Q4 2019 Earnings Call

Hey, Corona.

Ladies and gentlemen, thank you for standing by and welcome to the U.S., Steve Partners LP Q4, 2019 earnings call.

At this time, all participants have been placed in a listen only mode and the four will be open for your questions. Following the presentation. If you would like to ask a question at that time. Please press star one on your Touchtone phone.

Any point. Your question has been answered you may or move yourself from the Q by pressing the pound. The key we ask that will pose your question that you. Please pick up your handset to allow optimal sound quality I will now turn the call over to Jennifer Waller Associate director of financial reporting and Investor Relations. Please go ahead.

Thank you good morning, and thank you for joining US welcome to our fourth quarter 2019 earnings call.

With me today, or Dan Borgen, our Chief Executive Officer, Adam or our Chief Financial Officer, Brad Sanders, Our Chief commercial officer, and Joffe ruble, our chief up operating officer as well as several other members of our senior management team.

Yesterday evening, we issued a press release announcing results for the three in 12 months ended December 30, Onest 2019.

I would like a copy of the press release, you can find on our website at U.S. de partners Dotcom before we proceed. Please note that the safe Harbor disclosure statement regarding forward looking statements in last Night's press release applies to the statements management on this call.

Also please note that information presented on today's call. These only as of today March that 2020.

Any time sensitive information provided may no longer be accurate at the time of any webcast replay or reading of the transcript.

Finally, today's call will include discussion of non-GAAP financial measures. Please see last night's press release for reconciliations to the most comparable GAAP financial measures and with that I'll turn the call over to Dan Oregon.

Thank you Jennifer good morning, everybody and thanks for joining us on the call today, we're proud to announce another positive year at the partnership and our 19th consecutive quarterly distribution increase.

We are pleased about a recent contract renewals at the partnership's Hardisty and Stroud terminals as well as our sponsors recent joint venture project to build our do you want recovery unit or do you are you.

Pat Hardesty, which will create long term sustainable takeaway solutions for the industry and enhance the cash flow profile of the partnership.

Today, we have renewed and extended 100% of the capacity at Hardisty terminal through mid 2022.

With approximately 73% extended through mid 2023 under multi year take or pay investment grade agreements.

In addition, upon the successful completion of our sponsors de are you project approximately 32% of the Hardisty terminal capacity will be automatically extended through mid 2031.

And we'll continue to materially enhance the sustainability and quality of the partnership's cash flow.

Also we are currently in discussions with existing and new customers to secure additional long term take or pay agreements to support future expansions of capacity at the D. R U and therefore, extending the partnership's cash flows.

We are currently fully contracted as Straub as this is the destination terminal for one of our larger customers at hard to see and we continue to explore new opportunities at the facility due to its strategic location and connection to the Cushing hub.

Also we continue to be positive about our hub strategy at our Casper terminal as discussed last quarter. We recently completed our connection to a nearby terminal, which we believe could lead to future opportunities around egress solutions out of hardesty.

Adam is going to start us off with an update on the partnership's latest financial results and our liquidity position.

Then we'll jump back into the recent market and commercial developments Adam.

Thank you Dan and thank you for joining us on the call. This morning.

Yesterday afternoon, we issued our fourth quarter and full year 2019 results, which included the details of our operating and financial results for the quarter and we plan to issue. Our 2019 full year 10-K with additional details after close of market today.

For the fourth quarter, we reported net income of 2.1 million.

Net cash provided by operating activities, a 4.3 million adjusted EBITDA $12.8 million and distributable cash flow of 9.5 million.

The partnership's operating results for the fourth quarter of 2019 relative to the same quarter in 2018, but primarily influenced by higher revenue.

At our harder to terminal due to increased rates.

On a portion of the Terminaling services agreements that became effective July one 2018, resulting from the partnership successful Recontracting efforts. In addition, the partnership experienced higher revenue during the quarter associated with contracted throughput that exceeded the partnership's existing capacity and it's hard to see terminal.

The partnership entered into a Terminaling services agreement with the hardest CSL facility.

By our sponsor to provide terminaling services for the contracted throughput that exceeded the hardest terminals transloading capacity.

Under this arrangement the partnership incurred operating costs payable to our sponsor representing the same rate on a per barrel basis at the partnership receive in revenue for says contracted throughput.

Lower revenue at the Partnership's Casper terminal, resulting from the conclusion of customer agreements in December 2018 in August 2019, partially offset the higher revenue at hardisty during the quarter.

Net income for the quarter increases compared to the fourth quarter 2018, primarily as a result of the operating factors discussed above coupled with a noncash gain associated with the five year interest rate derivative instrument. That's partnership entered into in November 2017, and lower interest expense incurred resulting from lower interest rates during the.

Quarter, partially offset by a higher weighted average balance of debt outstanding in the fourth quarter of 2019.

Net cash provided by operating activities for the quarter decreased by 67% relative to the fourth quarter of 2018, primarily due to the general timing of receipts and payments of accounts receivable accounts payable on deferred revenue balances and the conclusion of customer agreements at the Partnership's Casper terminal in December 2018, and in August 2019.

As of December 30, Onest. The partnership had net leverage to 3.9 times LTM adjusted EBITDA based on its financial covenants and available liquidity of approximately 168 million, including 30 million of unrestricted cash and cash equivalents and undrawn borrowing capacity of 165 million on a $385 million senior secured credit facility.

Subject to the partnership's continued compliance with financial covenants.

Pursuant to the terms of the partnership's credit agreement the partnership's borrowing capacity is currently limited to 4.5 times its trailing 12 month consolidated EBITDA as defined in the credit agreement.

The partnership was in compliance with its financial covenants as of December 31.

On January 30 at the partnership declared a quarterly cash distribution of 37 cents per unit or $1.48 per unit on an annualized basis, which represents growth of 8.7% over the prior quarter and 2.8% over the fourth quarter of 2018.

The distribution was paid on February 19th to unitholders of record at the close of business on February 10th.

As Dan mentioned, we were pleased to announce our 19th consecutive quarterly distribution increase this quarter, which was consistent with our previously stated 2019 distribution guidance.

We feel good about our current distribution level and plan on evaluating future increases in our distribution coverage on a quarterly basis as always this will be subject to the board's discretion in the future.

With that I would now like to turn the call back over to Dan.

Thank you Adam.

Ill ask Brad to give us say update on Western Canada markets and other pertinent issues Brad.

Thank you Dan I'll do just a couple of quick comment okay regarding the.

Western Canadian select market.

The Alberta production curtailments remain in but at this point the levels or or relatively low we estimate somewhere around 75000 barrels a day.

Curtailment.

More importantly, despite these curtailment efforts incentives to move crude oil volumes remain high.

This is evident by the high utilization of and demand for our Terminaling services or Hardisty terminal, where we currently are.

Our.

Nearly 100% fully utilized so we remain.

Busy.

Yes.

Weve valid we have validated with these type of utilization rates. During these tough periods that the artist Steve in the rail solution that we provide is an industry solution. In his is fully utilized for that reason so thank you.

Okay. Thank you Brad Let me, let me continue on with a.

An update on our D.R. you because it is so transform animal I think to the to the business and the industry. So in December our sponsor and Gibson jointly announced an agreement to construct and operate a D. R U near Hardesty.

Conoco Phillips has contracted for 50000 barrels per day of inlet bitumen blend at the D.R. you to be shipped by Canadian Pacific Railway, and Kansas City Southern Railway company to the Us Gulf Coast.

As we mentioned on previous calls you Estes patented de are you process separates the deal you want that has been added to the Rob bitumen in the production process, which meets two important market needs first it returns recovered deal you went for reuse in Alberta market, reducing delivered costs.

Cost for do you want and it creates drew bit.

As Steve trademark product name.

Proprietary heavy Canadian crude oil specifically designed for rail transportation.

Drew bit.

Is effectively crude oil arbitration that is more heavily concentrated and is classified as non hazardous non flammable commodity when transported by rail in Canada and the use.

Drew bit is a market access solution that will satisfy demand for heavy Canadian crude oil on the us Gulf coast and in other markets at a cost that is economically competitive due to the crude oil finished transported by pipeline today.

In addition, the partnership sponsor is continuing to expand our destination network by constructing a new destination terminal in Port Arthur Texas for the drew bit.

That will be Transloaded and originated at the Hardisty terminal.

The Port Arthur terminal will have a capability for rail unloading.

Barge dock loading and unloading.

Tank storage.

And blending and will be pipeline connected to Phillips 66 Beaumont terminal.

Providing customers access to a large network refining and marine facilities.

In February 2020.

You SDN Gibson announced the receipt of all Reg required regulatory approvals from the government level of Alberta to proceed with the construction.

Of the are you.

Initial construction has started with full ramp up of the D or you expected to begin in April Twentytwenty and the D. R. U is scheduled to be placed into service in the second quarter of 2021.

As mentioned we are currently in commercial discussions with other potential producer.

And refiner customers to secure additional long term take or pay agreements to support future expansions of capacity at the deal are you.

We are very excited about the D or you as we believe it will materially change the sustainability of the partnership's cash flow and act as a permanent industry solution for transporting heavy Benjamin to the Gulf coast with the potential to grow to more than 200000 barrels per day of throughput.

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With that I'll turn it back to Brad and he will discuss some of the other developments across the network Brad.

Thank you Dan.

It is appropriate given the exciting news that you could share there regarding the CR you drew bid and the Port Arthur development to also remind folks.

In addition, we continue to work closely with producers refiners and midstream companies to provide an advantage destination solution to the Houston market, Texas deepwater is uniquely located and competitively.

That up with its connectivity to provide additional solutions in the Gulf Coast.

As described by Dan at Port Arthur Houston, Houston market in the Port Arthur markets are the two largest heavy consumer markets in the U.S. glucose. So we're excited about the.

The ability to create a network to provide solutions for Houston refiners.

Additionally, given the continued macro need for distribution in exports solutions for all energy products in commodities.

In the Houston Gulf Coast region.

We are please.

To share that we are in advance discussions for development opportunities and the pet Chem Ngls and light products space and look forward to making further announcements on those when appropriate.

Like make a couple of comments in closing on Mexico in Mexico.

We continue to see opportunities and challenges and so in that regard we're focused on two key initiatives Supersalon is given our current assets. We currently operate three terminals. There. We're very purpose about maximizing the service to our customers and the value that those two.

Terminals generate.

So that we are are very focused on delivering on both of those two key initiatives strategically.

We continue to grow those businesses and identify new opportunities by aligning with the.

The important needs of Mexico, the macro story of Mexico, which has materially significant with the appropriate railroads in tier one customers.

To effectively grow opportunities and solutions and to do that in such way, where we can align with our origin opportunities, which we just described the port Arthur and Texas deepwater.

Which not only provide.

The potential for.

Solutions at local markets for refiners, but also provide export opportunities for things like light products by.

Our water and door rail so we're excited to too.

A mirror the Mexico opportunities with the development opportunities, we're providing the Gulf coast.

Thank you Dan.

Thank you Brad I appreciate that I see in the queue that we don't have any questions.

As as always if anyone has a follow up just a question feel free to reach out to us directly we're happy to entertain those than anytime.

So I'll just move to a few.

Summary, closing comments here.

Obviously, we feel very strongly about the opportunities that we've discussed on the call today. Our sponsor is focused on successfully delivering the D.R. you project with a strong partner Gibson.

To bring much needed long term sustainable takeaway solutions to the industry and let me say Gibson has been an outstanding partner for several years since the beginning of the of our asset development in Canada, and we look forward to continuing to grow with them.

As we have pursued for previously discussed we currently have several operating cash flow projects at the sponsor level today that could be.

Possible dropdown candidates for the partnership in the future.

But we also full acknowledge the challenges at the MLP market faces today.

We will continue to keep you posted and look forward to additional announcements regarding our progress in the future.

Thanks, again, and we appreciate you taking the time to be on the call today and for your continued support.

Thanks again.

Thank you that does conclude the U.S. the partners LP Q4, 2019 earnings Conference call. You May now disconnect your lines and have a wonderful day.

No.

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