July 31, 2020 / 5:55 PM / 5 days ago

Shell Midstream cuts costs as demand destruction hits U.S. pipeline flows

NEW YORK (Reuters) - Shell Midstream Partners (SHLX.N) said on Friday it would cut staffing and trim projects to save $10 million this year and up to $40 million next year as volumes on some pipelines fall.

The Houston-based affiliate of Royal Dutch Shell (RDSa.L) transported 20% fewer barrels on its Zydeco oil pipeline while volumes on its Eastern Corridor pipeline fell nearly 23% during the second quarter, officials said on an earnings call on Friday.

Lower volumes on the two were due to “the continuing effects of COVID-19, along with a few shallow-water producer curtailments,” Shawn Carsten, its finance chief, said.

Measures to stem the spread of the novel coronavirus have slashed as much as 30% off global fuel demand, leading refiners to cut crude runs and producers to shut wells.

Despite the diminished pipeline volumes, the company’s second-quarter revenue was relatively flat at $120 million compared with $121 million for the prior three months.

Volume losses were partially offset by the contributions from deals involving the Mattox crude pipeline and other storage and pipeline acquisitions this year, officials said.

The company said expense cuts could lead to roughly $10 million in lower costs this year and between $30 million and $40 million in 2021.

It is still moving ahead with plans to expand its Mars crude pipeline and expects it to come online in 2021.

Shell does not want to comment on the specifics of expected added capacity or what it would spend on the project on the 163-mile (262-km) Mars pipeline system. It currently transports up to 600,000 barrels per day from the Mississippi Canyon-area production platforms in the U.S. Gulf of Mexico to storage caverns in Clovelly, Louisiana.

Second-quarter volumes on the Mars pipeline declined 7% to 501,000 barrels per day (bpd) compared with 537,000 the prior quarter, the company said.

Reporting by Laila Kearney; Editing by Marguerita Choy

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