Andeavor Logistics LP Reports Fourth-Quarter and Full-Year 2018 Results

FINDLAY, Ohio, Feb. 7, 2019 /PRNewswire/ --

• Reported full-year net earnings of $600 million and EBITDA of $1.2 billion, an increase of $294 million and $252 million, respectively
• Terminalling and Transportation: segment operating income increased by $101 million primarily due to the 2018 Drop Down and the SLC Core Pipeline System acquisition
• Gathering and Processing: executed on Permian growth strategy and grew gathered volumes by 74 mbpd year-over-year to 225 mbpd and began construction of additional gathering projects
• Full-year net cash from operating activities of $1.0 billion and DCF attributable to common unitholders of $907 million, resulting in 1.02x distribution coverage and 3.8x leverage

Andeavor Logistics LP ANDX today reported full year 2018 net earnings of $600 million, compared with $306 million in 2017. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.2 billion, compared with $949 million in 2017. The year-over-year increase in earnings and EBITDA was primarily driven by the 2018 Drop Down completed in August 2018, which contributed $55 million of net earnings and $76 million of EBITDA in 2018, as well as the acquisition of the SLC Core Pipeline System, formerly known as the Wamsutter Pipeline System, and the execution of its organic growth program.

"In 2018 Andeavor Logistics expanded its system through a drop down of midstream assets and several organic growth projects focused on the Permian and Bakken regions," said Gary R. Heminger, chairman and chief executive officer. "As we move into 2019, we remain focused on enhancing our financial profile on a standalone basis. This will include careful management of leverage and a focus on meaningfully increasing distribution coverage in the coming quarters."

For the year, the company generated $1.0 billion in net cash from operating activities and distributable cash flow (DCF) attributable to common unitholders of $907 million. On January 25, 2019, Andeavor Logistics announced a quarterly cash distribution of $1.03 per limited partnership unit, or $4.12 on an annualized basis, which was flat with the prior quarter, and finished both the quarter and year with coverage of 1.02x and leverage of 3.8x. The company reiterated its plan to maintain leverage levels below 4.0x, issue no equity, and move toward independent sustainability with limited parent support.

Fourth Quarter Results

Andeavor Logistics reported fourth quarter 2018 net earnings of $171 million, compared with $53 million in the fourth quarter 2017. EBITDA was $333 million, compared with $281 million in the fourth quarter 2017. The year-over-year increase in earnings and EBITDA was primarily driven by the 2018 Drop Down completed in August 2018, in addition to the completion of several organic growth projects. The 2018 Drop Down contributed operating income of $36 million and EBITDA of $50 million during the quarter. Fourth quarter 2018 net earnings and EBITDA included charges of $8 million primarily from increased employee costs related to the close of the parent merger and environmental costs.

 

Segment Results

Terminalling and Transportation

Terminalling and Transportation segment operating income was $146 million for the fourth quarter 2018, an increase of $39 million from the prior year, and segment EBITDA was $186 million, an increase of $40 million from the prior year. The year-over-year increase was primarily attributable to contributions from the 2018 Drop Down. The 2018 Drop Down contributed $23 million of segment operating income and $29 million of segment EBITDA in the Terminalling and Transportation segment during the quarter. Terminalling and Transportation segment operating income was $498 million for the full year 2018, an increase of $101 million from last year, and segment EBITDA was $660 million, an increase of $130 million from the prior year.

Gathering and Processing

Gathering and Processing segment operating income was $84 million for the fourth quarter 2018, a decrease of $3 million from the prior year, and segment EBITDA was $146 million, a decrease of $1 million from the prior year. The year-over-year decrease was primarily attributable to lower volumes in the Rockies, offset by Permian Basin crude oil volume growth. The 2018 Drop Down contributed $13 million of segment operating income and $21 million of segment EBITDA in the Gathering and Processing segment during the quarter. Gathering and Processing segment operating income was $310 million for the full year 2018, an increase of $65 million from last year, and segment EBITDA was $537 million, an increase of $91 million from the prior year.

Wholesale

Wholesale segment operating income was $5 million for the fourth quarter 2018, a decrease of $1 million from the prior year, and segment EBITDA for the fourth quarter 2018 was $7 million, a decrease of $1 million from the prior year. This year-over-year decrease was driven by weaker unbranded wholesale pricing impacting margins with retailers in the Southwest region. Wholesale segment operating income was $27 million for the full year 2018, an increase of $12 million from last year, and segment EBITDA was $38 million, an increase of $18 million from the prior year, primarily driven by the WNRL acquisition which closed October 30, 2017.

Balance Sheet and Cash Flow

Net cash from operating activities was $310 million in the fourth quarter 2018, and distributable cash flow attributable to common unitholders for the fourth quarter was $243 million. Net cash from operating activities was $1.0 billion for the full year 2018, and distributable cash flow attributable to common unitholders for the full year was $907 million. Andeavor Logistics ended 2018 with $10 million of cash and $1.4 billion of availability under its credit facilities and intercompany loan with Marathon Petroleum Corporation MPC. Total debt of $5.0 billion resulted in a leverage ratio of 3.8x at December 31, 2018.

Net capital expenditures for the fourth quarter 2018 were $199 million, which included $181 million of net growth investments and $18 million of net maintenance capital. Andeavor Logistics invested $635 million in net growth investments and $60 million in net maintenance capital in 2018. Capital expenditures for 2018 have been retrospectively adjusted to include the investments of the assets from the 2018 Drop Down occurring prior to the August 6, 2018 effective date of the acquisition.

2019 and 2020 Financial Outlook

In December 2018, Andeavor Logistics provided its 2019 and 2020 capital investment plans. This strategic deployment of capital combined with execution of the underlying base business is expected to generate $0.8 billion and $0.8 billion of net earnings in 2019 and 2020, and $1.4 billion and $1.6 billion of annual EBITDA, respectively. Andeavor Logistics plans to invest approximately $0.6 billion in organic growth in both 2019 and 2020.

Conference Call

At 1 p.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.

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 Andeavor Logistics LP (ANDX). These forward-looking statements relate to, among other things, expectations, estimates and projections concerning the business and operations, strategy and value creation plans of ANDX. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, that could cause future outcomes to differ materially from those set forth in the forward-looking statements. You can identify forward-looking statements by words such as "anticipate," "believe," "could," "design," "estimate," "expect," "forecast," "goal," "guidance," "imply," "intend," "may," "objective," "opportunity," "outlook," "plan," "policy, " "position," "potential," "predict," "priority, " "project," "prospective," "pursue," "seek," "should," "strategy," "target," "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 the company's 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: the amount and timing of future distributions; our ability to achieve expected 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; changes to the expected construction costs and timing of projects and planned investments, and our ability to obtain regulatory and other approvals with respect thereto; 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 ratings; 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; risks related to MPC as set forth below, including those related to MPC's acquisition of Andeavor or the potential merger, consolidation or combination of MPLX with ANDX; 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, and in ANDX's Forms 10-Q, 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: the risk that the cost savings and any other synergies from the Andeavor transaction may not be fully realized or may take longer to realize than expected; disruption from the Andeavor transaction making it more difficult to maintain relationships with customers, employees or suppliers; risks relating to any unforeseen liabilities of Andeavor; the potential merger, consolidation or combination of MPLX with ANDX; 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; our ability to manage disruptions in credit markets or changes to our 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; share repurchase authorizations, including the timing and amounts of any common stock repurchases; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan and to effect any share repurchases or dividend increases, including within the expected timeframe; the effect of restructuring or reorganization of business components; the potential effects of judicial or other proceedings on our 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 or other similar risks to those identified herein affecting MPLX or ANDX; 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 Forms 10-Q, filed with the 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://ir.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;
• Distributable Cash Flow - U.S. GAAP-based net cash flow from EBITDA adjusted for amounts spent on maintenance capital net of reimbursements and other adjustments;
• 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, who merged with and became a wholly-owned subsidiary of Marathon Petroleum Corporation ("MPC") effective October 1, 2018, 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 MPC'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"). 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 Andeavor Logistics' 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, as well as MPC for periods after October 1, 2018, and their affiliates, including TLGP, agreed to increase and extend existing waivers on distributions to them 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 were netted.

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE Andeavor Logistics LP