Q3 2019 Earnings Call

My name is Julie and I will be or operator for today's call.

At this time all participants are in a listen only mode.

Later, we will conduct a question answer session.

Please note that this conference is being recorded.

I'll now turn the call over to Jeff Dietert, Vice President Investor Relations, Jeff you may begin.

Good afternoon, and welcome to Phillips 66 partners third quarter earnings Conference call.

Persists depends on today's call will include Kevin Mitchell, Vice President and CFO .

Tim Roberts, Vice President operations, and Rosy, Zuklic, Vice President and Chief operating Officer.

Today's presentation material can be found on the event section of the Phillips 66 partners website, along with supplemental financial and operating information.

Two contains our safe Harbor statement, we will be making forward looking statements during the presentation in the queue in a recession actual results may differ materially from what we present today.

There's a could cause actual results to differ included here as well as in RCC filings.

With that I'll turn the call over to Kevin Mitchell. Thank you Jay Good afternoon, everyone. We delivered another quarter of record earnings and adjusted EBITDA, reflecting reliable operating performance at our wholly owned and joint venture assets.

We continue to execute on our organic growth projects with the successful start up of multiple new assets. This year, including the bright rich pipeline extension Lake Charles products pipeline and Lake Charles Summarization unit.

These actions are running well performing as planned.

Our board of directors approved a third quarter distribution 86.5 cents per common unit, an increase of one cents per common units from the previous quarter and 9% higher than the third quarter 2018 cash distribution.

We have increased the distribution every quarter since the July 2013 IPO.

We remain committed to delivering competitive distribution growth, while maintaining strong coverage and leverage ratios.

Moving on to slide four to discuss the financial results.

The partnership reported third quarter earnings of $237 million.

Adjusted EBITDA during the quarter was a record $323 million, an increase of $4 million from the second quarter.

The improvement reflects increased volumes and tariff rates, partially offset by higher planned maintenance expense.

Good quarter distributable cash flow was $255 million, an increase of $1 million from the prior quarter.

Slide five highlights our financial flexibility and liquidity.

We ended the third quarter with $655 million of cash $749 million available under our revolving credit facility.

During the quarter the partnership issued $900 million of unsecured notes in attractive interest rate environment.

A portion of the proceeds which used to repay the remaining $400 million outstanding under a term loan facility and in October we paid off $300 million of senior notes due February 2020.

The debt to EBITDA ratio on the revolver Covenant basis was 3.2 times.

The leverage ratio was higher than just the timing of the debt issuance in the third quarter and repayment of the senior notes in the fourth quarter.

Our distribution coverage ratio was 1.29 times.

We continue to target a long term leverage ratio of up to 3.5 times distribution coverage ratio over 1.2 times.

The partnership with finds its major projects during the quarter.

Funding $136 million growth capital.

This includes the spend for the CTG pipeline, the Clemens caverns, and the Sweeney to Pasadena pipeline expansion as well as investments in the South Texas Gateway terminal no rosy will provide an update on our growth projects. Thanks, Kevin and Hello, everyone like explicit projects, we have ongoing I'll speak to a few of the projects.

Lake Charles I saw amortization unit had a successful startup and reached full production in September were excited about this asset. The initial operating performance is meeting design right and we expect to receive a full quarter earnings contribution in the fourth quarter.

Great Hi plane project is nearing completion, we have started line fill and commissioning activities and are on track for initial startup in November with full service in the first quarter of 2020 .

Great well connect to multiple terminals in the Corpus Christi area, including the South Texas Gateway terminal the marine export terminal will have to deepwater dock, which storage capacity of over 7 million barrel in up to 800000 barrels per day of throughput capacity.

66 partners owns a 25% interest in the terminal, which is expected to start up by made 2020 .

The remaining projects listed are on schedule to be completed as planned we look forward to providing more information at the upcoming Phillips 66 Investor day.

This concludes our prepared remarks, we will now open the line for questions.

Thank you we will now begin the question and answer session.

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[laughter].

Spiro do enough from credit Suisse. Please go ahead your line is open.

Hey, good afternoon, everyone, maybe starting off with some of the movers around a quarter. She thinks that got to me I guess first seems like terminal segment, maybe take a bit of a step change up shrugged off some of the lower sequential refinery utilization. So just wondering what's really driving some of that and is that ratable from here and then second on volumes.

Some of your JV assets looking really strong once again, just wondering you could just highlight which pipelines was really driving that and maybe how sustainable that is too.

Sure I fear or this is probably the absolutely. So if you think about you know the great benefit that we're seeing in the terminals is is really as a result of of the projects that we've had coming online as Kevin mentioned, you've got Bayou Bridge, a where we have the second phase of the the pipeline there starting up and then Lake Charles pipeline.

Where we've got products moving from Lake Charles refinery downtime Clifton Ridge terminal and so really what we're seeing there is we've got additional crude movement and product movement off of the Clifton Ridge criminal and so you're seeing that kind of uplift a in the the terminalling volumes there and so just really a fruition of all the different projects.

Together and I do think that that is something that that at least for the next quarter you should definitely see an uptake coming coming there I'm on the JV pipeline you know, it's a continuation of what we saw in in the in the second quarter explore had another record quarter second quarter was a great quarter third quarter was even better 750000.

Charles per day throughput up from 703 last quarter Bayou Bridge again, if you think about the fact that it started phase two in the second quarter and then a in the third quarter. We had benefited the full quarter running a 299000 barrels per day, and then Bakken pipeline also had another uptick.

In volume.

Very helpful. Second question I don't want to get you had in the Investor day, certainly looking forward to that.

But maybe if you just help us understand a little bit how to think about red oak and liberty potentially becoming a greater part of the P.S. like sorry, specifically, especially as you sort of transition back towards doing sort of a dropdown.

Type strategy I think Greg mentioned on the call earlier, the P.S.P. still has a cost of capital advantage and so just look I understand how all that really ties together.

Yes, Peter this is Kevin I.

I would just reiterate the comments that Greg could made this morning arrived in the a suite of organic growth projects that are taking place really across both you see a TSX level and also it P.S. XP and fundamentally as you step back and look at what's being done it yes ex you.

Good conclude that it would it make sense to get those down into the MLP overtime, I think I'll leave specifics around those red Oak Liberty broad projects will leave those for the Investor day, and especially since there are actually PS ex projects at this point in time, but fundamentally large backlog of growth opportunities that could.

Feed the MLP for quite some period of time.

Understood. Thanks for the color.

[noise] Phillips Stewart from Scotia, Howard Weil. Please go ahead your line is open.

Good afternoon, guys congrats on a a solid quarter.

I appreciate the the update on a great just wonder if we could kinda talk through I'm kinda milestones of B of the ramp on the pipeline you know I understand that young.

Starting to really fill up in November and reaching kind of a full capacity you know by the end of one Q early Twoq you just kind of curious if that ramp is gonna be pretty ratable over.

Over that time period, or if they're gonna be you know if it's gonna be kind of more lumpy one way or the younger.

Well [noise].

This is Tim Roberts, and let me I'm, probably just touched a little on that and I'll pass it off to rosy little bit as well after this.

Sean Gray Oak as you would expect we're going through our landfill as we've talked about we're going through commissioning and with the complexity the pipeline not just by terminals stores and so forth.

We're getting it up and phases as you can imagine so we're starting to move crude down the pipeline.

We are currently with our lines, though we are expecting at this point and we have posted a tariff FERC to have limited service to central junction sometime in November .

That'd be very limited service Central junction shippers on our pipe can then contract with other third party shippers to get the various locations on the Gulf Coast, whether that's ingleside corpus for up to the Houston Houston market. So, but then this is all goes on in phases. So we do expect again it will start.

That phase through November , but then there will be additional phases as we go through the ended the year and then also do the first quarter I wouldn't say, it's it's certainly a ramp up but I wouldn't say is ratable, so and like I said the complexity the project itself, especially as we get closer to the market they'll be coming on and bits and pieces in to the extent, we can commercialize pieces.

Those will get a tariff out there to support that and and then subsequently start a booking those revenues rosy yeah Petronas, Yeah, I think the way I think about it from a modeling for P.S. X P. Specifically is you know from fourth quarter perspective, I don't anticipate to see any really benefited from an earnings perspective.

The from a run rate EBITDA I would say starting maybe in the second quarter and then as as Tim alluded the first quarter being really the ramp up period I would say that that's probably half of what the run rate would be so so you know you probably want to phase it and you know throughout the first quarter.

Okay, Great. That's that's really helpful.

And then on South Texas Gateway can you all maybe talk about you know kind of the ramp there and getting.

That project.

Project throughput kind of towards capacity.

Yeah. This is Tim Roberts again on that I'm actually with Buckeye being one of our partners on that project, it's a sort of along pretty well. They did receive their core of engineered permits they can go and start dredging.

For the to the LCC capable docs that we've got there, but they've already started on land activity with regard to all the tanks and terminals and so for two Buckeyes progressing very well and the project. We are looking at this being a mid 2020 as far as start up as you would imagine it's not just the flip the switch and it all comes on much like Gray, Okay, you could probably see.

Portions of that terminal come on lower earlier, and then some a little after that mid 2020 days.

But that's currently we're we're targeting.

Okay, great that's it for me.

[noise] Theresa Chen from Barclays. Please go ahead your line is open.

Good afternoon, and thank you for taking my questions.

Related to a de DCP write down at the parent for PS X.P.. So a while ago. There was a lot of discussion around the potential combination of PS XP and DCP and given todays 900 million dollar write down at the parent, which Kevin you made very clear that it was related to P.S. access interest only but given the fact.

That was based on observable market data it would be pretty interesting if it didn't translate at all to the other 50% I was just wondering if there's anything to read into this impairment related to the parents from long term desired outcome for D.C.P. a in relation to get into PHXC. Austin is a combination less attractive now because you don't want to do.

The quality of the assets at the partnership on that PXP or is it more feasible now the outlook has been mark to market more tethered to reality, so perhaps the bid ask narrow.

Yes, three so.

We really have to.

Pass on this question.

No appropriate for PS XP to be commenting on DCP and the parents ownership on DCP, So I'm going to pass on that one.

Okay, well so related to the fundamentals of the partnership I mean, we've seen a lot of volatility in the macro data lately and I just wanted to touch on the resiliency of the business. If we are indeed, hitting a soft patch and the cycle and completely understand that most of the business is contracted with fee based revenues with support from Nbcs, but have you.

On any sort of sensitivity analysis around macro demand supply given the current and make up of the partnership as it has grown pretty.

Rapidly in scale size and third party contracts over the last couple of years or so.

Yeah, we do but I would sort of take it back to right now it was something like 90% of the P.S. XP business. The direct PS XP owned assets about 90% of that revenue stream comes from TSX. So it's still very much.

Such saw that within the within the greater TSX level family. If you if you think about it like that and.

And when you when you connect a lot of that to the the assets. That's that those are being so those are supporting those volumes of supporting you think about the BSX refining and marketing infrastructure.

Some of the NGL value chain.

CSX is in that for the long term and so we feel very comfortable around that the joint venture assets that we've been investing in have more third party a lot more third party exposure there, but fundamentally we go back to look we've got long term contracts long term commitments around those assets and so within.

They vary.

Huh.

Within the context of a planning horizon, which is a more than short term right. It takes us a reasonable period of time, we feel very comfortable about around where that sits.

Thank you.

Jeremy yet today from JP Morgan. Please go ahead your line is open.

Hi, This is Joe for Jeremy.

I first wanted to ask on 2020, Capex I realized that the budgets, probably forthcoming but could you talk little bit about kinda somebody to the puts and takes we should keep in mind and what we should think of relative to a 20 910 for that.

So for 2020 won't we'll give more color at the analyst day presentation inherent in a couple of weeks as far as 2019, no change to what we said last quarter I'm. If I take you back to when we first did the budget. We said that it was going to be about $600 million and a with the.

With the increase in in the Grail project that the latest forecast with between $700 million to $750 million and we're still left that forecast.

And I would just supplement that by if you think about the slide the rosy talk too.

Let the isomerization unit is complete great pipeline there'll be some minor spend carryover into 2020, but thats fundamentally that's done by the end of this year.

You've got the sweet, especially in a pipeline is into 2020 , South, Texas Gateway is middle of 2020 .

Clemens caverns and expansion continues please you pipeline isn't spend through next year and into 2021, So I give you some plate flavor all.

What will comprise at least a portion of the capital budget.

But you can sort of get it from that list of projects and the expected startup timing completion timings.

We have no further questions at this time I will now turn the call back over to Jeff.

Thank you Julie and thank all of you for your interest in Phillips 66 partners. If you have additional questions. Please call Brenner me. Thank you.

Okay.

Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.