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BP Midstream Partners LP (NYSE:BPMP)
Q1 2019 Earnings Call
May. 9, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, everyone and welcome to the BP Midstream Partners' First Quarter 2019 Results Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please also note today's event is being recorded.

At this time, I'd like to turn the conference call over to Brian Sullivan, Vice President of Investor Relations. Sir, please go ahead.

Brian Sullivan -- Vice President of Investor Relations

Welcome to BP Midstream Partners' first quarter 2019 results presentation. I'm Brian Sullivan, Vice President of Investor Relations and I'm here today with our Chief Financial Officer, Craig Coburn.

As we start our second full year of operation and we find our rhythm for results reporting, we are moving to a model where our Chief Executive Officer, Rip Zinsmeister joins our second and fourth quarter results calls, with Craig leading our first and third quarter calls, which are focused primarily on operational and financial results. Craig will also join Rip for the second and fourth quarter calls. This approach and cadence is one that you will recognize from our sponsor, BP.

Before we begin, I would like to draw your attention to our cautionary statement. During today's presentation, we will make forward-looking statements that refer to our estimates, plans and expectations. Actual results and outcomes could differ materially due to factors we note on this slide and in our SEC filings. We will also refer to non-GAAP financial measures. Please refer to our SEC filings and supplementary information in this presentation for important disclosures related to these measures. These documents are also available on our website.

And now over to Craig.

Craig W. Coburn -- Chief Financial Officer

Thanks, Brian. Good morning and thanks for joining our call today. You may be relieved to hear that I plan to keep our call today much shorter than our call last quarter. I'll share a few words with you first then take you through our first quarter results before taking your questions.

We have made a solid start to 2019 with our high quality asset portfolio continuing to perform well evidenced by our operating performance and financial results in the first quarter. There are no changes to our financial frame and we will address guidance later this year. You can find our financial frame slide, a slide that you have seen before in the supplementary information section of this presentation. Regarding dropdowns and distribution growth, we still believe in the one dropdown a year cadence provided that market conditions and other factors permit the transaction to be done in a manner that furthers the interests of the partnership.

As we indicated in our last call, we have not committed to a dropdown in 2019 and that remains the case. The equity markets remain challenged and we continue to look for opportunities should they become available. We continue to actively listen to our investors watching closely and learning from the evolution of the MLP environment. We do not take our active watching and listening as a sign that we are doing nothing. We are in action on how to navigate the transition that BPMP may need to make over time, a path that we will address proactively and pragmatically.

Now turning to our results. As I mentioned, we have started 2019 by delivering solid operational and financial results. Our first quarter total pipeline gross throughput was around 1.6 million barrels of oil equivalent per day, slightly lower than the fourth quarter of 2018 reflecting significantly lower volumes on Proteus and Endymion due to turnaround and maintenance activities at the BP-operated Thunder Horse facility and the concurrent connection of the Mattox pipeline at South Pass Block 89 during the quarter. This was partially offset by higher throughput on the BP2 pipeline following completion of maintenance supplied into the fourth quarter and slightly lower apportionment on the Enbridge mainline and higher throughput on the Diamondback pipeline reflecting favorable diluent demand seasonality during the winter months.

First quarter average revenue per barrel on a portfolio basis was broadly flat compared to the fourth quarter. Looking ahead, we expect pipeline gross throughput in the second quarter to be higher than the first quarter reflecting higher throughput on Proteus and Endymion following the completion of turnaround and maintenance activities at Thunder Horse and the connection of the Mattox pipeline and higher throughput on Mars driven by increased production from various offshore fields serviced by this pipeline. This increase will be partially offset by lower throughput on BP2 due to maintenance, Whiting (ph) ahead of IMO 2020 and lower throughput on Diamondback, a seasonal diluent demand returns to more normal levels, a reminder that we have minimum volume commitment arrangements in place with BP with respect to the throughput on our onshore pipelines.

Net income attributable to the partnership for the first quarter was $37.2 million slightly higher than the fourth quarter due to increased operating income from our onshore pipelines reflecting higher fixed loss allowance revenue on BP2 attributable to higher realizations during the quarter and seasonally elevated delinquent volumes on the Diamondback pipeline with throughput on this pipeline higher compared to the fourth quarter, but consistent with the first quarter of 2018 and the absence of transaction costs associated with the 2018 asset drop. This was largely offset by lower income from equity method investments reflecting lower throughput on Proteus and Endymion offshore pipelines as previously mentioned.

We did not recognize any deficiency revenue under the throughput and deficiency agreements in the quarter. Adjusted EBITDA attributable to the partnership was $44.6 million for the quarter and cash available for distribution was $39.7 million. In April, the Board of Directors of the General Partner declared an increased quarterly cash distribution of $0.3126 per unit for the first quarter. This represented an increase of 3.7% over the fourth quarter 2018 distribution per unit. After factoring in the increased distribution, our distribution coverage ratio for the first quarter was 1.2 times. Looking forward to the second quarter, we expect cash available for distribution to be higher than the first quarter, largely reflecting higher income from equity method investments from our interests in the Mardi Gras and Mars joint ventures and associated dividends from these JVs.

As previously mentioned, Mardi Gras will benefit from the increased throughput on Proteus and Endymion pipelines and Mars will benefit from increased production from various offshore fields serviced by this pipeline.

With that, I will now take your questions.

Questions and Answers:

Operator

Ladies and gentlemen, at this time we will begin today's question-and-answer session. (Operator Instructions) Our first question today comes from Jeremy Tonet from J.P. Morgan. Please go ahead with your question.

Joe -- J.P. Morgan -- Analyst

Hi. This is Joe for Jeremy. First I wanted to ask about how we should gauge volumes into the second quarter. Should we expect the Proteus and Endymion volumes to kind of recover now with turnaround activity completed? Or is there anything else we should kind of keep in mind for the second quarter or remainder of the year?

Craig W. Coburn -- Chief Financial Officer

Hello, Joe. Craig, here. Yes, we do anticipate that Proteus and Endymion will recover back to the normal levels. We came out of the turnaround in good shape and we're seeing that flow through coming through already in the second quarter, so that's what we could expect there. Also we expect there slightly higher volumes coming from Mars coming into the second quarter as well. Yeah, the second question -- point (ph) to your question, Joe.

Joe -- J.P. Morgan -- Analyst

Yeah. And then I also wanted to ask some of you have kind of shifted toward from dropdowns more toward organic growth and have done organic growth projects. I was wondering if you guys would ever consider doing that or what you got there?

Craig W. Coburn -- Chief Financial Officer

So, I mean I think our guidance remains the same. I mean we still believe in a cadence of one drop per year and as you know we've given our guidance at mid-teens distribution growth through 2020 10% or so coming from inorganic and 5% to 6% coming from organic. I think we stick with that. I think that our 5% organic growth is, we have good visibility of that to 2019 and we feel positive about that for 2020 as well. And again, we'll be updating our guidance for 2020 and beyond later in the year. We are also looking at organic projects sort of within the BP portfolio, these are smaller projects. They're associated with the assets that we've already sort of dropped onshore. And we're looking at those and looking at the returns on those, the returns actually look quite good and the payback looks quite good. But these are smaller projects, but they would be additive to our EBITDA in the near term. Did that help, Joe?

Joe -- J.P. Morgan -- Analyst

Yeah. That's helpful. That's really helpful. Thanks for that. That's all I had.

Craig W. Coburn -- Chief Financial Officer

Okay. Thanks, Joe.

Operator

(Operator Instructions) Our next question comes from Dennis Coleman from Bank of America. Please go ahead with your question.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

This is Derek Walker on for Dennis. Just a quick volume question and maybe a broader strategy question. In the formal remarks, you mentioned the seasonality on some of the onshore pipes similar to Diamondback and that was above the MVCs. And I think there is kind of a longer term view that would may perhaps kind of return to the MVC level. Give a sense of just looking at Q4 (ph) volumes with that trend closer to the MVC level or would you still see that being above MVCs in 2Q?

Craig W. Coburn -- Chief Financial Officer

Thanks for your question, Derek. I think we see it trending back toward MVC type levels, but we're seeing volumes that are slightly higher than that 2Q. So conditions, I mean, I think we see this seasonality spills over a bit into the April timeframe. So I mean I think we'd guide you back toward closer to MVC levels but a bit higher than that for 2Q.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Okay. That's helpful. And Craig, I think you appreciate the sort of higher level sort of thought process around the long term growth strategy. You mentioned sort of taken a pragmatic and systematic sort of approach over time. And you continue to listen to kind of the market and to remind (ph) of the market. Can you just kind of take us sort of walk us through some of that thought process a little bit on, you kind of talked about guidance. For this year, how you are doing (ph) -- so we need to do the drop and you mentioned in the prior questions for the 10%, 5% split. But just any color you kind of give us sort of how you're thinking about the long-term strategy.

Craig W. Coburn -- Chief Financial Officer

Yeah. So I mean I said as a management team, I think we're very pleased with the operational, financial and safety performance of the BPMP since the IPO. I mean this is our -- actually our fifth quarter, I believe growing the EBITDA in a row. So it's going as we predicted. But despite our strong performance, obviously the capital markets are not rewarding BPMP. We don't think in the way that they should. So I mean we want to be proactive and we want to be looking at all of these options on a go-forward basis. We have a very good portfolio here. And that first drop in 2018 set us up well for 2019 and beyond. And so we're just going to look at the options during 2019 and assess the right way to go forward.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Got it. And -- go ahead.

Craig W. Coburn -- Chief Financial Officer

No, I mean, it all depends on the equity markets, right. It all depends on where we are in the equity markets.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Yeah, that's right. Okay. Thanks, Craig. I appreciate it.

Operator

And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to conclude today's question-and-answer session, and turn the conference call back over to Craig Coburn for any closing remarks.

Craig W. Coburn -- Chief Financial Officer

Thank you, Jamie. I'd like to thank everyone again for joining our earnings call today. BPMP assets continued to perform well operationally and financially. As I said earlier, this is the fifth quarter in a row we've grown our EBITDA, further building on our track record of strong performance.

The capital markets remain challenging to support our traditional sponsor dropdown model, but we are in action and exploring the options available to us. So for those of you who are on our schedule, we look forward to seeing you next week in Las Vegas at the LPA conference. And finally, IR is available for any follow up questions you may have. Their contact information is available on our website. So thanks again, and this concludes our call today.

Operator

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.*

Duration: 15 minutes

Call participants:

Brian Sullivan -- Vice President of Investor Relations

Craig W. Coburn -- Chief Financial Officer

Joe -- J.P. Morgan -- Analyst

Derek Walker -- Bank of America Merrill Lynch -- Analyst

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