Energia
Andeavor Reports Fourth Quarter and Full Year 2017 Results
- Andeavor (NYSE: ANDV) today reported fourth quarter earnings of $879 million, or $5.61 per diluted share, compared to $78 million, or $0.66 per diluted share a year ago. Consolidated net earnings were $908 million for the fourth quarter 2017 compared to $101 million for the same period last year. EBITDA for the fourth quarter 2017 was $445 million compared to $468 million last year.
Fourth quarter 2017 results included the following pre-tax items totaling $151 million: costs related to Andeavor Logistics' (NYSE: ANDX) debt refinancing, an asset impairment charge related to the Vancouver Energy project, acquisition costs related to Andeavor Logistics' acquisition of Western Refining Logistics, LP (WNRL) and the IDR Buy-In transaction and integration costs related to the Western Refining (Western) acquisition. Fourth quarter 2017 results also included a benefit of $918 million related to the re-measurement of the Company's net deferred tax liabilities due to the recently enacted Tax Cuts and Jobs Act. Fourth quarter 2016 results included a pre-tax benefit related to a lower of cost or market (LCM) inventory adjustment of $123 million.
"2017 was an excellent year for Andeavor; we closed the Western and WNRL acquisitions, expanded into Mexico and achieved investment grade credit ratings at both companies," said Greg Goff, Chairman and CEO. "We delivered $505 million of improvements to operating income and returned over $1 billion to shareholders in the form of dividends and share repurchases in 2017."
"Looking ahead, we remain well-positioned to deliver on the strategic plans outlined at our 2017 Investor and Analyst Day that we expect to grow EBITDA by $1.4 billion over the next three years. We continue to focus on driving strong operational performance and disciplined allocation of capital, further enhancing our integrated business model and returning cash to shareholders," added Goff.
(a) Referred to in the body of this press release as "earnings."
Marketing segment operating income was $236 million and segment EBITDA was $255 million in the fourth quarter 2017. This compares to segment operating income of $169 million and segment EBITDA of $192 million last year. Overall fuel margins for the fourth quarter 2017 were 12.2 cents per gallon compared to 11.4 cents per gallon last year, and Retail and Branded fuel margins were 23.4 cents per gallon compared to 19.6 cents per gallon in 2016. A stronger market along with positive contributions from the Western Refining stores added to Andeavor's portfolio resulted in increased margins.
For the fourth quarter, merchandise margin increased to $47 million from $1 million in 2016 driven by the Western acquisition. Andeavor continued to grow its network of branded stores, increasing by 763 stores, or 31% year-over-year, to 3,255. This was primarily driven by the Western acquisition, the acquisition of retail stores in northern California and the continued execution of the Company's organic growth plan, including rebranding and expansion into Mexico. Andeavor opened 28 ARCO stores in Mexico as of January 31, 2018.
Logistics segment operating income increased to $195 million in the fourth quarter 2017 from $123 million a year ago and segment EBITDA increased to $267 million from $177 million last year. Results include $9 million of acquisition costs related to Andeavor Logistics' acquisition of WNRL and the IDR Buy-In transaction. The Company reports Andeavor Logistics' wholesale business in its Marketing segment, which represents approximately $6 million of operating income for the fourth quarter. The increase in segment operating income and segment EBITDA was primarily driven by contributions from the WNRL acquisition, the North Dakota Gathering and Processing Assets acquisition, 2016 and 2017 drop downs and organic growth.
Refining segment operating loss was $56 million for the fourth quarter 2017 compared to segment operating income of $43 million in 2016. Segment EBITDA was $120 million compared to $205 million in 2016. Refining margin was $787 million, or $7.62 per barrel, for the fourth quarter 2017. This compares to a refining margin of $731 million, or $9.45 per barrel, in the fourth quarter 2016.
Fourth quarter 2017 Refining segment operating loss was negatively impacted by approximately $185 million. This was primarily driven by building inventories in advance of first quarter 2018 maintenance, inventory and Canadian crude oil supply hedging, unplanned maintenance and other special items. To supply marketing requirements during the Los Angeles refineries' maintenance in early 2018, the Company built inventory of gasoline and diesel. This negatively impacted fourth quarter results by $50 million but is expected to have a favorable impact in 2018. In addition, the Company realized a negative impact of $85 million on crude oil inventory that was hedged as well as forward pricing of a portion of Canadian crude oil supply for the St. Paul Park refinery. As a result of the wide Canadian heavy crude differentials, the Company elected to remove the hedges, and this is expected to have a favorable impact on 2018 results. During the quarter, unplanned maintenance was performed at four refineries that negatively impacted yields by $25 million. Finally, $25 million of expense related to litigation, environmental and insurance costs were incurred in the quarter. Fourth quarter 2016 segment operating income and segment EBITDA included a pre-tax benefit related to a LCM inventory adjustment of $123 million.
Corporate and unallocated costs for the fourth quarter 2017 were $208 million and included integration costs related to the Western acquisition, costs incurred by Andeavor in connection with Andeavor Logistics' acquisition of WNRL and the IDR Buy-In transaction and an asset impairment charge related to the Vancouver Energy project. Net interest was $166 million in the fourth quarter 2017, which included $77 million of costs associated with the refinancing of debt following Andeavor Logistics' upgrade to investment grade credit rating during the quarter. Due to the Federal tax reform, fourth quarter 2017 results include approximately $918 million of benefit related to the re-measurement of the Company's net deferred tax liabilities. Furthermore, the Company estimates that compared to the 2018-2020 outlook provided at its Investor and Analyst Day in December 2017, Federal tax reform legislation is expected to result in additional cumulative cash flow from operations of approximately $1.0 to $1.5 billion through 2020.
Andeavor ended the year with $543 million in cash and cash equivalents. This was down from $3.3 billion at the end of 2016 primarily due to the closing of the Western acquisition and Andeavor Logistics' acquisition of the North Dakota Gathering and Processing Assets. Andeavor currently has approximately $2.9 billion of availability under its revolving credit facility. Total debt, net of unamortized issuance costs, was $7.7 billion at the end of the fourth quarter. Excluding Andeavor Logistics, total debt was $3.6 billion.
Capital spending for the fourth quarter 2017 was $462 million, consisting of $378 million for Andeavor and $84 million for Andeavor Logistics. Turnaround expenditures for the fourth quarter were $125 million. Capital spending for the full year 2017 was $1.4 billion, consisting of $1.1 billion at Andeavor and $237 million at Andeavor Logistics. Turnaround expenditures for the full year 2017 were $548 million.
Andeavor repurchased 2.7 million shares for approximately $292 million in the fourth quarter and has over $1.4 billion remaining under its previously approved share repurchase programs. The Company paid cash dividends of $91 million in the fourth quarter 2017. Additionally, Andeavor today announced that the board of directors has declared a quarterly cash dividend of $0.59 per share payable on March 15, 2018 to all holders of record as of February 28, 2018. Andeavor remains focused on capital allocation discipline and maintaining a strong, investment grade balance sheet, which provides flexibility to continue to invest in high-return capital projects, return cash to shareholders through share repurchases and dividends and pursue strategic acquisitions.
Andeavor is committed to delivering an expected $350 to $425 million in annual run-rate synergies by June 2019, the second year following the close of the Western transaction. Andeavor achieved approximately $190 million in annual run-rate synergies in 2017, primarily related to approximately $100 million in corporate efficiencies and the remainder in value chain optimization and operational improvements.
During the quarter, Andeavor completed a $1 billion public offering of senior notes. The Company used the net proceeds from the public offering to repay borrowings under its revolving credit facility and pay the fees and expenses associated with the offering. The inaugural investment grade offering exemplifies the execution of Andeavor's financial strategy, which is focused on creating additional value for investors by lowering the cost of capital and extending debt maturities.
On February 12, 2018, Andeavor announced its agreement to acquire the West Coast asphalt terminals of Delek US Holdings, Inc. (NYSE: DK). The assets include four wholly-owned terminals in Elk Grove, CA; Bakersfield, CA; Mojave, CA; and Phoenix, AZ, as well as 50% interest in the Paramount Nevada Asphalt Company joint venture terminal in Fernley, NV.
Upon close, Andeavor expects to grow its asphalt business to serve more customers, provide superior customer service and expand the product offering. The Company expects to improve the business and increase sales by approximately 20% over the next three years. This acquisition will bring Andeavor's total asphalt capacity to more than 430,000 tons across ten terminal locations. The acquisition, which is subject to customary closing conditions including regulatory approval, is anticipated to close in the first half of 2018.
On January 19, 2018, Andeavor closed the acquisition of 100% of the equity of Rangeland Energy II, LLC, which owns and operates assets in the Delaware and Midland Basins, including a recently-constructed crude oil pipeline, three crude oil storage terminals and a frac sand storage and truck loading facility. Andeavor plans to integrate the acquired 110-mile crude oil pipeline (with ultimate throughput capacity of 145,000 barrels per day) and crude oil storage terminals with its nearby Conan Crude Oil Gathering System, currently under construction.
In 2018, Andeavor expects to offer its newly acquired interest in the Rangeland crude oil assets, as well as other Andeavor Permian logistics assets to Andeavor Logistics. Andeavor also expects to transfer the Conan Crude Oil Gathering System at cost plus interest. This integrated system, combined with Andeavor Logistics existing Permian assets, is expected to see considerable volume growth and additional expansion projects over the next several years.
Andeavor Logistics also announced today that it has been awarded two new crude oil gathering projects in the Delaware Basin. These projects are with investment grade producers and are supported by acreage dedications totaling approximately 40,000 acres. Andeavor Logistics expects a capital investment of $25 to $30 million, with project completions anticipated late 2018 and early 2019. We expect these projects to deliver segment operating income of $3 to $4 million and $4 to $5 million of segment EBITDA to the Logistics segment in 2019, a 6 to 7 times multiple on invested capital.
Andeavor Logistics today announced that it has agreed to acquire the Wamsutter Pipeline System from Plains All American Pipeline, L.P. (NYSE: PAA). The system consists of 575 miles of advantaged crude oil transportation pipelines that connect into Salt Lake City refineries. We expect the assets to provide annual segment operating income $14 to $18 million and segment EBITDA of $20 to $24 million for the Logistics segment, including synergies. The acquisition, which is subject to customary closing conditions including regulatory approval, is anticipated to close in the first half of 2018.
In the fourth quarter 2017, Andeavor Logistics completed its $1.7 billion acquisition of WNRL. Immediately following the closing of the acquisition, Andeavor and Andeavor Logistics completed the IDR Buy-In Transaction whereby Andeavor Logistics issued ANDX common units to Andeavor in exchange for the cancellation of Andeavor Logistics' IDRs and the conversion of its economic general partner interest into a non-economic general partner interest.
During the quarter, Andeavor Logistics acquired logistics assets located in Anacortes, Washington from Andeavor for total consideration of $445 million. The Anacortes Logistics Assets located at Andeavor's Anacortes Refinery include 3.9 million barrels of crude oil, feedstock, and refined products storage, the Anacortes Marine terminal, a manifest rail facility, and crude oil and refined product pipelines.
Andeavor delivered approximately $505 million of improvements to operating income in 2017, which was within its target of $475 to $575 million. Of these improvements, approximately $40 million were in Marketing, approximately $175 million in Logistics and approximately $290 million in Refining. The improvements to operating income exclude synergies from the Western acquisition.
In December 2017, Andeavor issued its expectations for 2018, which include an Andeavor Index of $12 to $14 per barrel and Marketing segment fuel margins of 11 to 14 cents per gallon. The Company expects total capital expenditures for 2018 of approximately $1.5 billion, consisting of $1.1 billion at Andeavor and $430 million at Andeavor Logistics. Turnaround expenditures for the full year 2018 are expected to be $575 million.
"We are excited about the opportunities we see in our business to increase gross margin, improve productivity and deliver synergies from our acquisitions, which support our plan to generate $9 to $12 billion of cash over the next three years, inclusive of the benefits from tax reform. Additionally, we also see the potential for significant opportunities from IMO 2020," said Goff. "As always, we remain focused on disciplined capital allocation that delivers the most value to our shareholders."
At 7:30 a.m. CT tomorrow morning, Andeavor will live broadcast its conference call with analysts regarding fourth quarter 2017 results and other business matters. Interested parties may listen to the conference call by logging on to
http://www.andeavor.com .
Andeavor is a premier, highly integrated marketing, logistics and refining company. Andeavor's retail-marketing system includes more than 3,250 stores marketed under multiple well-known fuel brands, including ARCO , SUPERAMERICA , Shell , Exxon , Mobil , Tesoro , USA Gasoline and Giant . It also has ownership in Andeavor Logistics LP (NYSE: ANDX) and its non-economic general partner. Andeavor operates 10 refineries with a combined capacity of approximately 1.2 million barrels per day in the mid-continent and western United States.
Contact:
Investors:
Brad Troutman, Investor Relations, (210) 626-4568
Media:
Andeavor Media Relations, media@andeavor.com, (210) 626-7702
Our management uses certain "non-GAAP" performance measures to analyze operating segment performance and "non-GAAP" financial measures to evaluate past performance and prospects for the future to supplement our GAAP financial information presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These financial and operational non-GAAP measures are important factors in assessing our operating results and profitability and include:
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:
Management also uses these measures to assess internal performance. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings and operating income. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. See "Non-GAAP Reconciliations" below for reconciliations between non-GAAP measures and their most directly comparable U.S. GAAP measures.
During 2017, we revised the title of certain of our financial statement line items to avoid any misperception that the amounts included are equivalent to financial information presented in accordance with U.S. GAAP. The underlying financial information has not changed from what we have previously disclosed. See our discussion under "Non-GAAP Measures" for additional information about the financial measures we use to analyze our operations.
On June 1, 2017, we closed the Western Refining Acquisition. Our results include the operations from Western Refining for the period of June 1, 2017 to December 31, 2017 and thus prior periods may not be comparable. With the Western Refining Acquisition, we have updated our segments to reflect the results and operations of Western Refining and WNRL. Our Marketing segment reflects our expanded marketing business that, combined with Western Refining, now consists of expanded wholesale marketing operations and over 3,250 retail stores marketed under multiple well-known fuel brands including ARCO , SUPERAMERICA , Shell , Exxon , Mobil , Conoco , Tesoro , USA Gasoline and Giant . Our renamed Logistics segment includes the results of Andeavor Logistics, excluding the Wholesale business. We now report the Logistics segment's results for the combined Terminalling and Transportation and Gathering and Processing business lines. Our Refining segment reports the results of our refining system that now consists of ten refineries in the western and mid-continent United States with a combined capacity of approximately 1.2 million barrels per day. The Refining segment includes the results from Andeavor's existing Refining segment along with the Refining business contributed in the Western Refining Acquisition.
(a) Represents market value of 127,889,386 common units and 34,055,042 common units held by Andeavor at December 31, 2017 and December 31, 2016, respectively. The market values were $46.19 and $50.81 per unit based on the closing unit price at December 31, 2017 and December 31, 2016, respectively.
(b) Represents distributions received from Andeavor Logistics and WNRL during the three months and years ended December 31, 2017 and 2016 on common units and general partner units held by Andeavor.
(c) Management uses fuel margin and fuel margin per gallon to compare fuel results and merchandise margin and merchandise margin percentage to compare retail results to other companies in the industry. There are a variety of ways to calculate fuel margin, fuel margin per gallon, merchandise margin and merchandise margin percentage. Different companies may calculate these measures in different ways. Refer to "Non-GAAP Measures" and "Non-GAAP Reconciliations" for further information regarding these non-GAAP measures. Fuel margin and fuel margin per gallon include the effect of intersegment purchases from the Refining segment.
(d) Included in our Refining segment's cost of materials and other were Logistics segment revenues for services provided to our Refining segment of $311 million and $194 million for the three months ended December 31, 2017 and 2016, respectively, and $1.0 billion and $715 million for the year ended December 31, 2017 and 2016, respectively. These amounts are eliminated upon consolidation.
(e) For the three months ended December 31, 2017, the Logistics segment had 25.6 Mbpd of gross natural gas liquids ("NGL") sales under percent of proceeds ("POP") and keep-whole arrangements. Our Logistics segment retained 11.4 Mbpd under these arrangements. For the year ended December 31, 2017, Logistics had 22.2 Mbpd of NGL sales under POP and keep-whole arrangements. Our Logistics segment retained 8.3 Mbpd under these arrangements. The difference between gross sales barrels and barrels retained is reflected in NGL expense resulting from the gross presentation required for the POP arrangements associated with the North Dakota Gathering and Processing Assets.
(f) Included in NGL expense for the year ended December 31, 2017 were approximately $2 million of crude costs related to crude oil volumes obtained in connection with the North Dakota Gathering and Processing Assets acquisition. The corresponding revenues were recognized in pass-thru and other revenue. As such, the calculation of the average margin on NGL sales per barrel for the year ended December 31, 2017 excludes this amount.
(g) Our Logistics segment operating expenses and general and administrative expenses include amounts billed by Andeavor for services provided to Andeavor Logistics under various operational contracts. Amounts billed by Andeavor included in operating expenses totaled $54 million and $83 million for the three months ended December 31, 2017 and 2016, respectively, and $186 million and $190 million for the years ended December 31, 2017 and 2016, respectively. The net amounts billed include reimbursements of $4 million and $5 million for the three months ended December 31, 2017 and 2016, respectively, and $16 million and $17 million for the years ended December 31, 2017 and 2016, respectively. Amounts billed by Andeavor included in general and administrative expenses totaled $20 million and $17 million for the three months ended December 31, 2017 and 2016, respectively, and $82 million and $69 million for the years ended December 31, 2017 and 2016, respectively. All of these amounts are eliminated upon consolidation. Those expenses with third-parties related to the transportation of crude oil and refined products related to Andeavor's sale of those refined products during the ordinary course of business are reclassified to cost of materials and other in our statements of consolidated operations upon consolidation.
(h) Our Logistics segment uses average margin per barrel, average revenue per MMBtu, average margin per gallon and average revenue per barrel to evaluate performance and compare profitability to other companies in the industry.
· Average margin on NGL sales per barrel-calculated as the difference between the NGL sales revenues and the amounts recognized as NGL expense divided by our NGL sales volumes. Refer to "Non-GAAP Measures" and "Non-GAAP Reconciliations" for further information regarding these non-GAAP measures;
· Average gas gathering and processing revenue per Million British thermal units ("MMBtu")-calculated as total gathering and processing fee-based revenue divided by total gas gathering throughput;
· Average terminalling revenue per barrel-calculated as total terminalling revenue divided by total terminalling throughput;
· Average pipeline transportation revenue per barrel-calculated as total pipeline transportation revenue divided by total pipeline transportation throughput; and
· Average crude oil and water gathering revenue per barrel-calculated as total crude oil and water gathering fee-based revenue divided by total crude oil and water gathering throughput.
There are a variety of ways to calculate these measures; other companies may calculate these in a different way.
(i) Volumes represent barrels sold under Logistics' keep-whole arrangements, net barrels retained under its POP arrangements and other associated products.
(j) Refined product sales include intersegment sales to our Marketing segment of $4.0 billion and $3.5 billion for the three months ended December 31, 2017 and 2016, respectively, and $15.9 billion and $13.7 billion for the years ended December 31, 2017 and 2016, respectively.
(k) Manufacturing costs represent direct operating expenses incurred by our Refining segment for the production of refined products.
(l) Management uses various measures to evaluate performance and efficiency and to compare profitability to other companies in the industry, including refining margin, refining margin per throughput barrel and manufacturing costs before depreciation and amortization expenses per throughput barrel. Refer to "Non-GAAP Measures" and "Non-GAAP Reconciliations" for further information regarding these non-GAAP measures.
(m) Sources of total refined product sales include refined products manufactured at our refineries and refined products purchased from third parties. Total refined product sales include sales of manufactured and purchased refined products. Refined product sales include all sales through our Marketing segment as well as in bulk markets and exports through our Refining segment.
(n) Amounts may not recalculate due to rounding of dollar and volume information.
(q) Shown net of unamortized issuance costs.
All items are on a pre-tax basis except Federal tax reform impact
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