Q3 2020 Phillips 66 Partners LP Earnings Call

Welcome to the third quarter 2020, Phillips 66 partners earnings Conference call My name.

David and I will be your operator for today's call.

It's time, all participants are in listen only mode later.

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 third quarter earnings Conference call.

Participants on today's call will include Kevin Mitchell, Vice President and CFO, Tim Roberts, Vice President operations, and Rosy, Zuklic, Vice President and Chief operating Officer.

Todays presentation materials can be found on the events section of the Phillips 66 partners website, along with supplemental financial and operating information slide.

Slide two contains our safe Harbor statement, we will be making forward looking statements during the presentation and our Q and a session.

Actual results may differ materially from todays comments factors that could cause actual results to differ are included here as well as in or is he see filings with that I'll turn it over to Kevin Mitchell.

Thank you, Jeff and good afternoon, everyone.

The third quarter Phillips 66 partners deliberate safe reliable operations.

We captured improved market conditions reflected by higher pipeline Throughputs.

During the quarter, we advanced our major growth projects.

Williams on the Grill pipeline continue to ramp up and at the South Texas Gateway terminal additional storage came online.

Yes, actually it's our operating well contributing to our results.

The board of directors approved a third quarter distribution of 87.5 cents per common unit, a 1% increase over third quarter 2019.

Moving on to slide four to discuss financial results.

The partnership reported third quarter earnings of $206 million and adjusted EBITDA of $313 million.

Adjusted EBITDA from wholly owned assets improved to $23 million due to increased volumes associated with higher utilization.

Continent refineries operated by Phillips 66.

Adjusted EBITDA from the joint ventures improved $21 million due to higher volumes, including the ramp up of Grail pipeline and the startup website, Texas Gateway terminal.

Third quarter distributable cash flow was $243 million up.

$25 million from the prior quarter.

The increase reflects higher earnings from wholly owned assets and increased joint venture distributions.

Slide five highlights our financial flexibility and liquidity.

We ended the third quarter with $2 million of cash and $457 million available under our revolving credit facility.

The partnership funded $160 million of growth capital during the quarter.

This included spend on the CTG pipeline, an investment in South, Texas Gateway terminal.

In addition, the partnership continues to fund the chair of prior commitments for the deferred Liberty pipeline project.

The debt to EBITDA ratio on a revolver covenant basis was 2.8, which is consistent with our target to remain below 3.5.

Our distribution coverage ratio was 1.22.

Group 66 partners remains committed to disciplined capital allocation and maintaining our investment grade credit rating.

No road he will provide an update on our growth projects. Thanks.

Thanks, Kevin and Hello, everyone moving on to slide six I'll talk about our growth projects, we continue to advance the CTG pipeline project.

240000 barrels per day, I think pipeline will run from the Clemens caverns near for many Texas to Gregory Texas.

Pipeline is backed by long term commitment and will serve petrochemical customers in the Corpus Christi area.

Construction is roughly 55% complete and is expected to start up in mid 2021.

At the South, Texas Gateway terminal, the first stop and 5.1 million barrels of storage capacity have been commissioned and the terminal began crude oil export operations in July.

Terminal operations are expected to ramp up through the end of this year as additional phases of construction are finished.

We expect the project to be completed in the first quarter 2021, with total storage capacity of 8.6 million barrel and up to 800000 barrels per day of export capacity.

Phillips 66 partners, a 25% interest in the terminal.

As we near the completion of these inflight capital projects, we expected 2021 capital budget to be approximately $300 million D.

Details of our 2021 capital program will be provided in December.

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

[laughter].

David do you have questions for us.

Yes, 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 and a follow up with you.

You have a question. Please press Star then one on Touchtone phone.

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

We are using a speakerphone.

Pick up the handset first before crossing the numbers.

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

Bill Gates from Credit Suisse. Please go ahead your line.

Hey, I want like to go back and maybe just get a little bit more color on some topics that came up on the TSX call earlier topic of refinery closures came up and yeah. I think I heard you guys correct actually it sounds like the remaining P.S.X. refineries the Abra Danielle our fair.

Well insulated here going forward barring another downturn. So so one did I interpret that correctly and how are you guys assessing the risk of more closures here from P.S. exceeds perspective, as a service provider to does refiners.

Yes, Spiro its Kevin I think the way to think about this you look at the P. S X P portfolio and generally it's focused on.

To the extent the PSP I guess XP assets are tied to Phillips 66 refineries that tends to be down in the middle of the country, So sort of mid continent, and two <unk> Gulf coast for the most part.

Which is good.

Generally where from a Phillips 66 family, we've talked about it being our sort of core the core parts of the portfolio and so I think I mean, I think that's a long what that comment meant in terms of relatively insulated, but I think if you go back and just let me take the hypothetical situation all at Phillips 66.

Action around a particular refinery to idle. It then it really depends on what assets are we talking about exactly what's the contractual.

Contract details in place between the two entities, we haven't disclosure in the 10-K that states that.

Any short term idling would have no impact the nbcs those commitments would hold but something in excess of 12 months would enable Phillips 66 to get after that but that is not that doesn't apply across the board every asset every refinery. So it really is a case by case type of situation.

Okay. That's a that's helpful color thanks for that and Kevin next one just on on some of the things that came up break it made some comments around midstream that caught my ear as something elaborate on a few of them. So first you mentioned the Ministry Ministry, probably seen consolidation over the next few years M&A hasn't really been part of your strategy. Historically, so just wondering.

How do you think he ethics piece fits into that mold and then second you talked about a lifecycle of an l. piece being shorter than before is that an indication that you're spending a little more time evaluating a C Corp structure, just wondering your stand how to interpret that comment.

Yeah, Let me answer the second one first and then we'll come back and talk about the the first one so the comment around the MLP lifecycle is really just reflecting if you. If you go back to where we were at say five years ago, and then look at what's happened in the space and the midstream sector over this.

Subsequent five years five years, you've seen C Corp, conversions, you've seen roll up transactions and and so you actually have a the MLP universe is quite a bit smaller now than it was back at that point in time and so it's just reflecting the reality of what has happened that this lifecycle has has somewhat short.

And it really wasn't meant to intend any specific.

Intentions around a specific course of action around its just somewhat reflecting what weve seen take place.

In the market over this time period.

And then the other question on consolidation.

We've always said that PS XP.

We have the ability to grow by organic means I eat direct capital investments and growth projects at the MLP.

Good dropdowns from the parent company.

And through acquisitions.

We've done a small number of asset specific acquisitions and those were earlier on probably for 345 years ago I kind of timeframe in terms of that but in principle. We we have felt that the the PS XP could position itself to to participate in that and broader industry called.

Validation, we think it needs to happen in the midstream space, you've seen that happen.

In a pretty big way in the upstream right now and that's a yeah I think for the midstream to compete well bigger is better scale is helpful. The ability to be more efficient to drive cost efficiencies commercial synergies through the entire midstream value chains.

And so we think that's a that's likely to happen.

Theresa Chen from Barclays. Please go ahead your line is open.

Hi, I'm, Kevin I would like to unpack your last comment about P.

Yes, that's potentially participating in broader asset consolidation across midstream are there particular assets or geographical locations and.

Well, just you know certain parts of the value chain that you think would fit well and appeal to P.S. exceed more than others.

Well you. So you look at the portfolio that we have MPSX.

He today and you've you've got crude value chain and NGL value chain assets and some of which are integrated with vsx assets, some of which are not and sort of stand alone and so I think you look at where can you.

Leverage the existing portfolio into something bigger and create a broader opportunity in that respect because if you don't if you don't approach. It that way then the opportunity to drive cost efficiencies and potentially commercial synergies are just not there and so that's how I think about it I don't know Tim if you have any.

Other comments, Kevin you hit it spot on it's really about how do we build out the value chain and make sure as we're positioned so that we can support the upstream consolidation that's going on as mentioned Kevin earlier, So yes, that's right.

Got it and shifting to DAPL can you give us an update on yeah.

The evolution of the process, where do you think it goes over the near term and key milestones from your perspective to keep an eye on and also related to that can you tell us about the movement on Bayou bridge that is directly related to DAPL.

Well I mentioned Bayou bridge its EBITDA.

This is Tim Teresa So I'll I'll cover that a little bit let me talk about dapple real quick really nothing's changed we're still at two items that need to be addressed by a district court in an appellate court in DC, we fully expect that those will be addressed based on the briefing schedule as we've seen sometime towards the end of the year maybe.

Rolling into early next year, but we expect them both around the same time, but regardless of what happens our expectation is that they are likely going to get appealed. So I think the process is one of an appeals process and likely goes forward.

Now from a standpoint of Bayou bridge I cant get into lot of details that we don't want to share at that point with you a plus you got to remember a energy transfers the commercial lead on that but what I can tell you is that is a pipeline that we do run heavies and lights on and I think that May help you with some of your end.

Hopefully.

Again, if you would like to ask a question press star one on the telephone.

Turning from JP Morgan. Please go ahead your line is open.

Hi, Good afternoon, I was just hoping you might be able to provide a little bit more color on the joint ventures, how those businesses performed if you know gray, okay, and I guess sand Hills Southern Hills, just wondering if those things kind of met expectations anything kind of stood out there in particular jessa and any color on that.

Jvs would be helpful. Thanks.

Sure Hi, Jeremy this is where the yes during the quarter you know all the our Davies actually performed well I mean, I think and as Kevin covered during the prepared remarks Grail actually was with one of the leading ones that that contributing to the quarter at sand Hills did as well, but you know it it performed or last quarter. So I would.

I would say that as a stand out and Grail in the Bakken and explore where actually were the three JV that that contributed an.

An upside this quarter compared to last quarter.

Got it.

That's helpful. Thanks, and just.

Just wanted to see you know.

Valuations in the space of kind of a you know declined a lot. This year as we all know and just.

Just wondering with the yields standing where it is is there ever a situation where that capital could be kind of better deployed it lowering leverage or you know unit repurchases or what have you. Just wondering if you could kind of you know.

Refresh us on your capital allocation philosophy, given how everything the world has changed so much.

Yeah.

I mean, it's a good question and.

Step back and priority is to maintain our strong balance sheet maintain the investment grade credit rating and we also have expectations that we continue continue to invest in growth in the MLP. We're fortunate that we have a very strong MLP are great portfolio really strong assets the balance.

He is solid we have a fair amount of room from a leverage standpoint, if we need to utilize that.

But I also think that from an equity valuation standpoint, we're hesitant to make any immediate decisions around that because.

I really believe that the so the dapple cloud that's hanging over P.S. XP is having a significant impact on valuation and so reluctant to make decisions that could have long term.

Consequences, while until this whole this hold that position plays out and so I don't want to be rash and in making decisions around that and so that's really really so the frames up how do we think about that.

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

Thank you for your interest in Phillips 66 partners I'd like to thank Brent Shaw for his significant contributions to the Investor Relations Group Brent has been promoted to another area within Phillips 66, and I'd like to welcome Shannon Holly to the Investor Relations team.

You have any questions. Please call Shannon or me. Thank you.

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

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