Phillips 66 Partners Reports Fourth-Quarter 2018 Earnings

Highlights

Fourth Quarter

  • Reported earnings of $221 million and adjusted EBITDA of $309 million
  • Raised quarterly distribution by 5.4 percent to $0.835 per common unit
  • Achieved five-year 30 percent distribution CAGR
  • Record pipeline and terminal throughput volumes
  • Commenced Sweeny to Pasadena products expansion project

Full-Year 2018

  • Reported earnings of $796 million and adjusted EBITDA of $1.1 billion
  • Increased distributions per common unit by 22 percent
  • Expanded Sand Hills Pipeline capacity to 485,000 BPD
  • Received record distributions of $477 million from equity affiliates
  • Progressed construction of 900,000-BPD Gray Oak Pipeline

HOUSTON–(BUSINESS WIRE)–Phillips 66 Partners LP (NYSE: PSXP) announces fourth-quarter 2018
earnings of $221 million, or $1.09 per diluted common unit. Cash from
operations was $240 million, and distributable cash flow was $238
million. Adjusted EBITDA was $309 million in the fourth quarter,
compared with $305 million in the prior quarter.

“We ended 2018 with another strong quarter, running safely and reliably
while delivering record financial results,” said Greg Garland, Phillips
66 Partners’ chairman and CEO. “Our assets performed well, we achieved
our 30 percent five-year distribution CAGR target, and we further
advanced our organic growth projects. Our disciplined approach to
capital investment, along with our scale and financial strength,
positions us well for future growth. We will continue to reward our
unitholders through increasing distributions.”

On Jan. 22, 2019, the general partner’s board of directors declared a
fourth-quarter 2018 cash distribution of $0.835 per common unit, a 5.4
percent increase over the previous quarter distribution of $0.792 per
common unit. The Partnership has increased its distribution per common
unit every quarter since its initial public offering in July 2013.

Financial Results

Phillips 66 Partners’ fourth-quarter earnings were $221 million,
compared with $217 million in the prior quarter. The Partnership
reported adjusted EBITDA of $309 million in the fourth quarter, compared
with $305 million in the third quarter. The improvement reflects higher
equity earnings, mainly due to increased Bakken Pipeline volumes.

Liquidity, Capital Expenditures and Investments

As of Dec. 31, 2018, total debt outstanding was $3 billion. The
Partnership had $1 million in cash and cash equivalents and $625 million
available under its revolving credit facility.

The Partnership’s total capital spending for the quarter was $331
million, including $20 million of maintenance capital. Expansion capital
of $311 million included investments in the Gray Oak, Sand Hills and
Bayou Bridge pipelines, as well as spend on the new isomerization unit
at the Phillips 66 Lake Charles Refinery and the Clemens Caverns
expansion.

Strategic Update

Phillips 66 Partners is expanding the Sweeny to Pasadena Pipeline by
80,000 barrels per day (BPD). In addition, products storage capacity
will be increased by 300,000 barrels at the Pasadena Terminal and new
connectivity will be added to third-party terminals. The project is
expected to be completed in the second quarter of 2020.

The Partnership is constructing the 900,000-BPD Gray Oak Pipeline, which
will provide crude oil transportation from the Permian and Eagle Ford to
destinations in Corpus Christi and Freeport, including the Phillips 66
Sweeny Refinery. Phillips 66 Partners will have a 42.25 percent
ownership in the pipeline, which is anticipated to be in service by the
end of 2019.

The Gray Oak Pipeline will connect to multiple terminals in Corpus
Christi, including the new South Texas Gateway Terminal under
development by Buckeye Partners, L.P. The marine terminal will have two
deepwater docks and planned storage capacity of 6.5 million to 7 million
barrels. Phillips 66 Partners owns a 25 percent interest in the
terminal, which is expected to start up by mid-2020.

The Sand Hills Pipeline expansion was completed in the fourth quarter of
2018, increasing the capacity to 485,000 BPD. The pipeline transports
natural gas liquids (NGL) from the Permian and Eagle Ford to the Texas
Gulf Coast and is owned one-third by the Partnership.

The Bayou Bridge Pipeline operates from Nederland, Texas, to Lake
Charles, Louisiana. Commercial operations for the extension from Lake
Charles to St. James, Louisiana, are expected to begin in March.
Phillips 66 Partners owns a 40 percent interest in the joint venture.

The Partnership is constructing a 25,000-BPD isomerization unit at the
Phillips 66 Lake Charles Refinery to increase production of
higher-octane gasoline blend components. The project includes a
long-term agreement with Phillips 66 for processing services with a
minimum volume commitment. Completion is expected in the third quarter
of 2019.

In connection with the Phillips 66 project to add NGL fractionation
capacity at the Sweeny Hub, the Partnership is increasing storage
capacity at Clemens Caverns from 9 million barrels to 15 million
barrels. The caverns expansion is expected to be completed in late 2020.

Phillips 66 Partners is constructing a new pipeline that will connect
storage in Lake Charles, Louisiana, to its Clifton Ridge Marine
Terminal. This connection is expected to enable additional product
exports of up to 50,000 BPD from the Phillips 66 Lake Charles Refinery.
The project is backed by a long-term agreement that includes a minimum
volume commitment. The pipeline is expected to be completed in the
second quarter of 2019.

Investor Webcast

Members of Phillips 66 Partners executive management will host a webcast
today at 2 p.m. EST to discuss the Partnership’s fourth-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, terminals and other
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; the failure to complete
construction of announced and future capital projects in a timely manner
and any cost overruns associated with such projects; 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,” 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.

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

Q4 2018 Q3 2018
Selected Income Statement Data
Total revenues and other income $ 393 384
Net income 221 217
Net income attributable to the Partnership 221 217
 
Adjusted EBITDA 309 305
Distributable cash flow     238       218  
 
Net Income Attributable to the Partnership

Per Limited Partner Unit—Diluted (Dollars)

Common units     $ 1.09       1.10  
 
Selected Balance Sheet Data
Cash and cash equivalents $ 1 100
Equity investments 2,448 2,215
Total assets 5,819 5,643
Total debt 3,048 2,922
Equity held by public
Preferred units 746 746
Common units 2,485 2,451
Equity held by Phillips 66
Common units 592 567
General partner     (1,313 )     (1,320 )
 
 

Statement of Income

  Millions of Dollars
Q4 2018   Q3 2018
Revenues and Other Income    
Operating revenues—related parties $ 263 256
Operating revenues—third parties 7 9
Equity in earnings of affiliates 123 118
Other income         1
Total revenues and other income     393     384
 
Costs and Expenses
Operating and maintenance expenses 88 84
Depreciation 30 30
General and administrative expenses 16 16
Taxes other than income taxes 8 8
Interest and debt expense 28 28
Other expenses         1
Total costs and expenses     170     167
Income before income taxes 223 217
Income tax expense     2    
Net income 221 217
Less: Net income attributable to Predecessors        
Net income attributable to the Partnership 221 217
Less: Preferred unitholders’ interest in net income attributable to
the Partnership
9 9
Less: General partner’s interest in net income attributable to the
Partnership
    68     64
Limited partners’ interest in net income attributable to the
Partnership
    $ 144     144
 
 

Selected Operating Data

  Q4 2018   Q3 2018
Wholly Owned Operating Data    
Pipelines
Pipeline revenues (millions of dollars)     $ 118     123
Pipeline volumes(1) (thousands of barrels daily)
Crude oil 1,049 1,047

Refined petroleum products and natural gas liquids

    1,035     959
Total     2,084     2,006
 
Average pipeline revenue per barrel (dollars)     $ 0.61     0.66
 
Terminals
Terminal revenues (millions of dollars)     $ 43     37
Terminal throughput (thousands of barrels daily)
Crude oil(2) 460 436

Refined petroleum products

    839     754
Total     1,299     1,190
 
Average terminaling revenue per barrel (dollars)     $ 0.35     0.33
 
Storage, processing and other revenues (millions of dollars)     $ 109     105
Total operating revenues (millions of dollars)     $ 270     265
 
Joint Venture Operating Data(3)

Crude oil, refined petroleum products and natural gas liquids
(thousands of barrels daily)

    699     668

(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
Q4 2018 Q3 2018
Capital Expenditures and Investments
Expansion $ 311 173
Maintenance   20   24
Total Partnership 331 197
Predecessors    
Total Consolidated   $ 331   197
 
 

Cash Distributions

  Millions of Dollars

Except as Indicated

Q4 2018   Q3 2018
Cash Distributions    
Common units—public $ 46 44
Common units—Phillips 66 58 55
General partner—Phillips 66     67     61
Total     $ 171     160
 
Cash Distribution Per Common Unit (Dollars)     $ 0.835     0.792
 
Coverage Ratio*     1.39     1.36

†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 distributions was 1.40x
and 1.59x at Q4 2018 and Q3 2018, respectively.

 
 

Reconciliation of Adjusted EBITDA and Distributable Cash Flow
to Net Income

  Millions of Dollars
Q4 2018   Q3 2018
   
Net income attributable to the Partnership $ 221 217
Plus:
Net income attributable to Predecessors            
Net Income 221 217
Plus:
Depreciation 30 30
Net interest expense 28 28
Income tax expense     2        
EBITDA 281 275
Proportional share of equity affiliates’ net interest, taxes and
depreciation
28 30
Expenses indemnified or prefunded by Phillips 66
Transaction costs associated with acquisitions
EBITDA attributable to Predecessors            
Adjusted EBITDA 309 305
Plus:
Deferred revenue impacts* (1 ) (5 )
Less:
Equity affiliate distributions less than proportional EBITDA 14 22
Maintenance capital expenditures 19 23
Net interest expense 28 28
Preferred unit distributions     9       9  
Distributable cash flow     $ 238       218  

*Difference between cash receipts and revenue
recognition.

†Excludes Merey Sweeny capital reimbursements and
turnaround impacts.

 
 

Reconciliation of Adjusted EBITDA and Distributable Cash Flow
to Net Cash Provided by Operating Activities

  Millions of Dollars
Q4 2018   Q3 2018
   
Net Cash Provided by Operating Activities $ 240 255
Plus:
Net interest expense 28 28
Income tax expense 2
Changes in working capital 14 (7 )
Undistributed equity earnings (2 )
Deferred revenues and other liabilities (2 ) 1
Other     (1 )      
EBITDA 281 275
Proportional share of equity affiliates’ net interest, taxes and
depreciation
28 30
Expenses indemnified or prefunded by Phillips 66
Transaction costs associated with acquisitions
EBITDA attributable to Predecessors            
Adjusted EBITDA 309 305
Plus:
Deferred revenue impacts* (1 ) (5 )
Less:
Equity affiliate distributions less than proportional EBITDA 14 22
Maintenance capital expenditures 19 23
Net interest expense 28 28
Preferred unit distributions     9       9  
Distributable cash flow     $ 238       218  

*Difference between cash receipts and revenue recognition.

†Excludes Merey Sweeny capital reimbursements and
turnaround impacts.

 

Contacts

Jeff Dietert (investors)
832-765-2297
jeff.dietert@p66.com

Brent Shaw (investors)
832-765-2297
brent.d.shaw@p66.com

Dennis Nuss (media)
832-765-1850
dennis.h.nuss@p66.com

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