BP Midstream Partners LP
Q4 2020 Earnings Call Transcript

Published: 25 Feb 2021

[Operator:]

Good morning, and welcome to the BP Midstream Partners Fourth Quarter 2020 Results Conference Call and Webcast. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I'd now like to turn the conference over to Geoff Carr. Please go ahead.

[Geoff Carr:]

Thank you, and good morning, everyone. Welcome to BP Midstream Partners fourth quarter and full year 2020 results presentation. Joining me remotely today are Rip Zinsmeister, our Chief Executive Officer; Craig Coburn, our Chief Financial Officer; and Jack Collins, our CFO Designate.

[Rip Zinsmeister:]

Thanks, Geoff, and hello, everyone. I think it's fair to say that 2020 goes down as a year unlike any other we have experienced. We have dealt with the human tragedy of the COVID-19 pandemic and the uncertainty it has brought to our personal lives and the broader macro environment. For BPMP, we have navigated the impacts of COVID-19 on the demand for refined products, industry refinery utilization, commodity prices and the ability for offshore producers to safely maintain production and execute major projects, while hearing the responsible COVID-related work practices. We have also dealt with a historic Atlantic hurricane season in terms of the number of named storms in a single season. Hurricane impacts in the Gulf of Mexico, which require offshore producers to temporarily shut-in production for safety reasons, extended well into the fourth quarter of 2020. Through all of this uncertainty, we demonstrated stability and resilience with safe operations remaining at the core of everything we do. We delivered solid operational and financial results in a challenging environment, a testament to the underlying operational and financial strength of the business. I would like to thank everyone at BPMP for consistently delivering throughout the year against what was a tough backdrop. Thank you to our sponsor BP to provide us support throughout the year in many different ways and to our unitholders. We appreciate the support and dialogue that we have had with you throughout 2020, and we will remain engaged with you. As we look ahead, we are optimistic, particularly as vaccines are rolled out, but we're also realistic. And we still have a way to go, as evidenced by COVID-related restrictions in several key demand centers continuing from late in the fourth quarter of 2020 to well into the first quarter of 2021. We are encouraged though by the opportunities we see to build our track record. I'll start today with a brief recap of some key areas over the past year. Craig will take you through our latest operational and financial results, and then Jack will provide you with our guidance for 2021. I'll come back at the end to briefly sum up before we take your questions.

[Craig Coburn:]

Thanks, Rip. Good morning, everyone. As Rip mentioned, we delivered solid operational and financial results in 2020. Our full year results were in line with guidance we provided you at the start of the pandemic. That's an outstanding result given the changing conditions throughout the year that we had to navigate. It demonstrated our operational and financial resilience, underpinning our ability to deliver financial stability, an important element of our investor proposition.

[Jack Collins:]

Thank you, Craig, and hello, everyone. As Craig mentioned, we start 2021 from a position of financial strength. We are one of the few remaining traditional sponsored MLPs. An MLP with a strong investment-grade rated sponsor, conservative financial framework, high-quality assets, a well underpinned distribution and one that has built cash. As we have done year in and year out since our IPO, we will continue to manage BPMP in a thoughtful, disciplined manner while creating value for our unitholders. We will maintain our laser focus on safe operations and delivering stable, resilient performance from our high-quality asset base. And always doing what we say we are going to do as you have come to expect from us. Today, we will provide full year 2021 guidance for adjusted EBITDA, cash available for distribution, and our distribution coverage ratio, all assuming a distribution level in 2021, consistent with the fourth quarter of 2020. We will also provide guidance for the first quarter of 2021. Starting with full year 2021, adjusted EBITDA and cash available for distribution, we expect these to be broadly consistent with full year 2020 based on the following assumptions. First, for our onshore pipeline portfolio, we expect onshore pipeline gross throughput to be higher in 2021 compared with 2020, primarily due to increased throughput on BP2. Revenues from the onshore pipelines are expected to be broadly flat with 2020. Costs and expenses are expected to be between $5 million to $10 million higher in 2021, reflecting increased pipeline inspection costs, higher insurance premiums, an increase in the Omnibus fee paid to our sponsor and increased variable costs associated with higher throughput on BP2. Turning next to our offshore pipeline portfolio. We expect offshore pipeline gross throughput to be higher in 2021, largely reflecting the full year impacts of an expected ramp-up in production from the Appomattox facility, the start-up of BP's Thunder Horse south expansion Phase 2 project, and an allowance for weather in the Gulf of Mexico that is aligned with a statistically normal year for the Atlantic hurricane season compared with the above normal hurricane activity experienced in 2020.

[Rip Zinsmeister:]

Thanks, Jack. So to briefly sum up, BPMP has a strong foundation, a high-quality asset portfolio that has and continues to perform well. Our management team focused on maintaining safe operations and the performance of our assets. Our balance sheet and liquidity position that is strong and the distribution coverage ratio that has meant we have consistently built cash over three years, collectively underpinning the financial strength of the partnership, a sponsor who has been supportive and flexible. This year, we plan to continue maintaining our focus on safe operations, delivering financial stability as we navigate the ongoing challenges that COVID presents, doing what we say we are going to do and being transparent around the operational and financial risks and opportunities we see throughout the year and delivering value for our unit holders. And last but not least, this is Craig's final set of quarterly results after more than three years as CFO of BPMP. The strength and resilience of BPMP today are reflections of his credibility and command of the finance. He has brought transparency and consistency to the investment community since our IPO. Craig, thank you for everything you have done for BPMP. We're all going to miss you. As usual, our Investor Relations team are available to speak with you further outside of this results call. Thank you, everyone, for joining our call today. And now over to you for your questions.

[Operator:]

We will now begin the question-and-answer session. Our first question is from Joe Martoglio from JPMorgan. Please go ahead.

[Joe Martoglio:]

Hi. Thank you for taking my question. First, I wanted to ask on building the cash on the balance sheet. And just could you discuss why you feel that's the right thing to do now? And also, are you kind of exploring other opportunities to return cash to unit holders either through like a special onetime distribution or buybacks or distribution growth going forward?

[Jack Collins:]

Good morning Joe. Thanks for the question. Probably fair to say 2020 was quite a challenging year, if you compare, say, April to December and where we're sitting right now. As we look at the plan, in many respects, it feels like a plan, it's balanced. So, what are we seeing in the market right now? We're seeing the return of apportionment, decent dips, so comfortable that Whiting is going to want all the heavy we can get balanced against the ability to get it. Offshore feels like we've yet to see the full Biden agenda, and much has been delayed there. Basically, COVID cost the industry, we'll say, six to nine months, in terms of project delays and the Norphlet has presented some challenges to Shell. So, together with my Board, we're in a bit of a wait-and-see attitude with respect to how the clutch is let out, and we slip back into gear, okay? So, our distribution looks fine. And I think we have the opportunity to deploy cash, but I think we're going to wait a quarter or two before we make any real decisions.

[Joe Martoglio:]

Okay. That makes sense, yes. And that's helpful. And then just kind of a follow-up on that. Do you still think the 3.5 times debt to EBITDA is the right long-term target? I know you kind of, I guess, 1Q, you see how some of the things you mentioned worked out. Do you kind of expect to go back up towards that range?

[Jack Collins:]

I'm going to pass on that in this -- at this point in time. We've had no conversation with the Board about changing our financial frame, okay? It seems like the rest of the industry is working bloody hard to try and get back to some kind of normalcy. We've weathered a very difficult storm and did so. Other than worrying about storage volumes in April, our financial frame bore us very well through a very tough period.

[Joe Martoglio:]

Okay. That makes sense. Thanks for taking my questions.

[Operator:]

The next question is from Derek Walker from Bank of America. Please go ahead.

[Derek Walker:]

Good morning everyone. Craig, I think I mentioned this last time, but congrats again on your retirement. It was a pleasure working with you and wish you well.

[Craig Coburn:]

Thanks, Derek.

[Derek Walker:]

Maybe I can start with maybe a little bit more of a higher level question just around some of the announcements from the Bureau of Ocean Energy Management. Maybe two pieces there, one, just how are you guys thinking about the offshore lease schedule, I think they've put a pause on the March events? Just how you think about that the rest of the year, that's one. And then I think they also just came out with an announcement around wave energy projects in the Gulf of Mexico. And I just wanted to see if that is something that you guys have been looking at, if that's actually an area of opportunity to kind of step into the kind of renewable side of things. Thanks.

[Jack Collins:]

Good morning, Derek. Welcome. With respect to the industries, I'm going to speak both in terms of how we see it and then what I've read, and I'm sure you've read, the industry basically has a sufficient inventory of leasehold positions and certainly with development options that will last years and years and years, right? So in the past, I've done a deep dive on our GOM portfolio and existing producers. And there's a decade of work, one could undertake in these fields, okay? I am mindful of -- we haven't seen the full Biden agenda. So far, we understand what their plans are with respect to leases. So there may be other elements that we need to be mindful about TBD, to be determined. As a qualifying income MLP, I really can't comment on wave energy. So I'm going to pass on that one. I don't think that one fits inside the MLP.

[Craig Coburn:]

I guess, Derek, I can comment a little bit on this, having been CFO of Alternative Energy in a past life. So we did look at wave energy probably 10 years ago. You never know because technology moves on, but it's something that we took a pass on way back then, but we'll see that going forward, things change.

[Derek Walker:]

Understood. Thanks for that. And maybe just a quick one on just the cost increases, I think you guys mentioned $5 million to $10 million, and there's a few different components there. Do you have a sense of the breakdown of each of those contributions?

[Craig Coburn:]

Yes. So I'll take that one. The biggest piece of the costs we've got is line inspection costs on one of our main lines on the onshore. It's part of our normal cycle every four years. That's the biggest chunk of the increase. And then we did have some -- and I think everybody's going to be faced with this a bit, we did have some insurance cost increases come through just as people look generally at the segment, and those costs have gone up. And then Jack did mention for 2021, we took a pause on the Omnibus increase for 2020. I think that was a very good thing for BP to do, but that kicks in, in 2021 for us. So those three things combined are the cost increases. We'll be watching the in-line inspection cost very carefully to see where they come in. I think we've seen some good signals, they may come in lower than we've anticipated here for this guidance, but it's early days on that.

[Derek Walker:]

Got it. Thanks for that Craig. And then maybe just one clarification. I believe in the guidance you talked about just having more normal weather assumptions. But do you have -- quantify sort of the -- what that assumption is? And are you also factoring any planned producer time lines in your 2021 outlook?

[Craig Coburn:]

Jack, do you want to take that question?

[Jack Collins:]

Sure. Yes. First, Derek, we don't really comment on other producers' kind of plans with regards to turnarounds and impacts. So I think on the weather impacts, overall, we're expecting a statistically normal year, which is kind of -- if you just look back at the five- to 10-year average number of storms. So would be a lesser impact clearly in 2021 relative to 2020.

[Derek Walker:]

Got it. Thank you. I’ll hop back in the queue. Thanks, Rip, Thanks, Craig.

[Craig Coburn:]

Derek.

[Derek Walker:]

Yes.

[Craig Coburn:]

Derek, one follow-up on that for you. I mean, I did -- we did say in our third quarter that the hurricane impact was probably around $4 million to $5 million worth of CAFD. We saw similar ranges of that through the fourth quarter. So it was a pretty big impact on BPMP's financial performance in 2020 that was hurricane. So fingers crossed for everybody, we have a better year this year.

[Derek Walker:]

Appreciate the clarification there. Excellent. That's it for me. Thank you guys.

[Craig Coburn:]

Thanks, Derek.

[Operator:]

There are no more questions in the queue. This concludes our question-and-answer session as well as the conference. You may now disconnect. Thank you for attending today's presentation.