bpmp-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-38260

BP Midstream Partners LP

(Exact name of registrant as specified in its charter)


Delaware						82-1646447
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

501 Westlake Park Boulevard, Houston, Texas 77079

(Address of principal executive offices) (Zip Code)

(281) 366-2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Units, Representing Limited Partner Interests	BPMP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2021, the registrant had 104,794,540 common units outstanding.

BP MIDSTREAM PARTNERS LP

TABLE OF CONTENTS


Item			Page

PART I - Financial Information			3

1. Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Changes in Equity			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements (Unaudited)			7
2. Management's Discussion and Analysis of Financial Condition and Results of Operations			19
3. Quantitative and Qualitative Disclosures about Market Risk			30
4. Controls and Procedures			30

PART II - Other Information

1. Legal Proceedings			31
1A. Risk Factors			31
5. Other Information			31
6. Exhibits			31
Signature			32

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	March 31, 2021		December 31, 2020
	(in millions of dollars)
ASSETS
Current assets
Cash and cash equivalents	$	129.4	$	126.9
Accounts receivable – third parties	0.3		0.2
Accounts receivable – related parties	10.1		11.0
Prepaid expenses	4.2		6.6
Other current assets	2.9		2.9
Total current assets	146.9		147.6
Equity method investments (Note 3)	520.0		519.9
Property, plant and equipment, net (Note 4)	68.2		67.9
Other assets	3.6		3.5
Total assets	$	738.7	$	738.9

LIABILITIES
Current liabilities
Accounts payable – third parties	$	0.7	$	1.9
Accounts payable – related parties	1.8		1.9
Deferred revenues and credits – related parties	0.9		1.8
Other current liabilities (Note 5)	5.8		7.8
Total current liabilities	9.2		13.4
Long-term debt – related parties (Note 6)	468.0		468.0
Other liabilities	3.6		3.5
Total liabilities	480.8		484.9

Commitments and contingencies (Note 10)

EQUITY
Common unitholders – (Public 2021 – 47,837,828 issued and outstanding; 2020 – 47,821,790 units issued and outstanding) (BP Holdco 2021 – 56,956,712 issued and outstanding; 2020 – 4,581,177 units issued and outstanding)	124.8		800.5

Subordinated unitholders – (BP Holdco 2021 – 0 issued and outstanding; 2020 – 52,375,535 units issued and outstanding)	—		(680.2)
General partner	1.2		1.2
Total partners' capital	126.0		121.5
Non-controlling interests	131.9		132.5
Total equity	257.9		254.0
Total liabilities and equity	$	738.7	$	738.9

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in millions of dollars, unless otherwise indicated)
Revenue
Third parties	$	0.8	$	1.0
Related parties	28.8		29.7
Total revenue	29.6		30.7
Costs and expenses
Operating expenses – third parties	3.5		3.7
Operating expenses – related parties	1.2		1.5
Maintenance expenses – third parties	0.8		0.2
Maintenance expenses – related parties	—		0.1
General and administrative – third parties	0.6		0.9
General and administrative – related parties	4.0		3.9
Depreciation	0.7		0.7

Property and other taxes	0.2		0.1
Total costs and expenses	11.0		11.1
Operating income	18.6		19.6
Income from equity method investments	30.3		31.3

Interest expense, net	1.1		3.4


Net income	47.8		47.5
Less: Net income attributable to non-controlling interests	5.8		5.8
Net income attributable to the Partnership	$	42.0	$	41.7

Net income attributable to the Partnership per limited partner unit – basic and diluted (in dollars):
Common units	$	0.39	$	0.39
Subordinated units	$	0.18	$	0.39

Weighted average number of limited partner units outstanding – basic and diluted (in millions):
Common units – public	47.8		47.8
Common units – BP Holdco	32.6		4.6
Subordinated units – BP Holdco	52.4		52.4

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)


		Three Month Period Ended March 31, 2021
		Partners' Capital
(in millions of dollars)		Common Unitholders		Subordinated Unitholders – BP Holdco		General Partner		Non-controlling Interests		Total
Balance at December 31, 2020		$	800.5	$	(680.2)	$	1.2	$	132.5	$	254.0
	Net income	31.3		9.5		1.2		5.8		47.8
	Distributions to unitholders ($0.3475 per unit) and general partner	(18.2)		(18.2)		(1.2)		—		(37.6)
	Conversion of subordinated units	(688.9)		688.9		—		—		—
	Unit-based compensation	0.1		—		—		—		0.1
	Distributions to non-controlling interests	—		—		—		(6.4)		(6.4)
Balance at March 31, 2021		$	124.8	$	—	$	1.2	$	131.9	$	257.9


		Three Month Period Ended March 31, 2020
		Partners' Capital
(in millions of dollars)		Common Unitholders		Subordinated Unitholders – BP Holdco		General Partner		Non-controlling Interests		Total
Balance at December 31, 2019		$	791.3	$	(689.2)	$	1.2	$	136.9	$	240.2
	Net income	20.3		20.2		1.2		5.8		47.5
	Distributions to unitholders ($0.3475 per unit) and general partner	(18.2)		(18.2)		(1.2)		—		(37.6)
	Unit-based compensation	0.1		—		—		—		0.1
	Distributions to non-controlling interests	—		—		—		(6.7)		(6.7)
Balance at March 31, 2020		$	793.5	$	(687.2)	$	1.2	$	136.0	$	243.5

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
	2021		2020
	(in millions of dollars)
Cash flows from operating activities
Net income	$	47.8	$	47.5
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	0.7		0.7

Non-cash expenses	0.1		0.1

Income from equity method investments	(30.3)		(31.3)
Distributions of earnings received from equity method investments	28.3		31.4
Changes in operating assets and liabilities
Accounts receivable	0.7		1.1
Prepaid expenses and other current assets	2.5		2.3
Accounts payable	(1.2)		0.3
Deferred revenues and credits – related parties	(0.9)		0.6
Other	0.3		(3.8)
Net cash provided by operating activities	48.0		48.9
Cash flows from investing activities
Capital expenditures	(3.4)		(0.7)

Distributions in excess of earnings from equity method investments	1.9		2.8
Net cash (used in) provided by investing activities	(1.5)		2.1
Cash flows from financing activities
Proceeds from issuance of debt – related parties	—		468.0
Repayment of debt – related parties	—		(468.0)
Distributions to unitholders and general partner	(37.6)		(37.6)
Distributions to non-controlling interests	(6.4)		(6.7)
Net cash used in financing activities	(44.0)		(44.3)
Net change in cash and cash equivalents	2.5		6.7
Cash and cash equivalents at beginning of the period	126.9		98.8
Cash and cash equivalents at end of the period	$	129.4	$	105.5
Supplemental cash flow information
Cash paid for interest	1.2		7.5
Non-cash investing transactions
Accrued capital expenditures	2.0		0.2

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions of dollars, unless otherwise indicated)

1. Business and Basis of Presentation

BP Midstream Partners LP (either individually or together with its subsidiaries, as the context requires, the “Partnership”) is a Delaware limited partnership formed on May 22, 2017 by BP Pipelines (North America) Inc. (“BP Pipelines”), an indirect wholly owned subsidiary of BP p.l.c. (“BP”), a “foreign private issuer” within the meaning of the Securities Exchange Act of 1934, as amended.

Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” or similar expressions refer to the legal entity BP Midstream Partners LP. The term “our Parent” refers to BP Pipelines; any entity that wholly owns BP Pipelines, indirectly or directly, including BP and BP America Inc. (“BPA”), an indirect wholly owned subsidiary of BP; and any entity that is wholly owned by the aforementioned entities, excluding BP Midstream Partners LP.

Business

BP Midstream Partners LP is a master limited partnership formed by BP Pipelines to own, operate, develop and acquire pipelines and other midstream assets. The Partnership's assets consist of interests in entities that own crude oil, natural gas, refined products and diluent pipelines and refined product terminals serving as key infrastructure for BP and other customers to transport onshore crude oil production to BP’s refinery in Whiting, Indiana (the “Whiting Refinery”) and offshore crude oil and natural gas production to key refining markets and trading and distribution hubs. Certain assets deliver refined products and diluent from the Whiting Refinery and other U.S. supply hubs to major demand centers.

As of March 31, 2021, the Partnership's assets consisted of the following:

•BP Two Pipeline Company LLC, which owns the BP#2 crude oil pipeline system (“BP2”).

•BP River Rouge Pipeline Company LLC, which owns the Whiting to River Rouge refined products pipeline system (“River Rouge”).

•BP D-B Pipeline Company LLC, which owns the Diamondback diluent pipeline system (“Diamondback”). BP2, River Rouge, and Diamondback, together, are referred to as the "Wholly Owned Assets".

•28.5% ownership interest in Mars Oil Pipeline Company, LLC (“Mars”), which owns a major corridor crude oil pipeline system in the Gulf of Mexico.

•65% ownership interest and 100% managing member interest in Mardi Gras Transportation System Company, LLC ("Mardi Gras"), which holds the following investments in joint ventures located in the Gulf of Mexico:

•56% ownership interest in Caesar Oil Pipeline Company, LLC (“Caesar”),

•53% ownership interest in Cleopatra Gas Gathering Company, LLC (“Cleopatra”),

•65% ownership interest in Proteus Oil Pipeline Company, LLC (“Proteus”), and,

•65% ownership interest in Endymion Oil Pipeline Company, LLC (“Endymion”).

•Together Endymion, Caesar, Cleopatra and Proteus are referred to as the “Mardi Gras Joint Ventures.”

•22.7% ownership interest in Ursa Oil Pipeline Company, LLC ("Ursa").

•25% ownership interest in KM Phoenix Holdings, LLC ("KM Phoenix").

We generate a majority of revenue by charging fees for the transportation of crude oil, refined products and diluent through our pipelines under agreements with minimum volume commitments ("MVC"). We do not engage in the marketing and trading of any commodities. All operations are conducted in the United States, and all long-lived assets are located in the United States. Partnership operations consist of one reportable segment.

Certain Partnership businesses are subject to regulation by various authorities including, but not limited to the Federal Energy Regulatory Commission ("FERC"). Regulatory bodies exercise statutory authority over matters such as common carrier tariffs, construction, rates and ratemaking and agreements with customers.

Basis of Presentation

Condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission (“SEC”). These rules and regulations conform to the accounting principles contained in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, the single source of accounting principles generally accepted in the United States (“GAAP”).

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions of dollars, unless otherwise indicated)

Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted from these condensed consolidated financial statements. The condensed consolidated financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, included herein, are unaudited. These financial statements include all known accruals and adjustments necessary, in the opinion of management, for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. Unless otherwise specified, all such adjustments are of a normal and recurring nature. The unaudited results of operations for the interim periods reported are not necessarily indicative of results to be expected for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "Partnership's 2020 10-K").

Partnership financial position, results of operations and cash flows consist of consolidated BP Midstream Partners LP activities and balances. All intercompany accounts and transactions within the financial statements have been eliminated for all periods presented.

Subordinated Unit Conversion

On February 11, 2021, we paid a cash distribution of $0.3475 per limited partner unit to unitholders of record on January 28, 2021, for the three months ended December 31, 2020. Following payment of the distribution, the board of directors of our General Partner confirmed and approved that the financial tests required for conversion of our subordinated units had been met under the terms of the partnership agreement. As a result, on February 12, 2021, all of the Partnership's subordinated units were converted into common units on a one-for-one basis and the subordination period was terminated. Refer to Note 8 - Net Income Per Limited Partner Unit for additional information.

As a result of the completion of this conversion event, common units are now presented on a combined basis in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Changes in Equity as of and for the period ended March 31, 2021. Prior periods have been reclassified in the comparative periods to conform to current period presentation in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Changes in Equity.

Summary of Significant Accounting Policies

There have been no significant changes to accounting policies as disclosed in Note 2 - Summary of Significant Accounting Policies in the Partnership's 2020 10-K.

2. Revenue Recognition

We recognize revenue over time or at a point in time, depending on the nature of the performance obligations contained in the respective contract with customers. A performance obligation is our unit of account and it represents a promise in a contract to transfer goods or services to the customer. The contract transaction price, which is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, is allocated to each performance obligation and recognized as revenue when or as the performance obligation is satisfied. The following is an overview of our significant revenue stream, including a description of the respective performance obligations and related methods of revenue recognition.

Pipeline Transportation

Revenue from pipeline transportation is comprised of tariffs and fees associated with the transportation of liquid petroleum products, generally at published tariffs and in certain instances, revenue from MVC contracts at negotiated rates. Tariff revenue is recognized either at the point of delivery or at the point of receipt, pursuant to specifications outlined in the respective tariffs. We record revenue for crude oil, refined products and diluent transportation during the period in which they are earned (i.e., either physical delivery of product has taken place or the services designated in the contract have been performed). Partnership services are typically billed on a monthly basis, and we generally do not offer extended payment terms. We accrue revenue based on services rendered but not billed for that accounting month.

Billings to BP Products North America Inc. ("BP Products") for deficiency volumes under its MVCs, if any, are recorded as deferred revenue and credits, a contract liability, on the condensed consolidated balance sheets, as BP Products has the right to make up the deficiency volumes within the measurement period specified by the agreements. Deferred revenue under these arrangements is recognized into revenue once it is deemed remote that the customer will meet its required annual MVC. If the

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions of dollars, unless otherwise indicated)

customer does satisfy its MVC by shipping the deficiency volumes within the same calendar year, it may receive a refund of excess payments.

We did not recognize deficiency revenue under the throughput and deficiency agreements with BP Products for the three months ended March 31, 2021 and 2020.

Allowance Oil

The tariff for crude oil transportation at BP2 includes a fixed loss allowance (“FLA”). An FLA factor per barrel, a fixed percentage, is a separate fee that is considered a part of the transaction price under the applicable crude oil tariff to cover evaporation and other losses in transit. The amount of revenue recognized is a product of the quantity transported, the applicable FLA factor and the settlement price during the month the product is transported.

We recognized revenue of $2.6 million and $1.5 million in the three months ended March 31, 2021 and 2020, respectively, related to the FLA arrangements with our Parent.

Disaggregation of Revenue

The following table provides information about disaggregated revenue:


	Three Months Ended March 31,
	2021		2020
Transportation services revenue – third parties	$	0.8	$	1.0
Transportation services revenue – related parties	28.8		29.7
Total revenue	$	29.6	$	30.7

Future Performance Obligations

The values in the table below represent the fixed portion of the MVC arrangements with our existing customer contracts, summarized as future performance obligations as of March 31, 2021. The unfulfilled performance obligations included in the table below are expected to be recognized in revenue in the specified periods:


	As of March 31, 2021
Remainder of 2021	$	80.2
2022	102.0
2023	98.3
Total	$	280.5

Contract Balances

Contract assets and contract liabilities are the result of timing differences between revenue recognition, billings and cash collections. Contract liabilities or deferred revenue and credits primarily relate to consideration received from customers for temporary deficiency quantities under minimum volume contracts that the customer has the right to make up in a future period, which we subsequently recognize as revenue or amounts we credit back to the customer in a future period.

The following table provides information about receivables from contracts with customers, contract assets and contract liabilities:


	March 31, 2021		December 31, 2020
Receivables from contracts with customers – third parties	$	0.3	$	0.2
Receivables from contracts with customers – related parties	10.1		11.0
Deferred revenue and credits – related parties	0.9		1.8

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions of dollars, unless otherwise indicated)

3. Equity Method Investments

We account for ownership interests in Mars, the Mardi Gras Joint Ventures, Ursa, and KM Phoenix using the equity method for financial reporting purposes. Financial results include the Partnership's proportionate share of Mars, the Mardi Gras Joint Ventures, Ursa and KM Phoenix, which is reflected in Income from equity method investments on the condensed consolidated statements of operations. We did not record any impairment loss on equity method investments during the three months ended March 31, 2021 and 2020.

The table below summarizes the balances and activities related for each equity method investment ("EMI") recorded as of and for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021							Three Months Ended March 31, 2020
	Percentage Ownership	Distributions Received		Income from EMI		Carrying Value		Percentage Ownership	Distributions Received		Income from EMI		Carrying Value
Mars	28.5%	$	(11.0)	$	11.8	$	54.9	28.5%	$	(13.0)	$	12.5	$	56.4
Caesar	56.0%	(3.9)		3.8		116.4		56.0%	(4.9)		4.5		117.0
Cleopatra	53.0%	(1.6)		1.1		113.8		53.0%	(2.9)		2.0		116.7
Proteus	65.0%	(4.7)		4.0		67.7		65.0%	(5.5)		4.1		73.9
Endymion	65.0%	(8.0)		7.5		78.8		65.0%	(5.9)		6.0		81.1
Others(1)	Various	(1.0)		2.1

SEC Form 10-Q filed by BP Midstream Partners LP