Energia
Andeavor Reports Second Quarter 2018 Results
- Andeavor (NYSE: ANDV) today reported second quarter earnings of $515 million, or $3.38 per diluted share, compared to $40 million, or $0.31 per diluted share a year ago. Consolidated net earnings were $582 million for the second quarter 2018 compared to $87 million for the same period last year. EBITDA for the second quarter 2018 was $1.15 billion compared to $479 million last year.
Second quarter 2018 results include $30 million of integration costs related to Western Refining and transaction costs primarily related to the strategic combination with Marathon Petroleum Corp. (NYSE: MPC) ("MPC"). Second quarter 2017 results included $124 million of acquisition and integration costs related to the Western Refining acquisition, which closed on June 1, 2017.
"We are very pleased with the continued strong performance of our integrated business," said Greg Goff, Chairman and CEO. "Our Logistics business reported its best quarter ever, and we had very strong operational performance and continue to deliver on our synergy commitment related to the Western Refining acquisition. We also continue to make excellent progress growing in Mexico with the announcement of our new terminal project in Northwest Mexico and winning two additional Pemex Logística open season capacity awards in new regions. These achievements further strengthen our growth capabilities in Mexico and extend our West Coast and Southwest integrated value chains. Today, we also announced the completion of a $1.6 billion drop down, with Andeavor receiving $1.25 billion in Andeavor Logistics' common equity units and $300 million in cash. As a result, our ownership in Andeavor Logistics has increased from 59% to 64%," added Goff. "Importantly, our strategic combination with MPC is expected to close on October 1, 2018, subject to approval of shareholders and customary closing conditions. We are making excellent progress on integration and synergy planning and are very excited about the long-term shareholder value this transaction is expected to create."
(a) Referred to in the body of this press release as "earnings."
Marketing segment operating income was $209 million and segment EBITDA was $227 million in the second quarter 2018. This compares to segment operating income of $240 million and segment EBITDA of $255 million last year. Overall fuel margins for the second quarter 2018 were 11.6 cents per gallon compared to 13.2 cents per gallon last year, and Retail and Branded fuel margins were 21.1 cents per gallon compared to 23.2 cents per gallon in 2017. Marketing margins reflect a lag in street prices following rising spot market prices in the first two months of the quarter, however, the business performed well as margins improved in June to higher levels. Refining results benefited from these rising spot market prices in the quarter, reflecting the value of the Company's integrated business model.
For the second quarter, merchandise margin increased to $58 million from $20 million in 2017 primarily due to the Western Refining acquisition and the successful conversion of over 100 MSO sites (multi-site operators) to company-owned sites. Merchandise margins were 28.9% compared to 28.3% in the prior year and 28.0% in the prior quarter. Andeavor continued to grow its network of retail and branded stations, increasing by 257 stations, or 8% year-over-year, to 3,330. This was primarily driven by the acquisition of retail stations in Northern California in July 2017 and the continued execution of the Company's organic growth plan, including rebranding and expansion into Mexico. Andeavor has 128 stations in Mexico as of July 31, 2018, including 84 ARCO branded stations and 44 unbranded stations, which are in the process of rebranding to ARCO .
The Logistics segment reported record results for the second quarter. Segment operating income increased to $193 million in the second quarter 2018 from $163 million a year ago and segment EBITDA increased to $282 million from $236 million last year. The increase in segment operating income and segment EBITDA was primarily driven by contributions from the Western Refining Logistics acquisition, the 2017 drop down transaction and organic Gathering & Processing growth projects, primarily in the Bakken and Permian Basin.
Following the completion of the 2018 drop down and continued execution of identified growth investments, Andeavor Logistics (NYSE: ANDX) expects its Permian Basin business to exit 2018 with a run rate of $90 million of annual net earnings and $150 million of annual EBITDA contribution.
Refining segment operating income was $607 million for the second quarter 2018 compared to $45 million in 2017. Segment EBITDA was $782 million compared to $206 million in 2017. Refining margin was $1.4 billion, or $14.26 per barrel, for the second quarter 2018. This compares to a refining margin of $768 million, or $9.45 per barrel in the second quarter 2017. Refining utilization was 96% for the second quarter 2018 compared to 91% for 2017. Manufacturing costs were $5.07 per barrel compared to $5.67 per barrel in the prior year, driven by the Company's focus on productivity and synergy execution.
Corporate and unallocated costs for the second quarter 2018 were $162 million, which included $30 million of transaction and integration costs primarily related to the Western Refining acquisition and the strategic combination with MPC. Net interest expense was $109 million, and the effective tax rate was 22% in the second quarter 2018.
Andeavor ended the quarter with $388 million in cash and cash equivalents, down from $543 million at the end of 2017. As of June 30, 2018, Andeavor had approximately $2.1 billion of availability under its revolving credit facility. Total debt, net of unamortized issuance costs, was $8.7 billion at the end of the second quarter. Excluding Andeavor Logistics, total debt was $4.4 billion. In the quarter, Andeavor paid down approximately $230 million of debt and invested $75 million, plus working capital, to acquire the Asphalt Terminals.
Capital spending for the second quarter 2018 was $382 million, consisting of $277 million for Andeavor and $105 million for Andeavor Logistics. Turnaround expenditures for the second quarter were $156 million and marketing branding costs were $13 million. Andeavor expects full year 2018 consolidated capital expenditures of $1.6 billion, turnaround expenditures of $575 million and marketing branding costs of $75 million.
Andeavor paid cash dividends of $89 million in the second quarter. Additionally, Andeavor today announced that the board of directors has declared a quarterly cash dividend of $0.59 per share payable on September 14, 2018 to all holders of record as of August 31, 2018.
On April 29, 2018, Andeavor and MPC entered into the MPC Merger Agreement under which MPC will acquire all Andeavor outstanding shares. Andeavor shareholders will have the option to receive in exchange for each share of Andeavor common stock they hold 1.87 shares of MPC stock, $152.27 in cash, or a combination of both, subject to a proration mechanism that will result in 15% of the shares of Andeavor common stock being exchanged for cash, and the remaining shares being exchanged for MPC stock. This represented a premium of 24.4% to ANDV's closing price prior to the announcement. This transaction is expected to create a premier U.S. refining, marketing and midstream company, building a platform that is well-positioned for long-term growth and shareholder value creation. The transaction is expected to generate in excess of $1 billion of annual synergies within the first three years.
On August 3, 2018 Andeavor and MPC announced that the strategic combination is expected to close on October 1, 2018, pending approval from both Andeavor and MPC shareholders, as well as satisfying other customary closing conditions. Andeavor has scheduled a meeting of its shareholders for September 24, 2018 to approve the transaction.
Andeavor expects to deliver $350 to $425 million in annual run-rate synergies by June 2019. Through the second quarter 2018, Andeavor has achieved approximately $280 million in annual run-rate synergies, including $140 million in corporate efficiencies and $140 million in value chain optimization, marketing, operational and other improvements.
Andeavor Logistics today announced that it has agreed to acquire a portfolio of logistics assets from Andeavor for total consideration of $1,550 million. The assets include gathering, storage and transportation assets in the Permian Basin, including the RIO Pipeline; legacy Western Refining assets and associated crude terminals; and the majority of Andeavor's remaining refining terminalling, transportation and storage assets. The drop down also includes the Conan Crude Oil Gathering System and the Los Angeles Refinery Interconnect Pipeline.
The assets are expected to generate 2019 annual net earnings of $105 to $115 million and EBITDA of $195 to $205 million. Andeavor Logistics expects to invest approximately $100 million in 2018 and $50 million in 2019 of capital to further expand the Conan Crude Oil Gathering System and complete the Los Angeles Refinery Interconnect Pipeline. When adjusting for the additional capital, the transaction represents a multiple of approximately 8.4 times 2019 annual EBITDA. The transaction is expected to be immediately accretive.
In consideration, Andeavor received $1.25 billion in Andeavor Logistics common units and $300 million in cash, financed with borrowings on Andeavor Logistics' revolving credit facilities. The equity consideration was based on the average daily closing price of Andeavor Logistics common units for the 10 trading days prior to the approval date of August 3, 2018, or $44.20 per unit, totaling approximately 28.3 million common units, and increases Andeavor's ownership of Andeavor Logistics from 59% to 64%.
On July 22, 2018, Andeavor announced that it has been awarded additional refined product pipeline and storage capacity by Pemex Logística in the states of Baja California Sur, Sinaloa and Chihuahua. Additionally, the open season also awarded marine terminal use at three facilities in Baja California Sur and Sinaloa. These awards further strengthen and support Andeavor's growth strategy by extending its existing West Coast and Southwest value chains into Mexico.
On June 6, 2018, Andeavor announced its plans to build a refined products terminal at the Rosarito storage facility of Comisión Federal de Electricidad in the state of Baja California. Andeavor will sign a long-term lease for the land and will construct and operate the facility. The Company expects a total investment of approximately $100 million over the next two years. The terminal is expected to reduce Andeavor's costs to directly import refined products in Baja California, supporting its growing network of ARCO branded stations and unbranded growth in Northwest Mexico.
Andeavor today announced a project to convert the Dickinson Refinery to process 12,000 barrels per day of renewable feedstocks, including soybean oil and distillers corn oil, into renewable diesel fuel. The project is expected to be completed in late 2020 and is subject to permitting and regulatory approval. Andeavor continues to execute its strategy of reducing regulatory compliance costs through the implementation of renewable fuels technologies that are compatible with existing vehicles and infrastructure.
On April 24, 2018, Andeavor announced participation in two new joint ventures that support the transportation of crude oil from the Permian Basin to Corpus Christi, Texas with connection to the South Texas Gateway Terminal, a marine terminal under development. Gray Oak Pipeline, LLC is expected to be placed in service by the end of the fourth quarter 2019, while the South Texas Gateway Terminal is expected to begin operations by the end of 2019.
The combined system will position Andeavor to efficiently transport crude oil from its Delaware Basin gathering systems, further strengthening the Company's competitive position in the Permian Basin and enhancing its commercial capabilities in the region, allowing Andeavor and its customers to access multiple markets on the U.S. Gulf Coast as well as other markets through the South Texas Gateway Terminal. This investment also provides the potential for future growth opportunities for the Logistics business given its crude oil gathering position in the Delaware Basin and its connectivity to this system.
On May 21, 2018, Andeavor announced that it had completed the acquisition of asphalt terminals on the West Coast, Nevada and Arizona from Delek Holdings US for total consideration of $75 million, plus working capital. On May 1, 2018, Andeavor Logistics completed the acquisition of the Wamsutter Pipeline from Plains All American Pipeline, L.P. for total consideration of $180 million.
Andeavor has provided a pre-recorded webcast hosted by Greg Goff and Steven Sterin regarding second quarter 2018 results and other business matters. Interested parties may listen to the webcast 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 approximately 3,330 stations 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.
On June 1, 2017, we closed the Western Refining Acquisition. Our results include the operations from Western Refining for the three and six months ended June 30, 2018 and thus the prior period may not be comparable. With the Western Refining Acquisition, our Marketing segment reflects our expanded marketing business that consists of expanded wholesale marketing operations and retail stores marketed under multiple well-known fuel brands. Our Logistics segment includes the results of Andeavor Logistics, excluding its wholesale business, and acquired logistics assets. Our Refining segment reports the results of our refining system that consists of ten refineries.
On January 1, 2018, we adopted ASC 606 utilizing the modified retrospective method. The current period results and balances are presented in accordance with ASC 606 while comparative periods continue to be presented in accordance with the accounting standards in effect for those periods.
(a) Represents market value of 127,889,386 common units held by Andeavor at both June 30, 2018 and December 31, 2017. The market values were $42.53 and $46.19 per unit based on the closing unit price at June 30, 2018 and December 31, 2017, respectively.
(b) Represents distributions received from Andeavor Logistics during the three and six months ended June 30, 2018 and 2017 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) The Logistics segment had 21.9 Mbpd and 20.9 Mbpd of gross natural gas liquids ("NGL") sales under percent of proceeds ("POP") and keep-whole arrangements for the three months ended June 30, 2018 and 2017,respectively, of which the Logistics segment retained 9.1 Mbpd and 7.3 Mbpd, respectively. The Logistics segment had 24.3 Mbpd and 21.0 Mbpd of gross NGL sales under POP and keep-whole arrangements for the six months ended June 30, 2018 and 2017,respectively, of which the Logistics segment retained 10.4 Mbpd and 7.4 Mbpd, respectively.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 our Refining segment's cost of materials and other were Logistics segment revenues for services provided to our Refining segment of $379 million and $202 million for the three months ended June 30, 2018 and 2017, respectively, and $688 million and $405 million for the six months ended June 30, 2018 and 2017, respectively. These amounts are eliminated upon consolidation.
(f) 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 $52 million and $44 million for the three months ended June 30, 2018 and 2017, respectively, and $103 million and $83 million for the six months ended June 30, 2018 and 2017, respectively. The net amounts billed include reimbursements of $3 million and $2 million for the three months ended June 30, 2018 and 2017, respectively, and $10 million and $5 million for the six months ended June 30, 2018 and 2017, respectively. Amounts billed by Andeavor included in general and administrative expenses totaled $18 million and $19 million for the three months ended June 30, 2018 and 2017, respectively, and $38 million and $39 million for the six months ended June 30, 2018 and 2017, 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.
(g) Included in NGL expense for the six months ended June 30, 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 six months ended June 30, 2017 excludes this amount.
(h) Our Logistics segment uses average margin per barrel, average revenue per MMBtu and average revenue per barrel to evaluate performance and compare profitability to other companies in the industry. Refer to "Non-GAAP Measures" and "Non-GAAP Reconciliations" for further information regarding these non-GAAP measures.
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) The adoption of ASC 606 changed the presentation of our gas gathering and processing throughput volumes. Volumes processed internally to enhance our NGL sales are no longer reported in our throughput volumes as certain fees contained within our commodity contracts are now reported as a reduction of "NGL expense". The impact of the adoption was 150 thousand MMBtu/d and 162 thousand MMBtu/d for the three and six months ended June 30, 2018, respectively, now being used internally and not reported in the throughput volumes used to calculate our average gas gathering and processing revenue per MMBtu.
(k) Refined product sales include intersegment sales to our Marketing segment of $6.2 billion and $4.4 billion for the three months ended June 30, 2018 and 2017, respectively, and $11.4 billion and $8.1 billion for the six months ended June 30, 2018 and 2017, respectively.
(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.
(m) Amounts may not recalculate due to rounding of dollar and volume information.
(o) Shown net of unamortized issuance costs.
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