Valero Energy Partners LP Reports Second Quarter 2014 Results

SAN ANTONIO, Aug. 11, 2014 /PRNewswire/ -- Valero Energy Partners LP (NYSE: VLP, the Partnership), today reported second quarter 2014 net income of $12.2 million, or $0.21 per limited partner unit.  The Partnership generated earnings before interest, income taxes, depreciation, and amortization (EBITDA) of $15.6 million and distributable cash flow of $15.7 million, and had a coverage ratio of 1.20 in the second quarter of 2014.

Second quarter 2014 revenues were $23.7 million versus second quarter 2013 revenues of $22.9 million.  The increase was related primarily to higher throughput volumes in the Port Arthur Logistics System, which were partially offset by lower throughput volumes in the Memphis Logistics System.

Total operating expenses in the second quarter of 2014 were $5.7 million, general and administrative expenses were $2.9 million, and depreciation expense was $3.0 million.  Combined, these expenses were $1.7 million greater than those for the second quarter of 2013, mainly due to incremental costs related to the management fee charged by Valero Energy Corporation, effective with the Partnership's initial public offering of common units in December 2013, and additional costs of operating as a separate publicly traded limited partnership.

As of June 30, 2014, the Partnership had $682 million of total liquidity consisting of $382 million in cash and cash equivalents plus $300 million in an undrawn revolving credit facility.

"Our results for the second quarter were solid," said Chairman and Chief Executive Officer Joe Gorder. "We increased the Partnership's distribution by nearly 5 percent to $0.2225 per unit, and subsequent to the close of the quarter, we completed our first acquisition of assets.  These actions are consistent with our previously communicated growth strategy for the Partnership." 

On July 1, 2014, the Partnership closed its acquisition of the Texas Crude Systems Business from subsidiaries of Valero Energy Corporation for total cash consideration of $154 million.  The acquired assets included the McKee Crude System, the Three Rivers Crude System, and the Wynnewood Products System.

The Partnership's senior management will host a conference call at 3 p.m. ET (2 p.m. CT) today to discuss this earnings release.  A live broadcast of the conference call will be available on the Partnership's web site at www.valeroenergypartners.com.

About Valero Energy Partners LP
Valero Energy Partners LP is a fee-based, growth-oriented, traditional master limited partnership formed by Valero Energy Corporation to own, operate, develop, and acquire crude oil and refined petroleum products pipelines, terminals, and other transportation and logistics assets.  With headquarters in San Antonio, the Partnership's assets include crude oil and refined petroleum products pipeline and terminal systems in the Gulf Coast and Mid-Continent regions of the United States that are integral to the operations of several of Valero's refineries.

Contacts
Investors:
John Locke, Executive Director – Investor Relations, 210-345-3077
Karen Ngo, Manager – Investor Relations, 210-345-4574
Media:
Bill Day, Vice President – Communications, 210-345-2928

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Safe-Harbor Statement
This release contains forward-looking statements within the meaning of federal securities laws. These statements discuss future expectations, contain projections of results of operations or of financial condition or state other forward-looking information. You can identify forward-looking statements by words such as "anticipate," "believe," "estimate," "expect," "forecast," "project," "could," "may," "should," "would," "will" or other similar expressions that convey the uncertainty of future events or outcomes. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Partnership's control and are difficult to predict. These statements are often based upon various assumptions, many of which are based, in turn, upon further assumptions, including examination of historical operating trends made by the management of the Partnership. Although the Partnership believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies, which are difficult or impossible to predict and are beyond its control, the Partnership cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.  When considering these forward-looking statements, you should keep in mind the risk factors and other cautionary statements contained in the Partnership's filings with the U.S. Securities and Exchange Commission, including the Form S-1 and prospectus relating to the initial public offering of the Partnership's common units and the Partnership's annual report on Form 10-K for the year ended December 31, 2013. These risks could cause the Partnership's actual results to differ materially from those contained in any forward-looking statement.  

 

VALERO ENERGY PARTNERS LP

EARNINGS RELEASE

(In Thousands, Except per Unit Amounts, per Barrel Amounts, and Ratios)

(Unaudited)








Three Months Ended
June 30,


Six Months Ended
June 30,



2014


2013


2014


2013

Statement of income data (a):







Operating revenues – related party


$23,660


$22,865


$45,191


$46,343

Costs and expenses:









  Operating expenses (b)


5,738


5,551


11,464


9,847

  General and administrative expenses (c)


2,848


1,357


5,443


2,414

  Depreciation expense (d)


3,024


2,984


6,082


6,453

  Total costs and expenses


11,610


9,892


22,989


18,714

Operating income


12,050


12,973


22,202


27,629

Other income, net (e)


491


24


1,139


50

Interest expense (f)


(221)


(47)


(449)


(102)

Income before income taxes


12,320


12,950


22,892


27,577

Income tax expense (g)


120


1,337


210


1,444

Net income


12,200


$11,613


22,682


$26,133

  Less:  General partner's interest in net income


244





454




Limited partners' interest in net income


$11,956





$22,228
















Net income per limited partner unit (basic and diluted):













  Common units


$0.21





$0.39




  Subordinated units


$0.21





$0.39

















Weighted-average limited partner units outstanding (basic and diluted):













  Common units – public


17,250





17,250




  Common units – Valero


11,540





11,540




  Subordinated units – Valero


28,790





28,790




 

 

 

VALERO ENERGY PARTNERS LP

EARNINGS RELEASE

(In Thousands, Except per Unit Amounts, per Barrel Amounts, and Ratios)

(Unaudited)








Three Months Ended
June 30,


Six Months Ended
June 30,



2014


2013


2014


2013

Operating highlights:









Pipeline transportation:













  Pipeline transportation revenues


$11,128


$13,647


$21,608


$27,853

  Pipeline transportation throughput (BPD) (h)


622,209


571,026


598,492


581,307

  Average pipeline transportation revenue per barrel (i)


$0.20


$0.26


 

$0.20


$0.26

Terminaling:













  Terminaling revenues


$12,532


$4,293


$23,583


$8,490

  Terminaling throughput (BPD)


499,424


132,962


469,297


132,603

  Average terminaling revenue per barrel (i)


$0.28


$0.35


$0.28


$0.35

Storage revenues (j)


$—


$4,925


$—


$10,000

  Total operating revenues – related party


$23,660


$22,865


$45,191


$46,343

Capital expenditures:













  Maintenance


$1,005


$289


$1,869


$547

  Expansion


1,355


700


1,355


1,607

    Total capital expenditures


2,360


989


3,224


2,154

    Less: Capital expenditures attributable to Predecessor (a)



989



2,154

  Capital expenditures attributable to Partnership


$2,360


$—


$3,224


$—

Other financial information:













  Distribution declared per unit


$0.2225


n/a


$0.4350


n/a

  EBITDA attributable to Partnership (k)


$15,565


n/a


$29,423


n/a

  Distributable cash flow (k)


$15,650


n/a


$29,215


n/a

  Distribution declared:













    Limited partner units – public


$3,839


n/a


$7,506


n/a

    Limited partner units – Valero


8,974


n/a


17,544


n/a

    General partner units – Valero


261


n/a


511


n/a

    Total distribution declared


$13,074


n/a


$25,561


n/a

  Coverage ratio (k)


1.20x


n/a


1.14x


n/a






















June 30, 2014


December 31, 2013

Balance sheet data (a):













  Cash and cash equivalents








$381,815


$375,118

  Total assets








658,771


656,442

  Total capital lease obligations








3,441


4,127

  Partners' capital








649,648


641,591

  Working capital








382,903


372,230

 

 

 

VALERO ENERGY PARTNERS LP

EARNINGS RELEASE

(In Thousands, Except per Unit Amounts, per Barrel Amounts, and Ratios)

(Unaudited)








Three Months Ended
June 30,


Six Months Ended
June 30,



2014


2013


2014


2013

Reconciliation of net income to EBITDA and distributable cash flow (k):









Net income


$12,200


$11,613


$22,682


$26,133

  Plus:













  Depreciation expense


3,024


2,984


6,082


6,453

  Interest expense


221


47


449


102

  Income tax expense


120


1,337


210


1,444

EBITDA


15,565


15,981


29,423


34,132

  Less:  Predecessor EBITDA prior to IPO on December 16, 2013 (a)



15,981



34,132

EBITDA attributable to Partnership


15,565


$—


29,423


$—

  Plus:













  Adjustments related to minimum throughput Commitments


475





507




  Projects prefunded by Valero


853





1,628




  Less:













  Cash interest paid


229





465




  Income taxes paid


9





9




  Maintenance capital expenditures


1,005





1,869




  Distributable cash flow


$15,650





$29,215




Reconciliation of net cash provided by operating activities to EBITDA and distributable cash flow (k):













  Net cash provided by operating activities


$13,060


$15,789


$29,382


$33,563

    Plus:













  Change in current assets and current liabilities


2,191


(60)


(580)


46

  Amortization of fair value adjustment to capital lease obligations


90


109


180


218

  Amortization of debt issuance costs


(82)



(164)


  Unit-based compensation expense


(25)



(36)


  Other noncash expense


(2)



(2)


  Interest expense


221


47


449


102

  Current income tax expense


112


96


194


203

EBITDA


15,565


15,981


29,423


34,132

    Less:  Predecessor EBITDA prior to IPO on December 16, 2013 (a)



15,981



34,132

EBITDA attributable to Partnership


15,565


$—


29,423


$—

    Plus:













  Adjustments related to minimum throughput commitments


475





507




  Projects prefunded by Valero


853





1,628




    Less:













  Cash interest paid


229





465




  Income taxes paid


9





9




  Maintenance capital expenditures


1,005





1,869




Distributable cash flow


$15,650





$29,215







Three Months Ended
June 30,


Six Months Ended
June 30,



2014


2013


2014


2013

Comparison of ratio of net income attributable to partners divided by total distribution declared to coverage ratio (k):













Net income attributable to partners


$12,200


n/a


$22,682


n/a

Total distribution declared


$13,074


n/a


$25,561


n/a

Ratio of net income attributable to partners divided by total distribution declared


0.93x


n/a


0.89x


n/a

Coverage ratio: Distributable cash flow divided by total distribution declared


1.20x


n/a


1.14x


n/a


 

 

VALERO ENERGY PARTNERS LP

NOTES TO EARNINGS RELEASE



(a)

References in these notes to the "Partnership," "we," "us," or "our" refer to Valero Energy Partners LP, one or more of its subsidiaries, or all of them taken as a whole for periods after December 16, 2013, the date of completion of the Partnership's initial public offering (IPO) of 17,250,000 common units representing limited partner interests. For periods prior to the IPO, those terms refer to Valero Energy Partners LP Predecessor, our Predecessor for accounting purposes. References in these notes to "Valero" may refer to Valero Energy Corporation, one or more of its subsidiaries, or all of them taken as a whole, other than Valero Energy Partners LP, any of its subsidiaries, or its general partner.

  

On December 16, 2013, Valero contributed certain crude oil and refined petroleum products pipelines, terminals, and other logistics assets (the Contributed Assets) to us and we completed the IPO of our common units, which  represented a 29.4 percent limited partner interest in us. Valero owns the remaining 68.6 percent limited partner interest in us and the 2 percent general partner interest.

 

The statement of income data for the three and six months ended June 30, 2013 reflects the results of operations of the Contributed Assets. The financial data for these periods are for our Predecessor. The statement of income data for the three and six months ended June 30, 2014 and the balance sheet data as of June 30, 2014 and December 31, 2013 reflect the results of operations, assets, liabilities, and partners' capital of the Partnership. 

 

The Partnership's results of operations may not be comparable to our Predecessor's historical results of operations for the reasons described below:

 

  Revenues. Our Predecessor generated revenues by providing fee-based transportation and terminaling services to Valero and by leasing certain crude oil and refined petroleum products storage capacity to Valero. Subsequent to the IPO, we entered into a master transportation services agreement and a master terminal services agreement with Valero with respect to our pipelines and terminals. Under these commercial agreements, the historical storage capacity lease arrangements were replaced with terminaling throughput fees. In addition, we began charging a terminaling throughput fee for crude oil delivered to our Lucas terminal for which we did not historically charge a throughput fee, and we revised the rates charged for transportation services provided by certain of our pipelines.

  General and administrative expenses. Our Predecessor's general and administrative expenses include direct charges for the management and operation of our logistics assets and certain expenses allocated by Valero for general corporate services, such as treasury, accounting, and legal services. These expenses were charged, or allocated, to our Predecessor based on the nature of the expenses. Effective with the IPO, the Partnership pays a fee to Valero for the management of our operations and general corporate services.  In addition, the Partnership incurs additional incremental general and administrative expenses as a result of being a separate publicly traded limited partnership.

 

(b)

The increase in operating expenses for the three months ended June 30, 2014 compared to the three months ended June 30, 2013 is due to higher insurance expense of $545,000 as a result of us acquiring our own insurance policies. Prior to being a separate publicly traded limited partnership, we were allocated a portion of Valero's insurance costs. The increased insurance expense was partially offset by a charge for sales taxes of $312,000 during the three months ended June 30, 2013 related to the settlement of a Texas sales tax audit that did not recur.

 

The increase in operating expenses for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 is due primarily to an increase of $1.1 million in insurance expense as a result of us acquiring our own insurance policies as described above. In addition, maintenance expense increased $622,000 primarily due to work at our Collierville crude system, which included repair of a crude prover and tank inspection, cleaning, and repair work for regulatory and compliance purposes.

 

(c)

The increase in general and administrative expenses for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013 is due primarily to $629,000 and $1.6 million, respectively, in incremental costs related to the management fee charged to us by Valero effective with the IPO; and $554,000 and $1.2 million, respectively, of additional incremental costs of being a separate publicly traded limited partnership. During the three months ended June 30, 2014, we also incurred $308,000 in costs related to the acquisition of the Texas Crude Systems Business from Valero that occurred on July 1, 2014.

 

(d)

The decrease in depreciation expense for the six months ended June 30, 2014 compared to the six months ended June 30, 2013 is due primarily to the write-off of the remaining net book value of $306,000 in 2013 associated with a tank at our Lucas crude system that was no longer in service.

 

(e)

The increase in "other income, net" for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013 is due primarily to interest income (net of bank fees) of $258,000 and $556,000, respectively, earned on our cash and cash equivalents; incremental income of $34,000 and $379,000, respectively, from the sale of scrap metal; and incremental income of $143,000 during the three months ended June 30, 2014 related to right-of-way fees collected. Prior to the IPO, our Predecessor participated in Valero's centralized cash management system; therefore, it held no cash or cash equivalents, and no interest income was allocated to our Predecessor by Valero.

 

(f)

The increase in interest expense for the three and six months ended June 30, 2014 compared to the three and six months ended June 30, 2013 is due primarily to commitment fees and amortization of the debt issuance costs related to the Partnership's revolving credit facility, which was entered into in connection with the IPO.

 

(g)

Our income tax expense is associated with the Texas margin tax. Our effective tax rate was 1 percent during the three and six months ended June 30, 2014 compared to 10 percent and 5 percent during the three and six months ended June 30, 2013, respectively. The decrease was due primarily to deferred tax expense recorded in 2013 in connection with the initial recognition of a deferred tax liability associated with a change in the law with respect to the Texas margin tax. Because this was a one-time item associated with a law change, our effective tax rate returned to previous levels.

 

(h)

Represents the sum of volumes transported through each separately tariffed pipeline segment.

 

(i)

Management uses average revenue per barrel to evaluate performance and compare profitability to other companies in the industry. There are a variety of ways to calculate average revenue per barrel; different companies may calculate it in different ways. We calculate average revenue per barrel as revenue divided by throughput for the period. Throughput can be derived by multiplying the throughput barrels per day (BPD) by the number of days in the period. Investors and analysts use this financial measure to help analyze and compare companies in the industry on the basis of operating performance. This financial measure should not be considered as an alternative to revenues presented in accordance with U.S. generally accepted accounting principles (GAAP).

 

(j)

Prior to the IPO, our Predecessor leased some of our refined petroleum products and crude oil storage capacity to Valero. Subsequent to the IPO, under our commercial agreements with Valero, these storage capacity lease agreements were replaced with terminaling fees.



(k)

We define EBITDA as net income before income tax expense, interest expense, and depreciation expense. We define distributable cash flow as EBITDA less cash payments during the period for interest, income taxes, and maintenance capital expenditures, plus adjustments related to minimum throughput commitments and capital projects prefunded by Valero. We define coverage ratio as the ratio of distributable cash flow to the total distribution declared.

 

EBITDA, distributable cash flow, and coverage ratio are supplemental financial measures that are not defined under GAAP; they may be used by management and external users of our financial statements, such as industry analysts, investors, lenders, and rating agencies, to assess:

 

•  our operating performance as compared to other publicly traded limited partnerships in the transportation and logistics industry, without regard to historical cost basis or, in the case of EBITDA, financing methods;

•  the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders;

•  our ability to incur and service debt and fund capital expenditures; and

•  the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

 

We believe that the presentation of EBITDA provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to EBITDA are net income and net cash provided by operating activities. EBITDA should not be considered an alternative to net income or net cash provided by operating activities presented in accordance with GAAP. EBITDA has important limitations as an analytical tool because it excludes some, but not all, items that affect net income or net cash provided by operating activities. EBITDA should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because EBITDA may be defined differently by other companies in our industry, our definition of EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.

 

We use distributable cash flow to measure whether we have generated from our operations, or "earned," an amount of cash sufficient to support the payment of the minimum quarterly distributions. Our partnership agreement contains the concept of "operating surplus" to determine whether our operations are generating sufficient cash to support the distributions that we are paying, as opposed to returning capital to our partners. Because operating surplus is a cumulative concept (measured from the IPO date and compared to cumulative distributions from the IPO date), we use the term distributable cash flow to approximate operating surplus on a quarterly or annual, rather than a cumulative, basis. As a result, distributable cash flow is not necessarily indicative of the actual cash we have on hand to distribute or that we are required to distribute.

 

We use the coverage ratio to reflect the relationship between our distributable cash flow and the total distribution declared. We have also provided the ratio of net income attributable to partners, the most directly comparable GAAP measure to distributable cash flow, to the total distribution declared.

 

 

 

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SOURCE Valero Energy Partners LP

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