Q1 2021 Phillips 66 Partners LP Earnings Call
Yeah.
Welcome to the first quarter 2021 of Phillips 66 Partners earnings Conference call. My name is Hillary and I will be your operator for today's call. At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session. Please note that this conference is being recorded I will now turn the call over to Jeff Dieter Vice President Investor Relations, Jeff you may begin.
Good afternoon, and welcome to Phillips 66 partners first quarter earnings Conference call participants on today's call will include Kevin Mitchell, Vice President and CFO, Tim Roberts, Vice President and COO and Casey Gorder General manager operations.
Today's presentation materials can be found on the events section of the Phillips 66 partners website, along with supplemental financial and operating information flow.
<unk> two contains our safe Harbor statement, we will be looking making forward looking statements during today's presentations.
In our Q&A session actual results may differ materially from today's comments factors that could cause actual results to differ are included here as well as in our SEC filings with that I'll turn it over to Kevin.
Thank you, Jeff and good afternoon, everyone.
In the first quarter Phillips 66 partners delivered safe reliable operations. Despite the challenging operating conditions are.
Our results reflect winter storm impacts and the partnerships decision to exit the Liberty pipeline project.
We continue to execute our capital program during the quarter.
The advanced construction of the CTG pipeline and the South Texas Gateway terminal was completed.
These assets are supported by long term customer commitments.
The board of directors approved the first quarter distribution of <unk> 87, five per common unit unchanged from the fourth quarter of 2020.
Moving on to slide for to discuss financial results.
66 partners reported a first quarter loss of $18 million compared with earnings of $104 million in the fourth quarter.
The decrease was primarily due to a $198 million impairment related to the partnership's decision to exit the Liberty pipeline project.
Compared with impairments of $96 million in the prior quarter.
First quarter, adjusted EBITDA was $289 million.
The <unk> $29 million from the fourth quarter.
The partnership's wholly owned and joint venture assets had reduced volumes and higher utility costs in the first quarter.
This was largely due to the winter storms impact from the central and Gulf Coast regions.
First quarter distributable cash flow was $233 million down $7 million from the prior quarter.
The decrease reflects lower earnings due to the winter storms, partially offset by lower maintenance capex in the first quarter.
Slide five highlights our financial flexibility and liquidity.
We ended the first quarter was $3 million of cash of $299 million available under our revolving credit facility.
We funded $52 million of growth capital during the quarter.
This includes the spend on the CTG pipeline and the investment in South, Texas Gateway terminal.
The debt to EBITDA ratio on the revolver Covenant basis was $3, two which is consistent with our target to remain below three five.
Our distribution coverage ratio was 107.
On April 1st we repaid $50 million of tax exempt bonds.
Also in April the partnership borrowed $450 million under a new term loan agreement.
<unk> were primarily used to repay amounts borrowed under the partnership's revolving credit facility.
Before turning the call over to Casey I'll provide an update on the Dakota access pipeline.
We recognize there's ongoing uncertainty associated with the litigation.
Pipeline continues normal operations during the legal proceedings.
At the hearing on April nine the Army Corps of engineers indicators that it will not seek of shutdown of the pipeline and instead, we'll leave the matter to the DC Federal District Court.
At Cortez currently considering whether to grant the plaintiff's motion to shutdown the pipeline, while the core completes its environmental impact statement.
Of that decision could come at any time.
The economic implications of any shutdown, while the legal process plays out extend beyond the pipeline owners to producers tribal nations customers state and local governments consumers and workers throughout the energy value chain.
Dakota access pipeline has a history of safe operations, and we believe it should be allowed to operate while the litigation continues.
Phillips 66 partners remains focused on operating excellence strong balance sheet and disciplined capital allocation.
Casey will provide an update on our growth projects.
Thanks, Kevin and Hello, everyone moving on to slide six I'll provide an update on our major projects, which continued to progress during the quarter.
The South Texas Gateway terminal commissioned additional storage, bringing total capacity to $8 6 million barrels.
This completes the final construction phase and.
In addition, the terminal has up to 800000 barrels per day of export capacity.
Phillips 66 partners of the 25% interest in the terminal.
We continued construction of the CTG pipeline connecting the Clemens storage caverns to petrochemical facilities in the Corpus Christi area.
We finished pipeline construction and the facilities construction is ongoing.
The project is backed by long term commitments and is expected to be completed in mid 2021.
In addition, we continued to develop low capital high return projects that optimize our existing portfolio of assets.
These quick win opportunities enable us to meet customer demand, while maintaining capital discipline.
This concludes our prepared remarks, we will now open the line for questions.
Thank you we will now begin the question and answer session as we open the call for questions of a courtesy to all participants please limit yourself to one question and a follow up if you have a question. Please press Star then one on your Touchtone phone if you wish to be removed from the queue. Please press the pound key.
If you are using a speakerphone you may need to pick up the handset first before pressing the numbers. Once again if you have a question. Please press Star then the one on your Touchtone phone.
Your first question comes from Theresa Chen from Barclays.
Hi, Thank you for taking my questions. Kevin I wanted to go back to your comments about Dakota access and <unk>.
Regarding the situation here.
Just walk us through your expectations on the next steps in the legal process, including the recent appeal to the Supreme Court and you expect the timeline on this.
Yes, so the.
The next.
Steps here are the.
So the judge posed Berg.
Issued and the order asking the Army Corps of engineers to update its latest estimate for completion of the EIS and also for the the core to provide its position. If it has one on whether the injunction should be issued so the judge Rick.
Quest the the core come back to the court next week.
On that and so thats really the the next <unk>.
<unk> for the to be some some kind of new statement.
As you know from some point next week onwards.
Okay.
I think consistent with what we said in the past.
Regardless of the outcome of what happens next week, we believe this legal process and you're just going to continue progressing so I still think theres actually quite of bit of uncertainty around.
The Apple despite our views the it should continue to operate and we've been consistent from that from the beginning I still think there is a fair amount of uncertainty around that I think the appeal that you were referring to was the appeal by the Dakota access to the appellate court for a.
For a rehearing that that was that was turned down so thats our request for appeal was denied.
And so really what we're left with is the.
The the.
The Federal District Court.
Judge posed Berg and his request for.
For the court to come back next week.
Okay.
I guess in relation to the updated language in your recent schedule of 13D E P.
About your thought process about the partnership as a viable standalone entity over the long term.
And if this is contingent on the outcome or do you view. These two events as completely independent of one another.
Yes, and so thats really a.
That was a.
PSX.
It was the <unk> filing, but really by PSX as a as the as an owner of the PSX and.
So from a sponsor standpoint, what that filing does is provide PSX with flexibility to consider alternatives around its ownership.
The possible actions it may want to do and stayed consistent with the with the within the SEC regulations. The previous 13D that was out there as being from IPO and so thats. The first time that theres been a change in net status and so really what it does is just give PSX flexibility to consider.
Alternatives around that it doesn't mean to say anything is going to happen.
By the at least the provides that flexibility, but I do think that as you step back and look at the sort of MLP landscape. A lot has changed over the last seven eight years or so which is the duration of PSX P. And so we're now in the position where there is a lot less midstream growth opportunities out there.
In this environment we're in.
You've also lost that cost of capital advantage that used to be present at the MLP and so the sort of ability to fund through equity.
Lot more challenged and on a relative basis when the cost of capital advantage isn't there. It's just harder to justify projects at the MLP versus say the sponsor doing projects themselves. So it just puts more of a more of a question mark around that.
Really tie that to the Apple to Apple is an added uncertainty for the MLP, obviously, but I don't think that the Apple on its own is going to drive any specific decisions around that.
Thank you.
Your next question comes from the line of Spiro <unk> with credit Suisse.
Hey afternoon, guys, Kevin if you could maybe just pick up on that question a bit and maybe I'll ask it differently I guess, if we could imagine for a second that we're beyond the Apple kind of resolved, let's call. It mostly back to normal just curious what your priorities are in that environment, and where you think of that would be focusing your time you answered it a bit there, but just curious on <unk>.
It is for <unk> to be a growth vehicle again here in the near term I think I heard on the PSX call. It sounds like the focus for the next few years is going to be deleveraging harvesting that cash flow I think you mentioned obviously the in the environment is not conducive to growth right now and so I'm just curious is that more or less.
The track the PSB is going to follow as well.
Yes, I think it's natural to assume that.
What is being said at the PSX level around growth and growth in midstream is going to have.
Knock on effect at the MLP and so you look at where.
At PSX today.
Capital program Midstream has $300 million of growth capital of which about half of that is at the MLP and sort of compare that to the previous few years Thats, a dramatic falloff and there's multiple reasons for that.
But.
Specifically the opportunities for a lot of those large scale projects are no longer there and so I, just think thats going to shape the trajectory of the MLP into the future as well until we see some sort of the dramatic change in the overall.
Sector that will provide for attractive.
Attractive growth opportunities.
Understood I appreciate the color there second one just on CTG.
The startup still on track for mid 2021, but I know you guys had mentioned in the past that the contract. The cash flows there really don't start to show up until early 2022.
There's something hard to guide to but is there anything stopping you from from marketing at day on that pipeline until the contract commences.
Yes. This is Casey no no there is not and there may be some some volumes in advance of that beginning of 2022 startup of the.
The kind of major contract on the asset but.
I wouldn't expect them to be hugely material either.
Understood.
Thanks, guys.
Your next your next question comes from the line of John <unk> with Goldman Sachs.
Hey, everyone. Thanks for the time.
Just wanted to circle up on that growth question.
No understand growth coming down across the space also understand the kind of cost of capital headwind for PSX P. But you also have PSX kind of announcing it starting to move forward. He got on track for just curious if that's something that you guys are thinking about moving down to the partnership at any point.
Yes, I don't think so at this point.
Youll see that.
So the Frac one sits at the MLP.
Over the course of the last two years or so PSX is completed fracs, two and three and in the originally of Frac for was a quick follow on behind those two we PSX made the decision to suspend that.
All of the uncertainty last year.
Of trying to.
Reduced capital its capital spending outlays.
<unk> made the statement of this morning that we anticipate coming back to that second half of this year, but I think at this point, it's reasonable to assume that thats, where it is going to reside.
Of the PSS.
Alright got it thank you and just one follow up curious.
Curious on the on the term loan matures in a year, it's a little bit different from what we normally see from you.
Just curious if that's getting a little bit of more liquidity ahead of a dipole announcement or if there's anything else going on there.
Yes. The primary objective there was we had been running we've been going in and out of the revolver.
Up to that sort of 400 $500 million level of periodically and so we decided to term some of that out although still relatively short term, which gives us plenty of flexibility and it frees up liquidity on the revolver for whatever means we might need it.
We have a revolver at the $750 million revolver and if you periodically.
Getting into sort of two thirds of that capacity. Then you are dramatically reducing the available liquidity potentially at times when you might need of the most and so we just felt it was the prudent thing to do to recreate that liquidity capacity.
Understood. That's it for me thank you.
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. If you have any further questions. Please call Shannon or me. Thank you.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
Okay.
[music].
Yeah.
Okay.
Sure.
Yes.
Yes.
No.
Yeah.
Okay.
Okay.
Okay.
Yes.
Yes.
[music].
Yes.
Okay.
Yes.
Yes.
Okay.
Moving forward.
And the.
[music] accounts.
And the.
Sure.
[music].
Okay.
Sure.
No.
[music] zone.
Okay.
Okay.
[music].
Okay.
Yeah.
Great.