Western Refining Logistics' (WNRL) CEO Jeff Stevens On Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: Western Refining (WNRL)

Western Refining Logistics LP (NYSE:WNRL)

Q2 2014 Earnings Conference Call

August 5, 2014 4:00 PM ET

Executives

Michelle Clemente – Manager, IR

Jeff Stevens – President and CEO

Gary Dalke – CFO

Analysts

Steve Sherowski – Goldman Sachs

Bhavesh Lodaya – Credit Suisse

Operator

Good afternoon ladies and gentlemen, and welcome to the Western Refining Logistics Second Quarter Earnings Conference Call. (Operator instructions)

I will now like to turn the conference over to your host, Ms. Michelle Clemente, Manager of Investor Relations for Western Refining Logistics.

Michelle Clemente

Thank you, Shannon. Good afternoon, I would like to thank you for joining us for the earnings conference call for Western Refining Logistics. My name is Michelle Clemente, and I’m the Manager of Investor Relations. Joining me for today’s call, are Jeff Stevens, our President and CEO, Gary Dalke, our CFO, Matt Yoder, our Senior Vice-President of Operation and other members of our senior management team.

As a reminder, today’s presentation will contain forward-looking statement 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 change events or circumstances. I’ll now turn the call over to Jeff.

Jeff Stevens

Thanks, Michelle. Welcome to our Western Refining Logistics earning call. After my opening remarks, Gary will review our Q2 earnings in more detail, then we will open up the call for your questions.

We are pleased with our performance of WNRL in Q2. We had a strong quarter with our assets operating at plan. As you know Delaware basin crude oil production is growing very quickly. As expected, volumes on our Delaware basin system grew significantly in Q2, and our total mainline pipeline movements and truck gathering volumes in the Permian averaged more than 50,000 barrels per day. That compares to 37,000 barrels per day in Q1.

In July, we averaged approximately 55,000 barrels per day on the system which is above the minimum volume commitment. We’re able to achieve this growth despite significant pipeline congestion and relatively high crude inventories in the area.

We continue to invest in organic growth projects. During the quarter, we added storage capacity and truck offloading lanes in our Four Corners crude gathering system. We also are investing in other projects that will begin operations later in 2014, including additional storage capacity in the Four Corners and at Mason Station, and new gathering lines in our Delaware basin system.

The company currently has approximately $79 million in cash which will – primarily will be used to fund growth projects and acquisitions over the next few years. In addition, we have an undrawn $300 million revolving credit facility which can be used to fund acquisitions.

Wrapping up, the second quarter was a good one for us. We believe the location and the quality of our asset base along with our support of Western Refining as our sponsor positions us well for the future.

Now, I will turn the call over to Gary who will go through our second quarter financials in more detail.

Gary Dalke

Thank you, Jeff. The company reported net income of $11 million or $0.24 per Common Limited Partner Unit. We generated $14.4 million in cash available for distribution in the quarter which was in line with our Q2 forecast from [RS-1](ph).

Total revenue was $35 million, total operating cost were $23.6 million, EBITDA was $14.9 million, cash interest paid was $228,000 and maintenance CapEx was $932,000. Cash received from contract minimum shortfall payments is reflected in change and deferred revenue, and was $637,000 for the second quarter.

These payments are not reflected in revenue or EBITDA, but do contribute to cash available for distribution. Shortfall payments in Q2 declined as a result of the volume growth quarter-over-quarter.

On August 1, our Board of Directors declared a regular cash distribution for Q2 of $0.3075 per unit or a $1.23 per unit on an annualized basis. This distribution represents a 3% increase over the Q1 distribution and a 7% above our minimum quarterly distribution.

The Q2 distribution will be paid on August 25, and it totals approximately $14 million. As of June 30, we had cash on hand of $79.4 million. I’ll now turn the call back over to Jeff Stevens.

Jeff Stevens

Thanks Gary. WNRL delivered another strong quarter in Q2. And with the strategic location of our assets and their proximity and connection to the Permian and San Juan basin, we are well position to grow the company and create value for our unit holders.

I’d like to thank by thanking our team for all their hard work. Shannon, we’re now ready for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Stevens. (Operator instructions)

Our first question is from Steve Sherowski of Goldman Sachs. You may begin.

Steve Sherowski – Goldman Sachs

Hi, good afternoon. First, on the Delaware basin, gathering volumes – I mean, I recognize that you guys increased volumes by roughly 10,000 barrels a day over sequential quarters. But I’m just trying to get a better understanding of what are the limitations that behind driving – that’s preventing you from driving or increasing growth even more than that 10,000 barrels a day? I think at the beginning of the call you mentioned that there’s pipeline congestion and also there is a high crude oil inventories in the region. Would you just mind describing that a little bit more?

Jeff Stevens

Sure, Steve. As we bring on new volume into Delaware, we’re having to shed volume that we have had obligations to buy from the midland market over the last several months. And so, we’re estimating the growth, at the same time making sure that we have enough crude for El Paso to run.

So it’s just the flexibility to sell a barrel in midland is just not as easy as it normally is because everybody is really full. So we have some additional volumes from existing producers in the Delaware basin that are ready to bring those volumes on, and we’re probably bringing those on a little slower because we’re trying to exit our other contracts and manage the growth, but we still are very confident in the numbers that we supplied as far as our volume hits.

We believe that the Delaware basin will be up to approximately 100,000 barrels by mid 2015, and we certainly think that’s a goal that we can hit, but we are somewhat particular at WNR about the quality of the crude, and we’re making sure that it’s crude that fits within the refinery, but just with the production growth in talking to the producers plus the TexNew Mex line will be bringing crude in to that system, we said on our call this morning, early in Q1 of 2015. We’re certainly confident that we’ll be able to meet our targets and have that system fully utilized or close to capacity by the middle of 2015.

Steve Sherowski – Goldman Sachs

Got you. Thanks. And that 100,000 barrels a day that you referenced, does that include TexNew Mex pipeline volumes or truck gathering volumes within the Delaware basin?

Jeff Stevens

No, that volume would include the TexNew Mex. That’s a crude that we’ll want to run at El Paso. So we gave some guidance this morning that that volume will probably start off at 10,000 to 15,000 barrels per day, and like we said, we believe that oil will be flowing early in Q1 of 2015.

Steve Sherowski – Goldman Sachs

Got you. Okay. So that you expect the – just to be clear, you expect the Delaware basin pipeline volumes to be in like 85,000 barrel a day range by this time next year?

Jeff Stevens

Yes. That’s – I think that’s probably a good estimate.

Steve Sherowski – Goldman Sachs

Okay. That’s it for me. Thank you.

Jeff Stevens

Thanks, Steve.

Operator

Thank you. (Operator instructions)

I’m showing no further questions at this time, I will now like to turn the conference back to Mr. Jeff Stevens.

Jeff Stevens

Thanks, Shannon. Shannon, could you just check and make sure there isn’t a question on –

Operator

Sure. (Operator instructions)

I’m showing we have a question from Bhavesh Lodaya of Credit Suisse. You may begin.

Bhavesh Lodaya – Credit Suisse

Hi. Thanks for taking my question guys.

Jeff Stevens

Not a problem.

Bhavesh Lodaya – Credit Suisse

So I just wanted to ask on the operating expense, it seems expenses trending higher than expected, could you probably just dwell into evaluate [ph] into like what is driving the expense and how we should think about it going ahead?

Jeff Stevens

Sure. I think Gary can update you on that.

Gary Dalke

Sure. If you look at second quarter, operating and maintenance expenses versus the first quarter, we’re up about $1.8 million. There’s a few drivers to that. But one of the large ones is repair and maintenance relating to some tech maintenance and also some line testing on a crude oil pipeline in the Four Corners. That’s not going to be a recurring item, but will happen periodically.

That amounted to about $900,000 of the increase. We had some additional drag reducing agents about 300,000 higher in Q2 versus Q1, that won’t always be there. Additives were up about $300,000 quarter-over-quarter, but they also show up in revenues because additives are used in the blending process and pass through it cost.

So although you see an uptick in operating costs because of that, you also will have an uptick in revenue so they offset each other zero EBITDA impact. Those are the primary drivers to the increases.

Bhavesh Lodaya – Credit Suisse

Yes. So it looks like – lot of like one-time items in that –

Gary Dalke

Well, on the line testing, we’ll have it periodically. But that’s not every quarter event, maybe once a year.

Bhavesh Lodaya – Credit Suisse

Okay. Yes. That was it for me. Thank you so much.

Operator

Thank you. And we’re showing no further questions at this time, I will like to turn the conference back to Mr. Jeff Stevens.

Jeff Stevens

Thanks, Shannon. And thank you for your participation in today’s call and your interest in Western Refining Logistics.

Operator

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation. And have a wonderful day. You may now disconnect.

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Western Refining (NYSE:WNRL): Q2 EPS of $0.24 misses by $0.05. Revenue of $34.98M beats by $1.36M.