Western Refining Logistics, LP (NYSE:WNRL)
Q4 2013 Results Earnings Conference Call
February 27, 2014 03:00 PM ET
Jeff Beyersdorfer - Treasurer and Director of Investor Relations
Jeff Stevens - President and CEO
Gary Dalke - Chief Financial Officer
Brian Zarahn - Barclays
Good afternoon and welcome to Fourth Quarter 2013 Western Refining Logistics Earnings Conference Call. After the speakers’ opening remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time. Thank you.
I would now like to turn the call over to Mr. Jeff Beyersdorfer, Treasurer and Director of Investor Relations. Mr. Beyersdorfer, please go ahead sir.
Thanks Lorie, and good afternoon. I’d like to thank you for joining us for the first earnings conference call for Western Refining Logistics. Again, my name is Jeff Beyersdorfer, the company’s Treasurer and Director of IR.
Joining me for today’s call are Jeff Stevens, President and CEO; Gary Dalke, CFO; Matt Yoder, Senior Vice President of Operations and other members of our senior management team.
As a reminder, today’s presentation will contain forward-looking statements for both WNRL and our sponsor, Western Refining. I refer you to the forward-looking statement section and recent filings with the SEC of both WNRL and WNR. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances.
I’ll now turn the call over to Jeff.
Thanks Jeff. And welcome to our initial earnings call for Western Refining Logistics. After my opening remarks, Gary will review our Q4 earnings in more detail, then we will open the call up for your questions.
The launch of WNRL, a traditional fee-based logistics business was successfully completed on October 16, 2013. Our MLP has significant built-in growth capacity directly linked to the Permian and San Juan crude oil production growth. The business is supported by long-term contracts with Western Refining which contains minimum volume commitments and fee escalators index to inflation. This asset base and these agreements will allow WNRL to generate consistent growing distributable cash flow.
One of WNRL’s key assets is the Delaware Basin crude oil system, which Western Refining built and put into operations in 2013 prior to forming WNRL. This system includes truck offloading stations, crude gathering lines and pipelines which provide sweet crude to Western’s El Paso refinery. This system was oversized when built and will provide WNRL with significant organic growth as the crude oil production in the Permian Basin continues to ramp up.
Our parent Western Refining has plans to expand its logistics business and will provide significant dropdown growth opportunities for WNRL. In addition, we planned to pursue third-party acquisitions. As a reminder WNRL retained $75 million in cash proceeds from the IPO to fund organic growth projects over the next few years.
Acquisition growth will be funded initially by our $300 million revolving credit facility which has a $200 million accordion feature. We believe the organic growth opportunities alone will provide more than 10% annual distribution growth through 2018. Our acquisitions will help to supplement and build on the organic growth.
The fourth quarter was a good start for WNRL and we look forward to building on the strong foundation as we capitalize on this unique opportunity.
Now I will turn the call over to Gary who will go through our fourth quarter financials in more detail.
Thank you, Jeff. I would like to point out that unless otherwise noted, the numbers discussed today will be for the 77 day period following the close of IPO on October 16th through December 31st. WNRL reported net income of $8.5 million or $0.19 per common limited partner unit. Total revenue was $26.6 million, total operating costs were $17.7 million, EBITDA was $11.6 million, cash interest paid was $190,000 and maintenance CapEx was $851,000.
Cash received from contract minimum shortfall payments is reflected in change in deferred revenue and was $2.6 million for the fourth quarter. These payments are not reflected in revenue or EBITDA but do contribute to cash available for distribution which totaled $13.1 million in Q4 which exceeds the $11.8 million prorated forecast from our prospectus filed with the SEC. On January 31, the Board of Directors declared WNRL’s first regular cash distribution of $24.07 per unit, this amount represents the prorated minimum quarterly distribution of $28.75 per unit or $1.15 per unit on an annualized basis.
The distribution was paid on February 24, and totaled approximately $11 million, resulting in a coverage ratio of approximately 1.2. We plan the target and annual coverage ratio of 1.1, however on a quarterly basis there will be small variations in coverage ratio. As of December 31, 2013, we had cash on the balance sheet of $84 million. As Jeff mentioned, this includes $75 million in cash proceeds from the IPO which was retained at WNRL to fund organic growth projects.
I will now turn the call back over to Jeff Stevens.
Thanks, Gary. We operated well in Q4, and we are looking forward to growing WNRL and creating value for our unitholders. I would like to close by thanking our team for all their hard work and the successful launch of WNRL.
Lorie, we will now open up the call for questions.
(Operator instructions) Your first question comes from the line of Gabe Moreen of Bank of America.
Hey, guys. This is actually [Brian Brezinski] on Gabe’s team. How are you?
Great Brian, how are you doing this afternoon?
Good, good. So, I just want to get into the main line movements on the Delaware Basin system at average 10,500 barrels a day, over time you are public in fourth quarter, a little bit below the MVC level and the forecast from the S1 and you addressed some of the reasons on the WNR call. But given it’s a new system, just wondering if you could go into a little bit of more detail on to how volumes ramped during the quarter, if possible can you tell us what the exit rate was at the end of the quarter? And do you have a feel for where throughput could be at the end of this quarter now that maintenance El Paso is ramping up?
Right. Yes, I would say currently we’re doing about 15,000 barrels a day via the pipe, so it’s moved up considerably. But like we talked about on the call today, we’ve got kind of two or three main problems that -- opportunities that we had out there is one is that everything is just backed up in all the Permian Basin, all of the pipeline, storage tanks everybody is full. And with El Paso’s turnaround, we actually had to turn away some crude into the system that we would have counted on as part of our growth.
Now that I El Paso is back up, we would expect that growth to continue to ramp up. In fact we’re expecting in March to see some of our largest receipts via pipe and via the truck rack. And we’re still on track for hitting volumes on the system between the truck rack and the pipe and everything closer to that 50,000 barrels that we’ve guided you, which is higher than our projections in the S1.
So it’s a combination of all of that. I will tell you that there is quite a bit of crude out there that’s come on that we don’t want that’s light crude. And so we’re kind of standing firm on making sure that we get the right crude for the refinery. But just based on talking to all the producers in the area and some of the different gathering lines we are negotiating right now, we still it as hitting our goal of ultimately 90,000 to a 100,000 barrels coming through this system and supporting the El Paso refinery.
Okay, that's great color. Thank you. I also noticed that volumes on the Four Corners mainline system might have also dropped off a little bit quarter-over-quarter. Can you talk to some of the factors for that and what do you expect from that system going forward?
Yes, that really was a weather issue. And we’re obviously trying to push, there is a lot of crude coming on line in the Four Corners. And we’ve been experimenting with some DRA and we’ve had better luck with that, when it’s not so cold but when it gets so cold with the DRA, its ability to allow those lines to run more fluid is impacted. But as the weather clears up, you’ll see those lines run. And I expect them to run at capacity, which is about 29,000 to 30,000 barrels a day.
And then the last one from me is during the WNR call this morning you mentioned that NTI has logistics assets with about $50 million, $60 million annual EBITDA. And I know you’re still going through those, but that they maybe drop down at WNRL at some point. It seems like the size will increase to the diary of assets that you outlined in the S1. Can you speak to whether you see those assets as increasing the growth outlook that you stated about 10% to 12% or do you see those as a way to sustain that rate beyond the 2018, ‘19 time period.
Yes, we really, we look at those as the same strategy that we’ve had with WNR assets, that will fill in the gaps. As we’ve said before, a lot of that growth is going to be lumpy and there will be strategic times to add those assets. And like I said, it just gives us, as you point out it gives us tremendous flexibility and really gives a sizable increase to our potential portfolio of assets that that will make sense for WNRL. And the other thing I didn’t really mentioned on the call this morning was and I want to make sure that I emphasize this. NTI has quite a few organic, potential organic growth projects that we’ll be taking to look at both in the Bakken and in Minnesota. So I don’t want people to think that there is kind of a fixed number of 50 to 60. That’s just with the assets that are currently running today. But as we get more familiar with where the build outs need to be we’ll start laying that out for you guys. But there is going to be a significant potential organic growth and potential build outs related to their asset base.
Okay. Thank you very much. I appreciate it.
Your next question comes from the line of Brian Zarahn of Barclays.
Brian Zarahn - Barclays
Good afternoon Brian.
Brian Zarahn - Barclays
Can you provide us update on the tax index line and the connection to Delaware Basin system?
Sure. That line we completed all the hydro testing and the repairs were made relative to the hydro testing. And we’ve pretty well completed the engineering in reversing the line and figuring out how we’re going to approach it. So we’re moving forward quickly on that project. We think that it will be operational in the Q4 of this year. And frankly we’re trying to push it along as fast as we can because the crude production is moving up faster in the four corners than first bought and product now actually having to be trucked out of the basin just because our rail facility and our ability to consume at the Gallup has reached kind of its maximum level.
So we are anxious to get it started and get it in service. The additional 70 mile build out is taking place now, we’ve ordered the pipe, secured the right away and we are moving along as fast as we can on that but that probably won’t be complete until early in Q1 of 2015.
Brian Zarahn - Barclays
Okay. And then it sounds like you are on track for both those lines to be nice potential drop downs for western for the MLP. How should we think about drop down for 2014, do you see that as something that could happened or could be later in ‘15 due to the organic spending you have?
No I think it’s fair that we’ll look at one of the existing drop downs that we identified and that’s one here in sometime in the later part of the third quarter or early fourth quarter in ‘14. I think we’ll be ready and be in a position to do that. And then as the tax index comes on depending on the volumes and how we want to look at that we’ll have a lot of options whether we do just interest in it or whether we’ll drop the whole thing down. And we’ll have a better feel towards the end of the year what the crude profile looks like in the four corners and kind of where they are relative to the ramp up and need to push barrels on that line.
Brian Zarahn - Barclays
Thanks for the color.
(Operator Instructions). At this time, there are no further questions. I would now like to return the call to Mr. Jeff Steven.
Thanks, Laurie. And thank you for your participation in today’s call and your interest in Western Refining Logistics. We look forward to talking to you on our first quarter 2014 call. Thank you.
Thank you. That concludes today’s fourth quarter 2013 Western Refining Logistics earnings conference. You may now disconnect your lines at this time. And have a wonderful day.
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