February 21, 2019 / 5:12 PM / 7 months ago

UPDATE 2-Shell Midstream sees $15 mln impact on Q1 income after Zydeco contracts expire

(Recasts, adds executive quotes, comments on offshore pipeline maintenance)

Feb 21 (Reuters) - Shell Midstream Partners LP expects to see a $15 million impact to its net income in the first quarter after two of four contracts on its Zydeco pipeline in Texas and Louisiana expired at the end of last year, executives said on Thursday.

The Houston-based affiliate of Royal Dutch Shell PLC will run its Zydeco pipeline on more spot shipments after the expiration of take-or-pay contracts, making crude volumes less predictable, Chief Executive Kevin Nichols said in a conference call with analysts.

“Everybody in the marketplace has been used to the system running one way, and now it’s running differently,” Nichols said. “It’s taking time for the market to understand all of that.”

The Zydeco pipeline, which delivers crude to St. James and Clovelly, Louisiana, from terminals in Houston and Nederland, Texas, had mainline volumes of 704,000 barrels per day (bpd) in the fourth quarter, up from 657,000 bpd in the previous quarter amid rising demand from shippers in Texas and in the U.S. Gulf of Mexico.

The pipeline’s revenue declined to $0.76 per barrel in the fourth quarter from $0.79 in the third quarter. A third contract is set to expire in the second quarter of 2019, Nichols said.

Shell Midstream has entered discussions with new and existing shippers about contracts to transport crude on the Zydeco pipeline. It may consider an open season for the pipeline.

But the company will rely on its customers “and what they bring us on a monthly basis” while the pipeline runs spot shipments, Nichols said.

In its offshore U.S. Gulf of Mexico pipeline business, the company expects several oil producers to begin planned maintenance in the second and third quarters of 2019, spurring maintenance on pipeline systems connected to the producers’ offshore oil production facilities. (Reporting by Collin Eaton Editing by Steve Orlofsky and Phil Berlowitz)

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