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Edited Transcript of PSXP earnings conference call or presentation 28-Apr-17 6:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Phillips 66 Partners LP Earnings Call

Houston May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Phillips 66 Partners LP earnings conference call or presentation Friday, April 28, 2017 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* J. T. Liberti

Phillips 66 Partners LP - COO of Phillips 66 Partners GP LLC and VP of Phillips 66 Partners GP LLC

* Jeffrey Alan Dietert

Phillips 66 - VP of IR

* Kevin J. Mitchell

Phillips 66 Partners LP - CFO of Phillips 66 Partners GP LLC, VP of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC

* Robert A. Herman

Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC

* Timothy Garth Taylor

Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC

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Conference Call Participants

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* Brian Joshua Zarahn

Mizuho Securities USA Inc., Research Division - MD and Senior Analyst

* Christine Cho

Barclays PLC, Research Division - Director and Equity Research Analyst

* Jeremy B. Tonet

JP Morgan Chase & Co, Research Division - Analyst

* Jerren Holder

Goldman Sachs Group Inc., Research Division - Associate

* Kristina Anna Kazarian

Deutsche Bank AG, Research Division - Head of the Equity Research Team and Director

* Richard J. Roberts

Scotia Howard Weil, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to the First Quarter 2017 Phillips 66 Partners Earnings Conference Call. My name is Krista, and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin.

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Jeffrey Alan Dietert, Phillips 66 - VP of IR [2]

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Good afternoon, and welcome to Phillips 66 Partners first quarter earnings conference call. Participants on today's call will include Tim Taylor, President; Kevin Mitchell, Vice President and CFO; Bob Herman, Senior Vice President, Operations; Tom Liberti, Vice President and Chief Operating Officer.

The presentation materials we'll be using during the call can be found on the Phillips 66 Partners' website, along with supplemental financial and operating information.

Slide 2 contains our safe harbor statement. It is a reminder that we will be making forward-looking statements during the presentation and a question-and-answer session. Actual results may differ materially from what we present today. Factors that could cause actual results to differ are included here as well as in our SEC filings.

With that, I'll turn it over to Tim Taylor for opening remarks.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [3]

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Thanks, Jeff, and good afternoon, everyone. Phillips 66 Partners had solid first quarter results. Earnings were $97 million, and adjusted EBITDA was $155 million. Our Board of Directors recently approved a first quarter distribution of $0.586 per unit, a 5% increase over the fourth quarter. Distribution coverage this quarter remains strong at 1.31x. Since our 2013 IPO, we've increased distributions for 14 consecutive quarters at a compound annual growth rate of 34%. We remain on track to achieve a 30% compound annual growth rate on distributions from the fourth quarter of 2013 through 2018.

Now turning to Slide 4. During the first quarter, we continued to execute on our organic growth projects. For the year, our capital budget is $437 million, reflecting $381 million of growth capital, and $56 million of maintenance capital.

On the growth side, development continues on the second leg of the Bayou Bridge Pipeline from Lake Charles to St. James, Louisiana. We expect construction to begin this quarter, with commercial operations starting in the fourth quarter of 2017. Phillips 66 Partners owns a 40% interest in this joint venture project.

The Sand Hills Pipeline expansion continues to progress. The project will expand capacity from 280,000 barrels per day to 365,000 barrels per day, with an expected in-service date by the end of 2017.

Phillips 66 Partners owns a 1/3 interest in this joint venture.

The STACK joint venture, in which we own a 50% interest, has started an expansion project to loop the existing pipeline and extend further into the STACK play to access additional production. The project will increase capacity by 150,000 barrels per day, and we expect it to be complete by the end of 2017.

As announced today, we're developing a 25,000-barrel per day isomerization unit to increase production of high-octane gasoline blend components at the Phillips 66 Lake Charles refinery. Total capital for the project is expected to be about $200 million. Final investment decision is expected in the first half of 2018.

Just like our existing asset base, we would expect the isomerization unit to generate consistent fee-based earnings. The partnership would enter into a long-term agreement with Phillips 66 for processing services, including a minimum volume commitment. Development of this organic opportunity would further increase our growth portfolio beyond 2018.

Now I'll turn the call over to Kevin Mitchell to provide both operational and financial updates for the quarter.

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Kevin J. Mitchell, Phillips 66 Partners LP - CFO of Phillips 66 Partners GP LLC, VP of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [4]

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Thank you, Tim. Good afternoon, everyone. Looking at operations on Slide 5, volumes across the system were similar to the fourth quarter. Total pipeline throughput, excluding volumes from equity affiliates, is 1.9 million barrels per day, up from 1.8 million barrels per day in the fourth quarter.

Total terminal throughput was 1.4 million barrels per day, similar to the prior quarter. Crude oil terminal volumes decreased while refined product and NGL volumes increased. Volumes were higher compared to the prior quarter due to a full quarter's ownership of the assets that were acquired in mid-October 2016. This was largely offset by the impact of higher turnaround activity at Phillips 66 refineries connected to our logistics assets.

Average pipeline revenue increased $0.04 per barrel in the first quarter to $0.63 due to volume mix. Average terminal revenue was slightly higher at $0.41 per barrel, both of these rates exclude equity affiliates.

Slide 6 shows the change in adjusted EBITDA from the previous quarter. First quarter adjusted EBITDA was $155 million, down $6 million from the fourth quarter. Turnaround activity at Phillips 66 refineries connected to the partnership's assets reduced first quarter adjusted EBITDA by $6 million. The February fire on our River Parish NGL system contributed to a $3 million decrease in EBITDA on that system. These items were partially offset by a make-whole payment from an equity affiliate and other smaller items.

Slide 7 walks through the DCF calculation. During the quarter, we had deferred revenue impacts related to the Gold Line, Eagle Ford gathering and River Parish systems, which increased distributable cash flow by $4 million. Net interest expense was $24 million, and maintenance capital expenditures were $11 million. Distributable cash flow for the quarter was $124 million. Total cash distributions of $95 million will result in a distribution coverage ratio of 1.31x. The recently approved first quarter cash distribution of $0.586 per limited partner unit will be payable on May 12.

Slide 8 highlights the growth that we have achieved over the last year. Our first quarter distribution per unit represents a 22% increase over first quarter 2016. Adjusted EBITDA increased by 109%, and distributable cash flow by 94% year-over-year. We continue to progress toward our goal of $1.1 billion of run rate EBITDA by the end of 2018. At the end of the first quarter, annualized run rate EBITDA for the partnership was approximately $625 million.

Slide 9 shows our financial position at the end of the first quarter. We ended the quarter with $1 million of cash and $157 million of outstanding borrowings under our revolving credit facility. Our debt-to-EBITDA ratio was 3.8x on a revolver covenant basis. Long term, we expect leverage to be at our targeted level of 3.5x.

This concludes our prepared remarks. We'll now open the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Kristina Kazarian from Deutsche Bank.

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Kristina Anna Kazarian, Deutsche Bank AG, Research Division - Head of the Equity Research Team and Director [2]

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So I figured I'd start off, just get this one out of the way. You probably won't answer it, but I'm going to try anyways. You guys reiterated guidance, or PSX did, in terms of EBITDA for PSXP in the longer-term growth rate on it. Just can you provide me any updated thoughts on timing of the next drop? Or just generally, how you guys are thinking about capital markets, trends and activity right now?

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [3]

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Well, Kristina, we certainly don't give guidance about when we draw. But clearly, to hit the $1.1 billion target, we need to acquire additional assets at PSXP. We have the supporting sponsor. I think as we look at that, that says that we'll continue to grow, and that's the commitment that we've made, both the PSXP and the PSX sponsor. In terms of the capital market, and Kevin talked a bit about that, but I think that we still have an attractive cost of capital, the debt markets are very attractive from -- with our credit rating. And so I think we always look at ways to optimize the cost of capital. But we think we've got the right propositions around our assets and the way we structure that to access those. Kevin?

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Kevin J. Mitchell, Phillips 66 Partners LP - CFO of Phillips 66 Partners GP LLC, VP of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [4]

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Yes. I would just supplement with, as we've done to date, we'll fund acquisitions over time. It will be a combination of debt and equity financing. Everything we've done to date has been -- has worked out very well for us. We still think that markets are there and available on both a debt and an equity standpoint as we look at going into the equity markets. I mean, we want to optimize our cost of capital, and we're also mindful of how we tap those markets and what impact that has on our equity. So we'll consider various options and alternatives as we go down that path. But all of that will be, as we get to the next transactions, we'll develop specific plans that will -- that make the most sense at that point in time.

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Kristina Anna Kazarian, Deutsche Bank AG, Research Division - Head of the Equity Research Team and Director [5]

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Perfect. A couple thematic ones. I think in terms of backlog of assets that might eventually fit into PSXP, on the parent call this morning, I'm pretty sure they mentioned fracs with an s on the end and debating locations. Can you just talk about updated thoughts there as well as -- also mention the importance of export trends. So, potential in terms of developing crude export assets, and where you guys might have export dock capacity, and where you guys might think about doing that, if at all, locationally?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [6]

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Yes. Kristina, it's Bob. I think on the frac question, from the beginning of the Sweeny hub development in frac 1, we've talked about that being -- we call it frac 1 as we envision frac 2 and beyond as the NGL continued to grow. And in fact, we invested an infrastructure with the original assets down there to be able to kind of plug and play on the next set of fracs that would come there. Certainly, we view NGL growth, particularly out of the Permian, to be very strong over the coming years. They're going to create a need for additional fractionation capacity in the U.S. Gulf Coast, and we think we're well positioned at Sweeny between the assets we've got there, the Clemens Storage terminal, and then direct access to the water, where we think, particularly, the propane has to eventually end up. It really positions us well to continue to build fracs there. And I think it's reasonable to think that those assets will be structured, so that we could do what we did to frac 1 at some point in time and our sponsor could move those down into PSXP. I think the same is true when you look at some of our other assets out there that are setting up for energy export, which is a growing theme in the country. Beaumont, in particular, sits very nicely. We've just finished 2 million barrels of crude expansion. You heard PSX announced this morning that we've taken FID and another 2 million barrels of crude storage there. We've got 3 docks with significant capacity available. And we think that really sets that facility up long term for -- as an export facility, for us and for others. So again, that facility belongs to our sponsor, and the eventual buildout there is theirs. But you can see that being the type of asset that our sponsor would probably want to see in PSXP at some point in time.

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Kristina Anna Kazarian, Deutsche Bank AG, Research Division - Head of the Equity Research Team and Director [7]

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Perfect. And real last quick one for me. Can you just give an update on this isomerization unit, maybe how it came to fruition? And what kind of we're waiting on it, if we're not doing FID until first half of '18?

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [8]

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So Kristina, it's Tim. But we've just taken the AFE, the development piece of that. And it kind of really further develop the cost in that. But we have that stream. It's available. It's the right stream on a C5-C6 stream by isomerization, increases the octane level really of a light naphtha. If you think out forwardly, if you believe light crude is going to continue to increase, it's -- I think you'll continue to see the need for octane to blend into that to make gasolines at the right performance level. So that was really the thinking. And the decision on FID is really dependent on wrapping up and deploying the costs. And so that's why we said in the first half of '18, it just takes that long to fully develop the contracts around that and how we look at the tie-ins at the refinery, et cetera.

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [9]

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I think one thing I'll add to that, too, is that over the last year or so, you've heard us talk about pivoting towards more projects around our sponsors, refining assets and whether those be pipes to feed, pipes to take away, or kind of growth projects like this that are beneficial both to that particular refinery, but give us an opportunity to really set in some nice fee-based income.

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J. T. Liberti, Phillips 66 Partners LP - COO of Phillips 66 Partners GP LLC and VP of Phillips 66 Partners GP LLC [10]

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Kristina, it's Tom. I would just add, too. This is kind of an example, too. We've talked all along about as the MLP grows, it will be able to take on larger projects and larger time frame projects. And I think this is a pretty good example of that.

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Operator [11]

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Your next question comes from the line of Jeremy Tonet with JPMorgan.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [12]

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Picking up on the topic of kind of production getting lighter, especially on the Delaware. I was just wondering if this iso project is maybe the first in the step of other things that you guys might be able to do to capitalize on that, be it splitters or just other logistics assets, in general. Just wondering if you could provide any thoughts there.

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [13]

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Yes. I think you're absolutely right, Jeremy. As we see the production growth coming on, it appears that it's going to be lighter and lighter as, particularly as the Permian kind of expands to the West. And that creates a need for additional infrastructure. And certainly, part of our thinking around upgrading a very light naphtha stream as we're doing here in the isomerization project is dealing with kind of a low-value stream and upgrading it is directionally a good thing to do, both for our sponsor and for us. I think if we rewind a couple of years, we had talked about the condensate splitters making sense. I think we're a long way from condensate splitters making sense today, but I think directionally, that's where we're headed. Those types of opportunities to deal with, either additional really light barrels that need to get to the water to get exported or need to be slightly modified and moved, the lightest portion of that out, and keep the heavier barrels maybe in a refining system, probably makes sense at some point.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [14]

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Great. And then just looking at the STACK JV, just wondering, is that an area where you guys could expand further? It seems like you have kind of bolt on going deeper into the play there. Do you see runway for incremental opportunities?

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J. T. Liberti, Phillips 66 Partners LP - COO of Phillips 66 Partners GP LLC and VP of Phillips 66 Partners GP LLC [15]

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Jeremy, it's Tom. We'll get this loop done. This will add another 150,000 barrels a day capacity, and then we'll just look at where producers are. I mean, that valley is pretty hot right now, and we would expect it to increase in the future.

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Jeremy B. Tonet, JP Morgan Chase & Co, Research Division - Analyst [16]

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Great. And then maybe just one last one for Kevin, if I could. I was wondering, that make-whole payment that you described -- you listed there, if you could provide any more detail on that, or the other line that was $7 million in the income statement, if you could provide a little bit more color on that.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [17]

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Yes. So the make-whole payment is actually -- I think this is the second time we've had this come through. So it was about a year-plus ago, we had a similar related to the Sand Hills, Southern Hills equity ventures and the restructuring at DCP triggered a tax termination. And that, in effect, triggered the make-whole payment.

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Operator [18]

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Your next question comes from the line of Brian Zarahn with Mizuho.

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Brian Joshua Zarahn, Mizuho Securities USA Inc., Research Division - MD and Senior Analyst [19]

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On the isomerization project, can you kind of talk a little bit more how to think about expected returns? I know it's not FID-ed yet, but if it does move forward. How do you think about the return profile and service date?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [20]

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Yes. So I'll start with the last question first. In service date, we see in the first half of 2020, and driven primarily by permitting and then kind of turnaround cycles with the Lake Charles Refinery to fit into their schedule. The second piece is, yes, we haven't given EBITDA on that, and we're still -- that's why we're still in development phase to nail down all the cost. But we would actually expect a good -- build multiple type return for these assets that competes very well with the other organic projects we've got in our backlog.

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Brian Joshua Zarahn, Mizuho Securities USA Inc., Research Division - MD and Senior Analyst [21]

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And then along those lines, anything you can share on other potentially similar projects you're looking at that could be done at the PSXP level?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [22]

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Yes. I think at our sponsor, at PSX, they're certainly looking at other opportunities for yield improvement and upgrading low-value streams like this one. And whether we do them at PSX or at PSXP, they're always project dependent, how big they are, their time frame. This one, for refining projects, is actually a fairly short time frame, and we're able to get going pretty quick on this one. So there's no doubt in my mind there's more projects out there to do, and we'll decide at the time whether we do them at our sponsor or at PSXP.

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Brian Joshua Zarahn, Mizuho Securities USA Inc., Research Division - MD and Senior Analyst [23]

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Just moving over to a project that is at the sponsor now. For your Permian crude gathering system open season, any update on where that stands? And then if you could maybe elaborate a bit on how you view the opportunity set in the Permian? Could you look at potential JV, similar to what you've done in other sponsor pipeline investments in the crude area?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [24]

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So the Rodeo project, which we announced in mid-March and went to open season March 24, we're still in open season, still in active discussions with lots of producers out there. As everybody knows, that's the hot place to be. And so there's a lot of competition for those barrels that are going to get produced next year and the year after and beyond. So we already operate out there, so we have a foothold, and we think that helps give us an advantage over maybe a few to develop another gathering system. But I'd like to see how that comes together. Those type of opportunities are, really, a scramble against other players. And people who have an advantage or have a toehold already or have a connection point out, it makes sense. As far as joint ventures, we have a lot of joint ventures today. Sometimes, that's a way to get an asset lifted. Economically, it's to bring a partner in who can bring volume with them. We're open to those, and we continue to -- we always continue to talk about those sorts of things. So I would say, stay tuned. There will be a lot of activity out in the Permian before this is all done.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [25]

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Yes. And we also, not only just the crude side, but certainly in the NGL side with the Sand Hills expansion, it's a piece of that. So you talked about -- we talked about condensate, we talked about crude oil, we talked about NGL. So I think it's a scenario where we already have some exposure. We would like to continue that. And so it's also, as Bob said, a very competitive area, but it is from an upstream standpoint, the most active development area in the North America.

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Operator [26]

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Your next question comes from the line of Richard Roberts with Scotia Howard Weil.

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Richard J. Roberts, Scotia Howard Weil, Research Division - Analyst [27]

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I guess one more back on the (inaudible). I mean, I'm just curious, maybe, can you talk about what some of the considerations are that you look at when you're deciding whether to build an asset like that at the PSX or the PSXP level, just thinking along the lines of more refining-type assets, just what are the puts and takes on where that is more appropriate.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [28]

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Well, I think, first, is it a project that can be done at the size that PSXP can manage from a carry or a cost standpoint, and a couple of hundred million dollars on this period, that clears that from a financial sense. But fundamentally, the project has got to make sense from an economic hole. So there has to be called a general interest, but it has to be a project that has economic drivers, both -- when we think about those kinds of things, both at PSX and PSXP, then it's a question of what's the best way to really capture value. And I think this is the example where we have good general interest project, and it's a great project for PSXP. So it works for both the sponsor as well as the partnership.

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J. T. Liberti, Phillips 66 Partners LP - COO of Phillips 66 Partners GP LLC and VP of Phillips 66 Partners GP LLC [29]

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And Richard, I think from a fundamental standpoint, too, it's how we can structure. Can we restructure so that it can be a fee-based type of asset, so that it fits in the PSXP portfolio.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [30]

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We tend to look at this a little bit like we would a fractionator. It's the same concept that, that kind of concept tends to work, I think with the structure we have and the nature of our partnership.

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Richard J. Roberts, Scotia Howard Weil, Research Division - Analyst [31]

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And so could we think about this as a maybe a blueprint for similar type of investments going forward, and maybe blur the line between midstream and refining-type investments?

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [32]

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Oh, I think that, that just depends on each one, but I think we're demonstrating that there is that opportunity there as a way to grow value for the company in total.

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Richard J. Roberts, Scotia Howard Weil, Research Division - Analyst [33]

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Okay, great. And one more on the expansion of the STACK JV, can you give us a sense of what kind of commitments you have on the additional capacity there? Or maybe just how much of that capacity do you think is going to be taken by PSX for its own system?

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J. T. Liberti, Phillips 66 Partners LP - COO of Phillips 66 Partners GP LLC and VP of Phillips 66 Partners GP LLC [34]

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Yes. We haven't announced any of the contracts that are on the expansion going forward, other than to say, like I said, it expands the capacity by about 150,000 barrels a day. We have some commitments, and we would expect more in the future.

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Operator [35]

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Your next question comes from the line of Christine Cho with Barclays.

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Christine Cho, Barclays PLC, Research Division - Director and Equity Research Analyst [36]

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I wanted to start with the Rodeo pipeline. What sort of drove the interest in wanting to build this line? Was it wanting to play in the Permian? Or was it driven by wanting to secure some additional supply for your refinery? And is the spending here manageable enough where if it were to move forward, PSXP could do it at their level rather than the parent?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [37]

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Well, it's -- I think the answer to the first question is, we see the need for infrastructure investments in the Permian, and that drives us to want to participate out there. We think there's a lot of opportunity. And Tim mentioned, we've got some synergies out there. We're already exposed on the NGL side. We already have crude gathering systems in the Midland Odessa area, and operate there today. So this is really kind of core to our strategy of expanding on our current footprint and reaching out and doing things that we already know how to do. I think the answer to the second question always comes down to what is the eventual size of this project turn out to be, what's the timing of it, how long do we see the development, is it an easy carry for PSXP or do we continue to do it at PSX? And it becomes eligible for one of those assets that moves the PSXP at some point in time. So that's usually a decision. You've seen us kind of do everything, right? So we've had projects where -- like the isomer. We just started out of the gate at PSXP. We've had projects like Bayou Bridge, where we started at PSX, and we moved them across at costs during the engineering or early construction phase. And then we've got obviously projects that we constructed at our sponsor PSX and dropped down at some point in time.

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Christine Cho, Barclays PLC, Research Division - Director and Equity Research Analyst [38]

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Okay. And then thoughts on potentially extending one step further and building a bigger export pipeline out of the Permian, is any potential to do this dependent on whether or not Rodeo moves forward? Or you guys don't think that they're related?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [39]

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Well, I think there's been a lot of capacity announced coming out of the Permian, so that's obviously a very competitive space. And typical midstream, you've got to open season, you see what commitments you can get, and we'd be in the same kind of boat. But we think there's a need for this gathering system in these particular counties where we're -- we've laid out a plan with the producers. And certainly, there are multiple pipes that it can connect to, to get out of the Permian, either to Cushing to Houston or to Corpus Christi.

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Christine Cho, Barclays PLC, Research Division - Director and Equity Research Analyst [40]

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Okay. And then moving over to the NGL side. With the Sand Hills pipeline being expanded, and it sounds like with the Permian going at the pace as it is that there could be more expansions behind it. Is there any potential to contractually set up contracts or provide some bumping service with any of the future fracs that you guys are thinking about at Sweeny?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [41]

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Yes. I think that makes a natural extension, right? We're a large owner of Sand Hills pipe that goes right by Sweeny, and it's an alternative to taking it all the way to Mont Belvieu. Yes, I think there could be a synergy there. Obviously, there's a value chain there, and there's different players in different parts of the value chain. But when we look at working together with the DCP partners at the PSX level, yes, we see opportunities across the value chain to work.

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [42]

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Yes. And just to comment on the frac, I mean fundamentally, we just see the increased supply, ethane comes back out of rejection in the system. So we think this is still an area as the basin develops that regardless to other supply options. But there is a need, and will continue to be a need on the Gulf Coast for additional processing capacity for both exports and petrochemical feedstock.

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Christine Cho, Barclays PLC, Research Division - Director and Equity Research Analyst [43]

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Okay. And one last question for me. The STACK Pipeline, you guys talked about extending that. What county are you extending that into?

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Robert A. Herman, Phillips 66 Partners LP - SVP of Operations - Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [44]

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I think you stumped us. I think we'll get back to you on that one.

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Operator [45]

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And your next question comes from the line of Jerren Holder with Goldman Sachs.

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Jerren Holder, Goldman Sachs Group Inc., Research Division - Associate [46]

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Given the potential for tax reform does that change how you guys think about the size and pace dropdowns just given the growth from $625 million run rate to the $1.1 billion by the end of 2018?

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Timothy Garth Taylor, Phillips 66 Partners LP - President of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [47]

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Well, we certainly have visibility to 2018 on our side. I have a lot less visibility around what the tax policy would be. I think there has to be a lot more understood about that but -- about how that works and what it does, but I think it's something that we'll watch. But we still look at that and say the MLP structure still has some advantages. And so I think that, that's a story that's still developing but it's not clear to us all the ins and outs of what's covered. And Kevin, if you want to add anything else on that.

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Kevin J. Mitchell, Phillips 66 Partners LP - CFO of Phillips 66 Partners GP LLC, VP of Phillips 66 Partners GP LLC and Director of Phillips 66 Partners GP LLC [48]

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No, I think that's exactly right. There's a lot of uncertainty. I mean, we've seen high-level statements around tax proposals, but a lot of details still waiting to follow on that. So clearly, there's a lot of energy for some degree of tax reform, but we just have to stay on top of that as we get more details and work through it. But for now, the $1.1 billion target is still intact.

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Operator [49]

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And we have no further questions at this time. I'll turn the call back over to Jeff.

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Jeffrey Alan Dietert, Phillips 66 - VP of IR [50]

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Thank you, Krista, and I thank all of you for your interest in Phillips 66 Partners. If you have any questions, please call Rosy, C.W. or, me. Thank you.

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Operator [51]

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Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.