Q3 2019 Earnings Call

Good morning, everyone and welcome to be P. Midstream partners three Q1 9 results conference call and webcast.

All participants will be no listen only mode should you need assistance policing old conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question you May press Star and then one using a telephone keypad withdraw your questions you May press star and two.

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At this time I'd like to turn the conference call over to Mr., Brian Sullivan to begin the conference. Sir. Please go ahead.

Thanks, Operator, welcome everyone to BP Midstream partners third quarter 2019 results presentation.

I'm, Brian Sullivan, Vice President of Investor Relations and I'm here today, with our Chief Financial Officer, Craig Coburn.

Before we begin please take a moment to review our cautionary statement.

During today's presentation, we will make forward looking statements that refer to our estimates plans and expectations.

Actual results and outcomes could differ materially due to the factors. We note on this slide and in our SEC filings.

We also refer to non-GAAP financial measures.

Please refer to our SEC filings and supplemental information in this presentation for important disclosures related to these measures.

These documents are also available on our website.

And now over to Greg.

Thanks, Brian Good morning, everyone. Thanks for joining our call.

During the third quarter, we delivered both strong operational and financial results. We have now grown quarterly adjusted EBITDA since the first quarter of 2018 by 47% and cash available for distribution by 23%.

Continuing our track record of consistent solid performance deliveries since our initial public offering a real highlight of the quarter was the record quarterly throughput at bps Whiting refinery that underpin the strength in volumes shipped on our BP to pipeline now withstanding continued apportionment on the Enbridge mainline.

Throughput on BP to during the quarter was a record 316000 barrels per day. This was the highest throughput level achieved on BP to since the IPO earlier. This year, we described our throughput and cash available for distribution profile as building across the year with a ramp at the back end of the year. This remains.

On track with continued growth on our offshore pipelines, including increasing volumes from the Maddox pipeline.

During the third quarter this growth allowed us to comfortably absorbed throughput impacts of hurricane vary in July .

Importantly, there was no material damage to any of our assets as a result this hurricane.

Delivering result, like this driven by underlying asset performance, while facing the headwinds of apportionment on the Enbridge mainline and whether in the Gulf of Mexico demonstrates the resilience in the stability of cash generation of our portfolio.

Speaking of cash generation. The operational result translated into strong cash delivery in the quarter at our second quarter results. We raised our full year cash available for distribution guidance to 165 to 175 million based on the continued momentum in asset performance, we saw during the third quarter.

And our confidence in the outlook through the end of the year, we now expect to be at the top end of this guidance range.

We have now had seven consecutive quarters of distribution increases and with our next quarterly distribution, we expect to deliver mid teens distribution growth for 2019.

So far in 2019, our cash delivery has exceeded the pace of our distribution growth, allowing us to build cash on the balance sheet.

This presents us with the potential to self fund some attractive growth capex opportunities in our hopper something that we're currently evaluating.

Our target mid teens annual distribution growth is supported by around 5% to 6% organic growth. However, it's fair to say that we see our runway of organic and growth.

Capex led options continually improving as we refine our plans for the next year.

One example is the potential expansion of the Mars pipeline to accommodate new volumes from fields, such as Vito and power Nap as recently announced by Shell Midstream partners. We will provide more details on these opportunities along with the guidance update early next year.

We remain interested in a dropdown subject to market conditions acknowledging the market remains difficult regarding I'd ours, we understand the market bias against I'd ours, and we will continue to watch closely the wave of simplification in consolidation across the sector learning from the actions of others as we have.

Said before we will address any transition that BP MP may make proactively and pragmatically in the future I'll now take you through our third quarter operational and financial results, leaving plenty of time for your questions at the end.

Our third quarter total pipeline gross throughput was more than 1.6 million barrels of oil equivalent per day slightly lower than the second quarter of 2019, reflecting record throughput on BP to since the IPO due to record quarterly performance at bps, Whiting refinery and increased throughput on price.

Proteus and indemnity and due to the ramp up of APA Maddox notwithstanding the impact of Hurricane Barry Cesar Cleopatra and Ursa, all reported lower throughput this quarter due to hurricane Barry and maintenance activity by offshore producers the gross throughput impact of Hurricane Barry was approximately 100000 barrels of oil.

Oil equivalent per day in the quarter and the impact to BP MPS cash available for distribution was around $2 million third quarter average revenue per barrel on a portfolio basis was broadly flat compared to the second quarter.

Looking ahead, we expect pipeline gross throughput in the fourth quarter to be higher than the third quarter, primarily due to significantly higher throughput on our offshore pipeline portfolio. This reflects the assumption that there will be an absence of weather impacts in the Gulf of Mexico, and the continued ramp up of volumes on the shell operate.

Weighted Apple Maddox facility. This increase will be partially offset by producer maintenance in the offshore Gulf of Mexico previously planned for the third quarter, which is now delayed to the fourth quarter.

Turning now to our financial results net income attributable to the partnership for the third quarter was 45.8 million higher than the second quarter of 2019, reflecting higher revenue from onshore pipelines due to higher throughput on BP to and diamond back as well as mid year annual tariff increases across all.

All three onshore pipelines the recognition of 2.4 million of deficiency revenue under the throughput and deficiency agreement relating to diamond back and higher income from equity method investments due to favorable noncash adjustments relating to offshore pipelines this favorable impact more than offset any negative.

Impacts from weather and producer maintenance in the Gulf of Mexico.

Adjusted EBITDA attributable the partnership was $51.9 million for the quarter and cash available for distribution was 45 million both higher than the second quarter of 2018.

In October the board of directors of the General partner declared an increased quarterly cash distribution of 33.55 cents per unit for the third quarter.

This represented an increase of 3.6% over the second quarter 2019 distribution per unit.

After factoring in the increase distribution our distribution coverage ratio for the third quarter was 1.25 times.

Looking to the fourth quarter cash available for distribution is expected to be higher than the third quarter, largely reflecting the favorable impact of river Rouge volumes shipped above minimum volume commitments year to date.

We report the associated cash as distributable upon completion of the annual term for the throughput and deficiency agreement.

We expect the absence of impacts from hurricane vary in the Gulf of Mexico in the fourth quarter to be offset by impacts to the offshore pipelines from producer maintenance.

Let me wrap up with a few last thoughts our asset portfolio continues to perform very well and our confidence in its cash delivery is evidenced by us raising our cash available for distribution guidance to the top end of the range.

With one quarter to go this year the BP MP team remains focused on delivering the 2019 targets. Thank you for listening to our call today, we'll now take your questions.

Ladies and gentlemen will now begin the question and answer session.

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Our first question today comes from Jeremy today from JP Morgan. Please go ahead with your question.

Good morning.

It seems like with just holding the distribution flat into next quarter you.

You can achieve kind of the mid teens targeted growth rate that you've been talking about and was just wondering what your thoughts are on distribution growth in general at this point our doesn't seem like the market is really rewarding it in the unit price and only seems like it benefit kind of the IDR growth trajectory here and so just wondering if you could provide us updated thoughts with.

Two.

Yeah distribution growth philosophy or empty.

Thanks for your question Jeremy.

I guess I would start by saying, we're not changing our guidance that we've had.

The last couple of years in terms of.

Distribution. So we're still sticking with mid teens distribution through 2020, assuming that we have a drop and that we get sort of 10% from the inorganic and 5% to 6% from the organic.

Having said that we did talk about in earlier, we are looking at some internal growth capex projects that we can fund in 2020, we believe we can fund these with excess cash.

Because we've had actually an outstanding 2019, and we have good visibility into 2020. So we're now beginning to develop the hopper of internally developed projects supported by BP in the first instance, and then on offshore such as the project that recently was a now.

By Shell Midstream partners on Mars supported by other producers in the offshore.

So.

We are beginning to have sort of a multi tier strategy here, one around which weekend and we're still interested in a drop we would like to maintain one drop a year cadence if possible. However, the market is extremely challenged with that respect so.

The next step for US is to look at these internally generated capex projects, which I think we we will find we will have very strong stable earnings configurations, or we won't do them.

And we'll be giving you more guidance on that after the first of the year as we go through these but it's turning out to be a decent sized copper that we can potentially pull the trigger on at 22020.

That's helpful. Thanks, and one more if I could just want to see.

In the past I think you talked about the potential for creative financing.

Two.

Dropdowns and seems like you flexing the distribution coverage a bit higher here and that can assist in that.

And that's great to see but just wondering if there's any other thoughts on on that topic as far as credit financing or different avenues that you guys.

Any new thoughts you can provide here.

No news thoughts really I mean, I think BP continues to look at all the options and I think we said that in the second quarter Jeremy.

That's all for me Thanks for taking my question.

Thanks, a lot Jeremy.

Once again, if you would like to ask your question. Please press Star then one.

Our next question comes from Derek Walker from Bank of America. Please go with your question.

Hi, good morning, Thanks, Greg for all the color.

Just a.

Paul up on the organic growth.

You mentioned that you'd probably by a little more color early next year, but.

You mentioned sort of self funding that organic growth that includes offshore margin expansion.

And I also want some upgrades from BP. So maybe if you can just give a little bit more detail around some of the organic growth you're seeing a buffer the great and whether or not that there will be self funded.

Okay. Thanks, Derek for the question.

Yes. So we do believe it can be self funded and I mean, I think we're talking here in the range is something that 20 $520 million to $25 million year.

One of the projects obviously, we're looking at is the Mars expansion now of course that has a ways to go now in terms and seeing what.

The producers there on that line are interested in doing.

With us on that what along with shell shall acts on that.

Also we are looking at sort of you know the BP proprietary lines on the onshore.

There's lots of opportunity going forward as whiting increases its output it needs avenues for increased throughput for product slate.

So and I don't want to go into too much detail because it does have competitive implications, but we are looking at all of those onshore lines of potential growth opportunities. There. In addition, you know the Arctic the additional output of the refineries also feeds our joint venture Cam Phoenix, which has additional throughput coming through there.

As well and so we'll be looking at growth options as well within the terminaling areas.

And can Phoenix, so it's a turning out to be a respectable hopper, we're going to to build on now I would say that in our first choice here probably in terms of a capital structure would be to self fund some of these capital projects because we can see.

Really stable good returns on them rather than potentially.

Using that money to pay down debt or other things like that but.

We're very excited about this potential option and we'll give more details as we.

Roll it out in the first quarter 2020.

Oh, that's helpful. Craig maybe I could just follow up a little Bill next I think you mentioned.

So many opportunities last quarter.

Does that include a potential shipping other products other than Bill you went on the diamond that pipeline.

It does I mean, I think from our standpoint, the world of Diamondback is maybe a little bit longer run.

Project for us, but we are looking for options on diamond back as well.

Okay, Great. That's it for me thank you.

Thanks Derek.

Once again, if you would like to ask a question. Please press star in one.

And ladies and gentlemen at this time and showing no additional questions I'd like to turn the conference call back over to Craig Coburn for any closing remarks.

Thanks, Jeremy Thanks, everyone for joining us today, let me quickly wrap up by saying I Hope you came away from our call. This morning with a couple of impressions first that BP M. P has a resilient portfolio, one which delivered yet another quarter of strong operating and financial performance, notwithstanding some weather and maintenance impact.

And our offshore assets second we're on track to deliver our 2019 guidance points, including mid teens distribution growth.

And rest assured we're an action planning for the future you should expect an update on our progress early next year.

Last thing before we sign off the IR team is available to answer any residual questions. You may have their contact information can be found on our website.

Thanks, and everyone stay warm.

Ladies and gentlemen, with that will Cook will conclude today's conference call. We do you. Thank you for attending today's presentation. You may now disconnect your lines.

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