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Shell Midstream Partners LP (NYSE:SHLX)
Q3 2020 Earnings Call
Oct 30, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, my name is Dylan, and I'll be your conference operator today. At this time, I would like to welcome everyone to today's webcast for Shell Midstream Partners. All participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Jamie Parker, Investor Relations Officer. You may begin your conference.

Jamie Parker -- Investor Relations

Thank you. Welcome to today's webcast for Shell Midstream Partners. With me today are Kevin Nichols, CEO; Shawn Carsten, CFO; and Steve Ledbetter, VP, Commercial and Business Development.

Slide 2 contains our safe harbor statement. We will be making forward-looking statements related to future events and expectations during the presentation and Q&A session. Actual results may differ materially from such statements, and factors that could cause actual results to be different are included here and also in today's press release and under Risk Factors in our filings with the SEC.

Today's call also contains certain non-GAAP financial measures. Please refer to the earnings press release and Appendix 1 of this presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.

We will take questions at the end of the presentation. With that, I'll turn the call over to Kevin.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Thanks, Jamie. Hey, good morning, everyone, and welcome to our third quarter earnings webcast. Before I begin today, I want to recognize that we continue to live through an unprecedented time with the pandemic, as well as one of the most active hurricane seasons that I can remember and certainly since 2005. These combined events have impacted our communities, our staff, customers, and our investors, and our focus is on the safe operations, the safety of our employees, and we certainly hope that you are staying safe during this difficult time.

As I look back on the third quarter, we continue to see effects from the pandemic and these storms, as well as some planned turnaround activity from our customers. Against this backdrop, our diversified asset base continued to show strength despite a difficult macro environment. In the offshore, the partnership saw a temporary reduction in volumes as customers shut-in production several times throughout the quarter related to the storms in the Gulf. These shut-ins also impacted Zydeco as we saw slightly lower volumes coming in from the offshore. And our refined products systems continue to see the impacts related to the pandemic as demand destruction caused lower throughput in both the second and third quarters.

With the significant supply and demand imbalance in the second quarter, we were able to offset some of these impacts through storage opportunities. However, as supply and demand has come more balanced in the third quarter, we're seeing a reduction in these opportunities for storage as inventory levels are worked off.

To help offset the impacts to our earnings, our operations and commercial teams work to minimize business interruption in order to maximize business value from our assets during this challenging quarter. And despite an impact of approximately $12 million from the storms, we were able to deliver $163 million in overall cash available for distribution. And I also think it's really important to note that we did not experience any material damage to any of our assets as a result of the storms, and volumes have ramped back up to pre-storm levels once producers have restarted production. Our ability to continue delivering value to unit holders in this challenging quarter and year speaks to our operational capabilities and the resilience of our assets.

Offshore, we have one of the premier corridor networks, which provides transportation for an advantaged medium crude grade and provides our customers unique optionality. Longer term, we continue to remain bullish on the development and growth in the Gulf of Mexico, where we see continued activity by our sponsor and other customers and we have the ability to capture these volumes for little to no capital required by the partnership. Our onshore assets, they spend the commodity supply chain from crude to clean products, and we're well positioned longer term to ramp up with the U.S. and global recovery.

As is true with the entire industry, we expect to see continued volatility and uncertainty in the near term. Given these uncertainties that still remain in the marketplace around the pandemic, as well as the softening of overall demand, we will continue to monitor the business environment and make decisions regarding future distributions on a quarter-by-quarter basis.

So with that, I'll now hand the call over to Shawn. Shawn?

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Thanks, Kevin. As I reflect on the third quarter, our assets have performed well in this difficult economic environment. So first, let me cover a few of our key financial metrics for the quarter. Our total revenue was $110 million, a decrease of about $10 million. Now, this decrease was primarily related to the impacts of the multiple storms that Kevin spoke about earlier, along with some planned turnaround activity. The decrease was partially offset by about $3 million in higher product revenue when compared to the prior quarter. Now, this is due to the sales of allowance oil. Our operating expenses were $75 million, down about $4 million from the prior quarter, mostly related to lower severance expense in the current quarter. Now, this was partially offset by an increased cost of allowance oil and assessment of property taxes. Our income from equity investments was $109 million, and this was flat with the second quarter.

And with all this, adjusted EBITDA attributable to the partnership was $191 million, and after interest expense, maintenance capital and other adjustments, total cash available for distribution was $163 million. The partnership declared a distribution of $0.46 per LP unit. Now, this resulted in a coverage ratio for the quarter of 1 times. And finally, we incurred about $11 million of maintenance capex in the third quarter, primarily related to Zydeco.

So, now for the partnership's balance sheet and liquidity. As of September 30, the partnership has a total debt outstanding of $2.7 billion, which equates to a debt to EBITDA ratio of 3.5 times based on an annualized Q3 adjusted EBITDA. We're comfortable with our balance sheet and we believe it allows us the desired flexibility to continue to effectively navigate these turbulent times.

So, now let me move to a few updates for the rest of this year. In the offshore, we expect to have an impact of approximately $15 million to both net income and cash available for distribution in the fourth quarter. This impact is related to hurricanes Delta and Zeta, which affected the Gulf in October as well as some planned turnaround activity that was delayed from the third quarter as a result of the storms. As part of our cash preservation and operating cost initiatives, we've already committed to $10 million in sustainable savings in 2020. Now in addition to this, we also expect savings in 2021 in the range of $30 million to $40 million. This would be inclusive of the $10 million already captured in 2020. I'm really pleased to report that we are well under way to achieve these targets.

So, as I close, let me say again that we have a strong suite of high quality midstream assets, and coupled with our resilient balance sheet, we believe the partnership is well positioned for the long term.

And with all that, we'll now take your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of from Shneur Gershuni from UBS. Please go ahead.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning, everyone. Good to hear everyone is well. Maybe to start off with literally your concluding remarks with respect to cost savings and so forth, I was wondering if you could expand on it a little bit, how sustainable they are and are we just scratching the surface of it now or can there be materially more incremental cost savings throughout '21. If you can sort of talk about your process, it's how you're going about it.

Shawn Carsten -- Director, Vice President and Chief Financial Officer

So, thanks, Shneur. So, when you think about our savings, we believe they are all sustainable savings. We've made a few one-off cost movements. But we're focused right now on fundamental structural savings. Roughly half of this cost is related to salaries and wages, and the other half is related to a number of cost reductions in terms of the way we operate more efficiently. Some are direct, so we're reducing our direct contractors and so -- in services, so that directly benefits the partnership and some are indirect in the sense that our parent, Shell Pipeline, which is our service company, has made some other reductions in both the processes and salaries and wages. As they make those reductions, those costs savings get passed on to the MLP. Hope that helps.

Shneur Gershuni -- UBS -- Analyst

It certainly does. So -- and just to paraphrase, so some of it directly at the MLP level and some of it is the allocation from Royal Dutch at the end of the day. But maybe to follow-up on that, is there kind of like everybody seems to have like a different main project as project out or something to take it down. Is there kind of an ongoing process right now within Royal Dutch Shell that we could see another layer of costs come down as well to where this is kind of the bulk of the review on the cost structure?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah, Shneur. Hi, this is Kevin. Yeah. And I think you may be referring to some things you hear about Royal Dutch Shell reshape and some other things that they're doing. But actually, Shawn and I and the management team that started this last year already in looking at how we could sustain and bring our competitor -- our costs down to be more competitive. And so, we've been on this journey maybe a little bit ahead of some of the things that Shell is doing, and we're now putting those in place, which is why we're comfortable that we'll see them here in 2020, and as we go into 2021.

It's also about creating a continuous improvement culture and a culture that will continue to look for costs. Not willing to really give you an idea or guidance above the $30 million to $40 million for the MLP at this time. But it is something that we, as a management team, are installing as far as continued exploration around how we just do things better. We're looking at things leveraging our new ERP system that we've talked about in the past, S4 on the SAP platform and how we can digitize things, take out manual work processes, make things more efficient and prioritize things. So we'll always continue to look for additional costs. But what Shawn referred to is the output of a program that we've had in place now for some time.

Shneur Gershuni -- UBS -- Analyst

That makes sense. So -- but so the journey is not over.

Kevin M. Nichols -- Director, Chief Executive Officer and President

The journey is not over.

Shneur Gershuni -- UBS -- Analyst

Okay. And then -- right. Okay. Perfect. And then I was just wondering if we can talk about the distribution outlook for a second here. Last quarter, the language in the press release sort of outlined -- you basically pre-declared the following quarter, you didn't do that this time and so forth. I'm trying to understand if that's a signaling change or is it just that last quarter, there was so much uncertainty leading into your -- when you reported earnings that you felt you needed to do this and now we're back more on a typical, we don't pre-release the quarterly distribution. Just trying to understand the change in language there.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah, Shneur, let me start out with I understand you as well as our other investors and everybody else are looking for longer-term guidance and the strategy of the Company going forward. And we're not talking just about one quarter in advance. I think we've got the feedback, and we certainly understand that looking to say, well, how does this play out over the next 12, 18, 24 months. And we're certainly working to put that in place, and we're not ready to give that today.

With regards to the change from quarter two, signaling quarter three, keeping it flat in quarter four, if you take a look at some of the changes, back then, the trends were headed in the direction of fewer cases in the pandemic, marketplaces were opening, things were looking pretty good from a general trend perspective. If we sit here and look at it in the fourth quarter, yesterday, we set an all-time high for cases in United States, hospitalizations are on the rise. You look at it globally, countries are actually locking back down again, other cities are reimposing restrictions. There's a lot of volatility in the oil and gas sector. So there's just a lot more movement right now as we sit in quarter four than there was last quarter. And we think it's just right to probably give you the results of the quarter and not try to pick that right now and continue to work toward getting you that long-term guidance as we can see some of this settle down.

Shneur Gershuni -- UBS -- Analyst

Okay. And maybe one final question then. You've talked about kind of the signpost that you're looking at. And I think you just sort of touched on some of them in the last answer. The current run rate right now, if we -- as you sort of intimating, we're having start-ups and going backwards, pausing forward and so forth, if we were sort of to maintain the level of congestion and activity that we are at right now, so we don't improve from here because everything sort of averages out here and there and that stays that way for the next few quarters, is that something that you're comfortable with from a payout perspective? Like you feel comfortable you're generating enough cash, cover the expenses and everything else? Trying to -- wondering how to think about the hypothetical there.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah. I'm not sure, Shneur, it's right to comment on any scenario that plays out or how that would play out. Certainly, we're looking for more stability. And as that stability comes and you can be -- we've always committed to our investors that when we give guidance, we shoot to deliver on that guidance. And so the things that we're looking at are the same things that we've been looking at before. It's what's happening with the pandemic, what's happening in the oil and gas sector, what's happening with demand, what could happen with the restrictions [Technical Issues] tight coverage right now. And so of course, we're trying to see what the near term looks like. Longer term, we're still confident in our growth, the projects that we have coming on with PowerNap and Vito, but those are a little bit further out.

Shneur Gershuni -- UBS -- Analyst

Got it. Perfect. Thank you for taking the time to answer my questions today and have a great weekend.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Thanks, Shneur. Be safe.

Shneur Gershuni -- UBS -- Analyst

You too. Thanks.

Operator

Thank you. Our next question comes from the line of Theresa Chen from Barclays. Please go ahead.

Theresa Chen -- Barclays -- Analyst

Good morning. I wanted to ask you about the Zydeco recontracting for the 18-month contracts that I believe are going to expire at the end of this year, so just in a couple of months. Had the shippers elected for their six-month extension? Or are they recontracting completely different rates at this point? Any color you could provide would be great.

Steven C. Ledbetter -- Vice President, Commercial

Hi, Theresa, this is Steve Ledbetter. Yeah. So I think given the current volatility that Kevin mentioned, it's created an environment that shippers are waiting to see longer-term impact prior to locking in. And in light of that, the two contracts that we have with the 18 months that expire at the end of November, the shippers have elected not to renew those contracts. But I would say that we're in conversations, and we still are looking at various options. And currently, we will run those options outside of a typical open season process. And I'll just follow up, I think, with an important note that we've been pretty purposeful in diversifying our asset away from any one geography or asset when you think about the things that we've done in the offshore, in the onshore, refined products, gas gathering. And so we feel good about the overall mix of the position and the capability to deliver to the partnership longer term.

Theresa Chen -- Barclays -- Analyst

Understood. And if I remember correctly, I think one of your longer-dated contracts on Zydeco, it does source a Bakken barrel. And I was just wondering if you have any exposure to DAPL as that continues to evolve?

Steven C. Ledbetter -- Vice President, Commercial

Yeah. So we're not going to comment on exposure around what may or may not transpire as a result of DAPL. We stand ready to provide efficient and competitive solutions and are ready to move the barrels not only in Houston, but also in Nederland, the Bakken barrel to the various destination points in a competitive and efficient manner.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Hey, Theresa, and just one more thing to add there that the customer that has that contract has a number of different connect points to source and to move on our system. So the contract and their obligations to us are sound and we've got multiple options for them.

Theresa Chen -- Barclays -- Analyst

Great. And switching to offshore. So we get a lot of questions on the political landscape. And I'm curious to pick your brain on what you think can happen offshore as far as the affiliate and the third-party customer projects go, if we do get a Blue Wave. So can you talk about maybe the resiliency of your sponsors' portfolio as well as third-party customers? And if there is a ban on new leases, how long do you think the volumes on your pipelines can remain intact?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah. Thanks. First and foremost, we've operated a very successful business throughout a number of multiple administrations, right? And we found ways to deliver across that. So those come and go, certainly, they'll have their challenges. As far as the Gulf of Mexico, in my comments earlier about being really bullish on the Gulf of Mexico, if you listen to Shell's webcast and their earnings webcast, a couple of things to note. Ben highlighted the need for hydrocarbons for the next decades, and there'll be a role for hydrocarbon in the next decades against the backdrop of energy transition, and we can certainly talk more about that. But there will be continued investment by Shell in the hydrocarbon chain. They're going to take a very focused approach to that. And one of those areas specifically is the development of Gulf of Mexico. And so we're confident in our sponsors' progression of the projects that they have in the funnel that we already have planned like PowerNap and Vito and other tiebacks, but also Whale, Blacktip other large discoveries that they've had. Those commercial leases or those leases that they're commercializing, I feel very confident -- Shell feels very confident in their ability to progress those and bring them to market, even against the backdrop of an administration change. I think longer term and leases coming out, but that's usually 10 years plus out. So very confident in our Gulf of Mexico profiles for the next five to seven years.

Theresa Chen -- Barclays -- Analyst

Understood. And if there is -- in addition to ban on new leases, if there is a permitting slowdown, how does that impact your sponsor's portfolio projects and as well as the third-party customers related to the actual volumes that are going to physically flow into your pipe? Do you see any risk of the permitting process declining the volumes per se?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Well, so I think there's a couple of things going on there. What you normally hear about as far as infrastructure and permit issues is new build construction on infrastructure and getting the necessary permits to put the new build in place. Offshore, one of the benefits to what we have is an existing extensive wide footprint of infrastructure that's in place with the capability to move new volumes without actually having to build anything. I mean, and things like our Mars expansion and debottleneck project is just about adding pumps which are already permitted for the platform to an existing platform. So, from an infrastructure perspective, don't see a lot of permit risk there.

From a developer's perspective in the Gulf of Mexico, BSEE and offshore guidance and regulation, when you do a lease, you put into place a very defined milestone development plan with the government, and you agree that on the front-end and you have to drill and then you have to bring the oil to market under a certain time frame. So I think those things permitting isn't like onshore and putting new infrastructure in offshore. It's -- we think it's much better.

Theresa Chen -- Barclays -- Analyst

Thank you.

Operator

Thank you. I show our next question comes from the line of Gabe Moreen from Mizuho. Please go ahead.

Gabriel Moreen -- Mizuho Securities -- Analyst

Hi, everyone. I just wanted to ask about, look, you built a rather reduced net debt over the last two quarters. I'm just curious about kind of the '21 capex outlook. Clearly, nothing has been spent so far. You're building cash on your balance sheet at least over the last couple of quarters. Is there anything you've got, I guess, planned in the hopper kind of allocate some of those dollars that are coming in, hopefully, over and above the distribution?

Shawn Carsten -- Director, Vice President and Chief Financial Officer

So, Gabe, this is Shawn. Thanks for the question. So we haven't provided guidance for '21 for capex. As you highlight, cash is building up on our balance sheet. That will allow us to do whether it's small projects or just reduce debt. And so -- but we'll see as we get there.

Gabriel Moreen -- Mizuho Securities -- Analyst

Okay. And then I also just wanted to ask, I don't know if it was asked previously, but just with some of the PADD 1 refinery changes, just wondering kind of how Colonial is running and whether there's an opportunity there to push more barrels into PADD 1, hopefully, as demand recovers?

Steven C. Ledbetter -- Vice President, Commercial

Yes. So Gabe, this is Steve. I'll take that one. I mean -- so as we talked about earlier, there are things that continue to change with pandemic and demand patterns. What we've seen over this quarter and the past couple of quarters is that Colonial continues to be resilient, still has a very cost advantage access to supply and various things they can do to compete no matter what is happening in terms of the refinery production in that pad. It obviously has some exposure to the New York Harbor, but we see Colonial be able to compete with whatever may unfold up there.

Gabriel Moreen -- Mizuho Securities -- Analyst

Got it.

Operator

Thank you. I show our next question comes from the line of Derek Walker from Bank of America. Please go ahead.

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

Hey, good morning, guys. Thanks for the time. Maybe I just want to get a quick update. I just want to make sure just the outlook around the Mars expansion. Just given the current environment, has there been any change around how you're thinking about the timing of that project and how about any they ramp on it? I know you've kind of talked about it in the past, but I just want to see if there's been any change around it.

Steven C. Ledbetter -- Vice President, Commercial

Hey, Derek, this is Steve. Thanks for the question. Yeah, we're still very excited about the margin expansion. We have LOIs in place. We expect definitive agreements by the end of the year with project being brought online late 2021 in advance Vito and PowerNap coming through the corridor in 2022. And as we've talked about in the past, we've built and constructed the project for additional flows of roughly 65,000 barrels a day.

Kevin M. Nichols -- Director, Chief Executive Officer and President

And just to remind everybody that as of the last call, we won't have capex expenditure from a partnership perspective for that expansion, we'll do that for the customers.

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

Got it. Thanks. And then maybe just an operational question. Any lessons learned so far? I know there's a lot of -- just lot of variability going on as you alluded to with the weather shut-ins, etc. You've also been diligent on the cost run. But just any lessons learned on that front as far as operations in offshore, volumes coming back on to the systems, the personnel use? I think you talked about just efficiencies around personnel and just on COVID-19 and the pandemic there. So I just want to see kind of how you're -- how things have progressed for you guys the last couple of quarters and just -- are you seeing any more efficiencies around that front? Thanks.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah. I mean, we're continuing to learn as we all are through the pandemic and virtual and using technology and tools, and we'll continue to deploy those, of course. We talked about it last quarter that we changed our shifts to 14 on, 14 off to have more efficiency, fewer travel costs with helicopters, that type of thing also to manage the pandemic or the COVID-19 exposure.

I think from an operations perspective on our front as well as our customers on producers platforms, starting to learn how to deal with COVID, both trying to prevent it from happening or an exposure on the platform through quarantine for a week prior to deployment going offshore. Then once we're on the platforms, our customers have people on the platform. If there is a case, it's not a health issue. How do you quarantine on the platform, continue to operate the platform without having to shut down.

And then finally, in the event that you do have a need to take the people off the platforms and bring them in, I think the producers and we've gotten really good at that as far as minimizing the downtime of taking the crew that has the exposure off, having the other crew ready, cleaning the platform and bringing it back up. So we don't have any material impact from COVID from any one particular incident offshore with having numbers of platforms connected to our assets.

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

Got it. Thank you. Appreciate it.

Operator

Thank you. Our next question comes from the line of Spiro Dounis from Credit Suisse. Please go ahead.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning, guys. Just have two questions for you, both related to some recent announcements on the sponsor side of things. And the first one relates to going back to the lack of clarity here. Very understandable in this environment, and I guess, what I'm struggling with is your sponsor's ability to come out and provide a new distribution policy and a capital framework with presumably the same level of uncertainty. So I guess, I'm just wondering why don't we see a more coordinated effort to come out and announce these plans together? And maybe the right way to think about it is, does your sponsor's plan need to be finalized and implemented before you all can go make your decisions for SHLX?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Well, no, I wouldn't say that certainly isn't the case. I mean, when the sponsor announced their distribution cut, and we did not have a distribution cut, we got the question about should there be a read-through from that? And our answer is sort of the same there, which is they manage and operate a very different business from ours. It's global in nature. It has different classes of business, different exposures than ours. So there isn't necessarily a one-for-one correlation between what the sponsor does with their portfolio and what we do with our portfolio.

We continue to have strong sponsor support for the vehicle. They look at this MLP and this Company as a long-term investment. They've had very favorable credit terms that they've extended us. That's not changed. We have the waiver in place through first quarter of next year. They continue to -- we have high-quality assets in there that underpin a much wider value chain. And as you heard, Ben talk about a focus on the Gulf of Mexico, we have the premier footprint in the Gulf of Mexico and underpin a lot of that evacuation of their crude. So as they grow, we grow. So there's a good relationship there as well.

Spiro Dounis -- Credit Suisse -- Analyst

Fair enough. And maybe picking up on that last point around growth. I think RDS also talked about maybe four growth areas outside of Gulf of Mexico. I think marketing, power, hydrogen and biofuels, I believe, are the four mentioned. Can you talk about how SHLX can participate, I guess, within those four buckets, some probably more than others, I assume?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah. The first one, let's start with is the obvious one, right, which is the Gulf of Mexico and hydrocarbons and anything in the United States where there's an infrastructure need for the hydrocarbon value chain, then we'll be there, and we have the opportunity to play through our existing assets or potentially new assets. But I also think as -- and we've got the question from time to time in the energy transition and alternative energy space, would you consider and would there be an opportunity longer term to participate in that? And the answer is yes, with no definitive guidance for you at this time with specific projects. But renewable gas projects, hydrogen solar, those kinds of things. I think that's the benefit of being associated with a sponsor like Shell. And Ben talked about it and said about a third of the capital is going into the traditional hydrocarbons and third and marketing and a third in this energy transition alternative energy.

Shawn Carsten -- Director, Vice President and Chief Financial Officer

And Spiro, let's just see how the road ahead looks like. I mean, right now, we have -- as we've grown, we have a better position from a qualified income as an MLP. So we're able to take on some non-qualified assets as we grow. But the other thing, of course, is if there is a new -- a Blue Wave, if they rewrite the rules around MLPs, that may open up some new opportunities that we can't currently enjoy given our tax structure.

Spiro Dounis -- Credit Suisse -- Analyst

Yeah. No, that's a good point. Okay. That's it for me. Thanks for the color guys.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Thanks, Spiro.

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Thanks, Spiro.

Operator

Thank you. Our next question comes from the line of Michael Blum from Wells Fargo. Please go ahead.

Michael Blum -- Wells Fargo -- Analyst

Thanks and thanks for all the answers today. Very helpful. Just really one question at this point. Just wanted to -- can you just refresh our memories in terms of how the contracts are structured in the Gulf of Mexico when you get these hurricanes that come through? Do you have any protection with BI insurance? Or is there anything contractually that protects you? Or do we just think of these as -- it's more a fourth quarter question, I guess, but is this just lost revenue?

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah. It's a mixed bag offshore. We've negotiated different contracts for different circumstances. There are a number of contracts that have minimums like the Mattox Pipeline that was just recently contributed. So regardless of the volumes of flow, we get paid. There are others where we have life of lease or dedication from the field, but so long as the volumes are flowing. So we -- while we have a customer that's kind of captive to the -- to our particular system to bring their volume to shore, if they shut in production, we're exposed to that. Maybe, Shawn, you can talk about the insurance component of it.

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Yeah. Thanks, Kevin. Thanks, Michael. So we do have BI insurance on our assets. And so inasmuch as we would have damage from a storm to our assets and limiting our ability to deliver barrels, then we would be covered by that insurance. But of course, we can't provide BI insurance for our producers. If they have damage, that's a different story.

Michael Blum -- Wells Fargo -- Analyst

Great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Joe Martoglio from J.P. Morgan. Please go ahead.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Good morning, Joe.

Joe Martoglio -- J.P. Morgan -- Analyst

Hi, guys -- good morning. Thanks for taking my question. I wanted to first ask on -- you mentioned a storage opportunity in the prepared remarks. Wondering if you can discuss at all at this point, I guess, how significant that was and kind of how we should think about that stepping down in the fourth quarter? Yes, that's the first one.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Yeah, Joe. So actually, what I was trying to highlight there, maybe I didn't do it as clearly as I could was, it was really an opportunity for us that helped offset some of the gap in quarter two when we were at the height of the pandemic and demand destruction. There was a really significant dislocation between supply, which had not ratcheted down at the same level as demand had been destroyed. And so producers were looking for opportunities to store barrels anywhere they could find it, and we took advantage of that, and it helped offset some of that gap in Q2.

In Q3, supply and demand has now come closer into balance where the refineries and the production has now kind of equilibrated a little bit more. So there's not as much of that storage opportunity. So I wouldn't really count on anything from a modeling perspective around storage opportunities. We'll continue to take it when we have it in the marketplace, but that has kind of changed from a profile perspective from Q2 to Q3.

Joe Martoglio -- J.P. Morgan -- Analyst

Okay. That makes sense. Then I also wanted to ask on maintenance capex, and you guys have consistently done a good job of reducing that this year. I noticed that it kind of stepped down again for what's expected in 2020. How should we think about that as kind of a run rate going forward? Was there anything where some maintenance got pushed out? Or is it just cost savings?

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Yeah. So, Joe, it's Shawn. So we haven't provided any guidance for going forward. But with regards to -- we haven't had too many projects that we pushed out. So we try to do what was absolutely necessary for our assets. We -- our first priority is always about safety. And so in as much as the run rate and how you model that, I guess, you can work with Jamie on how you might best model that going forward, but we haven't provided any forward guidance on that.

Joe Martoglio -- J.P. Morgan -- Analyst

Okay. Got it. Thanks for taking my questions.

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Thanks.

Kevin M. Nichols -- Director, Chief Executive Officer and President

Thank you.

Operator

Thank you. We have no further questions. I will now turn the call back over to Jamie Parker.

Jamie Parker -- Investor Relations

Yeah. Thank you for your interest in Shell Midstream Partners. If you have any additional follow-up questions following today's presentation, please feel free to call me directly. My contact information can be found on the presentation materials as well as on our website, shellmidstreampartners.com. Thank you.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Jamie Parker -- Investor Relations

Kevin M. Nichols -- Director, Chief Executive Officer and President

Shawn Carsten -- Director, Vice President and Chief Financial Officer

Steven C. Ledbetter -- Vice President, Commercial

Shneur Gershuni -- UBS -- Analyst

Theresa Chen -- Barclays -- Analyst

Gabriel Moreen -- Mizuho Securities -- Analyst

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

Spiro Dounis -- Credit Suisse -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Joe Martoglio -- J.P. Morgan -- Analyst

More SHLX analysis

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