Item 1. FINANCIAL STATEMENTS (UNAUDITED)
BP MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
|
|
(in thousands of dollars)
|
|
ASSETS
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
92,405
|
|
|
$
|
56,970
|
|
|
Accounts receivable – third parties
|
|
491
|
|
|
325
|
|
|
Accounts receivable – related parties
|
|
10,843
|
|
|
9,769
|
|
|
Prepaid expenses
|
|
103
|
|
|
4,667
|
|
|
Other current assets
|
|
3,207
|
|
|
629
|
|
|
Total current assets
|
|
107,049
|
|
|
72,360
|
|
|
Equity method investments (Note 4)
|
|
537,575
|
|
|
549,039
|
|
|
Property, plant and equipment, net (Note 5)
|
|
64,866
|
|
|
68,580
|
|
|
Other assets
|
|
3,621
|
|
|
3,224
|
|
|
Total assets
|
|
$
|
713,111
|
|
|
$
|
693,203
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
Current liabilities
|
|
|
|
|
|
|
|
Accounts payable – third parties
|
|
$
|
556
|
|
|
$
|
607
|
|
|
Accounts payable – related parties
|
|
1,696
|
|
|
2,553
|
|
|
Deferred revenue and credits
|
|
3,026
|
|
|
1,067
|
|
|
Other current liabilities (Note 6)
|
|
6,747
|
|
|
6,900
|
|
|
Total current liabilities
|
|
12,025
|
|
|
11,127
|
|
|
Long-term debt (Note 7)
|
|
468,000
|
|
|
468,000
|
|
|
Other liabilities
|
|
3,567
|
|
|
3,224
|
|
|
Total liabilities
|
|
483,592
|
|
|
482,351
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
Common unitholders – public (2019 – 47,806,563 issued and outstanding; 2018 – 47,802,826 units issued and outstanding)
|
|
846,386
|
|
|
836,789
|
|
|
Common unitholders – BP Holdco (2019 and 2018 – 4,581,177 units issued and outstanding)
|
|
(60,781
|
)
|
|
(61,684
|
)
|
|
Subordinated unitholders – BP Holdco (2019 and 2018 – 52,375,535 units issued and outstanding)
|
|
(694,904
|
)
|
|
(705,227
|
)
|
|
General partner
|
|
743
|
|
|
—
|
|
|
Total partners' capital
|
|
91,444
|
|
|
69,878
|
|
|
Non-controlling interests
|
|
138,075
|
|
|
140,974
|
|
|
Total equity
|
|
229,519
|
|
|
210,852
|
|
|
Total liabilities and equity
|
|
$
|
713,111
|
|
|
$
|
693,203
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BP MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
(in thousands of dollars, unless otherwise indicated)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
Third parties
|
|
$
|
725
|
|
|
$
|
508
|
|
|
$
|
2,238
|
|
|
$
|
2,072
|
|
|
Related parties
|
|
33,836
|
|
|
31,566
|
|
|
91,164
|
|
|
85,556
|
|
|
Total revenue
|
|
34,561
|
|
|
32,074
|
|
|
93,402
|
|
|
87,628
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
Operating expenses – third parties
|
|
3,907
|
|
|
2,877
|
|
|
10,615
|
|
|
8,513
|
|
|
Operating expenses – related parties
|
|
1,423
|
|
|
1,506
|
|
|
4,317
|
|
|
3,494
|
|
|
Maintenance expenses – third parties
|
|
303
|
|
|
640
|
|
|
1,186
|
|
|
1,523
|
|
|
Maintenance expenses – related parties
|
|
66
|
|
|
31
|
|
|
139
|
|
|
75
|
|
|
General and administrative – third parties
|
|
529
|
|
|
1,596
|
|
|
1,959
|
|
|
2,799
|
|
|
General and administrative – related parties
|
|
3,476
|
|
|
3,691
|
|
|
10,597
|
|
|
10,556
|
|
|
Lease expense
|
|
17
|
|
|
15
|
|
|
53
|
|
|
45
|
|
|
Depreciation
|
|
656
|
|
|
663
|
|
|
1,970
|
|
|
1,987
|
|
|
Impairment and other, net
|
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
Property and other taxes
|
|
111
|
|
|
165
|
|
|
361
|
|
|
388
|
|
|
Total costs and expenses
|
|
10,488
|
|
|
11,184
|
|
|
32,197
|
|
|
29,380
|
|
|
Operating income
|
|
24,073
|
|
|
20,890
|
|
|
61,205
|
|
|
58,248
|
|
|
Income from equity method investments
|
|
30,104
|
|
|
22,581
|
|
|
83,312
|
|
|
66,262
|
|
|
Interest expense (income), net
|
|
3,784
|
|
|
(20
|
)
|
|
11,310
|
|
|
119
|
|
|
Income before income taxes
|
|
50,393
|
|
|
43,491
|
|
|
133,207
|
|
|
124,391
|
|
|
Income tax expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income
|
|
50,393
|
|
|
43,491
|
|
|
133,207
|
|
|
124,391
|
|
|
Less: Net income attributable to non-controlling interests
|
|
4,639
|
|
|
8,272
|
|
|
12,969
|
|
|
28,163
|
|
|
Net income attributable to the Partnership
|
|
$
|
45,754
|
|
|
$
|
35,219
|
|
|
$
|
120,238
|
|
|
$
|
96,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to the Partnership per limited partner unit – basic and diluted (in dollars):
|
|
|
|
|
|
|
|
|
|
|
Common units
|
|
$
|
0.43
|
|
|
$
|
0.34
|
|
|
$
|
1.13
|
|
|
$
|
0.92
|
|
|
Subordinated units
|
|
$
|
0.43
|
|
|
$
|
0.34
|
|
|
$
|
1.13
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of limited partner units outstanding - basic and diluted (in millions):
|
|
|
|
|
|
|
|
|
|
|
Common units – public
|
|
47.8
|
|
|
47.8
|
|
|
47.8
|
|
|
47.8
|
|
|
Common units – BP Holdco
|
|
4.6
|
|
|
4.6
|
|
|
4.6
|
|
|
4.6
|
|
|
Subordinated units – BP Holdco
|
|
52.4
|
|
|
52.4
|
|
|
52.4
|
|
|
52.4
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BP MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Month Period Ended September 30, 2019
|
|
|
|
Partners' Capital
|
|
|
|
|
|
(in thousands of dollars)
|
Common Unitholders – Public
|
|
Common Unitholders – BP Holdco
|
|
Subordinated Unitholders – BP Holdco
|
|
General Partner
|
|
Non-controlling Interests
|
|
Total
|
|
Balance at December 31, 2018
|
$
|
836,789
|
|
|
$
|
(61,684
|
)
|
|
$
|
(705,227
|
)
|
|
$
|
—
|
|
|
$
|
140,974
|
|
|
$
|
210,852
|
|
|
|
Net income
|
16,863
|
|
|
1,616
|
|
|
18,476
|
|
|
198
|
|
|
3,466
|
|
|
40,619
|
|
|
|
Distributions to unitholders ($0.3015 per unit) and general partner
|
(14,413
|
)
|
|
(1,382
|
)
|
|
(15,791
|
)
|
|
—
|
|
|
—
|
|
|
(31,586
|
)
|
|
|
Unit-based compensation
|
40
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,569
|
)
|
|
(4,569
|
)
|
|
Balance at March 31, 2019
|
839,279
|
|
|
(61,450
|
)
|
|
(702,542
|
)
|
|
198
|
|
|
139,871
|
|
|
215,356
|
|
|
|
Net income
|
16,851
|
|
|
1,615
|
|
|
18,462
|
|
|
403
|
|
|
4,864
|
|
|
42,195
|
|
|
|
Distributions to unitholders ($0.3126 per unit) and general partner
|
(14,944
|
)
|
|
(1,431
|
)
|
|
(16,373
|
)
|
|
(198
|
)
|
|
—
|
|
|
(32,946
|
)
|
|
|
Unit-based compensation
|
71
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,032
|
)
|
|
(6,032
|
)
|
|
Balance at June 30, 2019
|
841,257
|
|
|
(61,266
|
)
|
|
(700,453
|
)
|
|
403
|
|
|
138,703
|
|
|
218,644
|
|
|
|
Net income
|
20,540
|
|
|
1,968
|
|
|
22,503
|
|
|
743
|
|
|
4,639
|
|
|
50,393
|
|
|
|
Distributions to unitholders ($0.3237 per unit) and general partner
|
(15,475
|
)
|
|
(1,483
|
)
|
|
(16,954
|
)
|
|
(403
|
)
|
|
—
|
|
|
(34,315
|
)
|
|
|
Unit-based compensation
|
64
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,267
|
)
|
|
(5,267
|
)
|
|
Balance at September 30, 2019
|
$
|
846,386
|
|
|
$
|
(60,781
|
)
|
|
$
|
(694,904
|
)
|
|
$
|
743
|
|
|
$
|
138,075
|
|
|
$
|
229,519
|
|
(continued)
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BP MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Month Period Ended September 30, 2018
|
|
|
|
Partners' Capital
|
|
|
|
|
|
(in thousands of dollars)
|
Common Unitholders – Public
|
|
Common Unitholders – BP Holdco
|
|
Subordinated Unitholders – BP Holdco
|
|
General Partner
|
|
Non-controlling Interests
|
|
Total
|
|
Balance at December 31, 2017
|
$
|
824,613
|
|
|
$
|
(47,141
|
)
|
|
$
|
(538,947
|
)
|
|
$
|
—
|
|
|
$
|
342,330
|
|
|
$
|
580,855
|
|
|
|
Cumulative effect of accounting change (Note 4)
|
(1,253
|
)
|
|
(120
|
)
|
|
(1,373
|
)
|
|
—
|
|
|
—
|
|
|
(2,746
|
)
|
|
|
Net income
|
13,934
|
|
|
1,336
|
|
|
15,269
|
|
|
—
|
|
|
10,169
|
|
|
40,708
|
|
|
|
Distributions to unitholders ($0.1798 per unit) and general partner
|
(8,592
|
)
|
|
(823
|
)
|
|
(9,415
|
)
|
|
—
|
|
|
—
|
|
|
(18,830
|
)
|
|
|
Unit-based compensation
|
39
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,026
|
)
|
|
(15,026
|
)
|
|
Balance at March 31, 2018
|
828,741
|
|
|
(46,748
|
)
|
|
(534,466
|
)
|
|
—
|
|
|
337,473
|
|
|
585,000
|
|
|
|
Net income
|
13,902
|
|
|
1,333
|
|
|
15,235
|
|
|
—
|
|
|
9,722
|
|
|
40,192
|
|
|
|
Distributions to unitholders ($0.2675 per unit) and general partner
|
(12,785
|
)
|
|
(1,225
|
)
|
|
(14,011
|
)
|
|
—
|
|
|
—
|
|
|
(28,021
|
)
|
|
|
Unit-based compensation
|
45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(13,708
|
)
|
|
(13,708
|
)
|
|
Balance at June 30, 2018
|
829,903
|
|
|
(46,640
|
)
|
|
(533,242
|
)
|
|
—
|
|
|
333,487
|
|
|
583,508
|
|
|
|
Net income
|
16,070
|
|
|
1,539
|
|
|
17,610
|
|
|
—
|
|
|
8,272
|
|
|
43,491
|
|
|
|
Distributions to unitholders ($0.2725 per unit) and general partner
|
(13,023
|
)
|
|
(1,249
|
)
|
|
(14,271
|
)
|
|
—
|
|
|
—
|
|
|
(28,543
|
)
|
|
|
Unit-based compensation
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
|
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,719
|
)
|
|
(11,719
|
)
|
|
Balance at September 30, 2018
|
$
|
833,006
|
|
|
$
|
(46,350
|
)
|
|
$
|
(529,903
|
)
|
|
$
|
—
|
|
|
$
|
330,040
|
|
|
$
|
586,793
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BP MIDSTREAM PARTNERS LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
2018
|
|
|
|
(in thousands of dollars)
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income
|
|
$
|
133,207
|
|
|
$
|
124,391
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
Depreciation
|
|
1,970
|
|
|
1,987
|
|
|
Impairment and other, net
|
|
1,000
|
|
|
—
|
|
|
Non-cash expenses
|
|
212
|
|
|
140
|
|
|
Income from equity method investments
|
|
(83,312
|
)
|
|
(66,262
|
)
|
|
Distributions of earnings received from equity method investments
|
|
86,481
|
|
|
71,314
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
Accounts receivable – third parties
|
|
(166
|
)
|
|
62
|
|
|
Accounts receivable – related parties
|
|
(1,074
|
)
|
|
(380
|
)
|
|
Prepaid expenses and other current assets
|
|
4,546
|
|
|
(23
|
)
|
|
Accounts payable – third parties
|
|
(809
|
)
|
|
494
|
|
|
Accounts payable – related parties
|
|
(1,071
|
)
|
|
327
|
|
|
Deferred revenue and credits
|
|
1,959
|
|
|
729
|
|
|
Other current liabilities
|
|
(713
|
)
|
|
707
|
|
|
Net cash provided by operating activities
|
|
142,230
|
|
|
133,486
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(375
|
)
|
|
(1,341
|
)
|
|
Distributions in excess of earnings from equity method investments
|
|
8,295
|
|
|
15,362
|
|
|
Net cash provided by investing activities
|
|
7,920
|
|
|
14,021
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Repayment of debt
|
|
—
|
|
|
(15,000
|
)
|
|
Distributions to unitholders and general partner
|
|
(98,847
|
)
|
|
(75,394
|
)
|
|
Distributions to non-controlling interests
|
|
(15,868
|
)
|
|
(40,453
|
)
|
|
Net cash used in financing activities
|
|
(114,715
|
)
|
|
(130,847
|
)
|
|
Net change in cash and cash equivalents
|
|
35,435
|
|
|
16,660
|
|
|
Cash and cash equivalents at beginning of the period
|
|
56,970
|
|
|
32,694
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
92,405
|
|
|
$
|
49,354
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
12,331
|
|
|
$
|
581
|
|
|
Cash paid for lease liabilities
|
|
47
|
|
|
—
|
|
|
Non-cash investing transactions
|
|
|
|
|
|
Accrued capital expenditures
|
|
346
|
|
|
169
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
1. Business and Basis of Presentation
BP Midstream Partners LP (either individually or together with its subsidiaries, as the context requires, the “Partnership”) is a Delaware limited partnership formed on May 22, 2017 by BP Pipelines (North America) Inc. (“BP Pipelines”), an indirect wholly owned subsidiary of BP p.l.c. (“BP”), a “foreign private issuer” within the meaning of the Securities Exchange Act of 1934, as amended.
Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” or similar expressions for time periods refer to BP Midstream Partners LP. The term “our Parent” refers to BP Pipelines; any entity that wholly owns BP Pipelines, indirectly or directly, including BP and BP America Inc. (“BPA”), an indirect wholly owned subsidiary of BP; and any entity that is wholly owned by the aforementioned entities, excluding BP Midstream Partners LP.
Business
We are a fee-based, growth-oriented master limited partnership formed by BP Pipelines to own, operate, develop and acquire pipelines and other midstream assets. Our assets consist of interests in entities that own crude oil, natural gas, refined products and diluent pipelines serving as key infrastructure for BP and other customers to transport onshore crude oil production to BP’s refinery in Whiting, Indiana (the “Whiting Refinery”) and offshore crude oil and natural gas production to key refining markets and trading and distribution hubs. Certain of our assets deliver refined products and diluent from the Whiting Refinery and other U.S. supply hubs to major demand centers.
Acquisition of Equity Interests
On October 1, 2018, pursuant to the Interest Purchase Agreement (the “Interest Purchase Agreement”) that we entered into with BP Products North America Inc. (“BP Products”), BP Offshore Pipelines Company LLC (“BP Offshore”), and BP Pipelines, we completed the acquisition of (i) an additional 45% interest in Mardi Gras Transportation System Company, LLC ("Mardi Gras"), from BP Pipelines, (ii) a 25% interest in KM Phoenix Holdings LLC, ("KM Phoenix") a Delaware limited liability company, from BP Products, and (iii) a 22.7% interest in URSA Oil Pipeline Company LLC, ("Ursa") a Delaware limited liability company, from BP Offshore, in exchange for aggregate consideration of $468 million funded with borrowings under our Credit Facility (as defined below). The purchase was accounted for as a transaction between entities under common control; as a result, we recognized the acquired assets at their historical carrying value.
As of September 30, 2019, our assets consisted of the following:
|
|
|
|
•
|
BP Two Pipeline Company LLC, which owns the BP#2 crude oil pipeline system (“BP2”).
|
|
|
|
|
•
|
BP River Rouge Pipeline Company LLC, which owns the Whiting to River Rouge refined products pipeline system (“River Rouge”).
|
|
|
|
|
•
|
BP D-B Pipeline Company LLC, which owns the Diamondback diluent pipeline system (“Diamondback”). BP2, River Rouge, and Diamondback, together, are referred to as the "Wholly Owned Assets".
|
|
|
|
|
•
|
A 28.5% ownership interest in Mars Oil Pipeline Company, LLC (“Mars”), which owns a major corridor crude oil pipeline system in the Gulf of Mexico.
|
|
|
|
|
•
|
A 65% managing member interest in Mardi Gras, which holds the following investments in joint ventures located in the Gulf of Mexico:
|
|
|
|
|
•
|
A 56% ownership interest in Caesar Oil Pipeline Company, LLC (“Caesar”),
|
|
|
|
|
•
|
A 53% ownership interest in Cleopatra Gas Gathering Company, LLC (“Cleopatra”),
|
|
|
|
|
•
|
A 65% ownership interest in Proteus Oil Pipeline Company, LLC (“Proteus”), and,
|
|
|
|
|
•
|
A 65% ownership interest in Endymion Oil Pipeline Company, LLC (“Endymion”).
|
|
|
|
|
•
|
Together Endymion, Caesar, Cleopatra and Proteus are referred to as the “Mardi Gras Joint Ventures.”
|
|
|
|
|
•
|
A 25% ownership interest in KM Phoenix.
|
|
|
|
|
•
|
A 22.7% ownership interest in Ursa.
|
We generate the majority of our revenue by charging fees for the transportation of crude oil, refined products and diluent through our pipelines under long-term agreements with minimum volume commitments ("MVC"). We do not engage in the marketing and trading of any commodities. All operations are conducted in the United States, and all our long-lived assets are in the United States. Our operations consist of one reportable segment.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
Certain businesses of ours are subject to regulation by various authorities including, but not limited to the Federal Energy Regulatory Commission ("FERC"). Regulatory bodies exercise statutory authority over matters such as common carrier tariffs, construction, rates and ratemaking and agreements with customers.
Basis of Presentation
Our condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations conform to the accounting principles contained in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, the single source of accounting principles generally accepted in the United States (“GAAP”).
Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted from these condensed consolidated financial statements. The condensed consolidated financial statements as of September 30, 2019, and for the three and nine months ended September 30, 2019 and 2018, included herein, are unaudited. These financial statements include all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. Unless otherwise specified, all such adjustments are of a normal and recurring nature. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. These unaudited condensed consolidated financial statements and other information included in this quarterly report on Form 10-Q should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report").
Our financial position, results of operations and cash flows consist of consolidated BP Midstream Partners LP activities and balances. All intercompany accounts and transactions within the financial statements have been eliminated for all periods presented.
Summary of Significant Accounting Policies
Other than the adoption of ASU 2016-02 described below, there have been no significant changes to our accounting policies as disclosed in Note 2 - Summary of Significant Accounting Policies in our 2018 Annual Report.
Standards Adopted
Topic 842
On February 25, 2016, the FASB issued ASU 2016-02, “Leases” followed by a series of related accounting standard updates (collectively referred to as “Topic 842”). We adopted the new standard on January 1, 2019, utilizing the modified retrospective method. The new lease standard improves transparency and comparability among organizations by requiring lessees to recognize a lease liability and a corresponding right-of-use asset for virtually all lease contracts. We elected the optional transition relief under ASU 2018-11 "Leases: Targeted Improvement" which allows us to apply the transition provision at the adoption date instead of the earliest comparative period presented in our financial statements. Therefore, we recognized and measured leases existing at the adoption date but without retrospective application. See Note 3 - Leases. No cumulative effect impact was recorded to the statement of operations or beginning balance in our statement of changes in equity.
2. Revenue Recognition
In 2018, we adopted ASU 2014-09, "Revenue from Contracts with Customers" and all related ASU’s (collectively referred to as “Topic 606”) by applying the modified retrospective method to all contracts that were not completed on January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented in accordance with the new revenue standard. Topic 606 requires entities to recognize revenue through the application of a five-step model, which includes: (1) identification of the contract; (2) identification of the performance obligations; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations; and (5) recognition of revenue as the entity satisfies the performance obligations.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
Pipeline Transportation
Revenue from pipeline transportation is comprised of tariffs and fees associated with the transportation of liquid petroleum products, generally at published tariffs and in certain instances, revenue from MVC contracts at negotiated rates. Tariff revenue is recognized either at the point of delivery or at the point of receipt, pursuant to specifications outlined in the respective tariffs.
Billings to BP Products for deficiency volumes under its MVCs, if any, are recorded as deferred revenue and credits, a contract liability, on our condensed consolidated balance sheets, as BP Products has the right to make up the deficiency volumes within the measurement period specified by the agreements. Deferred revenue under these arrangements is recognized into revenue once it is deemed remote that the customer will meet its required annual MVC. We recognized $2,356 of deficiency revenue under the throughput and deficiency agreements with BP Products for the three and nine months ended September 30, 2019, and $3,857 for the three and nine months ended September 30, 2018.
Allowance Oil
Our tariff for crude oil transportation at BP2 includes a fixed loss allowance (“FLA”). An FLA factor per barrel, a fixed percentage, is a separate fee that is considered a part of the transaction price under the applicable crude oil tariff to cover evaporation and other losses in transit.
In the three and nine months ended September 30, 2019 we recognized revenue of $2,728 and $7,824, respectively, related to the FLA arrangements with our Parent. In the three and nine months ended September 30, 2018, we recognized revenue of $2,691 and $7,691, respectively, related to the FLA arrangements with our Parent.
Disaggregation of Revenue
The following table provides information about disaggregated revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
2018
|
|
2019
|
2018
|
|
Transportation services revenue - third parties
|
$
|
725
|
|
$
|
508
|
|
|
$
|
2,238
|
|
$
|
2,072
|
|
|
Transportation services revenue - related parties
|
33,836
|
|
31,566
|
|
|
91,164
|
|
85,556
|
|
|
Total ASC 606 revenue
|
$
|
34,561
|
|
$
|
32,074
|
|
|
$
|
93,402
|
|
$
|
87,628
|
|
Future Performance Obligations
The fixed portion of our existing customer contracts are summarized in the future performance obligations as of September 30, 2019. The unfulfilled performance obligations included in the table below are expected to be recognized in revenue in the specified periods:
|
|
|
|
|
|
|
|
|
As of September 30, 2019
|
|
Remainder of 2019
|
$
|
29,052
|
|
|
2020
|
109,590
|
|
|
Total
|
$
|
138,642
|
|
Contract Balances
Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. Contract liabilities or deferred revenue and credits primarily relate to consideration received from customers for temporary deficiency quantities under minimum volume contracts that the customer has the right to make up in a future period, which we subsequently recognize as revenue or amounts we credit back to the customer in a future period.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
The following table provides information about receivables from contracts with customers, contract assets and contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
December 31, 2018
|
|
Receivables from contracts with customers - third parties
|
$
|
491
|
|
$
|
325
|
|
|
Receivables from contracts with customers - related parties
|
10,793
|
|
9,611
|
|
|
Deferred revenue and credits - related parties
|
3,026
|
|
1,067
|
|
3. Leases
We have elected the optional practical expedients permitted under the transition guidance within the new lease standard, which among other things, allows us to carry forward the historical accounting treatment relating to classification for existing leases upon adoption, allows us to not be required to reassess whether an expired or existing contract is or contains a lease, and allows us not to have to reassess initial direct costs for an existing lease.
In addition, we elected the optional transition guidance related to land easements that allows us to carry forward our historical accounting treatment on existing agreements upon adoption. This allowed us to not be required to assess existing land easements that were not historically accounted for as leases under Topic 840, therefore they are excluded from this disclosure.
We also elected the practical expedient to not separate lease and non-lease components for all asset classes. However, we did not elect to apply the hindsight practical expedient; therefore the non-exercised renewals were not included in the lease terms.
Beginning January 1, 2019, operating right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because our leases do not provide an explicit rate of return, we use our incremental borrowing rate based on lease term information available at the commencement date in determining the present value of lease payments.
The impact of Topic 842 on our condensed consolidated balance sheet beginning January 1, 2019 was through the recognition of ROU assets and lease liabilities for operating leases. Amounts recognized at January 1, 2019 for operating leases were as follows:
|
|
|
|
|
|
|
|
|
January 1, 2019
|
|
ROU Assets
|
$
|
518
|
|
|
Current lease liability
|
60
|
|
|
Long-term lease liability
|
458
|
|
We have a total of four operating leases related to office space of which the term of two expires in 2036 and the other two in 2020. We have the option to terminate our leases 30 days after providing written notice of the election to terminate to the landlord. Two of our leases include a right of renewal and an annual 3% escalation on the anniversary date of lease inception. We have the option to renew our leases by giving notice to landlord not less than 60 days prior to the expiration of the lease term. We have not included the option to renew the leases in our determination of lease term because at the time of lease inception it was not certain we would exercise the renewal. We have included the variable lease payments based on the escalation percentage from above in the determination of our lease liabilities and our ROU assets. The other two leases include a non-lease component for maintenance expense. No leases include a residual value guarantee or provide us an option to acquire the real property at the end of the lease. We have no material subleasing arrangements.
Amounts recognized in the accompanying condensed consolidated balance sheet are as follows:
|
|
|
|
|
|
|
|
|
Lease activity
|
Balance sheet location
|
September 30, 2019
|
|
ROU assets
|
Other assets
|
$
|
481
|
|
|
Current lease liability
|
Other current liabilities
|
60
|
|
|
Long-term lease liability
|
Other liabilities
|
427
|
|
As of September 30, 2019, the weighted average discount rate of our leases was 4.36% and the weighted average remaining lease term was 15.4 years.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
The undiscounted future minimum lease payments as of September 30, 2019 and December 31, 2018 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
Post-adoption ASC 842
|
Pre-adoption ASC 842
|
|
|
September 30, 2019
|
December 31, 2018
|
|
2019
|
$
|
16
|
|
$
|
62
|
|
|
2020
|
63
|
|
63
|
|
|
2021
|
32
|
|
32
|
|
|
2022
|
33
|
|
33
|
|
|
2023
|
34
|
|
34
|
|
|
Thereafter
|
514
|
|
514
|
|
|
Total
|
$
|
692
|
|
$
|
738
|
|
4. Equity Method Investments
We account for our ownership interests in Mars, Ursa, KM Phoenix and the Mardi Gras Joint Ventures using the equity method for financial reporting purposes. Our financial results include our proportionate share of the Mars, Ursa, KM Phoenix and the Mardi Gras Joint Ventures, which is reflected in Income from equity method investments on the condensed consolidated statements of operations. We did not record any impairment loss on our equity method investments during the nine months ended September 30, 2019 and 2018.
The table below summarizes the balances and activities related to each of our equity method investments ("EMI") that we recorded for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
Three Months Ended September 30, 2018
|
|
|
Percentage Ownership
|
Distributions Received
|
Income from EMI
|
Carrying Value
|
|
Percentage Ownership
|
Distributions Received
|
Income from EMI
|
Carrying Value
|
|
Mars
|
28.5%
|
$
|
(14,250
|
)
|
$
|
14,104
|
|
$
|
56,874
|
|
|
28.5%
|
$
|
(13,167
|
)
|
$
|
12,241
|
|
$
|
57,762
|
|
|
Caesar(1)
|
56.0%
|
(4,760
|
)
|
3,640
|
|
118,403
|
|
|
56.0%
|
(4,760
|
)
|
4,519
|
|
120,593
|
|
|
Cleopatra(1)
|
53.0%
|
(2,438
|
)
|
1,703
|
|
117,566
|
|
|
53.0%
|
(2,544
|
)
|
1,306
|
|
120,309
|
|
|
Proteus(1)
|
65.0%
|
(4,342
|
)
|
3,153
|
|
76,535
|
|
|
65.0%
|
(3,510
|
)
|
2,135
|
|
82,606
|
|
|
Endymion(1)
|
65.0%
|
(3,510
|
)
|
4,759
|
|
81,996
|
|
|
65.0%
|
(3,835
|
)
|
2,380
|
|
83,569
|
|
|
Others(2)
|
Various
|
(3,162
|
)
|
2,745
|
|
86,201
|
|
|
0%
|
—
|
|
—
|
|
—
|
|
|
Total Equity Investments
|
|
$
|
(32,462
|
)
|
$
|
30,104
|
|
$
|
537,575
|
|
|
|
$
|
(27,816
|
)
|
$
|
22,581
|
|
$
|
464,839
|
|
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
Nine Months Ended September 30, 2018
|
|
|
Percentage Ownership
|
Distributions Received
|
Income from EMI
|
Carrying Value
|
|
Percentage Ownership
|
Cumulative Effect of Accounting Change(3)
|
Distributions Received
|
Income from EMI
|
Carrying Value
|
|
Mars
|
28.5%
|
$
|
(40,088
|
)
|
$
|
37,819
|
|
$
|
56,874
|
|
|
28.5%
|
$
|
(2,746
|
)
|
$
|
(36,110
|
)
|
$
|
31,057
|
|
$
|
57,762
|
|
|
Caesar(1)
|
56.0%
|
(14,448
|
)
|
13,461
|
|
118,403
|
|
|
56.0%
|
—
|
|
(15,357
|
)
|
12,364
|
|
120,593
|
|
|
Cleopatra(1)
|
53.0%
|
(9,063
|
)
|
7,079
|
|
117,566
|
|
|
53.0%
|
—
|
|
(7,844
|
)
|
4,641
|
|
120,309
|
|
|
Proteus(1)
|
65.0%
|
(11,882
|
)
|
7,085
|
|
76,535
|
|
|
65.0%
|
—
|
|
(13,585
|
)
|
9,047
|
|
82,606
|
|
|
Endymion(1)
|
65.0%
|
(9,945
|
)
|
9,430
|
|
81,996
|
|
|
65.0%
|
—
|
|
(13,780
|
)
|
9,153
|
|
83,569
|
|
|
Others(2)
|
Various
|
(9,350
|
)
|
8,438
|
|
86,201
|
|
|
0%
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total Equity Investments
|
|
$
|
(94,776
|
)
|
$
|
83,312
|
|
$
|
537,575
|
|
|
|
$
|
(2,746
|
)
|
$
|
(86,676
|
)
|
$
|
66,262
|
|
$
|
464,839
|
|
|
|
|
|
1.
|
These investments are held by our investment in Mardi Gras which increased to 65% from 20% on October 1, 2018.
|
|
|
|
|
2.
|
Includes ownership in Ursa (22.7%) and KM Phoenix (25%) acquired on October 1, 2018.
|
|
|
|
|
3.
|
The financial results of Mars reflected the adoption of Topic 606 on January 1, 2018 under the modified retrospective transition method through a cumulative adjustment to equity. Our cumulative effect impact from this accounting change to our Mars investment was $(2,746), offset to equity. The Mardi Gras Joint Ventures and Ursa adopted this ASU on January 1, 2019 and there was no cumulative effect impact from the adoption. KM Phoenix adopted Topic 606 on January 1, 2018 and there was no cumulative effect impact from the adoption.
|
The following table presents aggregated selected income statement data for our equity method investments on a 100% basis for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
2018(1)
|
|
Statement of operations
|
|
|
|
|
|
Revenue
|
|
$
|
146,090
|
|
|
$
|
124,644
|
|
|
Operating expenses
|
|
63,313
|
|
|
53,994
|
|
|
Net income
|
|
83,039
|
|
|
70,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
2018(1)
|
|
Statement of operations
|
|
|
|
|
|
Revenue
|
|
$
|
410,232
|
|
|
$
|
339,931
|
|
|
Operating expenses
|
|
180,277
|
|
|
147,024
|
|
|
Net income
|
|
231,413
|
|
|
193,248
|
|
|
|
|
|
1.
|
Balances include KM Phoenix and Ursa results.
|
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Land
|
|
$
|
155
|
|
|
$
|
155
|
|
|
Right-of-way assets
|
|
1,380
|
|
|
1,380
|
|
|
Buildings and improvements
|
|
9,332
|
|
|
12,032
|
|
|
Pipelines and equipment
|
|
93,951
|
|
|
93,617
|
|
|
Other
|
|
514
|
|
|
509
|
|
|
Construction in progress
|
|
463
|
|
|
277
|
|
|
Property, plant and equipment
|
|
105,795
|
|
|
107,970
|
|
|
Less: Accumulated depreciation
|
|
(40,929
|
)
|
|
(39,390
|
)
|
|
Property, plant and equipment, net
|
|
$
|
64,866
|
|
|
$
|
68,580
|
|
During the nine months ended September 30, 2019, an impairment charge of $2.3 million was recorded under "Impairment and other, net" on our condensed consolidated statements of operations. See Note 12 - Commitments and Contingencies. There were no impairments during the period ended December 31, 2018.
6. Other Current Liabilities
Other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Current portion of environmental remediation obligations
|
|
$
|
620
|
|
|
$
|
629
|
|
|
Current portion of lease liabilities
|
|
60
|
|
|
—
|
|
|
Accrued interest payable - related parties
|
|
4,155
|
|
|
4,155
|
|
|
Accrued liabilities
|
|
1,912
|
|
|
2,116
|
|
|
Other current liabilities
|
|
$
|
6,747
|
|
|
$
|
6,900
|
|
7. Debt
On October 30, 2017, the Partnership entered into a $600 million unsecured revolving credit facility agreement (the “Credit Facility”) with an affiliate of BP. A summary of certain key terms and covenants of the Credit Facility is included in our financial statements included in our 2018 Annual Report in Note 8 - Debt. As of September 30, 2019, the Partnership was in compliance with the covenants contained in the Credit Facility.
On October 1, 2018, the Partnership borrowed $468 million under the Credit Facility to fund our acquisition. See Note 1 - Business and Basis of Presentation.
On February 20, 2019, we entered into a Credit Facility Waiver Agreement (“First Waiver Agreement”) whereby the lender waived certain terms on our outstanding $468 million borrowings. The original loan repayment date of March 29, 2019 was waived and amended and modified to April 1, 2020.
On May 3, 2019, we entered into a Second Credit Facility Waiver Agreement (“Second Waiver Agreement”) whereby the lender waived certain terms on our outstanding $468 million borrowings. The amended loan repayment date of April 1, 2020 was waived and amended and modified to November 30, 2020. Accrued interest will be paid on the 25th day of April, July, October and January of each year. Any remaining interest will be paid on November 30, 2020. All other terms of the Credit Facility remain the same.
Pursuant to the First Waiver Agreement and Second Waiver Agreement, we classified the $468 million outstanding as long-term debt on our condensed consolidated balance sheet at September 30, 2019 and December 31, 2018.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
There were $468 million of outstanding borrowings under the Credit Facility at September 30, 2019 and December 31, 2018. Interest charges and fees related to the Credit Facility were $4.1 million and $12.3 million for the three and nine months ended September 30, 2019, respectively, and $0.2 million and $0.6 million for the three and nine months ended September 30, 2018, respectively.
For the three and nine months ended September 30, 2019, the weighted average interest rate for the Credit Facility was 3.25%. For the three and nine months ended September 30, 2018, the weighted average interest rate for the Credit Facility was 2.24%. This facility includes customary fees, including a commitment fee of 0.10% and a utilization fee of 0.20% per annum.
8. Related Party Transactions
Related party transactions include transactions with our Parent and our Parent’s affiliates, including those entities in which our Parent has an ownership interest but does not have control. In addition to the FLA arrangements discussed in Note 2- Revenue Recognition and the Credit Facility discussed above, we have entered into the following transactions with our related parties:
Omnibus Agreement
The Partnership has entered into an omnibus agreement with BP Pipelines and certain of its affiliates, including BP Midstream Partners GP LLC (our "General Partner"). This agreement addresses, among other things, (i) the Partnership's obligation to pay an annual fee for general and administrative services provided by BP Pipelines and its affiliates, (ii) the Partnership's obligation to reimburse BP Pipelines for personnel and other costs related to the direct operation, management and maintenance of the assets and (iii) the Partnership's obligation to reimburse BP Pipelines for services and certain direct or allocated costs and expenses incurred by BP Pipelines or its affiliates on behalf of the Partnership.
BP Pipelines will indemnify us for all known and certain unknown environmental liabilities that are associated with the ownership or operation of our assets and due to occurrences on or before October 30, 2017, subject to certain limitations. Indemnification for any unknown environmental liabilities will be limited to liabilities due to occurrences on or before October 30, 2017, which are identified prior to October 30, 2020.
Further, the omnibus agreement addresses the granting of a license from BPA to the Partnership with respect to use of certain BP trademarks and trade name.
Cash Management Program
We have established our own cash accounts for the funding of our operating and investing activities but continue to participate in our Parent’s centralized cash management and funding system.
Related Party Revenue
We provide crude oil, refined products and diluent transportation services to related parties and generate revenue through published tariffs. We have commercial arrangements with BP Products that include MVC. See Note 9 - Related Party Transactions in our financial statements included in our 2018 Annual Report for further discussion regarding these agreements.
Our revenue from related parties was $33,836 and $91,164 for the three and nine months ended September 30, 2019, respectively, and $31,566 and $85,556 for the three and nine months ended September 30, 2018, respectively.
We recognized $2,356 of deficiency revenue under the throughput and deficiency agreements with BP Products for the three and nine months ended September 30, 2019, and $3,857 for the three and nine months ended September 30, 2018. We recorded $3,026 and $1,067 in Deferred revenue and credits on our condensed consolidated balance sheets at September 30, 2019 and December 31, 2018, respectively.
Related Party Expenses
All employees performing services on behalf of our operations are employees of our Parent. Our Parent also procures our insurance policies on our behalf and performs certain general corporate functions for us related to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
benefits, incentives, severance and environmental functional support. Personnel and operating costs incurred by our Parent on our behalf are included in either Operating expenses – related parties or General and administrative – related parties in the condensed consolidated statements of operations, depending on the nature of the service provided.
We paid our Parent an annual fee of $13.3 million in 2018 in the form of monthly installments under the omnibus agreement for general and administrative services provided by our Parent and its affiliates. The annual fee was adjusted to $13.6 million per year, payable in equal monthly installments, beginning on January 1, 2019. We also reimburse our Parent for personnel and other costs related to the direct operation, management and maintenance of the assets and services and certain direct or allocated costs and expenses incurred by our Parent or its affiliates on our behalf pursuant to the terms in the omnibus agreement.
For the three and nine months ended September 30, 2019 and 2018, we recorded the following amounts for related party expenses, which also included the expenses related to share-based compensation discussed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Operating expenses—related parties
|
|
$
|
1,423
|
|
|
$
|
1,506
|
|
|
$
|
4,317
|
|
|
$
|
3,494
|
|
|
Maintenance expenses—related parties
|
|
66
|
|
|
31
|
|
|
139
|
|
|
75
|
|
|
General and administrative—related parties
|
|
3,476
|
|
|
3,691
|
|
|
10,597
|
|
|
10,556
|
|
|
Total costs and expenses—related parties
|
|
$
|
4,965
|
|
|
$
|
5,228
|
|
|
$
|
15,053
|
|
|
$
|
14,125
|
|
Share-based Compensation
Our Parent operates share option plans and equity-settled employee share plans. These plans typically have a three-year performance or restricted period during which the units accrue net notional dividends, which are treated as having been reinvested. Leaving employment will normally preclude the conversion of units into shares, but special arrangements apply for participants that leave for qualifying reasons.
Share-based compensation related to the employees of our Parent who provide services to us is charged to the Partnership pursuant to the terms of the omnibus agreement. The Partnership also issued its own unit-based compensation under our long-term incentive plan. See Note 13 - Unit-Based Compensation.
Non-controlling Interests
Non-controlling interests consist of the 80% ownership interest in Mardi Gras held by our Parent at September 30, 2018 compared to the 35% ownership interest held at September 30, 2019 after completion of the acquisition on October 1, 2018. Net income attributable to non-controlling interests is the product of the non-controlling interests ownership percentage and the net income of Mardi Gras. We report Non-controlling interests as a separate component of equity on our condensed consolidated balance sheets and Net income attributable to non-controlling interests on our condensed consolidated statements of operations.
9. Net Income Per Limited Partner Unit
The following table details the distributions declared and/or paid for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Date Paid or
to be Paid
|
General Partner
|
Limited Partners' Common Units
|
Limited Partners' Subordinated Units
|
Total
|
Distributions per Limited Partner Unit
|
|
March 31, 2018
|
May 15, 2018
|
$
|
—
|
|
$
|
14,010
|
|
$
|
14,011
|
|
$
|
28,021
|
|
$
|
0.2675
|
|
|
June 30, 2018
|
August 15, 2018
|
—
|
|
14,272
|
|
14,271
|
|
28,543
|
|
0.2725
|
|
|
September 30, 2018
|
November 15, 2018
|
—
|
|
15,268
|
|
15,268
|
|
30,536
|
|
0.2915
|
|
|
March 31, 2019
|
May 15, 2019
|
198
|
|
16,375
|
|
16,373
|
|
32,946
|
|
0.3126
|
|
|
June 30, 2019
|
August 14, 2019
|
403
|
|
16,958
|
|
16,954
|
|
34,315
|
|
0.3237
|
|
|
September 30, 2019
|
November 14, 2019
|
743
|
|
17,576
|
|
17,572
|
|
35,891
|
|
0.3355
|
|
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
Earnings in excess of distributions are allocated to the limited partners based on their respective percentage interests. Payments made to the Partnership’s unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.
In addition to the common and subordinated units, the Partnership also identified the incentive distribution rights ("IDRs") currently held by the General Partner as a participating security and uses the two-class method when calculating the net income per unit applicable to limited partners that is based on the weighted-average number of common units outstanding during the period.
When calculating basic earnings per unit under the two-class method for a master limited partnership, net income for the current reporting period is reduced by the amount of available cash that will be distributed to the General Partner and limited partners for that reporting period. The following tables show the allocation of net income to arrive at net income per limited partner unit for the three and nine months ended September 30, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Net income attributable to the Partnership
|
$
|
45,754
|
|
|
$
|
35,219
|
|
|
$
|
120,238
|
|
|
$
|
96,228
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Incentive distribution rights currently held by the General Partner
|
743
|
|
|
—
|
|
|
1,344
|
|
|
—
|
|
|
Limited partners' distribution declared on common units
|
17,576
|
|
|
15,268
|
|
|
50,909
|
|
|
43,550
|
|
|
Limited partners' distribution declared on subordinated units
|
17,572
|
|
|
15,268
|
|
|
50,899
|
|
|
43,550
|
|
|
Net income attributable to the Partnership in excess of distributions
|
$
|
9,863
|
|
|
$
|
4,683
|
|
|
$
|
17,086
|
|
|
$
|
9,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019
|
|
|
|
|
General Partner
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Total
|
|
Distributions declared
|
|
$
|
743
|
|
|
$
|
17,576
|
|
|
$
|
17,572
|
|
|
$
|
35,891
|
|
|
Net income attributable to the Partnership in excess of distributions
|
—
|
|
|
4,932
|
|
|
4,931
|
|
|
9,863
|
|
|
Net income attributable to the Partnership
|
$
|
743
|
|
|
$
|
22,508
|
|
|
$
|
22,503
|
|
|
$
|
45,754
|
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
52.4
|
|
|
52.4
|
|
|
104.8
|
|
|
Net income per limited partner unit (in dollars):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
$
|
0.43
|
|
|
$
|
0.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019
|
|
|
|
|
General Partner
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Total
|
|
Distributions declared
|
$
|
1,344
|
|
|
$
|
50,909
|
|
|
$
|
50,899
|
|
|
$
|
103,152
|
|
|
Net income attributable to the Partnership in excess of distributions
|
—
|
|
|
8,544
|
|
|
8,542
|
|
|
17,086
|
|
|
Net income attributable to the Partnership
|
$
|
1,344
|
|
|
$
|
59,453
|
|
|
$
|
59,441
|
|
|
$
|
120,238
|
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
52.4
|
|
|
52.4
|
|
|
104.8
|
|
|
Net income per limited partner unit (in dollars):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
|
$
|
1.13
|
|
|
$
|
1.13
|
|
|
|
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
|
|
General Partner
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Total
|
|
Distributions declared
|
|
$
|
—
|
|
|
$
|
15,268
|
|
|
$
|
15,268
|
|
|
$
|
30,536
|
|
|
Net income attributable to the Partnership in excess of distributions
|
—
|
|
|
2,341
|
|
|
2,342
|
|
|
4,683
|
|
|
Net income attributable to the Partnership
|
$
|
—
|
|
|
$
|
17,609
|
|
|
$
|
17,610
|
|
|
$
|
35,219
|
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
52.4
|
|
|
52.4
|
|
|
104.8
|
|
|
Net income per limited partner unit (in dollars):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
$
|
0.34
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
|
|
General Partner
|
|
Limited Partners' Common Units
|
|
Limited Partners' Subordinated Units
|
|
Total
|
|
Distributions declared
|
|
$
|
—
|
|
|
$
|
43,550
|
|
|
$
|
43,550
|
|
|
$
|
87,100
|
|
|
Net income attributable to the Partnership in excess of distributions
|
—
|
|
|
4,564
|
|
|
4,564
|
|
|
9,128
|
|
|
Net income attributable to the Partnership
|
$
|
—
|
|
|
$
|
48,114
|
|
|
$
|
48,114
|
|
|
$
|
96,228
|
|
|
Weighted average units outstanding (in millions):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
52.4
|
|
|
52.4
|
|
|
104.8
|
|
|
Net income per limited partner unit (in dollars):
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
|
$
|
0.92
|
|
|
$
|
0.92
|
|
|
|
10. Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We classify the fair value of an asset or liability based on the lowest level of input significant to its measurement. A fair value initially reported as Level 3 will be subsequently reported as Level 2 if the unobservable inputs become inconsequential to its measurement, or corroborating market data becomes available. Asset and liability fair values initially reported as Level 2 will be subsequently reported as Level 3 if corroborating market data becomes unavailable.
The carrying amounts of our accounts receivable, other current assets, accounts payable, deferred revenue and credits, and other current liabilities approximate their fair values due to their short-term nature.
The carrying value of borrowings under our Credit Facility as of September 30, 2019 and December 31, 2018 approximate fair value as the interest rates are reflective of market rates.
11. Income Taxes
BP Midstream Partners LP is not a taxable entity for U.S. federal and state income tax purposes. Taxes on our net income are generally borne by our partners through the allocation of taxable income. The condensed consolidated financial statements, therefore, do not include a provision for income tax.
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
12. Commitments and Contingencies
Legal Proceedings
We are party to ongoing legal proceedings in the ordinary course of business. For each of our outstanding legal matters, if any, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. While the outcome of these proceedings cannot be predicted with certainty, we do not believe the results of these proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or liquidity.
Indemnification
Under our omnibus agreement, our Parent will indemnify us for certain environmental liabilities, litigation and other matters attributable to the ownership or operation of our assets prior to our ownership. For the purposes of determining the indemnified amount of any loss suffered or incurred by the Partnership, the Partnership’s ownership of 28.5% in Mars, and 65% in Mardi Gras, and Mardi Gras’ 56% ownership in Caesar, 53% ownership in Cleopatra, 65% ownership in Endymion and 65% ownership in Proteus will be considered. Indemnification for certain identified environmental liabilities is subject to a cap of $25.0 million without any deductible. Other matters covered by the omnibus agreement are subject to a cap of $15.0 million and an aggregate deductible of $0.5 million before we are entitled to indemnification. Indemnification for any unknown environmental liabilities is limited to liabilities due to occurrences prior to the closing of the IPO and that are identified before the third anniversary of the closing of the IPO.
The Interest Purchase Agreement contains customary representations, warranties and covenants of our Parent and the Partnership. Our Parent, on the one hand, and the Partnership, on the other hand, have agreed to indemnify each other and their respective affiliates, officers, directors and other representatives against certain losses, including those resulting from any breach of their representations, warranties or covenants contained in the Interest Purchase Agreement, subject to certain limitations and survival periods. This agreement covers the Partnership’s ownership of 22.7% in Ursa and 25% in KM Phoenix.
Environmental Matters
We are subject to federal, state, and local environmental laws and regulations. We record provisions for environmental liabilities based on management’s best estimates, using all information that is available at the time. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progress, additional information is obtained, requiring revisions to estimated costs. We are indemnified by our Parent under the omnibus agreement against environmental cleanup costs for incidents that occurred prior to our ownership. Revisions to the estimated environmental liability for conditions that are not indemnified under the omnibus agreement with our Parent are reflected in our condensed consolidated statements of operations in the year in which they are probable and reasonably estimable.
We accrued $3,760 and $3,853 for environmental liabilities at September 30, 2019 and December 31, 2018, respectively. These balances are broken down on the condensed consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet location
|
September 30, 2019
|
December 31, 2018
|
|
Current portion of environmental remediation obligations
|
Other current liabilities
|
$
|
620
|
|
$
|
629
|
|
|
Long-term portion of environmental remediation obligations
|
Other liabilities
|
3,140
|
|
3,224
|
|
|
Total
|
|
$
|
3,760
|
|
$
|
3,853
|
|
The balances are related to incidents that occurred prior to our ownership and are entirely indemnified by our Parent. As a result, we recorded $3,760 and $3,853 for corresponding indemnification assets at September 30, 2019 and December 31, 2018, respectively. These balances are broken down on the condensed consolidated balance sheets as follows:
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet location
|
September 30, 2019
|
December 31, 2018
|
|
Current portion of indemnification assets
|
Other current assets
|
$
|
620
|
|
$
|
629
|
|
|
Non-current portion of indemnification assets
|
Other assets
|
3,140
|
|
3,224
|
|
|
Total
|
|
$
|
3,760
|
|
$
|
3,853
|
|
Griffith Station Incident
On June 13, 2019, a building fire occurred at the Griffith Station on BP2. Management has performed an initial evaluation of the assets and determined that an impairment is required. A charge of $2.3 million for the impairment was recorded under "Impairment and other, net" on our condensed consolidated statements of operations for the three months ended June 30, 2019. In addition, we incurred $0.8 million for response expense during the three months ended June 30, 2019 and $0.5 million during the three months ended September 30, 2019. Our assets are insured with a deductible of $1.0 million per incident. We have accrued an offsetting insurance receivable of $2.6 million under "Other current assets" on our condensed consolidated balance sheet as of September 30, 2019.
13. Unit-Based Compensation
Long-Term Incentive Plan
Our General Partner has adopted the BP Midstream Partners LP 2017 Long Term Incentive Plan (the “LTIP”). Awards under the LTIP are available for eligible officers, directors, employees and consultants of the General Partner and its affiliates, who perform services for the Partnership. The LTIP allows the Partnership to grant unit options, unit appreciation rights, restricted units, phantom units, unit awards, cash awards, performance awards, distribution equivalent rights, substitute awards and other unit-based awards. The maximum aggregate number of common units that may be issued pursuant to the awards granted under the LTIP shall not exceed 5,502,271, subject to proportionate adjustment in the event of unit splits and similar events.
Unit-Based Awards under the LTIP
The following is a summary of phantom unit award activities of the Partnership’s common units for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Phantom Units
|
|
|
Number of Units (in units)
|
|
Weighted Average Grant Date Fair Value per Unit (in dollars)
|
|
Outstanding at December 31, 2018
|
3,737
|
|
|
$
|
20.07
|
|
|
Granted
|
15,227
|
|
|
16.64
|
|
|
Vested
|
(3,737
|
)
|
|
20.07
|
|
|
Outstanding at September 30, 2019
|
15,227
|
|
|
$
|
16.64
|
|
For the three and nine months ended September 30, 2019, total compensation expense recognized for phantom unit awards was approximately $64 and $175, respectively. For the three and nine months ended September 30, 2018, total compensation expense recognized for phantom unit awards was approximately $56 and $140, respectively. The unrecognized compensation cost related to phantom unit awards was approximately $105 at September 30, 2019, which is expected to be recognized over a weighted average period of 0.4 years.
14. Variable Interest Entity
Mardi Gras is a Delaware corporation and a pass-through entity for federal and state income tax purposes. Mardi Gras holds equity interests in the Mardi Gras Joint Ventures and accounts for them as equity method investments. Mardi Gras does not have any other operations or activities. The remaining interests in each of the Mardi Gras Joint Ventures are owned by unaffiliated third-party investors. Each of the Mardi Gras Joint Ventures is managed by their respective management committee, and decisions made
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
by these management committees require approval of two or more members that are not affiliates with equity interest holdings meeting certain thresholds.
On October 30, 2017, our Parent contributed to us 20% of its economic interest and 100% of its managing member interest in Mardi Gras. The remainder of the economic interest in Mardi Gras was held 79% by BP Pipelines and 1% by an affiliate of BP. Through our managing member interest in Mardi Gras, we have the right to vote 100% of Mardi Gras’ interest in each of the Mardi Gras Joint Ventures. We determined that Mardi Gras is a variable interest entity because (i) we hold disproportional voting rights as compared to our economic interest in Mardi Gras, and (ii) substantially all of Mardi Gras’ activities involve or are conducted on behalf of our Parent, which holds disproportionately few voting rights.
On October 1, 2018, pursuant to the Interest Purchase Agreement we completed the acquisition of an additional 45% interest in Mardi Gras from BP Pipelines. This reduced the non-controlling interest on Mardi Gras from 80% to 35%.
The managing member interest in Mardi Gras provides us with the unilateral power to direct the activities of Mardi Gras that most significantly impact its economic performance including the right to exercise the voting rights of BP for each of the Mardi Gras Joint Ventures. In addition, our obligations to absorb the expected losses of and the right to receive the residual returns from Mardi Gras relative to our economic ownership is significant to Mardi Gras. As a result, we are the primary beneficiary of Mardi Gras and consolidate Mardi Gras.
We have the obligation to provide financial support to Mardi Gras if all members unanimously determine that additional capital contributions are necessary to fund Mardi Gras’ operations. The assets of Mardi Gras can only be used to satisfy its own obligations, which were zero at September 30, 2019 and December 31, 2018. Under the current limited liability company agreement of Mardi Gras, creditors of Mardi Gras, if any, do not have any recourse to the general credit of the Partnership.
The financial position of Mardi Gras at September 30, 2019 and December 31, 2018, its financial performance for the three and six months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018, as reflected in our condensed consolidated financial statements, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
December 31, 2018
|
|
Balance sheet
|
|
|
|
|
Equity method investments
|
$
|
394,500
|
|
|
$
|
402,783
|
|
|
Non-controlling interests
|
138,075
|
|
|
140,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Statement of operations
|
|
|
|
|
|
|
|
|
Income from equity method investments
|
$
|
13,255
|
|
|
$
|
10,340
|
|
|
$
|
37,055
|
|
|
$
|
35,205
|
|
|
Less: Net income attributable to non-controlling interests
|
4,639
|
|
|
8,272
|
|
|
12,969
|
|
|
28,163
|
|
|
Net impact on Net income attributable to the Partnership
|
$
|
8,616
|
|
|
$
|
2,068
|
|
|
$
|
24,086
|
|
|
$
|
7,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
Statement of cash flows
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
Distributions of earnings received from equity method investments
|
$
|
37,055
|
|
|
$
|
35,205
|
|
|
Cash flows from investing activities
|
|
|
|
|
Distribution in excess of earnings from equity method investments
|
8,283
|
|
|
15,362
|
|
|
Cash flows from financing activities
|
|
|
|
|
Distributions to non-controlling interests
|
(15,868
|
)
|
|
(40,453
|
)
|
|
Net change on the Partnership's cash and cash equivalents
|
$
|
29,470
|
|
|
$
|
10,114
|
|
BP MIDSTREAM PARTNERS LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands of dollars, unless otherwise indicated)
15. Subsequent Events
We have evaluated subsequent events through the issuance of these condensed consolidated financial statements. Based on this evaluation, it was determined that no subsequent events occurred, other than the distribution noted below, that require recognition or disclosure in the condensed consolidated financial statements.
Distribution
On October 17, 2019, we declared a cash distribution of $0.3355 per limited partner unit to unitholders of record on October 31, 2019, for the three months ended September 30, 2019. The distribution, combined with distributions to our General Partner, will be paid on November 14, 2019 and will total $35.9 million, with $16.0 million being distributed to our non-affiliated common unitholders and $19.9 million, including $0.7 million for IDRs, being distributed to our Parent in respect of its ownership of our common units, subordinated units and IDRs.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (the “Quarterly Report”) includes various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected cost, prospects, plans and objectives of management, are forward-looking statements.
When used in this Quarterly Report, you can identify our forward-looking statements by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project,” “seek,” “target,” “could,” “may,” “should,” “would” or other similar expressions that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. When considering forward-looking statements, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, under Part II, Item 1A of this Quarterly Report and other cautionary statements contained in this filing.
We based forward-looking statements on our current expectations and assumptions about future events and currently available information as to the outcome and timing of future events. We caution you that these statements are not guarantees of future performance as they involved assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements.
Forward-looking statements may include statements about:
|
|
|
|
•
|
The continued ability of BP and any non-affiliate customers to satisfy their obligations under our commercial and other agreements and the impact of lower market prices for crude oil, natural gas, refined products and diluent.
|
|
|
|
|
•
|
The volume of crude oil, natural gas, refined products and diluent we transport or store and the prices that we can charge our customers.
|
|
|
|
|
•
|
The tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment imposed by federal and state regulators.
|
|
|
|
|
•
|
Changes in revenue we realize under the fixed loss allowance provisions of our fees and tariffs resulting from changes in underlying commodity prices.
|
|
|
|
|
•
|
Fluctuations in the prices for crude oil, natural gas, refined products and diluent.
|
|
|
|
|
•
|
The level of onshore and offshore production and demand for crude oil, natural gas, refined products and diluent.
|
|
|
|
|
•
|
Our ability to successfully integrate recently acquired assets with our own and realize the anticipated benefits of such acquisitions.
|
|
|
|
|
•
|
Changes in global economic conditions and the effects of a global economic downturn on the business of BP and the business of its suppliers, customers, business partners and credit lenders.
|
|
|
|
|
•
|
Liabilities associated with the risks and operational hazards inherent in transporting and/or storing crude oil, natural gas, refined products and diluent.
|
|
|
|
|
•
|
Curtailment of operations or expansion projects due to unexpected leaks or spills; severe weather disruption; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.
|
|
|
|
|
•
|
Costs or liabilities associated with federal, state and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.
|
|
|
|
|
•
|
Costs associated with compliance with evolving environmental laws and regulations on climate change.
|
|
|
|
|
•
|
Costs associated with compliance with safety regulations and system maintenance programs, including pipeline integrity management program testing and related repairs.
|
|
|
|
|
•
|
Changes in the cost or availability of third-party vessels, pipelines, rail cars and other means of delivering and transporting crude oil, natural gas, refined products and diluent.
|
|
|
|
|
•
|
Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.
|
|
|
|
|
•
|
Changes in, and availability to us of the equity and debt capital markets.
|
Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” refer to the legal entity BP Midstream Partners LP (the "Partnership"). The term “our Parent” refers to BP Pipelines (North America), Inc. (“BP Pipelines”), any entity that wholly owns BP Pipelines, indirectly or directly, including BP America Inc. and BP p.l.c. (“BP”), and any entity that is wholly owned by the aforementioned entities, excluding BP Midstream Partners LP.
The following management discussion and analysis of financial conditions and results of operations should be read in conjunction with the unaudited financial statements and accompanying notes in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2018 (our "2018 Annual Report").
Partnership Overview
We are a fee-based, growth-oriented master limited partnership formed by BP Pipelines, an indirect wholly owned subsidiary of BP, to own, operate, develop and acquire pipelines and other midstream assets. Our assets consist of interests in entities that own crude oil, natural gas, refined products and diluent pipelines and refined product terminals serving as key infrastructure for BP and other customers to transport onshore crude oil production to BP’s Whiting Refinery and offshore crude oil and natural gas production to key refining markets and trading and distribution hubs. Certain of our assets deliver refined products and diluent from the Whiting Refinery and other U.S. supply hubs to major demand centers.
As of September 30, 2019, our assets consisted of the following:
|
|
|
|
•
|
BP Two Pipeline Company LLC, which owns the BP#2 crude oil pipeline system (“BP2”).
|
|
|
|
|
•
|
BP River Rouge Pipeline Company LLC, which owns the Whiting to River Rouge refined products pipeline system (“River Rouge”).
|
|
|
|
|
•
|
BP D-B Pipeline Company LLC, which owns the Diamondback diluent pipeline system (“Diamondback”). BP2, River Rouge, and Diamondback are in the Midwest region of the United States, and together are referred to as the "Wholly Owned Assets".
|
|
|
|
|
•
|
A 28.5% ownership interest in Mars Oil Pipeline Company, LLC (“Mars”), which owns a major corridor crude oil pipeline system in the Gulf of Mexico.
|
|
|
|
|
•
|
A 65% managing member interest in Mardi Gras Transportation System Company, LLC (“Mardi Gras”), which holds the following investments in joint ventures located in the Gulf of Mexico:
|
|
|
|
|
•
|
A 56% ownership interest in Caesar Oil Pipeline Company, LLC (“Caesar”),
|
|
|
|
|
•
|
A 53% ownership interest in Cleopatra Gas Gathering Company, LLC (“Cleopatra”),
|
|
|
|
|
•
|
A 65% ownership interest in Proteus Oil Pipeline Company, LLC (“Proteus”), and,
|
|
|
|
|
•
|
A 65% ownership interest in Endymion Oil Pipeline Company, LLC (“Endymion”). Together Endymion, Caesar, Cleopatra and Proteus are referred to as the “Mardi Gras Joint Ventures.”
|
|
|
|
|
•
|
A 25% ownership interest in KM Phoenix Holdings, LLC ("KM Phoenix").
|
|
|
|
|
•
|
A 22.7% ownership interest in Ursa Oil Pipeline Company, LLC ("Ursa").
|
We generate the majority of our revenue by charging fees for the transportation of crude oil, refined products and diluent through our pipelines under long-term agreements with MVC. We do not engage in the marketing and trading of any commodities. All operations are conducted in the United States, and all our long-lived assets are in the United States. Our operations consist of one reportable segment.
Certain businesses of ours are subject to regulation by various authorities including, but not limited to the Federal Energy Regulatory Commission ("FERC"). Regulatory bodies exercise statutory authority over matters such as common carrier tariffs, construction, rates and ratemaking and agreements with customers.
Acquisition of Equity Interests
On October 1, 2018, pursuant to an Interest Purchase Agreement (the “Interest Purchase Agreement”) with BP Products North America Inc. (“BP Products”), BP Offshore Pipelines Company LLC (“BP Offshore”), and BP Pipelines, we completed the acquisition of (i) an additional 45% interest in Mardi Gras, from BP Pipelines, (ii) a 25% interest in KM Phoenix, from BP Products, and (iii) a 22.7% interest in Ursa, from BP Offshore, in exchange for aggregate consideration of $468 million funded with borrowings under our Credit Facility. The purchase was accounted for as a transaction between entities under common control; as a result, we recognized the acquired assets at their historical carrying value.
How We Evaluate Our Operations
Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) safety and environmental metrics, (ii) revenue (including FLA) from throughput and utilization; (iii) operating expenses and maintenance spend; (iv) Adjusted EBITDA (as defined below); and (v) cash available for distribution (as defined below).
Preventative Safety and Environmental Metrics
We are committed to maintaining and improving the safety, reliability and efficiency of our operations. We have implemented
reporting programs requiring all employees and contractors of our Parent who provide services to us to record environmental and safety related incidents. Our management team uses these existing programs and data to evaluate trends and potential interventions to deliver on performance targets. We integrate health, occupational safety, process safety and environmental principles throughout our operations to reduce and eliminate environmental and safety related incidents.
Throughput
The amount of revenue our business generates primarily depends on our fee-based transportation agreements with shippers, our tariffs and the volumes of crude oil, natural gas, refined products and diluent that we handle on our pipelines.
The volumes that we handle on our pipelines are primarily affected by the supply of, and demand for, crude oil, natural gas, refined products and diluent in the markets served directly or indirectly by our assets. Our results of operations are impacted by our ability to:
|
|
|
|
•
|
utilize any remaining unused capacity on, or add additional capacity to, our pipeline systems;
|
|
|
|
|
•
|
increase throughput volumes on our pipeline systems by making connections to existing or new third-party pipelines or other facilities, primarily driven by the anticipated supply of and demand for crude oil, natural gas, refined products and diluent;
|
|
|
|
|
•
|
identify and execute organic expansion projects; and
|
|
|
|
|
•
|
increase throughput volumes via acquisitions.
|
Operating Expenses and Total Maintenance Spend
Operating Expenses
Our management seeks to maximize our profitability by effectively managing our operating expenses. These expenses are comprised primarily of labor expenses (including contractor services), general materials, supplies, minor maintenance, utility costs (including electricity and fuel) and insurance premiums. Utility costs fluctuate based on throughput volumes and the grades of crude oil and types of refined products we handle. Our other operating expenses generally remain relatively stable across broad ranges of throughput volumes but can fluctuate from period to period depending on the mix of activities performed during that period.
Griffith Station Incident
On June 13, 2019, a building fire occurred at the Griffith Station on BP2. Management has performed an initial evaluation of the assets and determined that an impairment is required. A charge of $2.3 million for the impairment was recorded under "Impairment and other, net" on our condensed consolidated statements of operations for the three months ended June 30, 2019. In addition, we incurred $0.8 million for response expense during the three months ended June 30, 2019 and $0.5 million during the three months ended September 30, 2019. Our assets are insured with a deductible of $1.0 million per incident. We have accrued an offsetting insurance receivable of $2.6 million under "Other current assets" on our condensed consolidated balance sheet as of
September 30, 2019. The fire caused a temporary throughput restriction that was covered by our MVC. The throughput restriction was resolved within two weeks and volumes returned to normal operating levels.
Total Maintenance Spend - Wholly Owned Assets
We calculate Total Maintenance Spend as the sum of maintenance expenses and maintenance capital expenditures, excluding any reimbursable maintenance capital expenditures. We track these expenses on a combined basis because it is useful to understanding our total maintenance requirements. Total Maintenance Spend for the nine months ended September 30, 2019 and 2018, respectively, is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
(in thousands of dollars)
|
|
Wholly Owned Assets
|
|
|
|
|
Maintenance expenses
|
$
|
1,325
|
|
|
$
|
1,598
|
|
|
Maintenance capital expenditures
|
375
|
|
|
1,341
|
|
|
Total Maintenance Spend - Wholly Owned Assets
|
$
|
1,700
|
|
|
$
|
2,939
|
|
We seek to maximize our profitability by effectively managing our maintenance expenses, which consist primarily of safety and environmental integrity programs. We seek to manage our maintenance expenses on the pipelines we operate by scheduling maintenance over time to avoid significant variability in our maintenance expenses and minimize their impact on our cash flows, without compromising our commitment to safety and environmental stewardship.
Our maintenance expenses represent the costs we incur that do not significantly extend the useful life or increase the expected output of our property, plant and equipment. These expenses include pipeline repairs, replacements of immaterial sections of pipelines, inspections, equipment rentals and costs incurred to maintain compliance with existing safety and environmental standards, irrespective of the magnitude of such compliance expenses. Our maintenance expenses may vary significantly from period to period because certain of our expenses are the result of scheduled safety and environmental integrity programs, which occur on a multi-year cycle and require substantial outlays.
Adjusted EBITDA and Cash Available for Distribution
We define Adjusted EBITDA as (i) net income before net interest expense, income taxes, gain or loss from disposition of property, plant and equipment, and depreciation and amortization, plus cash distributed to the Partnership from equity method investments for the applicable period, less income from equity method investments and (ii) net cash provided by operating activities before net interest expense and distributions in excess of earnings from equity method investments, less changes in other assets and liabilities, non-cash adjustments and impairment. We define Adjusted EBITDA attributable to the Partnership as Adjusted EBITDA less Adjusted EBITDA attributable to non-controlling interests. We present these financial measures because we believe replacing our proportionate share of our equity method investments’ net income with the cash received from such equity method investments more accurately reflects the cash flow from our business, which is meaningful to our investors.
We compute and present cash available for distribution and define it as Adjusted EBITDA attributable to the Partnership plus net adjustments from volume deficiency agreements, less maintenance capital expenditures, net interest paid/received, cash reserves, and income taxes paid. Cash available for distribution does not reflect changes in working capital balances.
Adjusted EBITDA and cash available for distribution are non-GAAP ("GAAP" refers to Unites States generally accepted accounting principles) supplemental financial measures, which are metrics that management and external users of our condensed 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 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.
|
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. The GAAP measures most directly comparable to Adjusted EBITDA and cash available for distribution are net income and net cash provided by operating activities, respectively. Adjusted EBITDA and cash available for distribution should not be considered as an alternative 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. You should not consider Adjusted EBITDA or cash available for distribution in isolation or as a substitute 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 its utility. Please read “Reconciliation of Non-GAAP Measures” section below for the reconciliation of net income and cash provided by operating activities to Adjusted EBITDA and cash available for distribution.
Factors Affecting the Comparability of Our Financial Results
Our results of operations are not comparable for the periods presented in this report for the reasons described below:
Acquisition of Equity Interests
As discussed above, on October 1, 2018, pursuant to the Interest Purchase Agreement we completed the acquisition of:
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•
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(i) an additional 45.0% interest in Mardi Gras, from BP Pipelines,
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|
|
•
|
(ii) a 25.0% interest in KM Phoenix, from BP Products, and
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|
|
•
|
(iii) a 22.7% interest in Ursa, from BP Offshore.
|
Factors Affecting Our Business
Our business can be negatively affected by sustained downturns or slow growth in the economy in general and is impacted by shifts in supply and demand dynamics, the mix of services requested by the customers of our pipelines, competition and changes in regulatory requirements affecting our customers’ operations.
Customers
BP is our primary customer. Total revenue from BP represented 97.9% and 97.6% of our revenues for the three and nine months ended September 30, 2019, respectively. Total revenue from BP represented 98.4% and 97.6% for the three and nine months ended September 30, 2018, respectively. BP’s volumes represented approximately 95.6% and 95.1% of the aggregate total volumes transported on the Wholly Owned Assets for the three and nine months ended September 30, 2019, respectively. BP’s volumes represented approximately 96.4% and 95.1% of the aggregate total volumes transported on the Wholly Owned Assets for the three and nine months ended September 30, 2018, respectively.
In addition, we transport and store crude oil, natural gas and diluent for a mix of third-party customers, including crude oil producers, refiners, marketers and traders, and our assets are connected to other crude oil, natural gas and diluent pipeline systems. In addition to serving directly connected Midwestern U.S. and Gulf Coast markets, our pipelines have access to customers in various regions of the United States and Canada through interconnections with other major pipelines. Our customers use our transportation and terminalling services for a variety of reasons. Producers of crude oil require the ability to deliver their product to market and frequently enter into firm transportation contracts to ensure that they will have sufficient capacity available to deliver their product to delivery points with greatest market liquidity. Marketers and traders generate income from buying and selling crude oil, natural gas, refined products and diluent to capitalize on price differentials over time or between markets. Our customer mix can vary over time and largely depends on the crude oil, natural gas, refined products and diluent supply and demand dynamics in our markets.
Competition
Our pipelines face competition from a variety of alternative transportation methods including rail, water borne movements including barging and shipping, trucking and other pipelines that service the same markets as our pipelines. Competition for BP2 and River Rouge common carrier pipelines is based primarily on connectivity to sources of supply and demand, while Diamondback faces competition for Gulf Coast sourced diluent from third-party pipelines, which have made direct connections at Manhattan,
Illinois. Our offshore pipelines compete for new production based on geographic proximity to the production, cost of connection, available capacity, transportation rates and access to onshore markets.
Regulation
Our interstate common carrier pipelines are subject to regulation by various federal, state and local agencies including the FERC, the Environmental Protection Agency ("EPA") and the Department of Transportation ("DOT"). For more information on federal, state and local regulations affecting our business, see Part I, Item 1 and 2. Business and Properties in our 2018 Annual Report.
Acquisition Opportunities
We plan to pursue acquisitions of complementary assets from BP as well as third parties. We also may pursue acquisitions jointly with BP Pipelines. Neither BP nor any of its affiliates are under any obligation, however, to sell or offer to sell us additional assets or to pursue acquisitions jointly with us, and we are under no obligation to buy any additional assets from them or to pursue any joint acquisitions with them. We will focus our acquisition strategy on transportation and midstream assets within the crude oil, natural gas and refined products sectors. We believe that we are well positioned to acquire midstream assets from BP, and particularly BP Pipelines, as well as third parties, should such opportunities arise and so long as such opportunities further the interests of the Partnership. Identifying and executing acquisitions will be a key part of our strategy so long as market conditions and other factors permit. However, if we do not make acquisitions on economically acceptable terms, our future growth will be limited, and the acquisitions we do make may reduce, rather than increase, our available cash.
Financing
We expect to fund future capital expenditures primarily from external sources, including borrowings under our $600 million Credit Facility and potential future issuances of equity and debt securities.
We intend to make cash distributions to our unitholders at a minimum distribution rate of $0.2625 per unit per quarter ($1.05 per unit on an annualized basis). Based on the terms of our cash distribution policy, we expect that we will distribute to our unitholders and our General Partner, as the holder of our incentive distribution rights, most of the cash generated by our operations.
Seasonality
The volumes of crude oil, refined products and diluent transported in our pipelines are directly affected by the level of supply and demand for such commodities in the markets served directly or indirectly by our assets. However, many effects of seasonality on our revenue will be substantially mitigated through using our fee-based long-term agreements with BP Products that include MVCs.
Results of Operations
The following tables and discussion contain a summary of our condensed consolidated results of operations for the three and nine months ended September 30, 2019 and 2018.
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|
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|
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|
|
|
|
|
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Three Months Ended
September 30,
|
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Nine Months Ended
September 30,
|
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|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in thousands of dollars)
|
|
Revenue
|
$
|
34,561
|
|
|
$
|
32,074
|
|
|
$
|
93,402
|
|
|
$
|
87,628
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Operating expenses
|
5,330
|
|
|
4,383
|
|
|
14,932
|
|
|
12,007
|
|
|
Maintenance expenses
|
369
|
|
|
671
|
|
|
1,325
|
|
|
1,598
|
|
|
General and administrative
|
4,005
|
|
|
5,287
|
|
|
12,556
|
|
|
13,355
|
|
|
Lease expense
|
17
|
|
|
15
|
|
|
53
|
|
|
45
|
|
|
Depreciation
|
656
|
|
|
663
|
|
|
1,970
|
|
|
1,987
|
|
|
Impairment and other, net
|
—
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
Property and other taxes
|
111
|
|
|
165
|
|
|
361
|
|
|
388
|
|
|
Total costs and expenses
|
10,488
|
|
|
11,184
|
|
|
32,197
|
|
|
29,380
|
|
|
Operating income
|
24,073
|
|
|
20,890
|
|
|
61,205
|
|
|
58,248
|
|
|
Income from equity method investments
|
30,104
|
|
|
22,581
|
|
|
83,312
|
|
|
66,262
|
|
|
Interest expense (income), net
|
3,784
|
|
|
(20
|
)
|
|
11,310
|
|
|
119
|
|
|
Income before income taxes
|
50,393
|
|
|
43,491
|
|
|
133,207
|
|
|
124,391
|
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income
|
50,393
|
|
|
43,491
|
|
|
133,207
|
|
|
124,391
|
|
|
Less: Net income attributable to non-controlling interests
|
4,639
|
|
|
8,272
|
|
|
12,969
|
|
|
28,163
|
|
|
Net income attributable to the Partnership
|
$
|
45,754
|
|
|
$
|
35,219
|
|
|
$
|
120,238
|
|
|
$
|
96,228
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA*
|
$
|
57,191
|
|
|
$
|
49,369
|
|
|
$
|
157,951
|
|
|
$
|
146,911
|
|
|
Less: Adjusted EBITDA attributable to non-controlling interests
|
5,267
|
|
|
11,719
|
|
|
15,868
|
|
|
40,453
|
|
|
Adjusted EBITDA attributable to the Partnership
|
$
|
51,924
|
|
|
$
|
37,650
|
|
|
$
|
142,083
|
|
|
$
|
106,458
|
|
|
* See Reconciliation of Non-GAAP Measures below.
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|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Pipeline throughput (thousands of barrels per day)(1)(2)
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
BP2
|
316
|
|
|
276
|
|
|
299
|
|
|
286
|
|
|
Diamondback
|
59
|
|
|
52
|
|
|
65
|
|
|
69
|
|
|
River Rouge
|
72
|
|
|
70
|
|
|
71
|
|
|
65
|
|
|
Total Wholly Owned Assets
|
447
|
|
|
398
|
|
|
435
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
Mars
|
519
|
|
|
580
|
|
|
548
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
Caesar
|
176
|
|
|
214
|
|
|
198
|
|
|
198
|
|
|
Cleopatra(3)
|
21
|
|
|
24
|
|
|
24
|
|
|
23
|
|
|
Proteus
|
191
|
|
|
150
|
|
|
158
|
|
|
169
|
|
|
Endymion
|
191
|
|
|
150
|
|
|
158
|
|
|
169
|
|
|
Mardi Gras Joint Ventures
|
579
|
|
|
538
|
|
|
538
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
Ursa
|
104
|
|
|
89
|
|
|
112
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
Average revenue per barrel ($ per barrel)(2)(4)
|
|
|
|
|
|
|
|
|
Total Wholly Owned Assets
|
$
|
0.78
|
|
|
$
|
0.77
|
|
|
$
|
0.77
|
|
|
$
|
0.73
|
|
|
Mars
|
1.36
|
|
|
1.22
|
|
|
1.24
|
|
|
1.21
|
|
|
Mardi Gras Joint Ventures
|
0.63
|
|
|
0.68
|
|
|
0.67
|
|
|
0.66
|
|
|
Ursa
|
0.89
|
|
|
0.81
|
|
|
0.87
|
|
|
0.83
|
|
|
(1) Pipeline throughput is defined as the volume of delivered barrels.
|
|
(2) Interest in Ursa was contributed to the Partnership on October 1, 2018 and throughput and average revenue per barrel is presented on a 100% basis for the three and nine months ended September 30, 2018.
|
|
(3) Natural gas is converted to oil equivalent at 5.8 million cubic feet per one thousand barrels.
|
|
(4) Based on reported revenues from transportation and allowance oil divided by delivered barrels over the same time period.
|
Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018
Total revenue from our wholly owned assets increased by $2.5 million or 7.8% for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 due to the following factors:
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|
|
|
•
|
$2.9 million increase or 19.7% attributable to a 14.7% increase in throughput volume and a 4.3% increase in weighted average tariff rate from BP2.
|
|
|
|
|
•
|
$1.1 million increase from the recognition of deficiency revenue on Diamondback.
|
|
|
|
|
•
|
$1.0 million increase or 11.4% attributable to a 4.0% increase in throughput volume and a 7.1% increase in the weighted average tariff rate from River Rouge.
|
|
|
|
|
•
|
$0.1 million increase or 4.8% attributable to throughput volume from Diamondback.
|
|
|
|
|
•
|
$2.6 million decrease from the absence of deficiency revenue on BP2 in the current period.
|
Operating expenses increased by $0.9 million or 21.6% for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, primarily attributable to a $0.6 million increase in insurance expense due to acquisition of assets on October 1, 2018, a $0.1 million increase in right-of-way clearing spend and a $0.2 million increase in various other expenses.
General and administrative expense decreased by $1.3 million or 24.2% in the three months ended September 30, 2019, compared to the three months ended September 30,2018, primarily due to $0.9 million less transactions expenses in the current period compared to 2018 expenses related to acquisition of assets on October 1, 2018, and a decrease of $0.4 million from other miscellaneous expenses.
Income from equity method investments increased by $7.5 million in the three months ended September 30, 2019, compared to the three months ended September 30, 2018, primarily due to $2.7 million of incremental earnings in the current period from the assets acquired on October 1, 2018; an increase of $1.9 million from Mars primarily from a revenue adjustment and incidental revenue from new cavern access; and an increase of $2.9 million for Mardi Gras Joint Ventures primarily due to a 7.3% increase in throughput volume.
Interest expense increased by $3.8 million in the three months ended September 30, 2019, compared to the three months ended September 30, 2018 due to a full quarter of interest related to $468 million in borrowings under our Credit Facility in October 2018 to facilitate our 2018 acquisition of assets.
Net income attributable to non-controlling interests decreased by $3.6 million in the three months ended September 30, 2019, compared to the three months ended September 30, 2018 due to the reduction in non-controlling interest in Mardi Gras from 80% to 35%.
Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018
Total revenue from our wholly owned assets increased by $5.8 million or 6.6% for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 due to the following factors:
|
|
|
|
•
|
$4.1 million increase or 9.6% attributable to 4.6% increase in throughput volume and a 4.6% increase in weighted average tariff rate from BP2.
|
|
|
|
|
•
|
$3.8 million increase or 16.3% attributable to a 9.6% increase in throughput volume and a 6.1% increase in weighted average tariff rate from River Rouge.
|
|
|
|
|
•
|
$1.1 million increase from the recognition of deficiency revenue on Diamondback.
|
|
|
|
|
•
|
$2.6 million decrease from the absence of deficiency revenue on BP2.
|
|
|
|
|
•
|
$0.6 million decrease or 6.8% attributable to a 6.3% decrease in throughput volume from Diamondback.
|
Operating expenses increased by $2.9 million or 24.4% for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, primarily attributable to a $1.9 million increase in insurance expense due to the acquisition of assets on October 1, 2018, and $1.0 million due to increases in various operating costs.
General and administrative expense decreased by $0.8 million or 6.0% for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, primarily due to less transactions expenses in the current period compared to 2018 expenses related to acquisition of assets on October 1, 2018.
Operating income includes a net impairment charge of $1.0 million related to an incident that occurred in the quarter ended June 30, 2019 at Griffith Station on BP2. See MD&A - How We Evaluate Our Operations.
Income from equity method investments increased by $17.1 million in the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018, primarily due to $8.4 million of incremental earnings in the current period from the assets acquired on October 1, 2018; an increase of $6.8 million from Mars primarily from a revenue adjustment and incidental revenue from new cavern access; and an increase of $1.9 million for Mardi Gras Joint Ventures primarily due to an increase in the average tariff rate.
Interest expense, net increased by $11.2 million in the nine months ended September 30, 2019 compared to the three months ended September 30, 2018, due to a full nine months of interest related to $468 million in borrowings under our Credit Facility in October 2018 to facilitate our 2018 acquisition of assets.
Net income attributable to non-controlling interests decreased by $15.2 million due to the reduction in non-controlling interest in Mardi Gras from 80% to 35%.
Reconciliation of Non-GAAP Measures
The following tables present a reconciliation of Adjusted EBITDA to net income and to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in thousands of dollars)
|
|
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Income
|
|
|
|
|
|
|
|
|
Net income
|
$
|
50,393
|
|
|
$
|
43,491
|
|
|
$
|
133,207
|
|
|
$
|
124,391
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Depreciation
|
656
|
|
|
663
|
|
|
1,970
|
|
|
1,987
|
|
|
Interest expense, net
|
3,784
|
|
|
(20
|
)
|
|
11,310
|
|
|
119
|
|
|
Cash distributions received from equity method investments — Mardi Gras Joint Ventures
|
15,050
|
|
|
14,649
|
|
|
45,338
|
|
|
50,566
|
|
|
Cash distributions received from equity method investments — Mars
|
14,250
|
|
|
13,167
|
|
|
40,088
|
|
|
36,110
|
|
|
Cash distributions received from equity method investments — Others
|
3,162
|
|
|
—
|
|
|
9,350
|
|
|
—
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Income from equity method investments — Mardi Gras Joint Ventures
|
13,255
|
|
|
10,340
|
|
|
37,055
|
|
|
35,205
|
|
|
Income from equity method investments — Mars
|
14,104
|
|
|
12,241
|
|
|
37,819
|
|
|
31,057
|
|
|
Income from equity method investments — Others
|
2,745
|
|
|
—
|
|
|
8,438
|
|
|
—
|
|
|
Adjusted EBITDA
|
57,191
|
|
|
49,369
|
|
|
157,951
|
|
|
146,911
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Adjusted EBITDA attributable to non-controlling interests
|
5,267
|
|
|
11,719
|
|
|
15,868
|
|
|
40,453
|
|
|
Adjusted EBITDA attributable to the Partnership
|
51,924
|
|
|
37,650
|
|
|
142,083
|
|
|
106,458
|
|
|
Add:
|
|
|
|
|
|
|
|
|
Net adjustments from volume deficiency agreements
|
(3,043
|
)
|
|
(2,676
|
)
|
|
(2,792
|
)
|
|
(1,853
|
)
|
|
Less:
|
|
|
|
|
|
|
|
|
Net interest paid/(received)
|
(102
|
)
|
|
(20
|
)
|
|
11,342
|
|
|
126
|
|
|
Maintenance capital expenditures
|
109
|
|
|
869
|
|
|
375
|
|
|
1,341
|
|
|
Cash reserves(1)
|
3,882
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cash available for distribution attributable to the Partnership
|
$
|
44,992
|
|
|
$
|
34,125
|
|
|
$
|
127,574
|
|
|
$
|
103,138
|
|
(1) Acquisition financing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
(in thousands of dollars)
|
|
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Cash Provided by Operating Activities
|
|
|
|
|
Net cash provided by operating activities
|
$
|
142,230
|
|
|
$
|
133,486
|
|
|
Add:
|
|
|
|
|
Interest expense, net
|
11,310
|
|
|
119
|
|
|
Distribution in excess of earnings from equity method investments
|
8,295
|
|
|
15,362
|
|
|
Less:
|
|
|
|
|
Changes in other assets and liabilities
|
2,672
|
|
|
1,916
|
|
|
Non-cash adjustments
|
212
|
|
|
140
|
|
|
Impairment and other, net*
|
1,000
|
|
|
—
|
|
|
Adjusted EBITDA
|
157,951
|
|
|
146,911
|
|
|
Less:
|
|
|
|
|
Adjusted EBITDA attributable to non-controlling interests
|
15,868
|
|
|
40,453
|
|
|
Adjusted EBITDA attributable to the Partnership
|
142,083
|
|
|
106,458
|
|
|
Add:
|
|
|
|
|
Net adjustments from volume deficiency agreements
|
(2,792
|
)
|
|
(1,853
|
)
|
|
Less:
|
|
|
|
|
Net interest paid/(received)
|
11,342
|
|
|
126
|
|
|
Maintenance capital expenditures
|
375
|
|
|
1,341
|
|
|
Cash reserves(1)
|
—
|
|
|
—
|
|
|
Cash available for distribution attributable to the Partnership
|
$
|
127,574
|
|
|
$
|
103,138
|
|
* This includes $3.6 million of costs related to the Griffith Station Incident (impairment charge of $2.3 million and $1.3 million for response expense), net of $(2.6) million in offsetting insurance receivable. The net charge of $1.0 million reflects our insurance deductible.
(1) Acquisition financing expenses
Capital Resources and Liquidity
We maintain separate bank accounts from our Parent which continues to provide treasury services on our General Partner’s behalf under our omnibus agreement. We expect our ongoing sources of liquidity to include cash generated from operations (including distribution from our equity method investments), borrowings under our Credit Facility and issuances of debt and additional equity securities. The entities in which we own an interest may also incur debt. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions.
Cash Distributions
The board of directors of our General Partner has adopted a cash distribution policy pursuant to which we intend to pay a minimum quarterly distribution of $0.2625 per unit per quarter, which equates to approximately $27.5 million per quarter, or approximately $110.0 million per year in the aggregate, based on the number of common and subordinated units outstanding as of September 30, 2019. We intend to pay such distributions to the extent we have sufficient cash after the establishment of cash reserves and the payment of our expenses, including payments to our General Partner and its affiliates.
On October 17, 2019 we declared a cash distribution of $0.3355 per limited partner unit to unitholders of record on October 31, 2019, for the three months ended September 30, 2019. The distribution, combined with distributions to our General Partner, will be paid on November 14, 2019 and will total $35.9 million, with $16.0 million being distributed to our non-affiliated common unitholders and $19.9 million, including $0.7 million for IDRs, being distributed to our Parent in respect of its ownership of our common units, subordinated units and IDRs.
Revolving Credit Facility
On October 30, 2017, the Partnership entered into the $600 million unsecured Credit Facility with an affiliate of BP. The Credit Facility terminates on October 30, 2022 and provides for certain covenants, including the requirement to maintain a consolidated leverage ratio, which is calculated as total indebtedness to consolidated EBITDA (as defined in the Credit Facility), not to exceed 5.0 to 1.0, subject to a temporary increase in such ratio to 5.5 to 1.0 in connection with certain material acquisitions. In addition, the limited liability company agreement of our General Partner requires the approval of BP Holdco prior to the incurrence of any indebtedness that would cause our leverage ratio to exceed 4.5 to 1.0. As of September 30, 2019, the Partnership was in compliance with the covenants contained in the Credit Facility.
The Credit Facility also contains customary events of default, such as (i) nonpayment of principal when due, (ii) nonpayment of interest, fees or other amounts, (iii) breach of covenants, (iv) misrepresentation, (v) cross-payment default and cross-acceleration (in each case, to indebtedness in excess of $75.0 million) and (vi) insolvency. Additionally, the Credit Facility limits our ability to, among other things: (i) incur or guarantee additional debt, (ii) redeem or repurchase units or make distributions under certain circumstances; and (iii) incur certain liens or permit them to exist. Indebtedness under this facility bears interest at the 3-month London Interbank Offered Rate ("LIBOR") plus 0.85%. This facility includes customary fees, including a commitment fee of 0.10% and a utilization fee of 0.20%.
In connection with our acquisition in the fourth quarter of 2018, we borrowed $468 million from the Credit Facility and this amount was outstanding as of September 30, 2019.
On May 3, 2019, we entered into the Second Waiver Agreement whereby the lender waived certain terms on our outstanding $468 million borrowings. The amended loan repayment date of April 1, 2020 was waived and amended and modified to November 30, 2020. Accrued interest will be paid on the 25th day of April, July, October and January of each year. Any remaining interest will be paid on November 30, 2020. All other terms of the Credit Facility remain the same.
Cash Flows from Our Operations
Operating Activities. We generated $142.2 million and $133.5 million in cash flow from operating activities in the nine months ended September 30, 2019 and 2018, respectively. The $8.7 million increase in cash flows from operations primarily resulted from an increase in distribution from equity method investments and changes in working capital.
Investing Activities. Our cash flow generated by investing activities was $7.9 million and $14.0 million in the nine months ended September 30, 2019 and 2018, respectively. The $6.1 million decrease in cash flow generated by investing activities was due to a reduction in the distribution in excess of earnings from our equity method investments during the nine months ended September 30, 2019.
Financing Activities. Our cash flow used in financing activities was $114.7 million and $130.8 million in the nine months ended September 30, 2019 and 2018, respectively. The $16.1 million decrease in the usage of cash for financing activities was due primarily to the repayment of $15.0 million of short-term debt in the nine months ended September 30, 2018, and a net decrease of $1.1 million related to distributions to non-controlling interests, unitholders and general partner.
Capital Expenditures
Our operations can be capital intensive, requiring investment to expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements consist of maintenance capital expenditures and expansion capital expenditures, both as defined in our partnership agreement. We are required to distinguish between maintenance capital expenditures and expansion capital expenditures in accordance with our partnership agreement, even though historically we did not make a distinction between maintenance capital expenditures and expansion capital expenditures in the same way as is required under our partnership agreement.
A summary of our capital expenditures related to the Wholly Owned Assets, for the nine months ended September 30, 2019 and 2018, is shown in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
(in thousands of dollars)
|
|
Cash spent on maintenance capital expenditures
|
$
|
375
|
|
|
$
|
1,341
|
|
|
Increase in accrued capital expenditures
|
182
|
|
|
149
|
|
|
Total capital expenditures incurred
|
$
|
557
|
|
|
$
|
1,490
|
|
Our capital expenditures for the nine months ended September 30, 2019 were $0.6 million, primarily associated with instrumentation upgrades on River Rouge. Our capital expenditures for the nine months ended September 30, 2018 were $1.5 million, primarily associated with an upgrade on piping from boosters to mainline pumps for River Rouge.
All capital expenditures in the nine months ended September 30, 2019 and 2018 were maintenance expenditures. We did not incur any expansion capital expenditures during such periods.
Contractual Obligations
There were no material changes to our contractual obligations as disclosed in our 2018 Annual Report.
Off-Balance Sheet Arrangements
We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies as disclosed in our 2018 Annual Report.