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Shell Midstream banking on continued support from supermajor sponsor

Themacro environment of producer cutbacks amid low prices is not slowingShell Midstream Partners LP'splans for growth, CEO John Hollowell said May 5.

"[Thefirst quarter] was a story of resilience and our diversified portfoliodelivered another quarter of strong financial results during our continuedchallenging macro environment," he said.

Hollowellnoted that Shell Midstream reported its $59.6 million in quarterly cashavailable for distribution, excluding nonrecurring items, is its highest levelsince its September 2014 initial public offering.

Theperiod was not without its challenges, however. Hollowell said the Zydeco crudepipeline that runs through Texas and Louisiana saw lower throughput in thefirst quarter compared to the fourth quarter of 2015, which he attributed tomaintenance on the line and at connecting refineries. The CEO said ShellMidstream is anticipating "strong demand" for the pipeline in thefuture, however, and is undertaking several projects to expand it.

"Wehave talked in prior calls about the bottleneck for the highly desirable neckfrom Houma [La.] to St. James [La.] on our prorated 18-inch line. Today I'mpleased to announce we have reached an agreement in principle to offer ourcustomers a route to St. James," he said. "We're excited about theopportunity as it will provide an additional hundred thousand barrels per dayavailable on Zydeco into St. James with no incremental CapEx required. We seethis as a big win for our customers and for Zydeco."

Hollowellsaid one of the major reasons for Shell's successful quarter was crude oilstorage, including its assets at its Lockport, Ill., crude terminal.

"Thevalue for Lockport is in storage and that remained 100% contracted for thequarter," Hollowell said. The partnership, he said, also saw an increasein storage volumes on the Mars system.

"AtMars the flexibility on the system allowed us to capture significantlyincreased storage revenues as customers opted to store volumes versus deliverthem. This storage trend may continue in the future periods," Hollowellexplained. "And these storage barrels are expected to generate additionalrevenue once they are taken out of storage and delivered. As a result of thestorage decisions by our customers Mars had lower delivery volumes but hadhigher equity income."

ShellMidstream benefitted from $1.2 billion worth of dropdowns from parentRoyal Dutch Shell plcin 2015, and the partnership could see similar results or more this year.

"Ourplans for 2016 remain the same. Our aggregate drops will be similar in size toour dropdowns in 2015 and we're confident in our ability to achieve this. Oursponsor, Royal Dutch Shell has committed to the long-term success of ShellMidstream Partners," Hollowell said. "Our strategically locatedassets provide important midstream solutions to Royal Dutch Shell and they arekeen to see the partnership succeed and grow."