SHELL MIDSTREAM PARTNERS, L.P. (SHLX) Q2 2016 RESULTS ANNOUNCEMENT August 4, 2016
DEFINITIONS AND CAUTIONARY NOTE This presentation includes various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements are statements of future expectations that are based on management s current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among other things, statements concerning management s expectations, beliefs, estimates, forecasts, projections and assumptions. You can identify our forward-looking statements by words such as anticipate, believe, estimate, budget, continue, potential, guidance, effort, expect, forecast, goals, objectives, outlook, intend, plan, predict, project, seek, target, begin, could, may, should or would or other similar expressions that convey the uncertainty of future events or outcomes. In accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995, these statements are accompanied by cautionary language identifying important factors, though not necessarily all such factors, which could cause future outcomes to differ materially from those set forth in forward-looking statements. In particular, expressed or implied statements concerning future actions, future drop downs, volumes, capital requirements, conditions or events, future impact of prior acquisitions, future operating results or the ability to generate sales, the potential exposure of Shell Midstream Partners to market risks, and statements relating to expected EBITDA, future growth, income, cash flow and the amount of distributions are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Forward-looking statements speak only as of the date of this presentation, August 4, 2016, and we disclaim any obligation to update such statements for any reason, except as required by law. All forward-looking statements contained in this document are expressly qualified in their entirety by the cautionary statements contained or referred to in this paragraph. Many of the factors that will determine these results are beyond our ability to control or predict. These factors include the risk factors described in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2015, as updated by our other filings with the SEC. If any of those risks occur, it could cause our actual results to differ materially from those contained in any forward-looking statement. Because of these risks and uncertainties, you should not place undue reliance on any forward-looking statement. Copyright of, L.P. August 2016 2
HIGHLIGHTS AND AGENDA Strategy Acquisitions Operational Results Financial Results Q&A Copyright of, L.P. August 2016 3
SHELL MIDSTREAM PARTNERS STRATEGY Mainstream Midstream: Stable, Fee Based Cash Flows Flagship Portfolio High quality assets Extensive portfolio of diverse & strategic assets at Sponsor Organic growth Top Tier Growth Financial Flexibility Copyright of, L.P. August 2016 4
TRACK RECORD OF DELIVERY ~$1.9 BILLION IN ACQUISITIONS FROM SPONSOR AND SIX QUARTERLY DISTRIBUTION INCREASES Q4 14 Q2 15 Q4 15 H2 16 IPO $448 mln Acquisition of Additional Interests in Zydeco & Colonial Q3 15 $350 mln Acquisition of 36% of Poseidon $390 mln Acquisition of 100% of Auger and Lockport Q2 16 $700 mln Acquisition of Additional Interests in Zydeco, Colonial, Bengal ~$300-$500 mln Acquisition +7.7% +8.6% $0.1625 $0.1750 $0.1900 +7.9% +7.3% $0.2050 $0.2200 +6.8% +6.4% $0.2350 $0.2500 +53.8% Q4 14 (1) Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 1.2x 1.3x 1.3x 1.5x 1.9x (2) 1.4x 1.4x (1) Pro Forma Minimum Quarterly Distribution, Q4 14 actual distribution payment of $0.1042/unit for November 3 December 31 following IPO (2) Coverage Ratio 1.6x excluding nonrecurring payments Copyright of, L.P. August 2016 Q3 16 Q4 16 5
STRONG ALIGNMENT WITH OUR SPONSOR ROYAL DUTCH SHELL S REFRESHED STRATEGY RE-SHAPING SHELL Create a world class investment case More resilient and more focused company PORTFOLIO PRIORITIES Cash engines Conventional Oil & Gas, Oil Sands Mining, Integrated Gas and Oil Products Growth priorities Deepwater and Chemicals Future opportunities Shales and New Energies MANAGING THE DOWN-CYCLE Pulling levers to manage financial framework Re-set costs Reduce debt RDS STRATEGY COMPLIMENTS AND REAFFIRMS SHELL MIDSTREAM PARTNERS GROWTH OUTLOOK Copyright of, L.P. August 2016 6
RDS GROWTH PRIORITIES WITH MIDSTREAM COMPONENT DEEP WATER Strategy Growth in advantaged geology Gulf of Mexico + Brazil in Focus Multi-billion barrels potential Appomattox Under construction ~175 kboe/day potential Breakeven costs around $55/boe which was announced when the project was sanctioned Midstream: Mattox Oil Export Pipeline Serve Appomattox in Gulf of Mexico 89-mile corridor pipeline (24 ) with line capacity of ~300 kboe/day Pre-installed subsea connections to capture future growth from the Norphlet region Provided for illustrative purposes only. Represents currently identified growth projects at RDS that are expected to include certain midstream assets that may be appropriate for inclusion in the partnership based on current assumptions. The partnership provides no assurance as to if and when the projects shown may be completed or offered to or acquired by the partnership. RDS is under no obligation to offer any assets to the partnership. Copyright of, L.P. August 2016 7
RDS GROWTH PRIORITIES WITH MIDSTREAM COMPONENT CHEMICALS Strategy New growth engine for RDS Advantaged feedstock & growth markets USA + China growth Pennsylvania Petrochemicals Complex Greenfield final investment decision June 2016 Produce 1.6 mln tonnes of polyethylene per year Midstream: Falcon Ethane Pipeline System Common carrier purity ethane supply line that will feed petrochemicals plant 94-mile pipeline Connections to three ethane supply points (Pennsylvania and Ohio) in rich gas portions of the Marcellus and Utica Shale reservoirs Provided for illustrative purposes only. Represents currently identified growth projects at RDS that are expected to include certain midstream assets that may be appropriate for inclusion in the partnership based on current assumptions. The partnership provides no assurance as to if and when the projects shown may be completed or offered to or acquired by the partnership. RDS is under no obligation to offer any assets to the partnership. Copyright of, L.P. August 2016 8
OUR RECENT ACQUISITION FROM RDS Acquisition effective April 1, 2016 Acquisition of additional interest: 30% of Zydeco, 3% of Colonial, and 1% of Bengal $700 mln acquisition: Financed with cash, borrowings, and cash proceeds from equity offering Strategic Rationale Highly accretive for unitholders Stable predictable, fee-based revenue from FERC-based tariffs Limited exposure to commodity prices Strong and diverse customer base with stable and growing demand Continued growth on systems Copyright of, L.P. August 2016 9
EXPLORER ACQUSITION Overview Operated by Explorer Pipeline 1,830 mile common carrier pipeline 28 from Port Arthur, TX to Tulsa, OK 24 from Tulsa, OK to Hammond, IN 10 from Houston, TX to Arlington, TX Transports gasoline, diesel, fuel oil, and jet fuel to 70 major cities in 16 states Average throughput greater than 600 kbpd with capacity of 660 kbpd Expected to close August 2016 Strategic Fit Opportunistic third-party acquisition that complements Shell s ownership To be funded with available cash and immediately accretive Further diversification of our refined products portfolio Copyright of, L.P. August 2016 10
SHLX FOOTPRINT Crude SHLX Shell Auger 100.0% 0.0% Mars 28.6% 42.9% Poseidon 36.0% 0.0% Zydeco 92.5% 7.5% Products SHLX Shell Bengal 50.0% 0.0% Colonial 6.0% 10.12% Explorer (1) 2.62% 35.97% Storage SHLX Shell Lockport 100.0% 0.0% (1) Projected interest in Explorer following closing of the acquisition in August 2016. Copyright of, L.P. August 2016 11
ZYDECO Zydeco Projects Joint-Tariff with LOCAP adding capacity from Houma to St. James via Clovelly (LOOP) with no capex required Third party connections to drive throughput growth and improve optionality for Zydeco. Pump and electrical upgrades at Houma adding 100,000 bpd of capacity from Houma to Clovelly Copyright of, L.P. August 2016 12
GULF OF MEXICO Copyright of, L.P. August 2016 13
FINANCIAL RESULTS FROM OPERATIONS Three Months Ended ($ million) June 30, 2016 March 31, 2016 Revenue 71.1 76.7 Cost and Expenses 33.0 31.7 Operating Income 38.1 45.0 Income from Equity Investments 25.6 23.2 Dividend Income 4.6 2.8 Net Income 66.3 68.0 Net Income Attributable to SHLX 63.8 55.3 Adjusted EBITDA Attributable to SHLX (1) 77.1 65.5 Cash Available for Distribution (1) 69.7 59.7 (1) Non-GAAP measures. See reconciliation to GAAP measures in Appendix 1. Copyright of, L.P. August 2016 14
NON GAAP FINANCIAL METRICS Three Months Ended ($ million except per unit amount) June 30, 2016 March 31, 2016 Adjusted EBITDA Attributable to SHLX (1) 77.1 65.5 Less: Net Interest Paid 1.0 2.1 Maintenance Capital Attributable to SHLX 6.7 2.7 Plus: Adjustments from Minimum Volume Commitments Reimbursements from Parent included in Partners Capital (0.1) (1.1) 0.4 0.1 Cash Available for Distribution Attributable to SHLX (1) 69.7 59.7 Total Cash Distribution Declared 49.0 41.7 Cash Distribution per Unit 0.2500 0.2350 Coverage Ratio (2) 1.4x 1.4x (1) Non-GAAP measures. See reconciliation to GAAP measures in Appendix 1. (2) Coverage Ratio is equal to Cash Available for Distribution Attributable to the Partnership divided by Total Cash Distribution Declared. Copyright of, L.P. August 2016 15
CAPITAL EXPENDITURES Growth Capex ($ million) Plan Copyright of, L.P. August 2016 Current Estimate Zydeco 30.1 7.6 Lockport 0.7 0.0 Auger 0.0 0.0 Total 30.8 7.6 Zydeco Reduced spend following LOCAP joint tariff which increases capacity on the highly desired Houma to St. James route Explorer Funds reallocated to support opportunistic acquisition of interest in a refined products system Maintenance Capex ($ million) Plan Current Estimate Zydeco 19.6 23.2 Lockport 4.8 5.6 Auger 5.2 4.8 Total 29.6 33.6 Zydeco Directional Drill Project (~$10.4 million) and upgrades at Houma, Port Neches, Caillou Island ~$9.6 million for Directional Drill reimbursed by Shell Lockport Electrical and Storm Water Upgrades ~$1.3 million for Storm Water Project reimbursed by Shell Auger Control System Upgrade and HSSE related Improvements ~$1.4 million for HSSE project cost sharing 16
BALANCE SHEET ($ million) As of June 30, 2016 As of March 31, 2016 Cash and Cash Equivalents 169 138 Total Debt 344 48 Revolving Credit Facility Capacity (Inc. Zydeco) 610 610 Total Liquidity Available 435 700 Copyright of, L.P. August 2016 17
QUESTION AND ANSWER For further questions, please contact Courtney Selinidis +1 713 241 1513 Courtney.Selinidis@Shell.com Copyright of, L.P. August 2016 18
APPENDIX 1 NON GAAP FINANCIAL MEASURES This presentation includes the terms Adjusted EBITDA and cash available for distribution. Adjusted EBITDA and cash available for distribution are non-gaap supplemental financial measures that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods; the ability of our business to generate sufficient cash to support our decision to make distributions to our unitholders; our ability to incur and service debt and fund capital expenditures; and the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities. We believe that the presentation of Adjusted EBITDA and cash available for distribution provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA and cash available for distribution are net income and net cash provided by operating activities. These non-gaap measures should not be considered as alternatives to GAAP net income or net cash provided by operating activities. Adjusted EBITDA and cash available for distribution have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. They should not be considered in isolation or as substitutes for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA and cash available for distribution may be defined differently by other companies in our industry, our definition of Adjusted EBITDA and cash available for distribution may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. References in this presentation to Adjusted EBITDA refer to net income before income taxes, net interest expense, gain or loss from disposition of fixed assets, allowance oil reduction to net realizable value, and depreciation, accretion and amortization, plus cash distributed to Shell Midstream Partners, L.P. from equity investments for the applicable period, less income from equity investments. We define Adjusted EBITDA attributable to as Adjusted EBITDA less Adjusted EBITDA attributable to noncontrolling interests. References to cash available for distribution refer to Adjusted EBITDA attributable to, less maintenance capital expenditures attributable to, net interest paid, cash reserves and income taxes paid, plus net adjustments from volume deficiency payments attributable to and certain one-time payments not reflected in net income. Cash available for distribution will not reflect changes in working capital balances. Copyright of, L.P. August 2016 19
RECONCILIATION OF ADJUSTED EBITDA AND CASH AVAILABLE FOR DISTRIBUTION TO NET INCOME Copyright of, L.P. August 2016 20
RECONCILIATION OF ADJUSTED EBITDA AND CASH AVAILABLE FOR DISTRIBUTION TO NET CASH PROVIDED BY OPERATING ACTIVITIES Copyright of, L.P. August 2016 21
APPENDIX 2 REFINED PRODUCTS Bengal Colonial Refined products pipeline system connecting four refineries in the St. Charles, Norco, Garyville, and Convent areas of Louisiana with storage tankage in Baton Rouge, Louisiana Two primary pipelines comprise the 158-mile system Approximately four million bbls of tank capacity in Baton Rouge, LA Connects with the Plantation and Colonial Pipelines to provide major market outlets to the Southeast and East Coast Copyright of, L.P. August 2016 Largest refined product pipeline system in the US, transporting more than 100 million gallons per day of over 40 different refined products 5,500-mile refined products system that connects refineries in the Gulf Coast to demand centers along the East Coast Primary products transported include gasoline, jet fuel, kerosene, home heating oil, diesel fuel and national defense fuel Delivers to approximately 270 marketing and shipper terminals across 13 states and the District of Columbia 22
APPENDIX 3 LOCKPORT Copyright of, L.P. August 2016 23