BP Midstream Partners LP (BPMP) Q1 2021 Earnings Call Transcript

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BP Midstream Partners LP (BPMP)
Q1 2021 Earnings Call
May 7, 2021, 8:00 p.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 2021 Results Conference Call and Webcast. All participants will be in 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 now like to turn the conference call over to Geoff Carr, Vice President of Investor Relations. Sir, please go ahead.

Geoff Carr -- Vice President Investor Relations, North America

Thank you, and good morning, everyone. Welcome to BP Midstream Partners first quarter 2021 results presentation. Joining me remotely today is Jack Collins, our Chief Financial Officer. Consistent with the approach we adopted in 2019, Jack plans to lead our first and third quarter results calls during 2021; and Rip Zinsmeister, our Chief Executive Officer will join Jack on our second and fourth quarter results calls. Before we begin, let me 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 the factors we note on this slide and in our SEC filings. We also refer to non-GAAP financial measures. Please refer to our SEC filings and supplemental information in this presentation for important disclosures related to these measures, as well as reconciliations to the non-GAAP financial measures. These documents and our presentation today are available on our website. Jack, over to you.

Jack T. Collins -- Chief Financial Officer

Thanks, Geoff. Good morning, everyone. It's great to be with you today. Let me start by highlighting the key attributes of BP Midstream Partners that I spoke about when I joined the results call for the first time last quarter. We believe, we have a well-underpinned distribution. It's a distribution that is supported by several factors. We are an MLP with a strong investment grade rated sponsor; we have a conservative financial framework; our portfolio comprises high-quality assets with balance; assets that have delivered stable, resilient performance with our onshore pipeline revenue supported by minimum volume commitments until the end of 2023; and an asset mix that is expected to remain relatively balanced, with our forecast 2021 cash available for distribution being generated near equally between our onshore and offshore pipelines. We are progressing a portfolio of organic growth capital projects this year that are expected to start contributing stable, fee-based revenues in 2022 and achieve mid-teens returns. And we continue to see a runway of growth in the offshore Gulf of Mexico as producers bring on new major projects and progress drilling opportunities.

We continue to look for attractive inorganic growth opportunities within our sponsor's portfolio. Equity market conditions remain challenged though, limiting our ability to do inorganic transactions in a manner that furthers the interest of the Partnership. We are an MLP that has built cash with the distribution coverage ratio consistently within, we're at the top end of our guidance range of 1.1 to 1.2 times. And we aim to create value for our unit-holders, managing BPMP in a thoughtful, disciplined manner, and doing what we say we're going to do. So, in summary, we believe our investment proposition is unique and differentiated, and attractive yield for an investment in an entity that one, generates the majority of its revenues with our investment grade rated sponsor, or other well-funded counterparties; and two, has established a track record of safe operations and financial stability over almost 3.5 years since our IPO, including during the challenging environment of 2020. This is a track record that we are proud of and plan to continue. Turning now to our operational and financial results for the first quarter of 2021.

Total pipeline gross throughput was approximately 1.7 million barrels of oil equivalent per day in the first quarter, around 8% higher compared to the fourth quarter of 2020. Gross throughput on our offshore pipelines was around 12% higher compared to the fourth quarter, primarily reflecting the absence of adverse weather that impacted offshore producers in the Gulf of Mexico during the fourth quarter of 2020. Impacts from offshore producer maintenance during the first quarter were slightly higher than in the fourth quarter of 2020. Gross throughput on our onshore pipelines was broadly consistent with the fourth quarter of 2020, in line with guidance previously provided. Seasonally higher throughput on Diamondback during the first quarter was offset by lower throughput on BP2 and River Rouge. Throughput on BP2 was impacted by higher levels of apportionment on the Enbridge mainline. And throughput on River Rouge reflected the impact on refined product demand of COVID-related restrictions. Our asset portfolio did not experience any material impacts associated with storm Uri during the quarter.

Net income attributable to the Partnership for the first quarter was $42 million, around 3% higher than the fourth quarter of 2020. Higher income from equity method investments during the quarter was driven by increased throughput on offshore pipelines, as previously mentioned. This was partially offset by lower operating income associated with onshore pipelines, primarily due to the absence of deficiency revenue relating to BP2 and Diamondback, totaling more than $2 million that was recognized in the fourth quarter of 2020. Adjusted EBITDA attributable to the Partnership for the first quarter was $43.1 million. This was lower than the fourth quarter of 2020, as previously guided, reflecting lower distributions from equity method investments during the quarter. Cash available for distribution for the first quarter was $41.2 million. This was also lower than the fourth quarter of 2020, as previously guided, reflecting the absence of cash recognized in the fourth quarter of 2020, associated with River Rouge's volume being above its minimum volume commitment.

Lower adjusted EBITDA and cash available for distribution in the first quarter of 2021 was included in our full year 2021 guidance. And our full year guidance remains unchanged. Our distribution coverage ratio for the first quarter was 1.1 times, within our target range of 1.1 to 1.2 times. This reflected a first quarter declared distribution of $0.3475 per unit, consistent with the distribution level for the fourth quarter of 2020. With this coverage ratio, we continue to build cash, adding around $2.5 million to our cash balance during the quarter. Turning now to guidance. As mentioned, our full year 2021 guidance is unchanged. As a reminder, we expect full year 2021 adjusted EBITDA and cash available for distribution to be broadly consistent with 2020. And assuming a distribution level consistent with the fourth quarter of 2020, we expect our distribution coverage ratio to be at the top end of our target range of 1.1 to 1.2 times.

Looking to the second quarter of 2021, we expect both, onshore and offshore pipeline gross throughput to be broadly consistent with the first quarter. For offshore pipelines, we expect a similar level of maintenance by offshore producers in the second quarter. For our onshore pipelines, we expect higher throughput on BP2 and River Rouge in the second quarter, to be offset by lower throughput on Diamondback as seasonal diluent demand returns to more normal levels. Adjusted EBITDA and cash available for distribution are forecasted to be higher than the first quarter, reflecting higher distributions from equity method investments. We expect the distribution coverage ratio to be comfortably within our target range of 1.1 to 1.2 times. With that we're now ready to take your questions. Thank you again for joining our call today. As usual, our Investor Relations team are available to speak with you further outside of this results call.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Joe Martoglio from JP Morgan.

Joe Martoglio -- JP Morgan -- Analyst

Hi. Good morning.

Jack T. Collins -- Chief Financial Officer

Good morning.

Joe Martoglio -- JP Morgan -- Analyst

I wanted to ask first on the quarter. It looked like, I guess, in the prior several quarters, distributions from the equity method investments had been more than the earnings from equity method investments. That wasn't the case this quarter. Just wondering if you could talk a bit at all about kind of what causes that delta from between the distributions from the equity method investments and earnings, and is that just timing-related or is there anything else to keep in mind that?

Jack T. Collins -- Chief Financial Officer

Yes, Joe, really timing related, picked up on it. So, a couple of our equity method investment distributions timing got pushed into 2Q. So, receipts have kind of come through in 2Q rather than 1Q. It's kind of reflected in our guidance. So, as you see the guidance for 2Q, you can see that we're guiding both of those higher, zero into 2Q. I think the other thing which I just kind of highlighted on the call was the MVC receipts. That's more of a CAFD metric rather than EBITDA. But, with the MVC receipts that were received in fourth quarter, we didn't receive any in the first quarter. So, that was about a $2 million swing, if you will, on CAFD. And so, the way MVCs work, as you know, is as we roll through the year, we'll see if we're below MVC levels. And if it doesn't look like they'll be made up for the rest of the year, then they get paid generally in the third and fourth quarter of the year. And so, that's kind of what happened last year, just because we were below MVC levels. So, they came through in third quarter and then fourth quarter and zero MVC receipts in the first quarter of 2021.

Joe Martoglio -- JP Morgan -- Analyst

Okay. That makes sense. That's helpful. Then, I also wanted to ask on, I guess, BP2 going forward. I think, a portion then on the mainline has impacted volumes there in the past and this quarter. Just thinking about kind of going forward, as kind of line three replacement is complete later in this year, do you think that could help, I guess, BP2 volumes, and kind of a portion that might not be an issue there?

Jack T. Collins -- Chief Financial Officer

Yes, we do. I guess, first, Whiting, just at a high level comment, continues to perform well. We've seen demand broadly kind of rising, as you've seen reopenings in the U.S. And Whiting, as it's done for the last few quarters, continues to do well. I think, your question about apportionment, yes. I highlighted, we continue to be impacted by a apportionment, do see Enbridge's line three opening up as a debottlenecking pipeline for a lot of those Canadian crews. And looking for when that happens, about a 10% improvement order of magnitude on volumes going through BP2.

Operator

And ladies and gentlemen, in showing no additional questions, we will proceed to close today's conference call. We do thank everyone for joining today's presentation. You may now disconnect your lines.

Duration: 13 minutes

Call participants:

Geoff Carr -- Vice President Investor Relations, North America

Jack T. Collins -- Chief Financial Officer

Joe Martoglio -- JP Morgan -- Analyst

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