Edited Transcript of SHLX earnings conference call or presentation 7-May-20 3:00pm GMT


HOUSTON May 10, 2020 (Thomson StreetEvents) — Edited Transcript of Shell Midstream Partners LP earnings conference call or presentation Thursday, May 7, 2020 at 3:00:00pm GMT

Shell Midstream Partners, L.P. – IR Officer

* Kevin M. Nichols

Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC

* Shawn J. Carsten

Shell Midstream Partners, L.P. – CFO, VP & Director of Shell Midstream Partners GP LLC

* Steven C. Ledbetter

Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC

RBC Capital Markets, Research Division – Co-Head & MD of Master Limited Partnership Franchise

Good morning. My name is Shelan, and I’ll be your conference operator today. At this time, I would like to welcome everyone to today’s webcast for Shell Midstream Partners.

I would now like to turn the call over to Jamie Parker, Investor Relations Officer. You may begin your conference.

Jamie Parker, Shell Midstream Partners, L.P. – IR Officer [2]

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

Slide 2 contains our safe harbor statement. We will be making forward-looking statements related to future events and expectations during the presentation and Q&A session. Actual results may differ materially from such statements and factors that could cause actual results to be different are included here as well as in today’s press release and under risk factors in our filings with the SEC.

Today’s call also contains certain non-GAAP financial measures. Please refer to the earnings press release and Appendix 1 of this presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.

We will take questions at the end of the presentation.

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

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [3]

Thanks, Jamie, and good morning, everyone, and welcome to our first quarter webcast.

These are extraordinary times, both within our industry as well as worldwide. So before we begin, let me acknowledge the dynamic circumstances that we’re all facing and tell you how Shell Midstream is responding, keeping care of our people and our assets top of mind. Our operational teams are all taking recommended precautions while keeping our facilities fully operational and running safely to ensure we keep America’s energy moving.

And I’m very proud of my team who continues to give their best under these difficult circumstances. Shell has a long history of caring, listening, responding to our customers, our colleagues and communities, and we will do what is necessary to manage and recover from this unique time in our history.

So with the current landscape serving as the backdrop for today’s call, I’ll focus my comments in 3 areas: the impacts we’re seeing across our business, the actions that we are taking in the short term and ultimately, how we’re positioned for long-term resilience, something we have always demonstrated.

So let me start with the impacts that we’re seeing across our business from the unprecedented supply/demand volatility. The assets currently experiencing the most impact are those transporting refined products. The industry has seen demand reduction across the country of approximately 50% for gasoline, 80% for jet fuel and around 10% for diesel. And these reductions are impacting pipeline throughputs as well as causing refineries in the U.S. to lower run rates and in some cases, shut down. So with refineries consuming less crude, crude is finding its way to storage, which is quickly filling up. And this is causing producers in some basins to reduce production. The situation remains dynamic and our systems will be impacted by varying degrees should the demand imbalance continue. I’ll leave it to Shawn to talk more about the second quarter later in his section.

So how are we taking action in the near term to navigate through the uncertainty? There are 3 distinct levers we are pulling real-time. First, we are maximizing opportunities to grow revenue, particularly with storage. As an example, we’ve secured additional storage in the Mars Cavern to meet customers’ needs for crude storage on our systems given the contango market environment.

Second, we are actively reducing our costs, focusing on must-have activities not only to reduce exposure in the near term, but ultimately to achieve sustainable cost reduction, something I will discuss more in future quarters.

And third, we are selectively reducing discretionary project spend without sacrificing long-term growth aspirations. It’s important to note that despite the difficult environment, we continue to progress discussions with producers for the Mars expansion project. We expect to sign definitive agreements by the end of the year and have the project online in 2021.

So now let me talk about how we’re positioned for long-term resilience. In the offshore and in general as it relates to crude, there’s been much talk about lower price environment and which areas of crude production will be affected. We believe that the production basins we serve will fare better than others. Let me tell you more about this.

It’s been reported that certain onshore and shallow water producers have started to shut in production. However, it’s important to note that the majority of the customers we serve in the Gulf of Mexico are large, investment-grade companies with the ability to weather the current environment. On top of that, volumes that we transport are predominantly medium sour crude grade, which is — with the refining centers in the Gulf Coast need to maximize diesel production. And diesel is the refined product in the highest demand in today’s environment.

This advantage is supplemented by our corridor systems optionality with access to multiple refining centers and access to storage hubs like LOOP, St. James and the Strategic Petroleum Reserve, also with access to water. To date, the crudes being impacted the most, both in terms of production as well as price, are those that are landlocked with less access to water. With the unique optionality and crude grade advantage, along with a lower marginal cost of production, we feel strongly that the Gulf will retain its long-term strength. And as always, we believe we are well positioned with one of the premier corridor networks to capture these benefits for the partnership.

Lastly, in our onshore portfolio, our assets span the commodity supply chain and possess unique advantages long term. Examples include Colonial and Explorer, which are the most cost-efficient options to their respective demand centers and markets from the Gulf Coast. Zydeco is still one of the best connected systems onshore for crude in the Gulf Coast. And in the case of our refinery gas pipelines and Norco Logistics assets, we transport and store the primary feedstocks to keep our affiliates running, backed by long-term take-or-pay contracts. Like the offshore, we believe our onshore assets are well positioned and should ramp up once demand recovers.

So before I turn the call over to Shawn, let me leave you with a few thoughts. While the entire country and our industry are dealing with difficult times, our portfolio is well positioned and is resilient. We are taking actions to manage the business in the short term, all while progressing value-added long-term projects for the partnership. And Shell Midstream and our customers are well positioned to weather the current macro environment. Clearly, there is uncertainty in the markets at this time. However, our forward outlook is more about U.S. demand recovery and less about commodity price. And I’m confident in our ability to rebound with strength as demand in the U.S. moves towards recovery.

So with that, I’ll turn it over to Shawn. Shawn?

——————————————————————————–

Shawn J. Carsten, Shell Midstream Partners, L.P. – CFO, VP & Director of Shell Midstream Partners GP LLC [4]

——————————————————————————–

Thanks, Kevin.

Now let me go over the full quarter results where we saw continued strength across our portfolio through the first quarter. For the quarter, the partnership performed in line with our expectations, earning $138 million in net income, generating $196 million in adjusted EBITDA and delivering $170 million in cash available for distribution.

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

So now let me move quickly to our forward guidance. As Kevin discussed earlier, there are quite a few moving pieces that could affect the partnership’s earnings for the second quarter of 2020. On April 1, we closed on the acquisition of the Mattox Pipeline and the Norco Logistics assets from Shell. And as previously discussed, the assets are backed by long-term fixed commitments and are expected to provide an estimated $125 million to $135 million of cash flow from operations, all this during the 12 months following the closing of the acquisition.

Now in the CapEx space, we now plan to spend about $38 million for the year, of which around $6 million will be growth capital. Now this is a reduction from prior guidance of $46 million of CapEx spend in 2020. This reduction is primarily related to maintenance capital as we have deferred projects to outer years and have slowed our Permian growth. And in the near term, we face headwinds related to reduced refined products demand across our finished product systems, along with the subsequent impacts on crude storage and ultimately, our producers.

Now these challenges are primarily related to demand destruction, which backs up the value chain all the way to crude. We anticipate our second quarter coverage ratio to be less than 1x. But given the current levels of uncertainty, we’re unable to provide a reliable range of outcomes at this time. The level of impact will be dependent on how long refined products demand remains low and if crude throughput on our systems is further curtailed.

But let me remind everyone of our strong financial framework and a conservative balance sheet. We entered the current macro environment from a position of strength. We have over $1.2 billion of liquidity available to us, and with very few facility covenants with our lender, Shell. And as highlighted earlier, we continue to hold a very positive long-term view on our onshore assets, which provide cost-advantaged transport to key demand centers, along with access to export over the water. We’re also positive on our Gulf of Mexico, where producers have already made their investment, and we believe the majority will continue to produce as long as they can place their barrels.

But let there be no mistake. These are volatile times. So we’ll update investors in future quarters as the market dynamics play out.

Now we currently intend to maintain our distribution rate of $0.46 per limited partner unit for the second quarter of 2020, and we’ll utilize our balance sheet to cover any operational cash flow shortfalls where needed. Our Board will monitor the current business environment and make decisions regarding future distributions on a quarter-by-quarter basis.

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

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) And your first question comes from the line of Shneur Gershuni.

——————————————————————————–

Michelle Kenel, UBS Investment Bank, Research Division – Equity Research Associate, MLP [2]

——————————————————————————–

This is Michelle on for Shneur. Just a quick question on the distribution policy. It seems the language in today’s press release has changed on the distribution. And given the context that Shell cut its dividend, has the commitment changed and SHLX might follow the path of Shell? Or is it more a scenario that SHLX is closely following its own volume drivers for the virus and SHLX drivers are different than Shell?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [3]

——————————————————————————–

Yes. Thanks, Michelle, for that question. No, I wouldn’t read anything through to that from Royal Dutch Shell and what’s happening there. COVID-19 has introduced just a tremendous amount of uncertainty. And as Shawn and I have said on the call, we’re more driven by demand and what happens with demand recovery. We’ve seen some early signs of recovery just within this last week, but it’s very early days and very difficult for us to predict what’s going to happen further out. So we think it’s a responsible thing to do to review the business on a quarter-by-quarter basis with the Board. We feel confident in quarter 2. We’re halfway through quarter 2. And that’s why we gave you the guidance for quarter 2.

——————————————————————————–

Shawn J. Carsten, Shell Midstream Partners, L.P. – CFO, VP & Director of Shell Midstream Partners GP LLC [4]

——————————————————————————–

And Michelle, it’s Shawn. Just to add in to what Kevin said. Let me remind you that the RDS portfolio is a global portfolio across a number of businesses. Now our business is less about price and more about demand, as Kevin highlighted. And so we have very little commodity exposure. And we believe strongly in the basins that we work in, in the assets that we have, but we’re a very small portion of the RDS. So you shouldn’t read through from what RDS might have done to our assets or to our distribution policy.

——————————————————————————–

Operator [5]

——————————————————————————–

And your next question comes from the line of Theresa Chen, Barclays.

——————————————————————————–

Theresa Chen, Barclays Bank PLC, Research Division – Research Analyst [6]

——————————————————————————–

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

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [7]

——————————————————————————–

Yes. We haven’t given the exact breakdown of that. But let me — we have 3 kind of areas that I break it down into. You have the take-or-pay contracts, and it’s like the Norco Logistics, the terminal assets that we have, refinery gas assets that we have. Zydeco has a take-or-pay.

Then we have traditionally talked about our fee-based but ratable cash flow with a life of lease or dedication of lease offshore. And there’s a high switching cost or almost an insurmountable barrier to switching offshore. So once people connect to our corridor systems, it’s very ratable, but it’s about production and production flows.

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

And then the fee exposure that we have is on the kind of the refined product systems. But remember, Colonial and Explorer serve some of the more key market demand areas for the United States, and they are the premier assets as far as the most efficient, cost-effective way to serve those demand centers. So we feel like they’re very strong. And as demand recovers, they’ll have a position of strength.

——————————————————————————–

Theresa Chen, Barclays Bank PLC, Research Division – Research Analyst [8]

——————————————————————————–

Got it. And on the topic of potential uptick in demand, to your earlier comments, so across the board, there has been data and other anecdotal evidence from market participants and as well as the DOE stats that while the year-over-year change is still negative as far as gasoline demand goes, the pace of decline seems to have eased. Is that what you were referring to? Or can you just speak generally to what you’re seeing in terms of demand in your assets levered to refinery utilization as well as the interest in Explorer and Colonial?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [9]

——————————————————————————–

Yes. So I’ll probably let Steve talk to you. He’s closer to what we’re seeing on demand and plugged into the marketplace with regards to gasoline, diesel and such.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [10]

——————————————————————————–

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

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [11]

——————————————————————————–

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

——————————————————————————–

Theresa Chen, Barclays Bank PLC, Research Division – Research Analyst [12]

——————————————————————————–

Understood. And as you plan for the next, call it, 12 to 18 months and beyond, what underlies your fundamental assumptions? Is it V-shaped recovery or U-shaped? Are you baking in contingency plans should we see a second wave of the virus later this year? Can you share any color on your thinking around that?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [13]

——————————————————————————–

Yes. So that’s kind of that COVID-19 uncertainty and the high degree and range of uncertainty that exists out in the marketplace. U-shaped, L-shaped, V-shaped, W, we do run scenarios to manage and predict our business and what we would do under the circumstances. But again, we’re focused on making sure that our assets are positioned that when the recovery comes, we actually benefit from that strength.

And I guess I would highlight, so far in the Gulf of Mexico, when you look at what’s happened with production and the production cuts, we have not seen a material cut to production offshore like you have seen onshore. There are a couple of maybe points and I’ll throw it over to Steve to talk about the Gulf of Mexico strength, which drives our thinking.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [14]

——————————————————————————–

Yes. Yes. Thanks, Kevin. We like our position in the Gulf for a few reasons. One, we believe we’re favorable from a geographic exposure perspective with concentration of assets to the Gulf Coast in PADD III, which offers efficient and cost-effective access to refinery systems, storage and export across the water.

Second I’d say is really favorable crude exposure versus some of the basins. We predominantly transport medium sour grade barrels which match the demand patterns currently needed for refineries as well as into the future. We also have favorable producer exposure. As Kevin mentioned, these are large, cost effective, lower breakeven costs than some of the other basins and what you’re seeing in the marketplace.

And then again, we have limited exposure from a creditworthiness perspective. Again, most of our shippers, producers are large, investment-grade producers. And we think this helps us not only weather this storm, but we also believe these are key points that continue to make us believe in the strength longer term and our position in the Gulf of Mexico.

——————————————————————————–

Operator [15]

——————————————————————————–

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

——————————————————————————–

Derek Bryant Walker, BofA Merrill Lynch, Research Division – VP [16]

——————————————————————————–

Just a couple from me. Maybe let’s start with some of your short-term actions. Kevin, you mentioned maximizing the revenue opportunities with the Mars Cavern. Can you just give us a little bit more background on sort of how that came about? What are some of the rates that you’re charging on some of the customers there? And is that more of a stable revenue for the remainder of the year? Or how do those contracts unfold?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [17]

——————————————————————————–

Yes. So thanks, Derek. I’ll turn it over to Steve. I don’t know that we’re going to give specifics on individual contracts, but he can talk to you more about the different storage opportunities that we’ve actually pulled the trigger on.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [18]

——————————————————————————–

Yes. Thanks, Derek. I think what you’re looking for is how are we leveraging the current assets and maximizing it. We have various opportunities where we have storage assets across our systems. And we have several contracts we’ve entered into leveraging some of the storage at Houma and some water access across the docks. And then the second cavern in Mars provides available storage as well as ratability for the flows that are continuing to produce offshore. But in general, we’ll continue to look for opportunities across our system and put those into our business.

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [19]

——————————————————————————–

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

——————————————————————————–

Derek Bryant Walker, BofA Merrill Lynch, Research Division – VP [20]

——————————————————————————–

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

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [21]

——————————————————————————–

Well, we’re not going to give guidance now around the additional revenue that’s coming, other than just know that wherever we have a barrel of storage, we’re pulling that because there’s — storage is a hot commodity right now.

——————————————————————————–

Derek Bryant Walker, BofA Merrill Lynch, Research Division – VP [22]

——————————————————————————–

Okay. Appreciate that. And then maybe on the Mars expansion, sounds like you’re trying to wrap things up by the end of the year. How should we think about the cadence of your expansion in ’21 and the in-service? Is that more of a year-end kind of 2021, midyear? How should we think about the timing of that project?

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [23]

——————————————————————————–

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

——————————————————————————–

Derek Bryant Walker, BofA Merrill Lynch, Research Division – VP [24]

——————————————————————————–

Yes.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [25]

——————————————————————————–

Yes. So we’re still in the midst of defining the commercial construct which will inform the final detailed design. The good thing is lots of conversations still progressing. The demand is still there. We anticipate final definitive agreements by the end of the year and will be online midyear time frame in 2021.

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [26]

——————————————————————————–

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

——————————————————————————–

Derek Bryant Walker, BofA Merrill Lynch, Research Division – VP [27]

——————————————————————————–

Okay. Perfect. And then maybe just last one for me. I mean would you characterize — since we have April under our belt, would you characterize that month as sort of — and particularly given that you’re seeing some uptick, as sort of the kind of the tougher month for 2Q? And if you were to kind of make April sort of the May, June time frame as well, do you have a sense of what the coverage ratio would be if April results were — would be kind of the full quarter level?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [28]

——————————————————————————–

Yes. So again, I think you’re asking for us to be a little bit more definitive in that less than 1 coverage ratio. And we’re only halfway through the quarter. June is still out there. There’s a lot of moving parts that still have to unfold. We’ve seen some positive recovery in gasoline and some demand that is headed in the right direction. But what happens as states lift their restriction and whether or not they actually continue with that or they shut back down, there’s just a lot of volatility for us to get exact with a range there.

——————————————————————————–

Operator [29]

——————————————————————————–

Your next question comes from the line of Robert Mosca.

——————————————————————————–

Robert Mosca, Mizuho Securities USA LLC, Research Division – Associate of Americas Research [30]

——————————————————————————–

So in regard to your sub 1x coverage anticipation for the second quarter, just given the distribution waiver beginning next quarter and contributions and drop-down assets, is that coverage metric being calculated a little differently to reflect what coverage would be without the waiver? Just seems like you guys might have some breathing room before going sub 1 with some of those items coming up next quarter.

——————————————————————————–

Shawn J. Carsten, Shell Midstream Partners, L.P. – CFO, VP & Director of Shell Midstream Partners GP LLC [31]

——————————————————————————–

Yes. So the guidance that we provided is really around what we’re seeing with the market. So we were pretty optimistic, if you recall, from the early part of the year when we announced the deal being completed. But with the COVID-19 hitting us in kind of late March, it’s just too difficult for us to see given the volatility in our earnings from the assets to provide any kind of more guidance. So in a normal world, yes, we have been well above 1.0 coverage, but we’ll see where Q2 lands us.

——————————————————————————–

Robert Mosca, Mizuho Securities USA LLC, Research Division – Associate of Americas Research [32]

——————————————————————————–

Understood. And then if I could, just had an operational question, particularly on what you’re seeing offshore. And I know you already answered the first part of my question speaking to the demand for Gulf of Mexico barrels in the Gulf refinery system. But could you perhaps opine on the Eastern Corridor volume reductions and then just anything you’re seeing as far as the time line for longer term exploration projects offshore?

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [33]

——————————————————————————–

Yes. So I’ll start and then I’ll turn it over to Steve. We’ve been talking about the Gulf of Mexico for a very long time, and it’s gone through various different cycles around different crude price and that kind of thing. And with the funnel offshore that once people take their investment decision, those projects are pretty much committed. So the near term and the medium term is less likely to be affected with new projects coming on.

As an example, Vito and Powernap coming on next year and there’s a couple beyond that where they’re well into construction. And so what we — if there was to be an impact, it would come in delays to new things coming into the funnel, which have really more of that 5-, 7-year out time horizon. So we’ll have to wait and see what happens, and that’ll depend on volatility and how long we’re in this kind of demand situation.

With regards to the Eastern Corridor, I’ll let Steve answer that.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [34]

——————————————————————————–

Yes. Thanks. So I think the exposure on the east really is around concentration for smaller producers or higher cost to produce fields as well as some of the crude grades being more of an HLS type exposed barrel that may not match up as well with the current demand patterns. We’ve seen very little impact to our business and impact to the Eastern Corridor to this point. It’s something we continue to monitor. Again, the majority of our crude that we transport through the Central Corridor and others is medium sour. It matches up very, very well. And our exposure points that we mentioned earlier are relevant for this situation as well as the long term.

——————————————————————————–

Operator [35]

——————————————————————————–

Your next question comes from TJ Schultz from RBC Capital.

——————————————————————————–

Torrey Joseph Schultz, RBC Capital Markets, Research Division – Co-Head & MD of Master Limited Partnership Franchise [36]

——————————————————————————–

Just one follow-up on the distribution. So my understanding was that coverage would be tight this year in kind of a transition period and then grow over time. And you have the flexibility to withstand tighter coverage just given your asset mix and the balance sheet. So has anything changed relative to your outlook on coverage improving beyond 2020? And if you’re looking at the distribution on kind of a quarter-by-quarter basis now, where you’re keeping it flat in the second quarter in what might be a trough demand quarter, just how you’re thinking longer term for coverage improving.

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [37]

——————————————————————————–

I think our story is still there with regards to the business that we see coming onboard, the Mars expansion project, some additional offshore production and some of the other projects that we see across our portfolio. That hasn’t changed. What really has changed right now is just the level of uncertainty from COVID-19 and the demand destruction and what really is going to happen with demand over the rest of the year. And so we’ll have to watch and see what happens with demand. I think it’s more of that refined product story. We think the basin in the Gulf of Mexico and crude holds up well, but we’re going to have to wait and see what happens with demand. So I think that’s really the big change.

——————————————————————————–

Operator [38]

——————————————————————————–

And your next question comes from the line of Joe Martoglio with JPMorgan.

——————————————————————————–

Joseph Robert Martoglio, JP Morgan Chase & Co, Research Division – Research Analyst [39]

——————————————————————————–

I just wanted to ask, maybe dive in a little more on, I guess, what you’re seeing offshore and the [signs] there. I think Murphy said this morning they’re dialing back production a bit. I’m wondering if that flows onto your systems and then also even a lot of the production from the majors, I guess, how — if they’re dialing back as much or what you’re seeing there.

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [40]

——————————————————————————–

Yes. And maybe I’ll let Steve give you more detail. But overall, we have not seen a material impact to our systems offshore. And the other thing would be that, I know people were focused on storage and it becoming physical that where you couldn’t put your crude anywhere because there were more crude than there was needed to be refined, and that would curtail. We have not seen that materialize.

There are some players in shallow water and some of the smaller players, for financial reasons, are either pulling their turnarounds forward to do it in this time frame, or for financial reasons, they’re choosing to do something. But it hasn’t been material and it doesn’t impact our large offshore production customers.

Steve, anything you want to add there?

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [41]

——————————————————————————–

No. I think you covered it well, Kevin.

——————————————————————————–

Joseph Robert Martoglio, JP Morgan Chase & Co, Research Division – Research Analyst [42]

——————————————————————————–

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

——————————————————————————–

Kevin M. Nichols, Shell Midstream Partners, L.P. – President, CEO & Director of Shell Midstream Partners GP LLC [43]

——————————————————————————–

Yes. I’ll take the first part and I’ll ask Steve to answer the Zydeco part. We don’t talk on behalf of Colonial, which is an independently run company that we’re one owner of. But obviously, Colonial is one of the large flagship finished product systems. And so it correlates to what you see demand happening across the country, especially in the Northeast.

It is the most cost-efficient, most effective way to transport and meet demand in key market centers in New York Harbor and all those states in the eastern seaboard. So as demand returns, it would be the pipeline system that would recover with strength.

On Zydeco, maybe you can comment.

——————————————————————————–

Steven C. Ledbetter, Shell Midstream Partners, L.P. – VP of Commercial – Shell Midstream Partners GP LLC [44]

——————————————————————————–

So on Zydeco, I mean, what we see is, we still see strength in volumes currently on the system. And we believe that’s, again, a testament to Zydeco remaining a strategic asset in the Gulf Coast that can compete, connects multiple trading hubs, refining centers, storage as well as export access across the water. So we’re pleased with our position, and Zydeco continues to perform well.

——————————————————————————–

Operator [45]

——————————————————————————–

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

——————————————————————————–

Jamie Parker, Shell Midstream Partners, L.P. – IR Officer [46]

——————————————————————————–

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

——————————————————————————–

Operator [47]

——————————————————————————–

This concludes today’s conference. You may now disconnect.



Source link

The Usa Job

The USA Job is one of the top personal finance blog where you can find hundreds of best ideas and news to make money, save money, investment tips for everyone for better life.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.