Q4 2020 BP Midstream Partners LP Earnings Call

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Good morning, and welcome to the BP Midstream partners fourth quarter 2020 results conference call and webcast.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After today's presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I'd now like to turn the conference over to Jeff car. Please go ahead.

Thank you and good morning, everyone welcome to BP Midstream partners fourth quarter and full year 2020 results presentation joining.

Joining me remotely today are within the Master <unk> Chief Executive Officer.

Craig Coburn, our Chief Financial Officer, and Jack Collins as CFO designate.

Before we begin let me draw your attention to our cautionary statement.

During today's presentation, we will make forward looking statements that refer to our estimates plans and expectations.

Actual results and the outcomes could differ materially due to the factors. We note on this slide and the now a SEC filings.

We also refer to non-GAAP financial measures.

Please refer to our SEC filings and supplemental information in this presentation for important disclosures related to these measures.

As well as reconciliations to the non-GAAP financial measures.

These documents and our presentation today are available on our website.

Over to you.

Thanks, Jeff and Hello, everyone.

I think it's fair to say that 2020 goes down as the year. Unlike any other way of experience.

We have dealt with the human tragedy of the COVID-19 pandemic and the uncertainty it has brought our personal lives.

And the broader macro environment.

For BP M. P. We of navigating the impacts of COVID-19 on the demand for refined products industry refinery utilization.

<unk> prices and the ability for offshore producers to safely maintain production and execute major projects.

Hearing the responsible COVID-19 related work practices.

We have also dealt with that historic Atlantic Hurricane season in terms of the number of named storms in a single season.

Hurricane impacts on the Gulf of Mexico, which require offshore producers the temporarily shut in production for safety reasons extended well into the fourth quarter of 2020.

For all of this uncertainty, we demonstrated stability and resilience let's.

The safe operations remaining at the core of everything we do.

We delivered solid operational and financial results in a challenging environment.

The testament to the underlying operational and financial strength of the business.

I would like to thank everyone at P. P. M P for consistently delivering throughout the year against what was a tough backdrop.

Thank you to our sponsor BP provided support throughout the year and many different ways and for our unitholders. We appreciate the support and dialogue we've had with you throughout 2020.

And we will remain engaged with you.

As we look ahead, we are optimistic, particularly as vaccines are rolled out.

We're also realistic.

Still have a way to go as evidenced by Covid related restrictions and several key demand centers continuing from late in the fourth quarter of 2020, so well into the first quarter of 2021.

We are encouraged though by the opportunities we see to build.

On our track record.

I'll start today with a brief recap on some key areas over the past year.

Craig will take you through our latest operational and financial results and the.

Jack.

We will provide you with our guidance for 2021.

I'll come back at the end to briefly sum up before we take your questions.

During 2020.

We focused on two priorities.

Safe operations.

Protecting the health and safety of operational personnel and other stakeholders through the COVID-19, pandemic and operating our assets on a safe and reliable manner.

We remain focused on this as we enter 2021.

<unk> to monitor local conditions and adapting our operating practices as appropriate.

And second maintaining the financial strength of the partnership to deliver financial stability.

Specifically, we increased the quarterly distribution in January of 'twenty 'twenty.

Prior to the COVID-19 pandemic.

And then prudently maintaining the distribution at this level through 2020.

Delivering unitholders, 5% distribution growth over the full year 2019.

We maintained a robust distribution coverage ratio at one two times for the full year at the top end of our target range of one one to one two times.

And as a result, we.

Built cash during 2020 approximately $28 million.

Great outcome and a challenging year.

We made progress in several other areas as well.

In early 2020, we restructured our debt with BP two of five year term loan facility with no principal payments due until 2025.

This reduced our net interest expense by around $7 million in 2020.

For 2019.

During the third quarter of 2020, we agreed to a new three year NBC arrangement with BP relating to our three onshore pipelines.

We believe these new arrangements strike the right balance between security and protection for the partnership from significant disruptions and maintenance affecting the Whiting refinery and our onshore pipeline network, while providing BP and with the flexibility to optimize refinery supply and output.

During 2020, our sponsored laid out of new strategy.

Richard describe both of the Whiting refinery and offshore Gulf of Mexico of hydrocarbon production as the resilient and focused assets.

We believe this reinforces their importance to BP going forward.

The importance of the partnership's pipeline assets.

We are highly integrated with these operations.

With that I'll hand over to Craig for what.

What will be his last time on the results call.

Thanks, Rich good morning, everyone.

As Rick mentioned, we delivered solid operational and financial results and 2020.

Our full year results were in line with guidance. We provided you at the start of the pandemic.

It's an outstanding result, given the changing conditions throughout the year that we had to navigate.

It demonstrated our operational and financial resilience underpinning our ability to deliver financial stability and important element of our investor proposition.

Even with the impacts of COVID-19, and multiple weather events in the Gulf of Mexico during the historic Atlantic Hurricane season.

Full year 2020, gross throughput was only around 4% lower compared to 2019.

Reflecting this lower throughput adjusted EBITDA was also around 4% lower.

Cash available for distribution remained resilient, though broadly flat compared to 2019, and we built cash during the year.

Looking at operational results in more detail total pipeline gross throughput was approximately one 6 million barrels of oil.

Oil equivalent per day in the fourth quarter around 5% higher compared to the third quarter of 2020.

Gross throughput on our offshore pipelines was around 4% higher compared to the third quarter, reflecting fewer adverse weather events in the Gulf of Mexico, compared with the previous quarter, although throughput continued to be impacted during the fourth quarter by Hurricane Delta and the data and the continued Ram.

<unk> of production from the Appomattox facility. These favorable impacts were partially offset by planned facility maintenance undertaken by offshore producers during the quarter.

Gross throughput on our onshore pipelines was around 11% higher compared to the third quarter for.

Similarly, driven by.

Higher throughput on BP to as crude supply optimization of the Whiting refinery favored Canadian sourced barrels.

<unk> on the Enbridge mainline increased during the fourth quarter from 12% in October to 32% of December tempering. Some of this throughput increase.

This was partially offset by lower throughput on river Rouge and Diamondback.

Throughput on River Rouge was lower than expected during the quarter, particularly in December with several key demand centers reinstating the COVID-19 related restrictions during the second half of the quarter.

Impacting on refined products demand.

Throughput was also lower on Diamondback in the fourth quarter due to a slower build of 1 billion of inventories in Canada ahead of the peak demand season full.

Full year 2020 throughput on Diamondback remained broadly consistent with 2019.

For the full year 2020 total gross throughput was approximately $1 6 million barrels of oil equivalent per day around 4% lower compared to 2019.

Offshore pipeline throughput was adversely impacted by multiple weather events in the Gulf of Mexico as previously mentioned as well as planned facility maintenance by offshore producers. This was partially offset by the continued ramp up of major projects three of the year, including the Appomattox facility.

Onshore pipeline throughput was also lower largely due to the impacts of COVID-19 on the demand for refined products and refinery utilization.

Turning to financial results net income attributable to the partnership for the fourth quarter was $48 million of around 10% lower than the third quarter of 2020, reflecting lower onshore pipeline revenue, primarily due to lower revenue on river Rouge, consistent with lower throughput during the.

The quarter costs associated with planned pipeline inspections incurred during the quarter and lower net income from equity method investments.

Adjusted EBITDA attributable to the partnership for the fourth quarter was $47 2 million slightly higher compared to the third quarter of 2020. This was another resilient quarterly result, benefiting from increased distributions from our interests in the offshore pipeline joint ventures.

Cash available for distribution for the fourth quarter was $49 5 billion around 16% higher than the third quarter of 2020, reflecting the recognition of cash in the fourth quarter associated with the portion of river Rouge as volumes above the minimum volume commitment level for the full year 2020 as previously.

David.

On a full year basis, adjusted EBITDA attributable to the partnership was only around 4% lower than 2019 and cash available for distribution was broadly flat with 2019 as previously mentioned.

Given all of the challenges during 2020, delivering a full year result that was consistent with 2019 and consistent with our guidance was a great achievement.

The board of directors of our general partner declared a fourth quarter distribution of $34 75 per unit consistent with the distribution level of the third quarter of 2020.

As Rick mentioned with this distribution, we delivered unit holders, 5% distribution growth over the full year 2019.

Earlier this month, we confirm the end of the subordination period. Following the payment of the fourth quarter 2020 distribution of milestone, which speaks to our track record of paying distributions in excess of those set at the time of our IPO over three years ago.

The distribution coverage ratio for the fourth quarter was around one three times slightly above the top end of our target range of $1. One the one two times.

As Rick mentioned, our full year distribution coverage ratio was robust at around one two times.

Finally on a personal note. This is my final set of quarterly results before I retire from <unk> CFO. It has been an absolute privilege for me to serve <unk> and our unit holders since our IPO in 2017, we'd like to thank Rick for his steadfast guidance through the last three years and our chairman Doug Spark.

And the rest of the <unk> Board.

I'd also like to thank my finance team, who have provided me with amazing support since the IPO and especially this year during the challenging environment with COVID-19.

And finally I would like to thank the operations team the operators engineers schedulers of the frontline who have been so instrumental in keeping the <unk> operating safely during the past year under the most challenging circumstances.

And with that I will hand over to Jack to take you through our guidance for 2021.

Thank you Craig and Hello, everyone as Craig mentioned, we start 2021 from a position of financial strength.

We are one of the few remaining traditional sponsored mlps.

An MLP with a strong investment grade rated sponsor.

Conservative financial framework Hi.

High quality assets.

Well underpinned distribution and one that is built cash.

As we have done year in and year out since our IPO.

We will continue to manage BP MP in a thoughtful disciplined manner, while creating value for our unit holders.

We will maintain our laser focus on safe operations and delivering stable resilient performance from our high quality asset base.

And always doing what we say we're going to do as you have come to expect from us.

Today, we will provide full year 2021 guidance for adjusted EBITDA.

Cash available for distribution and our distribution coverage ratio of.

Assuming of distribution level in 2021, consistent with the fourth quarter of 2020.

We will also provide guidance for the first quarter of 2021.

Starting with full year 2021, adjusted EBITDA and cash available for distribution. We expect these to be broadly consistent with full year 2020 based on the following assumptions.

First for our onshore pipeline portfolio.

Onshore pipeline gross throughput to be higher in 2021, compared with 2020, primarily due to increased throughput on BP too.

Revenues from the onshore pipelines are expected to be broadly flat with 2020.

Cost and expenses are expected to be between 5 million to $10 million higher in 2021, reflecting increased pipeline inspection costs higher insurance premiums and increase in the omnibus fee paid to our sponsor and increased variable costs associated with higher throughput on BP too.

Turning next to our offshore pipeline portfolio.

We expect offshore pipeline gross throughput to be higher in 2021, largely reflecting the full year impacts of an expected ramp up in production from the Appomattox facility the <unk>.

Startup of Bp's Thunder horse South expansion phase two project.

And on allowance for weather in the Gulf of Mexico that is aligned with a statistically normal year for the Atlantic Hurricane season, compared with the above normal hurricane activity experienced in 2020.

Consistent with higher throughput on offshore pipelines, we expect higher distributions from our equity method investments.

On a full year portfolio basis, we forecast pipeline gross throughput of around $1 7 million barrels of oil equivalent per day.

Overall, we expect our portfolio to remain balanced with our full year 2021 cash available for distribution being generated near equally between our onshore pipeline portfolio and our offshore pipeline portfolio.

Turning next to our organic growth opportunities.

We previously outlined that we have a portfolio of organic growth capital projects that we are working to progress. These.

These projects are expected to generate stable fee based revenues and mid teens returns.

We plan on continuing to progress these projects in 2021, including an increase in the capacity of the <unk> offshore pipeline, which is being funded by the producers and increasing the capacity of the river Rouge onshore pipeline.

We have earmarked up to $15 million in 2021 to progress these and other organic growth opportunities and we expect to start realizing the benefits from these investments in 2022.

In 2021, assuming of distribution level consistent with the fourth quarter of 2020, we expect our distribution coverage ratio to be at the top end of our target range of $1 one to one two times net.

Implies that even after funding the organic growth budget I just mentioned the.

We expect to increase our cash balances by between $10 million and $20 million by the end of 2021 from the $127 million of cash on hand at year end 2020.

Before handing back to Rick Let me briefly touch on guidance for the first quarter of 2021.

We expect pipeline gross throughput to be higher in the fourth quarter of 2020.

Increased throughput on offshore pipelines is expected to be supported by.

The absence of adverse weather impacts.

The continued ramp up of major projects, including the Appomattox facility and lower levels of maintenance by offshore producers.

Throughput on onshore pipelines is expected to be broadly flat with the fourth quarter.

Seasonally higher diluent volumes on Diamondback from peak winter demand is expected to be offset by lower volumes on BP to due to higher levels of apportionment on the Enbridge mainline.

And anticipated lower throughput on river Rouge due to our continued conservative view of refined products demand until COVID-19 related restrictions are fully relaxed.

Adjusted EBITDA is forecast to be lower than the fourth quarter, primarily due to the financial impact of the estimated lower throughput on BP too and River Ridge cash.

Cash available for distribution is also forecasted to be lower than the fourth quarter, primarily due to the absence of cash recognized in the fourth quarter associated with revenues as volume above its minimum volume commitment.

We expect distribution coverage ratio in the first quarter of 2021 to be comfortably within our target range of $1. One to one two times consistent with our conservative financial framework.

In closing I look forward to working with.

Our board of directors on the highly experienced and talented team at <unk> to deliver on the numerous value adding opportunities. We see ahead and keeping you all updated on our progress back to Europe.

Yeah.

Thanks Jack.

So the briefly sum up.

On the MP has a strong foundation.

The high quality assets portfolio of the has and continues to perform well.

Our management team focused on maintaining safe operation on the performance of our assets.

Our balance sheet kind of liquidity position is strong and the distribution coverage ratio that we have consistently built cash over three years collectively underpinning the financial strength of the partnership.

The sponsor who is the supporter and flexible.

This year, we plan to continue maintaining our focus on safe operations.

Delivering financial stability as we navigate the ongoing challenges the Covid presents.

Moving on what we say, we're going to the and being transparent around the operational and financial risks and opportunities we've seen throughout the year.

And delivering value for our shareholders.

And last but not least this is Craig its final set of quarterly results after more than three years as CFO of the PMT.

The strength and resilience of <unk> today are reflections of the credibility and command of the finance.

He has brought transparency and consistency to the investment community since our IPO.

Greg. Thank you for everything you've done for PTSD, where all of the randomness.

As usual on Investor Relations team are available to speak with you further outside of this results call.

Thank you everyone for joining our call today.

And now over to you for your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone for using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble the roster.

Our first question is from.

Martin <unk> from J P. Morgan. Please go ahead.

Hi, Thank you for taking my question.

First wanted to ask on on building of the cash on the balance sheet and just could you discuss why.

Do you feel that's the right thing to do not all of them and also are you kind of exploring other opportunities to return cash to unit holders on.

Either through like a special one time distribution or buybacks or or distribution growth accounting for all right.

Good morning, Joe Thanks for the question.

Probably fair to say 2020 was quite a challenging year, if you compare say.

April to December on where we're sitting right now.

As we look at the plan in many respects it feels like a plan it's balanced.

So what are we seeing in the market right now we're seeing the return of a portion of it.

A decent dips so comfortable that.

Whiting is kind of what all of the heavy we can get.

Balanced against the ability to get it.

Offshore of feels like.

We've yet to see the full of Biden agenda.

Much has been delayed there.

Basically COVID-19 costs, the industry will say six to nine months in terms of project delays.

And the <unk> has presented some challenges to shell.

So together with my board, we're in a bit of a wait and see attitude with respect to Hal.

The collections, let out and we slipped back into gear okay.

So our distribution looks fine.

And I think we have the opportunity.

To deploy cash, but I think we're going to wait a quarter or two before we make any real decisions.

Okay.

Okay that makes on Tim and Thats helpful. And then just kind of.

A follow up on that.

Do you still think the three five times debt to EBITDA is the right.

Long term target I know you kind of I guess once you see how how some of the thank you mentioned work out for you.

Kind of expect to go back up towards that range.

I'm going to pass on that and this at this point in time.

We've had no conversation with the board about changing our financial frame.

Okay.

It seems like the rest of the industry is working bloody hard to try and get back to some kind of normalcy.

We've weathered a very difficult storm.

And did so.

Other than worrying about storage volumes in April our financial frame bore bore us very well through a very tough period.

Okay that makes sense, thanks for taking my questions.

Again, if you of a question. Please press Star then one the next question is from Derek Walker from Bank of America. Please go ahead.

Good morning, everyone.

Greg I think I mentioned this last time, but.

Congrats again on your retirement the pleasure working with you in the.

If you will.

I think maybe I can start with maybe.

A little bit more of a higher level question just around some of the announcements from the Bureau of Ocean Energy management.

Maybe two pieces there one just how are you guys thinking about the offshore at least schedule.

They've put a pause on the on the March that's just.

Just how do you think about that the rest of the year. That's one and then I think also just came out with the announcement of rounds.

Wave energy projects in the Gulf of Mexico, and just wanted to see if that is something debt.

You guys have been looking at it that's actually an area of opportunity the kind of step into the kind of renewable side of things.

Yeah.

Good morning Derik.

Welcome.

With respect to the industries.

Speak both in terms of how we see it and then what I've read and I'm sure you've read.

The industry basically has the sufficient inventory of leasehold positions and certainly with development options that of last years and years and years right. So.

In the past I've done a deep dive on our our golf portfolio and existing producers and theirs.

A decade of work one could undertaken these fields okay.

I am mindful of we haven't seen the full biden agenda. So far we understand what their what their plans are with respect to leases.

So there may be other elements that we need to be mindful about TBD to be determined.

As the.

Qualifying income MLP I really can't comment on wave energy.

Okay.

I'm going to pass on that one Todd I don't think that one fits inside the MLP.

I guess, Derek I can comment a little bit of unmet having been CFO of alternative energy in the past life. So we did look at way of energy, probably 10 years ago.

You never know because technology moves on but.

It's something that we took a pass on way back down, but we'll see going forward things change.

Understood. Thanks for that and maybe just a quick one on <unk>.

On just the cost increases I think you guys mentioned $5 million to $10 million and there's a few different components there.

Do you have a sense of the breakdown of each of the contributions.

Yeah, So I'll take that one.

The biggest piece of the the.

The costs, we've got is on.

Line of inspection costs on one of our main lines on the onshore it's part of our normal cycle of every four years that's.

That's the biggest chunk.

Of the increase and then we did have some and I think everybody is going to be faced with this the debt. We did have some insurance cost increases come through just as people look generally at.

The segment and those costs have gone up.

And then injected mentioned for 2021.

We took a pause on the omnibus increase for 2020 I think that was the very good thing for BP to do but that kicks in in 2021 for us so.

The.

Those three things combined or the cost increases will be watching the the inline inspection costs very carefully.

See where they come in I think we've seen some good signals they may come in lower than we have anticipated here for this guidance booked.

Early days on that.

Okay. Thanks for that Greg and then maybe just one clarification.

I believe in the in the guidance you talked about just having more normal weather assumptions, but.

Do you have a quantify sort of the.

What that assumption is in the are you also factoring any planned producer timelines in the.

And youre talking about outlook.

Jack do you want to take that question.

Sure.

Yes, first Derek we don't really comment on other producers kind of plans with regards to turnarounds on impacts so.

On the weather impact overall, we're expecting a statistically normal year.

Which is kind of if you just look back at the five to 10 year average.

The number of storms, so would be a lesser impact clearly in 'twenty 'twenty, one relative to 2020.

Yes.

Yes.

Got it. Thank you I'll hop back on here, Thanks, Randy Thanks, Craig Eric.

Eric One question one for.

Follow up on that for you I mean, I didn't we didn't say on our third quarter that.

Hurricane impact was probably around $4 million to $5 million worth of cash D.

We saw similar ranges of that through the fourth quarter. So it was a pretty.

Pretty big impact on on.

The <unk> financial performance in 2020 as hurricane so.

Fingers crossed for everybody, we have a better year this year.

I appreciate the clarification there excellent.

That's it for me Thank you guys.

There are no market share I'm sorry.

No more questions in the queue. This concludes our question and answer session as well as the conference.

You May now disconnect you may now disconnect. Thank you for attending today's presentation.

Yeah.

Okay.

Okay.

Yes.

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