Q2 2020 Shell Midstream Partners LP Earnings Call
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Good morning, my name, except for and I'll be your conference operator today at this time I would like to welcome everyone to today's webcast from shell Midstream partners. All participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask the question. During the session. You want me to press Star and then one on your telephone.
Please be advised the today's conference maybe recorded.
If you require any further assistance please press star and then zero.
I'll now turn the call over to Jamie Parker Investor Relations Officer, you May begin your conference.
Thank you.
Welcome to todays webcast for shell Midstream partners with me today, or Kevin Nichols, CEO, Sean Carsten, CFO, and Steve what better DP commercial and business development.
Why to contains our safe Harbor statement will be making forward looking statements related to future events and expectations during the presentation and Q and a session actual results may differ materially from such statements and factors that could cause actual results to be different included here as oil than today's press release and 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 and appendix one of this presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. We will 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 second quarter earnings webcast.
Before I begin talking about our quarter performance I want to take a pause in a moment to acknowledge the impact that the pandemic has had on individuals.
From our staff to our customers to our investors and my heart goes out to those who have been affected by Copel 19, as I know these are difficult times.
And I hope through all of this that you're able to stay safe.
As I reflect back on the quarter and the uncertainties that the world was facing from the pandemic demand destruction.
Supply demand imbalance.
We were unsure of the potential impacts and their whereas many views as there were people willing to give them as to how the quarter would unfold.
We believed in the resilience of our assets. However, there were many questions surrounding what would happen to demand and where production cuts would take place.
Now as I look back on the quarter, we fared better than expected both from our strong performance of our assets against the evolving landscape, but also from the real time actions, we were able to take to mitigate the impacts of these challenges.
So today I'll focus on three areas first I'll provide an update on the actual impacts we saw this quarter against the uncertainties that we've been monitoring since the global pandemic and economic challenges began.
And second I'll share some detail on the levers, we're pulling to enhance our long term sustainability and finally I want to again highlight the resilience of our partnership assets.
So let me start with the impacts we saw across our business and how the quarter progressed operationally.
As I mentioned before we were observing two key market drivers demand destruction around finished products and crude production levels, specifically in the Gulf of Mexico.
In March and April like the rest of the industry, we experienced impacts of lower refined products demand, which affected pipeline throughputs as refineries lowered their respective run rates and even some cases shutdown.
In early May we saw signs of refined products demand recovery as some states lifted their stay at home orders.
As the quarter progressed refined products demand levels across the United States continue to improve and we saw increased throughputs on our pipelines not only because of the demand recovery, but also because of our assets and there's a month bid the most cost efficient means to move products to the northeast and Midwest markets.
Shifting to our crude oil systems, we knew that production levels would have to come down to balance with overall lower demand and we believe that the Gulf of Mexico Basin will hold up better than the other basins due to its connectivity to refining centers access to water storage.
As well as favorable crude type.
As the quarter progressed production cuts primarily took place.
Onshore.
The Gulf of Mexico Basin performed well throughout the quarter as medium sour barrels were in demand both by Gulf Coast refiners and global customers.
So with combination of improving demand higher refinery utilization and actions taken by onshore producers to curtail production the level of stress on the Gulf Coast Logistics systems, and the Gulf of Mexico Basin.
Improved throughout the quarter.
Now, let me turn to the some of the self help measures that I alluded to last quarter, where I shared with you that we'd be taking steps to reduce our cost to enhance our partnerships resilience, both now and sustainably into the future.
Currently we are focused on two areas initiatives to reduce our operational costs without sacrificing long term value and reducing the size of our organization in a responsible way, allowing us to safely run our assets and ensure financial delivery.
On reducing our operational costs. The team has reviewed all spend in search of ways to preserve cash.
Few quick wins include the re scoping of projects and the elimination of some discretionary work to immediately deliver bottom line savings.
We're also looking at process and program efficiencies that will lead to sustainable cost reduction.
Ultimately driving towards a more profitable partnership.
These include initiatives like optimizing our helicopter fleet and our approach to air travel in the Gulf of Mexico, making it fit for purpose for the size and scale of our offshore locations.
And the risk profile of our business.
Second we're taking steps to optimize the size of our organization, putting work execution and decision, making closer to the asset and reducing the use of third party contractors.
So what does this all mean.
We expect to enter 2021 with approximately $10 million and direct savings or increased contributions from jvs that we operate.
And we expect to ramp this up to an annualized savings between 30 and $40 million by the end of 2021.
These cost savings are an example of how we're looking at everything we spend now and into the future.
And we'll continue to look for ways to sustainably reduce cost and add partnership value as we go forward.
So let me close with the resilience of our assets and why I feel confident in the outlook for shell Midstream partners.
Overall, we have some of the best position assets in the sector.
Starting with the offshore we have one of the premier quarter networks, which not only provides transportation for advantage medium sour crude gate grades, but also provides unique optionality to our customers, allowing them to maximize netback pricing.
Additionally, our onshore assets spanned the commodity supply chain from crude to clean products and they are uniquely advantaged longer term to ramp up with the us and global recovery.
I still expect to see volatility of uncertainty throughout the second half of the year.
But we're confident in our portfolio of assets and our ability to manage through the environment.
With our asset performance through the end of July the partnership intends to maintain a distribution of 46 cents per common unit for the third quarter.
Given the uncertainties that still remain in the marketplace around the pandemic. The partnership's board of directors will continue to monitor the business environment and make decisions regarding future distributions on a quarter by quarter basis.
So with that I'll now hand, the call over to Sean for the financial Sean Thanks, Kevin.
As I reflect on the full quarter, resulting extraordinary quarter and really given the way the world's lots at our last earnings call Im really pleased with how our assets have performed in a volatile economic environment.
On April Onest, we closed on our previously announced transaction, which eliminated our sponsors I'd ours and converted the economic GP interest into a non economic interest. The partnership also acquired shells interest in the Medix pipeline, along with the Norco refinery logistics assets.
We're pleased to have completed the April transaction in a timely manner, which allowed the partnership to recede a full quarter benefits on those assets, while eliminating the ideas and fully aligning all unit holder economic interest.
The commercial construct of these acquisitions will also help underpin our portfolio with long term stable cash flows.
So now let me cover a few of our key financial metrics for the quarter. Our total revenue was 729, roughly even with the prior quarter.
Now this was primarily related to lower volumes on zydeco of 9 million and on our eastern corridor of about 6 million.
Both of these were impacted by supply demand volatility, resulting from the continuing effects of cobot 19, along with some with a few shallow water producer curtailments.
I'll remind you that our zydeco shippers still pay cash for their space as reflected in CA ft, but we booked credits and deferred revenue for the shippers to utilize at a later date.
Now were also down about 5 million lower product revenue when compared to the prior quarter. This is due to lower sales volume of allowance oil.
All of this was partially offset by the acquisition of the norco assets, which contributed $22 million in the quarter.
Our operating expense was 79 million that that was an increase of about $3 million from the prior quarter.
Now most of this increase is related to the addition of the norcal assets, which added about $12 million extends and a one time severance accrual of 5 million, which is related to the self help measures that Kevin described earlier.
These were partially offset by decrease in the cost of allowance oil of 13 million as we sold less allowances oil this quarter and we did not have the lower cost of market adjustment that we did in Q1.
Our income from equity investments was 109 million now this is down about 3 million from the first quarter, mostly due to lower demand on our refined product pipelines caused by pandemic related imbalances in our key markets.
Now this was partially offset by the contribution from the newly acquired Medix pipeline.
Other income was 11 million, an increase of 2 million <unk> million compared to the prior quarter now beginning this quarter, you'll also notice interest income coming through our financials.
This is related to the norco assets transferred to the partnership in second quarter of 2020.
In connection with the acquisition the partnership simultaneously lease those assets back this transaction for accounting purposes is treated as a failed sale leaseback.
And what this means is that the norco assets are booked as a financing receivable on the balance sheet and cash received from the norco take or pay contract will be split between revenue interest income and an amount titled principal and interest received on financing receivables.
You'll see this in the walk from EBITDA to see a ft.
Going forward, we expect the amounts book for the norco assets to be fairly stable given the structure of the contracts.
With all of this adjusted EBITDA attributable to the partnership was 192 million and after interest expense maintenance capital and other adjustments total cash available for distribution was 163 million.
Our partnership declared a distribution of 46 cents per LP unit. So this resulted in a coverage ratio for the quarter one times.
As you'll recall beginning in Q2, we will benefit from the sponsors distribution lever of 20 million per quarter for four quarters.
And finally, the Capex space, we incurred 6 million in the second quarter with 5 million related to maintenance capital and 1 million to growth.
So now let me turn to the partnership's balance sheet and liquidity as of June Thirtyth. The partnership had total debt outstanding of 2.7 billion.
Now this equates to a debt to EBITDA ratio of 3.5 times based on an annualized Q2 adjusted EBITDA.
We're comfortable with our balance sheet and we believe it allows us the desire flexibility to continue to effectively manage our business.
So now let me turn to a few updates for the rest of the year.
The offshore we expect to have several plan producer turnarounds during the third quarter.
Now these turnarounds turnarounds are expected to negatively impact both net income and cash available for distribution by approximately $10 million.
And as part of our cash preservation and self help initiatives, which Kevin highlighted earlier, our teams that have removed or deferred projects of roughly 13 million for Tony Tony.
This includes 5 million maintenance capital and roughly 8 million in growth Capex.
So let me close we're pleased how these strong suite of high quality midstream assets, which provided a ratable and stable cash flow.
And this coupled with our strong balance sheet positions the partnership well for the long term so with all of that we'll now take your questions operator.
Thank you.
Ladies and gentlemen, if you have a question at this time at the start out by the number one key on your touchdown telephone. If your question has been answered or you will share move yourself from the Gill. Please press the pound key once again that the question. Please press Star and then one now.
I asked that question comes from Shneur Gershuni from FBR Your line open.
Good morning, Hi, good morning, everyone.
Maybe to start off.
You can you declared a distribution flat this quarter.
And you signaled that you expect a same level next quarter.
I was wondering if you can talk about this signposts that you're following.
Besides that day to date flows on your system and so forth what are the site flows that you're following that gives you the confidence.
And things that we should be tracking.
Refinery utilization is it demand flows congestions what are the samples that you are looking at right now as you sort of make your prognostications.
Yes, Thanks dinner and I appreciate the you as well as others are looking for a longer term outlook and would like that and as we gave that we're in the middle of July we see the assets performing right now plants the confidence in our ability to give you the guidance for Q3.
It's the same things we've been watching before which is really the demand and how that plays out as well as production, but it's really around the pandemic and the recovery in the long term sustainability of that Theres, just so much uncertainty right now in the marketplace as you see hot spots flashing up as you see states and cities looked impact.
Actually we impose restrictions.
Theres just a lot of uncertainty with the pandemic right now we'd like to see a longer term sustainable recovery.
But actually Thats, while there is uncertainty in the short term.
As we looked at the midterm and long term our view has not changed so you were still looking at the growth prospects and the growth coming to our systems offshore from the Vito project, which is pretty pretty much completed just needs to be installed to the power nap to our Mars expansion project and some other things we're doing offshore so.
Our confidence in the middle and medium and long term and our story hasn't changed.
Okay Fair enough and then maybe as a follow up.
As you sort of look at the operational flows on your system.
Has anything surprised you in terms of your expectations. I mean, you did note that things were obviously valuable than you would block.
Last quarter, but as you look at the individual products and you look how everything is flowing.
Are there some interesting trends that are emerging that both positive and negative that we're very different than how you thought things were going to flow. When you last updated us last quarter.
Maybe I'll start then I'll turn it over to Steve.
Let's start by saying that the theories that we have in what we believe it would Ics, we would experience of kind of configuration right. So we've talked about the resilience of our assets on our product side, so for colonial and explore being the premier products pipelines in the most cost efficient effective way to move to those demand centers as recovery has picked up you see those.
So systems performing not only catching some of the demand recovery, but also being the first place people go to two actually for that demand recovery and then I think the other one is the Gulf of Mexico Basin, and how well that held up from a cost perspective, and the optionality that we provide against the.
Other basins as production cuts.
Came on the onshore versus the offshore so as Steve as you want to add any captured at well I mean, so surprised I think we're we're happy that the thesis that we believed in relative to our position in terms of heavy concentration of assets in PADD three with options for export.
Men storage and ways to move.
Crude and product around in advantaged product out of out of the Gulf coast up to the Premier refining assets, we're happy with that so surprised I don't know that we would say surprised but we're happy that the thesis that we expected and thought might happen would happen again, the uncertainties, where they're around overall supply and demand balance demand patterns and then.
Refinery cuts against production, but our basins have held up well in our assets are in those proper geographies to personal it was interesting that we saw exports when that was complete global lockdown in.
In that early Q2 timeframe, but there was still a poll for products for crude types from the us to global markets.
No that yes that was definitely surprising and maybe one final question. You you went through some good details at bell the steps, you're taking from a cost control perspective.
And how you are we thinking everything.
How much of this progress should we expect to be as is long term sustainable.
Obviously, you're doing a lot of things right now because of how difficult the environment, but how much can we expect is going to be kind of a long term trend or you can be able to capture 80% of these cost reductions.
Kind of lot of permanent bases are 90% just wondering if you can give us a little bit of color around that.
Yes, so some of the short term things that we alluded to right now with deferral of some projects or discretionary spend those are more one off but the actual.
Cost that I talked about in the opening those are all sustainable cost reductions so and some of those will come in 2020. For example, the re sizing of our organization and the reduction in our staffing that we'll all be complete by the end of the year.
And then these other initiatives that we're starting now are we have underway and some of them that will put in place in 2021, those cost savings are sustainable into the future.
Yes sure. This is Sean I think just the only thing I'd add is that just to make our lives more challenging we didnt implemented brand new ERP.
In our business just didn't during this quarter as well.
Implementation was a great success, and we're actually really pleased with what what it off offers US right. So as Kevin how highlights it's already providing us and some new cost transparency that we didnt happen. The past I think that will be a big elk antelope, So give us new efficiencies. So the ability to to do work orders in the field to pulled up you on your phone versus having to fill out a bunch of paper.
Work, so I think.
Our sustainability is going to be enhanced by this new ERP implementation.
Perfect. Thank you very much guys and enjoy the weekend.
Thank you be safe.
Thank you and next question comes from Theresa Chen from Barclays. Your line is open.
Hey, Teresa Hi, Hi, there. Thanks for taking my questions then I have a very happy to see year affirmed at third quarter distribution.
I was hoping to maybe get a little bit more granularity clarity on the demand picture as we are one month into the second half just on through July of what you have you seen on your refined products system, maybe by region.
Randy.
Yes, I think all and Steve may have more the details to share with you. It's a really difficult thing to talk about demand recovery as one number because it varies across the United States and across different markets. As they are approaching different things are in the areas that were in the Gulf coast to the northeast and everything.
We've seen different.
Parts of that system, along the way, you'll get to where it's now 17% down from previous.
Levels, but it can vary between the twentys to the.
To teens.
Yes, I think thats right. The demand pattern, we were pleased with the demand recovery in terms of overall gas and diesel held up well jet, obviously still significantly off but the ability for our refined products systems to continue to flow and have probably a bit more resiliency is there advantage to the cost.
Cost of the supply and the flexibility around getting out at the water storage opportunities, particularly in the new.
So they've been very resilient and we see that.
The demand patterns, depending on what happens obviously.
If they continue as they are we're comfortable with their ability to continue as.
Performing as they are today.
Got it and.
Related to.
One of your comments, Steve about the export markets seen a lever in option.
Okay. So I think a lot of the on facilities that have been brought online recently has been seen good throughput because the volumes are on sold on a contracted basis, but just in your broader in our.
Affiliate marketing viewpoint, given that there are a key.
Areas as.
Pain and refining economics abroad, how do you see the ex thank you Wes export.
Story evolving over time.
Yes, that's a that's in that the difficult one to be honest I think it and I. Appreciate the question what I'd tell you is with this level of volatility and uncertainty and that the hyper dislocations in terms of pricing between areas. It's hard to paint that picture clearly what we do believe though is the flexibility around our assets.
To be able to get to water and use waterborne vessels as storage opportunities for our shippers and partners in terms of trading.
We're in a better position, maybe some of the others, who may be landlocked not have that access, but you see different things happening with the European are opening up and what happens in the New York Harbor.
But but given the current uncertainty I don't think I can paint a picture of.
Of longer term trends at this point, except for the Gulf Coast is.
Advantaged from a cost perspective from a price perspective, and we'll continue to play out on the global stays that way.
Understood. Thank you very much.
Thanks Theresa.
Okay.
Thank you.
Next question comes from Derek Walker from Bank of America. Your line is open.
And there you guys Hey, good morning, I appreciate plans I guess.
Just a couple a little softer clarification question I appreciate the.
Clarity or the other level self help measures.
I just wonder if I heard right. So I think you alluded to.
Good number 30 to 40 million with 10 coming in 2020.
So I think that 2030 next year.
The.
They will next year does that include some of that we scoping that you alluded to around that.
You just gave an example of that some of the helicopter programs.
Is that also include the ERP implementation, while others will try to figure out what's the 2021.
Are you assuming that that could actually increase.
Okay.
Yes, Sean so so yes, it's Pat so first of all that the the onetime.
Cash preservation measures. We've taken that's not included in those numbers, let's system actually it's a onetime event, we're not calling thats sustainable cash savings.
As you will see United I think probably better talked again, you back to the Theres not exactly to modeling because we're kind of working through we do know that by the ended this year. We will we will be at a run rate of about $10 million sustainable savings at the end of 2020, and then we look to be at a run rate of sustainable savings by the end of 2021.
In the range of $30 million to $40 million and combination things around staff savings through around new cost initiatives and new cost transparency that will be enhanced by our new ERP. So.
How you ramped that up and model at alleging mortality.
Okay.
Hello.
Then I think last quarter you guys gave the.
General.
Guidance around the coverage ratio, where you thought those are here to go.
Hovers around one eluded to some turnarounds.
Q things.
Moving.
Is there how should we think about the coverage.
Distribution coverage for Threeq you.
Yes. So that you can we have brought a new guidance because we're we're still trying to understand where these markets going to go.
We've reaffirmed the distribution I think it'll be easier for us to provide that guidance once the market kind of return to whats kind of more normal whatever normal might look like after cobot 19.
But at this point, we're not providing any further guidance.
Okay.
So thats, a little that said, maybe a little bit.
And there were only one quarter end from this last dropdown, but you are looking out and think 10 normalize here.
Maybe as you guys at 4.1.
Hey, guys thinking about 15 to dropdown strategy going forward Thats it.
More moderate size dropdown in thinking about funding.
As a certain.
Coverage ratios that you're looking at in order to actually execute that.
Yes, let me start by talking about the strategy and I'll, let Sean plus the above kind of the mechanisms the funding those kinds of things.
When we did the transaction with the norcal logistics in the Maddox.
Assets that we acquired as well as the IDR elimination.
That transaction, we knew we will be sending coverage for a while hence the waiver from the sponsor as we build our way back into coverage with some of the growth that we see some of the savings that we're putting online.
And then we've always talked about as we build the balance sheet as we build the coverage. The unique position that were in is that we can kind of look at them a number of different ways of deploying that cash we can look at acquiring additional assets or pieces of those assets from the runway, which will be immediately accretive and have cash flow. We can look at organic projects like we have the margin expansion.
And some other things or we can look at if it made sense or it was the best use to look at that from a return to shareholders and distribution.
This sitting here right now it's hard to say what the best few so thats going to be when we get there, but we have all of those options available to us. So yes, no thing I'd just add probably is that from a funding standpoint, and I think were almost an enviable position, we have three and half times debt to EBITDA on our leverage so we have capability liquidity on our balance sheet.
To work with as Kevin highlights So we'll continue to build cash.
Bill coverage and how we ultimately deploy that will be very much kind of the kind of the facts and circumstance.
Because at the time and what the markets or our rewarding us.
Got it thanks, John Thanks, Kevin I appreciate the time.
Thanks, so much.
Thank you.
Next question comes from the Marine from Bill Your line is open.
Hey, good morning, everyone.
Couple of quick ones for me it seems like your sponsor is pretty forthright at this point about having being in a sales process for a couple refineries, including.
Some of the.
Our ancillary to your assets or specialty assets I should say can you just talked about the implications from potential sales there.
Contracts and things like that and how that might develop.
Now ill take that first so I really don't think it really has a material impact to our business from our logistics perspective, we'll continue to supply the refineries regardless of who owns them.
Beyond the mix in the us energy landscape.
We've always said that things will come and go in our runway.
That is dynamic, but we have a long list of assets in our runway to choose from so I don't really see that having a major impact around the assets that we could acquire award would have options to acquire long term and and they're going to do what makes sense for them from a partnership perspective, the norcal logistics assets that we just acquired around the norcal refinery thats very strategic to the.
Group and as a matter of fact, it's not ramp down its production.
Partnered with the chemical plant.
Generates products for the go into hand, sanitizer medical supplies, a cleaning supplies actually all in high demand in the current environment. So I don't doesn't really have a read through to us.
Okay. Second question from you would be just drilling down a little bit more in terms of zydeco.
Volumes seem.
Kind of healthy there can you just talked about west of volume ramp continued here into July.
And then also any preliminary discussions with some of your Counterparties on re upping those contracts today income do fourth quarter. This year.
Yes, Hi, this is Steve just to be clear I didnt quite understand the first question. So we could you repeat that for me I got the second one mobile yeah. It's just just really what's the trends have been on zydeco volumes here in July low to the second quarter.
Okay.
Yes, so I'll take that the.
Currently the system is still performing well, but what I would say is the the uncertainty and volatility that we see right now with as abnormal dislocation may not represent kind of long term dynamics. So.
We'll see how that plays out, but we still see the system as being very strategic given what shippers and need meaning optionality and flexibility connecting all the.
Trading hubs in refining centers in the export.
Market that plays into this question, yes about contract can you give two contracts that expire in in November, but there are six month or new options for each one of those and we're in active conversations right now discussing.
Options with current and potential shippers so.
We believe strongly in in the asset.
And that remains strategic for the Gulf Coast and it's important that.
What we've done over the past two connected to as many sources and destination points.
Plays out well for us into the future, but I also think another follow on its important to say that we've been real purpose for and.
We continue to grow and diversify alco portfolio away from any one geography or asset.
We're in the onshore and offshore fine products gas gathering and this recent acquisition of Norco, and we feel good about our total position and the capability of our assets longer term.
Thank you that's helpful. And then last question for me is just in terms of what you're seeing right now in the Gulf of Mexico, I think you.
Talked about some of the eastern cargo volumes being shut in is all that back online at this point and then also some tie in activity being delayed.
Has the tie ins happened at this point, so just how that's shaping up to three Q.
Yes, so some of the initial shut ends in the the shallow water platforms, mainly impact us in the east, but it was very minor those were economic reasons not containment reasons and we started to see some of those come back on you've seen some producers take advantage of the situation to go ahead and access.
All right some of the turnaround activity in those areas.
And in some cases, the tie backs as still remain predominantly on target, but there have been a couple that they are pushing a quarter, it's not material, but overall, we're starting to see that production come back online and our thesis around the Gulf being resilient and our position. There has has been maintained.
Great. Thank you.
Thank you.
Next question comes from Spiro Dounis from Credit Suisse. Your line is open.
Hi, good morning, everyone.
Morning.
It's good just maybe go back to the distribution briefly Kevin you mentioned competence and a long term and I don't imagine the distribution will be copper. Some short term issue I guess I'm trying to figure out is it fair to say that the question at this point.
Each quarter is whether or not flat or increase it I just want to make sure that I understand your point I mean, very confident long term, which I I thought the board is looking at when making these decisions versus some short term issue here.
Yes, so I think I know, you're looking for kind of guidance and some long term.
Certainty I'm, just not going to be able to provide that today, specifically, but look we from the day that we took the company public.
We take our commitments to the marketplace extremely seriously. So when we say that we're going to deliver on something we deliver on it and.
Right now management is focused on getting the most out of the assets driving cost out of the business managing through the current landscape. What we can't control is this uncertainty in this landscape that we're operating in such as very difficult for us to.
Given give a given guidance longer term when we would then commit ourselves to delivering it without the marketplace and knowing the marketplace. So as I mentioned earlier on the response will continue in the board will continue to monitor.
The pandemic grilling and what's happening associated with that and how it impacts demand and production and hopefully we'll see the current environment improve from here.
Yes, Okay. That's a that's fair and then mentioning the uncertainty I guess, if the layer on to that obviously, we have an election coming up so I'm just curious how much of the election playing into your decision making process at this point either when it comes due to distribution itself or just growth in general seems like the relevant factor here would be a restriction on federal lands.
Lots of uncertainty around what that when you look like state how much that's weighing on your decision, making and I guess, if we shouldn't really expect anything strategic to occur I guess before November.
Yes, so I mean, I'm not going to speculate I will have the election will turn out and what will look like even as depending on who gets into office and what area.
We believe in the value of the hydrocarbon chain and to the importance of energy landscape in the United States for many years to come and we've demonstrated that our existing assets can continue to operate.
In multitude of different environments, I think there whether those restrictions on new growth and you've seen other permit issues for new construction, we've actually navigated through some of those challenges quite well with some of the new construction that we've done and we're proud of that but but we believe we have a really robust set of assets that are up and running and well positioned.
To provide the energy that markets need and so we're confident in their performance long term.
Okay, perfect last one little bit from left field, but I know Rds is ramping up its hydrogen production and distribution and I guess, while most of that is European base I do believe there are some assets in California. So just curious how big an opportunity is there for shallow acts to benefit from hydro and expansion over time, Dcs I was trying to get into that.
At the differentiate yourselves I guess from the perspective.
Yeah, We've always said, we're going to work in mainstream midstream assets, but that said, we also said that where there is a logistics need partnered with something that our sponsor does and before we go look at getting that logistics leave filled from someone else that we will consider it.
But really with all the opportunities that we have in front of us to choose from now up and running that get can generate cash from day one.
Where that would sit in the priority of things uncertain.
Understood. Thanks for the time today guys be well thank you.
Thank you Sir our next question comes from Joe Myself Leo from JP Morgan Your line is open.
Hi, guys. Thanks for taking my question.
Wanted to ask on the margin expansion and it seems like.
China discussions there for CGI, saying.
How big could that potentially be and do you have an idea packages.
Apart how significant a contribution to show up on them a bit.
Yes, Hi, this is Steve let better appreciate the question.
Indeed, the expansion is still progressing we're pleased with that and we have Ela lies in place and we anticipate the.
The project to come online in 2021 in advance of previous announce Vito and power Nap.
Yes.
At this point, we're not giving any guidance just yet on the impact in terms of incremental cash to to the partnership.
I do believe in the past, though we've said that it's 60 is about 65 and six 5000 barrels a day, yes, and then and then the conversations with the the producers and customers.
Everyone still very very bullish on the Gulf of Mexico, and take Thats Testament to the fact that we do have otherwise in place in the project continues to move so anticipate somewhere around that number just depends how things play out over the next.
Year to half.
Okay. Thank you that's helpful.
And then.
Building on spirits passionate about the new administration, just kind of digging deeper in there do you if theres an instruction on federal lands and no one knows what will happen with that.
Well I kind of how would you see it Tom production progressing.
And as you have an idea of what declines will look like and then kind of what that means that yet.
Yes. So I think you have to think about this as when would that impact take place and when would that affect the business right. So.
What's happened in the Gulf of Mexico between existing productions and producers they've got leases already contracted up and it's a long process to prove out wells commercialize the the prospect then some cases build a host are connected to a system. So from a medium to longer term view, we're very bullish about what.
Is already in the funnel and that will continue to come to our assets because they are well positioned in the Gulf of Mexico, where this may play out his future leases and development, but that would be many years out.
Before that whatever have an impact to that to follow.
Okay. That's helpful and thanks for taking my question.
Thank you.
Thank you and our next question comes from TJ Schultz from RBC. Your line is open.
It TJ.
Hey, good morning, any update on colonial litigation negotiations and potential impact you.
Yes, so Joe that Steve we're not going to give any many guidance on the current situation I think theres public information that is out there for further questions on on colonial we point you back to them for continent.
Okay Fair enough and then just in the Gulf any update on time.
Two.
And the impact to your pipeline volumes.
We'll have to get back to you on that one I'm not aware of that but certainly I'll ask Jamie to take a look at unequivocally that please.
Okay.
Thank you.
That concludes our question and answer session for today's conference call, Let's turn the conference back over to Jamie Parker for any closing remarks.
Thank you very much for your interest in shell Midstream partners you have any additional follow question. Following today's presentation. Please feel free to call me directly my contact information can be found on the presentation materials as well as on our website shell midstream partners Dot com.
Thanks, everyone have a great weekend.
Ladies and gentlemen, thank you participating in todays conference. This does conclude the program you may now disconnect everyone have a wonderful day.
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Dan.
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