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Phillips 66 Partners LP (PSXP)
Q3 2019 Earnings Call
Oct 25, 2019, 2:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Third Quarter 2019 Phillips 66 Earnings Conference Call. My name is Julie, and I will be your operator for today's call. [Operator Instructions]
I will now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin.
Jeff Dietert -- Investor Relations
Good afternoon and welcome to Phillips 66 Partners third quarter earnings conference call. Participants on today's call will include Kevin Mitchell, Vice President and CFO; Tim Roberts, Vice President, Operations; and Rosy Zuklic, Vice President and Chief Operating Officer.
Today's presentation materials can be found on the Events section of the Phillips 66 Partners website along with supplemental financial and operating information.
Slide 2 contains our Safe Harbor statement. We will be making forward-looking statements during the presentation and the Q&A session. Actual results may differ materially from what we present today. Factors that could cause actual results to differ are included here as well as in our SEC filings.
With that, I'll turn the call over to Kevin Mitchell.
Kevin J. Mitchell -- Director, Vice President and Chief Financial Officer
Thank you, Jeff and good afternoon everyone. We delivered another quarter of record earnings and adjusted EBITDA reflecting reliable operating performance at our wholly owned and joint venture assets. We continue to execute on our organic growth projects with the successful start-up of multiple new assets this year, including the Bayou Bridge Pipeline extension, Lake Charles products pipeline and Lake Charles isomerization unit. These assets are running well and performing as planned.
Our Board of Directors approved a third quarter distribution of $0.865 per common unit, an increase of $0.01 per common unit from the previous quarter and 9% higher than the third quarter 2018 cash distribution. We have increased the distribution every quarter since the July 2013 IPO. We remain committed to delivering competitive distribution growth while maintaining strong coverage and leverage ratios.
Moving on to Slide 4 to discuss the financial results. The partnership reported third-quarter earnings of $237 million. Adjusted EBITDA during the quarter was a record $323 million, an increase of $4 million from the second quarter. The improvement reflects increased volumes and tariff rates, partially offset by higher planned maintenance expense. Third quarter distributable cash flow was $255 million, an increase of $1 million from the prior quarter.
Slide 5, highlights our financial flexibility and liquidity. We ended the third quarter with $655 million of cash and $749 million available under our revolving credit facility. During the quarter, the Partnership issued $900 million of unsecured notes in attractive interest rate environment. A portion of the proceeds was used to repay the remaining $400 million outstanding under a term loan facility, and in October, we paid off $300 million of senior notes due February 2020.
The debt-to-EBITDA ratio on the revolver covenant basis was 3.2 times. The leverage ratio was higher due to the timing of the debt issuance in the third quarter and repayment of the senior notes in the fourth quarter. Our distribution coverage ratio was 1.29 times. We continue to target a long-term leverage ratio of up to 3.5 times and distribution coverage ratio over 1.2 times. The Partnership advanced its major projects during the quarter funding $136 million of growth capital. This included spend for the C2G Pipeline, the Clemens Caverns and the Sweeny to Pasadena pipeline expansion as well as investment in the South Texas Gateway Terminal.
Now, Rosy will provide an update on our growth projects.
Rosy Zuklic -- Vice President & Chief Operating Officer
Thanks Kevin and hello everyone. Slide 6 lists the projects we have ongoing. I'll speak to a few of the projects. The Lake Charles isomerization unit had a successful start-up and reached full production in September. We're excited about this asset. The initial operating performance is meeting design rates and we expect to receive a full quarter of earnings contribution in the fourth quarter.
The Gray Oak Pipeline project is nearing completion. We have started line fill and commissioning activities and are on track for initial start-up in November, with full service in the first quarter of 2020. Gray Oak will connect to multiple terminals in the Corpus Christi area, including the South Texas Gateway Terminal. The marine export terminal will have two deepwater docks with storage capacity of over 7 million barrels and up to 800,000 barrels per day of throughput capacity. Phillips 66 Partners owns a 25% interest in the terminal, which is expected to start-up by mid 2020.
The remaining projects listed are on schedule to be completed as planned. We look forward to providing more information at the upcoming Phillips 66 Investor Day.
This concludes our prepared remarks, we will now open the line for questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Spiro Dounis from Credit Suisse. Please go ahead. Your line is open.
Spiro Dounis -- Credit Suisse -- Analyst
Hey, good afternoon, everyone. Maybe starting off with some of the movers around the quarter. Two things that got me is first, it seems like Terminal segment, maybe take a bit of a step change up, shrugged off some of the lower sequential refinery utilization. So just wondering what's really driving some of that and is that ratable from here. And then second on volumes on some of your JV assets, looking really strong once again. I'm just wondering if you could just highlight which pipelines was really driving that and maybe how sustainable that is to?
Rosy Zuklic -- Vice President & Chief Operating Officer
Sure. Hi, Spiro, this is Rosy. Absolutely, so if you think about the great benefit that we're seeing in the terminals is really as a result of the projects that we've had coming online as Kevin mentioned. You've mentioned, you've got Bayou Bridge, where we have the second phase of the pipeline there starting up and then Lake Charles pipeline where we've got products moving from Lake Charles refinery down to Clifton Ridge terminal. And so really what we're seeing there is we've got additional crude movement and product movement off of the Clifton Ridge terminal. And so you're seeing that kind of uplift in the terminaling volumes there. And so just really a fruition of all the different projects coming together. And I do think that that is something that at least for the next quarter you should definitely see an uptick coming there.
On the JV pipeline, it's a continuation of what we saw in the second quarter. Explorer had another record quarter. Second quarter was a great quarter, third quarter was even better, 750,000 barrels per day throughput up from 703,000 barrels per day last quarter. Bayou Bridge, again if you think about the fact that it started Phase 2 in the second quarter, and then in the third quarter, we had a benefit of the full quarter running 299,000 barrels per day and then Bakken pipeline also had another uptick in volumes.
Spiro Dounis -- Credit Suisse -- Analyst
Very helpful. Second question, I don't want to get too ahead of the Investor Day, certainly looking forward to that. But maybe if you just help us understand a little bit, how to think about Red Oak and Liberty potentially becoming a greater part of the PSX story specifically, especially as you sort of transition back toward doing sort of a drop-down type strategy. I think Greg mentioned on the call earlier, that PSXP still has the cost of capital advantage. And so just wanted to understand how all that really ties together?
Kevin J. Mitchell -- Director, Vice President and Chief Financial Officer
Yes. Spiro, this is Kevin. I would just reiterate the comments that Greg had made this morning around the suite of organic growth projects that are taking place really across both you see at the PSX level and also at PSXP, and fundamentally as you step back and look at what's being done at PSX, you would conclude that it makes sense to get those done into the MLP over time. I think I'll leave specifics around those Red Oak, Liberty projects. We will leave those for the Investor Day and especially since they are actually PSX projects at this point in time, but fundamentally large backlog of growth opportunities that could feed the MLP for quite some period of time.
Spiro Dounis -- Credit Suisse -- Analyst
Understood. Thanks for the color.
Operator
Philip Stuart from Scotia Howard Weil. Please go ahead. Your line is open.
Philip Stuart -- Scotia Howard Weil -- Analyst
Good afternoon, guys. Congrats on a solid quarter. I appreciate the update on Gray Oak. Just wonder if we could kind of talk through kind of the milestones of the ramp of the pipeline. I understand that that you've kind of starting to really fill up in November in reaching kind of full capacity by the end of 1Q, early 2Q. Just kind of curious if that ramp is going to be pretty ratable over that time period or if they're going to be, you know, if it's going to be kind of more lumpy one way or the other?
Timothy D. Roberts -- Director and Vice President, Operations
Well, this is Tim Roberts. And let me probably just touch a little on that and I'll pass it off to Rosy a little bit as well after this. On Gray Oak, as you would expect, we're going through our line fill as we've talked about, we're going through commissioning and with the complexity of the pipeline, it's not just pipe, its terminal storage and so forth. We're getting it up in phases, as you can imagine. So we're starting to move crude down the pipeline. We are currently with our line. So we are expecting at this point and we have posted a tariff with FERC to have limited service to Central Junction sometime in November.
That'd be very limited service and at Central Junction shippers on our pipe can then contract with other third-party shippers to get the various locations on the Gulf Coast, whether that single side Corpus or up to the Houston market. So -- but then, this is all goes on in phases. So we do expect, again that we'll start that Phase 2 November, but then there will be additional phases as we go through the end of the year. And then also to the first quarter.
I wouldn't say -- it's certainly a ramp-up, but I wouldn't say it's ratable. And like I said that the complexity of the project itself, especially as we get closer to the market, they will be coming on in bits and pieces into the extent we can commercialize pieces of those, we will get a tariff out there to support that and then subsequently start booking those revenues.
And Rosy, you may want to touch on this.
Rosy Zuklic -- Vice President & Chief Operating Officer
Yes, I think the way I think about it from a modeling for PSXP specifically is, you know, from a fourth quarter perspective, I don't anticipate to see any really benefit from an earnings perspective. From a run rate EBITDA, I would say it's starting maybe in the second quarter. And then as Tim's alluded, the first quarter being really the ramp-up period, I would say that that's probably half of what the run rate would be. So you'd probably want to phase it in throughout the first quarter.
Philip Stuart -- Scotia Howard Weil -- Analyst
Okay, great. That's really helpful. And then on South Texas Gateway, can you all maybe talk about kind of the ramp there and getting that project throughput kind of up toward capacity?
Timothy D. Roberts -- Director and Vice President, Operations
Yes, this is Tim Roberts again. On that, actually with Buckeye being one of our partners on that project, it's moving along pretty well. They did receive their core of engineer permits. They can go and start dredging for the 2 VLCC capable docks that we've got there. But they've already started on land activity with regard to all the tanks and terminals and so forth. So Buckeye is progressing very well on the project. We are looking at this being a mid 2020, as far as start-up. As you would imagine, it's not just a flip the switch and it all comes on. Much like Gray Oak, you could probably see portions of that terminal will come on a little earlier. And then some a little after that mid 2020 date, but that's currently we're targeting.
Philip Stuart -- Scotia Howard Weil -- Analyst
Okay, great. That's it from me.
Operator
Theresa Chen from Barclays. Please go ahead. Your line is open.
Theresa Chen -- Barclays -- Analyst
Good afternoon and thank you for taking my questions. Related to the DCP writedown at the parent for PSXP. So a while ago, there was a lot of discussion around the potential combination of PSXP and DCP and given today's $900 million writedown at the parent, which Kevin you made very clear that it was related to PSX' interest only. But given the fact that it was based on observable market data, it would be pretty interesting, if it didn't translate at all to the other 50%. I was just wondering if there's anything to read into this impairment related to the parent's long term desired outcome for DCP in relation again to PSXP as and is the combination less attractive now because you don't want to dilute the quality of the assets at the Partnership at PSXP or is it more feasible now the outlook has been mark-to-market more tethered to reality. So perhaps the bid ask can narrow?
Greg C. Garland -- Chairman and Chief Executive Officer
Yes, Theresa, we really have to pass on this question, it's not appropriate for PSXP to be commenting on DCP and the parents ownership on DCP. So I'm going to pass on that one.
Theresa Chen -- Barclays -- Analyst
Okay. So related to the fundamentals of the Partnership. I mean, we've seen a lot of volatility in the macro data lately and I just wanted to touch on the resiliency of the business if we are indeed hitting a soft patch in the cycle, and completely understand that most of the business is contracted with fee-based revenues with the support from NBC's. But have you done any sort of sensitivity analysis around macro demand supply given the current makeup of the Partnership as it has grown pretty rapidly in scale, size and third-party contracts over the last couple of years or so?
Greg C. Garland -- Chairman and Chief Executive Officer
Yes. We do. But I would -- sort of take it back to right now something like 90% of the PSXP business. The direct PSXP owned assets, about 90% of that revenue stream comes from PSX. So it's still very much within the greater PSX level family if you think about it like that. And when you connect a lot of that to the assets that those are being -- those are supporting -- those volumes are supporting, you think about the PSX refining and marketing infrastructure. Some of the NGL value chain. PSX is in that for the long term, and so we feel very comfortable around that. The joint venture assets that we've been investing in have more third-party, a lot more third-party exposure there, but fundamentally, we go back to long-term contracts, long-term commitments around those assets and so within a very -- within the context of our planning horizon, which is more than short-term, right. It takes us a reasonable period of time, we feel very comfortable around where that sits.
Theresa Chen -- Barclays -- Analyst
Thank you.
Operator
Jeremy Tonet from JP Morgan. Please go ahead. Your line is open.
Joe -- JP Morgan -- Analyst
Hi, this is Joe for Jeremy. I first wanted to ask on 2020 capex. I realize that the budgets probably forthcoming but could you talk a little bit about kind of some of the puts and takes we should keep in mind and what we should think of relative to 2019 for that?
Rosy Zuklic -- Vice President & Chief Operating Officer
So for 2020, we'll give more color at the Analyst Day presentation here in a couple of weeks. As far as 2019, no change to what we said last quarter. If I take you back to when we first did the budget. We said that it was going to be about $600 million and with the increase in the Gray Oak project, the latest forecast was between $700 million to $750 million and we're still at that forecast.
Greg C. Garland -- Chairman and Chief Executive Officer
And I would just supplement that by, if you think about the slide that Rosy talked to. The isomerization units complete. Gray Oak Pipeline there'll be some minor spend carry over into 2020, but that's fundamentally that's done by the end of this year. You've got the Sweeny to Pasadena Pipeline is into 2020, South Texas Gateway is middle of 2020, Clemens Caverns expansion continues, C2G Pipeline is spend through next year and into 2021. So I'll give you some flavor of what will comprise at least a portion of the capital budget. But you can sort of get it from that list of projects and the expected start-up timing, completion timings.
Operator
We have no further questions at this time. I will now turn the call back over to Jeff.
Jeff Dietert -- Investor Relations
Thank you, Julie, and thank all of you for your interest in Phillips 66 Partners. If you have additional questions, please call Brent or me. Thank you.
Operator
[Operator Closing Remarks]
Duration: 19 minutes
Call participants:
Jeff Dietert -- Investor Relations
Kevin J. Mitchell -- Director, Vice President and Chief Financial Officer
Rosy Zuklic -- Vice President & Chief Operating Officer
Timothy D. Roberts -- Director and Vice President, Operations
Greg C. Garland -- Chairman and Chief Executive Officer
Spiro Dounis -- Credit Suisse -- Analyst
Philip Stuart -- Scotia Howard Weil -- Analyst
Theresa Chen -- Barclays -- Analyst
Joe -- JP Morgan -- Analyst
