adverse impact on our results of operations.

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Hazardous Materials Transportation Requirements
The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the U.S. Department of Transportation (the "DOT") has promulgated regulations affecting pipeline safety for certain of our pipelines. These regulations require, amongst other things, that pipeline operators implement measures designed to reduce the environmental impact of crude oil and product discharge from onshore crude oil and product pipelines. These regulations also require operators to maintain comprehensive spill response plans, including extensive spill response training for pipeline personnel. In addition, the DOT regulations contain detailed specifications for pipeline and storage tank operation and maintenance, which can result in substantial compliance costs. These laws and regulations are subject to frequent change. For example, in January 2017, PHMSA finalized regulations for hazardous liquid pipelines that significantly extend and expand the reach of certain PHMSA integrity management requirements (i.e., periodic assessments, leak detection and repairs), regardless of the pipeline’s proximity to a high consequence area. The final rule also imposes new reporting requirements for certain unregulated pipelines, including all hazardous liquid gathering lines. The timing for implementation of this rule is uncertain at this time due to the recent change in Presidential Administrations.
The Federal Motor Carrier Safety Administration (“FMCSA”) of the DOT regulates safety standards and monitors drivers and equipment of commercial motor carrier fleets. Standards include vehicle and maintenance inspection requirements, limitations on the number of hours drivers may operate vehicles, and financial responsibility requirements.
Employee Safety
We are subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens.
Employees
We are managed and operated by Western Refining Logistics GP, LLC, our general partner. As of December 31, 2016 , we directly employed 559 employees through our wholesale subsidiary. Through our general partner's affiliates, we have 295 full-time employees as well as other employees who may provide services to us from time to time, all of whom are seconded to us pursuant to our services agreement with Western. These seconded employees provide operating, maintenance and other services under our direction, supervision and control with respect to the assets that our pipeline and terminalling subsidiaries own and operate. Other Western employees may also provide services to us from time to time.

Available Information
We file reports with the Securities and Exchange Commission (the "SEC"), including annual reports on Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC’s Internet site at http://www.sec.gov contains the reports and other information filed electronically. We do not, however, incorporate any information on that website into this Form 10-K.
As required by Section 406 of the Sarbanes-Oxley Act of 2002, we have adopted a code of ethics that applies specifically to our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer. We have also adopted a Code of Business Conduct and Ethics applicable to all our directors, officers and employees. Those codes of ethics are posted on our website. Our website address is: http://www.wnrl.com. Within the time period required by the SEC and the NYSE, we will post any amendment to our code of ethics and any waiver applicable to any of our Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer on our website. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this Form 10-K. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports simultaneously to the electronic filings of those materials with, or furnishing of those materials to, the SEC available on our website under “Investor Relations,” free of charge. We also make hard copies of our complete audited financial statements available to unitholders, free of charge upon request.

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Item 1A.
Risk Factors
Limited partner interests are inherently different from capital stock of a corporation, although many of the business risks that we are subject to are similar to those that would be faced by a corporation engaged in similar businesses. Security holders and potential investors should carefully consider the following risk factors together with all of the other information included in this report. If any of the following risks were actually to occur, our business, financial condition, results of operations or cash flows could be materially adversely affected.
The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial individually or in the aggregate may also impair our business operations.
Risks Relating to Our Business
The closing of the Tesoro Merger will enable Tesoro to control our affairs.
If the Tesoro Merger closes, Western will become a wholly owned subsidiary of Tesoro. Because Western owns our general partner and also controls a majority of our outstanding voting units, the change of control at Western will enable Tesoro and its affiliates to exert ultimate control over our affairs and they could exercise such influence in a manner that is not in the best interests of our unitholders.
The proposed Tesoro Merger could have an adverse impact on our business.
On November 16, 2016, Western entered into the Tesoro Merger Agreement with Tesoro that provides for the acquisition of Western by Tesoro. As a result of the Tesoro Merger, Tesoro will indirectly own approximately 52.6% of our outstanding common units and 100% of our non-economic general partner interests. As a result, Tesoro will have control over our management and affairs and over all matters requiring unitholder approval, including significant corporate transactions, such as a merger or other sale of our company or its assets. This effectively permits a “change of control" without the vote or consent of our unitholders.
The foregoing changes to Western could be disruptive to our business and operations. The proposed Tesoro Merger may be time consuming and disruptive to Western’s business operations, including its relationship with us as the beneficial owner of a majority of our outstanding common units, the indirect owner of our general partner and the counterparty to certain of our commercial contracts. It is also possible that, following the Tesoro Merger, there could be changes to the composition of our board of directors and members of our senior management team. In addition, it may be difficult for Tesoro to address integration challenges following the completion of the merger, and the anticipated benefits of the integration of the two companies may not be realized fully or at all. Further, the completion of the Tesoro Merger may give rise to additional conflicts of interest and competition for business opportunities among us, Western and Tesoro and their respective affiliates.
The Tesoro Merger is subject to a number of conditions that must be fulfilled or waived prior to the completion of the merger, and there can be no assurance that the merger will be consummated. In addition, if the merger transaction is consummated, any value created for Tesoro’s or Western’s stockholders may not result in the creation of value for our unitholders.
Western currently accounts for a substantial portion of our revenues and is one of our significant suppliers, and therefore we are subject to the business risks of Western. If Western changes its business strategy, is unable to satisfy its obligations under our Commercial Agreements for any reason or significantly reduces the volumes transported through our pipelines and gathering systems or handled at our terminals, our revenues would decline and our financial condition, results of operations, cash flows and ability to service our indebtedness would be adversely affected.
Western is the primary shipper on our pipelines and gathering systems, our primary customer for our terminalling and storage activities and a significant supplier to and customer of our wholesale business. As we expect to continue to derive a substantial portion of our logistics revenues and wholesale fuel supply from Western for the foreseeable future, we are subject to the risk of nonpayment or nonperformance by Western under our Commercial Agreements. Any event, whether in our existing areas of operation or otherwise, that materially and adversely affects Western’s financial condition, results of operations or cash flows may adversely affect our ability to service our indebtedness or make cash distributions. Accordingly, we are indirectly subject to the operational and business risks of Western, some of which are related to the following:
the price volatility of crude oil (including prolonged periods of low crude oil prices that could impact production growth of inland crude oil and reduce the amount of advantaged crude oil available and/or the discount of such crude oil), other feedstocks, refined products and fuel and utility services has had and may have a material adverse effect on Western’s earnings and cash flows;
if the price of crude oil increases significantly or Western’s credit profile changes, or if Western is unable to access its revolving credit facility for borrowings or for letters of credit, Western’s liquidity and ability to purchase enough crude oil to operate its refineries at full capacity could be materially and adversely affected;

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Western’s hedging transactions may limit its gains and expose Western to other risks;
Compliance with and changes in tax laws could adversely affect Western’s performance;
the risk of contract cancellation, non-renewal or failure to perform by Western’s customers and Western’s inability to replace such contracts and/or customers could have a material adverse effect on Western’s earnings and cash flows;
Western’s indebtedness, including any indebtedness it may incur in the future, may limit its ability to obtain additional financing and Western may also face difficulties complying with the terms of its indebtedness agreements;
covenants and events of default in Western’s debt instruments could limit its ability to undertake certain types of transactions and adversely affect its liquidity;
Western has capital needs for which its internally generated cash flows and other sources of liquidity may not be adequate;
future acquisitions by Western may reduce, rather than increase, its cash flows and the impacts of such acquisitions, together with any indebtedness incurred to fund such acquisitions, could have a negative impact on Western’s creditworthiness;
the dangers inherent in Western’s operations could cause disruptions and could expose Western to potentially significant losses, costs or liabilities. Any significant interruptions in the operations of any of Western’s refineries could materially and adversely affect its business, financial condition, results of operations and cash flows;
Western’s operations involve environmental risks that could give rise to material liabilities;
Western may incur significant costs to comply with environmental, health and safety laws and regulations;
Western could experience business interruptions caused by pipeline shutdowns or interruptions;
a material decrease in the supply of crude oil available to Western’s refineries could significantly reduce its production levels;
severe weather could interrupt the supply of some of Western’s feedstock for its refineries that could have a material adverse effect on its business, financial condition, results of operation and cash flows;
Western could incur substantial costs or disruptions in its business if it cannot obtain or maintain necessary permits and authorizations;
competition in the refining, marketing and retail industry is intense, and an increase in competition in the areas in which Western sells its refined and other products could adversely affect Western’s sales and profitability;
Western’s business, financial condition, results of operations and cash flow may be materially adversely affected by a continued economic downturn;
Western’s insurance policies do not cover all losses, costs or liabilities that Western may experience;
Western could be subject to damages based on claims brought by its customers or lose customers as a result of a failure of its products to meet certain quality specifications;
a substantial portion of Western’s refining workforce is unionized and Western may face labor disruptions that would interfere with their operations;
if Western loses any of its key personnel, Western’s ability to manage its business could be negatively impacted; and
terrorist attacks, cyber-attacks, threats of war or actual war may negatively affect Western’s operations, financial condition, results of operations, cash flows and prospects.
Petroleum refining and marketing is highly competitive. Due to their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of Western’s competitors may be better able to withstand volatile market conditions, compete on the basis of price, obtain crude oil in times of shortage and bear the economic risk inherent in all phases of the refining industry. The El Paso Refinery and the Gallup Refinery primarily compete with Valero Energy Corp., Phillips 66 Company, Alon USA Energy, Inc., HollyFrontier Corporation, Tesoro Corporation, Chevron Products Company and Suncor Energy, Inc., as well as refineries in other regions of the country that serve the regions that Western serves through pipelines. Our St. Paul Park Refinery competes directly with Koch Industries’ Flint Hills Resources Refinery in Pine Bend, Minnesota, as well as the other refiners in the region, that access the region by pipeline, and, to a lesser extent, other U.S. and

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foreign refiners. Some areas where Western sells refined products are also supplied by various refined product pipelines. Any expansions or additional products supplied by these third-party pipelines could put downward pressure on refined product prices in these areas.
Western is not obligated to use our services with respect to volumes of crude oil or refined and other products in excess of the minimum volume commitments under its Commercial Agreements with us. In addition, the terms of Western’s obligations under those agreements are 10 years. If Western fails to use our assets and services after expiration of those agreements, or should our Commercial Agreements be invalidated for any reason, and we are unable to generate additional revenue from third parties, our ability to service our indebtedness may be materially and adversely affected. Furthermore, our Commercial Agreements with Western were not the result of arm’s-length negotiations and we may enter into future agreements with Western that are not the result of arm’s-length negotiations.
Additionally, Western may consider opportunities presented by third parties with respect to its refinery assets. These opportunities may include offers to purchase assets and joint venture propositions. Western may also change its refineries’ operations by developing new facilities, suspending or reducing certain operations, modifying or closing facilities or terminating operations. Changes may be considered to meet market demands, to satisfy regulatory requirements or environmental and safety objectives, to improve operational efficiency or for other reasons. Western actively manages its assets and operations, and therefore, changes of some nature, possibly material to its business relationship with us, are likely to occur at some point in the future. No such changes will be subject to our consent.
Furthermore, conflicts of interest may arise between Western and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. We have no control over Western, our largest source of revenue and our primary customer, and Western may elect to pursue a business strategy that does not favor us and our business.
We may not have sufficient cash from operations following the establishment of cash reserves and payment of fees and expenses, including cost reimbursements to our general partner and its affiliates, to enable us to pay the minimum quarterly distribution to our unitholders.
We may not have sufficient available cash from operating surplus each quarter to enable us to pay the minimum quarterly distribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:
the volume of crude oil and refined and other products we handle;
the transportation, terminalling and storage fees with respect to volumes that we handle;
our entitlement to payments associated with the minimum volume commitments under our Commercial Agreements with Western;
timely payments by Western and our other customers; and
prevailing economic conditions.
In addition, the actual amount of cash we will have available for distribution will also depend on other factors, some of which are beyond our control, including:
the amount of our operating expenses and selling, general and administrative expenses, including our obligation to reimburse Western or our general partner in respect of those expenses, which obligation is not limited in amount under our partnership agreement, omnibus agreement or services agreement;
the level of capital expenditures we make;
the cost of acquisitions and organic growth projects, if any;
our debt service requirements and other liabilities;
fluctuations in our working capital needs;
our ability to borrow funds and access capital markets;
restrictions contained in our revolving credit facility and other debt service requirements;
the amount of cash reserves established by our general partner; and
other business risks affecting our cash levels.

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Western may suspend, reduce or terminate its obligations under each of our Commercial Agreements and our services agreement in some circumstances, which would have a material adverse effect on our financial condition, results of operations, cash flows and ability to service our indebtedness.
Our Commercial Agreements and services agreement with Western include provisions that permit Western to suspend, reduce or terminate its obligations under the applicable agreement if certain events occur. These events include a material breach of the agreement by us, or, in some cases, Western deciding to permanently or indefinitely suspend refining operations at one or more 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. Western has the discretion to make such decisions notwithstanding the fact that they may significantly and adversely affect us. For instance, under the Commercial Agreements entered into in connection with the Offering, if Western decides to permanently or indefinitely suspend, in full or in part, refining operations at a refinery for a period that will continue for at least twelve consecutive months, then it may terminate or proportionately reduce, as applicable, its obligations under the agreement on no less than twelve-months’ prior written notice to us, unless it publicly announces its intent to resume operations at the refinery at least two months prior to the expiration of the twelve-month notice period. Under the Commercial Agreements entered into in connection with the Offering, the Wholesale Acquisition, TexNew Mex Pipeline Acquisition and St. Paul Park Logistics Transaction , Western has the right to terminate such agreements with respect to any services for which performance will be suspended by a force majeure event for a period in excess specified periods ranging from six to twelve-months. Additionally, under the Commercial Agreements and the services agreement, Western has the right to terminate such agreements in the event of a material breach by us, subject to a specified cure period.
Generally, although Western is not entitled to claim a force majeure event under the Commercial Agreements, Western’s and our obligations under these agreements will be proportionately reduced or suspended to the extent that we are unable to perform under the agreements upon our declaration of a force majeure event. As defined in our Commercial Agreements and in the services agreement, force majeure events include any acts or occurrences that prevent services from being performed under the applicable agreement, including, but not limited to:
acts of God, or fires, floods or storms;
compliance with orders of courts or any governmental authority;
explosions, wars, terrorist acts, riots, strikes, lockouts or other industrial disturbances;
accidental disruption of service;
breakdown of machinery, storage tanks or pipelines and inability to obtain, or unavoidable delay in obtaining, material or equipment; and
similar events or circumstances, so long as such events or circumstances are beyond the service provider’s reasonable control and could not have been prevented by the service provider’s due diligence.
Accordingly, under our Commercial Agreements there exists a broad range of events that could result in our no longer being required to transport or distribute Western’s minimum throughput or volume commitments on our assets, or to reserve dedicated storage capacity for Western’s products and Western no longer being required to pay the full amount of fees that would have been associated with its minimum throughput or volume commitments and storage capacity reservations. Additionally, we have no control over Western’s business decisions and operations and conflicts of interest may arise between Western and its affiliates, including our general partner or Western’s controlled subsidiary, Northern Tier, on the one hand, and us and our unitholders, on the other hand. Western is not required to pursue a business strategy that favors us or utilizes our assets, and could elect to decrease refinery production or shutdown or re-configure a refinery. Furthermore, a single event or business decision relating to one of Western’s refineries could have an impact on each of our Commercial Agreements with Western. These actions, as well as the other activities described above, could result in a reduction or suspension of Western’s obligations under one or more of our Commercial Agreements. Any such reduction or suspension would have a material adverse effect on our financial condition, results of operations, cash flows and ability to service our indebtedness.
If Western satisfies only its minimum obligations under, or if we are unable to renew or extend, the various Commercial Agreements we have with Western, our ability to service our indebtedness will be reduced.
Western is not obligated to use our services with respect to volumes of crude oil or refined and other products in excess of the minimum commitments under the various Commercial Agreements with us. Our ability to service our indebtedness could be adversely affected if we do not transport additional volumes for Western on our pipeline and gathering systems (in excess of the minimum volume commitments under our Commercial Agreements), and handle additional Western and/or third-party volumes at our terminals, or if Western’s obligations under our Commercial Agreements are suspended, reduced or terminated due to a refinery shutdown or force majeure event. In addition, the terms of Western’s obligations under those agreements extend 10 years from the Offering and the agreements we entered into in connection with the Wholesale Acquisition will extend 10 years from the date of the closing of the Wholesale Acquisition. If Western fails to use our facilities and services after

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expiration of those agreements and we are unable to generate additional revenues from third parties, our ability to service our indebtedness will be reduced.
A material decrease in the refining margins at Western’s refineries could materially reduce the volumes of crude oil or refined and other products that we handle, which could adversely affect our financial condition, results of operations, cash flows and ability to service our indebtedness.
A material reduction in the refining margins at Western could make operating at full capacity uneconomical for Western and would impact the volume of refined and other products that we handle. Refining margins are dependent both upon the price of crude oil or other refinery feedstock and the price of refined and other products. Refining margins historically have been volatile, and are likely to continue to be volatile, as a result of a variety of factors, including fluctuations in the prices of crude oil, other feedstocks, refined products and fuel and utility services. Historically, Western’s refining margins have been positively impacted by the discount of WTI crude oil to Brent crude oil and the discount of WTI Midland crude oil to WTI Cushing crude oil, as the majority of its crude oil purchases are based on pricing tied to WTI Midland. However, the discount of WTI crude oil to Brent crude oil declined to $0.38 per barrel in 2016 from $3.68 per barrel in 2015 , and the WTI Midland/Cushing differential averaged a discount of $0.15 per barrel for 2016 compared to $0.37 in 2015 . In addition, both the WTI/Brent discount and the WTI Midland/Cushing discount remain volatile, and either or both of these discounts could remain narrow, further decline or invert in the future. We expect continued volatility in crude oil pricing. It is possible that this volatility in crude oil pricing and crack spreads may continue for prolonged periods of time due to numerous factors beyond our and Western's control, including the global supply and demand for crude oil, gasoline and refined and other products. Prolonged periods of low crude oil prices could impact production growth of inland crude oil, which could impact the availability of crude oil and the associated volumes gathered and transported on our logistics systems.
In addition to current market conditions, there are long-term factors that may impact the supply and demand of refined and other products in the United States. These factors include:
changes in global and local economic and political conditions;
domestic and foreign demand for crude oil and refined products, especially in the U.S., China and India;
worldwide political conditions, particularly in significant oil producing regions such as the Middle East, West Africa, Russia and Latin America;
political and geopolitical instability or armed conflict in oil producing regions;
the level of foreign and domestic production of crude oil and refined products and the level of crude oil, feedstocks and refined products imported into the U.S., that can be impacted by accidents, interruptions in transportation, inclement weather or other events affecting producers and suppliers;
U.S. government regulations, including legislation affecting the exportation of domestic crude oil;
utilization rates of U.S. refineries;
changes in fuel specifications required by environmental and other laws;
the ability of the members of the Organization of Petroleum Exporting Countries (“OPEC”) to influence oil prices and production controls;
commodities speculation;
development and marketing of alternative and competing fuels;
pricing and other actions taken by competitors that impact the market;
product pipeline capacity, including the Magellan Southwest System pipeline, Kinder Morgan’s East Line, the Aranco pipeline and the Magellan pipeline system, all of which could increase supply in certain of Western’s service areas and therefore reduce Western’s margins;
accidents, interruptions in transportation, inclement weather or other events that can cause unscheduled shutdowns or otherwise adversely affect our plants, machinery or equipment or those of our suppliers or customers; and
local factors, including market conditions, weather conditions and the level of operations of other refineries and pipelines in our service areas.
If the demand for refined and other products, particularly in Western’s primary distribution areas, decreases significantly, or if there were a material increase in the price of crude oil supplied to Western’s refineries without an increase in the value of the products produced by those refineries, either temporary or permanent, that caused Western to reduce production of refined and other products at its refineries, there would likely be a reduction in the volumes of crude oil and refined and other products

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we handle for Western. Any such reduction could adversely affect our financial condition, results of operations, cash flows and ability to service our indebtedness.
Our logistics operations and Western’s refining operations are subject to many risks and operational hazards, some of which may result in business interruptions and shutdowns of our or Western’s facilities and damages for which we may not be fully covered by insurance. If a significant accident or event occurs that results in business interruption or shutdown for which we are not adequately insured, our operations and financial results could be adversely affected.
Our logistics operations are subject to all of the risks and operational hazards inherent in transporting and storing crude oil and refined and other products, including:
damages to pipelines and facilities, related equipment and surrounding properties caused by earthquakes, floods, fires, severe weather, explosions and other natural disasters and acts of terrorism;
the inability of third-party facilities on which our operations are dependent, including Western’s facilities, to complete capital projects and to restart timely refining operations following a shutdown;
mechanical or structural failures at our facilities or at third-party facilities on which our operations are dependent, including Western’s facilities;
curtailments of operations relative to severe seasonal weather;
inadvertent damage to pipelines from construction, farm and utility equipment; and
other hazards.
These risks could result in substantial losses due to personal injury and/or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage, as well as business interruptions or shutdowns of our facilities. Any such event or unplanned shutdown could have a material adverse effect on our business, financial condition and results of operations. In addition, Western’s refining operations, on which our operations are substantially dependent, are subject to similar operational hazards and risks inherent in refining crude oil. A serious accident at our facilities or at Western’s facilities could result in serious injury or death to employees of our general partner or its affiliates or contractors and could expose us to significant liability for personal injury claims and reputational risk. We have no control over the operations at Western’s refineries.
We are insured under the property, liability and business interruption policies of Western, subject to the deductibles and limits under those policies. To the extent Western experiences losses under the insurance policies, the limits of our coverage may be decreased. The occurrence of an event that is not fully covered by insurance or failure by one or more insurers to honor its coverage commitments for an insured event could have a material adverse effect on our business, financial condition and results of operations.
Our substantial dependence on the El Paso, Gallup and St. Paul Park refineries as well as the lack of diversification of our assets and geographic locations could adversely affect our ability to service our indebtedness.
We believe that a significant portion of our revenues for the foreseeable future will be derived from operations supporting the El Paso, Gallup and St. Paul Park refineries. Any event that renders either refinery temporarily or permanently unavailable or that temporarily or permanently reduces rates at either refinery could have a material adverse effect on our financial condition, results of operations, cash flows and ability to service our indebtedness.
We rely on revenues generated from our pipelines and gathering operations and our transportation, terminalling and storage operations that are located in Arizona, Minnesota, New Mexico and West Texas. Due to our lack of diversification in assets and geographic location, an adverse development in our businesses or areas of operations, including adverse developments due to catastrophic events, weather, regulatory action and decreases in demand for crude oil and refined products, could have a significantly greater impact on our results of operations and cash available to service our indebtedness than if we maintained more diverse assets and locations. Such events may constitute force majeure events under our Commercial Agreements, potentially resulting in the suspension, reduction or termination of one or more Commercial Agreements in the impacted geographic area. In addition, during a refinery turnaround, we expect that Western may only satisfy its minimum volume commitments with respect to our assets that serve such refinery.
A material decrease in wholesale fuel or lubricants margins could adversely affect our financial condition, results of operations, cash flows and ability to service our indebtedness.
A significant portion of our wholesale fuel sales and all of our lubricants sales are made to third-party customers. The margins we earn on these sales are dependent on a number of factors outside of our control, including the overall supply of refined products and lubricants as well as the demand for these products by our customers. Among other circumstances, the margins we earn through these activities would likely be adversely impacted in the event of excess supply of refined products

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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 we achieve. Extended periods of conditions that result in our earning margins being lower than anticipated at the time of the acquisition could adversely affect our financial condition, results of operations and cash flows.
Terrorist attacks or cyber-attacks, threats of war or actual war may negatively affect our and Western’s operations, financial condition, results of operations, cash flows and prospects.
Terrorist attacks in the U.S., as well as events occurring in response to or in connection with them, may adversely affect our or Western’s operations, financial condition, results of operations, cash flows and prospects. Energy-related assets (that could include third-party pipelines and refineries, such as the Western refineries on which we are substantially dependent, and terminals and pipelines such as ours) may be at greater risk of future terrorist attacks than other possible targets. A direct attack on our assets or assets used by us could have a material adverse effect on our operations, financial condition, results of operations, cash flows and prospects. In addition, any terrorist attack could have an adverse impact on energy prices, including prices for Western’s crude oil and refined and other products. While we are an additional insured party under insurance policies maintained by Western that provide coverage against terrorist attacks, such insurance has become increasingly expensive and difficult to obtain. As a result, insurance providers may not continue to offer this coverage to us on terms that we consider affordable, or at all.
We and Western are dependent on technology infrastructure and maintain and rely upon certain critical information systems for the effective operation of our respective businesses. These information systems include data network and telecommunications, internet access and our websites and various computer hardware equipment and software applications, including those that are critical to the safe operation of our pipelines and terminals. These information systems are subject to damage or interruption from a number of potential sources including natural disasters, software viruses or other malware, power failures, cyber-attacks and other events. To the extent that these information systems are under our control, we have implemented measures such as virus protection software and emergency recovery processes to address the outlined risks. However, security measures for information systems cannot be guaranteed. Breaches to our networks could lead to such information being accessed, publicly disclosed, lost or stolen, and could result in legal claims or proceedings, liability under laws that protect the privacy of customer information, disrupt the services we provide and damage our reputation, any of which could have a material adverse effect on our operations, financial condition, results of operations, and cash flows. Any compromise of our data security or our inability to use or access these information systems at critical points in time could unfavorably impact the timely and efficient operation of our business and subject us to additional costs and liabilities.
A material decrease in the supply of crude oil available to Western’s refineries could significantly reduce the volume of crude oil gathered and transported by our pipeline systems and the refined and other products distributed by our terminals which could adversely affect our financial condition, results of operations, cash flows and ability to service our indebtedness.
The volume of crude oil that we gather and transport on our pipeline systems and the volume of refined and other products that we distribute at our terminals depends on the volume of refined and other products produced at Western’s refineries. Western continually contracts with third-party crude oil suppliers to maintain a sufficient supply of crude oil for production at their refineries. In order to maintain or increase refined and other product production levels at their refineries, Western must continually contract for new crude oil supplies at a greater rate than the rate of decline in Western’s current supplies. A decline in available crude oil to Western’s refineries could result in an overall decline in volumes of refined and other products produced by Western’s refineries. If the volume of attractively-priced, high-quality crude oil available to Western’s refineries is materially reduced for a prolonged period of time, including due to decreased production activity resulting from recent periods of depressed crude oil prices, the volume of crude oil gathered and transported by our pipeline systems and the volume of refined and other products distributed by our terminals and the related fees for those services, could be materially reduced which could adversely affect our financial condition, results of operations, cash flows and ability to service our indebtedness.
We may not be able to increase our third-party revenue significantly or at all due to competition and other factors, which could limit our ability to grow and extend our dependence on Western.
Part of our growth strategy includes diversifying our customer base by identifying opportunities to offer services to third parties with our existing assets or by acquiring or developing new assets independently from Western. Our ability to increase our third-party revenue is subject to numerous factors beyond our control, including competition from third parties and the extent to which we lack available capacity when third-party shippers require it. To the extent that we have available capacity at our refined products terminals available for third-party volumes, competition from other existing or future refined products terminals owned by third parties may limit our ability to utilize this available capacity.
We have historically provided pipeline, gathering, transportation, terminalling and storage services to third parties on only a limited basis. We can provide no assurance that we will be able to attract any material third-party service opportunities,

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and we are currently restricted from doing so under our Commercial Agreements with Western in circumstances where it would inhibit our ability to provide services to Western except where such restriction will be contrary to or in violation of FERC regulations. Our efforts to attract new unaffiliated customers may be adversely affected by our relationship with Western, our desire to principally provide services pursuant to fee-based contracts and, with respect to the pipeline systems, Western’s operational requirements at its refineries that rely upon our pipeline and gathering systems to supply a significant portion of their crude oil requirements and that we expect to continue to utilize a significant portion of the available capacity of the current pipeline systems for transportation of crude oil to Western’s refineries. Our potential customers may prefer to obtain services under other forms of contractual arrangements under which we would be required to assume direct commodity exposure. In addition, we will need to establish a reputation among our potential customer base for providing high-quality service in order to successfully attract unaffiliated third parties.
Our and Western’s expansion of existing assets and development of new assets may not result in revenue increases and will be subject to risks associated with crude oil production and regulatory, environmental, political, legal and economic risks, which could adversely affect our operations and financial condition.
A portion of our strategy to grow and increase distributions to our unitholders is dependent on projected increased crude oil production in our existing areas of operation and on our or Western’s ability to expand existing assets and to develop additional assets. There can be no assurance that expected crude oil production increases will occur in the future or that crude oil production in our existing areas of operations will not decline in the future. Recently, oil and natural gas prices have declined significantly. In recent years, the prices of crude oil, other feedstocks and refined products have fluctuated. The NYMEX WTI postings of crude oil for 2016 ranged from $29.64 per barrel in February 2016 to $52.17 per barrel in December 2016 to $52.94 as of February 24, 2017 . An extended decline in crude oil prices could lead to a decline in drilling activity and production, which could impact the availability of crude oil and the associated volumes gathered and transported on our logistics systems. Additionally, drilling activities by third parties as well as the construction of a new pipeline or terminal or the expansion of an existing pipeline or terminal, such as by adding horsepower or pump stations, increasing storage capacity or otherwise, involves numerous regulatory, environmental, political, legal and economic uncertainties, most of which are beyond our control.
If we or Western undertake these projects, they may not be completed on schedule, completed at all or completed at the budgeted cost. Moreover, we may not receive sufficient long-term contractual commitments from customers to provide the revenue needed to support such projects and we may be unable to negotiate acceptable interconnection agreements with third-party pipelines to provide destinations for increased throughput. Even if we receive such commitments or make such interconnections, we may not realize an increase in revenue for an extended period of time. For instance, we may develop facilities to capture anticipated future growth in production in a region in which such growth does not materialize. Moreover, if we build a new pipeline, the construction will occur over an extended period of time and we will not receive any material increases in revenues until after completion of the project. As a result, new facilities may not be able to attract enough throughput to achieve our expected investment return, which could adversely affect our financial condition, results of operations and our ability to service our indebtedness.
If we are unable to make acquisitions on economically acceptable terms from Western or third parties, our future growth would be limited, and any acquisitions we make may reduce, rather than increase, our cash flows and ability to service our indebtedness.
A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that result in an increase in cash flow. The acquisition component of our growth strategy is based, in large part, on our expectation of ongoing divestitures of gathering, transportation and storage assets by industry participants, including Western. A material decrease in such divestitures would limit our opportunities for future acquisitions and could adversely affect our ability to grow our operations and increase cash distributions to our unitholders. If we are unable to make acquisitions from Western or third parties, because we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, we are unable to obtain financing for these acquisitions on economically acceptable terms or we are outbid by competitors, our future growth and ability to service our indebtedness will be limited. Furthermore, even if we do consummate acquisitions that we believe will be accretive, they may in fact result in a decrease in cash flow. Any acquisition involves potential risks, including, among other things:
mistaken assumptions about revenues and costs, including synergies;
an inability to integrate successfully the businesses or assets we acquire;
the assumption of unknown liabilities;
limitations on rights to indemnity from the seller;
mistaken assumptions about the overall costs of equity or debt;

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the diversion of management’s attention from other business concerns;
unforeseen difficulties operating in new product areas or new geographic areas; and
customer or key employee losses at the acquired businesses.
If we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in determining the application of these funds and other resources.
Our right of first offer to acquire certain of Western’s existing assets is subject to risks and uncertainty, and ultimately we may not acquire any of those assets.
Our omnibus agreement provides us with a right of first offer on certain of Western’s existing assets and certain logistics assets Western may acquire or construct in the future in the Permian Basin or the Four Corners area through October 2023. We do not have a current agreement or understanding with Western to purchase any assets covered by our rights of first offer. The consummation and timing of any future acquisitions of these assets will depend upon, among other things, Western’s willingness to offer these assets for sale, our ability to negotiate acceptable purchase agreements and Commercial Agreements with respect to the assets and our ability to obtain financing on acceptable terms. We can offer no assurance that we will be able to successfully consummate any future acquisitions in keeping with our rights of first offer, and Western is under no obligation to accept any offer that we may choose to make. In addition, certain of the assets covered by our rights of first offer may require substantial capital expenditures in order to maintain compliance with applicable regulatory requirements or otherwise make them suitable for our commercial needs. For these or a variety of other reasons, we may decide not to exercise our rights of first offer if and when any assets are offered for sale, and our decision will not be subject to unitholder approval. In addition, our rights of first offer may be terminated by Western at any time after it no longer controls our general partner.
Our ability to expand and increase our utilization rates may be limited if Western’s refining and marketing operations do not grow as expected.
Part of our growth strategy depends on the growth of Western’s refining and marketing operations. For example, we believe our growth will primarily be influenced by identifying and executing organic expansion projects that will result in increased throughput volumes from Western and third parties. Our prospects for organic growth currently include projects that we expect Western to undertake, such as adding gathering lines to our existing systems, and that we expect to have an opportunity to purchase from Western. If Western focuses on other growth areas or does not make capital expenditures to fund the organic growth of its logistics operations, we may not be able to fully execute our growth strategy.
Any reduction in the capacity of, or the allocations to, shippers in interconnecting, third-party pipelines could cause a reduction of volumes distributed through our terminals and pipelines.
Western is dependent upon connections to third-party pipelines to transport refined and other products to certain of our terminals and to ship crude oil through certain of our pipelines. For example, the El Paso Refinery is dependent on a pipeline owned by a subsidiary of Kinder Morgan for the delivery of all of its crude oil. Any reduction of capacities of these interconnecting pipelines due to testing, line repair, reduced operating pressures, retirement or abandonment of facilities or other causes could result in reduced volumes of refined and other products distributed through our terminals and shipments of crude oil through our pipelines. Similarly, if additional shippers begin transporting volumes of refined and other products or crude oil over interconnecting pipelines, the allocations to Western and other existing shippers on these pipelines could be reduced, which could also reduce volumes distributed through our terminals or transported through our pipelines. Allocation reductions of this nature are not infrequent and are beyond our control. Any significant reduction in volumes would adversely affect our revenues and cash flow and our ability to service our indebtedness.
We could incur substantial costs or disruptions in our business if we cannot obtain or maintain necessary permits and authorizations or otherwise comply with health, safety, environmental and other laws and regulations.
Our operations require numerous permits and authorizations under various laws and regulations, including environmental and worker health and safety laws and regulations. These authorizations and permits are subject to revocation, renewal or modification and can require operational changes that may involve significant costs to limit impacts or potential impacts on the environment and/or health and safety. A violation of these authorization or permit conditions or other legal or regulatory requirements could result in substantial fines, criminal sanctions, permit revocations and injunctions prohibiting our operations. In addition, major modifications of our operations could require modifications to our existing permits or expensive upgrades to our existing pollution control equipment that could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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We may be unsuccessful in integrating the operations of the St. Paul Park Logistics Assets, or in realizing all or any part of the anticipated benefits of the St. Paul Park Logistics Transaction.
The acquisition component of our growth strategy depends on the successful integration of acquisitions such as the St. Paul Park Logistics Transaction. We face numerous risks and challenges to successful integration of the St. Paul Park Logistics Assets, including:
the potential for unexpected costs, delays and challenges that may arise in integrating the St. Paul Park Logistics Assets into our existing business;
environmental or regulatory compliance matters or liabilities or accidents;
the temporary diversion of management’s attention from our existing businesses;
our inability or limited ability to control the operations and management of the St. Paul Park Logistics Assets; and
the incurrence of unanticipated liabilities and costs for which indemnification is unavailable or inadequate.
If we are unable to successfully integrate the St. Paul Park Logistics Assets due to any of these factors, our future business, operations and distributable cash flow could be adversely impacted.
We do not own all of the land on which our pipelines, terminals and other assets are located, which could result in disruptions to our operations.
We do not own all of the land on which our pipelines, terminals and other assets are located, and we are, therefore, subject to the possibility of more onerous terms and increased costs to continue to use this land. Our pipeline rights-of-way and leases expire after a specific period of time. Our loss of these rights-of-way or leases could have a material adverse effect on our business, results of operations, financial condition and ability to service our indebtedness.
Severe weather could interrupt the supply of some of Western’s feedstock and our wholesale and logistics operations.
Crude oil supplies for the El Paso Refinery and the Gallup Refinery come from the Permian Basin in Texas and New Mexico, and therefore are not generally subject to interruption from hurricanes. However, due to severe weather or other factors, if there is an interruption to Western’s supply of feedstock for the El Paso Refinery and the Gallup Refinery for a prolonged period of time, the volume of crude oil gathered and transported by our pipeline systems and the volume of refined and other products distributed by our terminals, and the related fees for those services, could be materially reduced. In addition, severe weather could interrupt our wholesale and logistics operations. If severe weather or other factors were to impact the supply of some of Western’s feedstock or our wholesale and logistics operations, our financial condition, results of operations, cash flows and ability to service our indebtedness may be adversely effected.
Restrictions in our revolving credit facility and the indenture governing our senior notes could adversely affect our business, financial condition, results of operations and ability to service our indebtedness.
We are dependent upon the earnings and cash flow generated by our operations in order to meet our debt service obligations. The operating and financial restrictions and covenants in our revolving credit facility, the indenture governing our senior notes, and any future financing agreements could restrict our ability to finance future operations or capital needs, or to expand or pursue our business activities, which may limit our ability to make cash distributions to our unitholders. For example, each of our revolving credit facility and the indenture governing our senior notes contain restrictions on our ability to, among other things:
make certain cash distributions;
incur certain indebtedness;
create certain liens;
make certain investments; and
merge or sell all or substantially all of our assets.
Furthermore, our revolving credit facility contains covenants requiring us to maintain certain financial ratios. The provisions of our revolving credit facility and the indenture governing our senior notes may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our revolving credit facility or the indenture governing our senior notes could result in an event of default that could enable our lenders or note holders, subject to the terms and conditions of the revolving credit facility or the indenture, as applicable, to declare the outstanding principal of that debt, together with accrued interest, to be immediately due and payable. If we were unable to repay the accelerated amounts, our lenders could proceed against the collateral granted to them to secure such debt, if any. If the payment of our debt is accelerated, defaults

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under our other debt instruments may be triggered, and our assets may be insufficient to repay such debt in full and the holders of our units could experience a partial or total loss of their investment.
Our current and future debt levels may limit our flexibility to obtain financing and to pursue other business opportunities.
Our current and future levels of debt could have important consequences to us, including the following:
our ability to obtain additional financing, if necessary, for working capital, capital expenditures or other purposes may be impaired, or such financing may not be available on favorable terms;
our funds available for operations, future business opportunities and distributions to unitholders will be reduced by that portion of our cash flow required to make interest payments on our debt;
we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
our flexibility in responding to changing business and economic conditions may be limited.
As of December 31, 2016 , we had long-term debt of $320.3 million , excluding unamortized financing costs. Any of these factors could result in a material adverse effect on our business, financial condition, results of operations and business prospects.
Our ability to service our debt will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our notes or any future indebtedness, we will be forced to take actions such as reducing distributions, reducing or delaying our business activities, acquisitions, organic growth projects, investments or capital expenditures, selling assets or issuing equity. We may not be able to affect any of these actions on satisfactory terms, or at all.
The amount of cash we have available for distribution to holders of our common and subordinated units depends primarily on our cash flow rather than on our profitability, which may prevent us from making distributions, even during periods in which we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow and not solely on profitability, which will be affected by non-cash items. As a result, we may make cash distributions during periods when we record net losses for financial accounting purposes, and we may not make cash distributions during periods when we record net income for financial accounting purposes.
Western’s level of indebtedness, the terms of its borrowings and its credit ratings could adversely affect our ability to grow our business, our ability to service our indebtedness and our credit ratings and profile. Our ability to obtain credit in the future may also be affected by Western’s credit ratings.
Western must devote a portion of its cash flows from operating activities to service its indebtedness, and therefore cash flows may not be available for use in pursuing its growth strategy. Furthermore, a higher level of indebtedness at Western in the future increases the risk that it may default on its obligations to us under each of our Commercial Agreements. Western may incur additional indebtedness in the future which could further impact Western’s ability to pursue its growth strategy with respect to its logistics operations.
The covenants contained in the agreements governing Western’s outstanding and future indebtedness may limit its ability to borrow additional funds for development and make certain investments and may directly or indirectly impact our operations in a similar manner. For example, Western’s indebtedness requires that any transactions it enters into with us must be on terms no less favorable to Western than those that would have been obtained in a comparable arm’s-length transaction with an unaffiliated person. Furthermore, in the event that Western were to default under certain of its debt obligations, there is a risk that Western’s creditors would attempt to assert claims against our assets during the litigation of their claims against Western. The defense of any such claims could be costly and could materially impact our financial condition, even absent any adverse determination. In the event these claims were successful, our ability to meet our obligations to our creditors, make distributions and finance our operations could be materially adversely affected.
Western’s long-term credit ratings are currently below investment grade. If these ratings are lowered in the future, Western’s borrowing costs may increase. In addition, credit rating agencies will likely consider Western’s debt ratings when assigning ours because of Western’s ownership interest in us, the significant commercial relationships between Western and us, and our reliance on Western for a substantial portion of our revenues. If one or more credit rating agencies were to downgrade the outstanding indebtedness of Western, we could experience an increase in our borrowing costs or difficulty accessing the capital markets. Such a development could adversely affect our ability to grow our business and to service our indebtedness.

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Our assets and operations are subject to federal, state and local laws and regulations relating to environmental protection and worker health and safety that could require us to make substantial expenditures.
Our assets and operations involve the transportation, terminalling and storage of crude oil and refined and other products, which is subject to increasingly stringent federal, state and local laws and regulations governing operational safety and the discharge of materials into the environment. Environmental laws can result in the imposition of strict, joint and several liability for pollution in some instances. Our business of transporting, terminalling and storing crude oil and refined and other products involves the risk that crude oil, refined and other products and other hydrocarbons may gradually or suddenly be released into the environment. We also own or lease a number of properties that have been used to store or distribute crude oil and refined and other products for many years and hazardous substances, wastes or petroleum hydrocarbons may have been released on, under or from the properties owned or leased by us, or on, under or from other locations, including off-site locations where such substances have been taken for recycling or disposal. In addition, many of these properties have been operated by third parties whose handling, disposal or release of hydrocarbons and other wastes were not under our control. To the extent not covered by insurance or an indemnity, responding to the release of regulated substances into the environment may cause us to incur potentially material expenditures related to response actions, remediation costs, government penalties, natural resources damages, personal injury or property damage claims from third parties and business interruption.
Our pipelines, terminals and storage assets are also subject to increasingly strict federal, state and local laws and regulations related to protection of the environment and that require us to comply with various safety requirements regarding the design, installation, testing, construction and operational management of our pipeline systems, terminals and storage assets. These regulations have raised operating costs for the crude oil and refined products industry and compliance with such laws and regulations may cause us and Western to incur potentially material capital expenditures associated with the construction, maintenance and upgrading of equipment and facilities. Environmental laws and regulations, in particular, are subject to frequent change, and many of them have become and will continue to become more stringent.
We could incur potentially significant additional expenses should we determine that any of our assets are not in compliance with applicable laws and regulations. Our failure to comply with these or any other environmental or safety-related regulations could result in the assessment of administrative, civil or criminal penalties, the imposition of investigatory and remedial liabilities and the issuance of injunctions that may subject us to additional operational constraints or prohibit operations altogether. Any such penalties or liability could have a material adverse effect on our business, financial condition or results of operations.
Our pipeline systems are subject to stringent environmental regulations governing spills and releases that could require us to make substantial expenditures.
Transportation of crude oil and refined and other products involves inherent risks of spills and releases from our facilities, and can subject us to various federal and state laws governing spills and releases, including reporting and remediation obligations. The costs associated with such obligations can be substantial, as can costs associated with related enforcement matters, including possible fines and penalties. Transportation of such products over water or proximate to navigable water bodies involves inherent risks, including risks of spills, which could lead to the assessment of penalties, response costs and natural resource damages under the Oil Pollution Act. In addition, the Oil Pollution Act requires us to prepare a facility response plan identifying the personnel and equipment necessary to remove to the maximum extent practicable a “worst case discharge.” Some of our facilities are required to maintain such facility response plans. To meet this requirement, we and Western have contracted with various spill response service companies in the areas in which we transport or store crude oil and refined and other products. However, these companies may not be able to adequately contain a “worst case discharge” in all instances, and we cannot ensure that all of their services would be available for our or Western’s use at any given time. Many factors that could inhibit the availability of these service providers include, but are not limited to, weather conditions, governmental regulations or other global events. In these and other cases, we may be subject to liability in connection with the discharge of crude oil or products into navigable waters.
If any of these events occur or are discovered in the future, whether in connection with any of our pipelines, gathering, transportation, terminals or storage assets, or any other facility that we send or have sent wastes or by-products to for treatment or disposal, we could be liable for all costs and penalties associated with the remediation of such facilities under federal, state and local environmental laws or common law. We may also be liable for personal injury or property damage claims from third parties alleging contamination from spills or releases from our facilities or operations. In addition, we will be subject to a deductible of $100,000 per claim before we are entitled to indemnification from Western for certain environmental liabilities under our omnibus agreement. Even if we are insured or indemnified against such risks, we may be responsible for costs or penalties to the extent our insurers or indemnitors do not fulfill their obligations to us.

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Increased regulation of hydraulic fracturing could result in reductions or delays in crude oil production in our existing areas of operation, which could adversely impact our revenues.
A significant percentage of the crude oil production in our existing areas of operation is being developed from unconventional sources, such as shale, using hydraulic fracturing. Hydraulic fracturing involves the injection of water, sand and chemicals under pressure into the formation to stimulate production. A number of federal agencies, including the EPA and the U.S. Department of Energy, are analyzing, or have been requested to review, a variety of environmental issues associated with shale development, including hydraulic fracturing. In addition, the EPA has asserted federal regulatory authority over hydraulic fracturing activities under the Safe Drinking Water Act’s Underground Injection Control Program and under the Toxic Substances Control Act of 1976 and in June 2016 issued final rules regulating methane emissions from oil and natural gas completion operations. Further, some states and municipalities have adopted and other states and municipalities are considering adopting, regulations prohibiting hydraulic fracturing in certain areas or imposing more stringent disclosure. At the same time, certain environmental groups have suggested that additional laws may be needed to more closely and uniformly regulate the hydraulic fracturing process and legislation has been proposed by some members of Congress to provide for such regulation. We cannot predict whether any such legislation will ever be enacted and if so, what its provisions would be. If additional levels of regulation are imposed at the federal, state or local level, this could result in corresponding delays, increased operating costs and process prohibitions for crude oil producers and potentially reduce throughput on our systems, which could materially adversely affect our revenues, results of operations and ability to service our indebtedness.
We may incur significant costs and liabilities as a result of pipeline integrity management programs or safety standards.
Certain of our pipeline facilities are subject to the pipeline safety regulations of the PHMSA of the DOT. PHMSA regulates the design, construction, testing, operation, maintenance and emergency response of crude oil, petroleum products and other hazardous liquid pipeline facilities.
Pursuant to the Pipeline Safety Improvement Act of 2002, PHMSA has adopted regulations requiring pipeline operators to develop integrity management programs for hazardous liquids pipelines located where a leak or rupture could affect “high consequence areas” that are populated or environmentally sensitive areas. PHMSA has also issued regulations that subject certain rural low-stress hazardous liquids pipelines to the integrity management requirements. The integrity management regulations require operators, including us, to:
perform ongoing assessments of pipeline integrity;
identify and characterize applicable threats to pipeline segments that could impact a high consequence area;
maintain processes for data collection, integration and analysis;
repair and remediate pipelines as necessary; and
implement preventive and mitigating actions.
PHMSA also carries out the Pipeline Safety, Regulatory Certainty and Job Creation Act of 2011 (the “2011 Pipeline Safety Act”), which reauthorized funding for federal pipeline safety programs through 2015, increased penalties for safety violations, established additional safety requirements for newly constructed pipelines, imposed new emergency response and incident notification requirements and required studies of certain safety issues that could result in the adoption of new regulatory requirements for existing pipelines. The 2011 Pipeline Safety Act increases the maximum penalty for violation of pipeline safety regulations from $100,000 to $200,000 per violation per day and also a maximum penalty of $1 million to $2 million for a series of related violations.
On June 22, 2016, the President signed into law important new legislation entitled Protecting our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (the “PIPES Act”). The PIPES Act reauthorizes PHMSA through 2019, and facilitates greater pipeline safety by providing PHMSA with emergency order authority, including authority to issue prohibitions and safety measures on owners and operators of gas or hazardous liquid pipeline facilities to address imminent hazardous, without prior notice or an opportunity for a hearing, as well as enhanced release reporting requirements, requiring a review of both natural gas and hazardous liquid integrity management programs, and mandating the creation of a working group to consider the development of an information-sharing system related to integrity risk analyses. The PIPES Act also requires that PHMSA publish periodic updates on the status of those mandates outstanding from 2011 Pipeline Safety Act, of which approximately half remain to be completed. The mandates yet to be acted upon include requiring certain shut-off valves on transmission lines, mapping all high consequence areas, and shortening the deadline for accident and incident notifications.
PHMSA regularly revises its pipeline safety regulations. For example, in March of 2015, PHMSA finalized new rules applicable to hazardous liquid pipelines that, among other changes, impose new post-construction inspections, welding, gas component pressure testing requirements, as well as requirements for calculating pressure reductions for immediate repairs on liquid pipelines. In addition, in January 2017, PHMSA finalized regulations for hazardous liquid pipelines that significantly extend and expand the reach of certain PHMSA integrity management requirements (i.e., periodic assessments, leak detection

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and repairs), regardless of the pipeline’s proximity to a high consequence area. The final rule also imposes new reporting requirements for certain unregulated pipelines, including all hazardous liquid gathering lines. Additional future regulatory action expanding PHMSA jurisdiction and imposing stricter integrity management is likely. At this time, we cannot predict the cost of such requirements, but they could be significant. However, the timing for implementation of this rule is uncertain at this time due to the recent change in Presidential Administrations.
We may incur significant costs and liabilities associated with compliance with pipeline safety regulations and any corresponding repair, remediation, preventive or mitigation measures required for our nonexempt pipeline facilities, including lost cash flows resulting from shutting down our pipelines during the pendency of such repairs. Any material penalties or fines under these or other statues, rules, regulations or orders could have a material adverse impact on our business, financial condition, results of operation and cash flows. Moreover, changes to pipeline safety laws and regulations that result in more stringent or costly pipeline integrity management or safety standards could have a material adverse effect on us and similarly situated operators. Furthermore, the implementation of the 2011 Pipeline Safety Act, the PIPES Act, or any issuance or reinterpretation of guidance by PHMSA or similar state agencies could require us to install new or modified safety controls, pursue additional capital projects or conduct maintenance programs on an accelerated basis, any or all of which could result in our incurring increased operating costs that could be significant and have a material adverse effect on our results of operations or financial position. For example, notwithstanding the applicability of the OSHA’s Process Safety Management (“PSM”) regulations and the EPA’s Risk Management Plan (“RMP”) requirements at facilities storing designated chemicals above a certain threshold, PHMSA and one or more state regulators, including the Texas Railroad Commission, have recently expanded the scope of their regulatory inspections to include certain in-plant equipment and pipelines found within midstream facilities and associated storage facilities to assess compliance with hazardous liquid pipeline safety requirements. If PHMSA and other similar state agencies continue to expand their authority and impose hazardous liquid pipeline safety requirements on facilities previously thought to be exempt, we could be forced to make certain operational changes or modifications to our facilities beyond existing OSHA and EPA requirements. Such changes could result in additional capital costs and increased costs of operation that, in some instances, may be significant.
We could incur significant costs to comply with greenhouse gas emissions regulation or legislation.
In response to concerns related to the emission of greenhouse gases, the EPA has implemented regulations to restrict emissions of greenhouse gases under certain provisions of the federal Clean Air Act. One of the rules adopted by the EPA requires permitting of certain emissions of greenhouse gases from certain large stationary sources, such as refineries. The EPA has also adopted rules requiring certain sources in the oil and natural gas industry to report greenhouse gas emissions on an annual basis, including greenhouse gas emissions from gathering systems and certain transmission pipelines. In addition, in June 2016, the EPA proposed a suite of requirements and draft guidance related to the reduction in methane emissions from certain equipment and processes in the oil and natural gas sector applicable to production, processing, transmission and storage activities, including requirements for fugitive emissions of methane and new leak detection and repair requirements. These rules could result in increased compliance costs.
Further, from time to time, the U.S. Congress has considered legislation related to the reduction of greenhouse gases through “cap and trade” programs, and a number of state and regional efforts have emerged that are aimed at tracking and/or reducing greenhouse emissions by means of cap and trade programs. Various states have also proposed and/or enacted Low Carbon Fuel Standards intended to reduce carbon intensity in transportation fuels. To the extent these types of rules and regulations continue to be implemented or other legislation related to the control of greenhouse gas emissions is enacted by federal or state governments, our operating costs, including capital expenditures, will increase and additional operating restrictions could be imposed on our business; all of which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Such regulations could also decrease demand for petroleum products and potentially reduce throughput on our systems, which would materially adversely affect our revenues and results of operations. Finally, some scientists have concluded that increasing concentrations of greenhouse gases in the earth’s atmosphere may produce climate changes that may have significant physical effects, such as increased frequency and severity of storms, droughts, floods and other extreme climatic events, which if any such event were to occur, it may have a material adverse effect on our business.
Our business is impacted by environmental risks inherent in our operations.
Our operation of crude oil and refined products pipelines, refined products terminals and crude oil and refined products storage assets is inherently subject to the risks of spills, discharges or other inadvertent releases of petroleum or other hazardous substances. If any of these events have previously occurred or occur in the future, whether in connection with any of Western’s refineries, our pipelines, refined products terminals or storage assets or any other facility that we send or have sent wastes or by-products to for treatment or disposal, we could be liable for all costs and penalties associated with the remediation of such facilities under federal, state and local environmental laws or the common law. We may also be liable for personal injury or property damage claims from third parties alleging contamination from spills or releases from our facilities or operations. In addition, our indemnification for certain environmental liabilities under the omnibus agreement will be limited to liabilities

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identified prior to the fifth anniversary of the closing of the Offering. Even if we are insured or indemnified against such risks, we may be responsible for costs or penalties to the extent our insurers or indemnitors do not fulfill their obligations to us. The payment of such costs or penalties could be significant and have a material adverse effect on our business, financial condition and results of operations.
We are subject to regulation by multiple governmental agencies, which could adversely impact our business, results of operations and financial condition.
Our business activities are subject to regulation by multiple federal, state and local governmental agencies. Our historical and projected operating costs reflect the recurring costs resulting from compliance with these regulations, and we do not anticipate material expenditures in excess of these amounts in the absence of future acquisitions, or changes in regulation or discovery of existing but unknown compliance issues. Additional proposals and proceedings that affect the crude oil and refined products industry are regularly considered by Congress, as well as by state legislatures and federal and state regulatory commissions and agencies and courts. We cannot predict when or whether any such proposals may become effective or the magnitude of the impact changes in laws and regulations may have on our business, however, additions or enhancements to the regulatory burden on our industry generally increase the cost of doing business and affect our profitability.
Transportation on certain of our pipelines is subject to federal or state rate and service regulation, and the imposition and/or cost of compliance with such regulation could adversely affect our operations, revenues and cash flows available.
Our Main 12-inch pipeline, West 10-inch pipeline, East 10-inch pipeline, San Juan 6-inch pipeline, West 6-inch pipeline, TexNew Mex 16-inch Pipeline segment, East 6-inch pipeline, Wingate 4-inch NGL pipeline, Riverbend 4-inch gathering pipeline, TexNew Mex Pipeline System and St. Paul Park Refinery System provide services that may be subject to regulation by the Federal Energy Regulatory Commission (“FERC”), under the Interstate Commerce Act (“ICA”) and the Energy Policy Act (the “EPAct 1992”), and/or state regulators. The FERC uses prescribed rate methodologies for developing regulated tariff rates for interstate oil and product pipelines. Our tariff rates approved by the FERC may not recover all of our costs of providing services. In addition, changes to the FERC’s approved rate methodologies, or challenges to our application of an approved methodology, could also adversely affect our rates.
Shippers may protest, and the FERC may investigate, the lawfulness of new or changed tariff rates. The FERC can suspend those tariff rates for up to seven months. It can also require refunds of amounts collected based on rates that are ultimately found to be unlawful and prescribe new rates prospectively. The FERC and interested parties can also challenge tariff rates that have become final and effective.
The FERC can order new rates to take effect prospectively and order reparations for past rates that exceed the just and reasonable level for time periods up to two years prior to the date of a complaint. Due to the complexity of rate making, the lawfulness of any rate is never assured. A successful challenge of our rates could adversely affect our revenues. The FERC also regulates the terms and conditions of service, including access rights, for interstate transportation on common carrier pipelines subject to its jurisdiction.
Certain of our pipelines are common carriers and, as a consequence, we may be required to provide service to customers with credit and other performance characteristics with whom we would otherwise choose not to do business. Certain of our pipelines provide intrastate service that is subject to regulation by the New Mexico Public Regulation Commission and the Texas Railroad Commission. The New Mexico Public Regulation Commission and the Texas Railroad Commission could limit our ability to increase our rates or to set rates based on our costs or could order us to reduce our rates and could require the payment of refunds to shippers. Such regulation or a successful challenge to our intrastate pipeline rates could adversely affect our financial position, cash flows or results of operations.
If we are unable to maintain the requirements of Section 404 of the Sarbanes-Oxley Act, or our internal control over financial reporting is not effective, the reliability of our financial statements may be questioned, and our unit price may suffer.
Section 404 of the Sarbanes-Oxley Act requires any company subject to the reporting requirements of the U.S. securities laws to perform a comprehensive evaluation of its and its subsidiaries’ internal controls. To comply with these requirements, we are required to document and test our internal control procedures, our management is required to assess and issue a report concerning our internal control over financial reporting, and, pursuant to the Sarbanes-Oxley Act, our independent auditors are required to issue an opinion on management’s assessment and the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. During the course of its annual testing, our management may identify material weaknesses, which may not be remedied in time to meet the annual deadline imposed by the SEC. If our management cannot favorably assess the effectiveness of our internal control over financial reporting, or our auditors identify material weaknesses in our internal control, investor confidence in our financial results may weaken, and the price of our common units may suffer.

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Our insurance policies do not cover all losses, costs or liabilities that we may experience.
The policies we are insured under do not cover all potential losses, costs or liabilities that we may experience. We could suffer losses for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. Our ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience insurable events, our annual premiums could increase further or insurance may not be available at all. The occurrence of an event that is not fully covered by insurance or the loss of insurance coverage could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The loss of key personnel could adversely affect our ability to operate.
We depend on the leadership, involvement and services of a relatively small group of our general partner’s key management personnel, including its Chief Executive Officer and other executive officers and key technical and commercial personnel of Western who perform services for us under the operational services agreement. The services of these individuals may not be available to us in the future. Because competition for experienced personnel in the midstream industry is intense, we may not be able to find acceptable replacements with comparable skills and experience. Accordingly, the loss of the services of one or more of these individuals could have a material adverse effect on our ability to operate our business.
Our pipeline and terminalling subsidiaries do not have any employees and rely solely on employees of Western.
We are managed and operated by Western Refining Logistics GP, LLC, our general partner. We directly employed 559 employees through our wholesale subsidiary. Through our general partner's affiliates' we have 295 full-time employees as well as other employees who may provide services to us from time to time, all of whom are seconded to us pursuant to our services agreement with Western. These seconded employees provide operating, maintenance and other services under our direction, supervision and control with respect to the assets that our pipeline and terminalling subsidiaries own and operate. Other Western employees also may provide services to us from time to time.
Many of our assets have been in service for several years and require significant expenditures to maintain them. As a result, our maintenance or repair costs may increase in the future.
Our pipelines, terminals and storage assets are generally long-lived assets, and many of them have been in service for many years. The age and condition of our assets could result in increased maintenance or repair expenditures in the future. Any significant increase in these expenditures could adversely affect our results of operations, financial position or cash flows, as well as our ability to service our indebtedness.
The adoption of derivatives legislation by Congress could have an adverse impact on our customers’ ability to hedge risks associated with their business.
The U.S. Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (the “Dodd-Frank Act”). This comprehensive financial reform legislation establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as us, that participate in that market. The legislation was signed into law by the President on July 21, 2010, and requires the Commodity Futures Trading Commission (“CFTC”) and the SEC to promulgate rules and regulations implementing the new legislation within 360 days from the date of enactment. The CFTC has adopted regulations to set position limits for certain futures and option contracts in the major energy markets and has also proposed to establish minimum capital requirements, although it is not possible at this time to predict whether or when the CFTC will adopt these rules as proposed or include comparable provisions in its rulemaking under the Dodd-Frank Act. The Dodd-Frank Act may also require compliance with margin requirements and with certain clearing and trade-execution requirements in connection with certain derivative activities, although the application of those provisions is uncertain at this time. The legislation may also require the counterparties to our commodity derivative contracts to spin-off some of their derivatives activities to a separate entity, which may not be as creditworthy as the current counterparty, or cause the entity to comply with the capital requirements, which could result in increased costs to counterparties such as us.
The new legislation and regulations promulgated thereunder could increase the operational and transactional cost of derivatives contracts and affect the number and/or creditworthiness of counterparties available to us, to Western, or to our or Western’s customers.
Certain components of our logistics revenue have exposure to commodity price risk and our exposure to commodity price risk may increase in the future.
We have exposure to commodity price risk through the loss allowance provisions contained in our logistics commercial agreements. Any future losses due to our commodity price risk exposure could materially and adversely affect our results of operations and financial condition and our ability in the future to service our indebtedness.

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Increases in interest rates could adversely affect our business.
We have exposure to increases in interest rates under our revolving credit facility. Our current borrowings bear, and any future borrowings will bear, interest either at a base rate, plus an applicable margin, or at LIBOR plus an applicable margin. As a result, our results of operations, cash flows and financial condition could be materially adversely affected by significant increases in interest rates. In addition, if interest rates rise, the interest rates on future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly.
As with other yield-oriented securities, our unit price is impacted by the level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank related yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse impact on our unit price and our ability to issue additional equity, to incur debt to expand or for other purposes or to make cash distributions at our intended levels.
Certain U.S. federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated as a result of future legislation, which could reduce the amount of transportation and storage fees we receive and our ability to service our indebtedness.
The Fiscal Year 2016 Budget proposed by the President recommends the elimination of certain key U.S. federal income tax incentives currently available to oil and gas exploration and production companies and from time to time legislation has been introduced in Congress which would implement many of these proposals. The proposed changes include, but are not limited to, (i) the repeal of the percentage depletion allowance for oil and gas properties, (ii) the elimination of current deductions for intangible drilling and development costs, (iii) the elimination of the deduction for certain domestic production activities and (iv) an extension of the amortization period for certain geological and geophysical expenditures. We cannot predict whether these or similar changes will be introduced into law and, if so, when any such changes would become effective. The passage of any legislation as a result of these proposals or any other similar changes in U.S. federal income tax laws could raise the cost of energy production and reduce oil and gas exploration and production activities. Because we generate revenue primarily by charging fees and tariffs for transporting crude oil and refined products and for providing storage at our storage tanks and terminals, a reduction in oil and gas production activities could reduce our transportation and storage fee revenue and thus reduce our ability to service our indebtedness.
Risks Related to Our Partnership Structure
Western owns a 52.6% limited partner interest in us and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including Western, may have conflicts of interest with us and limited duties to us and may favor their own interests to the detriment of our unitholders.
Western owns and controls our general partner and appointed all of the directors of our general partner. Some of the directors and all of the executive officers of our general partner are also directors or officers of Western. Although our general partner has a duty to manage us in a manner it subjectively believes to be in, or not opposed to, our best interests, the directors and officers of our general partner also have a duty to manage our general partner in a manner that is in the best interests of Western, in its capacity as the sole member of our general partner. Conflicts of interest may arise between Western and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:
neither our partnership agreement nor any other agreement requires Western to pursue a business strategy that favors us or utilizes our assets, which could involve decisions by Western to increase or decrease refinery production, connect our pipeline systems to third-party delivery points, shutdown or reconfigure a refinery, enter into commercial agreements with us or pursue and grow particular markets. Western’s directors and officers have a fiduciary duty to make these decisions in the best interests of the owners of Western and affiliated entities, which may be contrary to our interests;
Western may be constrained by the terms of its debt instruments from taking actions, or refraining from taking actions, that may be in our best interests;
Western, as our primary customer, has an economic incentive to cause us to not seek higher tariff rates or terminalling fees, even if such higher rates or fees would reflect rates and fees that could be obtained in arm’s length, third-party transactions;
almost all officers of Western who provide services to us also will devote significant time to the business of Western, and will be compensated by Western for the services rendered to it;

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our general partner determines the amount and timing of asset purchases and sales, borrowings, issuance of additional partnership securities and reserves, each of which can affect our ability to service our indebtedness;
our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a distribution on the subordinated units, to make incentive distributions or to accelerate the expiration of the subordination period;
our general partner determines which costs incurred by it are reimbursable by us;
our partnership agreement permits us to distribute up to $40.0 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on our subordinated units or the incentive distribution rights;
our general partner is allowed to take into account the interests of parties other than us in exercising certain rights under our partnership agreement;
our partnership agreement limits the liability of, and replaces the duties owed by, our general partner and also restricts the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;
contracts between us, on the one hand, and our general partner and its affiliates, on the other hand, are not and will not be the result of arm’s-length negotiations;
except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval;
disputes may arise under our Commercial Agreements with Western;
our general partner will determine the amount and timing of many of our cash expenditures and whether a cash expenditure is classified as discretionary capital expenditure, which would not reduce operating surplus, or a maintenance capital expenditure, which would reduce our operating surplus. This determination can affect the amount of cash from operating surplus that is distributed to our unitholders and to our general partner, the amount of adjusted operating surplus generated in any given period and the ability of the subordinated units to convert into common units;
our general partner may exercise its right to call and purchase all of the common units not owned by it and its affiliates if it and its affiliates own more than 80% of the common units;
our general partner controls the enforcement of obligations owed to us by our general partner and its affiliates, including our Commercial Agreements, omnibus agreement and services agreement with Western;
our general partner decides whether to retain separate counsel, accountants or others to perform services for us;
our general partner, as the holder of our incentive distribution rights, may elect to cause us to issue common units to it in connection with a resetting of incentive distribution levels without the approval of our unitholders. This election may result in lower distributions to our common unitholders in certain situations; and
our general partner, as the holder of our incentive distribution rights, may transfer the incentive distribution rights without the approval of our unitholders.
Western may compete with us.
Western may compete with us, including by developing or acquiring additional logistics assets which may not be in the geographic region subject to our rights of first offer set forth in the omnibus agreement, both directly and through its controlled subsidiary, Northern Tier. In keeping with the terms of our partnership agreement, the doctrine of corporate opportunity or any analogous doctrine, does not apply to our general partner or any of its affiliates, including Western and its executive officers and directors. Except as provided in the omnibus agreement, any such person or entity that becomes aware of a potential transaction, agreement, arrangement or other matter that may be an opportunity for us will not have any duty to communicate or offer such opportunity to us. For example, this could permit Western to elect to develop new midstream assets or acquire third-party midstream assets itself, or through Northern Tier. Any such person or entity will not be liable to us or to any limited partner for breach of any fiduciary duty or other duty (other than the implied contractual covenant of good faith and fair dealing) by reason of the fact that such person or entity pursues or acquires such opportunity for itself, directs such opportunity to another person or entity or does not communicate such opportunity or information to us. This may create actual and potential conflicts of interest between us and affiliates of our general partner and result in less than favorable treatment of us and our unitholders.

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Our general partner intends to limit its liability regarding our obligations.
Our general partner intends to limit its liability under contractual arrangements between us and third parties so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce our ability to service our indebtedness.
Ongoing cost reimbursements due to our general partner and its affiliates for services provided, which will be determined by our general partner, will be substantial and will reduce our cash available for distribution to our unitholders.
Prior to making distributions on our common units, we will reimburse our general partner and its affiliates for expenses they incur on our behalf. These expenses will include costs incurred by our general partner and its affiliates in managing and operating us, including costs for rendering corporate staff and support services to us. There is no limit on the amount of expenses for which our general partner and its affiliates may be reimbursed. Our partnership agreement provides that our general partner will determine the expenses that are allocable to us in good faith. In addition, under Delaware partnership law, our general partner has unlimited liability for our obligations, such as our debts and environmental liabilities, except for our contractual obligations that are expressly made without recourse to our general partner. To the extent our general partner incurs obligations on our behalf, we are obligated to reimburse or indemnify it. If we are unable or unwilling to reimburse or indemnify our general partner, our general partner may take actions to cause us to make payments of these obligations and liabilities. Any such payments could reduce the amount of cash otherwise available for distribution to our unitholders.
Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.
Because we distribute all of our available cash to our unitholders, we expect that we will rely primarily upon external financing sources, including commercial bank borrowings and the issuance of debt and equity securities, to fund our discretionary capital expenditures and acquisitions. As a result, to the extent we are unable to finance growth externally, our cash distribution policy will significantly impair our ability to grow.
In addition, because we distribute all of our available cash, our growth may not be as fast as businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or discretionary capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement or our new revolving credit facility on our ability to issue additional units, including units ranking senior to the common units. The incurrence of additional commercial borrowings or other debt to finance our growth strategy would result in increased interest expense, which in turn may impact our ability to service our indebtedness.
Our partnership agreement replaces our general partner’s fiduciary duties to holders of our units with contractual standards governing its duties.
Our partnership agreement contains provisions that eliminate and replace the fiduciary standards that our general partner would otherwise be held to by state fiduciary duty law. For example, our partnership agreement permits our general partner to make a number of decisions, in its individual capacity, as opposed to in its capacity as our general partner, or otherwise, free of fiduciary duties to us and our unitholders other than the implied contractual covenant of good faith and fair dealing, which means that a court will enforce the reasonable expectations of the parties where the language in our partnership agreement does not provide for a clear course of action. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or our limited partners. Examples of decisions that our general partner may make in its individual capacity include:
how to allocate business opportunities among us and its other affiliates;
whether to exercise its call right;
how to exercise its voting rights with respect to the units it owns;
whether to exercise its registration rights;
whether to elect to reset target distribution levels;
whether or not to consent to any merger or consolidation of the partnership or amendment to the partnership agreement; and

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whether or not the general partner should elect to seek the approval of the conflicts committee or the unitholders, or neither, of any conflicted transaction.
By purchasing a common unit, a unitholder is treated as having consented to the provisions in the partnership agreement, including the provisions discussed above.
Our partnership agreement restricts the remedies available to holders of our units for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement contains provisions that restrict the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty under state fiduciary duty law. For example, our partnership agreement provides that:
whenever our general partner makes a determination or takes, or declines to take, any other action in its capacity as our general partner, our general partner is required to make such determination, or take or decline to take such other action, in good faith, and will not be subject to any other or different standard imposed by our partnership agreement, Delaware law, or any other law, rule or regulation, or at equity (other than the implied contractual covenant of good faith and fair dealing);
our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning that it subjectively believed that the decision was in, or not opposed to, the best interests of our partnership;
our partnership agreement is governed by Delaware law and any claims, suits, actions or proceedings:
arising out of or relating in any way to the partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of the partnership agreement or the duties, obligations or liabilities among limited partners or of limited partners to us, or the rights or powers of, or restrictions on, the limited partners or us);
brought in a derivative manner on our behalf;
asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners;
asserting a claim arising from any provision of the Delaware Revised Uniform Limited Partnership Act (the “Delaware Act”); or
asserting a claim governed by the internal affairs doctrine;
must be exclusively brought in the Court of Chancery of the State of Delaware (or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction), regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims. By purchasing a common unit, a limited partner is irrevocably consenting to these limitations and provisions regarding claims, suits, actions or proceedings and submitting to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or such other Delaware courts) in connection with any such claims, suits, actions or proceedings;
our general partner and its officers and directors will not be liable for monetary damages to us or our limited partners resulting from any act or omission unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or its officers and directors, as the case may be, acted in bad faith or engaged in fraud or willful misconduct, or, in the case of a criminal matter, acted with knowledge that the conduct was unlawful; and
our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners if a transaction with an affiliate or the resolution of a conflict of interest is:
approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or
approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates.
Our general partner will not have any liability to us or our unitholders for decisions whether or not to seek the approval of the conflicts committee of the board of directors of our general partner or holders of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates. If an affiliate transaction or the resolution of

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a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Our general partner may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to our general partner’s incentive distribution rights, without the approval of the conflicts committee of the board of directors of our general partner or the holders of our common units. This could result in lower distributions to holders of our common units.
Our general partner has the right, as the initial holder of our incentive distribution rights, at any time when there are no subordinated units outstanding and our general partner has received incentive distributions at the highest level to which it is entitled (50.0%) for the prior four consecutive fiscal quarters and the amount of the total distributions during such four-quarter period did not exceed aggregate adjusted operating surplus during such period, to reset the initial target distribution levels at higher levels based on our distributions at the time of the exercise of the reset election. Following a reset election by our general partner, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution and the target distribution levels will be reset to correspondingly higher levels based on percentage increases above the reset minimum quarterly distribution.
If our general partner elects to reset the target distribution levels, it will be entitled to receive a number of common units. The number of common units to be issued to our general partner will equal the number of common units that would have entitled the holder to an aggregate quarterly cash distribution in the quarter prior to the reset election equal to the distribution to our general partner on the incentive distribution rights in the quarter prior to the reset election. We anticipate that our general partner would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that our general partner could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. This risk could be elevated if our incentive distribution rights have been transferred to a third party. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that our common unitholders would have otherwise received had we not issued new common units to our general partner in connection with resetting the target distribution levels.
As a publicly traded limited partnership we qualify for, and will rely on, certain exemptions from the NYSE’s corporate governance requirements.
As a publicly traded partnership, we qualify for, and will rely on, certain exemptions from the NYSE’s corporate governance requirements, including:
the requirement that a majority of the board of directors of our general partner consist of independent directors;
the requirement that the board of directors of our general partner have a nominating/corporate governance committee that is composed entirely of independent directors; and
the requirement that the board of directors of our general partner have a compensation committee that is composed entirely of independent directors.
As a result of these exemptions, our general partner’s board of directors is not, and is not required to be, comprised of a majority of independent directors and our general partner does not have a compensation committee or nominating and corporate governance. Accordingly, unitholders will not have the same protections afforded to equity holders of companies that are subject to all of the corporate governance requirements of the NYSE. See Item 10. Directors, Executive Officers and Corporate Governance .
Holders of our common units have limited voting rights and are not entitled to elect our general partner or the board of directors of our general partner, which could reduce the price at which our common units will trade.
Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders will not elect our general partner or the board of directors of our general partner, and will have no right to elect our general partner or the board of directors of our general partner on an annual or other continuing basis. The board of directors of our general partner, including its independent directors, will be chosen by the member of our general partner. Furthermore, if unitholders are dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of

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management. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.
Even if unitholders are dissatisfied, they cannot initially remove our general partner without its consent.
The unitholders will initially be unable to remove our general partner without its consent because our general partner and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 66 2 / 3 % of all outstanding units voting together as a single class is required to remove the general partner. As of February 24, 2017 , our general partner and its affiliates own a 52.6% limited partner interest in us. Also, if our general partner is removed without cause during the subordination period and units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units and any existing arrearages on our common units will be extinguished. A removal of our general partner under these circumstances would adversely affect our common units by prematurely eliminating their distribution and liquidation preference over our subordinated units, which would otherwise have continued until we had met certain distribution and performance tests. Cause is narrowly defined to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding the general partner liable for actual fraud or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.
Unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20% or more of any class of units, other than our general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.
Control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of our unitholders. Furthermore, our partnership agreement does not restrict the ability of Western from transferring all or a portion of the ownership interest in our general partner to a third party. The new owner of our general partner would then be in a position to replace the board of directors and officers of our general partner with its own choices and thereby exert significant control over the decisions made by the board of directors and officers. This effectively permits a “change of control” without the vote or consent of the unitholders.
The incentive distribution rights held by our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer the incentive distribution rights to a third party at any time without the consent of our unitholders. If our general partner transfers the incentive distribution rights to a third party, it may not have the same incentive to grow our partnership and increase quarterly distributions to unitholders over time as it would if it had retained ownership of the incentive distribution rights. For example, a transfer of incentive distribution rights by our general partner could reduce the likelihood of Western accepting offers made by us relating to assets owned by it, as Western would have less of an economic incentive to grow our business, which in turn would impact our ability to grow our asset base.
We may issue additional units, including units that are senior to the common units, without unitholder approval that would dilute existing ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests that we may issue at any time without the approval of our unitholders. The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:
each unitholder’s proportionate ownership interest in us will decrease;
the amount of cash available for distribution on each unit may decrease;
because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
because the amount payable to holders of incentive distribution rights is based on a percentage of the total cash available for distribution, the distributions to holders of incentive distribution rights will increase even if the per unit distribution on common units remains the same;
the ratio of taxable income to distributions may increase;
the relative voting strength of each previously outstanding unit may be diminished; and
the market price of the common units may decline.

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There are no limitations in our partnership agreement on our ability to issue units ranking senior to the common units.
In accordance with Delaware law and the provisions of our partnership agreement, we may issue additional partnership interests that are senior to the common units in right of distribution, liquidation and voting. The issuance by us of units of senior rank may (1) reduce or eliminate the amount of cash available for distribution to our common unitholders; (2) diminish the relative voting strength of the total common units outstanding as a class; or (3) subordinate the claims of the common unitholders to our assets in the event of our liquidation.
Western may sell common units in the public markets or otherwise, which sales could have an adverse impact on the trading price of the common units.
All of the subordinated units will convert into common units at the end of the subordination period on the first business day following the  March 1, 2017 payment of the cash distribution attributable to the fourth quarter of 2016.
Additionally, we have agreed to provide Western with certain registration rights. The sale of these units could have an adverse impact on the price of the common units or on any trading market that may develop.
Our general partner’s discretion in establishing cash reserves may reduce the amount of cash available for distribution to unitholders.
Our partnership agreement requires our general partner to deduct from operating surplus cash reserves that it determines are necessary to fund our future operating expenditures. In addition, the partnership agreement permits the general partner to reduce available cash by establishing cash reserves for the proper conduct of our business, to comply with applicable law or agreements that we are a party to or to provide funds for future distributions to partners. These cash reserves will affect the amount of cash available for distribution to unitholders.
Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation, which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call right, the effect would be to take us private.
Your liability may not be limited if a court finds that unitholder action constitutes control of our business.
A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we currently own assets and conduct business in Arizona, Colorado, Minnesota, Nevada, New Mexico, Texas, and Utah. You could be liable for any and all of our obligations as if you were a general partner if:
a court or government agency determines that we were conducting business in a state but had not complied with that particular state’s partnership statute; or
your rights to act with other unitholders to remove or replace the general partner, to approve some amendments to our partnership agreement or to take other actions under our partnership agreement constitute "control" of our business.
Unitholders may have liability to repay distributions that were wrongfully distributed to them.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable for the obligations of the assignor to make contributions to the partnership that are known to the substituted limited partner at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are nonrecourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

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Common units held by persons who are non-taxpaying assignees will be subject to the possibility of redemption.
To avoid any adverse effect on the maximum applicable rates chargeable to customers by us under the FERC regulations, or in order to reverse an adverse determination that has occurred regarding such maximum rate, our partnership agreement gives our general partner the power to amend our partnership agreement. If our general partner, with the advice of counsel, determines that our not being treated as an association taxable as a corporation or otherwise taxable as an entity for U.S. federal income tax purposes, coupled with the tax status (or lack of proof thereof) of one or more of our limited partners, has, or is reasonably likely to have, a material adverse effect on the maximum applicable rates chargeable to customers by us, then our general partner may adopt such amendments to our partnership agreement as it determines are necessary or advisable to obtain proof of the U.S. federal income tax status of our limited partners (and their owners, to the extent relevant) and permit us to redeem the units held by any person whose tax status has or is reasonably likely to have a material adverse effect on the maximum applicable rates or who fails to comply with the procedures instituted by our general partner to obtain proof of the U.S. federal income tax status.
Furthermore, in order to comply with certain of the FERC rate-making policies applicable to entities like us that pass their taxable income through to their owners, we have adopted requirements regarding who can be our owners. Our partnership agreement requires that a transferee of common units, including underwriters and those who purchase common units from underwriters, properly complete and deliver to us a transfer application containing a certification that such transferee is an Eligible Holder as of the date of such transfer application. Eligible Holders are individuals or entities whose U.S. federal income tax status (or lack thereof) has not or is not reasonably likely to have, as determined by our general partner, a material adverse effect on the rates that can be charged to our customers with respect to assets that are subject to regulation by the FERC or a similar regulatory body. In addition, our general partner may require any owner of our units to recertify its status as being subject to U.S. federal income taxation on the income generated by us. The form or forms used for any such recertification will be specified by our general partner and may be changed in any manner our general partner determines necessary or appropriate. If a transferee or other unitholder does not properly complete the transfer application or recertification, for any reason, the transferee or other unitholder will have no right to receive any distributions or allocations of income or loss on its common units or to vote its units on any matter and we will have the right to redeem such units at a price equal to the lower of the transferee’s purchase price or the then-current market price of such units, calculated in accordance with a formula specified in our partnership agreement. The redemption price will be paid in cash or by delivery of a promissory note, as determined by our general partner.
Tax Risks to Our Common Unitholders
Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service were to treat us as a corporation for federal income tax purposes, or we become subject to entity-level taxation for state tax purposes, our cash available for distribution to our unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a "qualifying income" requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement. However, we have not requested and do not plan to request, a ruling from the Internal Revenue Service ("IRS") on this or any other matter affecting us. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our income at the corporate tax rate. Distributions to our unitholders would generally be taxed again as corporate distributions and no income, gains, losses, deductions or credits would flow through to our unitholders. Because taxes would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced. Therefore, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
At the state level, several states have been evaluating ways to subject partnerships to entity-level taxation through the imposition of state income taxes, franchise taxes, or other forms of taxation. For example, we currently own assets and conduct business in several states, many of which impose a margin or franchise tax. Imposition of a similar tax on us in other jurisdictions to which we may expand could substantially reduce the cash available for distribution to our unitholders.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for U.S. federal, state or local or foreign

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income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law or interpretation on us.
The tax treatment of publicly traded partnerships or an investment in our units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that affect publicly traded partnerships. Although there is no current legislative proposal, a prior legislative proposal would have eliminated the qualifying income exception to the treatment of all publicly-traded partnerships as corporations upon which we rely for our treatment as a partnership for U.S. federal income tax purposes.
In addition, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code (the “Final Regulations”) were published in the Federal Register. The Final Regulations are effective as of January 19, 2017, and apply to taxable years beginning after January 19, 2017. We do not believe the Final Regulations affect our ability to be treated as a partnership for U.S. federal income tax purposes.
However, any modification to the U.S. federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted. Any similar or future legislative changes could negatively impact the value of an investment in our common units.
If the IRS were to contest the federal income tax positions we take, it may adversely impact the market for our common units, and the costs of any such contest would reduce cash available for distribution to our unitholders.
We have not requested a ruling from the IRS with respect to our treatment as a partnership for U.S. federal income tax purposes. The IRS may adopt positions that differ from the positions that we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. Moreover, the costs of any contest between us and the IRS will result in a reduction in cash available for distribution to our unitholders and thus will be borne indirectly by our unitholders.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available for distribution to our unitholders might substantially be reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner any elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised Schedule K-1 to each unitholder with respect to an audited and adjusted return. Although our general partner any elect to have our unitholders take such audit adjustment into account in accordance with their interests in us during the tax year under audit, there can be no assurance that the election will be practical, permissible, or effective in all circumstances. As a result, our current unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if those unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties, or interest, our cash available for distribution to our unitholders might be substantially reduced. These rules are not applicable for tax years beginning on or prior to December 31, 2017.
Our unitholders are required to pay taxes on their share of our income even if they do not receive any cash distributions from us.
Our unitholders are required to pay any U.S. federal income taxes and, in some cases, state and local income taxes on their share of our taxable income, whether or not they receive cash distributions from us. For example, if we sell assets and use the proceeds to repay existing debt or fund capital expenditures, you may be allocated taxable income and gain resulting from the sale and our cash available for distribution would not increase. Similarly, taking advantage of opportunities to reduce our existing debt, such as debt exchanges, debt repurchases, or modifications of our existing debt could result in "cancellation of indebtedness income" being allocated to our unitholders as taxable income without any increase in our cash available for distribution. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.
Tax gain or loss on the disposition of our common units could be more or less than unitholders expect.
If a unitholder sells common units, the unitholder will recognize gain or loss equal to the difference between the amount realized and that unitholder's tax basis in those common units. Because distributions in excess of a unitholder's allocable share

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of our net taxable income decrease the unitholder's tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the units a unitholder sells will, in effect, become taxable income to the unitholder if it sells such units at a price greater than its tax basis in those units, even if the price the unitholder receives is less than its original cost. In addition, because the amount realized includes a unitholder’s share of our non-recourse liabilities, if a unitholder sells its units, the unitholder may incur a tax liability in excess of the amount of cash it receives from the sale.
A substantial portion of the amount realized from the sale of a unitholder's units, whether or not representing gain, may be taxed as ordinary income to the unitholder due to potential recapture items, including depreciation recapture. Thus, a unitholder may recognize both ordinary income and capital loss from the sale of its units if the amount realized on a sale of its units is less than its adjusted basis in the units. Net capital loss may only offset capital gains and, in the case of individuals, up to $3,000 of ordinary income per year. In the taxable period in which a unitholder sells its units, the unitholder may recognize ordinary income from our allocations of income and gain to the unitholder prior to the sale and from recapture items that generally cannot be offset by any capital loss recognized upon the sale of units.
Tax-exempt entities and non-U.S. persons face unique tax issues from owning our units that may result in adverse tax consequences to them.
Investment in our common units by tax-exempt entities, such as employee benefit plans and individual retirement accounts ("IRAs") and non-U.S. persons, raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from U.S. federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons are subject to withholding taxes imposed at the highest effective tax rate applicable to such non-U.S. persons and each non-U.S. person will be required to file U.S. federal tax returns and pay tax on its share of our taxable income. Any tax exempt entity or a non-U.S. person, should consult its tax advisor before investing in our common units.
We treat each purchaser of our common units as having the same tax benefits without regard to the common units actually purchased. The IRS may challenge this treatment, which could adversely affect the value of our common units.
Because we cannot match transferors and transferees of our common units, we have adopted depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our unitholders. It also could affect the timing of these tax benefits or the amount of gain from any sale of common units and could have a negative impact on the value of our units or result in audit adjustments to a unitholder's tax returns.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month, instead of on the basis of the date a particular unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our units each month based upon the ownership of our units on the first day of each month (the "Allocation Date"), instead of on the basis of the date a particular unit is transferred. Similarly, we generally allocate certain depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of our general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention but such regulations do not specifically authorize all aspects of our proration method. If the IRS were to challenge our proration method, we could be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of units) may be considered to have disposed of those units. If so, he would no longer be treated for tax purposes as a partner with respect to those units during the period of the loan and could recognize gain or loss from the disposition.
Because there are no specific rules governing the U.S. federal income tax consequence of loaning a partnership interest, a unitholder whose units are the subject of a securities loan may be considered to have disposed of the loaned units. In that case, the unitholder may no longer be treated for tax purposes as a partner with respect to those units during the period of the loan to the short seller and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a securities loan are urged to modify any applicable brokerage account agreements to prohibit their brokers from borrowing their units.

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We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methodologies or the resulting allocations, which could adversely affect the value of our common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the timing or amount of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
The sale or exchange of 50% or more of our capital and profits interests during any twelve-month period will result in the termination of our partnership for federal income tax purposes.
We will be considered to have terminated as a partnership for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and profits within a twelve-month period. As of December 31 2016, Western indirectly owned 52.6% of the total interests in our capital and profits. Therefore, a transfer by Western of all or a portion of its interests in us could, in conjunction with the trading of common units held by the public, result in a termination of our partnership for federal income tax purposes. For purposes of determining whether the 50% threshold has been met, multiple sales of the same interest will be counted only once. Our termination would, among other things, result in the closing of our taxable year for all unitholders, which would result in our filing two tax returns for one calendar year and could result in a significant deferral of depreciation deductions allowable in computing our taxable income. In the case of a unitholder reporting on a taxable year other than a calendar year, the closing of our taxable year may also result in more than twelve months of our taxable income or loss being includable in taxable income for the unitholder’s taxable year that includes our termination. Our termination would not affect our classification as a partnership for federal income tax purposes, but it would result in our being treated as a new partnership for U.S. federal income tax purposes following the termination. If we were treated as a new partnership, we would be required to make new tax elections and could be subject to penalties if we were unable to determine that a termination occurred. The IRS has announced a relief procedure whereby if a publicly traded partnership that has technically terminated requests and the IRS grants special relief, among other things, the partnership may be permitted to provide only a single Schedule K-1 to unitholders for the two short tax periods included in the year in which the termination occurs.
Our unitholders will likely be subject to state and income tax local taxes and return filing requirements in jurisdictions they do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, our unitholders may be subject to other taxes, including foreign, state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we conduct business or own property now or in the future, even if they do not live in any of those jurisdictions. Our unitholders will likely be required to file foreign, state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions. Further, our unitholders may be subject to penalties for failure to comply with those requirements.
We currently own assets in multiple states. Many of these states currently impose a personal income tax on individuals, corporations and other entities. As we make acquisitions or expand our business, we may own assets or conduct business in additional states that impose a personal income tax. It is our unitholder's responsibility to file all U.S. federal, state, local and foreign tax returns.
Item 1B.
Unresolved Staff Comments
None.

Item 2.
Properties
Our principal properties are described under Item 1. Business and the information is incorporated herein by reference.

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Item 3.
Legal Proceedings
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including environmental claims and employee related matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceedings or proceedings to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows.

Item 4.
Mine Safety Disclosures
Not Applicable.


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PART II
Item 5.
Market for Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

Unit Price and Cash Distributions
Our common units represent limited partner interests in us that entitle the holders to the rights and privileges specified in our partnership agreement. Our common units trade on the NYSE under the symbol "WNRL." As of December 31, 2016 , Western and its subsidiaries owned 9,207,847 of our common units and 22,811,000 of our subordinated units that together constituted a 52.6% limited partner interest in us. As of December 31, 2016 , Western and its subsidiaries also held 80,000 TexNew Mex Units . The public owns the remaining 28,866,477 common units. As of February 24, 2017 , we had four holders of record of our common units. One subsidiary of Western holds all of our subordinated units and is the only holder of record of subordinated units.
The following table sets forth the range of the daily high and low sales prices per common unit and cash distributions to common and subordinated unitholders for the period presented:
Period
 
High
 
Low
 
Quarterly Cash Distribution per Unit
 
Distribution Date
 
Record Date
2016:
 
 
 
 
 
 
 
 
 
 
First quarter
 
$
26.15

 
$
17.35

 
$
0.3925

 
2/26/2016
 
2/11/2016
Second quarter
 
26.58

 
21.12

 
0.4025

 
5/27/2016
 
5/13/2016
Third quarter
 
26.25

 
22.08

 
0.4125

 
8/26/2016
 
8/12/2016
Fourth quarter
 
24.52

 
18.85

 
0.4225

 
11/23/2016
 
11/7/2016
2015:
 
 

 
 

 
 

 
 
 
 
First quarter
 
$
31.42

 
$
25.40

 
$
0.3325

 
2/23/2015
 
2/13/2015
Second quarter
 
32.70

 
27.67

 
0.3475

 
5/26/2015
 
5/15/2015
Third quarter
 
30.65

 
18.43

 
0.3650

 
8/24/2015
 
8/14/2015
Fourth quarter
 
26.94

 
18.48

 
0.3825

 
11/23/2015
 
11/13/2015
During the years ended December 31, 2016 and 2015 , we made incentive distribution right payments of $4.4 million and $1.1 million , respectively, to our General Partner. We made no incentive distribution right payments to our General Partner prior to 2015. Refer to Note 14, Equity , for further information regarding incentive distribution rights.
Our ability to pay cash distributions is limited under the terms of our $500 million senior secured revolving credit facility ("Revolving Credit Facility") and the Indenture governing our Senior Notes and in part depends on our ability to satisfy certain financial covenants. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources - Revolving Credit Facility.
General
Our partnership agreement requires that, within 60 days after the end of each quarter, beginning with the quarter ending December 31, 2013, we distribute all of our available cash to unitholders of record on the applicable record date.
Definition of Available Cash
Available cash, for any quarter, generally consists of all cash and cash equivalents on hand at the end of that quarter:
less , the amount of cash reserves established by our general partner to:
provide for the proper conduct of our business;
comply with applicable law, any of our debt instruments or other agreements or any other obligation; and
provide funds for distributions to our unitholders for any one or more of the next four quarters (provided that our general partner may not establish cash reserves for the payment of distributions unless it determines that the establishment of such reserves will not prevent us from distributing the minimum quarterly distribution on all common units and any cumulative arrearages on such common units for the current quarter);
plus , if our general partner so determines on the date of determination, all or any portion of the cash on hand immediately prior to the date of determination of available cash for the quarter, including cash on hand resulting from working capital borrowings made after the end of the quarter.



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The purpose and effect of the last bullet point above is to allow our general partner, if it so decides, to use cash received by us after the end of the quarter but on or before the date of determination of available cash for that quarter, including cash on hand resulting from working capital borrowings made after the end of the quarter, to pay distributions to unitholders. Under our partnership agreement, working capital borrowings are borrowings that are made under a credit agreement, commercial paper facility or similar financing arrangement with the intent to repay such borrowings within twelve months from sources other than additional working capital borrowings and that are used solely for working capital purposes or to pay distributions to partners.
Minimum Quarterly Distribution
Our partnership agreement provides that during the subordination period, holders of our common units have the right to receive distributions of available cash from our operating surplus (as defined in our partnership agreement) each quarter in an amount equal to $0.2875 per common unit, defined in our partnership agreement as the minimum quarterly distribution, plus any arrearages in the payment of the minimum quarterly distribution to holders of the common units from prior quarters, before any distributions of available cash from operating surplus may be made to holders of the subordinated units. These units are deemed to be subordinated because for the subordination period, holders of the subordinated units are not entitled to receive any distributions from operating surplus until holders of the common units have received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters. No arrearages are paid on the subordinated units.
As defined in our partnership agreement, the subordination period will end on the first business day after we have earned and paid distributions of available cash of at least (1) $1.15 (the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit for each of three consecutive, non-overlapping four-quarter periods ending on or after September 30, 2016, or (2) $1.725 (150% of the annualized minimum quarterly distribution) on each outstanding common and subordinated unit and the related distributions on the incentive distribution rights for any four-quarter period ending on or after September 30, 2014, in each case provided there are no arrearages in the payment of the minimum quarterly distributions on our common units at that time.
On the first business day following the  March 1, 2017 payment of the cash distribution attributable to the fourth quarter of 2016, the requirements for the conversion of all subordinated units into common units will be satisfied under the partnership agreement. As a result, the   22,811,000   subordinated units held by Western will convert into common units on a one-for-one basis and thereafter participate on terms equal with all other common units in distributions of available cash. The conversion of the subordinated units will not impact the amount of cash distributions paid by us or the total number of outstanding units.
General Partner Interest and Incentive Distribution Rights
Our general partner owns a non-economic general partner interest in us that does not entitle it to receive cash distributions. Our general partner may own common units or other equity securities in us in the future and will be entitled to receive distributions on any such interests as provided for in our partnership agreement.
Our general partner also holds incentive distribution rights that entitle it to receive increasing percentages, up to a maximum of 50.0% of the cash we distribute from our operating surplus (as defined below) in excess of $0.3306 per unit per quarter. The maximum distribution of 50.0% does not include any distributions that Western may receive on any limited partner units that it owns.

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The following table illustrates the percentage allocations of available cash from our 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 distributions, if any, on the TexMex New 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
%
The information under the caption " Securities Authorized for Issuance under Equity Compensation Plans ” in Item 12 is incorporated herein by reference.
Issuance of Additional Interests
On September 15, 2016, WNRL issued 628,224 of its common units to Western in connection with the assets acquired in the St. Paul Park Logistics Transaction .
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 from this offering to repay the borrowings outstanding under our revolving credit facility and fund the cash portion of the purchase price for the St. Paul Logistics Transaction.
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 from this offering to repay a portion of the borrowings outstanding under our revolving credit facility.
On October 30, 2015, WNRL issued 421,031 of its common units and 80,000 TexNew Mex Units to a wholly-owned subsidiary of Western as partial consideration for the assets acquired in the TexNew Mex Pipeline Acquisition .
On October 15, 2014, WNRL issued 1,160,092 of its common units to Western in connection with the assets acquired in the Wholesale Acquisition.
Issuance of TexNew Mex Units
The Second A&R Partnership Agreement sets forth the rights, preferences and obligations of 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 Pipeline above the 13,000 bpd contemplated by the commitment in the Amendment to Pipeline Agreement. 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. The TexNew Mex Unit distributions are preferential to all other unit holder distributions.
Holders of TexNew Mex Units will generally not have voting rights, except for limited voting rights related to amendments to the rights of the TexNew Mex Units, the issuance of partnership securities senior to the TexNew Mex Units or additional TexNew Mex Units, the sale of the TexNew Mex Pipeline, and the reservation by the Partnership of any distribution amounts to which the holders of TexNew Mex Units would otherwise be 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

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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.
Item 6.
Selected Financial Data
The following tables set forth certain selected consolidated financial data as of and for each of the five years in the period ended December 31, 2016 . See the section titled Explanatory Note on page 1 of this annual report for a detailed explanation of the series of transactions that led to our current, retrospectively adjusted, presentation of the Predecessor, WNRL Predecessor and WNRL.
The information presented below should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in Item 8. Financial Statements and Supplementary Data .
 
Year Ended
 
December 31,
2016
 
December 31,
2015
 
December 31,
2014
 
December 31,
2013
 
December 31,
2012
 
 
 
 
 
 
 

 
Predecessor
 
(In thousands, except per unit data)
Statement of Operations Data
 
 
 

 
 

 
 
 
 
Total revenues (1)
$
2,222,718

 
$
2,599,867

 
$
3,501,888

 
$
3,407,128

 
$
3,474,920

Total operating costs and expenses
2,152,623

 
2,544,073

 
3,466,281

 
3,454,156

 
3,525,408

Operating income (loss)
70,095

 
55,794

 
35,607

 
(47,028
)
 
(50,488
)
 
 
 
 
 
 
 
 
 
 
Net income (loss)
43,347

 
32,706

 
32,908

 
(47,295
)
 
$
(50,214
)
Less net loss attributable to General Partner
(23,309
)
 
(29,867
)
 
(20,084
)
 
(55,823
)
 
 
Net income attributable to limited partners
$
66,656

 
$
62,573

 
$
52,992

 
$
8,528

 
 
 
 
 
 
 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
 
 
 
 
Common - basic
$
1.16

 
$
1.31

 
$
1.16

 
$
0.19

 
 
Common - diluted
1.16

 
1.30

 
1.15

 
0.19

 
 
Subordinated - basic and diluted
1.21

 
1.30

 
1.15

 
0.19

 
 
 
 
 
 
 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
 
 
 
 
Common - basic
29,979

 
24,084

 
23,059

 
22,811

 
 
Common - diluted
29,994

 
24,099

 
23,107

 
22,813

 
 
Subordinated - basic and diluted
22,811

 
22,811

 
22,811

 
22,811

 
 
 
 
 
 
 
 
 
 
 
 
Distribution per common and subordinated unit (2)
$
1.6750

 
$
1.4875

 
$
1.2550

 
$
0.2407

 
 

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Year Ended
 
December 31,
2016
 
December 31,
2015
 
December 31,
2014
 
December 31,
2013
 
December 31,
2012
 
 
 
 
 
 
 
 
 
Predecessor
 
(In thousands)
Other Data
 

 
 

 
 
 
 

 
 
EBITDA (3)
$
126,212

 
$
106,662

 
$
70,330

 
$
11,598

 
$

Distributable cash flow (3)
100,059

 
78,631

 
66,127

 
13,146

 

Balance Sheet Data (at end of period)
 

 
 

 
 
 
 

 
 
Cash and cash equivalents
$
14,652

 
$
44,605

 
$
54,298

 
$
84,004

 
$
5

Property, plant and equipment, net
412,170

 
430,141

 
403,997

 
346,737

 
158,080

Total assets
580,854

 
610,222

 
602,564

 
478,624

 
185,462

Total debt
313,032

 
437,467

 
267,016

 

 

Total liabilities
482,530

 
570,632

 
412,303

 
14,062

 
6,480

Division equity

 
108,013

 
217,355

 
231,210

 
178,982

Partners' capital
98,324

 
(68,423
)
 
(27,094
)
 
233,352

 

Total liabilities, division equity and partners' capital
580,854

 
610,222

 
602,564

 
478,624

 
185,462

(1)
Prior to the Offering, our business was a part of the integrated operations of Western and the WNRL Predecessor generally recognized only the costs and did not record revenue associated with the transportation, terminalling or storage services provided to Western on an intercompany basis. Accordingly, the revenues in the WNRL Predecessor’s historical consolidated financial information relate only to amounts received from third parties for these services and minimum amounts required to be recorded for Western for regulatory purposes. Following the closing of the Offering, our revenues were generated by existing third-party contracts and from the commercial agreements with Western.
(2)
On January 31, 2014, our general partner's board of directors declared a quarterly cash distribution of $0.2407 per unit for the prorated period, following the Offering, from October 16, 2013 through December 31, 2013.
(3)
We define EBITDA as earnings before interest and debt expense, provision for income taxes and depreciation and amortization. We define Distributable Cash Flow as EBITDA plus the change in deferred revenues, less interest accruals, income taxes paid, maintenance capital expenditures and distributions declared on our TexNew Mex units. The GAAP performance measure most directly comparable to EBITDA is net income. The GAAP liquidity measure most directly comparable to EBITDA and distributable cash flow is net cash provided by operating activities. These non-GAAP financial measures should not be considered alternatives to GAAP net income or net cash provided by operating activities.
EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our debt;
EBITDA does not reflect changes in, or cash requirements for, our working capital needs; and
EBITDA, as we calculate it, may differ from the EBITDA calculations of our affiliates or other companies in our industry, thereby limiting its usefulness as a comparative measure.
EBITDA and Distributable Cash Flow are used as supplemental financial measures by management and by external users of our financial statements, such as investors and commercial banks, to assess:
our operating performance as compared to those of other companies in the midstream energy industry, without regard to financial methods, historical cost basis or capital structure;
the ability of our assets to generate sufficient cash to make distributions to our unitholders;
our ability to incur and service debt and fund capital expenditures; and

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the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
Distributable Cash Flow is a standard used by the investment community with respect to publicly traded partnerships because the value of a partnership unit is, in part, measured by its yield. Yield is based on the amount of cash distributions a partnership can pay to a unitholder. Although distributable cash flow is a liquidity measure, it is presented in this reconciliation to net income as supplemental information.
We believe that the presentation of these non-GAAP measures provides useful information to investors in assessing our financial condition and results of operations. These non-GAAP measures should not be considered as alternatives to net income or any other measure of financial performance presented in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income attributable to limited partners. These non-GAAP measures may vary from those of other companies. As a result, EBITDA and Distributable Cash Flow as presented herein may not be comparable to similarly titled measures of other companies.
The calculation of EBITDA and Distributable Cash Flow includes the results of operations for the period subsequent to the Offering, the results of operations for the wholesale segment for the period subsequent to the Wholesale Acquisition, the results of the TexNew Mex Pipeline System subsequent to the TexNew Mex Pipeline Acquisition and the results of the St. Paul Park Logistics Assets subsequent to the St. Paul Park Logistics Transaction .
The following table reconciles net income attributable to limited partners to EBITDA and Distributable Cash Flow for the years ended December 31, 2016 , 2015 , 2014 and for the period from October 16, 2013 through December 31, 2013:
 
Period Ended
 
December 31,
2016
 
December 31,
2015
 
December 31,
2014
 
December 31,
2013
 
(In thousands)
Net income attributable to limited partners
$
66,656

 
$
62,573

 
$
52,992

 
$
8,528

Interest and debt expense
25,972

 
23,107

 
2,359

 
299

Provision for income taxes
706

 
47

 
459

 
95

Depreciation and amortization
32,878

 
20,935

 
14,520

 
2,676

EBITDA
126,212

 
106,662

 
70,330

 
11,598

 
 
 
 
 
 
 
 
Change in deferred revenues
9,002

 
3,351

 
4,190

 
2,589

Interest accruals
(25,312
)
 
(21,836
)
 
(1,837
)
 
(190
)
Income taxes paid
(415
)
 
(456
)
 
(1
)
 

Maintenance capital expenditures
(9,428
)
 
(9,562
)
 
(6,555
)
 
(851
)
Distributions on TexNew Mex Units

 
(310
)
 

 

Proceeds from asset sale to affiliate

 
782

 

 

Distributable cash flow
$
100,059

 
$
78,631

 
$
66,127

 
$
13,146

 
 
 
 
 
 
 
 
Minimum annual distribution
$
63,447

 
$
53,978

 
$
52,802

 
$


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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion together with the financial statements and notes thereto included elsewhere in this report. This discussion contains forward-looking statements that are based on management’s 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 in the section entitled "Risk Factors" and elsewhere in this report. You should read such "Risk Factors" and "Forward-Looking Statements" in this report.
Overview
See Part I — Item 1. Business included in this annual report for detailed information on our business.
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 as well as the demand for these products by our customers. Among other circumstances, 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 our 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.


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Factors Affecting the Comparability of Our Financial Results
Our results of operations may not be comparable to our historical results of operations for the reasons described below:
Revenues. There are differences in the way our Predecessor recorded revenues and the way we record revenues as follows:
Revenues generated and reported by the WNRL Predecessor related to the operation of our logistics assets were minimal and were for amounts received from third parties and other amounts required to be recorded for Western for regulatory reporting. Intercompany revenues were not reported by the WNRL Predecessor related to its operation of logistics assets for the benefit of Western. Our logistics related revenues are generated primarily through the commercial agreements that we entered into with Western and are from October 2013 and future reporting periods. Our reported logistics assets revenue are fee-based and subject to contractual minimum volume commitments. The contractual fees are indexed for inflation in accordance with either the FERC indexing methodology or the U.S. Producer Price Index.
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.
Revenues reported by WRW prior to the Wholesale Acquisition related to its wholesale operations were for sales primarily to third parties and included zero margin sales to Western’s retail business. Revenues and related margins from third-party sales were somewhat sensitive to market prices and demand for related commodities. Our wholesale operations continue to include sales to third parties and also provide for contractual margins on our sales to Western’s retail business. Our wholesale sales are less sensitive to related commodity pricing due to our contractual agreements with Western. However, such sales continue to be sensitive to market demand for our products. Our wholesale revenues also include transportation fees for both refined product and crude oil that were previously not reported as they were considered to be intercompany charges to Western and were not reported by our Predecessor.
Issuance of Additional Interests
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 from this offering to repay the borrowings outstanding under our revolving credit facility and fund the cash portion of the purchase price for the St. Paul Logistics Transaction.
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 used the net proceeds from this offering to repay a portion of the borrowings outstanding under our Revolving Credit Facility.

Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with U.S. GAAP. Note 2, Summary of Accounting Policies , to our Consolidated Financial Statements contains a summary of our significant accounting policies. Certain amounts included in or affecting our consolidated financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time our financial statements are prepared. These estimates and assumptions affect the amounts we report for our assets and liabilities, our revenues and expenses during the reporting period, and our disclosure of contingent assets and liabilities at the date of our financial statements.  We routinely evaluate these estimates, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Actual results may differ significantly from our estimates, and any effects on our financial condition, results of operations or cash flows resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.

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We believe that of our significant accounting policies, the following are noteworthy because they are based on estimates and assumptions that require complex and/or subjective assumptions by management that can materially impact reported results.
Historically, the refining industry has experienced significant fluctuations in operating results over an extended business cycle including changes in crack spreads and refining margins, changes in operating costs including natural gas and electricity and higher costs of complying with government regulations. It is reasonably possible that at some future downturn in refining operations that the assumptions used in our forecasts and projections used to determine impairment of long-live assets would significantly change, resulting in an impairment charge in the future. A prolonged, moderate decrease in our operating margins could potentially result in impairment to our long-live assets. Such impairment charges could be material in the period taken.
Long-Lived Assets .  We calculate depreciation and amortization on a straight-line basis over the estimated useful lives of the various classes of depreciable assets. We make estimates of an asset's reasonable useful life when it is placed into service. We review the carrying values of our long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying value of an asset to future net cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its expected future cash flows, an impairment loss is recognized based on the excess of the carrying value of the impaired asset over its fair value. These future cash flows and fair values are estimates based on our judgment and assumptions. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the cost of dispositions.
Environmental and Other Loss Contingencies .  We record liabilities for loss contingencies, including environmental remediation costs, when such losses are probable and can be reasonably estimated. Environmental costs are expensed if they relate to an existing condition caused by past operations with no future economic benefit. Estimates of projected environmental costs are made based upon internal and third-party assessments of contamination, available remediation technology and environmental regulations. Loss contingency accruals, including those for environmental remediation, are subject to revision as further information develops or circumstances change. Such accruals may take the legal liability of other parties into account.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on our accounting and reporting. For further discussion on the impact of recent accounting pronouncements, see Note 2, Summary of Accounting Policies , in the Notes to Consolidated Financial Statements included in this annual 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 and asphalt 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.

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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. 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.


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Results of Operations
A discussion and analysis of our consolidated and reportable segment financial data and key operating statistics for the three years ended December 31, 2016 , is presented below.

Consolidated
 
Year Ended
 
December 31,
 
2016
 
2015
 
2014
 
(In thousands, except per unit data)
Revenues:
 
 
 
 
 
Fee based:
 
 
 
 
 
Affiliate
$
223,124

 
$
203,435

 
$
176,372

Third-party
2,911

 
2,771

 
2,718

Sales based:
 
 
 
 
 
Affiliate
479,033

 
582,888

 
835,203

Third-party
1,517,650

 
1,810,773

 
2,487,595

Total revenues
2,222,718

 
2,599,867

 
3,501,888

Operating costs and expenses:
 

 
 

 
 

Cost of products sold:
 
 
 
 
 
Affiliate
468,935

 
573,264

 
871,751

Third-party
1,447,178

 
1,734,873

 
2,373,168

Operating and maintenance expenses
174,936

 
175,767

 
168,432

Selling, general and administrative expenses
23,386

 
25,063

 
23,839

Loss (gain) and impairments on disposal of assets, net
(1,054
)
 
(278
)
 
157

Depreciation and amortization
39,242

 
35,384

 
28,934

Total operating costs and expenses
2,152,623

 
2,544,073

 
3,466,281

Operating income
70,095

 
55,794

 
35,607

Other income (expense):
 
 
 
 
 
Interest income

 

 
4

Interest and debt expense
(25,972
)
 
(23,107
)
 
(2,374
)
Other income (expense), net
(70
)
 
66

 
130

Net income before income taxes
44,053

 
32,753

 
33,367

Provision for income taxes
(706
)
 
(47
)
 
(459
)
Net income
43,347

 
32,706

 
32,908

Less net loss attributable to General Partner
(23,309
)
 
(29,867
)
 
(20,084
)
Net income attributable to limited partners
$
66,656

 
$
62,573

 
$
52,992

 
 
 
 
 
 
Net income per limited partner unit:
 
 
 
 
 
Common - basic
$
1.16

 
$
1.31

 
$
1.16

Common - diluted
1.16

 
1.30

 
1.15

Subordinated - basic and diluted
1.21

 
1.30

 
1.15

 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
Common - basic
29,979

 
24,084

 
23,059

Common - diluted
29,994

 
24,099

 
23,107

Subordinated - basic and diluted
22,811

 
22,811

 
22,811


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Gross Margin
Gross margin is a non-GAAP performance measure that we calculate as total revenues, net of excise taxes, less cost of products sold, exclusive of depreciation and amortization. Gross margin is a non-GAAP performance measure that we believe is important to investors in evaluating our performance as a general indication of the amount above costs of products that we are able to sell our products.
 
Year Ended
 
December 31,
 
2016
 
2015
 
2014
 
(In thousands)
Total revenues
$
2,222,718

 
$
2,599,867

 
$
3,501,888

Cost of products sold (exclusive of depreciation and amortization)
1,916,113

 
2,308,137

 
3,244,919

Gross margin
$
306,605

 
$
291,730

 
$
256,969

Gross margin increased $14.9 million from 2015 to 2016 . This increase was primarily due to increased fee based gross margin in our logistics segment of $17.2 million resulting from the St. Paul Park Logistics Acquisition in 2016. Also contributing to the increase was higher gross margin of $4.7 million period over period from new asphalt hauling activity by truck. Partially offsetting the gross margin increase were decreased wholesale fuel margins of $1.2 million , reduced crude oil trucking margin of $1.6 million and a $4.5 million decrease in margin from lubricant sales. Wholesale fuel sales revenue decreased due to overall pricing declines. The average price per gallon in 2016 was $1.51 compared to $1.80 for 2015 .
Gross margin increased $34.8 million from 2014 to 2015 . This increase was primarily due to increased fee based revenue in our logistics segment of $23.6 million resulting from increased pipeline utilization and increases to certain pipeline, terminal and other service fee rates over 2014 rates. Also contributing to the increase were higher wholesale fuel margins of $9.9 million and higher truck freight revenue from crude oil gathering activity in the Permian Basin area of $3.5 million . Sales based revenues decreased due to a lower average price per gallon sold by our wholesale segment in 2015 of $1.80 compared to $2.83 for 2014 .
Operating and Maintenance Expenses
Operating and maintenance expenses decreased from 2015 to 2016 primarily due to a decrease in our wholesale segment ( $2.7 million ), partially offset by an increase in our logistics segment ( $1.9 million ).
Operating and maintenance expenses increased from 2014 to 2015 primarily due to an increase in our logistics segment ( $5.7 million ) and wholesale segment ( $1.6 million ).
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased from 2015 to 2016 primarily due to decreases in our wholesale segment and logistics segment of $1.3 million and $0.3 million , respectively.
The increase in selling, general and administrative expenses from 2014 to 2015 was primarily due to increases in our other category and logistics segment of $1.3 million and $0.6 million , partially offset by a decrease in our wholesale segment of $0.7 million . The increase in our other category is primarily due to increased corporate overhead related to the TexNew Mex Pipeline Acquisition ( $1.6 million ).
Depreciation and Amortization
The increase in depreciation and amortization from 2015 to 2016 was primarily due to the ongoing expansion of our Delaware Basin and Four Corners logistics systems.
The increase in depreciation and amortization from 2014 to 2015 was primarily due to TexNew Mex Pipeline depreciation, the ongoing expansion of our Delaware Basin and Four Corners logistics systems and the expansion of our truck fleet.
Interest Expense
The increase in interest expense from 2015 to 2016 was attributable to interest incurred from our issuance of $300.0 million of the WNRL 2023 Senior Notes during the first quarter of 2015 and higher borrowings under our Revolving Credit Facility during the current period.
The increase in interest expense from 2014 to 2015 was due to the issuance of the $300 million WNRL 2023 Senior Notes and borrowings of $145 million under our Revolving Credit Facility during 2015.

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Logistics Segment
 
Year Ended
 
December 31,
 
2016
 
2015
 
2014
 
(In thousands, except key operating statistics)
Statement of Operations Data:
 
 
 
 
 
Fee based revenues:
 
 
 
 
 
Affiliate
$
178,600

 
$
161,536

 
$
137,986

Third-party
2,911

 
2,771

 
2,718

Total revenues
181,511

 
164,307

 
140,704

Operating costs and expenses:
 

 
 

 
 

Operating and maintenance expenses
101,328

 
99,430

 
93,710

General and administrative expenses
2,627

 
2,953

 
2,359

Loss (gain) and impairments on disposal of assets, net
(17
)
 
146

 
262

Depreciation and amortization
33,710

 
30,898

 
25,041

Total operating costs and expenses
137,648

 
133,427

 
121,372

Operating income
$
43,863

 
$
30,880

 
$
19,332

Key Operating Statistics:
 
 
 
 
 
Pipeline and gathering (bpd):
 
 
 
 
 
Mainline movements (1):
 
 
 
 
 
Permian/Delaware Basin system
51,805

 
47,368

 
24,644

TexNew Mex system
9,543


12,302



Four Corners system
53,204

 
56,079

 
45,232

Gathering (truck offloading):
 
 
 
 
 
Permian/Delaware Basin system
17,662

 
23,617

 
24,166

Four Corners system
10,464

 
13,438

 
11,550

Pipeline Gathering and Injection system:
 
 
 
 
 
Permian/Delaware Basin system
12,295

 
5,861

 
1,525

TexNew Mex system
1,354

 

 

Four Corners system
25,052

 
24,490

 
19,943

Tank storage capacity (bbls) (2)
898,307

 
669,356

 
598,057

Terminalling, transportation and storage:
 
 
 
 
 
Shipments into and out of storage (bpd) (includes asphalt)
441,865

 
391,842

 
381,371

Terminal storage capacity (bbls) (2)
8,564,061

 
7,447,391

 
7,356,348

(1)
Some barrels of crude oil in route to Western's Gallup refinery and Permian/Delaware Basin are transported on more than one of our mainlines. Mainline movements for the Four Corners and Delaware Basin systems include each barrel transported on each mainline. During the second quarter of 2015, we began shipping crude oil from the Four Corners system, through the TexNew Mex Pipeline System, to the Permian/Delaware system.
(2)
Storage shell capacities represent weighted-average capacities for the periods indicated.
Fee Based Revenues
We generate our logistics revenues from third-party contracts and commercial agreements with Western. On July 1, 2016, we decreased certain pipeline, terminal and other service fee rates with such decreases averaging 3.0% for terminal, storage and gathering activities and 2.0% for crude oil pipeline shipments based on decreases in the Producer Price Index stipulated in our commercial agreements with Western. Despite decreased rates, our fee based revenues increased slightly by $0.2 million from 2015 to 2016 based on several contributing factors throughout our operating regions.
Our Permian Basin assets increased overall volumes by 4,437 bpd compared to 2015, resulting in increased fees of $2.0 million . Our Four Corners system volumes were down slightly, by 2,875 bpd, but current period volumes included movements on newly constructed, higher capacity pipelines that receive higher regulatory tariffs than did comparable pipeline deliveries in 2015. These redirected volumes resulted in a $2.0 million increase in Four Corners fees period over period. Our TexNew Mex Pipeline System, which commenced operations in April 2015, generated a full year of 2016 fees, resulting in a

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$3.4 million increase. Our St. Paul Park Logistics Assets that we acquired on September 15, 2016, generated