Q4 2019 Earnings Call
And I will be your conference operator today at this time I would like to welcome everyone to the fourth quarter 2019 shell Midstream partners earnings call. At this time all participant lines are in listen only mode. After the speakers presentation, there will be a question and answer session.
Good question during the session you will need to press star one on your telephone.
I'll now turn the call over to Jamie Parker Investor Relations Officer, you May begin your conference.
Thank you welcome to the fourth quarter earnings Conference call for Shell Midstream partners with me today, Kevin Nichols CEO, Sean Parsons CFO, Steve was better TV commercial and business development.
Slide two contains our safe Harbor state.
We'll be making forward looking statements related to future events expectations. During the presentation you on a session.
Actual results may differ materially from such statements factors that could cause actual results to be different included here.
All in today's press release under risk factors in our filings with the SEC.
Today's call also contain certain non-GAAP financial measures. Please refer to the earnings press release, an appendix one of this presentation for important disclosures regarding such measures.
On the reconciliations to the most comparable GAAP financial measures.
We'll take questions at the end of the presentation.
With that I'll turn the call over to Kevin Nichols.
Thanks, Jamie Good morning, everyone and welcome to our fourth quarter earnings webcast.
Before I begin talking about the quarter the year and some business updates that we have or you. Let me touch on the topic that I know is on all of your minds hi dealers.
No for some time, we've said that our sponsors when looking at I'd ours, which includes understanding the views from our investors the market and input from management as well.
Today, I do not have any new updates to provide.
Well I understand that's not what you wanted to hear the conversations with our sponsor ongoing and as soon as we have an update we'll provide that for you.
Today I'd like to focus on our base business and specifically several updates that we have for you related to the Gulf of Mexico.
Before I get to those updates.
Our outlook as always on the Gulf of Mexico remains bullish.
Adoption in the Gulf of Mexico has been growing 9% year over year, and it's up over 57% since 2014.
This growth is expected to continue and reach a new high of 2.1 million barrels per day. This year in 2020.
This growth has come as producers continue to drive down breakeven prices and they do this through efficient execution competitive scoping and affordable technology and our commercial team is busy working with the producers to replenish our funnel, which will provide continued operative opportunities in growth. So the partnership into the future and were.
In a unique position as these new fields come online and producers connect to us for little to no capital required for the partnership.
So let me get to those updates that we have for you as you may have seen in December Chevron took its final investment decision on its anchor project.
And I'm happy to announce today, the amberjack has successfully sign a dedication and connection agreement for the anchor production with first oil expected in 2024.
So let me talk a bit more about that project.
First phase of Chevron anchor project, it's a 5.7 billion dollar investment and it opens up a new area of the Gulf of Mexico for development.
That shell midstream partners is strategically position to capture.
This initial investment includes a new host and a drilling program, which is expected to produce up to 75000 barrels oil per day, all of which will flow through the amberjack corridor.
And I knew host in this area also provides the opportunity for future tie backs of additional fields, which can provide volumes well into the future.
The anchor connection is a great example of shell midstream partners organic growth story.
We will have no capital outlay, well, our amberjack quarter attracts new production to the system.
That's our corridor strategy and action.
Switching over to the Mars corridor, our producers have continued to grow production in the area and we see the system nearing capacity.
As.
Projects like Vito shells, Vito project or power Nap come online next year.
As I said last quarter, we're looking at the opportunity to expand the system.
And I'm pleased to report that we've had significant interest from producers in our nonbinding solicitation of interest and we're continuing to progress the project.
Currently we are scoping the project to accommodate the expected additional demand.
Our commercial team is working towards finalizing agreements and we expect that take final investment decision on the project in the first half of this year.
We're excited about the future in the Gulf of Mexico.
And with Mars and anchor being examples of low risk projects with relatively low capital outlay that deliver organic growth to the partnership we're well positioned.
Touching on the onshore the partnership continues to benefit from a ratable base of cash flows that our diversified onshore pipelines and terminals provide.
And we're focused on zydeco and leveraging its connection to Lou.
Which is still the only deepwater port capable of loading vlccs.
Our zydeco system. If you recall is the only pipelines with the ability to deliver directly in the same James or Lu from Houston.
As one of the most flexible systems with the ability ability to batch and deliver various grades of crude dilute.
And this is a distinct advantage for zydeco as we continue to pull volume from Houston needle in or offshore providing ratable supplies, a little for export well for local refinery consumption.
So in closing I'm extremely proud of shell midstream, our people and our assets.
We're focused as always on safely delivering energy our customers need growing the partnership and delivering on our commitments.
And with that I'll turn it over and to discuss the fourth quarter performance and give you a few updates for 2014 John.
Thanks, Kevin.
As I reflect on the full quarter results, we continue to see our portfolio delivering the expected returns for the partnership.
So let me cover a few of our key financial metrics for the quarter.
Our total revenue was 126 million up about $1 million from the prior quarter. Now this was primarily related to higher offshore transport revenue as our systems returned to normal operating levels.
Following the impacts of hurricane Barry in the third quarter.
Operating expense was 73 million a decrease of about 3 million from the prior quarter now most of this decrease is related to lower seasonal projects than on our project.
Income from equity equity investments was 108 million down about 7 million from the third quarter and this is all primarily due to lower seasonal demand unexplored.
And finally other income was 8 million flat as compared to the prior quarter.
In total adjusted EBITDA attributable to the partners partnership was 187 million about even with the prior quarter.
After interest expense maintenance capital and other adjustments total cash available for distribution was 164 million, which includes a $9 million reimbursement from our sponsor related to Mars storage revenue.
Now this is the result of the agreement entered into when we acquired and additional interest in Mars in 2016.
That 9 million positively impacts cash available for distribution, but is not considered income so had no impact on earnings for you.
Our partnership declared a distribution of 46 cents per LP unit now this represents a 3.4% increase from the prior quarter.
And all this resulted in a coverage ratio for the quarter one times.
As you'll recall Q4 did not benefit from the sponsors IDR waiver and so for the full year of 2019 coverage was about 1.1 times.
And finally, the Capex space, we incurred about 18 million in the fourth quarter of which 12 million was related to growth capital, mostly due to continued expansion of our Permian gas gathering system.
So turning to the partnership's balance sheet liquidity as of December 30, Onest. The partnership that total debt outstanding of 2.7 billion.
Which equates to a debt to EBITDA ratio of 3.6 times based on an annualized Q4 adjusted EBITDA.
Now, we're comfortable with our balance sheet and we believe it will allow us the desired flexibility to continue to effectively manage our business.
So now let me shift to guidance for the year any offshore 2020, we expect to have several producer turnarounds during this year.
Now these turnarounds are expected impact both net income and cash available for distribution by roughly $10 million.
Based on current schedules, we expect these turnarounds to take place primarily in the second quarter.
In the Capex space, we plan to spend about $46 million this year of which around $12 million will be growth capital.
And that growth capital is primarily related to the continued expansion of our Permian gas gathering system.
So as we close we're pleased to have a strong suite of high quality midstream assets, which provide us ratable and stable cash flow to work from.
And this coupled with our strong balance sheet and support from shell enables us the ability to weather the uncertainties in the current market environment as we work to make shell midstream partners sustainable for future years.
So with all that we'll now take your questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound King please standby well, we compile the Q and a roster.
And our first question comes from the line of Theresa Chen from Barclays. Your line is now open.
Good morning, Thank you for taking my question.
First wanted to touch upon your earlier comments, Kevin about on IDR is the and I understand you will have update on when it will happen, but can you just help us think about exactly what is the sponsor looking for waiting for.
This point in terms of like market signals and also in light of the fact that now with Q1 on.
Results you will not have neither the waiver already at March March storage revenue and bring imbursement covering shifting to look pretty pressured presumably if you could just touched on the front I think right.
Yes, Thanks, Teresa I'll start and then if sean's got something to that I'll pull of item that in there look I understand that.
It's not what you expected or hoped around not having the guidance.
I'm not going to comment on timing at this time.
For the specific nature of those conversations.
Well I think as best to do here is as soon as we have a holistic set of guidance to give you will come back out and we'll do that.
We have a strong stable ratable set of cash flows on the base business, we have some growth in the Gulf of Mexico.
A very diversified set of portfolios, but I think we'll just come out into that guidance assumes we have.
And Kevin.
To continue Mercury's the second part we expect to cover our distribution needs with internally generated cash flow.
And of course, we do have good per credit facilities to Galfan if needed.
Kevin highlighted earlier, we look to give you more guidance in future.
Okay, and then maybe turning towards your opportunities in the Gulf of Mexico on related to the expansions on Mars, an anchor that Youre contemplating right now what kind of Capex dollars are we talking about and what kind of than EBITDA multiples would you expect to generate.
Yes, so I'm going to turn it over to Steve to answer that he's got the all that is commercial shop.
Okay. Thanks, Kevin the trees to think thank you for the question I think it's important as we look at our strategy in the Gulf of Mexico.
We've positioned the assets to where we can accommodate additional production with little to no capital.
For this new production.
And in the capital space that we do spend it's marginal it's not new trunk lines are looping lines. So.
We're in a very good spot to accommodate new production as far as a financial projections go given where we are in the current negotiations on Mars particular, particularly as well as scoping the project to meet even potentially more demand than we anticipated we're not in the positioned to comment on the specifics and.
And when we get to the point definitive agreements in bringing in online which is estimated around 2000 mid 2021, we'll give guidance and customary fashion at that point.
Okay and July Teresa just to be clear on the anchor project there is no capital outlet.
Got it.
And lastly on zydeco on to your point about its ability to deliver barrels to.
Luke.
How much throughput it can do currently just on that section.
So on.
Sorry go ahead Kevin.
No go ahead Steve.
So trees, we asking about the actual delivery capability going into covelli, yes, and so Vita Coco Cola Valley I believe is 24 inch line, what's your throughput capacity for that portion.
Three so those those capacity available with the filing just on cues wells will be with the case later today.
Okay. Thank you.
Thank you. Our next question comes from the line of Jeremy Tonet from JP Morgan. Your line is now open.
Hi, This is Joe on for Jeremy.
Wanted to first ask on distribution growth and wondering if you can say anything about what what growth levels, you're expecting for 2020.
And then also kind of how you would prioritize distribution growth.
And I guess, what would kind of be the driver.
And ability to continue to grow the distribution.
Yes, Thanks, Gemini all start so we're not providing the for distribution growth for the year for the next quarter as I said when I opened that will come back and give you a holistic sort of guidance that would include distribution growth as soon as we haven't.
Well look to fund our distributions through the cash flow that Sean talked about.
The way we're looking at.
Kind of our cash going forward, we'll be evaluating opportunities to grow the business and.
Look at how we create this sustainably going forward, but we'll give you that guidance willing to put it then set a holistic guidance.
Okay, Thank you and that.
And then on understanding you can say much on the IDR, but just wanted to see if I got anything that keep in mind with regards to I guess.
How you're thinking about any specific events I would make the timing.
Peter and tiny tiny versus kind of.
Not doing it in Fourq, you 19 or or any specific amounts and 2020.
No I think it's really just continuing to conversations that we have with our sponsor and as soon as we have the holistic sort of guidance put together, we'll come back out because that to you.
Okay. Thanks, Thats it for me.
Thank you.
Next question comes from the line of Derek Walker from Bank of America. Your line is now open.
Good morning, everyone. This is out on for Derek Thanks for the color today first one for me congrats on the Amberjack announcement.
Similar to this.
Type of project you guys see this.
On your asset footprint as well.
Hi alternative.
Steve.
Yes. It can you go ahead rephrase the question Im not sure I understood. What you would would you asked yeah, just with the Amberjack announcement do you see any other types of these.
Kind of expansions on.
And your existing at asset footprint.
Okay sure. Thanks for that for the question I think what we would we would say there is we're extremely bullish in the Gulf and we have.
Done some very careful planning around positioning our assets in the core doors and we're always looking forward for opportunities and growth in FY constraining if there's any.
But we don't have any that we're ready to announce but we continuously look for opportunities and we stand ready to provide the needs in terms of flexibility in flow assurance for the various shippers and producers in the Gulf.
Hey, Alex I'll add to that but we'll continue our tie back story and you've seen a lot of tie backs in the past to our eastern corridor. We've had one in December we got another one in January. So in addition to these new prospects that on the larger scale that we'll look to connect them, we see the tie back story continuing across our borders.
Great. Thank you and then maybe just one other.
A question for me with 12 million of growth Capex Smith.
Primarily related to the Permian gas gathering this year.
Anymore color you could give on us.
Type of.
Project that is.
Yes sure. This is this is Steve again that is predominantly associated with our joint venture in doing out.
Crestwood joint venture to the novelists system.
This is related to a nor slash area and compressors state compressed compressing station and effectively be once it's completed it will have a roughly 60% of the original hundred thousand acres contemplated.
In the original design to be developed at that point.
Great. Thank you guys.
Thank you. Our next question comes from the line of Gabe Moreen from Mizuho Securities. Your line is now open.
Hi, guys. This is rob on forgave.
My question on distribution growth guidance was already asked but I just wanted to get your thoughts on coverage and I know this isn't an item that you provided formal guidance on the past but.
To be fair to say pad partnership is comfortable running on lower coverage than others in the space just given how capital like your model is.
Rob This is Sean as you highlight we will provide any further guidance, we do expect that.
We have adequate cash flow to cover our our distribution.
I do think I'd also highlight though as we go forward, we do have ample liquidity on our facilities between that and cash and we have about $1.2 billion. So as we have opportunities whether.
It's a drop or or acquisition opportunities whether they are good for the partnership will look at book out.
Okay. Thanks appreciate it.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound cake and our next question comes from the line Oceanography unique from you via your line is now fan.
Good morning, everyone.
I was wondering if we can talk about the.
Waiver process.
Resolution to the whole thing can can you provide us with a timeline of when fonts are expected to resolve everything we can sort of lift this question in sort of move forward.
Yes, thanks to their I'll take that one look like I know you're looking for the timing.
And kind of what the holistic set of guidance is going forward what that whole loan from story together.
And just not ready to commit to the timing on that just where in those conversations with the sponsor continue the dialogue and as soon as we have the ability to quit a holistic story together Korea will come back out and give them to it.
Okay can we talk about the shell process, maybe a little bit.
In the this is something thats kind of been known in been out there I mean, the last waiver was in place last quarter.
So we've kind of known that this is coming I mean, it does it usually takes that long to work through that type process within shell or is this an issue with the conflicts committee.
Like wondering if you can give us a little bit of color around that.
Well I think all conversations are going to include looking at what we do to build this business sustainably long term and to end to grow it and how you said it up so it so I'm just not prepared to comment on the specific natures of the conversations at this time.
Great. Thank you very much appreciate the.
Thank you. Our next question comes from the line of Spiro Dounis from Credit Suisse. Your line is now open.
Hey, good morning, gentlemen.
Just kind of a bit of a different question here. If you were to maybe ask the sponsor today.
What shall axis strategic purposes, and sort of how it views that entity.
Can you give us a sensor for how they respond based on your discussions with them and maybe any commentary they made their own investors that I guess more recently.
Well I think I'm not going to comment on maybe the comments of has their own investors I'm not going a part of those.
But shell is certainly looking at this as a building a sustainable midstream business going forward.
Believing the MLP structure still today.
And then looking at trying to grow that as the overtime were or centrally located.
Group that manages all of the midstream business for show in the USA and builds on that scale. So.
And I'll remind you that shell continues to build out a considerable amount of projects in the United States over a third of the capital that shells spends historically over the last couple of years has been in the United States and with that come opportunities for midstream.
New projects, how we build those and what the.
As it relates to live to the MLP will give you guidance longer term, but.
We have a strong runway of high quality assets, and we see that being replenished as show continues to invest with us.
Okay understood.
Second one just just on I guess, there's been several peer IDR transactions. Since you all have embarked on your own review here.
And I understand it's something you guys talk about it but can you give us a sense for how much. These other transactions are influencing you are just being taken into account as part of your process.
Well I'm not going to talk about how they influence or Saipan conversations, but I will say that.
When we go to Investor conferences, the feedback that we get from you all.
Happens out in the marketplace, what appears and competitors do as well as the overall market dynamics are everything that we consider as part of that whole discussion.
Understood. Thanks, if I am guys.
Thank you.
Thank you.
Our next question comes from the line of Shneur Gershuni from you V. S. Your line is now open.
Hey, guys just a quick follow up question.
Maybe to ask all the different questions a little differently. It is you see it in look at the partnership today.
Do you even feel that anything needs to be addressed I know that we all in the investment community like clean stories without I'd ours, and so forth and color.
It is you sort of look at the cash flow generation of the business today.
On the capital projects that you've been talking about in the cash flow going forward do you have an expectation that just on that alone should be able to grow both EBITDA and the distribution even without a resolution is that one of the take ways that we should sort of take from all the commentary today.
No I'm not sure so thats, what take away, but I would have.
Not getting the guidance that you want or a saying that we'll we'll give you a holistic sort of guidance when we're ready I wouldn't draw any conclusion from that were busy.
Building, a sustainable long term business, we're trying to set that business up for future I would say that shells unhappy with the performance of the MLP since Weve IPO. This in our ability to acquire and grow the assets marketplaces change.
And we're busy looking at how we set this company up long term for success.
Engine or this is Sean I think I'd just add in that as we look at those opportunities for the long term. It's we do have plenty of liquidity available to us.
And but we will certainly intend to maintain a very healthy balance sheet and be disciplined in how we deploy our capital.
Yes.
I completely get those those comments I guess, what I'm really saying is that.
Given the flexibility in your balance sheet.
Given the fact that you've got these growth I mean, if you don't grow the distribution you can increase you retain distributable cash flow could that be as a way that youre acquiring assets and so it could actually sustain itself without having to do anything or do you feel that something needs to be done to sort of sustain the the longer term plan that you're putting other.
Yeah, I think that's going to be part of a holistic strategy share will answer that question for you will become back out.
And look at what we grow and how we set the thing about long term this year next and beyond.
Oh, that's been part of the conversation.
All right.
Sounds good I'm looking forward to that conversation.
Yes sure. Thank you.
Thank you.
Thank you we have no further questions I will now turn the call back over to Jamie Parker.
Thank you for your interest in shell Midstream partners.
Any more questions. After today's call. Please feel free to call me directly my contact info can be found on the presentation materials as well as on our website shell midstream partners Dot com.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
Yes.
[music].
Thanks.
[music].
[music].