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Edited Transcript of PSXP earnings conference call or presentation 30-Apr-19 6:00pm GMT

Q1 2019 Phillips 66 Partners LP Earnings Call

Houston May 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Phillips 66 Partners LP earnings conference call or presentation Tuesday, April 30, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey Alan Dietert

Phillips 66 - VP of IR

* Kevin J. Mitchell

Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC

* Rosy Zuklic

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

* Timothy D. Roberts

Phillips 66 Partners LP - Executive VP of Midstream, and VP of Operations & Director of Phillips 66 Partners GP LLC

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Conference Call Participants

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* Barrett Auten Blaschke

MUFG Securities Americas Inc., Research Division - Senior Analyst

* Christopher Paul Sighinolfi

Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Elvira Scotto

RBC Capital Markets, LLC, Research Division - Director

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Justin Scott Jenkins

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Michael Jacob Blum

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Ryan Michael Levine

Citigroup Inc, Research Division - Equity Analyst

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Theresa Chen

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Welcome to the First Quarter 2019 Phillips 66 Earnings Conference Call. My name is Julie, 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 the Phillips 66 Partners First Quarter Earnings Conference Call. Participants on today's call will include Kevin Mitchell, Vice President and CFO; Tim Roberts, Vice President Operations; and Rosy Zuklic, Vice President and Chief Operating Officer. The presentation materials we will be using during the call can be found on the Events section at 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 the Q&A 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 the call over to Kevin.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [3]

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Thank you, Jeff. And good afternoon, everyone. In the first quarter, we operated well and delivered solid financial results during a period that was impacted by significant refinery turnarounds. We also advanced our major growth projects, including construction of the Gray Oak Pipeline. During the quarter, the Sand Hills Pipeline achieved record volumes of 494,000 barrels per day following its fourth quarter expansion, and the second phase of the Bayou Bridge Pipeline was completed.

Our Board of Directors recently approved a first quarter distribution of $0.845 per common unit, an increase of $0.01 from the previous quarter and 18% higher than the first quarter 2018 cash distribution. We have increased the distribution every quarter since the IPO in July 2013. Looking forward, we remain committed to delivering a competitive and growing distribution while maintaining strong coverage and leverage ratios. Our portfolio of organic projects and financial strength position us well for future growth.

Moving onto to Slide 4 to discuss the financial results. Partners reported first quarter adjusted EBITDA of $281 million compared with $309 million in the prior quarter. The decrease reflects lower volumes from our wholly owned assets due to the impact of turnarounds at refineries operated by Phillips 66. Earnings from our equity affiliates declined as a result of lower volumes on the Bakken and Explorer pipelines, partially offset by higher Sand Hills Pipeline volumes.

First quarter distributable cash flow was $226 million, a decrease of $12 million from the prior quarter, primarily due to lower earnings from our wholly owned assets, partially offset by lower maintenance.

Slide 5 highlights our financial flexibility and liquidity. We ended the first quarter with $2 million of cash and $15 million of outstanding borrowings under our $750 million revolving credit facility. Our debt-to-EBITDA ratio on the revolver-covenant basis was 2.8x. Our distribution coverage ratio is 1.3x. Long term, we are targeting leverage of 3.5x and distribution coverage of over 1.2x.

The Partnership continues to advance its major projects. In the first quarter, our growth capital spend was $195 million, including investment in the Gray Oak Pipeline project as well as the new isomerization unit at the Phillips 66 Lake Charles Refinery and the Clemens Caverns expansion. The Partnership's strong financial position enables us to fund our capital program with operating cash flow and debt capacity. I'll now turn it over to Rosy to provide an update on our growth projects.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [4]

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Thanks, Kevin, and hello, everyone. Slide 6 lists the projects we have ongoing that will drive EBITDA growth for the next 2 years. During the quarter, we advanced our growth projects. I'll just take a moment to comment on a couple of the larger projects.

We made progress in the Gray Oak Pipeline. This 900,000-barrel per day pipeline will transport crude oil from the Permian and the Eagle Ford to Texas Gulf Coast destinations. Construction continues on the 850 miles of pipeline and the 17 facilities. We have purchased all the pipe, most of which has been delivered. 98% of the right of way has been acquired, and 17 -- and all 17 foundations have been poured. We are experiencing cost pressures from higher fuel costs, labor rates and right of way. The total cost of the project is now expected to be approximately $2.7 billion. We have all Army Corps of Engineer permits and the pipeline remains on track to start up in the fourth quarter of this year. Gray Oak will connect to multiple terminals in Corpus Christi, including the South Texas Gateway Terminal in which PSXP has a 25% ownership.

The Marine terminal will have two deepwater docks with initial storage capacity of about 7 million barrels and up to 800,000 barrels per day of throughput capacity. The project has expanded since sanctioned and is supported by additional customer commitment. The facility is expected to start up by mid-2020. The remaining projects listed are on schedule to complete on time. This concludes our prepared remarks. We will 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) Spiro Dounis from Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [2]

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Maybe just starting off on Gray Oak if we could, just looking at the cost increase. I guess is there any impact or any flow through on -- so you said the tariffs you're going to be charging, or is this sort of eating at some of the project returns at this point?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [3]

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Yes. No, it's going to be eating into the project returns, but what I would say is that what we have on the slide there with the project being 6 to 8x multiple, that's true for all the projects. If you think about this project, when it was originally sanctioned, it was sanctioned at 385,000 barrels per day. Obviously, the pipeline now at 900,000 barrels per day, commitments of 800,000 barrels per day. Obviously, it was at first lending towards the lower end of the multiple. With the increase, it's now going to be lending towards the higher end of the multiple, but still a great project. We still are very excited about it and still expect to have great returns, and obviously, once the pipeline's up and running we'll, I'm sure, find other opportunities around it.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [4]

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Okay. And that kind of answered my second question, which is, I guess on an expansion that would presumably be at a very accretive multiple so over time, there's room for you to work that multiple down again?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [5]

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That's right.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [6]

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Yes. Spiro, this is Kevin. Just to add a little further on that. The returns that we show -- the EBIT -- those billed multiples are for the projects on a standalone basis. As we've talked about, we are going into project financing on this project also, which will further enhance the returns on a levered basis. So still looks very attractive to us.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [7]

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Okay. That's -- that is a good point. The second one, a question just with respect to some of the Midstream assets still up at PSX. Thinking specifically about Sweeny frac expansion and the LPG export terminal, is there a logical pathway for those assets making their way up to PSXP? And I fully understand that you guys have sort of shifted away from drop downs, but it seems like there were some interesting comments on the PSX call around LPG export rates being around $0.10 right now. And I think that could maybe spark some long-term contracting, which makes this asset maybe a little more attractive from an MLP and Midstream standpoint.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [8]

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Yes. So looking at that from a PSX standpoint, clearly, the LPG export terminal and the fracs, once complete, so fracs 2 and 3, those assets would lend themselves to the MLP model, the MLP structure. So while, as you rightly point out, we have sort of transitioned away from drop down and a lot more organic focus, that still doesn't preclude us from entering into drop-down transactions to get those assets planned into the MLP. And there are no plans to do that anytime soon, but the potential is certainly out there.

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Operator [9]

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Elvira Scotto from RBC Capital Markets.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [10]

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So just going back to the Gray Oak cost overrun, so is that going to be financed -- that incremental, would that just be financed off the revolver? Or is that part of project financing? Or how do we think about that financing?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [11]

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Well, maybe let me talk about capital in total, and maybe we can hit it this way. So kind of, if I think about back in October, the PSXP Board approved the $1.2 billion capital program, and so that is now -- because of the Gray Oak financing -- or excuse me, the Gray Oak overage largely, it's trending more to be about 10% higher, so somewhere in the $1.3 billion, $1.32 billion.

The $1 billion, $2 billion, the original budget, was -- post project financing, was around $600 million. Now it's looking to be between $700 million and $750 million. So that kind of gives you an idea of how that's looking like kind of before project financing and after project financing, and how the Gray Oak overage is impacting both numbers.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [12]

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So to the extent that the net of financing capital budget for PSXP is increasing, which is what Rosy has just described, then in effect, that becomes -- that will be funded by essentially debt at the PSXP level, all other things being equal.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [13]

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That's very helpful. And is there any change in outlook to your maintenance CapEx spend?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [14]

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No. Not at this point. Nope. Still around $80 million, $78 million, I believe, is the number, yes.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [15]

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Okay. Perfect. And then just on the Gray Oak Pipeline, can you just help us understand, so of the commitments, what you've got contracted on there, I mean are you -- do those contracts all come online day 1, and then sort of as a follow-up to that, how do you expect the actual volumes to ramp on Gray Oak?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [16]

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So from a volume's perspective, the way we're thinking about it is, the fourth quarter is when the pipeline's going to be available, and so the thought is, as any major pipeline, it's going to take some time for -- and also as when shippers are available effectively when the production is available for them to bring in, it's going to take a little bit of time. And so I think back to kind of our involvement with -- obviously with the Bakken Pipeline, it took a couple of months for that pipeline to fully be -- to fully come to full -- it was -- having the pipeline full. So it'll take at least a couple of months. So sometime in the first quarter is where we're really thinking that the pipeline will have the full capacity.

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Elvira Scotto, RBC Capital Markets, LLC, Research Division - Director [17]

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Okay. Great. And then just in terms of -- because I know the pipeline can go to Corpus Christi, and then also into Sweeny, how much capacity can actually move into Sweeny?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [18]

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We haven't really given a split out. Tim, do you want to comment on that?

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Timothy D. Roberts, Phillips 66 Partners LP - Executive VP of Midstream, and VP of Operations & Director of Phillips 66 Partners GP LLC [19]

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Yes. I think it's -- what we can tell you on that line -- and we haven't disclosed that, not for any other reason with the exception that it is a new-build pipeline, but we do expect that meet commitments for PSX. PSX is undertaking some commitment on the pipeline. We're not the anchor shipper, but obviously this helps optimize our Sweeny asset, having those barrels available. But it is a less -- the line is sized lower than where it'd be going if we were going straight to Corpus.

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Operator [20]

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Justin Jenkins from Raymond James.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [21]

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I guess I want to start on Bayou Bridge and maybe see if you could offer any comments in terms of how that ramp's gone here for the first month of operations. And then second question is, does that give you maybe a bigger leg up with the ACE pipeline development process and how that maybe unfolds?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [22]

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Yes. So everything's going well with Bayou Bridge. As expected, the TSA started April 1, so we expect to see earnings starting a month later, and then just the cash distribution's a month after that, so everything as expected. From an ACE perspective, you've hit it on the head, I mean it'd be nice to have it all kind of -- as you kind of think about the way everything's planned out, you've got the Bakken pipeline going down to Beaumont, and then Bayou then takes crude all the way to St. James. And then ACE would then complete it all the way to the Alliance or the PSX Alliance Refinery. And so that would be a nice tie-in to not only Lake Charles, but the Alliance Refinery. So it's part of the plan.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [23]

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Got it. And I guess second question, maybe on the operating cost, anything -- it increased pretty big quarter-over-quarter. Looks like a similar offset on the revenue line, but any color on maybe the choppiness there, Kevin, in terms of how the sequential costs played out?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [24]

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Sure. What actually what's happened there, Justin, if you'll allow me, the MSLP turnaround is what you're seeing there. As there's about $50 million to $55 million associated with the MSLP turnaround, and so what you're seeing in the expense line is the expense for the turnaround and the revenue is the reimbursement. So when we drop that asset in -- there was a prearrangement for PSX to reimburse PSXP for turnaround expenses. So the same phenomenon is actually happened Bakken, the first quarter of 2018. It's just that the number was much more less, it was about $20 million. But that's really what you're seeing there.

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Operator [25]

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Theresa Chen from Barclays.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [26]

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My questions. First, in terms of the potential expansion of the Bakken JV pipeline above the 570,000 current capacity, can you remind us what is the potential hydraulic capacity of the system if you do add additional pumping and storage capabilities but still taking into account the 24-inch segments of ETCOP?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [27]

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So the pipeline today is at 570,000 barrels per day. As far as getting above the 570,000, I think from what I've seen, the pipeline has the ability to go up to 800,000 barrels, but that's not necessarily what we're expanding to with this further expansion.

We are currently just -- the partnership -- the partners are looking into the -- what further expansion to do, but we're not talking about actually doing any sort of looping. We're really just talking about it in pumping and storage.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [28]

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And the 800,000 barrels per day, would that include looping, or would that still be within the 24-inch?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [29]

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No, that -- I believe that would just be adding just pumping. I don't believe that would be any sort of looping.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [30]

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Got it. And then I wanted to touch on the recent open season to expand Bayou Bridge with various origins, including Bakken, PRB, Cushing, Permian and such. What are you seeing in terms of interest from shippers so far, and given these origin points, I'm guessing this implies potential connectivity with your other projects under development, be it Liberty and Red Oak. The parent or the Gray Oak lube at PSXP. Can you provide an update on how these projects are progressing?

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Timothy D. Roberts, Phillips 66 Partners LP - Executive VP of Midstream, and VP of Operations & Director of Phillips 66 Partners GP LLC [31]

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Yes. Teresa, this is Tim Roberts. And from the PSX view, because of the projects we're working on as far as the open seasons with Red Oak and Liberty, I'll weigh in on that. Look from Bayou Bridge, where it's located at and the connectivity it's got from Beaumont. And you've got the Bakken coming in, and there are other pipelines that are going to be coming into that particular area to get barrels either to the Beaumont, Nederland area, or get barrels to St. James, or get barrels down to loop, or get barrels potentially to the refining system in Southeast Louisiana. So we see some of these pipelines are going to be coming in, and we're a logical alternative to getting down to Houston or other destinations.

So we're just, at this point, working with our partners as far as a joint-tariff opportunities through a binding -- an open season to see what the interest level is. It's no more than that. We think we're creating more optionality into the Louisiana side, and we'll see what the interest is from people getting barrels in different basins down to that region.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [32]

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Got it. And on the revenue reimbursement related to maintenance from the drop downs, is that like a forever type of thing, or do you do it for like a certain amount of years, and then it stops?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [33]

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So we have a contractual agreement with a MSLP for 15 years, and so we have -- we'll, obviously, have to renegotiate this once the contract is done. This was just something that we did at the time of the drop.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [34]

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Specific to that asset.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [35]

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Correct.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [36]

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What about the other assets?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [37]

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No. We do not.

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Operator [38]

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Jeremy Tonet from JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [39]

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Just want to -- hope that you could clarify a little bit for me, when you talk about the Liberty Pipeline in the DAPL expansion, do these projects kind of overlap in any sense, or could you kind of clarify, I guess, what the objectives are with the 2 expansions?

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Timothy D. Roberts, Phillips 66 Partners LP - Executive VP of Midstream, and VP of Operations & Director of Phillips 66 Partners GP LLC [40]

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Yes. I think they're really serving 2 different purposes. This is Tim Roberts again, by the way, sorry. From the PSX view, and I'll talk specific to Liberty. Liberty really is trying to access some different basins on the left side of the Bakken, coupled with Powder River, DJ Wattenberg. So Liberty's really hitting a different part that Bakken doesn't really fully serve currently. So that's really the difference between the 2 pipelines. And we still think there's room for continued expansion on the eastern side of the Bakken, and then obviously, on the western side as you head out towards, again, Powder River and those other basins.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [41]

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That's helpful. And just wanted to go to Gray Oak real quick. Just a clarifying question, with regards to the economics being closer to an 8x bill multiple at this point, our understanding is that PSXP received a promote in the whole kind of formation of the partners coming in, and so when you state that level of economics, is that before or after considering that promote payment?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [42]

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It's after.

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Operator [43]

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Dennis Coleman from Bank of America Merrill Lynch.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [44]

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I guess just one last question on Gray Oak. Any guidance you can -- I mean, how much has been spent? Where do you stand percentage wise with the project? I guess really, what I'm trying to get at is what the spend level is from here?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [45]

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So maybe I'll try to tackle this question kind of holistically. So the project is about 50% done, and this is all-inclusive engineering and construction, obviously, in and of itself is going to be at a different stage than engineering. But as I think about the project being 50% done from a spend perspective, it's largely there, maybe a little bit more weighted towards the back half with some of it falling in 2020. So to the vast majority, it's going to be remaining in 2019 obviously because you're going to have a little bit of spending in 2020, and maybe you're going to see that in the first quarter of 2020.

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Operator [46]

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Barrett Blaschke from MUFG Securities.

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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [47]

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Most of mine have been addressed, but I did want to ask, Rosy you said before kind of what the 3 drivers were for cost increases on Gray Oak. Can you give us a little breakdown? Is it mostly coming from materials cost, labor or right of way, just -- if you'd kind of quantify it a bit?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [48]

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No, I can't. But additionally, one of the things that I'd also wanted to touch on, and Greg spoke to it in the PSX calls, is that we also have facilities. One of the things that Gray Oak offers that some of the other pipelines don't offer is optionality, and that optionality is then built into our facilities. And so the facilities also are adding -- have added also some costs. But I'm not going to be able to give you a split between those things.

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Operator [49]

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Michael Blum from Wells Fargo.

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Michael Jacob Blum, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [50]

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Just a couple of more on the Bakken pipeline. So just to clarify, do you intend to get to the 800,000 of capacity by late 2020? And -- that was the first part, and then the second part is what capital would be involved with that? And then I guess the third part of that is, is this an FID project because I don't -- it's not listed on the slide.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [51]

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I guess I'm not sure I understand. By late 2020, you mean by or...

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Timothy D. Roberts, Phillips 66 Partners LP - Executive VP of Midstream, and VP of Operations & Director of Phillips 66 Partners GP LLC [52]

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I think Energy Transfer is really the right person to ask that as the operator of the pipeline.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [53]

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I'm sorry. I was thinking Gray Oak. I'm sorry.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [54]

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Yes. Bakken.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [55]

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Bakken.

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Michael Jacob Blum, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [56]

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Okay, I'm just referencing in your press release where it says the partners are progressing plans to further increase the capacity by late 2020. But that's what I'm referencing.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [57]

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Right. No, that's right, that's right. No, the partnership -- the partners are talking about, obviously, increasing the capacity of the pipeline. And so at this point, Michael, we're talking through the details of exactly what we're going to do. So we don't have much more to give you at this time. And as far as that timing, we're going to work through the permitting and all that stuff. Hopefully, we do it before 2020, but we don't really have more color to give you.

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Operator [58]

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Ryan Levine from Citi.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [59]

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I just wanted to clarify one point on Bayou Bridge. Given the open season that's outstanding, is there any potential for the existing contracts to be altered in connection with that open season? Or would everything be additive?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [60]

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It would be additive, yes. The contracts that we have in place are long-term contracts, 5 to 10 years. And so really -- we're really looking for additive.

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Operator [61]

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Chris Sighinolfi from Jefferies.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [62]

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Kevin, if I could just start, I want to follow up with -- on Spiros drop down question, but ask it in the context of Greg's comment from the PSX, called out the potential to eliminate PSXP IDR. He had noted a desire to have such a transaction be accretive to the LP unitholder, and I'm just curious if that means it's likely to entail a combination of drop down and IDR elimination at one time. And then also how we might think about accretion relative to -- you've noted a competitive and growing distribution, but one where a numerical growth rate hasn't been provided. Any help with that would be really helpful.

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [63]

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Yes. So certainly doing a drop-down transaction and doing an IDR elimination at the same time is a -- that's a formula you've seen out there. That's been done by several others, and we would certainly give that consideration. But I would say, at this point, while we -- and so Greg laid out our thinking around IDRs in terms of acknowledgment that this is something we need to get to, and we will get to and we want to make sure we do this in a way that works for both the MLP and for the general partner. We don't have any specific guidance to give on either when it's going to happen exactly other than sooner than we would have originally anticipated, or exactly what that structure is going to look like.

So you've highlighted that doing that drop down, along with that is something that we could consider and would consider, but that's not to say that we've -- we don't have any firm plans to do that as such.

And then from a distribution standpoint, we have steered away from giving specific growth guidance. You see the portfolio of organic projects that we have and the approximate timing of when those projects complete and the estimates of the EBITDA generation that will come from that. And so you can see that we have a portfolio that will allow us to continue to grow the distribution, but we're not going to get into -- get caught up in a sort of specified target or objective around exactly what that growth needs to be. We want it to be competitive, but we also are mindful of the need to manage the big picture in terms of the balance sheet, leverage metrics, coverage metrics, the ability to continue to fund growth, given that this is predominantly pretty much mostly a self-funding model now, and so we just try to balance all of those factors.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [64]

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Okay. That is very helpful. I did have 2 follow-ups, I think probably for Rosy. It was helpful, the reminder on the MSLP reimbursement as it pertains to the income statement. I also noticed that as it pertains to the maintenance capital, you had a footnote there, looks like there is a super modest differential between the maintenance capital and then what's recorded in the DCF, and it seems like that's attributable to the same thing. I just wanted to make sure I understood that correctly.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [65]

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I believe so, I'm sorry. Yes.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [66]

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It looked like you had 15 versus 9, and I just didn't know if that was related to the same 15-year agreement on turnarounds, which we saw last year as well.

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [67]

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Yes. I believe that is the case. I will look into it because I don't know that I've confirmed that for you, but I believe that is the case.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [68]

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Okay. And then the final question for you on this, Rosy, obviously, predominantly the capital program is being debt-financed. I did see a little bit -- noted in the PSX release in terms of what PSXP had raised, I think it was $32 million in the period. I was just curious if there was any formal expectation for an equity component to sort of marry alongside the debt being raised?

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [69]

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Yes. This is Kevin. Certainly, not from the standpoint of doing an actual equity offering. We have the ATM program in place, and we utilize that, which provides a little bit of funding. But that's really minor in the context of the overall capital program.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [70]

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Okay. So we shouldn't expect what we saw in the first quarter to be sort of a run rate or anything of that nature?

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Kevin J. Mitchell, Phillips 66 Partners LP - Executive VP of Finance, CFO & Director of Phillips 66 Partners GP LLC [71]

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So first quarter was $32 million or so, which is -- that's all ATM, so I mean you -- it's not unreasonable to assume there'll be something like that will continue, but what you're not going to see is a several hundred million dollar equity offering...

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Operator [72]

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Theresa Chen from Barclays.

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Theresa Chen, Barclays Bank PLC, Research Division - Research Analyst [73]

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I just had a quick follow-up related to one of Elvira's questions on the Gray Oak ramp. So Rosy, I completely understand that it's going to take a couple of months to get to full capacity. So sometime within Q1 of 2020, but for the commitments, will they also ramp around the same time frame? Will we get to 800 by Q1 2020 as well? Or will the actual commitments and volumes -- is it expected to ramp at a slower pace versus capacity?

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Rosy Zuklic, Phillips 66 Partners LP - VP & COO of Phillips 66 Partners GP LLC [74]

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No, it'd be consistent with capacity.

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Operator [75]

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We have no further questions at this time. I will now turn the call back over to Jeff.

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Jeffrey Alan Dietert, Phillips 66 - VP of IR [76]

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Thank you for your interest in Phillips 66 this afternoon and Phillips 66 Partners. If you have any questions, please call Greg or me. Thank you.

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Operator [77]

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