Q4 2019 Earnings Call
Welcome to the fourth quarter 2019, Phillips 66 Partners earnings Conference call. My name is Kenzie and I will be your conference operator for today's call.
This time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Please note that this conference is being recorded I will now turn the call over to Jeff Dietert, Vice President Investor Relations, Jeff you may begin.
Good afternoon, and welcome to Phillips 66 partners fourth quarter earnings Conference call participants 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.
Slide two includes our safe Harbor statement, we're going to be making forward looking statements today actual results will likely be different factors that could cause results to differ included here as well as in RF FCC filings with that I'll turn the call over to Kevin Mitchell.
Thank you, Jeff and good afternoon, everyone.
During the fourth quarter Phillips 66, garners delivered strong operating performance advanced major growth projects and maintained its strong financial position.
Our board of directors approved the fourth quarter distribution of 87.5 cents per common unit, an increase of one cents per common unit from the previous quarter.
Year over year, we have increased the per unit cash distribution, 11%.
We continue to maintain maintain a record of quarterly distribution increases since the July 2013 IPO.
Moving on to slide for 2019 was another successful year for the partnership.
We continue to operate safely and reliably and delivered record earnings as adjusted EBITDA.
We ended the year or the run rate EBITDA of $1.4 billion.
During 2019, we completed a transaction to eliminate or general partners incentive distribution rights.
With a simplified structure strong balance sheet attractive organic growth opportunities and sponsor alignment Phillips 66 foreigners is a sector leading MLP.
2019, BSX be delivered a 56% total unit holder returns.
We made good progress on our growth program this year.
In November we started initial operations and our largest project to date the grant pipeline.
In addition, the Bayou Bridge pipeline extension the Lake Charles products pipeline and the Lake Charles Summarization units were completed.
These assets are running well meeting our expectations and contributing to EBITDA growth.
Moving on to slide five to discuss the financial results.
The partnership reported record fourth quarter earnings of $255 million, an adjusted EBITDA of $345 million.
EBITDA increased $22 million from the third quarter.
The improvement reflects increased volumes on our wholly owned assets and the full quarter contribution from the Lake Charles Summarization units.
Our wholly owned pipelines and terminals also achieved record volumes for the year.
Fourth quarter distributable cash flow was $254 million decreased a $1 million from the prior quarter driven by the timing of distributions from our joint ventures.
Slide six highlights our financial flexibility and liquidity.
We ended the fourth quarter with $286 million of cash $749 million available under our revolving credit facility.
October we paid off $300 million of senior notes due February 2020.
The debt to EBITDA ratio on the revolver covenant basis was 2.9.
Our distribution coverage ratio was 1.27.
We continue to target a long term <unk> leverage ratio of up to 3.5 and distribution coverage ratio over 1.2.
The partnership advanced its major projects during the quarter funding $146 million of growth capital.
This included spend for the CTG pipeline Sweet Pasadena capacity expansion Clemens caverns, and the second Texas Gateway terminal.
As we begin Twentytwenty, we remain committed to maintaining our strong financial position and disciplined capital allocation.
Now rosy will provide an update on our growth projects.
Thanks, Kevin and Hello, everyone. My seven list. The project we have ongoing all of these projects are backed by long term volume commitments and are expected to deliver typical midstream return.
The Grail pipeline started initial operations in November.
Right. Okay is currently moving crude from West, Texas to Central Junction Helena and three rivers.
This section of the pipeline is operating inline with expectations and we continue to progress toward full service in the second quarter of 2020.
Great well connect to multiple terminals in the Corpus Christi area, including South, Texas Gateway terminal.
Marine export terminal will have to deepwater docs would storage capacity of 8.5 million barrel and up to 800000 barrels per day of throughput capacity Phillips 66 partners owns a 25% interest in the terminal, which is expected to start up in the third quarter of Twentytwenty.
The remaining projects listed are progressing as planned.
Phillips 66 partners 2020, adjusted capital budget is $867 million. This includes $734 million for growth projects and $133 million of maintenance capital.
This concludes our prepared remarks, we will now open the lines for questions.
Thank you we will now begin the question and answer session. If you have your question. Please press Star then one on your Touchtone phone if you wish to be removed from the Q. Please press the pound Keith if you are using a speaker phone you may need to pick up the handset first before pressing the numbers. Once again, if you have a question. Please press Star then one on.
Your touchtone phone.
<unk> Chen from Barclays. Your line is open. Please go ahead.
Good afternoon. Thank you for taking my questions.
Rosy for its the South Texas Gateway terminal I understand facility is expected to start up in the third quarter with an initial service, but can you provide some color on the timing and pace of the ramp up to full service there.
Sure you know I'll start off with a a little bit of info in and of course Tim's here. He can give us a little bit of color as well. So you know let me first backup with you know as you know Buckeye and and and started you know initially with this facility at 3.4 million barrels of a storage and since then weve.
Expanded the this is lee to now be 8.5 million barrels the storage and having capacity for to be LTC capable dock in the fall of 2019 at Buckeye received the at U.S. Army Corps of engineers part a permit to be able to start to work on to the dock and since then they've been.
Working on the dock and everything's been moving in the right directions everything looks good from that perspective. So you know what projects decides in scale. The way. We see it is is that adds as tanks become available as as the dock becomes available those are gonna be made available to obviously, our shippers, it's not all going to be available.
At the same time, it's going to be a phased approach you know I don't know if Tim there's any sort of color from the exact timing when in the third quarter or anything yeah were third quarter. We would expect early in the third quarter as far as getting one of the birch out and then potentially around again mid year with terminals serves a terminals tanks.
Excuse me multiple thanks coming on and as they are a commission.
And we get filled and then subsequently can actually utilize the first dog, which botox don't have to come up at the same time, the movie star progressing barrels coming due to the sold.
Got it and when do you think all 8.5 and both docs will be an in service.
You know at this point, it's probably too ready to tell 'em I would speculate sometime later in the year, but I honestly don't don't have an exact number eight well just have to wait and see as as things progress.
Got it and switching gears a bit I wanted to touch on some of Gregs comments on the P.S. ex calls related to how the midstream inventory should ultimately end up at P.S. X P and of that 800 to 900 million dollar qualifying income amount how much of that is consists of what we would call.
Inside the refinery gate assets versus the more attractive large scale assets that could be backed by more third party cash flows like the export infrastructure up Oman, Freeport and such.
Yes, Theresa this is Kevin.
So yeah, Gregg talked about the 800 million or so of existing EBITDA, that's available to draw and of course, the also clarified or that there was a significant amount of investments underway at the P.S. Saks level that will continue to grow that drove that.
For Don number and so that that 800 million is all what we would consider sort of true midstream assets, it's not refinery inside the refinery fenced type of infrastructure that if you sort of.
Contractually a range.
But the broker arrangements around that you could make it midstream qualifying so it's all what we would consider to midstream EBITDA.
Got it and in terms of financing again, echoing Greg's worth that you know secondary equity markets are currently close any thoughts on other avenues of financing would you consider doing another price for a pipe for example.
Yeah I wouldn't.
You know I wouldn't really.
Speculate around what our future financing it would be as we look at any of those kind of transactions were always triangulating around the balance sheet leverage ratios maintaining coverage and funding funding that the transaction I mean to me a pipe is just.
A form of an equity.
Equity.
Issuance.
So I think of just common equity in the sort of broader sense, whether you go back that through a sort of public offering or you go up by that through a a pipe type mechanism. That's all a variation you end up in the same place.
From that standpoint.
The preferred is certainly another option to consider we've always see we've done that in the past and that's.
Proven to be very very successful for us.
But I'm not going to speculate too far on exactly what that might look like.
Thank you.
Phil Stewart from Scotia Bank. Please go ahead your line is open.
Good morning, everyone. Congrats on another solid quarter.
I was hoping that maybe we could talk about the EBITDA re I'm kind of throughout 2020.
Obviously, you guys did did a great job of growing EBITDA in 2019, and kind of hitting that 1.4.
Billion dollar kind of annualized run rate in Fourq, you I'm, a little bit ahead of schedule.
As we look out on a quarterly basis. It seems like one Q 20 is probably going to be the low point, given just seasonal turnaround and the fact that you're not going to have a full contribution from Graham I was wondering if you guys could maybe walk us through kind of how [noise].
EBITDA growth stair steps throughout the year and if that 1.5 billion dollar.
Kind of annualized run rate exit for Q 20 is still a good figure.
Yes, so you're right. So you know if it first quarter is normally.
Seasonally.
Weaker quarter for the MLP and and Theres two main reasons, one we're coming off of butane blending so the fourth quarter benefits from butane blending and then the second the first quarter ends up having that 10% and volumes coming off and so so that ends up always being a headwind for the first quarter and then additionally.
Hey, you know just in general refinery turnarounds tend to be you know a little bit higher I'm in the first quarter and you may have heard that in the P. affects earnings call.
They guided to about a 90% utilization rate and so if you think about the fourth quarter that ran at about 97% utilization and then you think about specifically the assets that are tied to the p. SXCP refining system or excuse me of PS X P assets. They ran very very well, where there are pockets or borger and so.
Yeah. If you think just overall, 90% utilization rates. So that's going to be an additional headwind and then as far as Graham grabs really you know with second quarter being when we expect full ramp up it's really not going to be of anything substantial to offset those two headwinds. So so first quarter will be certainly the we.
This quarter and then the way and naturally progressed as if he just look at history is the second quarter's a little bit stronger than the first to the third quarter stronger than the second and then the fourth quarter always ends up being the strongest quarter or before and we still believe that the 1.5 billion dollar run rate EBITDA is is what will exit 2020 with.
And if you look at the.
Or table of organic growth projects come online. This year. So you go from literally grey Fox really the first one this making the contribution Swedes Pasadena is a two Q3 Q that south Texas Gateway and then for Q Clemens caverns expansion. So there's a nice kind of ramp up through the year as the projects come.
Of those gray oak is by far the most significant in terms of as an individual project.
Great I really appreciate the color there and then just as far as Greg is understanding that you know initial service has begun and I appreciate the kind of update a commentary on kind of the Twoq 20, being the first quarter of kind of full service just wondering if there are some.
Aerial milestones that really need to be hit between now and then.
That could push that back or maybe bring it forward a little bit.
No really it is.
The milestone at this point is the finish line [laughter]. So we're we're at a point now we've got multiple spreads working with regard to terminals, finishing up connections pipes in the ground. It's really just finishing up the terminals power connections I any work.
Hydro testing any kind of terminals I mean, we are in completely in the weeds on many different fronts, but this is typical as you're getting ready to finish the project I've seen this and you know previous experience petrochemical facilities, nothing big but a lot of little things and they all got to get done. So that's where we're at from this homestretch.
All right. Thanks, so much that's it for me.
Chris Sighinolfi from Jefferies. Please go ahead your line is open.
Hi, everyone. Good afternoon.
Rather just wanted to follow up on on Theresa's discussion about the capital growth projects. Obviously, there was a scope change you guys talked about had been earlier talked about.
Sex with regard to the South, Texas Gateway terminal, so Uh huh.
From a third quarter the fourth quarter, just comparing these slides direct cost came up came up on swing in Pasadena, I'm, assuming given that the original budget was given in December.
That's already been contemplated in what you gave it it's consistent with what you gave today that right, where they're all that elsewhere.
Right, that's the to the $867 million its of Capex is not changing at this point that's right.
Okay, and then you had mentioned I'm always just curious win win slide decks change what gets added what comes out you guys. It's been featuring sort of anticipated six to eight multiple on the organic backlog and you've noted it as such on that same slide I don't see at this time you had made is that comment your prepared remarks about a consistent.
Mystery multiple and I'm, just curious if you're hinting that it's changing at all.
No you know and it it it's funny because we actually in preparing these slides thought that that someone would bring it up and I don't know if you notice that we actually came at the bulk of the slides and it's a much more cleaner look under the new slide lay out does not have kicker boxes. So that's why I made a point is saying it in my script.
[laughter].
Okay Fair enough and then final question for me I noticed this when you guys gave the original budget just that the significant step up in maintenance budget from last year's issue or is there a particular item that's driving that or I guess, what what is driving that change and what's the can you know I guess.
If we look at a future.
There isn't any one particular item just in general we have integrity and reliability program that that we have throughout the company, whether its PS extra PS XP and it just so happens at four Twentytwenty a lot of B. The pipelines that we've identified we have a lot of a 40 year old 50, you're in.
60, your vintage pipeline dropped to the both BFX NPS XP system that we want to increase the you know just see didnt reliability and integrity of the pipeline system to the good news is that a lot of the work that we're doing is really more on the identifying things before they happen and so what you're seeing really in 2020 years.
We're actually increasing so the spend that we have is more like 9% of EBITDA, but as obviously you know well. We'll see is is that going forward it'll be more like 6% of EBITDA, which is what historically our spend has been and so 2020 isn't anomaly in that it's a bump up compared to where where it's been but I.
Say that just simply because because we are growing the level of of the the maintenance expense is probably more in that hundred $30 million, where where we're finding 2020 to be but it'll it'll end up being more like 6% of EBITDA, which again, it's been more the historical levels.
Okay, So driven there and maybe more acutely because of some particular programs, but in general as the business grows you just thing that's probably the new new ballpark that if that's right <unk> that's right the business will obviously get bigger, but the amount as a percentage will be smaller.
This okay, you'll find our maintenance when you look at it across whether to the PS next level for midstream or with PXP. It's we have a number for the year, but it really is not ratable per quarter.
And again based on.
Hi, guys complexity of a project in a region. So it really does like you said, it's not it's not a big number which is good but the other side of it is it just it really isn't ratable and it's not predictable year over year with regard to always the fourth quarter will be the highest store, where such and such it really does move depending on the price.
Jack and what needs to get down and when based on our priority list.
Okay, I guess, if I could one more question from in its just regarding the preferred equity position I don't know right at this for you or for Kevin, but do you just contemplate that remaining of preferred stake or do you contemplate conversion of that at some point or take out of that.
Well we.
The the way things stand right now.
The.
Deferred equity holders have the right to convert that to common equity it at their election.
And ER and so that's a that's really a question for for them I don't know that they haven't signals anything.
Ryan that interest to do that.
Yeah upon certain price thresholds being met the common units and certain points at times I think is October of this year.
We have the right if those if those criteria are met we have the rights to force that conversion.
But that's not something for a point in the future. So our assumption we assume it stays where it is as soon as a preferred equity.
Okay.
All right took a lot of time just wondering I. Appreciate you guys are enabling me to do that so thanks again.
Thanks.
We have no further questions at this time I will now turn the call back over to Jeff.
We do have another question that's come up Elvira Scotto.
From RBC capital markets. Your line is open. Please go ahead.
Hey, good afternoon, sorry for King in late the questions that I have our absent a you know like a big project is there a certain level of you know growth Capex, maybe smaller projects that you know P.S. X P can kind of find your written in your out certain you know kind of sustainable level.
I love of growth Capex longer term that we can think about.
I'm just thinking through that I mean, there probably is I mean as you know we've we've grown the MLP significantly through a combination of Dropdowns, which is more in the earlier. So the earliest stages of damage of PS expertise lifecycle and then in the last two or three years.
It's been a lot more organic opportunities, albeit still projects that originated at the at the BSX level and so as as we look at that we still think that that's probably the path to continued growth at the MLP.
Well, we do find with the the infrastructure we have in place. We do continue to come up on relatively small investment opportunities that are nice nice return.
Nice return projects that.
Give a a good little boost to two gross to EBITDA generation is that probably is a level I don't think we've really defined what that is obviously it would be significantly lower than where we've been lately, where we're sort of 800 million dollar total capital spend number would be something significantly lower than that but with the size of the portfolio.
We have at the MLP in the fact that is continuing to grow it makes sense that that would be could sort of continued.
Almost incremental type opportunities to provide additional return and growth.
Thanks for that and then the last question that I have is at the TSX level. It on the call you know they talk about an advantage and how that's going to provide about 1.2 billion of enhancements I think by the you know through the end of a.
2021 does that.
Flows through to the P.S. XP level or how or how should we think about advantage as it relates to P.S. XP.
Yeah, I think where that will would manifest itself at the PS XP level. So.
To the extent that there's a capital projects being done at the MLP, which of course there are.
That's an element or.
The benefits that were seeing in terms of more effective.
Yes.
Execution of our capital projects and so you'd expect to see it from that standpoint, there's a significant focus around how we look at our so the value chain from beginning to end, that's not going to show up the same and the MLP because that's really all around the hydrocarbons and so the MLP model, which is more of a so the tolling arrangement type.
Volumes volumes times attire for a fee you are less like you're not going to see that same so the value chain.
Focus but the other.
Area is that value chain focus identifies investment opportunities that we might not have.
Done previously and so to the extent those investment opportunities make sense for the MLP you get some you'll see some benefit there and then the other element is in terms of operations and using.
So the digital data.
Date, having the ability to to do data analytics and drive better decisions around high we actually operate our assets and the MLP will benefit from that.
Just as much as at the PS ex level for those assets sit at the MLP. So there's certainly some elements of that will flow and be for the benefit of the MLP.
Great. Thank you very much.
We have no further questions at this time I will now turn the call back over to Jeff.
Thank you for your interest in Phillips 66 partners. If you have additional questions. Please call Brinser me. Thank you.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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