Shell Midstream Partners (SHLX) 7 May 202020 Q1 Earnings call transcript

Good morning. My name is [Shalon] (Ph). And I will be your conference operator today. At this time, I would like to welcome everyone to the today’s webcast for Shell Midstream Partners.

I will now turn the call over to Jamie Parker, Investor Relations Officer.

conference. your begin may You

Development. Thank you. Partners. Shawn for Midstream and today’s CFO; to me today the Business Commercial With VP CEO; Steve webcast are and Shell Ledbetter, Welcome Kevin Carsten, Nichols,

Slide X contains Safe Harbor statement. our

as to related here and We future today’s expectations Factors cause factors in Q&A Actual that events and as materially differ results to results will could presentation Forward-Looking with may and the be from release and included under making our session. be in well different the Statements are during such SEC. press actual statements Risk filings

Today’s to release measures. and financial most measures. financial the call such for Please press of X the regarding this comparable presentation GAAP earnings certain also Appendix contains important reconciliations refer including non-GAAP disclosures to measures

questions We end the presentation. of at will take the

I Nichols. With to the turn that, over call Kevin will

And good industry These both extraordinary and times morning, Jamie, worldwide. Thanks, to as everyone. webcast. quarter our are well our first within welcome as

begin, So of our dynamic you top is care Keeping let facing circumstances responding. how and Shell before our tell all are me of people assets and we we Midstream that the mind. acknowledge

taking teams facilities operational, we keeping to continues running under difficult while Our are best these fully very ensure moving. recommended circumstances. keep my safely our to And energy who team operational and America’s I’m all of precautions, proud give their

communities. of And long in a from necessary history history. time listening, colleagues recover caring, do we manage will our responding customers, what and unique has this Shell and our to to our is

business, actions are ultimately short-term areas, seeing focus in taking as I the that my three long-term we the in positioned and So backdrop the with are our resilience. for will serving are we the impacts across we how for call, current comments landscape the today’s

we demonstrated. always have Something

products. assets that impact refined impacts the those are with demand The transporting volatility. business unprecedented across start our are we experiencing me let the currently from the seeing supply So most

of pipeline are country to in XX% some across and down. seeing as for reductions refineries well industry lower jet fuel as is XX% reduction approximately around rates impacting for gasoline throughput, XX% shut U.S. run cases these The in and the demand the causing for And diesel.

about crude So degrees, and quickly balance is demand varying is producers in basins continue. up. to in which its will less to to impacted will storage, crude, quarter section. is way And later it consuming with finding filling reduce dynamic by situation should leave The more causing our and systems refineries the be his I Shawn to this some remains the second talk production.

we time. near-term three the are how taking the are action So in to pulling we are levers real through uncertainty? navigate distinct There

are First, particularly with opportunities maximizing we grow revenue, storage. to

the As contango systems, on in environment. an the we to crude Cavern example, given storage Mars for our secured storage needs customers’ meet additional market

our we Second, actively reducing are costs.

activities have reduce reduction. must the achieve to to on not only sustainable cost exposure Focusing in ultimately near-term, but

Something I future quarters. third, aspirations. will without discretionary long-term reducing growth selectively spend, And project we are discuss sacrificing in more

to we that discussions Mars producers with important the to despite project. the is note for continue expansion environment, It difficult progress

by XXXX. agreements the have online year, project a definitive the sign the end in to expect We of and

affected. of much now, how crude, about will basis the We In resilience. lower production talk as general, areas fare it we for there So let production that offshore, others. and environments, crude the will relates me we serve believe price are has than talk positioned which and in better long-term to been about be

have shallow about water shut It producers Let been started certain me is that tell onshore you more in and production. this. to reported

of the investment it in weather important customers grade Mexico large However, that serve to with the companies environment. the Gulf is note we to of the ability majority current the are

Gulf which maximize the Coast is we today’s that, And grade, diesel environment. in the demand sour our that highest of refining crude needs transport predominantly product diesel is refined volumes the to in in medium top are production. centers On the

corridor systems and like by the to Reserve, access also hubs Strategic supplemented Petroleum to multiple James, to is advantage optionality with This refining with our access access St. centers, water. Loop, and storage

crude being impacted most is of access as landlocked, terms are those price, in production are as the with To-date, the both less water. to that well

well With and the we one that long-term positioned marginal crude with to the as premier quarter of grade we a partnership. of networks and always, its capture unique Gulf these lower optionality we production, retaining for strength cost the strongly along will believe advantage feel are benefits the with

chain, possess from our the span most include to commodity Examples assets efficient centers Gulf Colonial long-term. advantages cost which Lastly, the and demand markets Explorer, the options Coast. and the in portfolio, unique and onshore respective supply our are

of Like contracts. Zydeco Gulf still connected and our systems store feedstock we the we best man case gas positioned should for affiliates keep onshore crude transport believe up backed to the well in And long-term are assets the take the ramp of one Norco once by primary the assets, our onshore recovers. and or Coast. and offshore in pipelines pay Logistics running the refinery

So Shawn, turn let a before thoughts. I the you with few me call leave to over

entire the country well and is with While difficult positioned our our is and times, dealing are industry portfolio resilient.

while are business our current long-term macro the positioned the Shell And customers the manage added for to well actions taking partnership. value weather to short-term projects the in progressing are the environment. and Midstream We all

there at uncertainty time. Clearly is this markets in the

rebound I’m and However, our in demand commodity recovery towards ability forward demand And moves about U.S. to is in confident our the price. U.S. strength outlook as less about the more recovery.

over it I So to with Shawn. that, will Shawn. turn

Kevin. Thanks,

our results the across over go first strength quarter we where me quarter. through portfolio the continued saw Let full

partners for our adjusted net million in EBITDA in in-line generating the delivering with cash $XXX the income, million expectations, $XXX and million performed distribution. quarter, earning For $XXX and available

reimbursement quarter. drivers and which Eastern higher Now - or throughput Colonial and the payment, by and EBITDA received from on offset not when having we last Corridor primary increase level on cash look the distributions quarter-over-quarter, Explore was basis the partially

So now forward let to our me move guidance. quickly

that the Mattox quite partnership’s Pipeline are for Shell. pieces there on On second the Norco earnings of moving acquisition April closed earlier, could from of we discussed and few quarter the Xst, the the Logistics assets affect XXXX. a Kevin As

And this to from as commitments, expected provide by backed XXX million cash XXX during flow All acquisition. to assets operations. are the the XX-months of an estimated of long-term fixed previously the and discussed, million the are following closing

million be Now we CapEx six will now XX capital. space, about around to in the plan spend of million the which year growth for

guidance of Now of a prior in reduction this is CapEx XXXX. million spend XX from

to is demand product across our and in headwinds on And storage systems, crude with Permian to the This refined our we have have related subsequent slowed years capital the reduce as along and products reduction our producers. finished projects growth. we face primarily related outer maintenance to ultimately deferred impacts near-term

to time. current related facts the to of uncertainty, which are this But chain Now crude. demand the these reliable be destruction, we way at up less time. We anticipate given to our than challenges to all outcomes ratio primarily value levels coverage one range second are unable quarter a of provide

impact our level products remains refined if of will systems crude throughput long curtailed. on be how on further dependent The demand is and low

sheet. and our strong remind So a balance conservative framework of everyone let financial me

position entered the of strengths. environment macro We a from current

us and advantage on transport along our as long-term provide to centers, Shell. water. over have available a lender with earlier, key cost assets, very And covenants with very over continue highlighted onshore which liquidity with of view we to hold We our X.X to few the command facility access to billion positive export

long producers also they to majority Gulf can continue Mexico, are made And our will of we as our We the their as produce on positive where their have investment. place barrels. already believe

Let mistake, these there times. be no are volatile

future quarters and out. the will So as dynamics play investors we update market

distribution utilize to we intend flow any Now, our second balance sheet And per of cover operational to currently unit cash will rate the limited where maintain for $X.XX XXXX. we of shortfalls quarter needed. our partners

business will board make and on monitor distributions a basis. Our future the current decisions regarding environment quarter-by-quarter

Operator? that, all we your take now with will questions. So

[Operator question of from comes Shneur Instructions]. And first Gershuni [UBS]. the your line

[Michelle] for is (Ph) This on Shneur.

the Ex follow are than scenario Shell in for on Shells? change Shell? Ex context given drivers and press Shell releases its it a quick of seems distribution on is closely cut dividends. is Or own language drivers might the Has volume It the the distribution different Just today’s path question change commitment and Shell the and a Shell that following its the policy. that more virus

No, COVID-XX has what wouldn’t there. Yes, is read thanks I tremendous introduced demand through have call that with happens driven anything question. demand for to And and of just by happening what I uncertainty. said the recovery. a we amount Shawn that more Shell. and from are on as And

We have seen and predict happen early further it but to recovery is difficult last us very this week, just for to what out. signs going days of early is very within some

the with the two, for two. halfway review thing is two responsible a in is and business it quarter-by-quarter confident think we to quarter guidance We we on we the a basis you to gave do why quarter feel are through that quarter So Board.

And Michelle it Shawn. is

in to global what Just that to number is I across add Kevin want a remind portfolio said. portfolio businesses. you of RDF to a

about Now Kevin highlighted. about more price our and demand as less business is

And so we little very have commodity exposure.

the in of that RDF. we work small we strongly in that assets believe portion the very we But basins we And the a are in, have.

through to or from distribution what have our So shouldn’t read might you assets to RDF our policy. done

helpful. Great. is That

you. Thank

next from line Barclays. Theresa Chen, Your of question comes

Hey, Teresa.

you taking thank for my questions. Hi, morning. Good

commitments? just of as remind a is In Norco much addition by Can the volume business whole assets. to you supported and Mattox us your how

given that or pay. Norco it a that I or So of break like we have and we areas exact terminal three the would have take we into. that the refinery breakdown The me, pay down assets contracts haven’t Zydeco gas of let But assets is it that. we the that has Logistics, kind take

dedication about high with but is of a switching Then insurmountable costs flow we traditionally or of offshore. switching almost life there cash base lease thought fee an a lease offshore. reasonable our barrier or have to And

our very corridor So a production is systems but people flows. to about and connect once is production it ratable

the that comparatively held low a wells. cost to and up onshore think of gave from once in in I you have bucket kind They hubs. sales Mexico information producers of those about that make sizable speaking of Gulf production production such. very investment marginal And offshore Shawn has

So tradable those are well. as flows

the And is premier that product way effective they United far to of the and we the key are those Colonial But demand on the Explorer areas centers. fees then refined as some and serve of serve have cost States, most kind efficient as exposure assets remember systems. the demand the market for more the

very position they a like are strong feel recovers and will they demand we as of strength. have So,

the Got on comments. on in uptick it. and potential earlier your demand And and to topic of

board referring staff, to? as negative, speak still in that far generally anecdotal evidence of terms can seeing were of and as you moved. pace the So been has in goes, the participants across as utilization, as gasoline change Colonial? while as there well what decline have Or and the you seems is in market year-over-year from to you the are refinery and data Is DOE other the your that demand well to interest what just leverage assets Explorer as demand

Yes.

is seeing on are So to to diesel I talk to demand and with and the let will you. marketplace gasoline we closer regards probably Steve and into what such. He plugged

Hey is this Steve. Theresa,

you pull midstream, we reduction we increase this mentioned affiliates. maneuver we how have all and are our inform as earlier play as into constraints conversations the several as demand patterns storage as in we well And but inside Kevin ports as As our But business of those lever on all business as a or how regular of to over next situation, well is we with quarters. the the dynamic gasoline. position and know in patterns that demand active monitoring pretty well volatile

is But the in Yes, is early a that. to the thing recent move so early gasoline, from draw slightly the of again, one and momentarily it only some conclusions refining back it been we picking days up. signs is now are Theresa gasoline centers, in too seeing

the baking color underlies Understood. or the your around next you are any we for and it plans? year? V later And recovery fundamental virus XX-months U beyond. you contingency on see in a you share as of it plan to wave Can this shaped, shaped XX-months Should that? second your call What assumptions? Is thinking

so out manage scenarios Yes, shaped, what and predict COVID-XX the is high marketplace. uncertainty we shaped, that to the and L degree we do the exists and under shaped, the U W. kind circumstances. uncertainty V that and our do range in win business would of of

a and have the have at not seen are would benefit assets with production of on material like we the actually Gulf what again, you seen in that when from recovery comes, production When focused But far Mexico. strength. cut the to are making is our sure positioned cuts, you highlight I And, so offshore, that guess onshore. we we happened look production that I

throw to maybe the thinking. Gulf our Steve I A to strength drives it which will that points of about couple of talk over Mexico

Thank Yes. you Kevin.

position concentration access Gulf of You reasons. Coast we favorable know, to Gulf and we across perspective offers with three, One, like we believe for in - are few the refinery exposure and our a from export assets effective pad and and water. the storage cost to which the systems geographic efficient

is Second, with I refineries really match needed some predominantly currently the for medium sour grade would the patterns as say crude into as basins. versus well favorable exposure future. We to barrels of demand transport

favorable have exposure. also producer We

credit have again, effective basins perspective. you are lower the than large seeing exposure worthiness the what from And these we a in then mentioned, cost other Kevin cost are As of breakeven some limited than marketplace.

investment Again, this we to most storm, helps are Mexico. our not only think strength Gulf we that producers, these this the producers grade large also of in believe but key continue longer of in the and make are weather us our and position us term points believe shippers,

and Thank all well. Great. stay much. very Hope you you safe

is well. safe. Hope everyone as You

Your Walker of line America. next from of question Bank comes the Derek from

How Derek. you? are morning Good

morning Thanks for guys. my taking question. Good

will a single on Cavern. more the give Just Maybe a start maximizing mentioned how that some of Mars couple Can the revenue charging are of bit is remainder customer of this that background us just how does Kevin, I little unfold? came a contracts year me. more you you the this opportunities rate some that or the about, of revenue of short-term with some sort you actions. from with where for that, how and there, the of are

that to I on it know get different will actually are Steve. talk contracts. Thanks, about the I so trigger stores you he pulled specifics to can But individual more have don’t on. turn we we opportunities going Derek. over Yes, the that to

Thanks Derek.

for current I think are we maximizing. how what our is leveraging looking you are and assets

leveraging opportunities various contracts, docks. the our assets have and several across water storage have where of storage access across the some we into And bid have We we homer systems. at some we

flows offshore. second then opportunities the available those into general, as and ratability and as our for Cavern Mars, that provides well continue put produce look continuing in for across storage And we business. the But are system to they will to our

to there that are to rates looking rates our with market And competitive anybody is out storage offer folks.

of I is do like with have you what you it. the guess, sense the in sort Got think a aggregate, associated uplift it?

now than wherever Well, additional Other we are not revenue coming. going we storage to give hot barrel is know that commodity because now. the that a pulling a we is around storage, are right just guidance have that of

should mid-year. the the of think timing And of we in year. project? you Okay, some sounds that is cadence the that year-end like are maybe thanks that. kind on of in the for services, How about to by the we stuff XXXX more expansion. How Mars have trying of XXXX think should end a expansion It about

that be it I question? online, So executed believe come the is and the will on timing when

Yes.

Yes.

midst commercial is, end construct will So, still design. the the The still We lots demand we the progressing. in be timeframe XXXX. final The conversations and of mid-year inform good year agreement which by still we the will final are is of defining online there. the of thing anticipate definitive by detail

Powernap, on and which original Vito of the schedule. ahead Derek, advance, in really is It are still

of last that of seeing since sort what perfect. would a belt kind quarter? particularly you of one that April then do some if month me. If kind you of characterize And the for to of be month kind sort would our you June uptick, would well, just the mean, - you results April, Okay May, ratio have make under we are maybe sense of characterize sort given as as would coverage I full you were a have XQ? the timeframe of And for tougher April the be? is

Yes.

be June a of And moving lot parts coverage asking are less is quarter. halfway us for ratio. There there. still unfold. in out bit think is only definitive I still through we have one are and more a than you to again, to So that little that the

gasoline as down. is actually but not what seen shut or of that or us We some recovery exact that with and they direction, for get to in There in states is have whether the positive that the heading there. happens their lift demand continue they some restriction just lot a right volatility range with

from it Okay. it. guys, I Great. me. that Thanks is appreciate

safe stay you. please. Thank

Likewise.

the from Mosca Robert question line Your of [Mizuho Securities]. next comes

Hi good morning everyone.

Rob, Hey you? how are

quarter. So for sub one anticipation time in regards covenant second to the your

coverage down the like before a up - distribution waiver, would little some crop quarter? Just you coverage assets. just and reflect be some next have being and might sub quarter what to that Is breathing items going the waiver those contributions guys rate calculated coming of rooms differently without given beginning seems next

Yes.

So the we guidance with what that really market. around is we are provided seeing the

pretty recall deal we we if So when announced from year, of were the completed. optimistic, the early being the part you

COVID-XX too the given of earnings kind us to any of to hitting just in provide our with us kind it guidance. see - in volatility a the form for the is for But late-March, difficult assets

But yes, So in world, would where X.X well see been a above QX normal we coverage. us. lands will have we

could just the for seeing my corridor question can then as know projects opine had what on are particularly exploration you volume in eastern the And if offshore? Systems. timelines barrels an of I And just operational far Mexico on reduction? perhaps the But then term are anything you longer as the Gulf the Refinery seeing you Gulf for part question, you speaking first Understood. already demand offshore. I answered to And of

Yes.

I it So Steve. start will I turn will over and then

very different various cycles is crude of the Gulf with And are then that take talking funnel of time, projects long kind once gone have prices much pretty Mexico committed. different and the people about that around decisions, their it and for investment a those offshore We been thing. through

near-term projects medium-term is So coming with likely and the less the be to on. new affected

As well that, into construction. next there beyond an example, couple on Powernap is Vito year. And are a and where they coming

seven there coming that and If things have more time an impact, horizon. was which new delays would really out to funnel, it five, into of the be come in year

wait And kind how So we volatility happens. will this see have situation. of what on and and are that depend demand will long we to in

Steve let will I Corridor, Eastern to regards answer that. With

Yes thanks.

exposure think for on So as of the current HLS as of cost being around match I that east higher demand more produce crude patterns. an steel well to some producers may concentration or up is smaller the barrel really type the with not as the well expose grades,

little something to impact our to have we is very and the monitor. to to Eastern impact but point, Corridor We it seen business to this the continue

exposure majority the points through we very, situation well as long-term. as sour well. And the our crude we matches central this earlier for relevant Again, are corridor of transport is and mentioned the our others that up medium it very

really Okay. Thank you. That is helpful.

be safe. Thanks

Your comes from next from Capital. question TJ RBC Schultz

TJ. Hi

Hey one on distribution. follow-up the just Good morning,

thinking distribution the what trough understanding overtime. your tight balance mix demand for changed longer XXXX. year be a relative second my at flat and you in are basis And asset was transition tighter be you withstand coverage quarter-by-quarter to outlook and term period beyond that quarter, on now, grow if where So flexibility of might coverage a the improvements. the and of sheet. quarter just you then and anything Does given coverage proving keeping just kind are coverage your on this to it and how a would are kind have And looking the you

we business story to coming the offshore with think the projects, expansion on Mars is additional some regards I still board, our production. there that see

that projects other see changed. we the hasn’t that portfolio of some across our And

changed of the over going of demand has with What is And is the from what with really just now right the year. happen to uncertainty and destruction. COVID-XX level really demand rest

what And happens so we will see have to and demand. watch with

going Mexico basin demand. more in I see think what crude story. is wait are refined the it holds to to product Gulf and and that But of think happens We with up the we well. have of

the change. really So, big that I is think

Okay. it. Thank I you. appreciate

Joe question comes Martoglio JPMorgan. next for Your of the from line

Good morning Joe.

wanted you on dive and Good ask maybe morning. to a more offshore little I just in are seeing there. the while shines

bit. lot if what if systems. back much said are I they there? morning, guess, the are think that a from then also, or dialing this wondering the of a dialing they are flows as And production you I’m production back majors onto how, your seeing Murphy I

our And would Maybe I thing crude your the and Steve where on but more there the let it you And to refine. curtailed. was storage know crude becoming focused needed people will that put would physical more overall, have there not we seen systems that couldn’t than give to detailed, I offshore. be impact were material were because anywhere other that

that We seen have not materialize.

you and the some reasons There are of are but anything they in there? this are and do it some reasons their production or it Steve been to players players smaller pulling material it forwards financial to either shallow for choosing doesn’t water timeframe something, customers. turnaround offshore add financial in hasn’t do impact our want large for to

No.

covered well think you it I Kevin.

sense That can appreciate one, your of on will But wanting on kind guess And refined then And that. and give then crude quarter I are consistent and try I that Explorer color is to-date see maybe seeing side, another Zydeco trends? seeing makes thanks say kind on you the of what you the you the you on to are trends. guess what I to-date? also I system, product guess, Colonial country’s about I Okay. with overall quarter for

of. of take obviously Yes, Steve largest one the I part behalf are will We finished ask an on talk But which company is first Zydeco don’t independently to systems. one I product part. is on that owner run flagship then of answer Colonial, Colonial the we will and

the northeast. especially correlates happening demand the it country, in see so And you to across what

states demand seaboard. most is in the all those and to effective in transport efficient, the most meet in cost key market way and It Eastern centers

strength. the be recover So with returns, system that would pipeline as it demand would

maybe Zydeco, comment. you could On

still multiple strength believe volumes see in water. what refining can we system. So the And access on well connects as to training strategic testament we hubs, Coast Zydeco we currently in Gulf compete, the mean that again, on asset a storage is the centers, as remaining across I export see is that Zydeco,

pleased in position to So our continues we are with well. perform Zydeco

Okay. all me. for Great. Thank is I you. appreciate color. That the

you safe. and Yes. be Thank

further have turn now I to back will questions. Parker. the call no We over Jamie

We have thank And for Midstream questions the today’s our to if everyone follow-up their presentation, Shell call you contact interest information feel in additional as directly. a give any website Partners. on me My please on presentation following materials well shellmidstreampartners.com. free can be found as

concludes This today’s conference.

You now disconnect. may