SHELL MIDSTREAM PARTNERS, L.P. 3rd QUARTER 2020 UNAUDITED RESULTS

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Do NOT follow this link! October 30, 2020 - 8:00 am

Houston, Oct. 30, 2020 -- Shell Midstream Partners, L.P. (NYSE: SHLX) (the "Partnership" or "Shell Midstream Partners") reported net income attributable to the Partnership of $135 million for the third quarter of 2020, which equated to $0.30 per diluted common limited partner unit. Shell Midstream Partners also generated adjusted earnings before interest, income taxes, depreciation and amortization attributable to the Partnership of $191 million.

Total cash available for distribution was $163 million, consistent with the prior quarter. The Partnership dealt with multiple storms in the Gulf of Mexico, planned turnaround activities and the continuing effects of the COVID-19 pandemic. The financial results were negatively impacted by lower offshore throughput in the Gulf of Mexico as we experienced multiple producer shut-ins, as well as by the ongoing effects of the COVID-19 pandemic and its impact on our onshore systems. However, these impacts were largely offset by increased distributions from certain of our investments.

"We had solid performance this quarter despite the continued effects from COVID-19 and an active hurricane season," said Kevin Nichols, CEO, Shell Midstream Partners GP LLC. "Our operational capabilities and resilient portfolio allowed us to continue delivering value in a challenging macro environment. We expect to see continued volatility and uncertainty, but we remain committed to our customers and investors for reliable delivery while maintaining the safety and protection of our employees and assets."

The Board of Directors of our general partner previously declared a cash distribution of $0.46 per limited partner common unit for the third quarter of 2020. This distribution was consistent with the prior quarter, and in line with previously disclosed guidance.

FINANCIAL HIGHLIGHTS

  • Net income attributable to the Partnership was $135 million, compared to $141 million for the prior quarter.
  • Net cash provided by operating activities was $149 million, compared to $192 million for the prior quarter.
  • Cash available for distribution was $163 million, consistent with the prior quarter, as the Partnership dealt with the continuing effects of the COVID-19 pandemic and multiple storms in the Gulf of Mexico. However, these impacts were largely offset by increased distributions from certain of our investments.
  • Total cash distribution declared to common unitholders was $161 million, resulting in a coverage ratio of 1.0x.
  • Adjusted EBITDA attributable to the Partnership was $191 million, compared to $192 million for the prior quarter.
  • As of September 30, 2020, the Partnership had $329 million of consolidated cash and cash equivalents on hand.
  • As of September 30, 2020, the Partnership had total debt of $2.7 billion, equating to 3.5x Debt to annualized Q3 2020 Adjusted EBITDA. Current debt levels are well within our targeted range and provide flexibility to the Partnership.

Cash available for distribution and Adjusted EBITDA are non-GAAP supplemental financial measures. See the reconciliation to their most comparable GAAP measures later in this press release.

ASSET HIGHLIGHTS

Significant Onshore Pipeline Transportation:

    • Zydeco - Mainline volumes were 524 kbpd in the current quarter, compared to 533 kbpd in the prior quarter, primarily due to reduced offshore volumes related to producer shut-ins and continued lower demand from the Louisiana refining complex.

Significant Offshore Pipeline Transportation:

  • During the quarter, the Partnership saw a temporary reduction in volumes across the Gulf of Mexico as producers shut-in offshore production several times due to storms.
  • Mars - Volumes were 479 kbpd compared to 501 kbpd in the prior quarter.
  • Amberjack - Volumes were 295 kbpd compared to 350 kbpd in the prior quarter.
  • Eastern Corridor - Volumes were 261 kbpd compared to 382 kbpd in the prior quarter.
  • Our assets sustained no material damage, and volumes returned to pre-storm levels once the producers restarted production.

2020 OUTLOOK

  • Expect an impact to Net Income and Cash Available For Distribution of approximately $15 million in the fourth quarter related to Hurricanes Delta and Zeta, as well as planned producer turnarounds that were delayed from earlier in the year.
  • Acknowledging the continuing impacts of the global COVID-19 pandemic and lack of clarity on crude and finished products supply and demand in the near-term, the Partnership's Board of Directors will monitor the business environment and make decisions regarding future distributions on a quarter-by-quarter basis.
  • The Partnership has approximately $1.2 billion in available liquidity, which is a combination of cash and cash equivalents and availability under credit facilities.

ABOUT SHELL MIDSTREAM PARTNERS, L.P.

Shell Midstream Partners, L.P., headquartered in Houston, Texas, owns, operates, develops and acquires pipelines and other midstream and logistics assets. The Partnership's assets include interests in entities that own (a) crude oil and refined products pipelines and terminals that serve as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and deliver refined products from those markets to major demand centers and (b) storage tanks and financing receivables that are secured by pipelines, storage tanks, docks, truck and rail racks and other infrastructure used to stage and transport intermediate and finished products. The Partnership's assets also include interests in entities that own natural gas and refinery gas pipelines that transport offshore natural gas to market hubs and deliver refinery gas from refineries and plants to chemical sites along the Gulf Coast.

For more information on Shell Midstream Partners and the assets owned by the Partnership, please visit
www.shellmidstreampartners.com.

FORTHCOMING EVENTS

Shell Midstream Partners, L.P. will hold a webcast at 10:00am CT today to discuss the reported results and provide an update on Partnership operations. Interested parties may listen to the conference call on Shell Midstream Partners, L.P.'s website at www.shellmidstreampartners.com by clicking on the "2020 Third Quarter Financial Results Call" link, found under the "Events and Conferences" section. A replay of the conference call will be available following the live webcast.


Summarized Financial Statement Information

For the Three Months Ended
(in millions of dollars, except per unit data) September 30, 2020 June 30, 2020 (2)
Revenue (1) $110 $120
Costs and expenses
Operations and maintenance 39 43
Cost of product sold 3 2
General and administrative 14 16
Depreciation, amortization and accretion 13 13
Property and other taxes 6 5
Total costs and expenses 75 79
Operating income 35 41
Income from equity method investments 109 109
Other income 7 11
Investment and other income 116 120
Interest income 8 7
Interest expense 22 24
Income before income taxes 137 144
Income tax expense -- --
Net income 137 144
Less: Net income attributable to noncontrolling interests 2 3
Net income attributable to the Partnership $135 $141
Preferred unitholder's interest in net income attributable to the Partnership $12 $12
Limited Partners' interest in net income attributable to the Partnership' common unitholders $123 $129
Net income per Limited Partner Unit:
Common - Basic $0.31 $0.33
Common - Diluted $0.30 $0.32
Weighted average Limited Partner Units outstanding:
Common units - public -basic 123.8 123.8
Common units - SPLC -basic 269.5 269.5
Common units - public -dilutive 123.8 123.8
Common units - SPLC -dilutive 320.3 320.3

(1) Deferred revenue recognized for both the three months ended September 30, 2020 and June 30, 2020, including the impact of overshipments and expiring credits if applicable, was $1 million.
(2) Certain amounts for the three months ended June 30. 2020 have been reclassified for consistency with the current quarter presentation. These reclassifications had no effect on the reported results of operations.

Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Income
For the Three Months Ended
(in millions of dollars) September 30, 2020 June 30, 2020
Net income $137 $144
Add:
Depreciation, amortization and accretion 17 17
Interest income (8) (7)
Interest expense 22 24
Cash distribution received from equity method investments 142 135
Less:
Equity method distributions included in other income 7 9
Income from equity method investments 109 109
Adjusted EBITDA 194 195
Less:
Adjusted EBITDA attributable to noncontrolling interests 3 3
Adjusted EBITDA attributable to the Partnership 191 192
Less:
Series A Preferred Units distribution 12 12
Net interest paid by the Partnership (1) 22 25
Maintenance capex attributable to the Partnership 10 5
Add:
Net adjustments from volume deficiency payments attributable to the Partnership 8 7
Principal and interest payments received on financing receivables 8 6
Cash available for distribution attributable to the Partnership's common unitholders $163 $163

(1) Amount represents both paid and accrued interest attributable to the period.

See "Non-GAAP Financial Measures" later in this press release.

Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Cash Provided by Operating Activities
For the Three Months Ended
(in millions of dollars) September 30, 2020 June 30, 2020
Net cash provided by operating activities $149 $192
Add:
Interest income (8) (7)
Interest expense 22 24
Return of investment 30 18
Less:
Change in deferred revenue and other unearned income 11 7
Change in other assets and liabilities (12) 25
Adjusted EBITDA 194 195
Less:
Adjusted EBITDA attributable to noncontrolling interests 3 3
Adjusted EBITDA attributable to the Partnership 191 192
Less:
Series A Preferred Units distribution 12 12
Net interest paid by the Partnership (1) 22 25
Maintenance capex attributable to the Partnership 10 5
Add:
Net adjustments from volume deficiency payments attributable to the Partnership 8 7
Principal and interest payments received on financing receivables 8 6
Cash available for distribution attributable to the Partnership's common unitholders $163 $163

(1) Amount represents both paid and accrued interest attributable to the period.

See "Non-GAAP Financial Measures" later in this press release.

Distribution Information
For the Three Months Ended
(in millions of dollars, except per-unit and ratio data) September 30, 2020 June 30, 2020
Quarterly distribution declared per common unit $0.4600 $0.4600
Adjusted EBITDA attributable to the Partnership (1) $191 $192
Cash available for distribution attributable to the Partnership's common unitholders (1) $163 $163
Distribution declared to limited partner units - common $161 $161
Coverage Ratio (2) 1.0 1.0

(1) Non-GAAP measures. See reconciliation tables earlier in this press release.
(2) Coverage ratio is equal to Cash available for distribution attributable to the Partnership divided by Total distribution declared.

Capital Expenditures and Investments
For the Three Months Ended
(in millions of dollars) September 30, 2020 June 30, 2020
Expansion capital expenditures $-- $1
Maintenance capital expenditures 8 1
Total capital expenditures paid $8 $2


Condensed Consolidated Balance Sheet Information
(in millions of dollars) September 30, 2020 June 30, 2020
Cash and cash equivalents $329 $332
Equity method investments 1,045 1,069
Property, plant & equipment, net 708 710
Total assets 2,394 2,416
Related party debt 2,692 2,692
Total deficit (414) (379)


Pipeline and Terminal Volumes and Revenue per Barrel
For the Three Months Ended
September 30, 2020 June 30, 2020
Pipeline throughput (thousands of barrels per day) (1)
Zydeco - Mainlines 524 533
Zydeco - Other segments 128 128
Zydeco total system 652 661
Amberjack total system 295 350
Mars total system 479 501
Bengal total system 468 430
Poseidon total system 274 253
Auger total system 55 58
Delta total system 151 214
Na Kika total system 25 54
Odyssey total system 85 114
Colonial total system 2,198 2,333
Explorer total system 463 443
Mattox total system (2)(3) 70 58
LOCAP total system 955 1,068
Other systems 399 417
Terminals (4)(5)
Lockport terminaling throughput and storage volumes 208 207
Revenue per barrel ($ per barrel)
Zydeco total system (6) $0.47 $0.48
Amberjack total system (6) 2.33 2.39
Mars total system (6) 1.17 1.36
Bengal total system (6) 0.43 0.38
Auger total system (6) 1.06 1.51
Delta total system (6) 0.58 0.60
Na Kika total system (6) 1.02 0.85
Odyssey total system (6) 0.92 0.89
Lockport total system (7) 0.25 0.25
Mattox total system (8) 1.52 1.52

(1) Pipeline throughput is defined as the volume of delivered barrels.
(2) The actual delivered barrels for Mattox are disclosed in the above table for the comparative periods. However, Mattox is billed by monthly minimum quantity per dedication and transportation agreements. Based on the contracted volume determined in the agreements, the thousands of barrels per day for Mattox are 168 for both the three months ended September 30, 2020 and June 30, 2020.
(3) In the second quarter of 2020, the volume we disclosed for Mattox for the three months ended June 30, 2020 erroneously included both the actual volume delivered and the contracted volume per dedication and transportation agreements. As such, we revised the pipeline throughput for Mattox for the three months ended June 30, 2020 in the above table to only include the actual volume delivered during the period.
(4) Terminaling throughput is defined as the volume of delivered barrels, and storage is defined as the volume of stored barrels.
(5) Refinery Gas Pipeline and our refined products terminals are not included above as they generate revenue under transportation and terminaling service agreements, respectively, that provide for guaranteed minimum revenue and /or throughput.
(6) Based on reported revenues from transportation and allowance oil divided by delivered barrels over the same time period. Actual tariffs charged are based on shipping points along the pipeline system, volume and length of contract.
(7) Based on reported revenues from transportation and storage divided by delivered and stored barrels over the same time period. Actual rates are based on contract volume and length.
(8) Mattox is billed at a fixed rate of $1.52 per barrel for the monthly minimum quantity in accordance with dedication and transportation agreements.


FORWARD LOOKING STATEMENTS

This press release includes various "forward-looking statements" within the meaning of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning management's expectations, beliefs, estimates, forecasts, projections and assumptions. You can identify our forward-looking statements by words such as "anticipate", "believe", "estimate", "budget", "continue", "potential", "guidance", "effort", "expect", "forecast", "goals", "objectives", "outlook", "intend", "plan", "predict", "project", "seek", "target", "begin", "could", "may", "should" or "would" or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in forward-looking statements. In particular, expressed or implied statements concerning future growth, future actions, the continued effects of the global COVID-19 pandemic on demand, the effects of the continued volatility of commodity prices and the related macroeconomic and political environment, future drop downs, volumes, capital requirements, conditions or events, future operating results or the ability to generate sales, the potential exposure of the Partnership to market risks, and statements relating to the expected amount of distributions, coverage ratios and expectations regarding not accessing the capital markets for debt or equity in the near-term are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Forward-looking statements speak only as of the date of this press release, October 30, 2020, and we disclaim any obligation to update publicly or to revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. All forward-looking statements contained in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this paragraph. Many of the factors that will determine these results are beyond our ability to control or predict. More information on these risks and other potential factors that could affect the Partnership's financial results is included in the Partnership's filings with the U.S. Securities and Exchange Commission, including in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Partnership's most recently filed periodic reports on Form 10-K and Form 10-Q and subsequent filings. If any of those risks occur, it could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement.

NON-GAAP FINANCIAL MEASURES

This press release includes the terms Adjusted EBITDA and cash available for distribution. We believe that the presentation of Adjusted EBITDA and cash available for distribution provides useful information to investors in assessing our financial condition and results of operations. Adjusted EBITDA and cash available for distribution are non-GAAP supplemental financial measures that management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

  • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
  • the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;
  • our ability to incur and service debt and fund capital expenditures; and
  • the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The GAAP measures most directly comparable to Adjusted EBITDA and cash available for distribution are net income and net cash provided by operating activities. These non-GAAP measures should not be considered as alternatives to GAAP net income or net cash provided by operating activities. Adjusted EBITDA and cash available for distribution 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 Adjusted EBITDA and cash available for distribution may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and cash available for distribution may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.

References in this press release to Adjusted EBITDA refer to net income before income taxes, interest expense, interest income, gain or loss from disposition of fixed assets, allowance oil reduction to net realizable value, loss from revision of asset retirement obligation, and depreciation, amortization and accretion, plus cash distributed to Shell Midstream Partners, L.P. from equity method investments for the applicable period, less equity method distributions included in other income and income from equity method investments. We define Adjusted EBITDA attributable to Shell Midstream Partners, L.P. as Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests and Adjusted EBITDA attributable to Parent. References to cash available for distribution refer to Adjusted EBITDA attributable to Shell Midstream Partners, L.P., less maintenance capital expenditures attributable to Shell Midstream Partners, L.P., net interest paid by the Partnership, cash reserves, income taxes paid and Series A Preferred Units distribution, plus net adjustments from volume deficiency payments attributable to Shell Midstream Partners, L.P., reimbursements from Parent included in partners' capital, principal and interest payments received on financing receivables, and certain one-time payments received. Cash available for distribution will not reflect changes in working capital balances. We define maintenance capital expenditures as cash expenditures, including expenditures for (a) the acquisition (through an asset acquisition, merger, stock acquisition, equity acquisition or other form of investment) by the Partnership or any of its subsidiaries of existing assets or assets under construction, (b) the construction or development of new capital assets by the Partnership or any of its subsidiaries, (c) the replacement, improvement or expansion of existing capital assets by the Partnership or any of its subsidiaries or (d) a capital contribution by the Partnership or any of its subsidiaries to a person that is not a subsidiary in which the Partnership or any of its subsidiaries has, or after such capital contribution will have, directly or indirectly, an equity interest, to fund the Partnership or such subsidiary's share of the cost of the acquisition, construction or development of new, or the replacement, improvement or expansion of existing, capital assets by such person, in each case if and to the extent such acquisition, construction, development, replacement, improvement or expansion is made to maintain, over the long-term, the operating capacity or operating income of the Partnership and its subsidiaries, in the case of clauses (a), (b) and (c), or such person, in the case of clause (d), as the operating capacity or operating income of the Partnership and its subsidiaries or such person, as the case may be, existed immediately prior to such acquisition, construction, development, replacement, improvement, expansion or capital contribution. For purposes of this definition, "long-term" generally refers to a period of not less than twelve months.

October 30, 2020

The information in this Report reflects the unaudited condensed consolidated financial position and results of Shell Midstream Partners, L.P.

Inquiries:
Shell Media Relations
Americas: +1 832 337 4355

Shell Investor Relations
North America: +1 832 337 2034

SHELL and the SHELL Pecten are registered trademarks of Shell Trademark Management, B.V. used under license.

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