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Shell Midstream posts earnings decline, to buy stake in Permian gathering system

Shell Midstream Partners LP on Aug. 3 reported $65.5 million of net income attributable to the partnership in the second quarter, falling from $70.8 million in the prior quarter. Limited partners' interest in net income came to $51.2 million, or 29 cents per unit, in the second quarter, down from $58.7 million, or 33 cents per unit, in the first quarter.

The S&P Capital IQ consensus normalized EPS estimate for the second quarter was 32 cents.

Adjusted EBITDA for the second quarter declined to $82.7 million from $86.6 million in the quarter ended March 31.

Cash available for distribution attributable to the partnership dropped to $88.7 million from $90.5 million in the prior quarter. Shell Midstream's distribution coverage ratio in the second quarter was 1.3x.

Among other factors, Shell Midstream's second-quarter results were affected by cash impact related to deferred revenue, translating to a $10 million reduction in cash available for distribution compared to the previous quarter.

Shell Midstream also agreed to exercise its option to acquire a 50% stake in the Nautilus gas gathering system from Crestwood Permian Basin Holdings LLC, a joint venture between Crestwood Equity Partners LP and First Reserve Corp., for $47.0 million.

Shell Midstream has a 20-year tiered, fixed-fee contract on the Nautilus system for gas gathering of majority of its operated Delaware Basin gas. "This is another example of diversifying our cash flow, building on an already robust onshore portfolio and linking directly to our Sponsor's footprint," said John Hollowell, CEO of Shell Midstream. "The Permian Basin is the most important asset in Shell's Unconventionals portfolio."

The deal is expected to close in the fourth quarter.