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What Drove Sunoco Logistics’ 2Q16 Earnings?

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Sunoco Logistics’ 2Q16 EBITDA

Sunoco Logistics Partners’ (SXL) 2Q16 EBITDA (earnings before interest, tax, depreciation, and amortization) fell to $245 million from $326 million in 2Q15, a YoY (year-over-year) fall of 24.8%. SXL missed its 2Q16 EBITDA estimate by 12.5%.

SXL’s 2Q16 EBITDA includes the impact of a ~$60 million reversal of the favorable LIFO (last in, first out) accounting in 1Q16. Having said that, we’ll look at the six-month numbers for SXL to avoid the noise due to LIFO accounting in both quarters.

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Sunoco Logistics’ 1H16 EBITDA drivers

The change in SXL’s 1H16 EBITDA was mainly driven by the following factors:

  • SXL’s Crude Oil segment saw a ~$15 million rise in EBITDA in 1H16 driven by strong Permian throughput volumes. This was partially offset by a lower margin from SXL’s crude oil acquisition and marketing business due to a fall in the WTI (West Texas Intermediate) Midland to LLS (Louisiana Light Sweet) spread. The average spread was $1.85 per barrel in 1H16 compared to $5.74 per barrel during 1H15. NGL Energy Partners (NGL) and Genesis Energy (GEL) have experienced similar falls in their crude oil marketing businesses.
  • The Natural Gas Liquids segment’s 1H16 performance was negatively impacted by low NGLs (natural gas liquids) volumes along the Mariner NGLs project. Plus, the segment’s butane blending suffered due to weaker margins despite higher blending volumes.
  • The Refined Products segment was SXL’s best performing segment in 1H16. The segment’s performance was driven by the Allegheny Access pipeline, which was placed into service in late 2015, and growth in the marketing terminals business.

Sunoco Logistics’ distributable cash flow

SXL’s distributable cash flow fell by 34.7% YoY in 2Q16, which drove its distribution coverage lower. SXL’s YTD (year-to-date) distribution coverage stood at 1.0x.

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