Shell Midstream Partners, L.P.
Q3 2016 Earnings Call Transcript

Published: 6 Nov 2016

[Operator:]

Good morning. My name is Latif and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2016 Shell Midstream Partners Earnings Call. [Operator Instructions] As a reminder this call may be recorded. I will now turn the call over to Courtney Selinidis, Investor Relations Officer. You may begin your conference.

[Courtney Selinidis:]

Thank you. Welcome to the third quarter earnings conference call for Shell Midstream Partners. With me today are John Hollowell, CEO of Shell Midstream Partners; Susan Ward, CFO; and Michele Joy, Vice President, Major Projects and Regulatory. The presentation materials shared this morning can be found on our website, shellmidstreampartners.com, under the events and conferences section. Slide two contains our Safe Harbor statement. We will be making forward-looking statements related to future events and expectations during the presentation and Q and 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 this morning'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 this morning's press release and appendix one 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 John Hollowell.

[John Hollowell:]

Thanks, Courtney. Good morning, everyone. Before I discuss Q3 results, let me speak to the tragic incident which occurred on the Colonial Pipeline earlier this week. And as you know, Shell Midstream Partners owns a 6% interest in Colonial Pipeline. As previously reported by Colonial, on Monday of this week, a crew working on the Colonial gas pipeline in Northern Alabama experienced an incident with the line when the line was a struck by a track hoe and a fire resulted. And I'm deeply saddened to report that a crew member on the site lost his life at the scene, and four people are currently being treated in the hospital for injuries. I speak for all of us here at Shell Midstream Partners by saying we're deeply saddened by this event and we extend our condolences to the families impacted, and our thoughts and prayers are with them all. Now Colonial has devoted significant resources to respond to the incident, and the company's top priorities are to ensure the safety of the responders and supporting the personnel and the families. For the most up-to-date information on the incident, I encourage you to visit Colonial's response website at Helena H-E-L-E-N-A.colonialresponse.com. Now moving to the results. The underlying business performed well in the third quarter. However, we did face some challenges. There were a couple of one-off events during the quarter and shifts in market dynamics, which impacted our results. And we'll address these in greater detail later in the presentation. But first, let me start with our most recent acquisitions announced in late September and effective October 1. Shell Midstream Partners purchased 49% of Odyssey Pipeline and an additional 20% of Mars Pipeline for $350 million. Both pipelines are well positioned to capture business and future developments in the Central and Eastern Gulf of Mexico that serve desirable Louisiana markets. The acquisition was funded with a combination of cash on hand and debt. This transaction completes our 2016 dropdown growth plan with over $1 billion of assets acquired from our sponsor, which is in line with the previous guidance provided. Now as many of you know, Mars has been in the portfolio since the IPO of Shell Midstream Partners, and the asset has a proven track record of strong delivery and has exceeded our growth forecast. Since 2014, Mars Pipeline has seen significant growth from fields tying directly into the system, as well as through a connecting system, Amberjack. In addition, there are a number of new developments scheduled to tie in by 2019, such as Stampede and Big Foot, both of which are expected to contribute to the continued organic growth on the system. The Odyssey Pipeline is a new addition to our portfolio and extends our footprint into the Eastern Gulf of Mexico. The system offers 220,000 barrels per day of capacity and connects into the Delta Pipeline with deliveries into Zydeco's Houma Terminal, Chevron's Empire Terminal and the Norco and Alliance Refineries. Odyssey is located in an active area of the Gulf of Mexico with over 20 fields currently connected to it, including Delta House, Horn Mountain and Petronius. There are also several developments under way in the vicinity, including near-term tieback opportunities, such as Odd Job and Stonefly, as well as a number of exploratory opportunities currently being drilled. In the offshore, our strategy is to own the major highways or corridors to onshore markets. Our pipelines' aggregate volumes from several fields and benefit from additional volumes coming onto the system as development occurs around the pipeline's footprint. These volumes often connected to our system with little or to no capital expenditure required by Shell Midstream Partners. Slide five shows the five-year history of several corridor pipelines owned by Shell Midstream Partners and Shell Pipeline Company. And, as you can see, each of these pipelines has had relatively stable to growing throughput since 2011. The period shown here also includes the impact of the Gulf of Mexico moratorium in the wake of the Deep Water Horizon incident. So even after a six month halt of all Gulf of Mexico drilling and close to a year before production from new wells came on line after the moratorium, our corridor of pipelines continued to benefit from aggregating production from several hubs connected to the systems, highlighting the strength of our corridor pipeline strategy. And today, as the industry adapts to an environment of lower for longer, we continue to anticipate resilient volumes across our offshore portfolio. Even with the impacts of lower crude prices, we still see drilling activity in the Gulf of Mexico. Producers are shifting their focus to lower, break-even projects, such as tiebacks, with most of the development activity occurring in and around existing hubs. Producers are also pursuing smaller fit-for-purpose platforms to develop opportunities that are in the vicinity of our pipelines which can easily connect to our systems. This activity translates to opportunity for throughput growth on our systems, further supporting our corridor strategy. Our offshore portfolio is an important component of our overall Shell Midstream Partners strategy, and we believe it's important to discuss this area of our portfolio in greater detail. So we've scheduled a teleconference on November 30 to discuss our views of the current development activity occurring in the Gulf of Mexico. And if you're interested in joining the call, please contact Courtney Selinidis or watch for joining instructions on our website for more information. Okay. Now turning to our performance in the third quarter. Operational results were stable across the portfolio, as we continued to benefit from a diversified yet highly-interconnected portfolio of assets. However, we did see impacts from offsetting factors during the quarter. In August, three tank crews [ph] associated with the Bengal Pipeline System were damaged during the record rainfall in the Baton Rouge area. Operations continued and throughput in the system remained essentially unchanged from the previous quarter albeit with reduced flexibility. Plans to repair the damaged tanks are in place and work will likely occur through the end of this year and into the beginning of 2017. In early September, there was a release on the Colonial Pipeline of approximately 6,000 barrels. The operator responded quickly and operations were restored after a 10-day outage. Both incidents at Bengal and Colonial have associated financial impacts, which Susan will cover later. On the Zydeco System, overall throughputs on the system were in line with the second quarter. However in September, some customers began shipping below their commitments. This was largely due to a shift in market dynamics as well as a connected refinery partially sourcing Texas crude from its own pipeline. This had minimal impact to cash flows as volumes are secured by long-term contracts on the system. The new connection at Nederland and the joint tariff agreement to move Poseidon barrels into St. James came on line in September as planned. We began to see increased offshore volumes into St. James as shippers began to take advantage of the available capacity on the joint tariff, which offset lower committed volumes sourced out of Texas. Now turning to our offshore portfolio, total throughput across our systems was largely in line with expectations, and we project stable results for the remainder of the year. I do want to highlight that throughput on the Mars System was about 15% higher than the previous quarter. The increased volume is largely due to deliveries out of the caverns as stores positions unwound with increasing crude prices. Underlying throughput volume across Mars was steady from the prior quarter, and operational performance in throughputs on the remainder of our offshore portfolio were in line with the previous quarter. Since the IPO, our strategy has focused on growing and building a flagship portfolio of fee-based assets with predicable and dependable cash flows. Our systems have demonstrated resilience despite volatility in the industry and continues to deliver consistent results. We continued to build the scale of the MLP with six acquisitions over the last two years totaling $2.3 billion. In two years, we have more than tripled the EBITDA of Shell Midstream Partners with acquisitions of onshore and offshore crude pipelines, crude terminal facilities and refined-products systems. As we look ahead to our planned growth in the near term, we will continue to build on our strong foundation of assets in Shell Pipeline Company and begin to acquire assets from other businesses across Shell. Based on current market performance, we plan to acquire between $2.5 billion and $2.9 billion of assets from our parent through 2018. In addition, we are targeting distributions to grow at a 20% CAGR over the same period. With that, let me hand the call over to Susan.

[Susan M. Ward:]

Thanks, John. Good morning, everyone. Before I discuss the financial results of the quarter, you will have seen in this morning's press release that effective March 1, 2017, Shawn Carsten will be joining Shell Midstream Partners as the Chief Financial Officer. I will remain CFO until February 28. Following the transition, I will continue in my position as head of Shell's M&A and Commercial Finance Organization for all businesses in the Americas. And in that capacity, I will work closely with the partnership to acquire assets from the sponsor. Being CFO of Shell Midstream Partners has been one of the highlights of my career. I feel fortunate to have been part of the team that launched the partnership in 2014. It's been a great experience to be part of the leadership as we've grown Shell Midstream Partners over the past two years. I believe Shawn is the right person to provide financial leadership as we continue to mature Shell Midstream Partners. Shawn most recently served as the downstream controller, and in his role, worked very closely with the MLP, which is consolidated within Shell Downstream. Shawn is a highly-regarded leader in Shell's finance organization with deep business knowledge across many Shell businesses, including Shell Pipeline Company. He has regional and global experience in strategy and planning, business-performance management and financial reporting. I've known Shawn for a long time and I look forward to working closely together as we continue to deliver on the growth strategy of the partnership. Please join me in welcoming Shawn to the organization. Turning to the quarter, revenues for the third quarter were $67.9 million, down about $3 million from the previous quarter, which was primarily related to the deferred revenue on the Zydeco System. As John mentioned, some shippers on Zydeco began to ship below their committed volumes beginning in September. Based on expected nominations through the fourth quarter, we are forecasting between $10 million and $15 million of deferred revenue in the fourth quarter related to Zydeco. It's important to note that shipper behavior is difficult to forecast on a quarterly basis given several variables that can impact nominations in the short term. However, cash flows are secured by minimum volume commitment. So the deferred revenues will be reflected in our cash available for distribution in the same quarter. Lower revenue was partly offset by lower expenses, which resulted in total operating income of $36 million, about $2 million lower than the second quarter. Income from equity investments was $21.4 million, compared to $25.6 million in the previous quarter. The reduction in equity income was mostly related to the unwinding of the storage position at Mars, which we highlighted in the Q2 earnings call. Underlying results of Mars performed well over the quarter. Dividend income was $4.2 million, down $0.4 million from the prior quarter. The reduction in dividend income was due to the outage at Colonial Pipeline in early September and the associated response expense, which resulted in a $1.1 million reduction to Colonial's dividend compared to the prior quarter. We are anticipating incident expenses to carry into the fourth quarter, but cannot provide an estimated amount at this time. The lower dividend income from Colonial was partly offset by $0.7 million of dividends received from Explorer as a result of the acquisition effective August 9. Adjusted EBITDA attributable to the partnership was $68 million, about $9 million lower than the second quarter. Lower adjusted EBITDA was driven by lower income, as discussed above, as well as by $4.4 million of cash held back by Bengal for future repair costs associated with a damaged tank. The lower distribution from Bengal represents roughly half of the reduction in adjusted EBITDA between Q2 and Q3. Total cash available for distribution was $61.1 million after adjustments for interest, volume deficiency payments and net maintenance CapEx. The partnership declared a distribution of $26.375 per unit for the third quarter. This was a 5.5% increase over the prior quarter's distribution, which puts us on track to deliver around 25% growth in 2016. We believe this is competitive with high-growth MLP peers. The resulting coverage ratio for the quarter was 1.1 times. On a pro forma basis, including the results of the latest drop down, the coverage ratio would have been about 1.3 times. Finally, let me close by discussing our balance sheet and the impact of our latest acquisition on our capital structure. As of the third quarter end, the partnership had total cash and cash equivalence of $161 million and total debt outstanding of $344 million. The acquisition of the interest in Mars and Odyssey closed on October 3, so the impacts of that transaction will be reflected in the fourth quarter results. In advance of the acquisition, the partnership increased its credit facilities with an affiliate. Following upsizing, Shell Midstream Partners had a total debt capacity of $970 million of which $325 million was available following the closing of this latest acquisition. On a pro forma basis, following the acquisition, Shell Midstream Partners will have a 1.8 times debt-to-EBITDA ratio based on the last 12 months, which is in line with our intent to keep a conservative balance sheet to maximize optionality as we deliver on our growth plans. And with that, I'll hand the call back over to John for some closing remarks.

[John Hollowell:]

Thanks, Susan. I think I would be remiss if I didn't use this forum to tell you how much -- how grateful I am to you for your leadership and guidance as we've matured the MLP. You have been invaluable in getting Shell Midstream Partners to where we are today, and we thank you for that. And of course, I'm happy to welcome Shawn as our incoming CFO. And I believe this change is a real benefit to Shell Midstream Partners. Shawn will join us as a seasoned leader in Shell's finance organization, and we'll continue to leverage, Susan, your expertise in deal delivery. So my heartfelt congratulations to both of you. And with that, I'll now open the call up to questions.

[Operator:]

Thank you, sir. [Operator Instructions] Our first question comes from the line of Brian Zarahn of Mizuho. Your line is open.

[Brian Zarahn:]

Good morning.

[John Hollowell:]

Good morning, Brian.

[Brian Zarahn:]

John, can you provide a little more color on Zydeco performance in the third quarter, a little bit more on the competitive dynamics and the change in tariff?

[John Hollowell:]

Yes, Brian, thanks for the question. Not sure what you mean by the change in tariff. The dynamics that came into play in September were mainly around the tightening of the spread between WTI and LLS, which some shippers began to alter their throughputs associated with that. That was one of the main drivers. Can you give me a little more information on what you're asking about the tariff?

[Brian Zarahn:]

Just the average revenue per barrel on the system was down versus the prior quarter and year-over-year. So I'm assuming that's part -- part of that probably the kind of the escalator [ph], and then just the mix of barrels.

[John Hollowell:]

No, it's…

[Michele F. Joy:]

Brian, this is Michele Joy. It was primarily the mix in barrels. What we saw was a number of the committed shippers, because of the price differential that John mentioned, chose not to ship during the month of September, primarily out of the Texas market. However we did see increasing volumes coming from the offshore, which is at a lower tariff. So when you mix the two tariffs together, you saw lower average.

[John Hollowell:]

And that was taking advantage of the new joint tariff that we have to get barrels into St. James, Brian.

[Brian Zarahn:]

Appreciate that. And, then, any update in what you're seen so far in the fourth quarter on Zydeco?

[Michele F. Joy:]

Yes, Brian. This is Michele again. We have seen that the differential has improved, and many of our committed shippers have increased their volumes and are meeting their commitments, certainly this month, and in nominations to next month. However, we do have some other dynamics that may affect shipments that we still are expecting deferred revenue in the fourth quarter.

[Brian Zarahn:]

Okay. And, then, I appreciate the long term guidance. I guess on a technical question, is the 20% distribution CAGR from full year 2016 to 2018 or is that picking up on the fourth quarter of 2016 to the fourth quarter of 2018?

[Michele F. Joy:]

I think it's the fourth quarter of 2016.

[Brian Zarahn:]

Okay. And, then, any change in your distribution coverage expectations?

[John Hollowell:]

No.

[Michele F. Joy:]

No. We're still striving to have a very strong coverage ratio, but of course, over time, it will move towards the 1.1 times. In the meantime we can use the excess cash flow to reinvest in the business and make acquisitions, as we have been doing.

[Brian Zarahn:]

And then on the dropdown strategy in financing, and I appreciate the outlook through 2018, any impact from the IRS ruling on how you plan to finance your future dropdowns?

[Michele F. Joy:]

We don't foresee the new regulation having an impact on our current plans. We didn't use that structuring when we initially constructed the plan for the MLP. But we are continuing to study the regulations for impact.

[Brian Zarahn:]

Okay. And the last one for me, I appreciate the additional color on the call for Mexico, and, obviously, your latest dropdown shows your positive outlook on the play, but any additional color you have on upside potential would be helpful.

[John Hollowell:]

I think the November 30 conference call will be a good forum to discuss that, Brian. So maybe, since it's so close, you'd be better served to wait till then and get the whole story at one time.

[Brian Zarahn:]

Thanks, John.

[Operator:]

Thank you. Our next question comes from the line of Christine Cho of Barclays. Your line is open.

[Christine Cho:]

You guys have typically stuck with the language of top tier distribution growth, and this quarter it looks like you're more specific with the language of 20% CAGR through 2018. I'm just curious what changed to have you more comfortable in putting a number out there, that it grows, as well as, the magnitude of the drops between now and then.

[John Hollowell:]

Thanks for the question, Christine. I think it begins with the -- the MLP's matured more. You know, we've tripled EBITDA since we began. We think that the growth trajectory that we're on now is well aligned with our long-term growth strategy, and it also takes into account our growth funding into account as we go forward. So just the maturity of the MLP, where we stand, and how we see going forward, we thought this was the best way to go at this time.

[Christine Cho:]

Did you get a sense from like your talks with investors that, 20% wasn't being expected?

[John Hollowell:]

Nothing to date. No.

[Christine Cho:]

Okay. And, then, on Colonial, with the outage in September and the most recent incident, should we think that this sort of gets pushed out with respect to expectations on that the remaining portion could come down into the MLP?

[John Hollowell:]

Well, we take a number of things into account, Christine, when we do that, and we -- to the extent that this particular instance of impact when we do it, it's not really a major factor in our decision of when to drop Colonial. Colonial's in the plans for the future in a measured way, and we have other priorities for when Colonial drops down that takes precedence over this. But this is truly an unfortunate incident, and I don't want to diminish that.

[Christine Cho:]

Okay. I see. And then last one for me, for Bengal the cash that you guys have retained to repair damage, should we expect that like this quarter is it there shouldn't be any spillover effect next quarter?

[Michele F. Joy:]

Well yes, at this point, we think that the -- with the hold cash is more than enough to cover our exposures. There's other things that affect Bengal's distributions, especially at year end, in terms of property tax and things like that. But we do think that the amount that's been withheld is sufficient to cover -- more than sufficient to cover the tank repair expenditures. They're still investigating soil contamination. The tank repairs do have insurance coverage, and we will benefit from that as well.

[Christine Cho:]

And then I guess just a follow up to what you just said. Should we expect any like cash being retained for, like you said, other things, property taxes for the other assets you have at year end?

[Michele F. Joy:]

That's really an event we see more visible at Bengal. All the Shell assets typically accrue during the time period. So -- and pay as we go. So I don't expect to see a big reduction.

[Christine Cho:]

I see. Great. Thank you so much.

[Operator:]

Thank you. Our next question comes from the line of Matt Niblack of HITE. Your line is open. Mr. Niblack your line is open. Make sure your line is unmuted.

[Matt Niblack:]

Thank you. To clarify on Bengal, did you mention the amount of the withholding?

[Michele F. Joy:]

Well the distribution difference between the second quarter and the third quarter was $4.4 million and so you can pretty much -- I think the cost of the tank repairs is expected to be about -- for 100% -- we only own 50% of Bengal -- is expected to be about $6 million for the repairs, and there'll be some associated costs as well.

[Matt Niblack:]

Okay…

[Michele F. Joy:]

8.2 in total. Yes, 8.2 in total, but we do expect to get a significant -- we understand from Bengal that we will get a significant insurance recovery, and, as I said, we only own half of Bengal. So expect half of the numbers I told you in the past.

[Matt Niblack:]

Great, and then on the 20% distribution growth, you said in the press release that that was sort of based on the current environment. Could you expound on what those, I guess, more environmental factors are, the impact the distribution growth and how that might change it up or down in the future? Is it essentially the share price? Is that what it comes down to?

[Michele F. Joy:]

Can you repeat that question? We're just trying to understand.

[Matt Niblack:]

So you -- I don't have the quote in front of me in the press release, but you essentially said that 20% distribution growth was based on the current environment or the current situation. And I was just wondering if you could expound on what that meant. What are -- or more clearly what are the -- More cleanly, what are the factors that could move that up or down, that, essentially…

[Michele F. Joy:]

Yes.

[Matt Niblack:]

…the share price.

[Michele F. Joy:]

Well, obviously, you know, the funding could move it up or down. The specific assets we select, the timing of when our assets are ready to drop, all those things can -- the multiples that we get when we drop -- all those things can affect -- and the performance of the assets, of course, can affect the distribution growth rate.

[John Hollowell:]

Yes Matt, you said the environment -- I think the press release said we're talking about current market conditions, which -- in the current market conditions, we expect $2.5 million to $2.9 million in growth.

[Matt Niblack:]

Right. And then, when you -- when you think about the capital financing, I'm sure that you noticed Dominion Midstream recently did a sort of chunkier dropdown than was expected. They did a bunch of financing, on a private basis, and then they were able to do a smaller public offering, and, overall, that was tremendously well received. Along with that, they were able to guide to not getting -- not coming back to the equity markets until late 2018. Do you see something like that as a feasible option to get the equity overhang out of the unit price?

[Michele F. Joy:]

Yes. We're monitoring the market continuously, and we're watching what our peers do and others do and the reception of those steps. So obviously, we have had good access to the public market since the IPO, but we have many options open to us, public and private, and we will be evaluating and using the most appropriate options to avoid the -- any disruption to the unit performance.

[Matt Niblack:]

Right. So, clearly, there's already been disruption to the unit performance. Right? I mean, the under-performance this year relative to the indexes is dramatic. And so do you see the need to do something about that? And I guess I would point that the reason for that is the equity overhang and the expectation of significant financing need.

[John Hollowell:]

Well, I guess, we look at the share price, like you, it's difficult, but I think there's two factors that are driving that, two key drivers. One sector wide, as you highlighted, and it's difficult to do much about that. When I think about our growth plans, and we understand there's overhang for equity and concern on how we're going to fund the growth, and Susan said it here previously there's a lot of options on the table. Shell, we're committed to growing the MLP prudently. We've done that over the last two years. We'll continue to do that, and our sponsors are well aligned with our growth aspirations, and we're well aligned with their priorities. So I mean, you tack onto the account, you know, I think that will help us going forward to do the right thing at the next time we do the drop, given what the market is and what -- or given where the market is and what we need to do in terms of funding our growth to continue to deliver the long-term strategy of the MLP.

[Matt Niblack:]

Great. Thanks. Well I would highly recommend that you do something that then allows you to have visibility and not coming to equity markets for a long period of time? In line with what DM did. I think that's the only way to get the unit price going the right direction again. But thank you.

[John Hollowell:]

Yes, thanks for that, Matt.

[Operator:]

[Operator Instructions] Our next question comes from Faisal Khan of Citigroup. Your question, please.

[Faisal Khan:]

Good morning. It's Faisal Khan from Citigroup. I think I heard you say you're still looking at the IRS Regs around this Rule 707 and 757. Did I catch that right or have you guys figured out if any of your dropdowns would…

[Michele F. Joy:]

Yes, so…

[Faisal Khan:]

…be susceptible to the new regs?

[Michele F. Joy:]

Obviously, we, you know, we looked at it when it came out, but, as I said before, Faisal, we have not included any tax deferral based on structuring with leverage partnerships in our plan, and we're just looking at it more as are all other MLP tax groups are probably considering it. But it has no impact on our current plan.

[Faisal Khan:]

Okay. That's what I wanted to hear. And, then, on Colonial, have you guys said when the pipeline would be -- could be up and operating at full capacity? Is there -- How long will that take?

[John Hollowell:]

Faisal, the best place to get that information is to go to that website, the response website for Colonial. That's the place to get the most up-to-date information. Anything we would say is not up to-date. The operator is the one that would be best to do that. Again that's helena.colonialresponse.com. That's your best place to go to get information on the response, and the current, the most up-to-date information.

[Faisal Khan:]

Okay. Got you. In terms of the dropdown schedule and strategy, is it fair to say that you could do the next dropdown without any equity capital?

[John Hollowell:]

You know, Faisal, we've done a number of -- used a number of tactics for our drop. Our last one was debt and cash [ph] as we talked about. So, you know, these options are on the table. We're aligned with our sponsor. The aspirations for growth of the MLP is completely aligned with the progress of the RDS. We're in it for the long haul within Royal Dutch Shell. So yes, those options are available to us. I think we have to evaluate the market at the time and make the most prudent choice on how we fund the growth through the next drop.

[Faisal Khan:]

Okay. Understood. Thank you, guys.

[Operator:]

Thank you. We have a follow-up question from Matt Niblack of HITE. Your line is open.

[Unidentified Analyst:]

Hi. It's Jim, James Pallone at HITE. You mentioned something about insurance proceeds. So in general, can you comment on the insurance related to the tankage and also to the two Colonial incidents, especially the one in the fourth quarter? That's number one. And number two, it seems like with what happened at Colonial in the fourth quarter and some of the things going on in the market, that it seemed to be pretty impossible to predict earnings in the fourth quarter. So it looks like we're in for sort of just flying blind and being surprised about earnings the next time around. So can you comment on that?

[Michele F. Joy:]

Well first, about the fourth quarter, you have to take into account what percentage of these entities that Shell owns. So as we said, the Colonial impact in the fourth quarter was $1.1 million -- third quarter was $1.1 million on our entire cash available for distribution. And the Bengal impact was $4.4 million, which we said more than covers our potential exposure based on what we've heard back from Bengal. So I think these are generally small components in the aggregate of our total cash available for distribution.

[John Hollowell:]

And you're right, Jim, regard to the second incident at Colonial, there's no way to know, at this time, what the extent is. Again we'll have to see from the operator what it's going to take to get the line repaired, and we can give a little bit better guidance on what that's going to be, but, for right now, it's just too many unknowns to predict what that is.

[Unidentified Analyst:]

But, for instance, the tankage that was -- the flood damage to the tankage in Louisiana, I guess that's insured, right? So that $4.4 million that's going to come back into DCF in some future quarter once there are insurance proceeds?

[Michele F. Joy:]

Yes, I would think that would be what would occur.

[Unidentified Analyst:]

I see. So sequentially, it's pretty hard to figure out what's going on a fundamental basis, cause…

[Michele F. Joy:]

Well, I think that they're fairly -- they're one-time events, and they're fairly small in comparison to the total pool of cash that comes into our MLP each quarter.

[Unidentified Analyst:]

I agree. The headline, quite frankly was kind of scary to see sort of such a significant 12% decline at DCF quarter over quarter. Right. Even with the explanation that was in a press release. It was just like, what's going on? Like how can they be down 12% in one quarter? So it -- I think you saw the unit price react very negatively, since recovered, but people are on edge, because they cause they just -- again, the unit price has been so -- trending so much down that anything you can do to increase transparency, talk about insurance proceeds, call them one off, would certainly be a relief to those of us in the equity.

[Michele F. Joy:]

Understood. Thank you.

[John Hollowell:]

I think, Jim though, when you look at the quarterly performance, what we said, the underlying business and the throughputs are stable across the portfolio, and the one-off events did impact the Q3 between Q2, and also the Mars storage. Q2 was an extraordinarily high quarter for Mars given the storage, and that storage unwound. So there are a significant number of one-off or unusual events that occurred in the Q3 that impacted results, but the underlying business and the throughputs across the portfolio remain relatively stable and are predicted to stay stable as we go into the fourth quarter.

[Michele F. Joy:]

And you'll see with our Q that the third quarter performance of Zydeco actually was an increase in operating income.

[Unidentified Analyst:]

Okay. Thank you very much.

[Operator:]

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

[Courtney Selinidis:]

Thank you very much for your interest in Shell Midstream Partners. For additional follow-up questions or if you would like any additional information on our Gulf of Mexico teleconference, please call me directly. My information can be found on the presentation materials as well as on our website, shellmidstreampartners.com.

[Operator:]

Ladies and gentlemen, that does conclude your program. Thank you for your participation and have a wonderful day. You may disconnect your lines at this time.