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What Drove Shell Midstream Partners’ EBITDA Growth in 4Q15?

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SHLX’s 4Q15 EBITDA increases

Shell Midstream Partners (SHLX) reported its 4Q15 results on February 24, 2016. The company reported 4Q15 adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $65.5 million. This is more than double its adjusted EBITDA of $31.8 million in 4Q14. Shell Midstream was listed on NYSE in October 2014. SHLX beat 4Q15 EBITDA estimates by 7%.

The above graph compares Shell Midstream Partners’ EBITDA estimates with its adjusted EBITDA. Shell Midstream forms ~2.4% of the Alerian MLP ETF (AMLP).

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Growth drivers

Shell Midstream has completed $1.2 billion of dropdowns from its sponsor since November 2014. The growth in SHLX’s 4Q15 EBITDA was driven by the following factors:

  • The acquisitions of Auger and Lockport closed in November 2015. Auger and Lockport are wholly owned by Pecten Midstream.
  • The company saw continued strong shipper demand for crude volumes moving from Houston to refining markets in Louisiana.
  • The company posted higher storage volumes due to high utilization from connected refineries.

Commenting on strong shipper demand, John Hollowell, CEO of Shell Midstream Partners, noted during the conference call, “For example Zydeco, our onshore crude system, is strategically positioned as the only pipeline originating in Houston with delivery into key Louisiana refining markets such as St. James.”

He added, “Total crude making its way into the Houston area is currently projected to be about three million barrels per day, which exceeds Houston’s refining capacity and creates an evacuation demand. So while there may be slowing production in some onshore fields given the current commodity prices, Zydeco remains a highly utilized route to get crude out of Houston and into Louisiana.”

As for other MLPs operating crude oil and products pipelines, Plains All American Pipeline (PAA) missed its 4Q15 EBITDA estimates while Magellan Midstream Partners (MMP) beat EBITDA estimates by 6%. Enterprise Products Partners (EPD) missed 4Q15 EBITDA estimates by 3%.

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