Market Overview

Phillips 66 Partners Reports Second-Quarter 2018 Earnings

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Highlights

  • Reported record earnings of $186 million; adjusted EBITDA of $276
    million
  • Achieved annualized run-rate adjusted EBITDA of $1.1 billion
  • Increased quarterly distribution 5.3 percent to $0.752 per common unit
  • Recently completed Gray Oak Pipeline expansion open season
  • Started construction of Clemens Caverns expansion project

Phillips 66 Partners LP (NYSE:PSXP) announces second-quarter 2018
earnings of $186 million, or $0.94 per diluted common unit. Cash from
operations was $226 million, and distributable cash flow was $204
million. Adjusted EBITDA was $276 million in the second quarter,
compared with $247 million in the prior quarter.

"This quarter we achieved our goal of a $1.1 billion annualized run-rate
adjusted EBITDA ahead of schedule," said Greg Garland, chairman and CEO
of Phillips 66 Partners. "The strong operating performance and rapid
growth of PSXP allows us to undertake larger organic projects, including
the Gray Oak Pipeline, South Texas Gateway Terminal and the expansion of
our Clemens Caverns. Our strong financial position allows us to fund our
2018 capital program with cash on hand, debt capacity and selective use
of our ATM program."

On July 18, 2018, the general partner's board of directors declared a
second-quarter 2018 cash distribution of $0.752 per common unit, a 5.3
percent increase over the previous quarter distribution of $0.714 per
common unit. The Partnership has significantly increased its
distribution per common unit every quarter since its initial public
offering in July 2013 and is on pace to achieve a 30 percent five-year
distribution compound annual growth rate at year-end 2018.

Financial Results

Phillips 66 Partners' second-quarter earnings were $186 million,
compared with $172 million in the prior quarter. The improvement was
driven by higher volumes at wholly owned pipelines and terminals,
reflecting completion of turnarounds at refineries operated by Phillips
66. Equity earnings improved slightly during the quarter, as record
volumes on the Sand Hills and Bakken pipelines were partially offset by
the absence of a one-time benefit from U.S. tax reform recorded by
Explorer Pipeline in the first quarter.

Liquidity, Capital Expenditures and Investments

As of June 30, 2018, total debt outstanding was $2.9 billion. The
Partnership had $151 million in cash and cash equivalents and $750
million available under its revolving credit facility.

The Partnership's total capital spending for the quarter was $179
million, which included $10 million of maintenance capital. Expansion
capital was $169 million, which included spending on construction of a
new isomerization unit at the Phillips 66 Lake Charles Refinery, as well
as investments in the Bayou Bridge, Sand Hills and Gray Oak pipelines.

Strategic Update

Phillips 66 Partners recently completed the expansion open season to
determine the scope and capacity of the Gray Oak Pipeline system. The
pipeline will have initial capacity of 800,000 barrels per day (BPD)
based on shipper commitments of 700,000 BPD and the reservation of
capacity for walk-up shippers. The pipeline is expandable to
approximately 1 million BPD subject to additional shipper
commitments. Gray Oak will provide crude oil transportation from the
Permian and Eagle Ford to destinations in Corpus Christi and
Sweeny/Freeport, including the Phillips 66 Sweeny Refinery. Phillips 66
Partners will be the largest equity owner in this pipeline project with
75 percent interest. Third parties have options to acquire up to 32.75
percent, which could result in the Partnership owning a 42.25 percent
share. The pipeline is expected to be in service by the end of 2019,
with total cost of approximately $2 billion.

In Corpus Christi, the Gray Oak Pipeline will connect to the new South
Texas Gateway Terminal under development by Buckeye Partners, L.P. The
marine terminal will have an initial storage capacity of 3.4 million
barrels and is expected to begin operations by the end of 2019. Phillips
66 Partners owns a 25 percent interest in the joint venture that owns
the terminal.

In connection with Phillips 66's recently announced plan to expand
natural gas liquids (NGL) fractionation capacity at the Sweeny Hub by
300,000 BPD, the Partnership is increasing NGL storage capacity at
Clemens Caverns from 9 million barrels to 15 million barrels. The
expansion is expected to be completed in late 2020.

The Partnership is also constructing a 25,000 BPD isomerization unit at
the Phillips 66 Lake Charles Refinery to increase production of higher
octane gasoline blend components. The $200 million project includes a
long-term agreement with Phillips 66 for processing services with a
minimum volume commitment. Expected completion has been accelerated to
the third quarter of 2019.

The Partnership expects both the extension of the Bayou Bridge Pipeline
from Lake Charles, Louisiana, to St. James, Louisiana, and the expansion
of the Sand Hills NGL Pipeline to be completed in the fourth quarter of
2018. The Sacagawea raw natural gas pipeline project and the Lake
Charles pipeline project are also progressing well and remain on
schedule.

Investor Webcast

Members of Phillips 66 Partners executive management will host a webcast
today at 2 p.m. EDT to discuss the Partnership's second-quarter
performance. To listen to the conference call and view related
presentation materials, go to www.phillips66partners.com/events.
For detailed supplemental information, go to www.phillips66partners.com/reports.

About Phillips 66 Partners

Headquartered in Houston, Phillips 66 Partners is a growth-oriented
master limited partnership formed by Phillips 66 to own, operate,
develop and acquire primarily fee-based crude oil, refined petroleum
products and natural gas liquids pipelines and terminals and other
transportation and midstream assets. For more information, visit www.phillips66partners.com.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This news release contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which are intended to be covered by the safe harbors created
thereby. Words and phrases such as "is anticipated," "is estimated," "is
expected," "is planned," "is scheduled," "is targeted," "believes,"
"continues," "intends," "will," "would," "objectives," "goals,"
"projects," "efforts," "strategies" and similar expressions are used to
identify such forward-looking statements. However, the absence of these
words does not mean that a statement is not forward-looking.
Forward-looking statements relating to Phillips 66 Partners' operations
(including joint venture operations) are based on management's
expectations, estimates and projections about the company, its interests
and the energy industry in general on the date this news release was
prepared. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions that are difficult
to predict. Therefore, actual outcomes and results may differ materially
from what is expressed or forecast in such forward-looking statements.
Factors that could cause actual results or events to differ materially
from those described in the forward-looking statements include the
continued ability of Phillips 66 to satisfy its obligations under our
commercial and other agreements; the volume of crude oil, refined
petroleum products and NGL we or our joint ventures transport,
fractionate, terminal and store; the tariff rates with respect to
volumes that we transport through our regulated assets, which rates are
subject to review and possible adjustment by federal and state
regulators; fluctuations in the prices for crude oil, refined petroleum
products and NGL; liabilities associated with the risks and operational
hazards inherent in transporting, fractionating, terminaling and storing
crude oil, refined petroleum products and NGL; potential liability from
litigation or for remedial actions, including removal and reclamation
obligations under environmental regulations; and other economic,
business, competitive and/or regulatory factors affecting Phillips 66
Partners' businesses generally as set forth in our filings with the
Securities and Exchange Commission. Phillips 66 Partners is under no
obligation (and expressly disclaims any such obligation) to update or
alter its forward-looking statements, whether as a result of new
information, future events or otherwise.

Use of Non-GAAP Financial InformationThis news release
includes the terms "EBITDA," "adjusted EBITDA," "distributable cash
flow," "run-rate EBITDA," and "coverage ratio." These are non-GAAP
financial measures. EBITDA and adjusted EBITDA are included to help
facilitate comparisons of operating performance of the Partnership with
other companies in our industry. EBITDA and distributable cash flow help
facilitate an assessment of our ability to generate sufficient cash flow
to make distributions to our partners. We believe that the presentation
of EBITDA, adjusted EBITDA and distributable cash flow provides useful
information to investors in assessing our financial condition and
results of operations. Our coverage ratio is calculated as distributable
cash flow divided by total cash distributions and is included to help
indicate the Partnership's ability to pay cash distributions from
current earnings. The GAAP performance measure most directly comparable
to EBITDA and adjusted EBITDA is net income. The GAAP liquidity measure
most comparable to EBITDA and distributable cash flow is net cash
provided by operating activities. The GAAP financial measure most
comparable to our coverage ratio is calculated as net cash provided by
operating activities divided by total cash distributions. These non-GAAP
financial measures should not be considered as alternatives to GAAP net
income or net cash provided by operating activities. They have important
limitations as analytical tools because they exclude some but not all
items that affect net income and net cash provided by operating
activities. They should not be considered in isolation or as substitutes
for analysis of our results as reported under GAAP. Additionally,
because EBITDA, adjusted EBITDA and distributable cash flow may be
defined differently by other companies in our industry, our definition
of EBITDA, adjusted EBITDA and distributable cash flow may not be
comparable to similarly titled measures of other companies, thereby
diminishing their utility.

Run-rate adjusted EBITDA is the current quarter's adjusted
EBITDA annualized. Run-rate adjusted EBITDA is included to demonstrate
the historical growth of the Partnership through the second quarter of
2018. A reconciliation of current quarter adjusted EBITDA to net income
accompanies this release. The disaggregation of capital spending between
expansion/growth and maintenance is not a distinction recognized under
GAAP. We provide such disaggregation because the Partnership will
generally fund maintenance capital spending with cash from operating
activities and fund expansion/growth capital spending with financing
activities. We believe this is an important distinction in our liquidity
profile.

References in the release to earnings and capital spending refer
to net income and capital spending attributable to the Partnership,
respectively. References to EBITDA refer to earnings before interest,
income taxes, depreciation and amortization.

 

Results of Operations (Unaudited)

 
Summarized Financial Statement Information
        Millions of Dollars

Except as Indicated

Q2 2018     Q1 2018
Selected Income Statement Data  
Total revenues and other income $ 354 355
Net income 186 172
Net income attributable to the Partnership 186 172
 
Adjusted EBITDA 276 247
Distributable cash flow           204       194  
 

Net Income Attributable to the Partnership

  Per Limited Partner Unit—Diluted (Dollars)

Common units           $ 0.94       0.87  
 
Selected Balance Sheet Data
Cash and cash equivalents $ 151 167
Equity investments 2,104 1,986
Total assets 5,506 5,386
Total debt 2,946 2,946
Equity held by public
Preferred units 747 746
Common units 2,381 2,308
Equity held by Phillips 66
Common units 538 519
General partner           (1,332 )     (1,338 )
 
 
Statement of Income
        Millions of Dollars
Q2 2018     Q1 2018
Revenues and Other Income  
Operating revenues—related parties $ 244 249
Operating revenues—third parties 10 7
Equity in earnings of affiliates 100 98
Other income               1
Total revenues and other income           354     355
 
Costs and Expenses
Operating and maintenance expenses 85 97
Depreciation 29 28
General and administrative expenses 16 16
Taxes other than income taxes 9 10
Interest and debt expense 29 30
Other expenses              
Total costs and expenses           168     181
Income before income taxes 186 174
Income tax expense               2
Net income 186 172
Less: Net income attributable to Predecessors              
Net income attributable to the Partnership 186 172
Less: Preferred unitholders' interest in net income attributable to
the Partnership
10 9
Less: General partner's interest in net income attributable to the
Partnership
          55     53
Limited partners' interest in net income attributable to the
Partnership
          $ 121     110
 
Selected Operating Data
        Q2 2018     Q1 2018
Wholly Owned Operating Data  
Pipelines
Pipeline revenues (millions of dollars)           $ 111     102
Pipeline volumes(1) (thousands of barrels daily)
Crude oil 1,020 947
Refined products and natural gas liquids           920     798
Total           1,940     1,745
 
Average pipeline revenue per barrel (dollars)           $ 0.63     0.65
 
Terminals
Terminal revenues (millions of dollars)           $ 38     39
Terminal throughput (thousands of barrels daily)
Crude oil(2) 471 483
Refined products           806     719
Total           1,277     1,202
 
Average terminaling revenue per barrel (dollars)           $ 0.33     0.36
 
Storage, processing and other revenues (millions of dollars)           $ 105     115
Total operating revenues (millions of dollars)           $ 254     256
 
Joint Venture Operating Data(3)
Crude oil, refined products and natural gas liquids (thousands of
barrels daily)
          638     603

(1)

Represents the sum of volumes transported through each
separately tariffed pipeline segment.

(2)

Bayway and Ferndale rail rack volumes included in crude
oil terminals.

(3)

Proportional share of total pipeline and terminal volumes
of joint ventures consistent with recognized equity in earnings of
affiliates.

 
Capital Expenditures and Investments
 
        Millions of Dollars
Q2 2018     Q1 2018
Capital Expenditures and Investments
Expansion $ 169 57
Maintenance         10     12
Total Partnership 179 69
Predecessors            
Total Consolidated         $ 179     69
 
Cash Distributions
        Millions of Dollars

Except as Indicated

Q2 2018     Q1 2018
Cash Distributions  
Common units—public $ 40 38
Common units—Phillips 66 51 50
General partner—Phillips 66           57     51
Total           $ 148     139
 
Cash Distribution Per Common Unit (Dollars)           $ 0.752     0.714
 
Coverage Ratio*           1.38     1.40

†Cash distributions declared attributable to the indicated
periods.

*Calculated as distributable cash flow divided by total
cash distributions. Used to indicate the Partnership's ability to
pay cash distributions from current earnings. Net cash provided by
operating activities divided by total cash distribution was 1.53x
and 1.23x at Q2 2018 and Q1 2018, respectively.

 
Reconciliation of Adjusted EBITDA and Distributable Cash Flow to
Net Income
 
        Millions of Dollars
Q2 2018     Q1 2018
 
Net income attributable to the Partnership $ 186 172
Plus:
Net income attributable to Predecessors                
Net Income 186 172
Plus:
Depreciation 29 28
Net interest expense 29 29
Income tax expense                 2
EBITDA 244 231
Proportional share of equity affiliates' net interest, taxes and
depreciation
28 15
Expenses indemnified or prefunded by Phillips 66 1
Transaction costs associated with acquisitions 3 1
EBITDA attributable to Predecessors                
Adjusted EBITDA 276 247
Plus:
Deferred revenue impacts* (5 ) 5
Less:
Equity affiliate distributions less than proportional EBITDA 18 10
Maintenance capital expenditures 10 10
Net interest expense 29 29
Preferred unit distributions           10       9
Distributable cash flow           $ 204       194

*Difference between cash receipts and revenue recognition.

†Excludes MSLP capital reimbursements and turnaround
impacts.

 
Reconciliation of Adjusted EBITDA and Distributable Cash Flow to
Net Cash Provided by Operating Activities
 
        Millions of Dollars
Q2 2018     Q1 2018
   
Net Cash Provided by Operating Activities $ 226 171
Plus:
Net interest expense 29 29
Income tax expense 2
Changes in working capital (10 ) (17 )
Undistributed equity earnings (1 ) 8
Deferred revenues and other liabilities 5 38
Other           (5 )        
EBITDA 244 231
Proportional share of equity affiliates' net interest, taxes and
depreciation
28 15
Expenses indemnified or prefunded by Phillips 66 1
Transaction costs associated with acquisitions 3 1
EBITDA attributable to Predecessors                    
Adjusted EBITDA 276 247
Plus:
Deferred revenue impacts* (5 ) 5
Less:
Equity affiliate distributions less than proportional EBITDA 18 10
Maintenance capital expenditures 10 10
Net interest expense 29 29
Preferred unit distributions           10         9  
Distributable cash flow           $ 204         194  

*Difference between cash receipts and revenue recognition.

†Excludes MSLP capital reimbursements and turnaround
impacts.

 

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