Energia
Andeavor Logistics LP Reports Fourth Quarter and Full Year 2017 Results
Andeavor Logistics LP (NYSE: ANDX) today reported fourth quarter net earnings of $59 million, or $0.25 per diluted common limited partner unit, compared to $73 million, or $0.31 per diluted common limited partner unit, a year ago. Net earnings included approximately $77 million of costs related to debt refinancing, of which $17 million was a non-cash write-off of unamortized debt issuance costs, with the remainder related to the make whole provisions associated with the early redemption of senior notes. Andeavor Logistics' $1.75 billion inaugural investment grade debt offering is expected to provide over $25 million of annual interest expense savings. EBITDA for the fourth quarter 2017 was $277 million compared to $177 million last year. Net earnings and EBITDA for the fourth quarter 2017 included $9 million of transaction costs related to the Western Refining Logistics, LP (WNRL) acquisition, IDR Buy-In and Anacortes Logistics Assets drop down.
"2017 was a transformational year for Andeavor Logistics," said Greg Goff, Chairman and Chief Executive Officer of Andeavor Logistics' general partner. "We successfully completed our acquisition of WNRL, reduced our cost of capital with the IDR Buy-In, achieved an investment grade credit rating and made significant progress executing our Permian strategy. Looking forward, we are excited about the growth opportunities we see across the business and remain confident in our ability to achieve our 2018 to 2020 strategic and financial targets outlined at our December 2017 Investor and Analyst Day," added Goff.
(a) Adjusted to include the historical results of the Predecessors. See "Items Impacting Comparability."
(b) For more information on EBITDA, Segment EBITDA, Distributable Cash Flow Attributable to Common Unitholders, and Distribution Coverage Ratio, see "Non-GAAP Measures."
Terminalling and Transportation segment operating income increased to $121 million for the fourth quarter 2017 from $85 million last year, and segment EBITDA increased to $149 million from $108 million a year ago. Terminalling volumes increased to 1,671 thousand barrels per day in the fourth quarter from 992 thousand barrels per day a year ago. Transportation volumes increased to 946 thousand barrels per day in the fourth quarter compared to 874 thousand barrels per day a year ago. The increase in volumes was primarily attributable to contributions from WNRL and the Anacortes Logistics Assets drop down completed in November 2017. Additionally, ongoing optimization, execution of growth projects, stronger Andeavor refinery utilization and record demand contributed to increased year-over-year volumes.
Gathering and Processing segment operating income was $86 million for the fourth quarter 2017 compared to $45 million last year. Segment EBITDA increased to $141 million from $76 million a year ago. Crude oil and water gathering throughput for the fourth quarter 2017 increased to 327 thousand barrels per day from 218 thousand barrels per day in 2016. The increase in volumes was primarily attributable to contributions from WNRL and the North Dakota Gathering and Processing Assets acquisition completed in 2017. The average crude oil and water revenue per barrel increased to $2.68 for the fourth quarter 2017 from $1.68 in 2016, benefiting from higher rates related to the WNRL acquisition and minimum volume commitment fees received in the Bakken during the quarter.
Gas gathering and processing throughput for the fourth quarter 2017 increased to 988 thousand MMBtu per day from 871 thousand MMBtu per day a year ago due to contributions from the North Dakota Gathering and Processing Assets acquisition. Production of natural gas liquids increased to 11.4 thousand barrels per day in the fourth quarter 2017 from 7.1 thousand barrels per day last year. The increase in volumes was driven by switching from ethane rejection to recovery at our Blacks Fork gas processing facility during a portion of the quarter.
Wholesale segment fuel sales volumes were 292 million gallons for the fourth quarter 2017. Segment operating income for fourth quarter 2017 was $6 million and segment EBITDA was $8 million. This is a new reporting segment presenting the wholesale fuels business acquired in the WNRL acquisition. WNRL crude oil trucking financial results, which were presented by WNRL within its wholesale segment, are now included within the Gathering & Processing segment. WNRL asphalt trucking financial results, which were also presented by WNRL within its wholesale segment, are now included within the Terminalling & Transportation segment.
Net cash from operating activities increased to $160 million in the fourth quarter 2017 compared to $84 million in 2016. Distributable cash flow for the fourth quarter increased to $191 million from $131 million last year. Andeavor Logistics ended the fourth quarter 2017 with $75 million of cash. Andeavor Logistics currently has approximately $1.7 billion of availability under its revolving credit facilities. On January 5, 2018, Andeavor Logistics increased its general revolving credit facility by $500 million to $1.1 billion. The Andeavor Logistics drop down revolving credit facility remains unchanged at $1.0 billion for a total of $2.1 billion in revolving credit capacity.
During the quarter, Andeavor Logistics received an investment grade credit rating of "BBB-" from S&P and then shortly thereafter completed a $1.75 billion public offering of investment grade senior notes. The proceeds were used to refinance existing debt, resulting in expected annual interest cost savings of over $25 million. The inaugural investment grade offering exemplifies the execution of Andeavor Logistics' financial strategy, which is focused on driving additional value for investors by lowering its cost of capital and extending debt maturities. Also during the quarter, Andeavor Logistics announced that it had completed a $600 million public offering of 6.875% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units.
Net capital expenditures for the fourth quarter 2017 were $76 million, which included $59 million of growth capital and $17 million of net maintenance capital. Capital spending for the full year 2017 was $196 million, including $140 million of growth capital and $56 million of net maintenance capital.
On January 19, 2018, Andeavor Logistics announced its quarterly cash distribution of $1.00 per limited partnership unit or $4.00 on an annualized basis. The declared distribution represents a 10% increase over the fourth quarter 2016 distribution of $0.91 per limited partner unit. This also represents the 27th consecutive quarterly increase. The distribution coverage ratio was 0.92x for the fourth quarter and 0.96x for full year 2017.
Significant progress has been made in executing the Company's Permian growth strategy. On January 19, 2018, Andeavor completed its acquisition of 100% equity in Rangeland Energy II, LLC, expanding its presence in the Delaware Basin and providing attractive entry into the Midland Basin through 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. Once fully integrated, the combination of the two systems will provide producers access to multiple markets by connecting to existing takeaway pipeline systems.
In addition to a refining logistics asset drop down in 2018, Andeavor also expects to offer its newly acquired interest in the Rangeland crude oil pipeline and storage assets, as well as the other Andeavor Permian logistics assets including the Bobcat Pipeline, Wink Terminal and other crude oil logistics assets to Andeavor Logistics. Andeavor also expects to transfer the Conan Crude Oil Gathering System at cost plus interest in 2018. This integrated system, combined with Andeavor Logistics' existing Permian assets, positions the company to capture significant organic crude oil gathering, transportation, and storage growth and additional expansion projects in 2018 and beyond.
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. These projects are expected to deliver annual net earnings of $2 to $3 million and $4 to $5 million of EBITDA in 2019, a 6 to 7 times multiple on invested capital.
Andeavor Logistics today announced its intent to build and operate the North Dakota Logistics Hub to further participate in the natural gas liquids (NGL) value chain and provide logistics solutions for increasing Bakken NGL production. The project will convert a segment of the Andeavor Bakkenlink crude oil pipeline into NGL service to enable the movement of mixed NGLs from a new third-party gas processing facility in central McKenzie County, North Dakota to a newly expanded fractionation complex at the Andeavor Logistics Belfield processing facility. From the fractionation complex, products will be shipped to the nearby Andeavor Fryburg rail terminal for manifest and unit train rail movements and will be consumed within Andeavor's refineries as well as marketed, including international markets, by Andeavor. Project volumes are supported by a long-term gas processing facility dedication and minimum volume commitment. The estimated capital investment is expected to be $140 to $150 million and partial commercial operations are estimated to begin in late 2018, with full operations commencing in the first quarter of 2019. The project is expected to deliver annual net earnings of $15 to $19 million and $22 to $26 million of annual EBITDA, representing a 6 to 7 times multiple.
Andeavor Logistics today announced an agreement to acquire the Wamsutter Pipeline System from Plains All American Pipeline, L.P. (NYSE: PAA) for total consideration of $180 million. The system consists of 575 miles of active pipelines that transport advantaged crude oil to Salt Lake City refineries, including Andeavor. Andeavor Logistics expects the assets to provide annual net earnings of $8 to $12 million and EBITDA of $20 to $24 million, including synergies. This represents a purchase price multiple of approximately 8 to 9 times EBITDA and the transaction is expected to be immediately accretive to unitholders. The acquisition, which is subject to customary closing conditions including regulatory approval, is anticipated to close in the first half of 2018. The acquisition is expected to be financed with borrowings from Andeavor Logistics' revolving credit facility.
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 its 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.
In the fourth quarter 2017, 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.
In December 2017 Andeavor Logistics issued its expectations to achieve $685 to $785 million of annual net earnings and $1.2 to $1.3 billion of annual EBITDA in 2018. Andeavor Logistics expects two drop downs within 2018. Andeavor Logistics expects net capital expenditures for 2018 to be approximately $400 million, including $325 million of growth capital and $75 million of net maintenance capital. These capital estimates exclude the expected asset transfer of the Conan Crude Oil Gathering System, Los Angeles Refinery Integration Pipeline, and future drop downs.
"We have made significant progress with the execution of our growth strategy, which is focused on high-return organic growth, accretive acquisitions and drop downs," said Steven Sterin, Executive Vice President, CFO of Andeavor and President and CFO of Andeavor Logistics' general partner. "With the recent IDR elimination, achievement of investment grade and debt refinancing, we expect to achieve all of our financial targets in 2018 which include distribution coverage of approximately 1.1 times, distribution growth of 6% or greater and a Debt to EBITDA ratio of approximately 4 times. And, we plan to achieve this without issuing any public common equity."
At 11:00 a.m. CT tomorrow morning, Andeavor Logistics 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.andeavorlogistics.com .
Andeavor Logistics LP is a leading full-service logistics company operating primarily in the western and mid-continent regions of the United States. Andeavor Logistics owns and operates a network of crude oil, refined products and natural gas pipelines. Andeavor Logistics also owns and operates crude oil and refined products truck terminals, marine terminals and dedicated storage facilities. In addition, Andeavor Logistics owns and operates natural gas processing and fractionation complexes. Andeavor Logistics owns a fee-based fuel wholesale business. Andeavor Logistics is a fee-based, growth oriented Delaware limited partnership formed by Andeavor.
http://www.andeavorlogistics.com
Contact:
Investors:
Andrew Woodward, Sr. Director, Finance and Investor Relations, (210) 626-7202
Media:
Andeavor Media Relations, media@andeavor.com, (210) 626-7702
Terminalling volumes reflect planned major maintenance at Andeavor refineries on the West Coast in the first quarter of 2018. Revenue per barrel for Terminalling throughput is expected to be 8% to 10% higher from the fourth quarter 2017 resulting from this maintenance as it primarily impacts lower tariff volumes. Additionally, Gas Gathering and Processing volumes reflect the planned shutdown of the Robinson Lake gas processing facility for execution of the planned expansion. We expect an approximately $18 to $22 million impact to our results from these items in the first quarter.
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:
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, 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.
The Partnership's results of operations may not be comparable to the historical results of operations for the reasons described below.
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 3.9 million barrels of crude oil, feedstock and refined products storage at Andeavor's Anacortes Refinery, the Anacortes marine terminal with 73 thousand barrels per day of feedstock and refined product throughput, a manifest rail facility with 4 thousand barrels of throughput and crude oil and refined products pipelines with 111 thousand barrels per day of throughput combined. We paid $445 million, including $400 million of cash financed with borrowings on our revolving credit facilities and $45 million in common units issued to Andeavor.
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.
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 (together with the IDR Exchange, the "IDR/GP Transaction"), 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. As consideration for the IDR/GP Transaction, TLGP was issued 78.0 million common units in Andeavor Logistics simultaneously with the closing of the WNRL Merger.
On January 1, 2017, the Partnership acquired crude oil, natural gas and produced water gathering systems and two natural gas processing facilities (the "North Dakota Gathering and Processing Assets"). The North Dakota Gathering and Processing Assets include over 650 miles of crude oil, natural gas, and produced water gathering pipelines, 170 MMcf per day of natural gas processing and 18,700 barrels per day of fractionation capacity in the Sanish and Pronghorn fields of the Williston Basin in North Dakota. The operating results for this acquisition are reflected in our Gathering and Processing segment.
Our financial information includes the historical results of the acquired assets from Andeavor ("Predecessors") and the results of Andeavor Logistics for all periods presented. The financial statements of our Predecessors have been prepared from the separate records maintained by Andeavor and may not necessarily be indicative of the conditions that would have existed or the results of operations if our Predecessors had been operated as an unaffiliated entity. While the Anacortes Logistics Assets acquisition is a common control transaction, prior periods have not been recast as these assets do not constitute a business in accordance with Accounting Standards Update 2017-01.
We changed our operating segment presentation in the first quarter of 2017 to reflect our expanded gathering and processing assets and operations and how our chief operating decision maker manages our business. With the completion of the North Dakota Gathering and Processing Assets acquisition on January 1, 2017, our gathering and processing assets and operations expanded significantly and enhanced our ability to offer integrated gathering and processing services to our customers. Given the business's focus on providing integrated services along with the revised reporting structure implemented by management to assess performance and make resource allocation decisions, we determined our operating segments, which are the same for reporting purposes, are the (i) Gathering and Processing segment and (ii) Terminalling and Transportation segment. Comparable prior period information for the newly presented Gathering and Processing segment has been recast to reflect our current presentation. No changes were deemed necessary to our Terminalling and Transportation segment. In addition, management revised its methodology for the allocation of corporate general and administrative expenses. Comparable prior period segment information has been recast to reflect our revised allocation methodology. WNRL's assets include a wholesale business that distributes wholesale petroleum products. The wholesale business operates under commercial and service agreements with Andeavor and sells refined products to third parties. We have presented the wholesale business as a separate segment.
(a) Adjusted to include the historical results of the Predecessors. See "Items Impacting Comparability."
(b) Operating expenses include an imbalance settlement gain of $2 million for the three months ended December 31, 2017 and no imbalance settlement gain for the three months ended December 31, 2016. Operating expenses include an imbalance settlement gain of $5 million and $3 million for the years ended December 31, 2017 and 2016, respectively.
(c) Management uses average margin per barrel, average revenue per Million British thermal units ("MMBtu") and average revenue per barrel to evaluate performance and compare profitability to other companies in the industry.
· Average terminalling revenue per barrel-calculated as total terminalling revenue divided by terminalling throughput presented in thousands of barrels per day ("Mbpd") multiplied by 1,000 and multiplied by the number of days in the period (92 days for both the three months ended December 31, 2017 and 2016, 365 days for the year ended December 31, 2017 and 366 days for the year ended December 31, 2016);
· Average pipeline transportation revenue per barrel-calculated as total pipeline transportation revenue divided by pipeline transportation throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
· 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 presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
· Average gas gathering and processing revenue per MMBtu-calculated as total gathering and processing fee-based revenue divided by gas gathering throughput presented in thousands of MMBtu per day ("MMBtu/d") multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
· Average crude oil and water gathering revenue per barrel-calculated as total crude oil and water gathering fee-based revenue divided by crude oil and water gathering throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above; and
· Average wholesale fuel sales margin per gallon-calculated as the difference between total wholesale fuel revenues and wholesale's cost of fuel divided by our total wholesale fuel sales volumes in gallons.
There are a variety of ways to calculate these measures; other companies may calculate these in a different way. Amounts may not recalculate due to rounding of dollar and volume information.
(d) For the three months ended December 31, 2017, Andeavor Logistics had 25.6 Mbpd of gross natural gas liquids ("NGL") sales under percent of proceeds ("POP") and keep-whole arrangements, of which Andeavor Logistics retained 11.4 Mbpd. For the year ended December 31, 2017, Andeavor Logistics had 22.2 Mbpd of gross NGL sales under POP and keep-whole arrangements, of which Andeavor Logistics retained 8.3 Mbpd. 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.
(e) 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 excludes this amount.
(f) Operating expenses include an imbalance settlement gain of $4 million and $1 million for the three months ended December 31, 2017 and 2016, respectively, and $8 million and $3 million for the years ended December 31, 2017 and 2016, respectively.
(g) Volumes represent barrels sold under our keep-whole arrangements, net barrels retained under our POP arrangements and other associated products.
(h) We adjust our reconciliation of distributable cash flows for maintenance capital expenditures, tank restoration costs and expenditures required to ensure the safety, reliability, integrity and regulatory compliance of our assets with an offset for any reimbursements received for such expenditures.
(i) Amounts may not recalculate due to rounding of dollar and volume information.
(j) Total capital expenditures include spending related to the Predecessors prior to each respective acquisition date. The Predecessor expenditures related to growth capital projects totaled $1 million, $7 million, $8 million and $64 million for the three months and years ended December 31, 2017 and 2016, respectively.
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