PBF Logistics LP
Q3 2017 Earnings Call Transcript

Published: 2 Nov 2017

[Operator:]

Welcome to the PBF Logistics Third Quarter 2017 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode, and the floor will open for questions, following the management’s prepared remarks [Operator Instructions]. Please note the conference is being recorded. It is now my pleasure to turn the floor over to Colin Murray of Investor Relations. Sir, you may begin.

[Colin Murray:]

Thank you, Lin. Good morning, and welcome to today’s call. With me today are Matt Lucey, Executive Vice President and Erik Young, our CFO and several other members of the Partnership's senior management team. If you’d like a copy of our earnings release, it is available on our Web site. Before we begin, I'd like to direct your attention to the forward-looking statement disclaimer contained in today’s press release. In summary, it outlines that statements in the press release and on this conference call that state the Partnership’s or management’s expectations or predictions of the future, are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we’ve described in our filings with the SEC. Now, I’ll turn the call over to Matt Lucey

[Matt Lucey:]

Good morning, and thanks for joining our call today. Pleased to announce what is our 12 consecutive distribution increase on the active another strong quarter of operations. In August, we completed the Paulsboro natural gas pipeline, I think on the exact day of our last earnings call. And I’m happy to report today on this call that the Chalmette storage tank project is complete, and began contributing to the Partnership earning yesterday. The two projects together will increase Partnership EBITDA by approximately $12 million, and importantly improve the Partnership’s customer, i. e. PBF Energy’s, business as well. With respect to the Partnerships future, we intend to manage the business as we have to this point, operate safely and reliably and certainly focus on growing. In terms of growth, we continue to focus on third party acquisitions when they come up. And obviously, we’re well positioned for dropdowns from our sponsor. Our largest opportunity continues to be to develop organic projects with our sponsor that grows the whole pie for both companies. 850,000 barrels a day of throughput equates to over 600 million barrels a year coming in as crude or going out as products. To the extent, we can position PBFX to move or handle any of these barrels we certainly will. We look forward to a strong fourth quarter to close out the year. In that regard, trip by rail is becoming more economic. And as a result, we are seeing and expect to see increased throughput in the fourth quarter and in the fiscal year 2018. With that, I’ll turn over to Eric.

[Erik Young:]

Thanks, Matt. This morning, we reported third quarter net income attributable to the Partnership of $28.9 million or $0.63 per common and limited partner unit, and Partnership EBITDA of approximately $40.9 million. Revenue for the quarter increased to $65.5 million, and we generated $32.2 million of cash available for distribution, which represents a quarterly coverage ratio of approximately 1.4 times. Total expenses for the third quarter were $25 million, including operating and maintenance expenses, G&A and depreciation and amortization. Interest expenses and financing cost totalled of approximately $7.7 million. During the quarter, we spend approximately $15 million in CapEx, which includes $13.6 million for our organic projects and $1.5 million for maintenance. We ended the quarter with approximately $207 million in liquidity, including $39 million of cash and approximately $167 million of availability under our revolving credit facility. As a result, our net debt to EBITDA ratio was approximately 3.1 times on an annualized basis. We’re pleased to announce our 12 consecutive distribution increase to $0.48 per unit per quarter. This represents 60% increase through our minimum quarterly distribution and a compound annual growth rate of approximately 15% since our IPO. Subsequent to the end of the quarter, the Partnership successfully raised $175 million through a senior notes offering, which closed in the first week of October. The proceeds of the offering were used to repay the majority of the outstanding balance on our revolver. Following the transaction, our revolver availability increased to $346 million and our pro forma liquidity is approximately $385 million. Operator, we’ve concluded our opening remarks. And now, we’ll open the call for questions.

[Operator:]

In a moment, we will open the call for questions. [Operator Instructions] And we’ll go ahead and take our first question from Justin Jenkins with Raymond James. Please go ahead, your line is open.

[Justin Jenkins:]

I guess starting on the CapEx front here, Erik, you mentioned on the PFB call, about $120 million is the expectation, including the acquisition earlier this year. And that would seem to imply bit of a ramp for both growth and maintenance in 4Q. Is that just a completion of Chalmette storage and maybe a bit of lumpiness or catch up in maintenance?

[Erik Young:]

I think, the vast bulk of it is going to be, if you remember, couple of these projects were started at the PBF level. And so as they were transitioned over to PBG Logistics, they’re still probably between $20 million and $30 million of let's call catch up CapEx that ultimately is going to be reimbursed at the end. So that would come through in the fourth quarter.

[Justin Jenkins:]

And I guess taking on the capital side, it seems like from the PBF call as well that we’ll get more color early next year. But I’m just curious if you could give us a sense for what we can maybe see for organic spend next year, at least directionally, should we think about the projects as similar to what we’ve seen this year?

[Erik Young:]

I think from -- we’ll start with maintenance first. I think our maintenance numbers are probably going to be, as we’ve outlined with all of the original assets subsequent dropdowns as well as the organic and ultimately third-party transactions that we’ve done. Collective maintenance is probably in the $10 million to $15 million a year range. And from an organic project standpoint, clearly, we had call it $80 million to $90 million this year. I think our plan is early next year to help quantify exactly what we’re thinking in terms of long-term growth. But as Matt said, that appears to be our best opportunity today as we look forward and it’s driven off the back of the growth between PBFX as well as PBF.

[Justin Jenkins:]

Appreciate that Erik. And then last one for me, if I could on Chalmette storage. Can you help us think about the financial contribution here? Are there any costs associated with start up, or how should we think about this in terms of ratable cash flow in the ramp up period?

[Erik Young:]

I think, ultimately, it’s going to be a partial quarter, during the fourth quarter. And ultimately, starting next year, we should be in that total of $4 million a year run-rate for the Chalmette tank. There really are no one-time charges on the front end.

[Operator:]

Thank you. We’ll take our next question from Ryan Levine with Citi. Please go ahead, your line open.

[Ryan Levine:]

Would you be able to provide an update around the opportunity around gas pipe in New Jersey? And extending your existing assets in light of some of the congestion issues that we’re seeing in that market?

[Erik Young:]

Happy to a certain extent. Look, we’ve referred to our -- the pipeline we completed in August as Phase 1 internally, that implies there is probably going to be a Phase 2 and we’re actively working with counterparties and assessing the market in terms of how we grow that business. But we view it absolutely as a strategic asset in that it crosses the Delaware River, which is no small feat for anyone to accomplish. So I think the asset has tremendous possibilities to grow certainly beyond ahead of the refinery where it is today.

[Ryan Levine:]

Does the recent transaction in that state on the utility front have any impact on the growth outlook for your Phase 2?

[Erik Young:]

I think it’s all positive.

[Ryan Levine:]

And then elsewhere on the organic growth side. Is there any update you can provide around initiatives that you’re looking at around, either on the crude or product side?

[Erik Young:]

I don’t think. We don’t intend to announce anything today. But as we’ve stated on previous calls, we have a full team working on full time. And the reason why we’re so focused on that is, as I said in just the prepared remarks, opportunities come out on third part acquisitions and such. But the multiples associated with the organic projects are simply more attractive. All EBITDA is not created the same. And so we’re prioritizing our list. And I hope to in the not too distant future be able to numerate more projects and more clear web, but we’re actively working on and we like our prospects.

[Ryan Levine:]

And then in your prepared remarks, there are a mention of improving economics for crude by rail. Would you be able to elaborate around that and what you’re seeing in that market and potential for your business?

[Erik Young:]

I think, it just speaks to the importance of optionality for refiners in terms of crude become economic things go up, things go down, where the market sits today, not only the outlook for WCS where Brent TI differentials are nothing obviously is static. And as a [mercer] refiner, I’ve come to learn you want to keep it all your avenues open for at the moment in time when things become economic, you can access them. Obviously, with the rail assets predominantly at Delaware, we have tremendous access to both North America and Canadian crudes. The heavy barrels and what looks attractive at the moment and our refining companies looking to run those barrels. So it should be increased throughput through the rail assets in Delaware.

[Operator:]

Thank you [Operator Instructions]. It appears we have no further questions at this time. I would like to turn the floor back over to Matt Lucey for any additional or closing remarks.

[Matt Lucey:]

Well, great. I appreciate everyone’s support and interest in the Company. And we look forward to positive results next quarter. Talk to you soon.

[Operator:]

This does conclude today’s program. You may disconnect your line anytime and have the wonderful day.