Andeavor Logistics LP Reports Third Quarter 2018 Results

FINDLAY, Ohio, Nov. 7, 2018 /PRNewswire/ --

• Reported third quarter net earnings of $166 million and EBITDA of $309 million, which provided 1.05x distribution coverage and 3.7x leverage
• Terminalling and Transportation segment operating income of $140 million and EBITDA of $180 million benefited by drop downs and strong refined product demand
• Gathering and Processing segment operating income of $80 million and EBITDA of $130 million driven by drop downs and Permian volume growth
• Successfully completed 2018 Drop Down of Permian, Refining Logistics and Asphalt Assets
• General partner now owned by Marathon Petroleum Corporation

Andeavor Logistics LP ANDX today reported third quarter 2018 net earnings of $166 million, compared with $90 million in the third quarter 2017. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $309 million, compared with $243 million in the third quarter 2017. The year-over-year increase in earnings was primarily driven by the drop down completed in August 2018, in addition to continued strength in the Permian. Third quarter 2018 net earnings and EBITDA also reflected approximately $6 million of transaction costs related to recent acquisitions.

"We are pleased to add Andeavor Logistics to the Marathon Petroleum family," said Gary R. Heminger, chairman and chief executive officer. "The addition of this business deepens our presence in the Permian and Bakken regions and expands our footprint to the West Coast."

During the quarter, Andeavor Logistics expanded its Permian and Bakken footprint through a $1.6 billion drop down from Andeavor (the 2018 Drop Down). The 2018 Drop Down included gathering, storage and transportation assets in the Permian and Bakken regions, the Conan Crude Oil Gathering System, and the Los Angeles Refinery Interconnect Pipeline. The assets contributed net earnings of $16 million and EBITDA of $26 million in the third quarter, and are expected to generate annual net earnings of approximately $110 million and EBITDA of approximately $200 million in 2019.

"As we continue to enhance our understanding of this business, our focus financially will be on meaningfully higher distribution coverage, leverage levels at or below 4.0x debt-to-EBITDA, no planned public equity issuances, and independent sustainability with limited parent support," Heminger added.

 

 

Segment Results

Terminalling and Transportation

Terminalling and Transportation segment operating income was $140 million for the third quarter 2018, an increase of $37 million from the prior year, and segment EBITDA was $180 million, an increase of $38 million from the prior year. The year-over-year increase was primarily attributable to contributions from the 2018 Drop Down, the Western Refining Logistics acquisition, the 2017 Anacortes Logistics Asset drop down and organic growth. The 2018 Drop Down contributed $10 million of segment operating income and $19 million of segment EBITDA in the Terminalling and Transportation segment during the quarter.

Gathering and Processing

Gathering and Processing segment operating income was $80 million for the third quarter 2018, an increase of $30 million from the prior year, and segment EBITDA was $130 million, an increase of $27 million from the prior year. The year-over-year increase was primarily attributable to Permian Basin crude oil volume growth and contributions from the Western Refining Logistics acquisition. The 2018 Drop Down contributed $2 million of segment operating income and $7 million of segment EBITDA in the Gathering and Processing segment during the quarter.

Wholesale

Wholesale segment operating income was $7 million for the third quarters of both 2018 and 2017, and segment EBITDA for the third quarter 2018 was $11 million, an increase of $2 million from the prior year. This year-over-year increase in segment EBITDA was driven by a higher margin environment.

Balance Sheet and Cash Flow

Net cash from operating activities was $172 million in the third quarter 2018, and distributable cash flow attributable to common unitholders for the third quarter was $251 million. Andeavor Logistics ended the third quarter 2018 with $30 million of cash and approximately $1.0 billion of availability under its revolving credit facilities. Total debt, net of unamortized issuance costs was $4.8 billion. The company's leverage ratio was 3.7x at September 30, 2018.

Net capital expenditures for the third quarter 2018 were $175 million, which included $159 million of growth investments and $16 million of net maintenance capital. Andeavor Logistics expects to invest approximately $640 million in growth investments and $80 million in net maintenance capital in 2018. Capital expenditures for 2018 have been retrospectively adjusted to include the historical investments of the assets from the 2018 Drop Down prior to the August 6, 2018 effective date of the acquisition.

On October 26, 2018, Andeavor Logistics announced a quarterly cash distribution of $1.03 per limited partnership unit, or $4.12 on an annualized basis. The distribution coverage ratio was 1.05x for the third quarter 2018. Distributable cash flow attributable to common unitholders of $251 million includes an $18 million benefit related to revenue recognition accounting standards, timing on recognition of minimum volume commitments, and expenses related to recent transactions.

Conference Call

At 9 a.m. EST today, Andeavor Logistics will hold a conference call and webcast to discuss reported results and provide an update on operations. Interested parties may listen by visiting Andeavor Logistics' website at http://www.andeavorlogistics.com and clicking on the "Investors" link. A replay of the webcast will be available on the company's website for two weeks. Financial information, including the earnings release and other investor-related material, will also be available online prior to the conference call and webcast at http://www.ir.andeavorlogistics.com.

2018 Investor Day

Marathon Petroleum Corporation, MPLX LP, and Andeavor Logistics will host their 2018 Investor Day at the Mandarin Oriental Hotel in New York City on December 4, 2018 at 8:30 a.m. EST. Reservations are required to attend. Interested parties can request an invitation by contacting the Investor Relations department via email at investorrelations@marathonpetroleum.com. The presentation will also be webcast live at http://marathonpetroleum.com, http://mplx.com, and http://andeavorlogistics.com.

About Andeavor Logistics LP

Andeavor Logistics LP is a fee-based, full-service, diversified midstream logistics company, with integrated assets across the western and mid-continent regions of the United States. Andeavor Logistics operates through three business segments: Terminalling and Transportation, Gathering and Processing and Wholesale. The Terminalling and Transportation segment consists of marine terminals, refined product truck terminals, rail terminals, dedicated storage facilities and transportation pipelines. The Gathering and Processing segment consists of crude oil gathering systems and pipelines as well as natural gas gathering pipelines, processing facilities and fractionation facilities. The Wholesale segment consists of a fee-based fuel wholesale business. Andeavor Logistics is a Delaware limited partnership headquartered in Findlay, Ohio.

This press release contains "forward-looking" statements within the meaning of federal securities laws regarding ANDX. These forward-looking statements relate to, among other things, expectations, estimates and projections concerning our business strategies. You can identify forward-looking statements by words such as "anticipate," "approach," "believe," "design," "estimate," "expect," "forecast," "goal," "guidance," "imply," "intend," "objective," "opportunity," "outlook," "plan," "position," "pursue," "prospective," "predict," "project," "potential," "seek," "strategy," "target," "could," "may," "should," "would," "will" or other similar expressions that convey the uncertainty of future events or outcomes. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Factors that could cause ANDX's actual results to differ materially from those implied in the forward-looking statements include without limitation: the amount and timing of future distributions; our ability to achieve coverage improvement and distributable cash growth; our ability to execute a funding model with no additional equity issuances and limited parent support; net earnings and EBITDA run rate; our ability to achieve our financial and strategic targets; negative capital market conditions, including an increase of the current yield on common units; our financial position, liquidity and capital resources, including available capacity under our credit facilities and access to debt on commercially reasonable terms; our financial and operational outlook, and ability to fulfill that outlook; our Permian Basin growth strategy, expected capital investment, and expectations related to increasing customer demand and additional future growth opportunities; the August 2018 drop down from Andeavor, including the expected benefits thereof and the annual net earnings and EBITDA expected to be generated thereby; the status and expected timing of our current projects, including capital investments; the timing and extent of changes in commodity prices and demand for crude oil, refined products, feedstocks or other hydrocarbon-based products; completion of midstream infrastructure by competitors; disruptions due to equipment interruption or failure, including electrical shortages and power grid failures; the suspension, reduction or termination of MPC/Andeavor's obligations under ANDX's commercial agreements; continued/further volatility in and/or degradation of market and industry conditions and their effects on our business; our ability to manage disruptions in credit markets or changes to our credit rating; adverse changes in laws including with respect to tax and regulatory matters; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations and/or enforcement actions initiated thereunder; adverse results in litigation; changes to ANDX's capital budget; other risk factors inherent to ANDX's industry; and the factors set forth under the heading "Risk Factors" in ANDX's Annual Report on Form 10-K for the year ended Dec. 31, 2017, filed with the Securities and Exchange Commission ("SEC"). Factors that could cause MPC's actual results to differ materially from those implied in the forward-looking statements include: risks related to MPC's acquisition of Andeavor; future levels of revenues, refining and marketing margins, operating costs, retail gasoline and distillate margins, merchandise margins, income from operations, net income or earnings per share; the regional, national and worldwide availability and pricing of refined products, crude oil, natural gas, NGLs and other feedstocks; consumer demand for refined products; MPC's ability to manage disruptions in credit markets or changes to its credit rating; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; the reliability of processing units and other equipment; business strategies, growth opportunities and expected investment; MPC's share repurchase authorizations, including the timing and amounts of any common stock repurchases; the adequacy of capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute the business plan and to effect any share repurchases, including within the expected timeframe; the effect of restructuring or reorganization of business components; the potential effects of judicial or other proceedings on its business, financial condition, results of operations and cash flows; continued or further volatility in and/or degradation of general economic, market, industry or business conditions; compliance with federal and state environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard, and/or enforcement actions initiated thereunder; the anticipated effects of actions of third parties such as competitors, activist investors or federal, foreign, state or local regulatory authorities or plaintiffs in litigation; the impact of adverse market conditions; risks related to Andeavor Logistics described above and similar risks related to MPLX LP; and the factors set forth under the heading "Risk Factors" in MPC's Annual Report on Form 10-K for the year ended Dec. 31, 2017, and in MPC's Form 10-Q for the quarter ended June 30, 2018, filed with Securities and Exchange Commission (SEC). We have based our forward-looking statements on our current expectations, estimates and projections about our industry. We caution that these statements are not guarantees of future performance and you should not rely unduly on them, as they involve risks, uncertainties, and assumptions that we cannot predict. In addition, we have based many of these forward-looking statements on assumptions about future events that may prove to be inaccurate. While our management considers these assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Accordingly, our actual results may differ materially from the future performance that we have expressed or forecast in our forward-looking statements. We undertake no obligation to update any forward-looking statements except to the extent required by applicable law. Copies of ANDX's Form 10-K and Forms 10-Q are available on the SEC website, ANDX's website at http://www.andeavorlogistics.com or by contacting ANDX's Investor Relations office. Copies of MPC's Form 10-K and Forms 10-Q are available on the SEC website, MPC's website at http://ir.marathonpetroleum.com or by contacting MPC's Investor Relations office.

Investor Relations Contact:

Kristina Kazarian (419) 421-2071

Media Contact:

Chuck Rice (419) 421-2521

Non-GAAP Measures

As a supplement to our financial information presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), our management uses certain "non-GAAP" measures to analyze our results of operations, assess internal performance against budgeted and forecasted amounts and evaluate future impacts to our financial performance as a result of capital investments, acquisitions, divestitures and other strategic projects. These measures are important factors in assessing our operating results and profitability and include:

• Financial non-GAAP measures:
• EBITDA - U.S. GAAP-based net earnings before interest, income taxes, and depreciation and amortization expense;
• Pro forma LTM EBITDA - Last twelve months ("LTM") of our EBITDA adjusted for pro forma contributions from acquisitions; and
• Segment EBITDA - A segment's U.S. GAAP-based operating income before depreciation and amortization expense plus equity in earnings (loss) of equity method investments and other income (expense), net.
• Liquidity non-GAAP measures:
• Distributable Cash Flow - U.S. GAAP-based net cash flow from operating activities adjusted for changes in working capital, amounts spent on maintenance capital net of reimbursements and other adjustments not expected to settle in cash;
• Distributable Cash Flow Attributable to Common Unitholders - Distributable Cash Flow minus distributions associated with the preferred units;
• Distribution Coverage Ratio - Distributable Cash Flow Attributable to Common Unitholders divided by total distributions to be paid to common unitholders for the reporting period; and
• Leverage Ratio - Total debt divided by Pro forma LTM EBITDA.
• Operating performance non-GAAP measure:
• Average Margin on Natural Gas Liquids ("NGLs") Sales per Barrel - NGL sales revenues minus amounts recognized as NGL expense divided by our NGL sales volumes in barrels; and
• Average Wholesale Fuel Sales Margin per Gallon - Wholesale fuel revenues minus wholesale's cost of fuel divided by our total wholesale fuel sales volumes in gallons.

We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to:

• our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or financing methods;
• the ability of our assets to generate sufficient cash flow to make distributions to our unitholders;
• our ability to incur and service debt and fund capital expenditures; and
• the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

Management also uses these measures to assess internal performance, and we believe they may provide meaningful supplemental information to the users of our financial statements. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings, operating income and net cash from operating activities. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. See "Reconciliation of Amounts Reported Under U.S. GAAP," "Segment Reconciliation of Amounts Reported Under U.S. GAAP," "Average Margin on NGL Sales per Barrel" and "Average Fuel Sales Margin per Gallon" for reconciliations between non-GAAP measures and their most directly comparable U.S. GAAP measures.

Items Impacting Comparability

The Partnership's results of operations may not be comparable to the historical results of operations for the reasons described below.

Acquisitions and Mergers

Other than WNRL and certain assets acquired from the 2018 Drop Down, our Predecessors did not record revenues with Andeavor and our Predecessors recorded general and administrative expenses and financed operations differently than the Partnership. As previously mentioned, on August 6, 2018, we completed the 2018 Drop Down for total consideration of $1.55 billion. As an entity under common control with Andeavor, we accounted for the transfers of businesses as if the transfer occurred at the beginning of the period, and prior periods are retrospectively adjusted to furnish comparative information. Accordingly, the accompanying results of operations have been retrospectively adjusted to include the historical results of the assets acquired prior to the effective date of the acquisition.

On November 8, 2017, we acquired the Anacortes Logistics Assets from a subsidiary of Andeavor for total consideration of $445 million. The Anacortes Logistics Assets include crude oil, feedstock and refined products storage at Andeavor's Anacortes Refinery, the Anacortes marine terminal with feedstock and refined product throughput, a manifest rail facility and crude oil and refined products pipelines.

Effective October 30, 2017, Andeavor Logistics closed its merger with Western Refining Logistics, LP (the "WNRL Merger") exchanging all outstanding common units of WNRL with units of Andeavor Logistics, representing an equity value of $1.7 billion. WNRL's operations included terminalling and storage assets, crude oil and refined product transportation services and a wholesale fuels business. The WNRL Merger was treated as a transaction of entities under common control, thus our results reflect the operations, financial position and cash flows associated with WNRL and their related subsidiaries as of June 1, 2017.

The closing of the WNRL Merger was conditioned upon, among other things, the adoption and effectiveness of the Second Amended and Restated Agreement of Limited Partnership of Andeavor Logistics LP, pursuant to which, simultaneously with the closing of the WNRL Merger: (i) the incentive distribution rights in Andeavor Logistics (the "IDRs") held by Tesoro Logistics GP, LLC ("TLGP"), our general partner, were canceled (the "IDR Exchange"), (ii) the general partner interests in Andeavor Logistics held by TLGP were converted into a non-economic general partner interest in Andeavor Logistics, and (iii) Andeavor and its affiliates, including TLGP, agreed to increase and extend existing waivers on distributions to Andeavor and its affiliates by $60 million to an aggregate of $160 million between 2017 and 2019.

Accounting Standard Adoption

Due to the adoption of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" and the associated subsequent amendments (collectively, "ASC 606") on January 1, 2018, the presentation of wholesale fuel sales and cost of fuel and other was impacted by adoption of the new revenue recognition accounting standard on January 1, 2018. Beginning January 1, 2018 in connection with the adoption, the revenues and costs associated with our fuel purchase and supply arrangements with Andeavor were netted.

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Andeavor Logistics LP