Q1 2020 Earnings Call

Welcome to the first quarter 2020, Phillips 66 partners earnings Conference call.

My name is David and I will be your operator for today's call. At 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 you may begin.

Good afternoon, and welcome to Phillips 66 partners first quarter earnings Conference call participants on today's call will include Kevin Mitchell, Vice President and CFO.

Tim Roberts, Vice President operations in Rosy said, good Vice President and Chief operating Officer.

Today's presentation materials 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 our Q NHS <unk> actual results may differ materially from today's comments.

Factors that could cause actual results to differ are included here as well as in or is he cheap filings with that I'll turn the call over to Kevin Mitchell. Thank you, Jeff and good afternoon, everyone. During the first quarter Phillips 66 corners delivered solid financial results operated reliably and safely and advances growth projects.

Achieved a major milestone in April with great pipeline, starting full operations.

The board of directors approved the first quarter distribution of 80 587.5 cents per common unit, a 4% increase over first quarter 2019, and unchanged from fourth quarter 2019.

Well, let's say six partners is navigating the current business environment from a position of financial strength supported by fee based portfolio of high quality assets investment grade credit rating and strong liquidity.

We remain focused on maintaining our strong balance sheet disciplined approach to capital allocation.

In this challenging environment, we deferred the liberty pipeline postponed I'd on the Ace pipeline and held the quarterly distribution flat.

Moving to slide four to discuss financial results.

The partnership reported first quarter earnings of $226 million, an adjusted EBITDA of $321 million.

The 24 million dollar decrease in adjusted EBITDA was driven by wholly owned assets due to lower utilization rates and Phillips 66 refineries.

First quarter distributable cash flow was $269 million up from $254 million in the fourth quarter.

The 24 million dollar increase in joint venture distributions over the prior quarter reflects the first distribution from great pipeline.

Slide five highlights our financial flexibility and liquidity.

We ended the first quarter with $92 million of cash and $747 million available under our revolving credit facility.

The partnership funded $196 million of growth capital during the quarter.

This included investments in group the Liberty pipeline. After it was acquired and the site, Texas Gateway terminal.

The debt to EBITDA ratio on the revolver covenant basis was 2.9.

Distribution coverage ratio was 1.35.

We continue to target the long term leverage ratio of up to 3.5.

Given current market conditions, we expect the coverage ratio for the year to be between 1.1 and 1.2.

Looking ahead, we remain focused on maintaining our strong financial position and disciplined capital allocation as we navigate through these unprecedented times.

And I really do will provide an update on growth projects.

Thanks, Kevin well, everybody slide six plus the project we have ongoing the grant pipeline has started full operation service from West, Texas, <unk> Corpus Christi any goals I, Texas started on April 1st.

More recently the Eagle Ford segment of the pipeline came online marketing completion of the project, we own 42, and a quarter person in the gray of pipeline. This is a significant milestone for P.S. XP and further enhances our stable asset portfolio.

Construction continues at the South, Texas Gateway terminal and Ingleside and Marine export terminal will have to deepwater docs with stores capacity of 8.5 million barrel and up to 800000 barrels per day of throughput capacity.

Phillips 66 partners on May 25% interest in the terminal, which is expected to start up in the third quarter of 2020.

The Sweet Pasadena capacity expansion project remains on track and we expect to reach mechanical completion in June. This is a great projects for the partnership with long term pipeline and terminal volume commitments from Phillips 66.

In response to the uncertainty in the current market environment that Liberty pipeline project has been deferred and the final investment decision on a pipeline has been put sound.

We will continue to find sustaining capital to ensure safe operations as well as the remaining insight growth projects included on this slide these projects are all progressing as planned.

Looking ahead to the second quarter, we anticipate results decreased from the first quarter, mainly due to lower domestic production and refinery utilization. This impacts many of our wholly owned in joint venture assets, we anticipate the impact from reduced throughput to more than offset increased earnings from the ground pipeline.

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

Thank you we will now begin the question answer session.

As we open the call for questions as a courtesy to all participants please limit yourself to one question a follow up.

If you have a question. Please press Star then one and Touchtone phone.

If you wish to be removed from the Q. Please press the pound key.

People are using a speaker phone 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.

Your first question comes from the line Spiro dealings with credit Suisse. Please go ahead. Your line is open.

Afternoon, everyone.

First question, just maybe just to revisit some of the guidance provided around the idle at analyst day, you all laid out of targeting it's about 1.5 billion fee ebay exit rate.

For wrapper 2020 is that because that's still a target that you see is intact and just maybe I'd think about some of that for gotten so you guys had previously given out.

Hey, Spiro its Kevin I, you know that was.

That guidance was what we had at that point in time.

With the.

Projects, we knew where underway in would come on line over the course of this year.

What it Didnt anticipate that is the situation that we're going through just now.

In terms all the impact on both to refine product side of the business, which is tied to the PSS refining portfolio in where where those assets are running and then also on the crude throughput.

On whole pipeline business so.

We're not giving specific guidance at this point I think the weight of the way to consider that 1.5 is probably.

When we get to some back to some form of normal state.

It's not unreasonable to think that we would get back to anticipate getting back to that 1.5 level, but it's probably push site based on the way, we see things right now.

You know, there's a lot of uncertainty as to what this recovery looks like I think it's clear on the products side that once the country gets back to work and people start moving the if you will see refined product demand increase and refining utilization will rise to meet that demand and you'll see that part of the business get back to.

No it's harder to get to read on the the impact in the upstream sector, but also go back to the view that $20 oil prices aren't sustainable forever. So it's just a question of timing.

Yeah, No I appreciate that makes that makes sense second one yeah might sound crazy, you're talking about Dropdowns right now, but but is there a mutual interest to to drop down assets here, just maybe for IPO sex with some liquidity.

And help you sort of both are up some of your cash flows or is that really discussion for another time.

Yes, realistically, that's probably a discussion for another time, it's kind of a truly MPSX question anyway, because they would those conversations are all initiated at that level, but.

It's it's hard to see even from a Phillips 66 partners standpoint funding a dropdown transaction. If the objective was would be to get cash back to the P.S. saks level than the funding would have to be either equity and these on equity markets to be going out into two.

We were raised funds our debt and we're sort of trying to manage our way through the balance sheet and leverage as it is so it doesn't feel like it's right timing.

Once again, if you have a question. Please press Star then one on the Touchtone phone.

Your next question comes from the line of Robert Moskow from Mizuho. Please go ahead, Sir your line is open.

Hi, good afternoon, everyone. So I think are kind of answered one of my question is on.

Dropdowns, but thinking about it from a different angle I know on a management on the TSX call everybody is there were some continents.

From that it's been about possible TUSD opportunities.

From an organic standpoint, it mid stream for 2021, and I guess thinking a little bit further out you know is.

Would the I guess the growth maybe come from inorganic.

Acquisitions.

Looking at 21, whether it be.

Bite sized dropdowns or maybe some third party M&A and kind of taking about like how the growth strategy shifts in your view.

Yeah, I think that the.

Where the growth opportunities come from Weve right from the beginning we've said that.

Hi, PS XP, we have the potential to grow through organic means through dropdowns from the parent and also through acquisitions and while we haven't done any acquisitions for a while we have done some relatively small that we've done some acquisitions back into sort of 2000 than 2016 timeframe.

And in principle, none of that is any different we still see that the growth will come from.

Who those three different sources in a different points in time different areas will be prioritize depending on where the most attractive opportunities are most recently, we've seen the best opportunities in the organic space or.

So the categorize as organic Dropdowns, where the project comes the asset project comes from TSX, but it's early stage construction then it becomes inorganic project.

The MLP.

If those opportunities.

Our not there at the at the.

The projects not there, but that kind of returns. We would expect then we'd look at other ways of accomplishing growth, but I'd also say whatever we do it's got to meet our return thresholds are investment criteria has to make sense for the MLP, so potentially acquisitions at some point in the future.

Certainly possible and in a so to sustain dime cycle, you often see that trend of consolidation PS XP could be positioned for that but it's not something that we're focused on right now.

Okay. That's that's helpful. And then just maybe an easier one on the distribution.

You know exactly the kind of touching go quarter to quarter evaluation or do you see yourselves, maybe holding it flat for the remainder of 2020 and seeing how things shakeout afterwards.

Yes, I mean every distribution is a decision.

By the quarter by quarter. So it's a decision we make every time. This is a break in practice for us by holding it flat for the just felt like a prudent thing to do given the environment. So a lot of this will be depend will depend on how things transition and shake out over the remainder of the year as to whether we.

Whether or what point, we get back to increasing the distribution.

And we have reached the end of today's call I will now turn the call back over to Jeff.

Right. Thank you for your interest in Phillips 66 partners. If you have additional questions. Please call Brent or me. Thank you.

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

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