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Andeavor Logistics LP Reports Record Second Quarter 2018 Results
  • Reported record second quarter net earnings of $148 million and EBITDA of $289 million
  • Increased quarterly distribution to $1.03 per limited partner unit; 29th consecutive increase
  • Announced today the successful completion of a $1,550 million drop down, adding expected 2019 annual net earnings of $105 to $115 million and EBITDA of $195 to $205 million
  • Increased 2018 growth capital by $150 million due to greater demand from customers, further investment in the recent drop down assets and successful business development
  • Announced additional crude oil gathering project in the Delaware Basin; expecting to exit 2018 with an annual run rate of $90 million of net earnings and $150 million of EBITDA from Permian Basin assets
  • Expecting to achieve 2018 strategic and financial targets, including coverage of approximately 1.1 times and leverage of approximately 4.0 times

San Antonio - August 6, 2018 - Andeavor Logistics LP (NYSE: ANDX) today reported record second quarter net earnings of $148 million, or $0.63 per diluted common limited partner unit, and EBITDA of $289 million. Growth in the quarter was led by record performance in the Terminalling and Transportation segment due to strong utilization and continued improving fundamentals in Gathering and Processing. Gas Gathering and Processing results for the quarter were impacted by $5 million in lower earnings due to planned downtime for an expansion project at the Robinson Lake gas processing facility to support increased demand in the Bakken.

"Our business delivered outstanding results, reaching record volumes in certain segments and growing net earnings by $9 million and EBITDA by $16 million over the prior quarter," said Greg Goff, Chairman and Chief Executive Officer of Andeavor Logistics' general partner. "We completed a $1.6 billion drop down that further integrates our Permian Basin assets and provides additional future growth opportunities. Additionally, we are increasing our 2018 growth capital to complete investments associated with the drop down and to meet increasing customer demand for our services in the Permian Basin as well as in the Bakken and Rockies. With a robust and growing portfolio of projects already in execution and no expected additional equity needs through 2020, we are well positioned to achieve our financial and strategic targets, creating significant unitholder value."

  Three Months Ended
June 30,
  Six Months Ended
June 30,
($ in millions) 2018   2017 (a)   2018   2017 (a)
Net Earnings $ 148     $ 111     $ 287     $ 203  
Segment Operating Income              
Terminalling and Transportation $ 128     $ 124     $ 248     $ 222  
Gathering and Processing 70     53     144     115  
Wholesale 11     2     15     2  
               
EBITDA (b) $ 289     $ 240     $ 562     $ 452  
Segment EBITDA (b)              
Terminalling and Transportation $ 161     $ 149     $ 311     $ 268  
Gathering and Processing 122     96     246     197  
Wholesale 13     3     20     3  
               
Net Cash From Operating Activities $ 231     $ 111     $ 461     $ 318  
Distributable Cash Flow Attributable to Common Unitholders (b) $ 214     $ 177     $ 413     $ 329  
               
Total Distributions to be Paid to Common Unitholders $ 209     $ 147     $ 414     $ 287  
Distribution Coverage Ratio (b) 1.02x   1.20x   1.00x   1.15x

(a)   Adjusted to include the historical results of the Predecessors. See "Items Impacting Comparability."
(b)   For more information on EBITDA, Segment EBITDA, Distributable Cash Flow Attributable to Common Unitholders and Distribution Coverage Ratio, see "Non-GAAP Measures."

Segment Results

Terminalling and Transportation
Terminalling and Transportation reported a record quarter. Segment operating income was $128 million for the second quarter 2018, an increase of $4 million from the prior year, and segment EBITDA was $161 million, an increase of $12 million from the prior year. The year-over-year increase was primarily attributable to contributions from the Western Refining Logistics acquisition, the 2017 Anacortes Logistics Asset drop down and organic growth. Record volumes in the quarter were significantly higher due to strong utilization and higher demand for refined products throughout the system.

Gathering and Processing
Gathering and Processing segment operating income was $70 million for the second quarter 2018, an increase of $17 million from the prior year, and segment EBITDA was $122 million, an increase of $26 million from the prior year. The year-over-year increase was primarily attributable to contributions from the Western Refining Logistics acquisition, Permian Basin volume growth and Gas Gathering and Processing growth in the Bakken.

Gas Gathering & Processing results for the quarter were impacted by $5 million in lower earnings due to planned downtime for an expansion project at the Robinson Lake gas processing facility to support increasing production in the Bakken.

Wholesale
The Wholesale segment also reported record results. Operating income was $11 million for the second quarter 2018, an increase of $7 million from the prior quarter, and segment EBITDA was $13 million, an increase of $6 million from the prior quarter. Results compared to the prior quarter were driven by seasonally higher volumes and an improved wholesale margin environment.

Balance Sheet and Cash Flow

Net cash from operating activities was $231 million in the second quarter 2018 and distributable cash flow attributable to common unitholders for the second quarter was $214 million. Andeavor Logistics ended the second quarter 2018 with $44 million of cash and approximately $1.4 billion of availability under its revolving credit facilities.

Net capital expenditures for the second quarter 2018 were $100 million, which included $90 million of growth capital and $10 million of net maintenance capital. Due to additional capital required to complete projects related to the drop down and additional organic projects across the business driven by improving market fundamentals, Andeavor Logistics now expects to invest $150 million more in growth capital in 2018, increasing its previous guidance of $325 million to $475 million. Net maintenance capital expenditures are expected to be $75 million, unchanged from prior guidance.

On July 24, 2018, Andeavor Logistics announced a quarterly cash distribution of $1.03 per limited partnership unit or $4.12 on an annualized basis. This represents an increase of 1.5% over the prior distribution and the partnership's 29th consecutive quarterly increase. The distribution coverage ratio was 1.02x for the second quarter 2018. Coverage is expected to sequentially improve through 2018 as Andeavor Logistics' distributable cash flow growth exceeds distribution growth.

Andeavor Logistics is well positioned to achieve its stated 2018 strategic and financial objectives, including reaching approximately 1.1 times coverage, approximately 4.0 times leverage and distribution growth of at least 6%.

Strategic Update

Permian Basin Growth Update
Andeavor Logistics also announced today that it has been awarded an additional new crude oil gathering project in the Delaware Basin, for a total of six crude oil gathering projects awarded over the last three quarters. Capital invested for these projects is expected to total approximately $75 to $85 million through 2018 and early 2019, with an anticipated average multiple of 6 to 7 times EBITDA. Acreage dedications in the Permian Basin associated with these projects total 76,000 acres. Following the completion of the drop down and continued build-out, expansion and new connections planned for this system, Andeavor Logistics expects to exit 2018 with a run rate from its Permian Basin assets of $90 million of annual net earnings and $150 million of annual EBITDA. Andeavor's recently announced joint ventures in the Gray Oak Pipeline and marine terminal in Corpus Christi are expected to further enhance Andeavor Logistics' competitive position in the Permian Basin when pursuing crude oil gathering projects, but the impact of these projects is not included in Andeavor Logistics' current outlook.

2018 Drop Down and Funding Update
Andeavor Logistics today announced it has acquired a portfolio of logistics assets from Andeavor for total consideration of $1,550 million. The transaction positions the Company to efficiently optimize, connect and capture more growth and synergies by dropping down substantially all the Permian Basin and remaining refining logistics assets and creating a more integrated, larger-scale system. Additionally, the broader combined asphalt business, which now includes nine terminals, better positions Andeavor Logistics to capture opportunities related to low sulfur marine diesel fuel standards and optimize operations across a larger terminal network.

The assets included in the drop down are gathering, storage and transportation assets in the Permian Basin, including the RIO Pipeline, legacy Western Refining assets and associated crude terminals and the majority of Andeavor's remaining refining terminalling, transportation and storage assets. The drop down also includes the Conan Crude Oil Gathering System and the Los Angeles Refinery Interconnect Pipeline, transferred at cost plus capitalized interest.

The assets are expected to generate 2019 annual net earnings of $105 to $115 million and EBITDA of $195 to $205 million and 2020 annual net earnings of $120 to $125 million and EBITDA of $215 to $220 million. Andeavor Logistics expects to invest approximately $100 million in 2018 and $50 million in 2019 of capital, primarily to further expand and grow the Conan Crude Oil Gathering System as well as complete the Los Angeles Refinery Interconnect Pipeline. When adjusting for the additional capital and earnings from these investments, this transaction represents a multiple of approximately 8.4 times anticipated 2019 EBITDA and 7.8 times anticipated 2020 EBITDA. The transaction is expected to be immediately accretive. The drop down transaction was approved by the Board of Directors of the General Partner of Andeavor Logistics and by the Conflicts Committee of the Board of Directors, which consists entirely of independent directors. The Conflicts Committee engaged an independent financial advisor to render a fairness opinion.

The drop down transaction was funded with $300 million in borrowings under Andeavor Logistics' revolving credit facilities and $1.25 billion of common equity issued to Andeavor. The equity consideration was based on the average daily closing price of Andeavor Logistics common units for 10 trading days prior to the approval date of the transaction on August 3, 2018, or $44.20 per unit, totaling approximately 28.3 million common units.

Improving long-term business fundamentals are driving overall stronger demand for Andeavor Logistics' services. This funding and the resulting strength of Andeavor Logistics' balance sheet strongly position the Company to make the investments required to fund these identified high return growth projects, as well as achieve its stated leverage, coverage and distribution targets and its plan to deliver at least $965 million of net earnings and at least $1.6 billion of EBITDA in 2020 without any additional common equity or hybrid equity issuances.

Public Invited to Listen to Webcast
Andeavor Logistics has provided a pre-recorded webcast hosted by Greg Goff and Steven Sterin regarding second quarter 2018 results and other business matters. Interested parties may listen to the webcast by logging on to http://www.andeavorlogistics.com.

About Andeavor Logistics LP
Andeavor Logistics LP is a fee-based, full-service, diversified midstream logistics company, with integrated assets across the western and mid-continent regions of the United States. Andeavor Logistics operates through three business segments: Terminalling and Transportation, Gathering and Processing and Wholesale. The Terminalling and Transportation segment consists of marine terminals, refined product truck terminals, rail terminals, dedicated storage facilities and transportation pipelines. The Gathering and Processing segment consists of crude oil gathering systems and pipelines as well as natural gas gathering pipelines, processing facilities and fractionation facilities. The Wholesale segment consists of a fee-based fuel wholesale business. Andeavor Logistics is a Delaware limited partnership formed by Andeavor, headquartered in San Antonio, Texas.


This earnings release contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements concerning: our operational, financial and growth strategies, including growing the business through asset optimization and strategic acquisitions, execution of growth projects and opportunities, high return organic growth, and lowering our cost of capital and extending debt maturities; our ability to successfully effect those strategies and the expected timing and results thereof; our financial and operational outlook, and ability to fulfill that outlook; our financial position, liquidity and capital resources, including available capacity under our credit facilities; expectations regarding future economic and market conditions and their effects on our business; the amount and timing of future distributions; expected unitholder value creation; statements related to our Permian Basin growth strategy, expected capital investment, and expectations related to increasing customer demand and additional future growth opportunities; statements regarding the August 2018 drop down from Andeavor, including the expected benefits thereof and the annual net earnings and EBITDA expected to be generated thereby; expected investments associated with the drop down; statements regarding our ability to achieve our 2018 financial and strategic targets; our ability to achieve our 2018-2020 growth plans, including coverage, leverage and distribution growth, with no additional equity issuances through 2020; expected coverage improvement and distributable cash growth; statements regarding our new crude oil gathering project in the Delaware Basin, including expected capital investment and timing; statements regarding Andeavor's participation in the Grey Oak Pipeline and new marine terminal, including the expected benefits to us; third quarter 2018 guidance and expectations, including expected net earnings and EBITDA; 2018 and 2019 expected investments, including the uses thereof, and maintenance capital expenditures; expected closing date of the merger between Andeavor and Marathon Petroleum Corp.; statements regarding the status and expected timing of our current projects; projected 2019 and 2020 annual net earnings and EBITDA contribution from the drop down assets and the NGL logistics hub; expected Permian gathering assets net earnings and EBITDA run rate; 2018 and 2020 Andeavor Logistics projected net earnings and EBITDA; expected Andeavor Logistics net earnings and EBITDA run rate; and other aspects of future performance. Although we believe the assumptions concerning future events are reasonable, a number of factors could cause results to differ materially from those projected. Our operations involve risks and uncertainties, many of which are outside of our control and could materially affect our results. For more information concerning factors that could affect these statements, see our annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the SEC, available at http://www.andeavorlogistics.com. We undertake no obligation to revise or update any forward-looking statements as a result of new information, future events or otherwise.


Contact:
Investors:
Andrew Woodward, Sr. Director, Finance and Investor Relations, (210) 626-7202

Media:
Andeavor Media Relations, media@andeavor.com, (210) 626-7702

Andeavor Logistics LP
Third Quarter 2018 Guidance (Unaudited)


Throughput  
Terminalling and Transportation  
Terminalling throughput (Mbpd) 1,750 - 1,810
Pipeline transportation throughput (Mbpd) 1,040 - 1,080
   
Gathering and Processing  
NGL sales (Mbpd) 6.8 - 7.3
Gas gathering and processing throughput (thousands of MMBtu/d) 740 - 770
Crude oil and water gathering volume (Mbpd) 300 - 320
   
Wholesale  
Fuel sales volumes (millions of gallons) 305 - 325

Please note the volume guidance presented above excludes the August 2018 drop down. The drop down is expected to generate net earnings of $13 million and EBITDA of $25 million in the third quarter of 2018 based on the August 6, 2018 close date. Contributions from the drop down are expected to ramp up to $105 to $115 million of net earnings and EBITDA of $195 to $205 million in 2019 based on the expected growth from the Conan Crude Oil Gathering System and the completion of the Los Angeles Interconnect Pipeline.

In addition, Andeavor Logistics expects to incur approximately $8 million of transaction expenses related to the drop down in third quarter of 2018.

The adoption of ASC 606 in the second quarter of 2018 changed the presentation of our Gas Gathering and Processing throughput volumes in the second quarter of 2018. Volumes processed internally to enhance our NGL sales are no longer reported in our throughput volumes as certain fees contained within our commodity contracts are now reported as a reduction of "NGL expense". Third quarter 2018 Gas Gathering and Processing throughput would be approximately 180 thousand MMBtu/d higher without this presentation change.

Gas volumes are also expected to be reduced by 45 thousand MMBtu/d beginning in the third quarter of 2018 due to the expiration of certain processing agreements, however, earnings are expected to be impacted less than $1 million on an annual basis.


Non-GAAP Measures

As a supplement to our financial information presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), our management uses certain "non-GAAP" measures to analyze our results of operations, assess internal performance against budgeted and forecasted amounts and evaluate future impacts to our financial performance as a result of capital investments, acquisitions, divestitures and other strategic projects. These measures are important factors in assessing our operating results and profitability and include:

  • Financial non-GAAP measures:
    • EBITDA - U.S. GAAP-based net earnings before interest, income taxes, and depreciation and amortization expense; and
    • Segment EBITDA - a segment's U.S. GAAP-based operating income before depreciation and amortization expense plus equity in earnings (loss) of equity method investments and other income (expense), net.
       
  • Liquidity non-GAAP measures:
    • Distributable Cash Flow - U.S. GAAP-based net cash flow from operating activities adjusted for changes in working capital, amounts spent on maintenance capital net of reimbursements and other adjustments not expected to settle in cash;
    • Distributable Cash Flow Attributable to Common Unitholders - Distributable Cash Flow minus distributions associated with the preferred units; and
    • Distribution Coverage Ratio - Distributable Cash Flow Attributable to Common Unitholders divided by total distributions to be paid to common unitholders for the reporting period.
       
  • Operating performance non-GAAP measure:
    • Average Margin on Natural Gas Liquids ("NGLs") Sales per Barrel - NGL sales revenues minus amounts recognized as NGL expense divided by our NGL sales volumes in barrels.

We present these measures because we believe they may help investors, analysts, lenders and ratings agencies analyze our results of operations and liquidity in conjunction with our U.S. GAAP results, including but not limited to:

  • our operating performance as compared to other publicly traded partnerships in the midstream energy industry, without regard to historical cost basis or financing methods;
  • the ability of our assets to generate sufficient cash flow 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.

Management also uses these measures to assess internal performance, and we believe they may provide meaningful supplemental information to the users of our financial statements. Non-GAAP measures have important limitations as analytical tools, because they exclude some, but not all, items that affect net earnings, operating income and net cash from operating activities. These measures should not be considered substitutes for their most directly comparable U.S. GAAP financial measures. See "Reconciliation of Amounts Reported Under U.S. GAAP," "Segment Reconciliation of Amounts Reported Under U.S. GAAP" and "Average Margin on NGL Sales per Barrel" for reconciliations between non-GAAP measures and their most directly comparable U.S. GAAP measures.

Items Impacting Comparability

The Partnership's results of operations may not be comparable to the historical results of operations for the reasons described below.

Acquisitions and Mergers
On November 8, 2017, we acquired the Anacortes Logistics Assets from a subsidiary of Andeavor for total consideration of $445 million. The Anacortes Logistics Assets include crude oil, feedstock and refined products storage at Andeavor's Anacortes Refinery, the Anacortes marine terminal with feedstock and refined product throughput, a manifest rail facility and crude oil and refined products pipelines.

Effective October 30, 2017, Andeavor Logistics closed its merger with Western Refining Logistics, LP (the "WNRL Merger") exchanging all outstanding common units of WNRL with units of Andeavor Logistics, representing an equity value of $1.7 billion. WNRL's operations included terminalling and storage assets, crude oil and refined product transportation services and a wholesale fuels business. The WNRL Merger was treated as a transaction of entities under common control, thus our results reflect the operations, financial position and cash flows associated with WNRL and their related subsidiaries as of June 1, 2017.

The closing of the WNRL Merger was conditioned upon, among other things, the adoption and effectiveness of the Second Amended and Restated Agreement of Limited Partnership of Andeavor Logistics LP, pursuant to which, simultaneously with the closing of the WNRL Merger: (i) the incentive distribution rights in Andeavor Logistics (the "IDRs") held by Tesoro Logistics GP, LLC ("TLGP"), our general partner, were canceled (the "IDR Exchange"), (ii) the general partner interests in Andeavor Logistics held by TLGP were converted into a non-economic general partner interest in Andeavor Logistics, and (iii) Andeavor and its affiliates, including TLGP, agreed to increase and extend existing waivers on distributions to Andeavor and its affiliates by $60 million to an aggregate of $160 million between 2017 and 2019.

Accounting Standard Adoption
Due to the adoption of Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" and the associated subsequent amendments (collectively, "ASC 606") on January 1, 2018, the presentation of wholesale fuel sales and cost of fuel and other was impacted by adoption of the new revenue recognition accounting standard on January 1, 2018. Beginning January 1, 2018 in connection with the adoption, the revenues and costs associated with our fuel purchase and supply arrangements with Andeavor were netted.


Andeavor Logistics LP
Condensed Consolidated Balance Sheets (Unaudited) (In millions)


  June 30,
 2018
  December 31,
 2017
Assets      
Current Assets      
Cash and cash equivalents $ 44     $ 75  
Receivables, net of allowance for doubtful accounts 391     403  
Prepayments and other current assets 55     27  
Total Current Assets 490     505  
Property, Plant and Equipment, Net 5,625     5,413  
Other Noncurrent Assets, Net 2,244     2,251  
Total Assets $ 8,359     $ 8,169  
       
Liabilities and Equity      
Current Liabilities      
Accounts payable $ 428     $ 359  
Accrued interest and financing costs 40     40  
Other current liabilities 65     75  
Total Current Liabilities 533     474  
Debt, Net of Unamortized Issuance Costs 4,372     4,127  
Other Noncurrent Liabilities 71     54  
Equity 3,383     3,514  
Total Liabilities and Equity $ 8,359     $ 8,169  


Andeavor Logistics LP
Results of Operations (Unaudited) (In millions, except per unit amounts)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Revenues              
Terminalling and Transportation $ 249     $ 194     $ 480     $ 369  
Gathering and Processing 290     242     579     487  
Wholesale (c) 25     171     42     171  
Intersegment revenues (7 )   -     (9 )   -  
Total Revenues 557     607     1,092     1,027  
Costs and Expenses              
Cost of fuel and other (excluding items shown separately below) (c) -     162     -     162  
NGL expense (excluding items shown separately below) 45     56     93     115  
Operating expenses (excluding depreciation and amortization) 201     152     391     278  
Depreciation and amortization expenses 83     66     163     124  
General and administrative expenses 25     28     52     55  
(Gain) loss on asset disposals and impairments 1     (26 )   1     (26 )
Operating Income 202     169     392     319  
Interest and financing costs, net (58 )   (63 )   (112 )   (125 )
Equity in earnings of equity method investments 3     3     5     5  
Other income, net 1     2     2     4  
Net Earnings $ 148     $ 111     $ 287     $ 203  
               
Earnings attributable to Predecessors $ -     $ (1 )   $ -     $ (1 )
Net Earnings Attributable to Partners 148     110     287     202  
Preferred unitholders' interest in net earnings (10 )   -     (24 )   -  
General partner's interest in net earnings, including incentive distribution rights -     (40 )   -     (77 )
Limited Partners' Interest in Net Earnings $ 138     $ 70     $ 263     $ 125  
               
Net Earnings per Limited Partner Unit:              
Common - basic $ 0.63     $ 0.63     $ 1.23     $ 1.15  
Common - diluted $ 0.63     $ 0.63     $ 1.23     $ 1.15  
               
Weighted Average Limited Partner Units Outstanding:              
Common units - basic 217.2     108.0     217.2     106.4  
Common units - diluted 217.3     108.1     217.3     106.5  
               
Cash Distributions Paid per Unit $ 1.015     $ 0.940     $ 2.015     $ 1.850  

(c)    The presentation of wholesale fuel sales and cost of fuel and other was impacted by adoption of the new revenue recognition accounting standard on January 1, 2018. Beginning January 1, 2018 in connection with the adoption, the revenues and costs associated with our fuel purchase and supply arrangements with Andeavor were presented on a net versus gross basis in prior years.


Andeavor Logistics LP
Selected Operating Segment Data (Unaudited) (In millions)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Earnings Before Income Taxes              
Terminalling and Transportation $ 128     $ 124     $ 248     $ 222  
Gathering and Processing 70     53     144     115  
Wholesale 11     2     15     2  
Total Segment Operating Income 209     179     407     339  
Unallocated general and administrative expenses (7 )   (10 )   (15 )   (20 )
Operating Income 202     169     392     319  
Interest and financing costs, net (58 )   (63 )   (112 )   (125 )
Equity in earnings of equity method investments 3     3     5     5  
Other income, net 1     2     2     4  
Earnings Before Income Taxes $ 148     $ 111     $ 287     $ 203  
Depreciation and Amortization Expenses              
Terminalling and Transportation $ 32     $ 25     $ 61     $ 46  
Gathering and Processing 49     40     97     77  
Wholesale 2     1     5     1  
Total Depreciation and Amortization Expenses $ 83     $ 66     $ 163     $ 124  
Segment EBITDA (d)              
Terminalling and Transportation $ 161     $ 149     $ 311     $ 268  
Gathering and Processing 122     96     246     197  
Wholesale 13     3     20     3  
Total Segment EBITDA $ 296     $ 248     $ 577     $ 468  
Capital Expenditures              
Terminalling and Transportation $ 18     $ 28     $ 45     $ 55  
Gathering and Processing 87     21     142     39  
Wholesale -     -     1     -  
Total Capital Expenditures $ 105     $ 49     $ 188     $ 94  


(d)   See "Non-GAAP Reconciliations" section below for further information regarding this non-GAAP measure.




Andeavor Logistics LP
Components of Cash Flows (Unaudited) (in millions)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Cash Flows From (Used In)              
Net earnings $ 148     $ 111     $ 287     $ 203  
Depreciation and amortization expenses 83     66     163     124  
Changes in assets and liabilities (7 )   (52 )   (6 )   (3 )
Other operating activities 7     (14 )   17     (6 )
Net Cash Flows from Operating Activities 231     111     461     318  
Investing Activities (235 )   22     (326 )   (699 )
Financing Activities 21     (123 )   (166 )   (262 )
Increase (Decrease) in Cash and Cash Equivalents $ 17     $ 10     $ (31 )   $ (643 )


Andeavor Logistics LP
Selected Operating Segment Data (Unaudited)
(In millions, except volumes and revenue per barrel)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Terminalling and Transportation Segment              
Revenues              
Terminalling $ 208     $ 159     $ 406     $ 304  
Pipeline transportation 40     33     71     63  
Other revenues 1     2     3     2  
Total Revenues 249     194     480     369  
Costs and Expenses              
Operating expenses (e) 79     62     153     111  
Depreciation and amortization expenses 32     25     61     46  
General and administrative expenses 9     8     17     15  
(Gain) loss on asset disposals and impairments 1     (25 )   1     (25 )
Terminalling and Transportation Segment Operating Income $ 128     $ 124     $ 248     $ 222  
Volumes              
Terminalling throughput (Mbpd) 1,768     1,263     1,719     1,142  
Average terminalling revenue per barrel (f) $ 1.29     $ 1.39     $ 1.30     $ 1.47  
Pipeline transportation throughput (Mbpd) 1,030     918     954     876  
Average pipeline transportation revenue per barrel (f) $ 0.43     $ 0.40     $ 0.41     $ 0.40  

(e)   Operating expenses include an imbalance settlement gain of $1 million and $2 million for the three and six months ended June 30, 2017, respectively. There was no gain for the three and six months ended June 30, 2018.
(f)    Management uses average margin per barrel, average revenue per Million British thermal units ("MMBtu"), average revenue per barrel and fuel sales per gallon to evaluate performance and compare profitability to other companies in the industry.

·       Average terminalling revenue per barrel-calculated as total terminalling revenue divided by terminalling throughput presented in thousands of barrels per day ("Mbpd") multiplied by 1,000 and multiplied by the number of days in the period (90 days for both the three months ended June 30, 2018 and 2017);
·       Average pipeline transportation revenue per barrel-calculated as total pipeline transportation revenue divided by pipeline transportation throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
·       Average margin on NGL sales per barrel-calculated as the difference between the NGL sales revenues and the amounts recognized as NGL expense divided by our NGL sales volumes presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
·       Average gas gathering and processing revenue per MMBtu-calculated as total gathering and processing fee-based revenue divided by gas gathering throughput presented in thousands of MMBtu per day ("MMBtu/d") multiplied by 1,000 and multiplied by the number of days in the period as outlined above;
·       Average crude oil and water gathering revenue per barrel-calculated as total crude oil and water gathering fee-based revenue divided by crude oil and water gathering throughput presented in Mbpd multiplied by 1,000 and multiplied by the number of days in the period as outlined above; and
·       Wholesale fuel sales per gallon - calculated as wholesale fuel revenues divided by our total wholesale fuel sales volume in gallons.

There are a variety of ways to calculate these measures; other companies may calculate these in a different way. Amounts may not recalculate due to rounding of dollar and volume information.
Andeavor Logistics LP
Selected Operating Segment Data (Unaudited)
(In millions, except volumes, margin per barrel, revenue per barrel and revenue per MMBtu)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Gathering and Processing Segment              
Revenues              
NGL sales (g) $ 95     $ 81     $ 199     $ 164  
Gas gathering and processing 82     87     167     167  
Crude oil and water gathering 69     41     134     80  
Pass-thru and other (h) 44     33     79     76  
Total Revenues 290     242     579     487  
Costs and Expenses              
NGL expense (excluding items shown separately below) (g) (h) 45     56     93     115  
Operating expenses (i) 118     84     226     161  
Depreciation and amortization expenses 49     40     97     77  
General and administrative expenses 8     10     19     20  
Gain on asset disposals and impairments -     (1 )   -     (1 )
Gathering and Processing Segment Operating Income $ 70     $ 53     $ 144     $ 115  
Volumes              
NGL sales (Mbpd) (g) 9.1     7.3     10.4     7.4  
Average margin on NGL sales per barrel (d)(f)(g)(h) $ 59.77     $ 37.45     $ 55.81     $ 38.30  
Gas gathering and processing throughput (thousands of MMBtu/d) (j) 784     952     807     952  
Average gas gathering and processing revenue per MMBtu (f) $ 1.16     $ 1.00     $ 1.14     $ 0.97  
Crude oil and water gathering volume (Mbpd) 301     269     302     261  
Average crude oil and water gathering revenue per barrel (f) $ 2.53     $ 1.64     $ 2.45     $ 1.68  

(g)   We had 21.9 Mbpd and 24.3 Mbpd of NGL sales under percent of proceeds ("POP") and keep-whole arrangements, for the three and six months ended June 30, 2018, respectively, and 20.9 Mbpd and 21.0 Mbpd for the three and six months ended June 30, 2017, respectively, of which we retained 9.1 Mbpd, 10.4 Mbpd, 7.3 Mbpd and 7.4 Mbpd, respectively. The difference between gross sales barrels and barrels retained is reflected in NGL expense resulting from the gross presentation required for the POP arrangements. Volumes represent barrels sold under our keep-whole arrangements, net barrels retained under our POP arrangements and other associated products.
(h)   Included in NGL expense for the six months ended June 30, 2017 were approximately $2 million of crude costs related to crude oil volumes obtained in connection with the acquisition or our North Dakota gathering and processing assets. The corresponding revenues were recognized in pass-thru and other revenue. As such, the calculation of the average margin on NGL sales per barrel excludes this amount.
(i)     Operating expenses include an imbalance settlement gain of $1 million and $3 million for the three and six months ended June 30, 2017, respectively. There was no gain for the three and six months ended June 30, 2018.
(j)     The adoption of ASC 606 changed the presentation of our gas gathering and processing throughput volumes. Volumes processed internally to enhance our NGL sales are no longer reported in our throughput volumes as certain fees contained within our commodity contracts are now reported as a reduction of "NGL expense". The impact of the adoption was 150 thousand MMBtu/d and 162 thousand MMBtu/d for the three and six months ended June 30, 2018, respectively, now being used internally and not reported in the throughput volumes used to calculate our average gas gathering and processing revenue per MMBtu.




Andeavor Logistics LP
Selected Operating Segment Data (Unaudited)
(In millions, except per gallon)


  Three Months Ended
June 30, 2018
  Three Months Ended
March 31, 2018
  Six Months Ended
June 30, 2018
Wholesale Segment          
Revenues          
Fuel sales (c) $ 15     $ 9     $ 24  
Other wholesale 10     8     18  
Total Revenues 25     17     42  
Costs and Expenses          
Operating expenses 11     10     21  
Depreciation and amortization expenses 2     3     5  
General and administrative expenses 1     -     1  
Wholesale Operating Income $ 11     $ 4     $ 15  
Volumes          
Fuel sales volumes (millions of gallons) 306     286     593  
Wholesale fuel sales per gallon 5.0 ¢   3.1 ¢   4.1 ¢


Non-GAAP Reconciliations

Andeavor Logistics LP
Reconciliation of Amounts Reported Under U.S. GAAP (Unaudited)
(In millions, except ratios)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Reconciliation of Net Earnings to EBITDA              
Net earnings $ 148     $ 111     $ 287     $ 203  
Depreciation and amortization expenses 83     66     163     124  
Interest and financing costs, net of capitalized interest 58     63     112     125  
EBITDA $ 289     $ 240     $ 562     $ 452  
               
Reconciliation of Net Cash from Operating Activities to Distributable Cash Flow              
Net cash from operating activities $ 231     $ 111     $ 461     $ 318  
Changes in assets and liabilities 7     53     6     4  
Predecessors impact -     (10 )   -     (10 )
Maintenance capital expenditures (k) (19 )   (19 )   (38 )   (36 )
Reimbursement for maintenance capital expenditures (k) 6     7     12     15  
Adjustments for equity method investments 2     -     (1 )   -  
Proceeds from sale of assets -     28     -     28  
Other (l) (3 )   7     (7 )   10  
Distributable Cash Flow 224     177     433     329  
Less: Preferred unit distributions (10 )   -     (20 )   -  
Distributable Cash Flow Attributable to Common Unitholders $ 214     $ 177     $ 413     $ 329  

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Distributions              
Limited partner's distributions on common units $ 209     $ 105     $ 414     $ 206  
General partner's distributions including IDRs -     42     -     81  
Distributions on preferred units 10     -     20     -  
Total Distributions to be Paid 219     147     434     287  
Less: Distributions on preferred units (10 )   -     (20 )   -  
Total Distributions to be Paid to Common Unitholders $ 209     $ 147     $ 414     $ 287  
               
Distributable Cash Flow Attributable to Common Unitholders $ 214     $ 177     $ 413     $ 329  
               
Distribution Coverage Ratio 1.02x   1.20x   1.00x   1.15x

(k)   We adjust our reconciliation of distributable cash flows for maintenance capital expenditures, tank restoration costs and expenditures required to ensure the safety, reliability, integrity and regulatory compliance of our assets with an offset for any reimbursements received for such expenditures.
(l)     Includes adjustments to remove the impact of the adoption of the new revenue recognition accounting standard on January 1, 2018.



Andeavor Logistics LP
Segment Reconciliation of Amounts Reported Under U.S. GAAP (Unaudited)
(In millions)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Reconciliation of Terminalling and Transportation Segment Operating Income to Segment EBITDA              
Terminalling and Transportation segment operating income $ 128     $ 124     $ 248     $ 222  
Depreciation and amortization expenses 32     25     61     46  
Other income, net 1     -     2     -  
Terminalling and Transportation Segment EBITDA $ 161     $ 149     $ 311     $ 268  
               
Reconciliation of Gathering and Processing Segment Operating Income to Segment EBITDA              
Gathering and Processing segment operating income $ 70     $ 53     $ 144     $ 115  
Depreciation and amortization expenses 49     40     97     77  
Equity in earnings of equity method investments 3     3     5     5  
Gathering and Processing Segment EBITDA $ 122     $ 96     $ 246     $ 197  

  Three Months Ended
June 30, 2018
  Three Months Ended
March 31, 2018
  Six Months Ended
June 30, 2018
Reconciliation of Wholesale Segment Operating Income to Segment EBITDA          
Wholesale segment operating income $ 11     $ 4     $ 15  
Depreciation and amortization expenses 2     3     5  
Wholesale Segment EBITDA $ 13     $ 7     $ 20  


Andeavor Logistics LP
Average Margin on NGL Sales per Barrel (Unaudited)
(In millions, except days and per barrel amounts)



  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Segment Operating Income $ 70     $ 53     $ 144     $ 115  
Add back:              
Operating expenses 118     84     226     161  
Depreciation and amortization expenses 49     40     97     77  
General and administrative expenses 8     10     19     20  
Gain on asset disposals and impairments -     (1 )   -     (1 )
Other commodity purchases (h) -     -     -     2  
Subtract:              
Gas gathering and processing revenues (82 )   (87 )   (167 )   (167 )
Crude oil gathering revenues (69 )   (41 )   (134 )   (80 )
Pass-thru and other revenues (44 )   (33 )   (79 )   (76 )
Margin on NGL Sales $ 50     $ 25     $ 106     $ 51  
Divided by Total Volumes for the Period:              
NGLs sales volumes (Mbpd) 9.1     7.3     10.4     7.4  
Number of days in the period 91     91     181     181  
Total volumes for the period (thousands of barrels) (m) 828     664     1,882     1,339  
Average Margin on NGL Sales per Barrel (m) $ 59.77     $ 37.45     $ 55.81     $ 38.30  

(m)  Amounts may not recalculate due to rounding of dollar and volume information.




Andeavor Logistics LP
Selected Financial Data (Unaudited) (In millions)


  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
Capital Expenditures              
Growth $ 91     $ 32     $ 162     $ 63  
Maintenance 14     17     26     31  
Total Capital Expenditures $ 105     $ 49     $ 188     $ 94  
               
Capital Expenditures, Net of Reimbursements              
Growth $ 90     $ 26     $ 151     $ 46  
Maintenance 10     12     20     22  
Total Capital Expenditures, Net of Reimbursements $ 100     $ 38     $ 171     $ 68  

  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2018   2017 (a)   2018   2017 (a)
General and Administrative Expenses              
Terminalling and Transportation $ 9     $ 8     $ 17     $ 15  
Gathering and Processing 8     10     19     20  
Wholesale 1     -     1     -  
Unallocated 7     10     15     20  
Total General and Administrative Expenses $ 25     $ 28     $ 52     $ 55  


Andeavor Logistics LP
Reconciliation of EBITDA to Amounts Under U.S. GAAP (Unaudited) (In millions)


  Reconciliation of Projected Annual EBITDA
  Drop Down
3Q18E
  Drop Down
2019E
  Drop Down 2020E   Permian
Gathering Assets

Run Rate
  North Dakota NGL Logistics Hub
Projected Net Earnings $ 13     $  105-115   $  120-125   $ 90     $  15-19
Add: Projected depreciation and amortization expense 7     75     80     35     4  
Add: Projected interest and financing costs, net 5     15     15     25     3  
Projected EBITDA $ 25     $  195-205   $  215-220   $ 150     $  22-26

  Reconciliation of Projected Annual EBITDA
  Andeavor Logistics 2018E   Andeavor Logistics 2020E   Andeavor Logistics
4Q18 Exit Run Rate
Projected Net Earnings $  685-785   $ 965     $ 740  
Add: Projected depreciation and amortization expense 280     330     410  
Add: Projected interest and financing costs, net 235     305     250  
Projected EBITDA $  1,200-1,300   $ 1,600     $ 1,400  

  March 31, 2018
Reconciliation of Net Earnings to EBITDA  
Net earnings $ 139  
Depreciation and amortization expenses 80  
Interest and financing costs, net of capitalized interest 54  
EBITDA $ 273