Q2 2020 BP Midstream Partners LP Earnings Call
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Good morning, everyone and welcome to the 18 Midstream partners QQ 20 results conference call add webcast.
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At this time I'd like to turn the conference call over to Brian Sullivan, Vice President of Investor Relations. Sir. Please go ahead.
Hello, and welcome everyone to BP Midstream Partners' second quarter 2020 results presentation.
Hi, Brian Sullivan, Vice President of Investor Relations.
And I'm joined today remotely.
Hi, Rich Zinsmeister, our Chief Executive Officer, and Craig Coburn, our Chief Financial Officer.
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 FCC filings.
We also refer to non-GAAP financial measures.
Please refer to our FCC 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 Rip.
Thanks, Brian.
Good morning, everyone and thank you for joining our call today.
I'm very pleased today to report to you a solid set quarterly results and what was a tough second quarter, where we saw the continuation of a volatile and challenging environment.
This is a testament to our portfolios ability to generate stable and resilient cash flows.
At BP Midstream partners, we have remained focused on our two priorities.
Firstly, our core value of safety protecting the health and safety of operational personnel and other stakeholders through the cobot 19 pandemic.
As well as remaining focused on operating or assets and a safe and reliable manner.
And second maintaining the financial strength through the partnership to ensure we continue to deliver financial stability.
I would like to thank everyone at BP Midstream partners and our sponsor BP for the resolved they have shown in the face of such a challenging environment.
And I would like to acknowledge the support and helpful. Dialogue, we have had with our unitholders during this past quarter.
We will continue to remain engaged with you.
Our presentation today will be much shorter than last quarter.
We previously described the attributes of our portfolio that underpin our ability to generate stable and resilient cash flows.
On today's results demonstrate that those attributes R&D delivering as expected.
I'll begin today with a brief update on our Cobot 19 response, 2020 guidance and the status of minimum.
Volume commitments or M.B.C. arrangements with our sponsor BP.
Greg will then take you through the details of our second quarter operational and financial results and provide further details on our 2020 guidance.
We will then take your questions.
Starting with our Cobot 19 response to date, we've not had any cobot 19 related issues impacting the availability of our pipelines.
We continue to monitor local conditions and adapt our operating practices as appropriate.
Our sponsor BP has been very supportive during this pandemic.
Applying their front line operating practices to our assets and providing access to critical resources as necessary.
Second our 2020 guidance.
Our existing full year guidance is unchanged.
There remain factors the impacts of which we cannot reasonably estimate at the present time to include them in our guidance.
Craig will cover the shortly.
However, we entered this volatile and challenging environment from a position of strength with a conservative financial framework and a strong liquidity position.
And although there are signs of demand improvement and some reduce volatility there are still operational and financial risk that we will continue to monitor and take actions to mitigate where possible.
With all of that said, we're very pleased with the operational financial performance of our portfolio.
Which Craig will speak to in more detail shortly.
The confidence we have in our operational and financial stability underpins our ability to continue providing guidance for the full year.
Third RMB see arrangements.
Most of our Mbcs expire at the end of 2020, except for one agreement related diamond back which automatically renewed in June for another year.
We are holding a regular discussions with our sponsor regarding NBC arrangements.
We expect to conclude these discussions and update you further with our third quarter results.
With that I'll hand over to correct.
Thanks Rep. Good morning, everyone.
That against a challenging environment, we delivered a resilient sat of operational and financial results and our full year 2020 guidance remains unchanged as Rip previously mentioned.
The impacts of covert 19, and broader market volatility on pipeline throughput was much more apparent across our portfolio in the second quarter compared to the first quarter.
That against a backdrop of significant product demand destruction across the U.S. industry wide, we saw reduced refinery utilization during the quarter.
However, notwithstanding these conditions our total gross throughput was only around 10% lower in the second quarter compared with the first quarter.
Further our adjusted EBITDA and cash available for distribution were broadly flat in the second quarter compared to the first quarter.
Even though total gross throughput declined during the quarter earnings and cash flow remained resilient.
Our operational and financial stability during the second quarter, notwithstanding the environment conditions, clearly demonstrate our operating resilience.
Benefits of our high quality balance portfolio and the benefits of NBC arrangements.
Looking at throughput in more detail total pipeline gross throughput was approximately 1.6 million barrels oil equivalent per day in the second quarter.
Around 10% lower than the first quarter of 2020 as mentioned.
Throughput on our onshore pipeline was around 14% lower compared to the first quarter on BP to reduce volumes reflected lower refinery utilization and feedstock optimization as a result of the demand destruction from Colbert like Pete.
Throughput on River Rouge was lower driven by refined products demand destruction earlier in the second quarter. When we start the man of the U.S. for gasoline diesel and jet fuel dropped by around 40%, 10% and 70% respectively.
And although lower than the first quarter throughput on this pipeline looks better than we expected.
Faster recovery in the latter part of the quarter.
Throughput on but I haven't back was consistent with historical average for the second quarter, driven by seasonably lower deal you weren't demand and reduced Canadian heavy oil production.
Throughput on our offshore pipelines was around 8% lower compared to the first quarter. This reflected the impacts of maintenance activities of offshore producers tropical storm crystal ball and offshore producer constraints due to covert 19 and lower crude price.
Net income attributable to the partnership for the second quarter was 40.6 million only 3% lower than the first quarter of 2020, that's a really solid result, given the second quarter macro conditions at lower throughput.
The result reflected first higher onshore revenue impacts on revenue from lower throughput across all our onshore pipelines together with lower fixed loss allowance Roberta won't be too we're more than offset by the favorable impact of recognizing deficiency revenue for the first half of 2020 in the second quarter.
And second lower interest expense due to a lower interest rate on the near term loan.
Used to favorable impacts were offset by lower income from equity method investments due to lower throughput on our offshore pipelines.
Adjusted EBITDA attributable to the partnership for the second quarter was 47.4 billion. This was broadly flat compared with the first quarter of Twentytwenty.
Yeah, and this was a resilient results notwithstanding the environment into the second quarter.
Cash available for distribution for the second quarter was 43.2 million only 2% lower compared with the first quarter of 2020. So as you can see our earnings and cash available for distribution remained resilient in the face the challenge in second quarter.
The board of directors with the general partner declared a second quarter distribution of 34.75 cents per unit consistent with the distribution level of the first quarter 2020.
Or distribution coverage ratio for the second quarter was 1.15.
Comfortably in the middle of our target range of 1.1 to 1.2 times.
Our ability to hold the second quarter distribution flat further demonstrates the confidence we have in our financial strength and cash flow stability.
Turning now to our guidance our full year 2020 guidance remains unchanged adjusted EBITDA is expected to be in the range of 190 to 200 million.
Well your cash available for distribution is expected to be in the range of 180 to 190 million.
Assuming we hold the current distribution level flat throughout the remainder of 2020.
Our full year distribution growth will be 5% over to full year 2019 distribution.
Distribution coverage ratio for the full year is expected to approach the upper end of the ROE target range of 1.1 to 1.2 times at current guidance levels.
During the second quarter, we grew the balance for cash and cash equivalents by around 9 million and based on our guidance, we expect to grow our cash balance by around 30 million. This year this growth and our cash balance underpins our ability to pursue organic growth projects to facilitate our mid to long term growth.
While managing through the ongoing pandemic uncertainties.
The Mars expansion discussions continue to progress with producers and definitive agreements are expected to be signed by the ended the year and the project online 2021.
In addition to offshore growth projects, we're also progressing on onshore growth options, including terminals.
I've been reaffirmed our 2020 guidance I'd like to remind you that last quarter. We shared factors that we had reflected our guidance as well as factors that we could not reasonably estimate the impacts.
In order to include them in our guidance.
Although some factors have now resolved themselves such as continued deterioration in oil price new ones have emerged.
At the time of our first quarter results. We included impacts from reduced that fillet revenue lower onshore acid throughput and reduce financing costs.
Our guidance today now also reflect two factors that we highlighted last quarter as not included in our guidance.
First storage revenues loop associated with the Mark pipeline. These revenues are now reflected in our actual second quarter results, we expect modest upside during the remainder of the year and not reflected this in our guidance.
And second operations and maintenance cost reductions.
Our sponsor has waived the increase of the comedy with fee paid to an affiliate of our sponsor for the period of April to December 2020.
This demonstrates the support of our sponsored during this challenging period.
These two factors that have shown in bold attacks on this slide under the heading reflected in guidance.
We're still remain some factors that we cannot reasonably estimate impacts of in order to include them in our guidance. We highlighted these last quarter.
Our ability to maintain or guidance for 2020, notwithstanding the environment and uncertainty I had is further evidence of the confidence we have any operational and financial stability of the partnership.
Looking ahead to the third quarter, we expect pipeline growth throughput to be higher than the second quarter, reflecting higher throughput on river Rouge, as refined product demand conditions improve and higher throughput across our offshore pipelines, mostly due to expected higher throughput on Proteus, and then down the and pipelines.
Adjusted EBITDA is forecast to be broadly flat compared to the second quarter, we expect higher revenue driven by increased throughput and tariff increases on our onshore pipeline and slightly higher income from equity method investments.
These favorable impacts are expected to be largely offset by the absence of deficiency revenue at the level recognized in the second quarter.
Cash available for distribution is expected to be higher than the second quarter, reflecting increased revenues from onshore assets supported by tariff increases and third quarter as well as lower interest expenses associated with our term loan facility.
And as I'm sure you can appreciate and understand our forecast than expectations for the third quarter may change given the ongoing uncertainty and volatility, particularly surrounding cobot 90.
That I will hand back to rep.
Thanks, Greg.
Me wrap up with a few last thoughts.
We have delivered another solid quarterly result today.
Well, we can see BP midstream partners, we envision an asset portfolio capable of sustainably delivering stable cash flows and that's exactly what our portfolio did during this past quarter.
We have remained focused on our two priorities first our core value of safety protecting the health and safety of operational personnel and other stakeholders as well as remaining focused on operating or assets in a safe and reliable manner and second maintaining the financial strength of the partnership to ensure we continue to deliver for.
I'd.
We are on track to deliver our full year 2020 guidance recognizing that there remains considerable macro uncertainty ahead.
We're on track to build cash while delivering full year distribution growth of 5% compared to 2019.
And we will continue to provide you with a balanced view other risks and opportunities in our guidance and mitigate the risk wherever possible.
Our balance sheet and liquidity remained strong.
We are in action on NBC arrangements with our sponsor and we will update you further on this with our third quarter results.
And we continue to pursue opportunities for organic growth investment in our portfolio.
Our Investor Relations team are always available to speak with you further outside of our quarterly results presentation.
Finally, BP midstream partners will be at the virtual city Midstream energy infrastructure Conference next week.
We look forward to speaking with many of you then.
With that let's open the phone lines and take questions.
Ladies and gentlemen at this time will begin the question and answer session.
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Well pause momentarily to assemble the roster.
Our first question today comes from Jeremy Today. Please go ahead with your question.
Hi, This is Joe on for Jeremy.
One of them first that on your kind of that occur in volume trend, but both onshore and offshore I I. Appreciate you talked a bit about revert rouge recovering towards the end of the second quarter on did you see that continuing a third quarter and you can use that whereby inside an island also did you see a ascent.
Another trend I'm BD, you keep you and your and your offshore Bye bye.
So good morning.
With respect to.
The underlying asset performance.
Each assets actually be driven is being driven by its own local market right. So we look at river Rouge <unk>.
Quite frankly were bit stands on the turnaround.
It was that.
On a half volumes the depths of March.
Right now we are above and D C level, and we see that for the remainder of the year.
Each of its got to live in our own bubble.
Both Craig and I have been in and out of the Midwest and you would think the traffic patterns on the highway is that people are back to normal.
So the kind of corporate local view is.
Down, 10% to 15%, but whiting and our trading group are awfully good at what they do.
So we're above a NBC on river Rouge.
Sentiment is.
Aviation isn't going to come back anytime soon but reversions volumes are circa two or 4%.
Jet fuel, so not really impacting that asset.
To the Diamond back we're back in the summer season, So there's always seasonality on.
No I believe with demand.
Need more doing it in the winter so the assets performing okay.
We don't see much difference there in terms of the seasonal pattern then offshore really is a co bid and kogas impact on Crewing staffing and Workover activity.
We saw a couple of blips on the assets you lose a week you lose 200 gay in our topline basically all across.
Each specific asset.
We think theres going to be more.
Turnaround and maintenance activity and opportunistic.
Through the summer and we're still not out of the the hurricane season yet.
Summing all that up when you take a look at our our distribution versus our cover we still feel we have a very solid second half of the year.
I'm going to turn to Craig and see if you want to supplement that anyway.
I just have picked up on I think Joe asked also about pp too I think the Whiting refinery kit is actually running really well.
Considering where demand is across nationwide when you looked at the averages.
BP to is rough is also running well, but you know the Canadian diffs have been down a little bit historically.
Through the back half a second quarter and into the third quarter. So there's been a little less volume going down VP too, but we're protected by Mdcs. There, we do see those differentials coming back already I think there somewhere between seven to $10 now says those differentials come back the volumes on BP to will also come back in the second half of the year.
Data I answer your question Joe.
Yeah, Yeah. Thank you that that's a really help I appreciate all the color there.
And then maybe if I can also ask a just a about the organic growth.
And I'm, particularly thinking looking is there any more information you can stay about the terminal opportunity I'm, assuming it that from that they can CNHTC and what we kind of be that dopa an expansion that.
Oh well keep.
This relatively succinct, it's fair to say that.
[noise] when the sponsor entered into the Thorntons JV theirs.
Synergistic opportunities to dive Thornton network into the BP system.
Ah, So that's where the investment opportunities lie.
Principally.
Okay.
Yeah, Okay. Thank you I'll I'll stop there.
Your next question comes from Derek Walker from Bank of America. Please go ahead with your question.
Hi, good morning, guys and congrats on a full quarter.
Maybe just the just the on the guide piece I appreciate that you reiterated that the range, but a you know some moving parts. So can you just kind of clarify or give some color around what the contribution of the additional storage revenues at at loop and what the cost reduction contribution is.
And.
I guess it is there any other change or take guidance relative to sort of the volume expectation that you relative to say first quarter, a that's sort of baked into second half here. Thanks.
Thanks, Derek Yeah, and I were not going to comment specifically on how much money, we're getting out of the storage revenues, but suffice it to say that you know rip talked about a few blips on the platforms with respect to co bed and some increased maintenance work and I think they between.
The water handling and the a increased storage revenue that sort of made up for some of those downturns and so we were pleased with the distributions we were getting from Mars in that respect I mean I think.
We do see.
Increased ramping volumes on the offshore, particularly around Proteus and his family in as.
Those fields or as you have a maddox fields have brought on by shell and the second half of the year, we're very cautious about this though there because.
It's you know, it's a different world out there working on the Osh or these days you have to make sure you have clean crews you have definitely hurt clean.
Contractor crews as well with the coded coming in and bringing things up and down and so I think they have done an amazing job of managing through all of that to have you know sort of volumes only be down sort of 10%.
Cost that world given everything that they have been facing so you know we had a couple of flat smaller platform shut in due to economic reasons, but our trading groups across show axon VP of done all sitting on a remarkable job of moving product through what was a pretty shaky.
Time, they're back in April as the Saudi crude came in but we managed through all of that so we don't see those types of headwinds in the back half of year.
But where you know we're being conservative in our guidance in the sense that.
You know the the way things are working on the offshore they're getting through it but it's not just the old world in terms of how things come on it from often in that respect.
What was the second part of your question.
I think that it pretty much every that I mean, I think it was just look for contribution of the added to then if there's any adjustments relative to what you previously had factored in for for some of the prior assumptions so.
Thank you.
Alluded to there that maybe having to follow up a little bit on the commentary around.
Just BP to in the Canadian Diffs and <unk>.
Appreciate that you all are anticipating an update and let's see Q results around the it'd be a and B C extension.
Well, maybe just can you give us a little bit of flavor around how the discussions have been going yeah. What are some of the factors being discussed and what are some of the considerations as well a rail and you know you're looking for a certain.
Yeah dip level are you know is it just met or getting multiyear legend and.
We anticipate that being at similar levels, just want to get a little bit type of whats those discussions have been like.
And and recognize the updates coming yeah with Threeq results. Thanks.
Well give you some color on this the.
I think about when we went public in 2017, there as a particular landscape that people anticipated.
Line three expansion.
Potential build of gay XL and it's been a very choppy.
Market.
Moving from 2017 to the current state.
In many respects when diffs are highly attractive we can't get all the crude we'd like.
And when there's a lack of unfortunate that's really rather than a reflection of the market signals on the dish.
And our actually has been limited a portion that during the whole cobot period.
But clearly there is also a.
Decline need for gasoline production right.
Our affiliate would prefer to have greater.
Certainty about what's going on with line three.
On the Canadian regulator has suspended the open season in as I understand it enrich those responses yet again tomorrow.
And coded as.
Of course that whole process back in time.
Knowing what.
Access you could have the line three in line three volumes would certainly make this a whole lot easier and it wouldn't be fair to say last year. We anticipated we would know that this year, we still don't know that.
And that's what's contributed to both the delay any ambiguity on well what is inappropriate NBC and for how long.
So we've gone back and forth on that topic.
And monitoring the market and <unk> monitoring line three events.
If line three doesn't provide us any greater certainty or closure so to speak.
We'll have to look at some type of stopgap measure.
And not a longer term NBC.
But that has not been decided nor concluded.
Okay, No that's ER <unk> appreciate the commentary to.
Yeah, Derek I'd also like to say that you know increasingly as we move into 2021, and we will have discussions with you guys about the growth.
You know beyond 2020.
You Nvcs are an important piece I think they help smooth the cash available for distribution quarter to quarter.
But in the whole spectrum of where B P. M. P. Eventually goes they'd become you know less and less material longer term.
And so we'll be talking to you not just about mbcs on the onshore fights are we talking to you about the bigger package of.
What's coming in terms of the growth in the offshore and how that all works together for a balanced portfolio.
I appreciate that thanks, Brett Thanks, Brett Thanks, I appreciate that.
Is there.
Once again, if you would like to ask a question. Please press star in one.
Next question comes from Theresa Chen from Barclays. Please you have with your question.
Hi, there I just like to start by asking a follow up question now on to the Nbcs topic.
I appreciate the commentary on the supply side in terms of on the uncertainty related to the WCS differentials and I've wanted to further you know touch upon that your comment read about on the demand side of things out there you know not as much demand for gasoline production in such as you.
Sneak with your affiliate about renegotiating the M.D.C. the what's the outlook for a general refining utilization at Whiting next year and beyond posting.
Unprecedented demand shocking, especially as they're still working through some sloppy inventories on from a macro perspective.
It's probably fair to say that we're blessed with.
Advantaged asset in Whiting.
As old Jack Welch up here number one or two and your market.
People catch a cold summer died of pneumonia and you're you're still highly profitable that is a outstanding asset we have run at nameplate recently.
Okay. So.
We're not seeing.
Perhaps what like fourth quartile refiners would see in terms of access to the market ability to move product ability to make product and still making money.
Okay. So we actually really haven't had much of a conversation it has any kind of market tanks to it.
I guess I would build on that Theresa. This three side build on that to say that what we're talking about is the refinery that's we're actually.
Probably was.
Last underutilized than most during the second quarter and has come back strong and that's evidenced by you know you see the product volumes down River Rouge recovering quite quickly in between.
Oh, well above Mbcs now already and sort of Ah June and July and even into August.
What were really you know wrestling with on the BP to volumes is really more a.
Crude slate optimization issue with that.
With the Canadian Diffs.
So I'm you know once that moves back to normality, we would expect to see the volumes on BP too. So you know, there's two ways to get crude into Whiting.
You'd be too and there's another pipe that comes in.
So you know I don't think that decreased volumes on BP to or in necessarily indicative of how whitings been running through this whole thing.
Got it and then switching to the offshore side. So you know you mentioned having to work I mean with that I guess, Saudi slow kill it but you know headed our way during the second quarter and as we kind of books. You then near to medium term it seems that incremental production from Russia. Okay.
Countries, you know going to ramp up in some order and potentially widening out that medium sour differential how do you think about you know economics on offshore side in light of all that.
Oh, well I'll start the.
Okay.
Honestly speaking we are he personally well I was surprised by.
How.
In Q2 different crudes attracted premium prices relative to other crudes, partly because of supply disruption elsewhere in the world.
And this was principally on the March quarter, and before bidding up and we're only talking a dollar apparel right. So we're not talking wild swings in value but.
Just because of who could get so what various crews were moving at a premium viz, a viz their historical pattern.
I think we take comfort that between shell and BP and Exxon the owners of the fields in our pipes, they're all very sophisticated companies and they will move their product to market.
I can't give you any better answer that yeah, and I guess from a from a visibility standpoint I think.
We only see that getting we've only saw saw that getting better overtime.
And.
There was a time there I guess in second quarter, where it was.
A bigger concern and I think I know, we're not hearing those types of concerns from our trading organization. These days.
So if they didn't very as you saw on the results of the I have seen majors and they're trading it was extremely beneficial to have high quality trading in supply groups I think that support that also carries through to your onshore also carries through to your product sales as well having goods.
By organizations.
The move gasoline when its downtime to 15% is also very important and.
BP has that type of a trading supply organization, the other majors do as well, but it and the times like this it tends to really stand out versus some of the other smaller player.
So there was the anx than the second quarter. It was really about tank tops and what happens if you actually don't have a home.
For crude.
Okay.
It seems we're through that.
Got it and speaking of finding a home for crude on just on the the storage teeth and added benefits from incremental Baton Rouge. There was that result, as you know super contango opportunities and if so how long will.
Are you able to check that out for us and it's it's a benefit that we should be able to expect into 2021 beyond or plays it relatively short time in nature.
I'd say, we had a soft contango.
And I have a soft contango right now our guidance as don't expect any further upside on this partly because.
Average size or finite.
Right.
If you look back in history, there are periods, where.
Tens of millions of dollars have been made in a super contango environment in a single year.
Oh, that's obviously shared amongst the partner so would never go to our bottom line.
This is kind of at best.
10 million Bucks for.
He PMP.
Net.
So it's not a.
A large alpha.
Our results at all.
But it's nice to have had difficult market and it's really more mitigated of the environment you get these benefits.
Thank you very much.
Just a distinct.
Come back on that treats I think that 10 million Rip speaking so it was a gross numbers though.
You know what came out to the BPM.
But I mean, what we've told you in its in our guidance was too you know, it's it's not in our guidance going forward, if there's upside with those storage revenues I'm water handling revenues it will come through.
But we're not we're not comment on it in our guidance right now.
[laughter], ladies and gentlemen, with with that we will conclude today's question and answer session.
We also conclude today's conference call and we thank you all for joining today's presentation. You may now disconnect your lines.
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