Q2 2021 Phillips 66 Partners LP Earnings Call
Welcome to the second quarter 2021 and 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 went on.
I'll turn the call over to Jeff Dieter Vice President Investor Relations, Jeff you may begin.
Good afternoon, and welcome to Phillips 66 partners second quarter earnings Conference call participants on today's call will include Kevin Mitchell, Vice President and CFO, Tim Roberts, Vice President and C O O and Casey Gorter General manager operations.
Today's presentation materials can be found on the events section on the Phillips 66 partner website, along with supplemental financial and operating information.
Slide 2 contains our safe Harbor statement, we will be making forward looking statements during today's call and our Q&A session. Actual results may differ materially from today's comments and factors that could cause actual results to differ are included here as well as and our SEC filings with that I will turn it over to Kevin.
Thank you, Jeff and good afternoon, everyone and the second quarter Phillips 66 partners delivered solid financial results and reliable operating performance across the business our earnings reflect higher throughput on our wholly owned and joint venture assets.
During the quarter, we advance our capital program.
We continued construction of the CTG pipeline connecting the Clemens storage caverns to petrochemical facilities and the Corpus Christi area.
Pipeline is expected to be operational and the fourth quarter of this year.
The Bakken pipeline optimization project continues to progress with the next phase of incremental capacity commencing service this month.
The CTG pipeline and the Bakken pipeline on both supported by long term commitments.
And July the board of Directors approved a second quarter distribution of <unk> 87, 5 cents per common unit unchanged from the first quarter of 2021.
Phillips 66 partners remains committed to safe reliable operations, a strong balance sheet and disciplined capital allocation.
Moving to slide 4 to discuss financial results.
Phillips 66 partners reported second quarter earnings of $225 million.
Compared with a first quarter loss of $18 million.
Our first quarter results included a $198 million impairment, resulting from the partnership's decision to exit the Liberty pipeline project.
Adjusted EBITDA was $337 million this quarter and increase of $48 million from the prior quarter.
The improvement in earnings and adjusted EBITDA reflects higher volumes and lower utility costs. Following the first quarter winter storms as well as higher pipeline and terminal volumes due to increased utilization Phillips 66 operated refineries.
Second quarter distributable cash flow was $267 million.
Up $34 million from the prior quarter.
The increase reflects improved earnings which were partly offset by higher maintenance capital and the second quarter.
Slide 5 highlights our financial flexibility and liquidity.
We ended the second quarter with $2 million of cash and $734 million available under our revolving credit facility.
We funded $44 million of growth capital during the quarter.
This included spend on the CTG pipeline and funding for the Bakken pipeline optimization project.
The debt to EBITDA ratio on a revolver covenant basis was 3.0, which is consistent with our target to remain below $3.5 a distribution coverage ratio was 134.
And April we repaid $50 million of tax exempt bonds and borrowed $450 million under our new term loan agreement.
Proceeds were primarily used to repay amounts borrowed under the partnership's revolving credit facility.
This concludes our prepared remarks, we will now open the line for questions.
Okay.
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Your first question comes from the line of Spiro Dennis with Credit Suisse.
Hey, Anthony and team.
Kevin No you're generally not and the practice of providing firm guidance.
But was hoping maybe you can help frame what the second half of the year might look like relative to the first half would just be helpful to hear your thoughts on the macro environment, maybe any specific drivers of performance as we head here into the second half.
Okay.
Yes, spear I think Tim's to then make a few comments on that.
Spirit with regard to the macro I mean, obviously, the first quarter was impacted by and 1 theres a seasonal element coupled with the fact that you had winter storms. So as things have picked up and there has been a recovery and the overall market from Covid.
We benefited clearly and the <unk> with regard to refining utilization and then also we've seen.
And some increase in production out in the basins I mean, nothing too extreme but nonetheless, you are seeing a normalization going on as demand is picking up globally.
We would expect that to continue through the third quarter, and then and through.
The fourth quarter, obviously, there are some elements that you see some seasonality.
But generally speaking second quarter moving into the third quarter, we feel very constructive, especially as demand continues to pick up globally.
Great and that's that's helpful. Tim Thanks for that.
Second question is just around capital return and things.
And some peers now start to recommence distribution growth and formalized and buyback programs, just given that that stabilization and the macro outlook and so I'm.
Just curious how you guys are describing your capital return goals as we sit here today, what you sort of need to see first either recommenced distribution growth.
Or initiate a buyback program and on buyback specifically I think we're seeing some peers buyback at DCF levels or yields of around 11%, yes of.
And of course trading north of that right now so and imagine that screens attracted but I'm sure you guys can say durations, there that will be helpful to sort of lay out.
Yes Spiro.
As you look at the overall.
Capital allocation priority is it really all comes down to how we manage coverage and leverage so from a.
In terms of the committed outflows, we've got the maintenance capital, which that's going to continue. So this year I think the maintenance capital budget is $135 million or so and I don't anticipate that being dramatically different as you look into <unk>.
Future years, the growth capital this year, the budget of $165 million.
Yes.
And there is more limited opportunities than we've had historically or in the earlier years of the MLP and that probably continues to be relatively low compared to historic levels, but at the same time you look at where we are from a coverage standpoint, this quarter 134, which for <unk> is quite <unk>.
Strong, but and overall overall scheme of things it doesn't actually give you that much flexibility I think and.
And 1 of the reasons it was strong and the second quarters, because we had lower maintenance capital. So you could revert to solar and more normal maintenance capital and absolute dollar terms, that's maybe $50 million a quarter of coverage to basically fund growth capital and then whatever other discretionary uses of capital we might have out there. So I don't think theres a lot of room to do much for.
A period of time at least beyond some modest amounts of growth capital within the sort of overall construct of the available cash that we have available.
Okay.
Got it that's a couple covered thanks and thanks Kevin.
I'll add and I spoke on guys. Thanks.
Thanks Keira.
Your next question comes from the line of Michael Blum with Wells Fargo.
Good afternoon.
I wanted to maybe stay on these topics.
Just maybe expand a little bit on your comments on growth capital.
Do you see any.
Either large or small potential projects on.
On the horizon, what are you kind of and nature of those and if the answer is not really.
And I just loved it.
Latest thoughts on just how you how you view the MLP within the structure of Phillips Phillips family, if there really isn't.
And to finance any growth and midstream.
Yes, I think that you'll see continued I'll call them optimization project Orion and the existing infrastructure and <unk> got a really nice portfolio of assets and they will continue to be opportunities to invest around those and they tend to be relatively small projects, but they also tend to be.
I'm very attractive economics, and so we'll continue.
To do that.
And given where if you just step back and look at the sort of macro mid.
Midstream environment, where generally there is the sort of major pieces of infrastructure already in place to meet the needs of the right. There. So I think it's much less likely that youre going to see significant investment and organic growth projects. So I think it's going to be more a continuation of.
Some of these smaller optimization type projects from that standpoint, and then Tim if you have any other perspective on that.
I think you've covered it.
And he is a little bit of context on the smaller projects and Michael it's going to be at 1 of our sites maybe on gray up where we had a connection and we may have to add 10 miles of pipe, we had a storage tank in some of our terminals. We may add truck racks, but that's that's the type and scope were talking about as far as the incremental optimization opportunities.
Great. Thank you very much.
Your next question comes from the line of John Mcdonald with Goldman Sachs.
Hey, everyone. Thanks for the time I just wanted to follow up on part of Michael's question that didn't quite get an answer there I think just.
Curious if you can spend a minute or 2 talking about just how PSX is looking at PSX P.
And from a strategic standpoint here and.
And what the outlook there could be.
Well I think given that this is a PSX P call I think all we can do is reiterate what we've said in the past and and reference to the 13D filing that was done I think must be coming up to a year ago. It was about a year ago and.
And that was basically gave <unk>.
Ex the flexibility to consider alternatives around the path forward for the MLP.
And certainly does not obligate any particular decisions on our path forward and I think we'll just leave it at that.
Those statements still hold true that the 13 day gives PSX and flexibility to consider alternatives, but theres really no more to say on that at this point.
Alright, that's fair and I think.
And it feels like a year and thought that would've been like 6 months ago.
That's that's fun and a lot going on maybe just 1.1 smaller 1 just in terms of the smaller projects that could come up.
And I'm just thinking in terms of messaging or are these things that you guys expect to kind of keep talking about and releases or is it the kind of thing where hey, if we don't start to see something and next couple of releases, maybe it looks like 2022, capex could be a lot lower and Neil.
Great.
Yes look I think at this point it will depend on really the size of the project, it's hard for us with regard to our release to VITAS.
And you're talking about and maybe a $3 million of projects. So I would say it depends on what the size of the project would be I mean, some of these if youre, adding a pipeline or pipes and stub of lateral line to an existing pipe with some tanks and you can get up into the tens of millions of dollars there, but not hundreds of millions of dollars. So depending on where that is and it's hard for me to give you that cut off we feel it's material.
<unk>, obviously, we would have some sort of release, but certainly during earnings calls or Eden and <unk> will talk about projects that are underway and or.
Or projects that are all projects that are underway are being completed.
And that makes sense. Thank you very much.
Yes.
Your next question comes from the line of Jeremy Tonet with J P. Morgan.
Hi, good afternoon.
And Jeremy.
Just wanted to start with the adopt adapt will expansion there.
And if you might be able to provide some color as far as this first.
Pension come on line, what was the cost for PSX P on that what type of capacity was.
Coming on line with this first expansion here and are there any regulatory approvals that are needed to put that capacity and service.
Yes, Jeremy.
Thanks for your question.
So yes, the expansion takes capacity up to around 750000.
And barrels a day.
The.
Spending.
Relative to PSX and.
In 2021.
That is a little bit under probably $50 million, we think that through.
Next year will be.
And kind of 302000.
$5 million or so.
And as kind of a capital number.
That's.
Are we kind of zero and on the.
Capital invested front.
And on the regulatory approvals those have already been.
<unk> received so nothing outstanding at this point and time.
Starting up this month, yeah and that came in just the capability and commissioning.
And it's starting and as Greg.
Jeff said.
That's very helpful. Thanks for that and then with the CTG pipeline here being pushed back a bit is this ties and Exxon and Sabic cracker or just any other drivers to that timeline shift.
No, it's really weather related but on my shifts and we've said all along day.
The real kind of commercial and service date would be year, and and then there may be some potential to flow some barrels north bound.
Yeah.
Between kind of.
Mechanical completion, and commercial and service at the end of the year with.
With weather delays that window for kind of northbound volumes has narrowed.
But I think we said last quarter, we didn't expect those to be material.
Any way and still Wouldnt expect it to be material. So.
No change to the ultimate and service date of the larger project or that the Nbc's underpinning that project.
Got it.
Very helpful. Thanks, and last 1 if I could sneak it in and it seems like the midstream line Scape has has changed a bit and.
And there has been maybe a little bit more activity on the M&A side, particularly as it relates to liquids logistics terminals where have you.
Just wondering I guess you know.
PSX piece thoughts on Consol.
Consolidation and the midstream sector at all if there's any thoughts you're willing to share share there.
I think.
Jeremy you've probably heard this day in the past that we do think that if you just take us on a big picture view that across the midstream sector, you will see consolidation take place youre seeing that happened in the upstream and based on this morning, Youre starting to see some of that happening and downstream and so.
So there's a lot of players out there and midstream and I think part of 1 of the impediments too.
2 more consolidation or at least.
Easier consolidation is just that.
Capital structure across the midstream space with so many of these mlps with.
Governance models, which I think precludes some of that potentially happening, but ultimately I think for the midstream business to compete well and it needs to be there needs to be some consolidation and we will drive efficiencies shutdown.
Idle idle plants and leverage leverage the infrastructure, that's available and create some value that way.
We have reached the end of today's call I will now turn the call back over to Jeff.
Thank you for your interest and Phillips 66 partners. Please give shannon.
Or me a call if you have any follow up questions. Thank you.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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