Sunoco Logistics (SXL) Swings To Q2 Loss In A Tough Market

Energy pipelines and terminals operator Sunoco Logistics Partners L.P. (NYSE:SXL) reported disappointing second-quarter 2016 earnings. Weak results from the partnership’s ‘Crude Oil’ and ‘Natural gas liquids’ operating segments led to the underperformance.

Sunoco Logistics – which, together with Energy Transfer Partners L.P. (NYSE:ETP) , recently agreed to a $2 billion cash sale of a minority stake in the Bakken Pipeline Project to an entity jointly owned by Enbridge Energy Partners L.P. (NYSE:EEP) and Marathon Petroleum Corp. (NYSE:MPC) – reported adjusted loss per unit of 10 cents, contrary to the Zacks Consensus Estimate for a profit of 19 cents and the year-ago quarter earnings of 43 cents.

In more bad news, Sunoco Logistics' quarterly distributable cash flow (DCF) fell 34% year-over-year to $173 million.

Quarterly revenues of $2,268 million were down 29% from second-quarter 2015 but managed to edge past the Zacks Consensus Estimate of $2,241 million amid stronger-than-expected contribution from the ‘Refined Products’ unit.

Quarterly Distribution

Last month, Sunoco Logistics raised its quarterly distribution by 2% sequentially and 14% year over year to 50 cents per unit or $2.00 per unit annualized.

Segmental Performance

Crude Oil: Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the segment were down 30% to $114 million from the year-earlier level of $163 million. Apart from lower margins associated with the partnership’s crude oil acquisition and marketing activities, the segment was pulled down by lower fees emanating from reduced volumes and a sharp dip in crude oil differentials. These factors were partly offset by healthier contributions from joint venture interests, positive results from crude oil pipelines – spurred by the July 2015 start-up of the Permian Express 2 project – and bigger contribution from Sunoco Logistics’ crude oil terminals related to its Nederland facility.

Natural Gas Liquids: Adjusted EBITDA for this segment came in at $78 million, a 40% decline from the second-quarter 2015 level. Decreased volumes and margins related to NGL acquisition and marketing activities contributed to the deterioration. To some extent, these factors were offset by higher volumes and fee-based earnings from the Mariner natural gas liquids (NGL) projects.

Refined Products: This segment’s EBITDA was $53 million, a 56% increase from the year ago period earnings of $34 million. Strong growth in Sunoco Logistics’ pipeline and marketing terminals businesses primarily led to the upside. In particular, Allegheny Access pipeline saw higher volumes during 2016 second quarter, while the partnership also saw good contributions at its Eagle Point, Marcus Hook and other product terminal facilities.

Costs & Expenses

Costs and expenses totaled $2,029 million against $2,895 million in the prior-year quarter.

Capital Expenditure & Balance Sheet

For the three months ended Jun 30, 2016, Sunoco Logistics’ maintenance capital expenditure and expansion capital expenditure were $14 million and $391 million, respectively.

As of the end of the second quarter, Sunoco Logistics had $36 million in cash and cash equivalents. The Zacks Rank #3 (Hold) partnership had $6,112 million in total debt (consisting of $1,263 million of borrowing under the partnership's revolving credit facility), representing a debt-to-capitalization ratio of approximately 43.0%.