SEC Filing - Shell Midstream Partners LP

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shlx-20200630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36710

Shell Midstream Partners, L.P.

(Exact name of registrant as specified in its charter)


Delaware						46-5223743
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

150 N. Dairy Ashford, Houston, Texas 77079

(Address of principal executive offices) (Zip Code)

(832) 337-2034

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units, Representing Limited Partner Interests	SHLX	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ý						Accelerated filer ¨
Non-accelerated filer ¨						Smaller reporting company ☐
						Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

The registrant had 393,289,537 common units outstanding as of July 31, 2020.

SHELL MIDSTREAM PARTNERS, L.P.

TABLE OF CONTENTS


			Page
Part I. Financial Information			4

Item 1. Financial Statements (Unaudited)			4

Unaudited Consolidated Statements of Income			4
Unaudited Consolidated Statements of Comprehensive Income			6
Unaudited Consolidated Balance Sheets			7
Unaudited Consolidated Statements of Cash Flows			8
Unaudited Consolidated Statements of Changes in (Deficit) Equity			9
Notes to Unaudited Consolidated Financial Statements			10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34

Item 3. Quantitative and Qualitative Disclosures About Market Risk			58

Item 4. Controls and Procedures			58

Part II. Other Information			60

Item 1. Legal Proceedings			60

Item 1A. Risk Factors			60

Item 5. Other Information			65

Item 6. Exhibits			66

Signature			67

* SHELL and the SHELL Pecten are registered trademarks of Shell Trademark Management, B.V. used under license.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

SHELL MIDSTREAM PARTNERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

	(in millions of dollars, except per unit data)
Revenue
Transportation, terminaling and storage services – third parties	$	27	$	34	$	58	$	76
Transportation, terminaling and storage services – related parties	77		64		146		128
Product revenue – third parties	—		3		—		4
Product revenue – related parties	2		6		9		16
Lease revenue – related parties	14		14		28		28
Total revenue	120		121		241		252
Costs and expenses
Operations and maintenance – third parties	10		16		24		29
Operations and maintenance – related parties	32		16		46		30
Cost of product sold	2		7		17		16
Loss from revision of asset retirement obligation	—		—		—		2
General and administrative – third parties	1		5		4		6
General and administrative – related parties	17		12		29		23
Depreciation, amortization and accretion	13		12		26		24
Property and other taxes	4		5		9		9
Total costs and expenses	79		73		155		139
Operating income	41		48		86		113
Income from equity method investments	109		80		221		150
Dividend income from other investments	—		—		—		14
Other income	11		12		20		20
Investment, dividend and other income	120		92		241		184
Interest income	7		1		8		2
Interest expense	24		22		49		43
Income before income taxes	144		119		286		256
Income tax expense	—		—		—		—
Net income	144		119		286		256
Less: Net income attributable to noncontrolling interests	3		4		7		9
Net income attributable to the Partnership	$	141	$	115	$	279	$	247
Preferred unitholder’s interest in net income attributable to the Partnership	12		—		12		—
General partner’s interest in net income attributable to the Partnership	—		30		55		57
Limited Partners’ interest in net income attributable to the Partnership’s common unitholders	$	129	$	85	$	212	$	190


Net income per Limited Partner Unit:
Common - basic	$	0.33	$	0.38	$	0.68	$	0.84
Common - diluted	$	0.32	$	0.38	$	0.66	$	0.84

Distributions per Limited Partner Unit	$	0.4600	$	0.4300	$	0.9200	$	0.8450

Weighted average Limited Partner Units outstanding:
Common units – public - basic	123.8		123.8		123.8		123.8
Common units – SPLC - basic	269.5		102.6		189.5		101.3
Common units – public - diluted	123.8		123.8		123.8		123.8
Common units – SPLC - diluted	320.3		102.6		214.8		101.3

The accompanying notes are an integral part of the consolidated financial statements.

SHELL MIDSTREAM PARTNERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

	(in millions of dollars)
Net income	$	144	$	119	$	286	$	256
Other comprehensive loss, net of tax:
Remeasurements of pension and other postretirement benefits related to equity method investments, net of tax	—		—		—		—
Comprehensive income	$	144	$	119	$	286	$	256
Less comprehensive income attributable to:
Noncontrolling interests	3		4		7		9
Comprehensive income attributable to the Partnership	$	141	$	115	$	279	$	247

The accompanying notes are an integral part of the consolidated financial statements.

SHELL MIDSTREAM PARTNERS, L.P.

UNAUDITED CONSOLIDATED BALANCE SHEETS


	June 30, 2020		December 31, 2019

	(in millions of dollars)
ASSETS
Current assets
Cash and cash equivalents	$	332	$	290
Accounts receivable – third parties, net	10		12
Accounts receivable – related parties	36		29
Allowance oil	5		12
Prepaid expenses	6		16
Total current assets	389		359
Equity method investments	1,069		926
Property, plant and equipment, net	710		726
Operating lease right-of-use assets	4		4
Other investments	2		2
Contract assets – related parties	240		—
Other assets – related parties	2		2
Total assets	$	2,416	$	2,019
LIABILITIES
Current liabilities
Accounts payable – third parties	$	5	$	5
Accounts payable – related parties	21		10
Deferred revenue – third parties	5		—
Deferred revenue – related party	4		—
Accrued liabilities – third parties	17		12
Accrued liabilities – related parties	20		19
Total current liabilities	72		46
Noncurrent liabilities
Debt payable – related party	2,692		2,692
Operating lease liabilities	4		4
Finance lease liabilities	24		24
Deferred revenue and other unearned income	3		2
Total noncurrent liabilities	2,723		2,722
Total liabilities	2,795		2,768
Commitments and Contingencies (Note 12)
(DEFICIT) EQUITY
Preferred unitholders (50,782,904 units issued and outstanding as of June 30, 2020 and 0 units issued and outstanding as of December 31, 2019)	(1,059)		—
Common unitholders – public (123,832,233 units issued and outstanding as of both June 30, 2020 and December 31, 2019)	3,421		3,450
Common unitholder – SPLC (269,457,304 and 109,457,304 units issued and outstanding as of June 30, 2020 and December 31, 2019)	(2,456)		(203)
General partner – SPLC (0 and 4,761,012 units issued and outstanding as of June 30, 2020 and December 31, 2019)	—		(4,014)
Financing receivables – related parties	(301)		—
Accumulated other comprehensive loss	(8)		(8)
Total partners’ deficit	(403)		(775)
Noncontrolling interests	24		26

Total deficit	(379)		(749)
Total liabilities and deficit	$	2,416	$	2,019

The accompanying notes are an integral part of the consolidated financial statements.

SHELL MIDSTREAM PARTNERS, L.P.

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Six Months Ended June 30,
	2020		2019

	(in millions of dollars)
Cash flows from operating activities
Net income	$	286	$	256
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, amortization and accretion	26		24
Amortization of contract assets - related parties	4		—
Loss from revision of asset retirement obligation	—		2
Allowance oil reduction to net realizable value	8		—

Undistributed equity earnings	(1)		(3)
Changes in operating assets and liabilities
Accounts receivable	(4)		(3)
Allowance oil	(1)		—
Prepaid expenses and other assets	10		10
Accounts payable	13		1
Deferred revenue and other unearned income	9		(11)
Accrued liabilities	4		7
Net cash provided by operating activities	354		283
Cash flows from investing activities
Capital expenditures	(9)		(24)
Acquisitions from Parent	—		(90)
Contributions to investment	—		(10)
Return of investment	32		47
Net cash provided by (used in) investing activities	23		(77)
Cash flows from financing activities
Payment of equity issuance costs	(2)		—
Borrowings under credit facilities	—		600


Capital distributions to general partner	—		(510)
Distributions to noncontrolling interests	(9)		(9)
Distributions to unitholders and general partner	(325)		(248)

Other contributions from Parent	—		10
Receipt of principal payments on financing receivables	1		—


Net cash used in financing activities	(335)		(157)
Net increase in cash and cash equivalents	42		49
Cash and cash equivalents at beginning of the period	290		208
Cash and cash equivalents at end of the period	$	332	$	257
Supplemental cash flow information
Non-cash investing and financing transactions:
Change in accrued capital expenditures	$	—	$	(2)
Other non-cash contributions from Parent	1		—

The accompanying notes are an integral part of the consolidated financial statements.

SHELL MIDSTREAM PARTNERS, L.P.

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN (DEFICIT) EQUITY


	Partnership
(in millions of dollars)	Preferred Unitholder SPLC		Common Unitholders Public		Common Unitholder SPLC		General Partner SPLC		Financing Receivable		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
Balance as of December 31, 2019	$	—	$	3,450	$	(203)	$	(4,014)	$	—	$	(8)	$	26	$	(749)
Net income	—		44		39		55		—		—		4		142
Distributions to unitholders and general partner	—		(57)		(50)		(55)		—		—		—		(162)
Distributions to noncontrolling interests	—		—		—		—		—		—		(5)		(5)
Balance as of March 31, 2020	$	—	$	3,437	$	(214)	$	(4,014)	$	—	$	(8)	$	25	$	(774)
Net income	12		41		88		—		—		—		3		144

Other contributions from Parent	—		—		1		—		—		—		—		1
Distributions to unitholders and general partner	—		(57)		(51)		(55)		—		—		—		(163)
Distributions to noncontrolling interests	—		—		—		—		—		—		(4)		(4)
Principal repayments on financing receivables	—		—		—		—		1		—		—		1
April 2020 Transaction	(1,071)		—		(2,280)		4,069		(302)		—		—		416
Balance as of June 30, 2020	$	(1,059)	$	3,421	$	(2,456)	$	—	$	(301)	$	(8)	$	24	$	(379)


	Partnership
(in millions of dollars)	Common Unitholders Public		Common Unitholder SPLC		General Partner SPLC		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total
Balance as of December 31, 2018	$	3,459	$	(198)	$	(3,543)	$	—	$	25	$	(257)
Impact of change in accounting policy (Note 4)	(4)		(5)		—		—		—		(9)
Net income	58		47		27		—		5		137
Other contributions from Parent	—		—		7		—		—		7
Distributions to unitholders and general partner	(49)		(40)		(40)		—		—		(129)
Distributions to noncontrolling interests	—		—		—		—		(3)