Note 9. Commitments and Contingencies

The Partnership is subject to contingencies, including legal proceedings and claims arising out of the normal course of business that cover a wide range of matters, including, among others, environmental matters and contract and employment claims.

Leases of Office Space and Computer Equipment

The Partnership has future commitments, principally for office space and computer equipment, under the terms of operating lease arrangements. The following provides total future minimum payments under leases with non‑cancellable terms of one year or more at December 31, 2016 (in thousands):

Total rent expense under the operating lease arrangements amounted to approximately $3.3 million, $3.7 million and $3.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Terminal and Throughput Leases

The Partnership is a party to terminal and throughput lease arrangements with certain counterparties at various unrelated oil terminals. Certain arrangements have minimum usage requirements. The following provides future minimum lease and throughput commitments under these arrangements with non‑cancellable terms of one year or more at December 31, 2016 (in thousands):

 

Total rent expense reflected in cost of sales related to these operating leases were approximately $18.5 million, $22.5 million and $31.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Leases of Gasoline Stations

The Partnership leases gasoline stations, primarily land and buildings, under operating leases with various expiration dates. The following provides future minimum lease commitments under these arrangements with non‑cancellable terms of one year or more at December 31, 2016 (in thousands):

Total expenses under these operating lease arrangements amounted to approximately $41.5 million, $36.7 million and $25.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in total expenses in 2015 compared to 2014 was primarily due to the January 2015 acquisition of Warren and the June 2015 acquisition of Capitol.

Sale Leaseback Transaction

The Partnership is party to a master unitary lease agreement to lease back the real property assets sold with respect to 30 gasoline stations and convenience stores (see Note 6). The following provides future minimum lease payments, which are subject to annual adjustments based on a consumer price index based calculation, for the non-cancelable operating lease terms of one year or more at December 31, 2016 (in thousands):

The following provides future minimum sublease rentals from third-party tenants of certain of the sold sites for each of the next five years ending December 31:

Total rental income from third-party tenants of the sold sites was $1.2 million for the year ended December 31, 2016.

Dealer Leases of Gasoline Stations

The Partnership leases gasoline stations and certain equipment to gasoline station operators under operating leases with various expiration dates. The aggregate carrying value of the leased gasoline stations and equipment at December 31, 2016 was $355.7 million, net of accumulated depreciation of approximately $61.5 million. The following provides future minimum rental income under non‑cancellable operating leases associated with these properties at December 31, 2016 (in thousands):

Total rental income, which includes reimbursement of utilities and property taxes in certain cases, amounted to approximately $68.8 million, $61.1 million and $42.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. The increase in rental income in 2016 and 2015 compared to 2014 was primarily due to the January 2015 acquisition of Warren and the June 2015 acquisition of Capitol.

Leases of Railcars

The Partnership leases railcars through various lease arrangements with various expiration dates. The following provides future minimum lease commitments under these arrangements with non‑cancellable terms of one year or more at December 31, 2016 (in thousands):

The minimum lease commitments for 2017 are net of $3.6 million, related to a contractual sub-lease arrangement that expires in 2017.

Total expenses under these operating lease arrangements amounted to approximately $56.8 million,  $57.7 million and $56.9 million for the years ended December 31, 2016, 2015 and 2014, respectively. On December 31, 2016, we voluntarily terminated a sublease for 1,610 railcars leased from a third party. The termination of the sublease eliminates future lease payments related to these railcars of approximately $30.0 million, $29.0 million and $13.0 million in 2017, 2018 and 2019, respectively.

Leases of Barges

The Partnership leases barges through various time charter lease arrangements with various expiration dates. The following provides future minimum lease commitments under these arrangements with non-cancellable terms of one year or more at December 31, 2016 (in thousands):

Total expenses under these operating lease arrangements amounted to approximately $67.8 million, $87.3 million and $60.6 million for the years ended December 31, 2016, 2015 and 2014, respectively. In 2016, the Partnership leased fewer barges compared to 2015. In 2015, the Partnership leased more barges under time charters compared to 2014.

Purchase Commitments

The Partnership has minimum retail gasoline volume purchase requirements with various unrelated parties. These gallonage requirements are purchased at the fair market value of the product at the time of delivery. Should these gallonage requirements not be achieved, the Partnership may be liable to pay penalties to the appropriate supplier. As of December 31, 2016, the Partnership has fulfilled all gallonage commitments. The following provides minimum volume purchase requirements at December 31, 2016 (in thousands of gallons):

Brand Fee Agreement

The Partnership entered into a brand fee agreement with ExxonMobil which entitles the Partnership to operate retail gasoline stations under the Mobil‑branded trade name and related trade logos. The fees, which are based upon an estimate of the volume of gasoline and diesel to be sold at the gasoline stations acquired from ExxonMobil in 2010, are due on a monthly basis. The following provides total future minimum payments under the agreement with non‑cancellable terms of one year or more at December 31, 2016 (in thousands):

Total expenses reflected in cost of sales related this agreement were approximately $9.0 million for each of the years ended December 31, 2016, 2015 and 2014.

Port of St. Helens Agreements—Land and Equipment

The Partnership leases mobile equipment under non‑cancellable operating lease arrangements and has a continuing operating lease with the Port of St. Helens. The following provides total future minimum payments under these operating leases with initial terms one year or more at December 31, 2016 (in thousands):

Total rental expense was approximately $223,000, $223,000 and $222,000 for the years ended December 31, 2016, 2015 and 2014, respectively.

Other Commitments

In June 2014, the Partnership entered into a pipeline connection agreement with Meadowlark Midstream Company, LLC (“Meadowlark”) whereby Meadowlark would construct, own, operate and maintain a crude oil pipeline from its Divide County, North Dakota crude oil station to the Partnership’s Basin Transload crude oil storage facility in Columbus, North Dakota. In connection with the agreement, the Partnership is committed to a minimum take-or-pay throughput commitment of approximately $55.0 million over a seven–year period beginning after the commissioning of the pipeline which occurred in December of 2015. At December 31, 2016, the remaining commitment on the take-or-pay commitment was approximately $47.1 million.

In May 2014, the Partnership entered into a pipeline connection agreement with Tesoro High Plains Pipeline Company (“Tesoro High Plains”) whereby Tesoro High Plains would design, engineer, construct and place in service improvements on its pipeline system that will expand its capacity to ship crude oil from points in Dunn and McKenzie Counties, North Dakota to Ramberg Station/Beaver Lodge destination point in Williams County, North Dakota. In connection with this agreement, the Partnership is committed to a minimum take-or-pay throughput commitment of approximately $36.4 million over a seven–year period beginning after the commissioning of the pipeline, which occurred in January of 2015. At December 31, 2016, the remaining commitment on the take-or-pay commitment, including a quarterly take-or-pay of $1.3 million, was approximately $26.0 million.

In April 2014, Basin Transload, of which the Partnership owns a 60% membership interest, entered into a pipeline connection agreement with Tesoro Logistics (“Tesoro”) whereby Tesoro would build, own and operate a four‑mile pipeline lateral from its existing block gate valve in Mercer Country, North Dakota to the Partnership’s Beulah Rail Facility near Beulah, North Dakota. In connection with this agreement, Basin Transload is committed to a minimum take-or-pay throughput commitment of approximately $14.6 million over a five‑year period beginning after the commissioning of the pipeline, which occurred in January 2015. At December 31, 2016, the remaining commitment on the take-or-pay commitment was approximately $13.2 million.

In February 2013, the Partnership assumed natural gas transportation and reservation agreements, which have various expiration dates, with Northwest Natural Gas Company (“NW Natural Gas”) and the Northwest Pipeline system (“NW Pipeline”) whereby NW Natural and NW Pipeline provide the Partnership with the transportation and reservation of firm natural gas delivered to the Partnership’s Oregon facility. At December 31, 2016, the remaining commitment on the transportation and reservation agreements was approximately $12.7 million.

Environmental Liabilities

Please see Note 12 for a discussion of the Partnership’s environmental liabilities.

Legal Proceedings

Please see Note 21 for a discussion of the Partnership’s legal proceedings.