Valero Energy Partners LP (VLP) Q2 2014 Earnings Conference Call August 11, 2014 3:00 PM ET
Executives
John Locke - Executive Director, IR
Joe Gorder - Chairman and CEO
Rich Lashway - President and COO
Donna Titzman - CFO and Treasurer
Analysts
Brian Zarahn - Barclays
Operator
Welcome to the Valero Energy Partners Reports Second Quarter 2014 Earnings Results Conference Call. My name is Christine, and I will be the operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.
I will now turn the call over to Mr. John Locke, Executive Director of Investor Relations. Sir, you may begin.
John Locke
Thank you, Christine. And Good afternoon and welcome to Valero Energy Partners’ earnings conference call for the second quarter of 2014. We thank you for joining us and appreciate your interest in the partnership. With me today are, Joe Gorder our Chairman and CEO; Rich Lashway, our President and COO; Donna Titzman, our CFO and Treasurer; Jay Browning our General Counsel and several members of the Partnership’s senior management team.
If you have not received the earnings release and would like a copy, you can find one on our website at valeroenergypartners.com. Also attached to the earnings release are tables that provide additional financial information on our business and reconciliations for non-GAAP financial measures. If you have any questions after reviewing these tables, please feel free to contact our Investor Relations team after the call.
Now I would like to direct your attention to the forward-looking statement disclaimer contained in the press release. In summary, it says that statements in the press release and on this conference call that state the Partnership’s or management's expectations or predictions of the future are forward-looking statements intended to be covered by the Safe Harbor provisions under federal securities laws. There are many factors that could cause actual results to differ from our expectations, including those we've described in our filings with the SEC.
Now I’ll turn the call over to Rich.
Rich Lashway
Thanks John and good afternoon everyone. Since we last spoke with you in May for our first quarter 2014 earnings call we’ve had a couple of milestone developments in the Partnership’s growth story. We completed our first acquisition from Valero Energy Corporation on July 1st. And in mid July we increased our second quarter cash distribution by nearly 5% to $0.2225 per unit. Regarding our first acquisition these assets were selected using the same criteria as that of our initial portfolio, they’re high quality reliable and highly integrated with Valero’s refineries, The McKee Crude System, Three Rivers Crude System, and the Wynnewood Products System add to the Partnership’s U.S. Gulf Coast portfolio and expand our reach into the Mid-Continent. These assets should generate about $15.4 million of annual EBITDA. As a reminder, a reconciliation of the EBITDA to estimated net income can be found on our website in the press release announcing the acquisition.
Our sponsor Valero Energy Corporation continues to demonstrate its commitment to investing in logistics assets by allocating 54% or $870 million of its 2014 strategic capital spending on logistics projects. This commitment to logistics investments provides clear visibility to the partnership’s primary acquisition opportunities.
Now, I would like to turn the call over to Donna who will discuss our second quarter 2014 results.
Donna Titzman
Thank you, Rich. As noted in the release, we had operating revenues of $23.7 million for the quarter which is $800,000 higher than the second quarter of 2013. The increase is primarily due to higher throughput volumes in the Port Arthur Logistics System, partly offset by lower throughput volumes in the Memphis Logistics System.
Actual pipeline throughput volume in the second quarter was 622,000 barrels per day and total terminal throughput volume was 499,000 barrels per day. Higher throughput volumes in the Port Arthur Logistics System were mainly attributed to increased crude oil demand at Valero’s Port Arthur refinery. Throughput volumes in the Memphis Logistics System were negatively impacted by maintenance and repairs of Valero’s Memphis refinery and lower jet fuel demand at the Memphis Airport.
Also for the second quarter of 2014, EBITDA was $15.6 million and distributable cash flow was $15.7 million. The total cash distribution declared was $13.1 million, resulting in a coverage ratio of 1.2 times. As a reminder, our target coverage is 1.1 times, but actual coverage will vary over time. Total capital expenditures for the second quarter of 2014 were $2.4 million consisting of $1 million of maintenance and $1.4 million of expansion spending.
Turing to the balance sheet, at the end June, we had $382 million of cash and cash equivalents on hand and we had zero debt aside from $3.4 million of capital leases. Our $300 million revolvers remain available and undrawn. So in total, we had over $682 million of available liquidity at the end of June.
As Rich mentioned earlier, we closed and funded our acquisition on July 1, which utilized 154 million of cash on hand. Additionally, on July 15, the Board of Directors of Valero Energy Partners GP LLC, our general partner, approved an increase in our cash distribution to $0.2225 per unit for the second quarter or $0.89 per unit annualized, which is payable on August 13th to unitholders of record as of August 1. Overall, our performance in the second quarter enabled us to increase our cash distribution and we continue to execute our growth strategy.
Operator, we have concluded our opening remarks. We will now open the call to questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Brian Zarahn from Barclays. Please go ahead.
Brian Zarahn - Barclays
Good afternoon.
Joe Gorder
Hey, Brian. I guess looking at the current quarter, in the third quarter, are you seeing continued strength in Port Arthur volumes and any change on Memphis?
Unidentified Company Representative
I think we’re expecting to still have strong volumes at Lucas, and Memphis has been running very well. And we expect to kind of have a similar third quarter to the second quarter.
Brian Zarahn - Barclays
And then on the recent dropdown, is there any upside potential to your forecast or any other additional color you’d like to provide?
Joe Gorder
If you saw the 8-K, you could have seen in there that we do have a growth project associated with the Three Rivers dropdown and that is on track. And we would expect that by the end of September that we would have completed and we’ll probably provide a little bit more color on that organic growth project associated with that drop.
Brian Zarahn - Barclays
That’s included in your guidance, though, the contribution from the growth project?
John Locke
No, it's -- sorry, this is John. Rich was talking about the project existing, but the [NBTs] and everything that were in the drops, this project is not in there.
Brian Zarahn - Barclays
Okay.
Rich Lashway
That would be in growth projects associated with the recently dropped down.
Brian Zarahn - Barclays
Okay. And just curious on your view of condensate exports, any implications for the MLP?
Rich Lashway
Sure. I can, this is Rich again. I’ll try to answer that. So, you remember that the LP’s revenues are protected by our minimum volume commitment and Ardmore and McKee and Memphis refineries are inland refineries, serving niche market. So there is really not any exposure there. The Three Rivers assets that we just recently acquired is a Crude system, so there is no product exposure there. The Port Arthur refinery though would be the only refinery that might have some exposure to Valero product exports, but on the positive side here one of the assets that we dropped down on pipeline, delivers [jet dual SK4] for export, so there would be positive impact to the degree that you had [jet dual SK] exports, those products would move through our system, the negative exposure would be in our products exports can vary by months to months depending on when the (inaudible) open and when it's closed, we have deficit quarterly deficiency arrangements here.
So, that's kind of what would absorb some of that volatility. But we had no deficiency charges for the second quarter as a result of product exports.
Brian Zarahn - Barclays
Okay. Appreciate the color. And..
Joe Gorder
And then the years we don't see this as a negative, we're not building -- interested in building condensate splitters, we are not currently exporting processed condensate through our assets, but it's an opportunity that we're evaluating and our sponsor is investing in logistics, tanks, and docks to export light crude at Corpus Christi for processing in its refineries. But these assets maybe a future VLP organic expansion project in the future.
Brian Zarahn - Barclays
I'll stay tuned on that. And it's a final one from me. Any update on the proposed Diamond pipeline project?
Joe Gorder
On the Diamond pipeline, that's not a finalized project yet, we've been looking at routes, and we've done some preliminary survey work, but we're always looking at opportunities to improve Valero's refineries crude supply.
Operator
Thank you.
Joe Gorder
Are you good, Brian?
Brian Zarahn - Barclays
I am good. Thank you very much.
Joe Gorder
Okay.
Operator
Thank you. (Operator Instructions).
Joe Gorder
All right, well Christine, I think silence means they are out of questions, so I want thank everybody for calling in and those listening to our call today. If you have any questions, please contact our Investor Relations team and we’ll be happy to discuss further with you. Thank you.
Operator
Thank you. And thank you ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.
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