PBF Logistics LP
Q4 2014 Earnings Call Transcript

Published: 12 Feb 2015

[Operator:]

Welcome to the PBF Logistics’ Fourth Quarter 2014 Earnings Conference Call and Webcast. At this time, all participants are placed in a listen-only mode, and the floor will be opened for your questions following management's prepared remarks (Operator Instructions). It is now my pleasure to turn the floor over to Colin Murray, Investor Relations. Sir, you may begin.

[Colin Murray:]

Thank you, Keith, Good morning everyone and welcome to PBF Logistics’ fourth quarter 2014 earnings conference call. With me today are Tom Nimbley, our CEO; Erik Young, our CFO; and several other members of the Partnership’s management team. If you’ve not received the earnings release and would like a copy, you can find one on our Web site at pbflogistics.com. Also attached to the earnings are tables that provide additional financial information on our business. If you have any questions after reviewing these tables, please contact our Investor Relations teams after the call. I would also like to direct your attention to the forward-looking statements disclaimer contained in today's press release. In summary, it says that statements in the press release and on this conference call that states the partnerships’ 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 described in our filings with the SEC. When looking at the results contained in today’s earnings release, it is important to note that the results for the periods presented, include the retrospective impacts of our Delaware City West Rack and Toledo Storage Facility acquisition, which closed on September 30th and December 11, 2014 respectively, as if those transactions have occurred in the beginning of the each respected periods. The tables attached to your earnings release present this information on a consolidating basis. The figures that will be discussed in a moment will focused on the Partnership’s results excluding the retrospective impact of these acquisitions. Now, I will turn the call over to Tom Nimbley.

[Tom Nimbley:]

Good morning everyone and thank you for joining us on today’s call. After my opening remarks, Erik will review our fourth quarter results in more detail and then we will open up the call for questions. Today, we announced a 10% increase to our quarterly distribution to $0.33 per unit. Our distribution increase reflects the growing earnings base of our operations. Since the time of the IPO, we have added the Delaware City West Rack and the Toledo Storage Facility to PBF Logistics’ asset base, and in doing so, increased the expected annualized EBITDA of the Company by over 60%. We are pleased with the performance of all of our assets during the quarter. Our Toledo Truck Rack continued to exceed its minimum volume commitments by discharging 6,600 barrels per day during the quarter. The Delaware City West Rack also exceeded its MBT by discharging over 51,000 barrels per day while the Delaware City light crude oil facility or Loop Track unloaded 75,600 barrels per day. The Toledo Storage Facility and propane loading facility performed as expected for the 18-day during the quarter at PBF Logistics on the assets. We completed the acquisition of the Toledo Storage Facility and related assets from PBF Energy in December. The storage facility is co-located with PBF Energy’s Toledo refinery, and will continue to support the refinery going forward. The facility is comprised of approximately 3.9 million barrels of combined feedstock and product storage capacity including a propane storage and loading facility. The tank farm and propane loading activities are expected to contribute approximately 15.1 million of EBITDA annually, which is supported by a 10-year terminaling and throughput agreement. PBF Logistics has the primarily objectives of maintaining safe and reliable operations, generating stable fee-based cash flows and growing distributions to our partners. We currently provide storage, rail and truck crude oil unloading services for which we charge a fee and require minimum quarterly volume commitments from our customers, who are currently refineries owned by subsidiaries of our sponsor, PBF Energy. Going forward, we look to expand our operations with opportunities that arise to our sponsor’s potential refinery acquisitions, third-party acquisitions continued pursuit of organic growth opportunities and drop downs of logistical assets, currently owned by our sponsor. Before turning the call over to Erik, I would like to add a comment on the acquisition process. As I said, it is our goal to grow the Company and the management team has decades of transaction experience in evaluating assets and determining value. We are actively identifying opportunities and participating in processes and to the extent that we are successful, we will grow the Company. Having said that, we will maintain discipline as we look at opportunities and our approach will reflect the value that we see in any given opportunity. With that, I would like to turn the call over to Erik.

[Erik Young:]

Thank you, Tom. This morning, we reported net income for the Partnership of $15.2 million, or $0.47 per common limited partner unit for the fourth quarter. We generated EBITDA of $17.6 million and had $16.7 million in cash available for the distributions. Total revenue was $27.3 million. Total operating costs were $10.6 million, including operating expenses, G&A, and D&A. And cash interest expense was approximately $1.3 million. Included in our results were one-time charges of approximately $540,000 or $0.016 per unit of transaction expenses related to the acquisition of the Toledo Storage Facility. We also incurred $433,000 of non-cash compensation expense related to the Company’s long-term incentive plan. Our total G&A expense of approximately $2.9 million includes these amounts. Turning to the balance sheet at the end of the quarter. We had approximately $14.2 million of cash on hand and $261 million of net debt, which includes the value of our U.S. treasuries, listed as marketable securities on our balance sheet. As Tom mentioned, we successfully completed the $150 million acquisition of the Toledo Storage Facility from PBF Energy in the fourth Quarter. The transaction was funded with $15 million in limited partner interest and $135 million in cash, comprised to the proceed of the sale of $30 million in U.S. treasuries that we’ll purchase with proceeds from the Partnership’s May 2014 Initial Public Offering, and an incremental $105 million in the borrowings under the Partnership’s revolving credit facility. The transaction closed on December 11, 2014. For the first quarter of 2015, we expect our revenues to be in line with our minimum volume commitments at the Toledo Storage Facility, the Delaware City Loop Track and our Toledo Truck Unloading Rack. We expect throughput volumes at the Delaware City West Rack to average between 45,000 and 55,000 barrels per day. We are pleased to announce that the Board of Directors of our general partner announced a quarterly distribution increase of 10% to $0.33 per unit, which will be paid on March 4th to unit holders of record as of February 23rd. It is important to note that the distribution increase follows the first full quarter of operations of the Delaware City West Rack, which was acquired at the end of the third quarter 2014. The first full quarter of operations at the Toledo Storage Facility will be the first quarter of 2015, and we expect subsequent increases to the quarterly distribution to reflect the increased earnings of the Partnership. As we continue to acquire assets, whether from our sponsors or through third-party acquisitions, we would expect that our distributions will grow following a full quarter of operations to those assets. Operator, we’ve concluded our opening remarks. And now we’ll open the call for questions.

[Operator:]

(Operator Instructions) And we can take our first question from John Edwards with Credit Suisse. Please go ahead.

[John Edwards:]

Good morning everybody and congrats on a nice quarter. I just want to talk a little bit with you on distribution policy. And I appreciate the preliminary comments you’ve already made on that. I am just trying to get an idea is, in terms of sort of longer term intended trajectory of growth, what should we be thinking about here? Because this was obviously a 10% sequential increase -- in terms annual increases should we be thinking sort of mid-teens type trajectory, maybe 20% what -- if you can give any inside on that will be really helpful?

[Erik Young:]

John, it’s Erik. I think that this is really our first step in distribution growth. It’s obviously as a result of dropping down two assets in relative short order at the end of last year. As we’ve mentioned on the call, we expect once we get these assets under our belt, and they have kind of first full operating quarter, we will increase distribution, tough to say that we’re going to increase distribution 10% every quarter. That being said, we do feel like these assets are new, they’re well maintained. This past quarter we had relatively low maintenance CapEx, in fact no maintenance CapEx, which is one of the reasons that we like these assets. When we went out last year, we were guiding folks based what kind of drop down profile of kind of low teens growth, distribution growth. But I still think that that’s something that is eminently achievable. And I think we’re working hard to make sure that we’ve got incremental assets that can potentially be drop down, as well as we have a fairly robust acquisition pipeline. As we mentioned on the road show and in our prospectus, as we go forward, as we’re doing larger deals, there will be kind of step functions change -- changes in that distribution growth policy. But I think at this point, it’s probably kind of in that in the mid teens range at this point and then once when we come out and actually do acquisition, whether again, it's through third-party acquisition or through drop downs from the sponsor. And what we have included in our drop-down value, if you will, is really only kind of the traditional third-party assets, or traditional logistics assets, I should say. We do think there are other assets that exist at the parent company. And I think we’ll say stay tuned as to what we’re going to do there. We will come out at the appropriate time if we’re going to do anything with those. But at this point kind of mid-teens is probably with that distribution growth profile for us given what we have in our existing stable of assets because it's tough for us to handicap when we’re going to do a third-party acquisition.

[John Edwards:]

Okay, that’s really helpful. And then could you remind us at the parent level about how much droppable EBITDA is available, sort of midstream type EBITDA? And then if you could remind us, what kind of capital spends on mid stream is going on at the parent as well, will be helpful?

[Erik Young:]

So today, we went out, last April or May, with call it $150 million of drop down assets. We dropped about 30 down, so assume there is kind of a 100 to 125 that’s still left at the parent. That consists of all very traditional logistics assets. So it's a combination of marine terminals on East Coast. We’ve got some pipes. We have a truck racks. We do have incremental storage facilities that kind of mimic the one that we had at Toledo, so -- and we would say there is some probably some incremental assets that are there. We continue to spend probably anywhere from $20 million to $40 million when it’s all set and done per year on logistics related assets. That being said, a lot of the organic projects were drop down either at the time of IPO, included at the time of IPO, or have been dropped down since then, and those are rail projects. We did spend, for instance at Toledo storage facility, we’ve built an incremental 450,000 barrels of storage that is now part of PBF Logistics’ assets.

[Operator:]

And we’ll take our next question from Praneeth Satish with Wells Fargo. Please go ahead.

[Praneeth Satish:]

Hi, good morning. Just a couple of quick questions, I guess, first we’ve seen spreads move around quite a bit in the Bakken. And I think the art the transport via rail is effectively close right now. Just wondering if you could talk from a high level about the environment there, maybe a long-term ability to source Bakken crude by rail versus importing, waterborne crude, just curious on your thoughts there on how that dynamic plays out?

[Tom Nimbley:]

It's Tom Nimbley. The odd for Bakken to the East Coast to our East Coast as well as our parent company, PBF Energy’s East Coast facility, as you say effectively close for a bit. The reason for that is what you alluded to is the optionality that the PBF refineries on the East Coast have to switch to more distressed at this current environment, heavy, sour, waterborne crudes, which are clearly have been in the recent past clearly more economic. That being said, two things, so one we expect -- by the way, the arm on Bakken from North Dakota to the East Coast for our facilities is now starting to reopen. We do believe that the pricing will clear, so the pricing we accept to clear Bakken by rail to lead it to East to the West Coast. Frankly, there is no crude oil being pumped into the -- light crude be pumped in performed crude into the Gulf Coast. The Bakken would go to the Gulf Coast, and it's going to happen to this place or something else and there is no light crude to displace it. So there is a surplus of crude ore category. And we expect that the Bakken producers will price to clear by rail to the East Coast. I would make two other points. One, we don’t buy -- if you look at the price at Bakken a clear book and then you do the calculation on rail course or pipeline course for that matter, we have supply arrangements with our supplies and we often-time get a better price than what quoted in the clear book. And that’s why I say right now, we’re actually -- we just acquired a number of unit trains that we’re going to start putting back on the rails and moving in, and we’ll be running those in the month of April into our East Coast facilities. Second point I would make is our economic, as I alluded to in PBF Energy, on the East Coast are different than competition and now we are the only refiner who can run a basket of crudes, including medium sour, heavy sour and light. Our competition on the East Coast really has to run light sweet crude. And they have different economics on Bakken and that likely would continue to source Bakken in today because there are alternatives, as there is light sweet West African barrel, which maybe more costly. We have in our provisions on dual-loop rack an opportunity by permit with the State of Delaware to actually bring in 45,000 -- or bring in Bakken, or any other crude for that matter and transship 45,000 barrels a day of that material to another refinery by rail, we actually do that today to our sister refinery in Paulsboro, but we can always do use that capability to actually trans-shape and sell Bakken to another refinery in the Northeast who would still have some positive economics and therefore we would collect the revenue against the NBC on the low track.

[Praneeth Satish:]

Thanks, that’s helpful. And you probably answered this with the last question, but just to be clear the EBITDA -- the logistics EBITDA that’s reaming at the parent that hasn’t contracted at all with what you’re seeing with the rail versus importing mode has that changed or has been relatively stable?

[Tom Nimbley:]

No, it’s stable. Those are assets that are used by the refinery no matter what and when we originally quantify all of the150 on the frontend of the IPO, we had already taken into account that we would be using the rail facility. So everything in that 100 to 125 and again that’s just kind of our base level traditional logistic assets those -- that EBITDA will not fluctuate with rail versus waterborne crude.

[Operator:]

(Operator Instructions) We’ll take our next question from [Lynn Shane with HITE]. Please go ahead your line is open.

[Unidentified Analyst:]

Tom, can you also talk a little bit about you view about how long you think the low crude price outlook in terms of market is going to last, and how can PBF particularly [indiscernible] to do acquisitions or to increase on margin?

[Tom Nimbley:]

Good question, of course forward looking statements come to mind right now, and yes, we have question of what I think might happen in the future, but we pretty much subscribed to what I think a lot of people are saying first of all we believe Tom O'Malley, the PBF executive and a Chair of Logistics Company, has had a long term relationship with the facilities that continues to be very strong and PBF has a great relationship with facilities. So we’ve spent some time talking to them and we all believe -- they haven’t come out and said this, but they view this situation as well -- we actually have had to have the price of crude drop in order to spur demand in order for them to be able to ultimately [all] the time and any other producer move their barrels to Bakken, crude prices -- crude keep going up and up and up. It obviously respond increase CapEx standards renewable fuels and perhaps even make the economical, though I doubt it. This is not in facilities interest or any producer to not have a place to park their crudes, so I think part of their equation and if move that they’ve done in not supporting the market is they let the market go where it. And see if there is an economic benefit and spurring of demand, there are indications that we’ve already seen that prior to the flat price drop simply because of the improving economy in the U.S. with miles driven. That being said the steps that they have taken and the prices that we see right now we believe are unsustainable. You’ve all already seen the rig count drop rather quickly. The share produces are moving rapidly to try to get a little bit more balanced, even every major integrating company is cutting CapEx. So the normal forces of market efficiencies are taking over and we think that they will in fact, start to rebalance the market. Right now obviously the reason the market’s in contango is because people can fill available all the storage and lock in those fuel prices, we think that’s ongoing, take a look at the build in pushing, pushing it back over a $43 million barrel, the ob from pushing to the Gulf Coast of the United States in terms of the WTI LFF differential has widened in the past week to over $354 meaning you now have economics to have from pushing into the Gulf Coast and that storage will then fill. And then the question is there is report of a massive amount of a floating storage being turned up VLCC. If that happens and people take advantage with that might be six months from now, but somewhere between 3, 6 and 9 months the storages is going to fill and the spreads will widen up and people will actually physically have to stop production or cutback on production and we’ll see the price rebounding at that time. In terms of what advantages we have -- the world has got a lot of crudes, cheap oil is not going to happen anytime in certainly my life -- the technology associated with Shell has resulted in this tremendous increase in production capability and candidly while we talk about North America, it’s got potential throughout much of the rest of the world. So I think there is going to not be an issue how much crude is available, so I think the reality is there is going to be pressure on various producers that may change from time-to-time whether it's a medium towers or is a heavy or the lights what other. But the big advantage that the PBF parent has particularly on the East Coast of the United States is whichever crude becomes the stress and therefore economically favorable or the PBF Energy East Coast economies can run it and nobody else in pad one can do that, so that’s an opportunity for the parent company and certainly we think will give us opportunities to generate gas that we can then got acquire facilities that would also benefit the logistics company over the intermediate account as well.

[Operator:]

And as it appears we have no further questions, I’ll turn the floor back over to Tom Nimbley for any additional or closing remarks.

[Tom Nimbley:]

The only closing remarks is thank you for your attention and presence on the call today and have a good day.

[Operator:]

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time. And have a wonderful day.