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Shell not considering MLP roll-up, midstream partnership CEO says

Shell Midstream Partners LP President and CEO Kevin Nichols said he does not think Royal Dutch Shell PLC will roll up its master limited partnership when it decides to eliminate required cash payments to the general partner that can eat into the limited partners' quarterly distributions.

"They take a very long-term view of this entity and playing in the space," he said during an Aug. 2 earnings conference call.

The remaining MLPs that funnel incentive distribution rights, or IDRs, to their general partners are under pressure to ditch them and bulk up cash reserves to fund growth spending. Some parent companies like Valero Energy Corp. have simply acquired all the outstanding units of their MLP they did not already own, while others like Phillips 66 have agreed to just get rid of the IDRs to reduce cost of capital.

Shell Midstream is taking a different approach by waiving the payments for 2019, but analysts believe it is a bridge to fully eliminating them.

Nichols acknowledged that Royal Dutch Shell knows analysts and investors are looking for a permanent solution.

"They're well aware of what Phillips 66 has done. … And I know this is really important to everyone … and that you're looking for answers," he said.

Shell Midstream on Aug. 1 posted second-quarter adjusted EBITDA attributable to the partnership of $187.0 million, an increase from $155.2 million in the year-ago period. The S&P Global Market Intelligence consensus adjusted EBITDA estimate was $173.8 million.

The partnership's distributable cash flow in the quarter was $162.0 million, an increase from $136.6 million in the year-earlier quarter. Shell Midstream reported net income of $115.0 million, up from $110.7 million in the prior-year period.