UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2018

or

¨ 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)

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  ý    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  ý    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 ý	Smaller reporting company ¨
Emerging growth company ý

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  ý

As of November 13, 2018, the registrant had 52,375,535 common units and 52,375,535 subordinated 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	20
3. Quantitative and Qualitative Disclosures about Market Risk	31
4. Controls and Procedures	31
PART II - Other Information
1. Legal Proceedings	32
1A. Risk Factors	32
5. Other Information	32
6. Exhibits	33
Signatures	34

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2018			December 31, 2017
	(in thousands of dollars)
ASSETS
Current assets
Cash and cash equivalents	$	49,354		$	32,694
Accounts receivable – third parties	126			188
Accounts receivable – related parties	9,861			9,481
Prepaid expenses	326			1,370
Other current assets	1,949			1,655
Total current assets	61,616			45,388
Equity method investments (Note 2)	464,839			487,999
Property, plant and equipment, net (Note 3)	68,990			69,488
Other assets	3,310			2,783
Total assets	$	598,755		$	605,658
LIABILITIES
Current liabilities
Short-term debt (Note 5)	$	—		$	15,000
Accounts payable – third parties	763			269
Accounts payable – related parties	2,597			2,270
Deferred revenue and credits	729			—
Accrued liabilities (Note 4)	4,563			4,481
Total current liabilities	8,652			22,020
Long-term portion of environmental remediation obligations	3,310			2,783
Total liabilities	11,962			24,803
Commitments and contingencies (Note 10)
EQUITY
Common unitholders – public (47,794,358 units issued and outstanding)	833,006			824,613
Common unitholders – BP Holdco (4,581,177 units issued and outstanding)	(46,350		)	(47,141		)
Subordinated unitholders – BP Holdco (52,375,535 units issued and outstanding)	(529,903		)	(538,947		)
Total partners' capital	256,753			238,525
Non-controlling interests	330,040			342,330
Total equity	586,793			580,855
Total liabilities and equity	$	598,755		$	605,658

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

3

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
	(in thousands of dollars, unless otherwise indicated)
				Predecessor				Predecessor
Revenue
Third parties	$	508		$	238	$	2,072	$	1,712
Related parties	31,566			26,778		85,556		78,832
Total revenue	32,074			27,016		87,628		80,544
Costs and expenses
Operating expenses – third parties	2,892			3,062		8,558		6,380
Operating expenses – related parties	1,506			1,945		3,494		5,812
Maintenance expenses – third parties	640			1,362		1,523		2,651
Maintenance expenses – related parties	31			65		75		257
Gain from disposition of property, plant and equipment	—			—		—		(6		)
General and administrative – third parties	1,596			12		2,799		56
General and administrative – related parties	3,691			1,210		10,556		3,571
Depreciation	663			675		1,987		2,007
Property and other taxes	165			113		388		267
Total costs and expenses	11,184			8,444		29,380		20,995
Operating income	20,890			18,572		58,248		59,549
Income from equity method investments	22,581			—		66,262		—
Other income (loss)	—			380		—		(108		)
Interest (income) expense, net	(20		)	—		119		—
Income before income taxes	43,491			18,952		124,391		59,441
Income tax expense	—			7,403		—		23,219
Net income	43,491			$	11,549	124,391		$	36,222
Less: Net income attributable to non-controlling interests	8,272					28,163
Net income attributable to the Partnership	$	35,219				$	96,228
Net income attributable to the Partnership per limited partner unit – basic and diluted (in dollars):
Common units	$	0.34				$	0.92
Subordinated units	$	0.34				$	0.92
Distributions declared per limited partner unit (in dollars, Note 7):
Common units	$	0.2915				$	0.8315
Subordinated units	$	0.2915				$	0.8315
Weighted average number of limited partner units outstanding - basic and diluted (in millions):
Common units – public	47.8					47.8
Common units – BP Holdco	4.6					4.6
Subordinated units – BP Holdco	52.4					52.4

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

4

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(UNAUDITED)

		Partnership														Predecessor
(in thousands of dollars)		Common Unitholders – Public			Common Unitholders – BP Holdco			Subordinated Unitholders – BP Holdco			General Partner		Non-controlling Interests			Net Parent Investment			Total
Balance at December 31, 2016		$	—		$	—		$	—		$	—	$	—		$	73,942		$	73,942
	Net income	—			—			—			—		—			36,222			36,222
	Net transfers to Parent	—			—			—			—		—			(32,018		)	(32,018		)
Balance at September 30, 2017		$	—		$	—		$	—		$	—	$	—		$	78,146		$	78,146
Balance at December 31, 2017		$	824,613		$	(47,141	)	$	(538,947	)	$	—	$	342,330		$	—		$	580,855
	Cumulative effect of accounting change (Note 2)	(1,253		)	(120		)	(1,373		)	—		—			—			(2,746		)
	Net income	43,906			4,208			48,114			—		28,163			—			124,391
	Distributions to unitholders	(34,400		)	(3,297		)	(37,697		)			—			—			(75,394		)
	Unit-based compensation	140			—			—			—		—			—			140
	Distributions to non-controlling interests	—			—			—			—		(40,453		)	—			(40,453		)
Balance at September 30, 2018		$	833,006		$	(46,350	)	$	(529,903	)	$	—	$	330,040		$	—		$	586,793

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

5

BP MIDSTREAM PARTNERS LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2018			2017
	(in thousands of dollars)
				Predecessor
Cash flows from operating activities
Net income	$	124,391		$	36,222
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	1,987			2,007
Deferred income taxes	—			383
Share-based compensation	140			188
Loss due to changes in fair value of allowance oil receivable	—			108
Gain from disposition of property, plant and equipment	—			(6		)
Income from equity method investments	(66,262		)	—
Distributions of earnings received from equity method investments	71,314			—
Changes in operating assets and liabilities
Accounts receivable – third parties	62			241
Accounts receivable – related parties	(380		)	(4,362		)
Allowance oil receivable	—			(842		)
Prepaid expenses and other current assets	(23		)	(44		)
Accounts payable – third parties	494			152
Accounts payable – related parties	327			86
Deferred revenue and credits	729			—
Accrued liabilities	707			(66		)
Long-term portion of environmental remediation obligations	—			358
Other liabilities	—			(162		)
Net cash provided by operating activities	133,486			34,263
Cash flows from investing activities
Capital expenditures	(1,341		)	(2,063		)
Distributions in excess of earnings from equity method investments	15,362			—
Proceeds from disposition of property, plant and equipment	—			6
Net cash provided by (used in) investing activities	14,021			(2,057		)
Cash flows from financing activities
Net transfers to Parent – prior to the IPO	—			(32,206		)
Repayment of short-term debt	(15,000		)	—
Distributions to unitholders	(75,394		)	—
Distributions to non-controlling interests	(40,453		)	—
Net cash used in financing activities	(130,847		)	(32,206		)
Net change in cash and cash equivalents	16,660			—
Cash and cash equivalents at beginning of the period	32,694			—
Cash and cash equivalents at end of the period	$	49,354		$	—
Supplemental cash flow information
Non-cash investing transactions
Accrued capital expenditures	$	169		$	73

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

6

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands 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.

On October 30, 2017, the Partnership completed its initial public offering (the "IPO") of common units representing limited partner interests. A total of 47,794,358 common units, including 5,294,358 common units pertaining to the exercise of the underwriters' over-allotment option, were issued to the public unitholders in connection with our IPO. Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” “Predecessor,” or similar expressions for time periods prior to the IPO refer to BP Midstream Partners LP Predecessor, which consisted of the historical assets and operations of the Predecessor Assets (as defined below). For time periods subsequent to the IPO, “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 Predecessor and the Partnership.

Business

We are a fee-based, growth-oriented master limited partnership formed by BP Pipelines to own, operate, develop and acquire pipelines and other midstream assets. Our assets consist of interests in entities that own crude oil, natural gas, refined products and diluent pipelines 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 of our assets deliver refined products and diluent from the Whiting Refinery and other U.S. supply hubs to major demand centers.

As of September 30, 2018, our 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 are located in the Midwest region of the United States, and together are referred to as the "Predecessor Assets" or the "Wholly Owned Assets".

• A 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.

• A 20% 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:

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

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

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

• A 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.”

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

Certain businesses of ours 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.

7

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

Basis of Presentation

Our 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”).

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 September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, 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 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 and other information included in this quarterly report on Form 10-Q 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, 2017 (the "2017 Annual Report").

Prior to the IPO, our financial position, results of operations and cash flows consisted of the Predecessor's operations, which represented a combined reporting entity. Subsequent to the IPO, our 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.

Prior to the IPO, our condensed consolidated statements of operations include expense allocations to the Predecessor for certain functions performed by our Parent on our behalf, including allocations of general corporate expenses related to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee benefits, incentives, severance and environmental functional support. The portion of expenses that are specifically identifiable to the Predecessor Assets are directly recorded to the Predecessor, with the remainder allocated on the basis of headcount, throughput volumes, miles of pipe and other measures. Our management believes the assumptions underlying the financial statements, including the assumptions regarding the allocation of general corporate expenses from our Parent, are reasonable. Nevertheless, the financial statements may not include all of the expenses that would have been incurred, had we been a stand-alone entity during the periods prior to the IPO and may not reflect our financial position, results of operations and cash flows, had we been a stand-alone entity during such periods. See Note 6 - Related Party Transactions.

Prior to the IPO, the Predecessor Assets did not own or maintain separate bank accounts. Our Parent used a centralized approach to cash management and historically funded our operating and investing activities as needed within the boundaries of a documented funding agreement. Accordingly, cash held by our Parent at the corporate level was not allocated to us for any of the periods prior to the IPO. During such periods, we reflected the cash generated by our operations and expenses paid by our Parent on our behalf as a component of Net parent investment on our condensed consolidated balance sheets, and as a net distribution to our Parent on our condensed consolidated statements of cash flows. We also did not include any interest income on the net cash transfers to our Parent. In connection with the IPO, we established our own cash accounts for the funding of our operating and investing activities.

All financial information presented for the periods after the IPO represents the condensed consolidated results of operations, financial position and cash flows of the Partnership. Accordingly:

• Our condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and condensed consolidated statement cash flows for the nine months ended September 30, 2018 consist of the consolidated results of the Partnership. Our condensed consolidated statements of operations for the three and nine months ended September 30, 2017 and condensed consolidated statement cash flows for the nine months ended September 30, 2017 consist of the combined results of the Predecessor.

• Our condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 consist of the consolidated balances of the Partnership.

• Our condensed consolidated statement of changes in equity for the nine months ended September 30, 2018 consist of the consolidated results for the Partnership. Our condensed consolidated statement of changes in equity for the nine months ended September 30, 2017 consists of the combined results of the Predecessor.

8

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

Summary of Significant Accounting Policies

There have been no significant changes to our accounting policies as disclosed in Note 2 - Summary of Significant Accounting Policies in our 2017 Annual Report.

Recent Accounting Pronouncements Not Yet Adopted

Topic 606

In May2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)". ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In August 2015, the FASB issued ASU 2015-14 to defer the adoption date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period for public business entities and to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019 for all other entities. This ASU is effective as of January 1, 2019 for an emerging growth company ("EGC"). We expect to transition from EGC status to large accelerated as of December 31, 2018, as such we will reflect the adoption in our Annual Report on Form 10-K for the year ending December 31, 2018.

In March 2016, ASU 2014-09 was further amended by the provisions of ASU 2016-08, "Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," in April 2016 by the provisions of ASU 2016-10, "Identifying Performance Obligations and Licensing", in May 2016 by the provisions of ASU 2016-12, "Narrow-Scope Improvements and Practical Expedients", in December 2016 by the provisions of ASU 2016-20, "Technical Corrections to Topic 606, Revenue from Contracts with Customers" and in September 2017 by the provisions of ASU 2017-13, "Revenue Recognition (Topic 605) and Revenue from Contracts with Customers (Topic 606)."

We have evaluated the impact that the adoption of the provisions under Topic 606 will have on our revenue contracts, consolidated financial statements and the accompanying notes. Based upon our assessment, we have not identified any material differences in the amount of revenue recognized; but Topic 606 may have an immaterial impact on the timing of revenue recognition for some reporting periods. Topic 606 will require the disclosure of further detail regarding our performance obligations, changes in assets and liabilities balances and transaction price allocated to performance obligations that are unsatisfied as of the end of the reporting period. We will adopt the new standard under the modified retrospective transition method.

Topic 842

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which improves transparency and comparability among organizations by requiring lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities and for annual reporting periods beginning after December 15, 2019 and interim reporting periods beginning after December 15, 2020 for all other entities. This ASU is effective as of January 1, 2019 for us, as we expect to transition from EGC status to large accelerated as of December 31, 2018.

In January 2018, the FASB issued ASU 2018-01, "Leases (Topic 842), Land Easement Practical Expedient for Transition to Topic 842". This ASU permits an entity to continue to apply its current accounting policy for land easements that existed before the effective date of Topic 842. Once an entity adopts Topic 842, it would apply prospectively to all new (or modified) land easements to determine whether the arrangement contains a lease. Topic 842 requires adoption by application of a modified retrospective transition approach and is effective for us on the same effective date as ASU 2016-02.

In July 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements." This ASU permits an entity to elect an additional transition method to existing modified retrospective transition requirements. An entity can recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for the periods prior to adoption.

9

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

We are in the process of finalizing our review of our lease agreements and evaluating internal controls to support management in the accounting and disclosure of leasing activities. While we are still evaluating the impact the adoption of these standards will have on our consolidated financial statements and the accompanying notes, we currently believe the most significant changes to our financial statements will be the recognition of a lease liability and offsetting right-of-use asset in our consolidated balance sheet for operating leases under the modified retrospective transition method. We will have our assessment completed prior to December 31, 2018 and ASU 2016-02 will be effective for us as of January 1, 2019.

For additional information on accounting pronouncements issued prior to December 2017, see Note 2 - Summary of Significant Accounting Policies in our 2017 Annual Report.

2. Equity Method Investments

We account for our ownership interests in Mars and the Mardi Gras Joint Ventures using the equity method for financial reporting purposes. Our financial results include our proportionate share of the Mars’ and Mardi Gras Joint Ventures’ net income, which is reflected in Income from equity method investments on the condensed consolidated statements of operations.

Summarized financial information for each of our equity method investments on a 100% basis is as follows:

	Three Months Ended September 30, 2018
			Mardi Gras Joint Ventures
	Mars		Caesar		Cleopatra		Proteus		Endymion		Total Mardi Gras Joint Ventures		Total
Statement of operations data
Revenues	$	69,404	$	12,366	$	6,195	$	7,262	$	7,871	$	33,694	$	103,098
Operating expenses	26,456		4,296		3,732		3,978		4,317		16,323		42,779
Net income	42,949		8,070		2,463		3,284		3,664		17,481		60,430

	Nine Months Ended September 30, 2018
			Mardi Gras Joint Ventures
	Mars		Caesar		Cleopatra		Proteus		Endymion		Total Mardi Gras Joint Ventures		Total
Statement of operations data
Revenues	$	178,446	$	33,801	$	17,178	$	24,167	$	26,299	$	101,445	$	279,891
Operating expenses	69,485		11,723		8,423		10,249		12,545		42,940		112,425
Net income	108,972		22,078		8,755		13,918		14,084		58,835		167,807

10

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

The table below summarizes the balances and activities related to each of our equity method investments that we recorded for the three and nine months ended September 30, 2018:

	Three Months Ended September 30, 2018
				Mardi Gras Joint Ventures
	Mars			Caesar			Cleopatra			Proteus			Endymion			Total Mardi Gras Joint Ventures			Total
Beginning Balance	$	58,688		$	120,834		$	121,547		$	83,981		$	85,024		$	411,386		$	470,074
Distributions	(13,167		)	(4,760		)	(2,544		)	(3,510		)	(3,835		)	(14,649		)	(27,816		)
Income from equity method investments	12,241			4,519			1,306			2,135			2,380			10,340			22,581
Ending Balance	$	57,762		$	120,593		$	120,309		$	82,606		$	83,569		$	407,077		$	464,839

	Nine Months Ended September 30, 2018
				Mardi Gras Joint Ventures
	Mars			Caesar			Cleopatra			Proteus			Endymion			Total Mardi Gras Joint Ventures			Total
Beginning Balance	$	65,561		$	123,586		$	123,512		$	87,144		$	88,196		$	422,438		$	487,999
Cumulative effect of accounting change*	(2,746		)	—			—			—			—			—			(2,746		)
Distributions	(36,110		)	(15,357		)	(7,844		)	(13,585		)	(13,780		)	(50,566		)	(86,676		)
Income from equity method investments	31,057			12,364			4,641			9,047			9,153			35,205			66,262
Ending Balance	$	57,762		$	120,593		$	120,309		$	82,606		$	83,569		$	407,077		$	464,839

* The financial results of Mars reflect the adoption of ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" on January 1, 2018 under the modified retrospective transition method through a cumulative adjustment to equity. Our impact from this accounting change to our Mars investment was $(2,746), offset to partners' capital. The Mardi Gras Joint Ventures will adopt this ASU on January 1, 2019.

3. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	September 30,			December 31,
	2018			2017
Land	$	155		$	155
Right-of-way assets	1,380			1,380
Buildings and improvements	12,032			12,032
Pipelines and equipment	92,208			92,083
Other	509			509
Construction in progress	1,426			67
Property, plant and equipment, gross	107,710			106,226
Less: Accumulated depreciation	(38,720		)	(36,738		)
Property, plant and equipment, net	$	68,990		$	69,488

11

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

4. Accrued Liabilities

Accrued liabilities consisted of the following:

	September 30,		December 31,
	2018		2017
Current portion of environmental remediation obligations	$	882	$	1,655
Other accrued liabilities	3,681		2,826
Accrued liabilities	$	4,563	$	4,481

Accrued interest and fees related to our credit facility were $155 and $159as of September 30, 2018 and December 31, 2017, respectively, included in Other accrued liabilities. See Note 5 - Debt for further discussion of accrued interest and fees on debt with our related party.

5. Debt

On October 30, 2017, the Partnership entered into a $600.0 million unsecured revolving credit facility agreement (the “Credit Facility”) with an affiliate of BP. A summary of certain key terms of the Credit Facility is included in Note 7 - Debt in our 2017 Annual Report.

On May 4, 2018, the Partnership repaid outstanding borrowings under the Credit Facility. This short-term debt had a principal balance of $15.0 million at the time of repayment and the repayment was made using cash on hand.

There were $0 of outstanding borrowings under the Credit Facility at September 30, 2018 and $15 million outstanding at December 31, 2017. Interest charges and fees related to the Credit Facility were $0.2 million and $0.6 million for the three and nine months ended September 30, 2018 respectively, and $0 for the three and nine months ended September 30, 2017.

This facility includes customary fees, including a commitment fee of 0.10% and a utilization fee of 0.20% per annum.

6. Related Party Transactions

Related party transactions include transactions with our Parent and our Parent’s affiliates, including those entities in which our Parent has an ownership interest but does not have control. In addition to the fixed loss allowance (“FLA”) arrangements discussed in Note 2- Summary of Significant Accounting Policies in our 2017 Annual Report and the Credit Facility discussed above, we have entered into the following transactions with our related parties:

Omnibus Agreement

In connection with the IPO, the Partnership entered into an omnibus agreement with BP Pipelines and certain of its affiliates, including BP Midstream Partners GP LLC (our "general partner"). This agreement addresses, among other things, (i) the Partnership's obligation to pay an annual fee for general and administrative services provided by BP Pipelines and its affiliates, (ii) the Partnership's obligation to reimburse BP Pipelines for personnel and other costs related to the direct operation, management and maintenance of the assets and (iii) the Partnership's obligation to reimburse BP Pipelines for services and certain direct or allocated costs and expenses incurred by BP Pipelines or its affiliates on behalf of the Partnership.

Pursuant to the omnibus agreement, BP Pipelines will indemnify the Partnership and fund the costs of required remedial action for its known historical and legacy spills and releases and other environmental and litigation claims identified in the omnibus agreement. BP Pipelines will also indemnify the Partnership with respect to subsidiaries for which it is the operator for certain title defects and for failures to obtain certain consents and permits necessary to conduct its business for one year following the closing of our IPO.

Further, the omnibus agreement addresses the granting of a license from BPA to the Partnership with respect to use of certain BP trademarks and trade name.

12

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

Cash Management Program

Prior to the IPO, we did not have our standalone cash accounts but participated in our Parent’s centralized cash management and funding system. See Note 1 - Business and Basis of Presentation for further discussion.

In connection with the IPO, we established our own cash accounts for the funding of our operating and investing activities but continued to participate in our Parent’s centralized cash management and funding system.

Related Party Revenue

We provide crude oil, refined products and diluent transportation services to related parties and generate revenue through published tariffs. We have commercial arrangements with BP Products North America, Inc. ("BP Products") that include minimum volume commitments. Under these fee-based agreements, we provide transportation services to BP Products and BP Products has committed to pay us for minimum volumes of crude oil, refined products and diluent, regardless of whether such volumes are physically shipped by BP Products through our pipelines during the term of the agreements. See Note 8 - Related Party Transactions in our 2017 Annual Report for further discussion regarding these agreements. We also have a FLA arrangement with BP Products, which provides us with additional income. See Note 8 - Fair Value Measurements for further information.

Our revenue from related parties was $31,566and $85,556 for the three and nine months ended September 30, 2018 respectively, and $26,778 and $78,832for the three and nine months ended September 30, 2017, respectively.

We recognized $3,857 in deficiency revenue under the throughput and deficiency agreements with BP Products for the three and nine months ended September 30, 2018, and $0 for the three and nine months ended September 30, 2017. We recorded $729 and $0 inDeferred revenue and credits on our condensed consolidated balance sheets at September 30, 2018 and December 31, 2017, respectively.

Related Party Expenses

All employees performing services on behalf of our operations are employees of our Parent. Our Parent also procures our insurance policies on our behalf and performs certain general corporate functions for us related to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee benefits, incentives, severance and environmental functional support. Personnel and operating costs incurred by our Parent on our behalf are included in either Operating expenses – related parties or General and administrative – related parties in the condensed consolidated statements of operations, depending on the nature of the service provided.

Prior to our IPO, we were allocated operating and indirect general corporate expenses incurred by our Parent. See Note 1 - Business and Basis of Presentation for a summary of the allocation methodology.

Subsequent to the IPO, we pay BP Pipelines an annual fee of $13,300 in the form of monthly installments under the omnibus agreement for general and administrative services provided by BP Pipelines and its affiliates. We also reimburse BP Pipelines for personnel and other costs related to the direct operation, management and maintenance of the assets and services and certain direct or allocated costs and expenses incurred by BP Pipelines or its affiliates on our behalf pursuant to the terms in the omnibus agreement.

For the three and nine months ended September 30, 2018 and 2017, we recorded the following amounts for related party expenses, which also included the expenses related to share-based compensation discussed below:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
			Predecessor				Predecessor
Operating expenses—related parties	$	1,506	$	1,945	$	3,494	$	5,812
Maintenance expenses—related parties	31		65		75		257
General and administrative—related parties	3,691		1,210		10,556		3,571
Total costs and expenses—related parties	$	5,228	$	3,220	$	14,125	$	9,640

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BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

Share-based Compensation

Certain employees of our Parent supporting our operations were historically granted awards under share option plans and equity-settled employee share plans. Prior to the IPO, these share-based compensation costs were allocated to us as part of the cost allocations from our Parent. These costs were $84 and $188 for the three and nine months ended September 30, 2017, respectively, recorded in General and administrative – related parties on the condensed consolidated statements of operations.

Subsequent to the IPO, the share-based compensation related to the employees of our Parent who provide services to us is charged to the Partnership pursuant to the terms of the omnibus agreement. The Partnership also issued its own unit-based compensation under our long term incentive plan. See Note 11 - Unit-Based Compensation.

Non-controlling Interests

We control and consolidate Mardi Gras via an agreement between us and our Parent, under which we have the right to vote 100% of Mardi Gras’ ownership interests in each of the Mardi Gras Joint Ventures. Non-controlling interests consist of the 80% ownership interest in Mardi Gras retained by our Parent upon the completion of the IPO and held at September 30, 2018. Net income attributable to non-controlling interests is the product of the non-controlling interests ownership percentage and the net income of Mardi Gras. We report Non-controlling interests as a separate component of equity on our condensed consolidated balance sheets and Net income attributable to non-controlling interests on our condensed consolidated statements of operations.

7. Net Income Per Limited Partner Unit

On February 15, 2018, we paid a prorated quarterly cash distribution of $0.1798 per limited partner unit to unitholders of record on February 1, 2018, for the period from October 30 through December 31, 2017.

On May 15, 2018, we paid a quarterly cash distribution of $0.2675 per limited partner unit to unitholders of record on May 1, 2018, for the period from January 1 through March 31, 2018.

On August 15, 2018, we paid a quarterly cash distribution of $0.2725 per limited partner unit to unitholders of record on August 1, 2018, for the period from April 1 through June 30, 2018.

On October 12, 2018, the board of directors of our general partner declared a quarterly cash distribution of $0.2915 per limited partner unit to unitholders of record on November 1, 2018, for the period from July 1 through September 30, 2018. This distribution will be paid on November 15, 2018.

Net income per limited partner unit is only calculated for the three and nine months ended September 30, 2018 as no units were outstanding in the same periods of 2017. The following tables show the allocation of net income to arrive at net income per limited partner unit for the three and nine months ended September 30, 2018:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2018		2018
Net income attributable to the Partnership	$	35,219	$	96,228
Less:
Incentive distribution rights currently held by the General Partner	—		—
Limited partners' distribution declared on common units	15,268		43,550
Limited partners' distribution declared on subordinated units	15,268		43,550
Net income attributable to the Partnership in excess of distributions	$	4,683	$	9,128

14

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

	Three Months Ended September 30, 2018
	General Partner		Limited Partners' Common Units		Limited Partners' Subordinated Units		Total
Distributions declared	$	—	$	15,268	$	15,268	$	30,536
Net income attributable to the Partnership in excess of distributions	—		2,341		2,342		4,683
Net income attributable to the Partnership	$	—	$	17,609	$	17,610	$	35,219
Weighted average units outstanding:
Basic			52,376		52,376		104,752
Diluted			52,383		52,376		104,759
Net income per limited partner unit (in dollars):
Basic			$	0.34	$	0.34
Diluted			$	0.34	$	0.34

	Nine Months Ended September 30, 2018
	General Partner		Limited Partners' Common Units		Limited Partners' Subordinated Units		Total
Distributions declared	$	—	$	43,550	$	43,550	$	87,100
Net income attributable to the Partnership in excess of distributions	$	—	$	4,564	$	4,564	9,128
Net income attributable to the Partnership	$	—	$	48,114	$	48,114	$	96,228
Weighted average units:
Basic			52,376		52,376		104,752
Diluted			52,383		52,376		104,759
Net income per limited partner unit (in dollars):
Basic			$	0.92	$	0.92
Diluted			$	0.92	$	0.92

8. Fair Value Measurements

We measure assets and liabilities requiring fair value presentation and disclose such amounts according to the quality of valuation inputs under the fair value hierarchy. The carrying amounts of our financial instruments included in current assets and current liabilities approximate fair value due to their short-term nature and maturity.

Our tariff for crude oil transportation on BP2 includes a fixed percentage FLA per barrel, which is a separate fee under the applicable crude oil tariff to cover evaporation and other loss in transit. In the periods presented, all our revenue on BP2 was generated from services to our Parent. We recognize FLA income in Revenue - related parties in the condensed consolidated statements of operations during the periods when commodities are transported.

Allowance oil receivable incurred prior to October 1, 2017 contained an embedded derivative, which we recorded at fair value on the condensed consolidated balance sheets together with its host arrangement. We recorded the changes in fair value in Other income (loss) on the condensed consolidated statements of operations. Allowance oil receivable balance incurred prior to October 1, 2017, including the embedded derivative, was classified as Level 2 in the fair value hierarchy. Such balances were entirely settled upon the IPO.

Allowance oil receivable incurred subsequent to October 1, 2017 no longer contains an embedded derivative or results in gain or loss related to the change in its fair value pursuant to the revised settlement price determination in a related party agreement

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BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

between us and our Parent. We now settle the allowance oil at the end of each period; therefore, the balances are entirely recorded in Accounts receivable - related parties after October 1, 2017.

In the three and nine months ended September 30, 2018, we recognized FLA income of$2,691 and $7,691, respectively.In the three and nine months ended September 30, 2017, we recognized FLA income of $2,243 and $6,240, respectively, and a gain/(loss) due to the changes in fair value of $380 and $(108), respectively, related to the FLA arrangement with our Parent.

9. Income Taxes

Prior to our IPO, the Predecessor was a part of BPA and was included in the income tax returns of BPA. Our tax provision prior to the IPO was prepared on a separate return basis, as if the Predecessor was a separate group of companies under common ownership. The Predecessor recorded income tax expense of $7,403 and $23,219 for the three and nine months ended September 30, 2017, respectively.

BP Midstream Partners LP is not a taxable entity for U.S. federal and state income tax purposes. Taxes on our net income are generally borne by our partners through the allocation of taxable income. The condensed consolidated financial statements, therefore, do not include a provision for income tax after the IPO.

10. Commitments and Contingencies

Legal Proceedings

From time to time, we are party to ongoing legal proceedings in the ordinary course of business. For each of our outstanding legal matters, if any, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies and the likelihood of an unfavorable outcome. While the outcome of these proceedings cannot be predicted with certainty, we do not believe the results of these proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or liquidity.

Indemnification

Under our omnibus agreement, our Parent will indemnify us for certain environmental liabilities, litigation and other matters attributable to the ownership or operation of our assets prior to the closing of the IPO. For the purposes of determining the indemnified amount of any loss suffered or incurred by the Partnership, the Partnership’s ownership of 28.5% in Mars, and 20% in Mardi Gras, and Mardi Gras’ 56% ownership in Caesar, 53% ownership in Cleopatra, 65% ownership in Endymion and 65% ownership in Proteus will be taken into account. Indemnification for certain identified environmental liabilities is subject to a cap of $25.0 million without any deductible. Other matters covered by the omnibus agreement are subject to a cap of $15.0 million and an aggregate deductible of $0.5 million before we are entitled to indemnification. Indemnification for any unknown environmental liabilities is limited to liabilities due to occurrences prior to the closing of the IPO and that are identified before the third anniversary of the closing of the IPO.

Environmental Matters

We are subject to federal, state, and local environmental laws and regulations. We record provisions for environmental liabilities based on management’s best estimates, using all information that is available at the time. In making environmental liability estimations, we consider the material effect of environmental compliance, pending legal actions against us and potential third-party liability claims. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. We are indemnified by our Parent under the omnibus agreement against environmental cleanup costs for incidents that occurred prior to the IPO. Subsequent to the IPO, revisions to the estimated environmental liability for conditions that are not indemnified under the omnibus agreement with our Parent are reflected in our condensed consolidated statements of operations in the year in which they are probable and reasonably estimable.

We accrued $4,192 and $4,438 for environmental liabilities at September 30, 2018 and December 31, 2017, respectively. The balances are related to incidents that occurred prior to the IPO and are entirely indemnified by our Parent. As a result, we recorded corresponding indemnification assets of $4,192 and $4,438 on the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017.

16

BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

11. Unit-Based Compensation

Long-Term Incentive Plan

Our general partner has adopted the BP Midstream Partners LP 2017 Long Term Incentive Plan (the “LTIP”). Awards under the LTIP are available for eligible officers, directors, employees and consultants of the general partner and its affiliates, who perform services for the Partnership. The LTIP allows the Partnership to grant unit options, unit appreciation rights, restricted units, phantom units, unit awards, cash awards, performance awards, distribution equivalent rights, substitute awards and other unit-based awards. The maximum aggregate number of common units that may be issued pursuant to the awards granted under the LTIP shall not exceed 5,502,271, subject to proportionate adjustment in the event of unit splits and similar events.

Unit-Based Awards under the LTIP

The following is a summary of phantom unit award activities of the Partnership’s common units for the nine months ended September 30, 2018:

	Phantom Units
	Number of Units (in units)	Weighted Average Grant Date Fair Value per Unit (in dollars)
Outstanding at December 31, 2017	8,468	$	17.48
Granted	3,737	20.07
Outstanding at September 30, 2018	12,205	$	18.27
Vested at September 30, 2018	—	—

For the three and nine months ended September 30, 2018, total compensation expense recognized for phantom unit awards was $56 and $140, respectively. The unrecognized compensation cost related to phantom unit awards was $63 at September 30, 2018, which is expected to be recognized over a weighted average period of 0.3 years. There were no forfeitures for the nine months ended September 30, 2018.

12. Variable Interest Entity

We control and consolidate our variable interest entity in Mardi Gras because we are the primary beneficiary. Mardi Gras holds equity interests in the Mardi Gras Joint Ventures and accounts for them as equity method investments. Mardi Gras does not have any other operations or activities. See Note 15 - Variable Interest Entity in our 2017 Annual Report for further discussion.

The financial position of Mardi Gras at September 30, 2018 and December 31, 2017, its financial performance for the three and nine months ended September 30, 2018 and 2017 and cash flows for the nine months ended September 30, 2018 and 2017, as reflected in our condensed consolidated financial statements, are as follows:

	September 30, 2018		December 31, 2017
Balance sheet
Equity method investments	$	407,077	$	422,438
Non-controlling interests	330,040		342,330

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BP MIDSTREAM PARTNERS LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands of dollars, unless otherwise indicated)

	Three Months Ended September 30,			Nine Months Ended September 30,
	2018		2017	2018		2017
Statement of operations
Income from equity method investments	$	10,340	*	$	35,205	*
Less: Net income attributable to non-controlling interests	8,272		*	28,163		*
Net impact on Net income attributable to the Partnership	$	2,068	*	$	7,042	*

* Information is not applicable as the interest in Mardi Gras was contributed to the Partnership on October 30, 2017.

	Nine Months Ended September 30,
	2018			2017
Statement of cash flows
Cash flows from operating activities
Distributions of earnings received from equity method investments	$	35,205		*
Cash flows from investing activities
Distribution in excess of earnings from equity method investments	15,362			*
Cash flows from financing activities
Distributions to non-controlling interests	(40,453		)	*
Net change on BPMP's cash and cash equivalents	$	10,114		*

* Information is not applicable as the interest in Mardi Gras was contributed to the Partnership on October 30, 2017.

13. Subsequent Events

We have evaluated subsequent events through the issuance of these condensed consolidated financial statements. Based on this evaluation, it was determined that no subsequent events occurred, other than the items noted below, that require recognition or disclosure in the condensed consolidated financial statements.

Cash Distribution

On October 12, 2018, we declared a cash distribution of $0.2915 per limited partner unit to unitholders of record on November 1, 2018, for the three months ended September 30, 2018. The distribution will be paid on November 15, 2018 and will total $30.5 million, with $13.9 million being distributed to our non-affiliated common unitholders and $16.6 million being distributed to BP Midstream Partners Holdings LLC ("BP Holdco") in respect of its ownership of our common and subordinated units.

Acquisition of Equity Interests

On October 1, 2018, pursuant to an Interest Purchase Agreement (the “Interest Purchase Agreement”) with BP Products North America Inc. (“BP Products”), BP Offshore Pipelines Company LLC (“BP Offshore”), and BP Pipelines we completed the acquisition of (i) an additional 45.0% interest in Mardi Gras, from BP Pipelines, (ii) a 25.0% interest in KM Phoenix Holdings LLC, a Delaware limited liability company, from BP Products, and (iii) a 22.6916% interest in URSA Oil Pipeline Company LLC, a Delaware limited liability company, from BP Offshore, in exchange for aggregate consideration of $468 million funded with borrowings under our revolving credit facility. The purchase will be accounted for as a transaction between entities under common control; as a result, we will recognize the acquired assets at their historical carrying value.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (the “Quarterly Report”) includes various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements other than statements of historical fact included in this Quarterly Report, regarding our strategy, future operations, financial position, estimated revenues and losses, projected cost, prospects, plans and objectives of management, are forward-looking statements.

When used in this Quarterly Report, you can identify our forward-looking statements by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “plan,” “predict,” “project,” “seek,” “target,” “could,” “may,” “should,” “would” or other similar expressions that convey the uncertainty of future events or outcomes, although not all forward-looking statements contain such identifying words. When considering forward-looking statements, you should carefully consider the risk factors and other cautionary statements described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2017 and other cautionary statements contained in this filing.

We based forward-looking statements on our current expectations and assumptions about future events and currently available information as to the outcome and timing of future events. We caution you that these statements are not guarantees of future performance as they involved assumptions that, while made in good faith, may prove to be incorrect, and involve risks and uncertainties we cannot predict. Accordingly, our actual outcomes and results may differ materially from what we have expressed or forecast in the forward-looking statements.

Forward-looking statements may include statements about:

• The continued ability of BP and any non-affiliate customers to satisfy their obligations under our commercial and other agreements and the impact of lower market prices for crude oil, natural gas, refined products and diluent.

• The volume of crude oil, natural gas, refined products and diluent we transport or store and the prices that we can charge our customers.

• The tariff rates with respect to volumes that we transport through our regulated assets, which rates are subject to review and possible adjustment imposed by federal and state regulators.

• Changes in revenue we realize under the fixed loss allowance provisions of our fees and tariffs resulting from changes in underlying commodity prices.

• Fluctuations in the prices for crude oil, natural gas, refined products and diluent.

• The level of onshore and offshore production and demand for crude oil, natural gas, refined products and diluent.

• Our ability to successfully integrate recently acquired assets with our own and realize the anticipated benefits of such acquisitions.

• Changes in global economic conditions and the effects of a global economic downturn on the business of BP and the business of its suppliers, customers, business partners and credit lenders.

• Liabilities associated with the risks and operational hazards inherent in transporting and/or storing crude oil, natural gas, refined products and diluent.

• Curtailment of operations or expansion projects due to unexpected leaks or spills; severe weather disruption; riots, strikes, lockouts or other industrial disturbances; or failure of information technology systems due to various causes, including unauthorized access or attack.

• Costs or liabilities associated with federal, state and local laws and regulations relating to environmental protection and safety, including spills, releases and pipeline integrity.

• Costs associated with compliance with evolving environmental laws and regulations on climate change.

• Costs associated with compliance with safety regulations and system maintenance programs, including pipeline integrity management program testing and related repairs.

• Changes in tax status.

• Changes in the cost or availability of third-party vessels, pipelines, rail cars and other means of delivering and transporting crude oil, natural gas, refined products and diluent.

• Direct or indirect effects on our business resulting from actual or threatened terrorist incidents or acts of war.

• Changes in, and availability to us, of the equity and debt capital markets.

Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

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Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Unless otherwise stated or the context otherwise indicates, all references to “we,” “our,” “us,” “Predecessor Assets,” “Predecessor,” or similar expressions for time periods prior to the initial public offering (the "IPO") date of October 30, 2017 refer to BP Midstream Partners LP Predecessor, our predecessor for accounting purposes. For time periods subsequent to the IPO, “we,” “our,” “us,” or similar expressions refer to the legal entity BP Midstream Partners LP (the "Partnership"). The term “our Parent” refers to BP Pipelines (North America), Inc. (“BP Pipelines”), any entity that wholly owns BP Pipelines, indirectly or directly, including BP America Inc. and BP p.l.c. (“BP”), and any entity that is wholly owned by the aforementioned entities, excluding BP Midstream Partners LP Predecessor and the Partnership.

The following management discussion and analysis of financial conditions and results of operations should be read in conjunction with the unaudited financial statements and accompanying notes in this quarterly report and our Annual Report on Form 10-K for the year ended December 31, 2017 (our "2017 Annual Report").

Partnership Overview

We are a fee-based, growth-oriented master limited partnership formed by BP Pipelines on May 22, 2017 to own, operate, develop and acquire pipelines and other midstream assets. On October 30, 2017, the Partnership completed its IPO of common units representing limited partner interests. A total of 47,794,358 common units, including 5,294,358 common units pertaining to the exercise of the underwriters' over-allotment option, were issued to the public unitholders in connection with our IPO. On October 26, 2017, the Partnership's common units began trading on the New York Stock Exchange ("NYSE") under the symbol "BPMP".

Our assets consist of interests in entities that own crude oil, natural gas, refined products and diluent pipelines serving as key infrastructure for BP and other customers to transport onshore crude oil production to BP's crude oil 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 of our assets deliver refined products and diluent from the Whiting Refinery and other U.S. supply hubs to major demand centers.

As of September 30, 2018, our 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 are located in the Midwest region of the United States, and together are referred to as the "Predecessor Assets" or the "Wholly Owned Assets".

• A 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.

• A 20% 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:

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

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

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

• A 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.”

Acquisition of Equity Interests

On October 1, 2018, pursuant to an Interest Purchase Agreement (the “Interest Purchase Agreement”) with BP Products North America Inc. (“BP Products”), BP Offshore Pipelines Company LLC (“BP Offshore”), and BP Pipelines we completed the acquisition of (i) an additional 45.0% interest in Mardi Gras, from BP Pipelines, (ii) a 25.0% interest in KM Phoenix Holdings LLC, a Delaware limited liability company, from BP Products, and (iii) a 22.6916% interest in URSA Oil Pipeline Company LLC, a Delaware limited liability company, from BP Offshore, in exchange for aggregate consideration of $468 million funded with

20

borrowings under our revolving credit facility. The purchase will be accounted for as a transaction between entities under common control; as a result, we will recognize the acquired assets at their historical carrying value.

How We Evaluate Our Operations

Our management uses a variety of financial and operating metrics to analyze our performance. These metrics are significant factors in assessing our operating results and profitability and include: (i) safety and environmental metrics, (ii) revenue (including FLA) from throughput and utilization; (iii) operating expenses and maintenance spend; (iv) Adjusted EBITDA (as defined below); and (v) cash available for distribution (as defined below).

Preventative Safety and Environmental Metrics

We are committed to maintaining and improving the safety, reliability and efficiency of our operations. We have implemented

reporting programs requiring all employees and contractors of our Parent who provide services to us to record environmental and safety related incidents. Our management team uses these existing programs and data to evaluate trends and potential interventions to deliver on performance targets. We integrate health, occupational safety, process safety and environmental principles throughout our operations in order to reduce and eliminate environmental and safety related incidents.

Throughput

The amount of revenue our business generates primarily depends on our fee-based transportation agreements with shippers, our tariffs and the volumes of crude oil, natural gas, refined products and diluent that we handle on our pipelines. We generate the majority of our revenue by charging fees under long-term agreements with minimum volume commitments.

The volumes that we handle on our pipelines are primarily affected by the supply of, and demand for, crude oil, natural gas, refined products and diluent in the markets served directly or indirectly by our assets. Our results of operations are impacted by our ability to:

• utilize any remaining unused capacity on, or add additional capacity to, our pipeline systems;

• increase throughput volumes on our pipeline systems by making connections to existing or new third-party pipelines or other facilities, primarily driven by the anticipated supply of and demand for crude oil, natural gas, refined products and diluent;

• identify and execute organic expansion projects; and

• increase throughput volumes via acquisitions.

Operating Expenses and Total Maintenance Spend

Operating Expenses

Our management seeks to maximize our profitability by effectively managing our operating expenses. These expenses are comprised primarily of labor expenses (including contractor services), general materials, supplies, minor maintenance, utility costs (including electricity and fuel) and insurance premiums. Utility costs fluctuate based on throughput volumes and the grades of crude oil and types of refined products we handle. Our other operating expenses generally remain relatively stable across broad ranges of throughput volumes, but can fluctuate from period to period depending on the mix of activities performed during that period.

Total Maintenance Spend

We calculate Total Maintenance Spend as the sum of maintenance expenses and maintenance capital expenditures, excluding any reimbursable maintenance capital expenditures. We track these expenditures on a combined basis because it is useful to understanding our total maintenance requirements. Total Maintenance Spend for the nine months ended September 30, 2018 and 2017, respectively, is shown in the table below:

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	Nine Months Ended September 30,
	2018		2017
	(in thousands of dollars)
			Predecessor
Wholly Owned Assets
Maintenance expenses	$	1,598	$	2,908
Maintenance capital expenditures	1,341		2,063
Total Maintenance Spend - Wholly Owned Assets	$	2,939	$	4,971

We seek to maximize our profitability by effectively managing our maintenance expenses, which consist primarily of safety and environmental integrity programs. We seek to manage our maintenance expenses on the pipelines we operate by scheduling maintenance over time to avoid significant variability in our maintenance expenses and minimize their impact on our cash flows, without compromising our commitment to safety and environmental stewardship.

Our maintenance expenses represent the costs we incur that do not significantly extend the useful life or increase the expected output of our property, plant and equipment. These expenses include pipeline repairs, replacements of immaterial sections of pipelines, inspections, equipment rentals and costs incurred to maintain compliance with existing safety and environmental standards, irrespective of the magnitude of such compliance expenses. Our maintenance expenses vary significantly from period to period because certain of our expenses are the result of scheduled safety and environmental integrity programs, which occur on a multi-year cycle and require substantial outlays.

Adjusted EBITDA and Cash Available for Distribution

We define Adjusted EBITDA as net income before net interest expense, income taxes, gain or loss from disposition of property, plant and equipment, and depreciation and amortization, plus cash distributed to the Partnership from equity method investments for the applicable period, less income from equity method investments. We define Adjusted EBITDA attributable to the Partnership as Adjusted EBITDA less Adjusted EBITDA attributable to non-controlling interests. We present these financial measures because we believe replacing our proportionate share of our equity method investments’ net income with the cash received from such equity method investments more accurately reflects the cash flow from our business, which is meaningful to our investors.

We compute and present cash available for distribution and define it as Adjusted EBITDA attributable to the Partnership plus net adjustments from volume deficiency agreements, less maintenance capital expenditures, net interest paid/received, cash reserves, and income taxes paid. Cash available for distribution does not reflect changes in working capital balances.

Adjusted EBITDA and cash available for distribution are non-GAAP supplemental financial measures, which are metrics that management and external users of our condensed consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• 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 business to generate sufficient cash to support our decision 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.

We believe that the presentation of Adjusted EBITDA and cash available for distribution provides useful information to investors in assessing our financial condition and results of operations. The GAAP measures most directly comparable to Adjusted EBITDA and cash available for distribution are net income and net cash provided by operating activities, respectively. Adjusted EBITDA and cash available for distribution should not be considered as an alternative to GAAP net income or net cash provided by operating activities.

Adjusted EBITDA and cash available for distribution have important limitations as analytical tools because they exclude some but not all items that affect net income and net cash provided by operating activities. You should not consider Adjusted EBITDA or cash available for distribution in isolation or as a substitute for analysis of our results as reported under GAAP. Additionally, because Adjusted EBITDA and cash available for distribution may be defined differently by other companies in our industry, our

22

definition of Adjusted EBITDA and cash available for distribution may not be comparable to similarly titled measures of other companies, thereby diminishing its utility. Please read “Reconciliation of Non-GAAP Measures” section below for the reconciliation of net income and cash provided by operating activities to Adjusted EBITDA and cash available for distribution.

Factors Affecting the Comparability of Our Financial Results

Our results of operations subsequent to the IPO are not comparable to our Predecessor’s historical results of operations for the reasons described below:

Revenues

Prior to July 1, 2017, our Predecessor did not have agreements that contained minimum volume commitments. As of July 1, 2017, we entered into a throughput and deficiency agreement with BP Products for transporting diluent on Diamondback under a joint tariff agreement with a third-party carrier that contains minimum volume requirements.  In connection with the IPO, we entered into additional throughput and deficiency agreements that contain minimum volume requirements with BP Products for each of our three Wholly Owned Assets. See Note 8 - Related Party Transactions in the Notes to Consolidated Financial Statements in our 2017 Annual Report.

Contribution of Interests in Investments

Immediately prior to the consummation of the IPO, BP Pipelines contributed to us 28.5% ownership interest in Mars and 20% managing member interest in Mardi Gras. We control and consolidate Mardi Gras via an agreement between us and our Parent, under which we have the right to vote 100% of Mardi Gras’ ownership interests in each of the Mardi Gras Joint Ventures. Historical Predecessor results of operations consist of only the Predecessor Assets.

Expenses

Our Predecessor’s operating and general and administrative expenses included charges for the management and operations of our assets and certain general corporate overhead, shared services and operating services allocated to us by BP Pipelines through October 29, 2017. These allocated expenses included but were not limited to finance, accounting, treasury, legal, information technology, human resources, shared services, government affairs, insurance, health, safety, security, employee benefits, incentives, severance and environmental functional support. These expenses were charged or allocated to our Predecessor Assets based on the nature of the expenses.

Subsequent to the IPO, BP Pipelines charges us a combination of fixed and reimbursable charges for administrative and operating services under our omnibus agreement. We pay an annual fee, initially $13.3 million, to BP Pipelines for general and administrative services. The omnibus fee is structured to support all of our onshore and offshore assets, while the expenses allocated to the Predecessor only covered the Wholly Owned Assets.

Income Taxes

Federal income taxes were reflected on the historical financial statements of our Predecessor. The Partnership is a pass-through entity for federal and state income tax purposes and is not subject to federal and state income tax expense in its financial results.

Financing

There are differences in the way we finance our operations as compared to the way our Predecessor historically financed its operations. Historically, our Predecessor’s operations were financed as part of BP Pipelines’ integrated operations, and our Predecessor did not record any separate costs associated with financing its operations. Our Predecessor largely relied on internally-generated cash flows and capital contributions from BP Pipelines to satisfy its capital expenditure requirements. Subsequent to the IPO, funding for future capital expenditures is primarily from external sources, including affiliate borrowings under our $600.0 million Credit Facility and potential future issuances of equity and debt securities.

We intend to make cash distributions to our unitholders at a minimum distribution rate of $0.2625 per unit per quarter ($1.05 per unit on an annualized basis). Based on the terms of our cash distribution policy, we expect that we will distribute to our unitholders and our general partner, as the holder of our incentive distribution rights, most of the cash generated by our operations.

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Factors Affecting Our Business

Our business can be negatively affected by sustained downturns or slow growth in the economy in general, and is impacted by the mix of services requested by the customers of our pipelines, competition and changes in regulatory requirements affecting our customers’ operations.

Major Expansion Projects

One of our investees, Proteus, has an expansion project under construction in 2018. An affiliate of Royal Dutch Shell plc ("Shell") is currently building the Mattox pipeline, which will connect to Proteus for the mutual benefit of all parties involved. Through this upstream connection, Proteus will transport all of the volumes from Shell's recently sanctioned Appomattox platform. Proteus is also constructing a new connecting platform adjacent to South Pass 89E platform that will accommodate volumes from the Mattox pipeline. In addition, the new Proteus platform will provide space for future pumping equipment and the ability to increase the capacity of the Proteus system to over 700 kbpd.

The total project cost is expected to be approximately $386.0 million from 2015 to 2019, which are prepaid to Proteus from third-party investors that are not affiliated with the Partnership. During the three months ended September 30, 2018, Proteus incurred $48.8 million of capitalized costs. We expect the Appomattox expansion capital expenditures to be approximately $170.3 million for the twelve months of 2018, which includes $57.9 million for the remaining three months of 2018.

Customers

BP is our primary customer. Transportation revenue from BP represented 98.4% and 97.6% of our revenues for the three and nine months ended September 30, 2018, respectively, and 99.1% and 97.9% for the three and nine months ended September 30, 2017, respectively. BP’s volumes represented approximately 49.4% and 52.5% of the aggregate total volumes transported on the Wholly Owned Assets, Mars and the Mardi Gras Joint Ventures combined for the three and nine months ended September 30, 2018, respectively. BP’s volumes represented approximately 98.3% and 97.4% of the aggregate total volumes transported on the Wholly Owned Assets for the three and nine months ended September 30, 2017, respectively.

In addition, we transport crude oil, natural gas and diluent for a mix of third-party customers, including crude oil producers, refiners, marketers and traders, and our assets are connected to other crude oil, natural gas and diluent pipeline systems. In addition to serving directly connected Midwestern U.S. and Gulf Coast markets, our pipelines have access to customers in various regions of the United States and Canada through interconnections with other major pipelines. Our customers use our transportation services for a variety of reasons. Producers of crude oil require the ability to deliver their product to market and frequently enter into firm transportation contracts to ensure that they will have sufficient capacity available to deliver their product to delivery points with greatest market liquidity. Marketers and traders generate income from buying and selling crude oil, natural gas, refined products and diluent to capitalize on price differentials over time or between markets. Our customer mix can vary over time and largely depends on the crude oil, natural gas, refined products and diluent supply and demand dynamics in our markets.

Competition

Our pipelines face competition from a variety of alternative transportation methods including rail, water borne movements including barging and shipping, trucking and other pipelines that service the same markets as our pipelines. Competition for BP2 and River Rouge common carrier pipelines is based primarily on connectivity to sources of supply and demand, while Diamondback faces competition for Gulf Coast sourced diluent from third-party pipelines, which have made direct connections at Manhattan, Illinois. Our offshore pipelines compete for new production on the basis of geographic proximity to the production, cost of connection, available capacity, transportation rates and access to onshore markets.

Regulation

Our interstate common carrier pipelines are subject to regulation by various federal, state and local agencies including the FERC, the U.S. Environmental Protection Agency ("EPA") and the U.S. Department of Transportation ("DOT"). For more information on federal, state and local regulations affecting our business, see Part I, Item 1 and 2. Business and Properties in our 2017 Annual Report.

Acquisition Opportunities

We plan to pursue acquisitions of complementary assets from BP as well as third parties. We also may pursue acquisitions jointly with BP Pipelines. Neither BP nor any of its affiliates are under any obligation, however, to sell or offer to sell us additional assets

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or to pursue acquisitions jointly with us, and we are under no obligation to buy any additional assets from them or to pursue any joint acquisitions with them. We will focus our acquisition strategy on transportation and midstream assets within the crude oil, natural gas and refined products sectors. We believe that we are well positioned to acquire midstream assets from BP, and particularly BP Pipelines, as well as third parties, should such opportunities arise. Identifying and executing acquisitions will be a key part of our strategy. However, if we do not make acquisitions on economically acceptable terms, our future growth will be limited, and the acquisitions we do make may reduce, rather than increase, our available cash.

Seasonality

The volumes of crude oil, refined products and diluent transported in our pipelines are directly affected by the level of supply and demand for such commodities in the markets served directly or indirectly by our assets. However, many effects of seasonality on our revenue will be substantially mitigated through the use of our fee-based long-term agreements with BP Products that include minimum volume commitments.

Results of Operations

The following tables and discussion contain a summary of our consolidated results of operations for the three and nine months ended September 30, 2018 and 2017.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018		2017
	(in thousands of dollars)
				Predecessor				Predecessor
Revenue	$	32,074		$	27,016	$	87,628	$	80,544
Costs and expenses
Operating expenses	4,398			5,007		12,052		12,192
Maintenance expenses	671			1,427		1,598		2,908
Gain from disposition of property, plant and equipment	—			—		—		(6		)
General and administrative	5,287			1,222		13,355		3,627
Depreciation	663			675		1,987		2,007
Property and other taxes	165			113		388		267
Total costs and expenses	11,184			8,444		29,380		20,995
Operating income	20,890			18,572		58,248		59,549
Income from equity method investments	22,581			—		66,262		—
Other income (loss)	—			380		—		(108		)
Interest (income) expense, net	(20		)	—		119		—
Income before income taxes	43,491			18,952		124,391		59,441
Income tax expense	—			7,403		—		23,219
Net income	43,491			$	11,549	124,391		$	36,222
Less: Net income attributable to non-controlling interests	8,272					28,163
Net income attributable to the Partnership	$	35,219				$	96,228
Adjusted EBITDA**	$	49,369		$	19,627	$	146,911	$	61,442
Less: Adjusted EBITDA attributable to non-controlling interests	11,719			*		40,453		*
Adjusted EBITDA attributable to the Partnership	$	37,650		*		$	106,458	*
* Information is not applicable for the periods prior to the IPO.
** See Reconciliation of Non-GAAP Measures below.

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	Three Months Ended September 30,				Nine Months Ended September 30,
Pipeline throughput (thousands of barrels per day)(1)(2)	2018		2017		2018		2017
BP2	276		312		286		288
Diamondback	52		44		69		56
River Rouge	70		61		65		60
Total Wholly Owned Assets	398		417		420		404
Mars	580		480		499		476
Caesar	214		208		198		216
Cleopatra(3)	24		23		23		25
Proteus	150		157		169		159
Endymion	150		157		169		159
Mardi Gras Joint Ventures	538		545		559		559
Average revenue per barrel ($ per barrel)(2)(4)
Total Wholly Owned Assets	$	0.77	$	0.71	$	0.73	$	0.73
Mars	1.22		1.43		1.21		1.41
Mardi Gras Joint Ventures	0.68		0.66		0.66		0.67
(1) Pipeline throughput is defined as the volume of delivered barrels.
(2) Interests in Mars and Mardi Gras were contributed to the Partnership on October 30, 2017. Throughput and average revenue per barrel for Mars and the Mardi Gras Joint Ventures are presented on a 100% basis for the three and nine months ended September 30, 2018, and 2017. Data presented for Mars and Mardi Gras Joint Ventures for the three and nine months ended September 30, 2017 are for informational purposes only and are not included in our Predecessor financial results.
(3) Natural gas is converted to oil equivalent at 5.8 million cubic feet per one thousand barrels.
(4) Based on reported revenues from transportation and allowance oil divided by delivered barrels over the same time period.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

Total revenue increased by $5.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Revenue from BP2 decreased by $1.2 million attributable to a 11.5% decrease in throughput volume partially offset by 4.4% increase in weighted average tariff rate. Revenue from FLA on BP2 increased by $0.4 million. Revenue from River Rouge increased by $1.5 million due to a 14.8% increase in throughput volume and a 4.6% increase in the weighted average tariff rate. Revenue from Diamondback increased by $0.5 million due to a 19.6% increase in throughput volume and a 4.6% increase in weighted average tariff rate. We also recognized $2.6 million and $1.3 million in revenue from minimum volume deficiency on BP2 and Diamondback, respectively.

Operating expenses decreased by $0.6 million for the three months ended September 30, 2018, compared to the three months ended September 30, 2017 primarily due to a $0.9 decrease in insurance expense for Wholly Owned Assets and partially offset by an $0.3 million increase in right-of-way clearing.

Maintenance expense decreased by $0.8 million for the three months ended September 30, 2018, compared to the three months ended September 30, 2017 primarily due to a decrease in repairs and corrosion work on River Rouge.

General and administrative expense increased by $4.1 million, or 333%, in the three months ended September 30, 2018, compared to the three months ended September 30, 2017. For the three months ended September 30, 2018, general and administrative expenses primarily consist of $3.3 million under our omnibus agreement with our Parent. In addition, the three months ended September 30, 2018 included $1.0 million for transaction costs related to our acquisition in the fourth quarter. Subsequent to the IPO, general and administrative expenses previously allocated to the Predecessor are now covered in the omnibus agreement with our Parent.

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Property and other tax expense remained flat at approximately $0.2 million and $0.1 million in the three months ended September 30, 2018 and 2017, respectively.

Income from equity method investments was $22.6 million in the three months ended September 30, 2018 due to earnings from Mars and Mardi Gras Joint Ventures subsequent to IPO compared to no income from equity method investments in 2017.

Other loss for the three months ended September 30, 2017 represents the changes in fair value of the embedded derivative associated with the allowance oil receivable incurred by our Predecessor prior to October 1, 2017. Pursuant to a related party agreement, allowance oil receivable incurred on and after October 1, 2017 is settled at the commodity prices of the movement month and no longer contains an embedded derivative that would result in gain and losses due to changes in fair value.

Net interest earned was less than $0.1 million for the three months ended September 30, 2018. We repaid $15 million in borrowings under our $600.0 million Credit Facility in May 2018 and earned interest on our cash deposits held by the Partnership in the period. The Predecessor entity in comparison had no related debt or credit facility to drive interest expense or any held cash deposits to earn interest income.

Income tax expense for the Predecessor entity in the three months ended September 30, 2017 was $7.4 million. Prior to the IPO, the Predecessor was included in the consolidated income tax returns of our Parent which is subject to federal and state income taxes. The effective tax rate during the three months ended September 30, 2017 was at 39.1%. Subsequent to the IPO, the Partnership is treated as a pass-through entity for federal and state income tax purposes. There is no federal and state income taxes for the period subsequent the IPO.

Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Total revenue increased by $7.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Revenue from BP2 increased by $0.2 million primarily attributable to a 1.3% increase in weighted average tariff rate that was offset by a 0.8% decrease in throughput volume. Revenue from FLA on BP2 increased by $1.5 million. Revenue from River Rouge increased by $2.1 million due to 8.4% increase in throughput volume and a 1.1% increase in the weighted average tariff rate. Revenue from Diamondback decreased by $0.3 million due to a 23.8% increase in throughput volume and a 21.4% decrease in weighted average tariff rate caused by a 94.7% increase in throughput volume from third parties at a lower tariff rate. We also recognized $2.6 million and $1.3 million in revenue from minimum volume deficiency on BP2 and Diamondback, respectively in the 2018 period. Other revenue decreased by $0.4 million compared to the prior year to date period.

Operating expenses decreased by $0.1 million for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017 primarily due to an $2.2 million increase in third party expenses and a decrease of $2.4 million in related party expenses. This change is due to the Partnership having its own insurance, so the expense is now reported as third party and not related party.

Maintenance expenses decreased by $1.3 million, or 45%, in the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017, primarily as a result of a decrease in spend on River Rouge related to repairs and corrosion work.

General and administrative expenses increased by $9.7 million, or 268%, in the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. For the nine months ended September 30, 2018, general and administrative expenses primarily consist of $10.0 million under our omnibus agreement with our Parent compared to $3.6 million allocated in the nine months ended September 30, 2017. There was also an increase of $1.7 million for professional services and other costs required as a publicly traded partnership, an increase of $1.0 million for transaction costs related to our acquisition in the fourth quarter and $0.3 million for unit based compensation fees.

Depreciation expense remained relatively flat at $2.0 million in both of the nine months ended September 30, 2018 and 2017.

Property and other tax expense increased slightly to $0.4 million from $0.3 million in nine months ended September 30, 2018 and 2017, respectively.

Income from equity method investments was $66.3 million in the nine months ended September 30, 2018 due to earnings from Mars and the Mardi Gras Joint Ventures subsequent to IPO compared to no income from equity method investments in 2017.

Other loss was $0.1 million in the nine months ended September 30, 2017. Other loss represents the changes in fair value of the embedded derivative associated with the allowance oil receivable incurred prior to October 1, 2017. Pursuant to a related party

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agreement, allowance oil receivable incurred on and after October 1, 2017 is settled at the commodity prices of the movement month and no longer contains an embedded derivative that would result in gain and losses due to changes in fair value.

Interest expense, net was $0.1 million in the nine months ended September 30, 2018. In connection with the IPO, we entered into the $600.0 million Credit Facility. The $0.1 million of net interest consisted of interest expense and commitment and utilization fees, which were partially offset by interest income on cash deposits held by the Partnership.

Income tax expense in the nine months ended September 30, 2017 was $23.2 million for the Predecessor. Prior to the IPO, the Predecessor was included in the consolidated income tax returns of our Parent which is subject to federal and state income taxes. The effective tax rate during the nine months ended September 30, 2017 was at 39.1%. Subsequent to the IPO, the Partnership is treated as a pass-through entity for federal and state income tax purposes. There is no federal and state income taxes for the period subsequent to the IPO.

Reconciliation of Non-GAAP Measures

The following tables present a reconciliation of Adjusted EBITDA to net income and to net cash provided by operating activities, the most directly comparable GAAP financial measures, for each of the periods indicated.

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
	(in thousands of dollars)
				Predecessor					Predecessor
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Income
Net income	$	43,491		$	11,549	124,391			$	36,222
Add:
Depreciation	663			675		1,987			2,007
Gain from disposition of property, plant and equipment	—			—		—			(6		)
Income tax expense	—			7,403		—			23,219
Interest (income) expense, net	(20		)	—		119			—
Cash distributions received from equity method investments — Mars	13,167			—		36,110			—
Cash distributions received from equity method investments — Mardi Gras Joint Ventures	14,649			—		50,566			—
Less:
Income from equity method investments — Mars	12,241			—		31,057			—
Income from equity method investments — Mardi Gras Joint Ventures	10,340			—		35,205			—
Adjusted EBITDA	49,369			$	19,627	146,911			$	61,442
Less:
Adjusted EBITDA attributable to non-controlling interests	11,719					40,453
Adjusted EBITDA attributable to the Partnership	37,650					106,458
Add:
Net adjustments from volume deficiency agreements	(2,676		)			(1,853		)
Less:
Net interest paid/(received)	(20		)			126
Maintenance capital expenditures	869					1,341
Cash available for distribution attributable to the Partnership	$	34,125				$	103,138

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	Nine Months Ended September 30,
	2018			2017
	(in thousands of dollars)
				Predecessor
Reconciliation of Adjusted EBITDA and Cash Available for Distribution to Net Cash Provided by Operating Activities
Net cash provided by operating activities	$	133,486		$	34,263
Add:
Income tax expense	—			23,219
Interest (income) expense, net	119			—
Distribution in excess of earnings from equity method investments	15,362			—
Changes in other assets and liabilities	(1,916		)	4,639
Less:
Non-cash adjustments	140			679
Adjusted EBITDA	$	146,911		$	61,442
Less:
Adjusted EBITDA attributable to non-controlling interests	40,453
Adjusted EBITDA attributable to the Partnership	106,458
Add:
Net adjustments from volume deficiency agreements	(1,853		)
Less:
Net interest paid/(received)	126
Maintenance capital expenditures	1,341
Cash available for distribution attributable to the Partnership	$	103,138

Capital Resources and Liquidity

We maintain separate bank accounts from BP Pipelines which continues to provide treasury services on our general partner’s behalf under our omnibus agreement. We expect our ongoing sources of liquidity to include cash generated from operations (including distribution from our equity method investments), borrowings under our Credit Facility and issuances of debt and additional equity securities. The entities in which we own an interest may also incur debt. We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements and long-term capital expenditure requirements and to make quarterly cash distributions.

Cash Distributions

The board of directors of our general partner has adopted a cash distribution policy pursuant to which we intend to pay a minimum quarterly distribution of $0.2625 per unit per quarter, which equates to approximately $27.5 million per quarter, or approximately $110.0 million per year in the aggregate, based on the number of common and subordinated units outstanding as of September 30, 2018. We intend to pay such distributions to the extent we have sufficient cash after the establishment of cash reserves and the payment of our expenses, including payments to our general partner and its affiliates.

On October 12, 2018, we declared a cash distribution of $0.2915 per limited partner unit to unitholders of record on November 1, 2018, for the three months ended September 30, 2018. The distribution reflects an increase of $0.0290 over the Partnership’s minimum quarterly distribution. The distribution will be paid on November 15, 2018 and will total $30.5 million, with $13.9 million being distributed to our non-affiliated common unitholders and $16.6 million being distributed to BP Holdco in respect of its ownership of our common and subordinated units.

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Revolving Credit Facility

On October 30, 2017, the Partnership entered into the $600.0 million unsecured Credit Facility with an affiliate of BP. The Credit Facility terminates on October 30, 2022 and provides for certain covenants, including the requirement to maintain a consolidated leverage ratio, which is calculated as total indebtedness to consolidated EBITDA (as defined in the Credit Facility), not to exceed 5.0 to 1.0, subject to a temporary increase in such ratio to 5.5 to 1.0 in connection with certain material acquisitions. In addition, the limited liability company agreement of our general partner requires the approval of BP Holdco prior to the incurrence of any indebtedness that would cause our leverage ratio to exceed 4.5 to 1.0.

The Credit Facility also contains customary events of default, such as (i) nonpayment of principal when due, (ii) nonpayment of interest, fees or other amounts, (iii) breach of covenants, (iv) misrepresentation, (v) cross-payment default and cross-acceleration (in each case, to indebtedness in excess of $75.0 million) and (vi) insolvency. Additionally, the Credit Facility limits our ability to, among other things: (i) incur or guarantee additional debt, (ii) redeem or repurchase units or make distributions under certain circumstances; and (iii) incur certain liens or permit them to exist. Indebtedness under this facility bears interest at the 3-month London Interbank Offered Rate ("LIBOR") plus 0.85%. This facility includes customary fees, including a commitment fee of 0.10% and a utilization fee of 0.20%.

On May 4, 2018, the Partnership repaid outstanding borrowings under the Credit Facility. This short-term debt had a principal balance of $15.0 million at the time of repayment and the repayment was made using cash on hand. At September 30, 2018, $0 was drawn and outstanding from the Credit Facility.

In connection with our acquisition in the fourth quarter, we borrowed $468.0 million from the Credit Facility. For additional details, please see our Form 8-K filed with the SEC on October 2, 2018.

Cash Flows from Our Operations

Operating Activities. We generated $133.5 million in cash flow from operating activities in the nine months ended September 30, 2018, compared to the $34.3 million generated in the nine months ended September 30, 2017. The $99.2 million increase in cash flows from operations primarily resulted from $71.3 million in distribution of earnings from equity method investments, $23.2 million savings from our tax structure as compared to the nine months ended September 30, 2017, $3.8 million from increase in collection of accounts receivable, and $0.9 million from other activities.

Investing Activities. Our cash flow generated by investing activities was $14.0 million in the nine months ended September 30, 2018, compared to $2.1 million used in the nine months ended September 30, 2017. The $16.1 million increase in cash flow generated by investing activities is due to the post-IPO distribution of $15.4 million in excess of earnings received from equity method investments and a decrease of $0.7 in capital expenditures on maintenance projects during the nine months ended September 30, 2018.

Financing Activities. Our cash flow used in financing activities was $130.8 million in the nine months ended September 30, 2018, compared to $32.2 million used in the nine months ended September 30, 2017. The increase in the usage of cash for financing activities is due to $75.4 million distributed to unitholders, $40.4 distributed to non-controlling interest and $15.0 million used to repay short-term debt, partially offset by the elimination of transfers to Parent of $32.2 million in the nine months ended September 30, 2017.

Capital Expenditures

Our operations can be capital intensive, requiring investment to expand, upgrade or enhance existing operations and to meet environmental and operational regulations. Our capital requirements consist of maintenance capital expenditures and expansion capital expenditures, both as defined in our partnership agreement. We are required to distinguish between maintenance capital expenditures and expansion capital expenditures in accordance with our partnership agreement, even though historically we did not make a distinction between maintenance capital expenditures and expansion capital expenditures in exactly the same way as is required under our partnership agreement.

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A summary of our capital expenditures, for the nine months ended September 30, 2018 and 2017, is shown in the table below:

	Nine Months Ended September 30,
	2018		2017
	(in thousands of dollars)
			Predecessor
Cash spent on maintenance capital expenditures	$	1,341	$	2,063
Increase/(Decrease) in accrued capital expenditures	149		$	(1,278	)
Total capital expenditures incurred	$	1,490	$	785

Our capital expenditures for the nine months ended September 30, 2018 were $1.5 million, primarily associated with an upgrade on piping from boosters to mainline pumps for River Rouge. Our capital expenditures for the nine months ended September 30, 2017 were $0.8 million, primarily associated with the continuation of leak detection metering upgrades for BP2.

All of our capital expenditures in the nine months ended September 30, 2018 and 2017 were maintenance expenditures. We did not incur any expansion capital expenditures during such periods.

Contractual Obligations

There were no material changes to our contractual obligations since December 31, 2017.

Off-Balance Sheet Arrangements

We have not entered into any transactions, agreements or other contractual arrangements that would result in off-balance sheet liabilities.

Critical Accounting Policies and Estimates

There have been no material changes to our critical accounting policies disclosed in Note 2 - Summary of Significant Accounting Policies in our 2017 Annual Report.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about market risks for the three and nine months ended September 30, 2018, does not differ materially from that discussed under Item 7A of our 2017 Annual Report.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2018. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2018.

Changes in Internal Control Over Financial Reporting

There were no changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarterly period ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, we are party to ongoing legal proceedings in the ordinary course of business. While the outcome of these proceedings cannot be predicted with certainty, we do not believe the results of these proceedings, individually or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or liquidity.

Item 1A. RISK FACTORS

We are subject to various risks and uncertainties in the course of our business. Risk factors relating to the Partnership are set forth under “Risk Factors” in our 2017 Annual Report. No material changes to such risk factors have occurred as of the date of the Quarterly Report.

Item 5. OTHER INFORMATION

Disclosures Required Pursuant to Section 13(r) of the Securities Exchange Act of 1934

In accordance with our General Business Principles and Code of Conduct, we seek to comply with all applicable international trade laws including applicable sanctions and embargoes.

Under the Iran Threat Reduction and Syria Human Rights Act of 2012, and Section 13(r) of the Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engaged in certain specified activities during the period covered by the report. Because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us.

The disclosure below relates solely to activities conducted by non-U.S. affiliates of BP p.l.c. that may be deemed to be under common control with us. The disclosure does not relate to any activities conducted directly by us (including our subsidiaries and equity investments), or our general partner and does not involve our or the general partner’s management.

For purposes of this disclosure, we refer to BP p.l.c. and its subsidiaries other than us, the general partner and BP Midstream Partners Holdings LLC as the “BP Group.”  References to actions taken by the BP Group mean actions taken by the applicable BP Group company. None of the payments disclosed below were made in U.S. dollars however, for disclosure purposes, all have been converted into U.S. dollars at the appropriate exchange rate. We do not believe that any of the transactions or activities listed below violated U.S. sanctions:

• In the third quarter of 2018, BP recorded gross revenues of $53.2 million related to its interests in the North Sea Rhum field ("Rhum"). BP had a net profit of $33.6 million for the quarter ended September 30, 2018. As previously disclosed, Rhum is owned under a 50:50 unincorporated joint arrangement between BP and Iranian Oil Company (U.K.) Limited ("IOC"). In 2015, the US and the EU implemented temporary, limited and reversible relief of certain sanctions related to Iran pursuant to a Joint Comprehensive Plan of Action (“JCPOA”). On September 29, 2017, BP obtained a specific Office of Foreign Assets Control ("OFAC") License relating to the ongoing operation of the Rhum field, such license expiring on September 30, 2018.

• On November 21, 2017, BP announced that it has agreed to sell certain of its assets in the North Sea, including its ownership stake, and the transfer of its role as operator, in the Rhum joint arrangement to Serica Energy plc (“Serica”), with the aim to complete the sale and transfer of operatorship in the third quarter of 2018 subject to regulatory and third-party approvals.

• In May 2018, the U.S. government announced its planned withdrawal from the JCPOA, and tasked OFAC with implementing the full re-imposition of both primary and secondary sanctions in respect of Iran by the end of the wind-down period, which, for Rhum, expired on November 4, 2018. On October 9, 2018 Serica announced that Serica and BP had received a conditional licence relating to the ongoing operation of the Rhum field from OFAC. It was conditional upon arrangements being put in place by November 4, 2018 relating to the interest in the Rhum field held by IOC. Serica announced on November 5, 2018 these conditions had been met in full before such deadline. OFAC also issued an updated license on November 2, 2018 which is valid until October 31, 2019 and enables production from the Rhum field to continue and BP and Serica to proceed to complete the sale and transfer.

• On July 17, 2018, BP Iran Limited terminated its lease of an office in Tehran. The office had been used for administrative activities. In the third quarter of 2018, taxes, including rental tax payments associated with the Tehran office with an aggregate

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US dollar equivalent value of approximately $148, were paid from a BP trust account held with Tadvin Co. to Iranian public entities. No gross revenues or net profits were attributable to these activities.

• In the third quarter of 2018, certain BP employees visited Iran for the purpose of meetings with Iranian nationals and attending conferences. Payments were made to Iranian public entities for visas and taxes in relation to such visits with an aggregate US dollar equivalent value of approximately $245. In addition, certain BP employees met with Iranian nationals outside of Iran. No gross revenues or net profits were attributable to these activities and BP intends to continue visits.

Item 6. EXHIBITS

BP MIDSTREAM PARTNERS LP

INDEX TO EXHIBITS

Exhibit No.	Exhibit Description	Incorporated by Reference				Filed Herewith	Furnished Herewith
		Form	Exhibit	Filing Date	SEC File No.
3.1	Certificate of Limited Partnership of BP Midstream Partners LP	S-1	3.1	9/11/2017	333-220407
3.2	Amended and Restated Agreement of Limited Partnership of BP Midstream Partners LP dated October 30, 2017.	10-Q	3.2	12/6/2017	001-38260
3.3	Certificate of Formation of BP Midstream Partners GP LLC	S-1	3.3	9/11/2017	333-220407
3.4	First Amended and Restated Limited Liability Company Agreement of BP Midstream Partners GP LLC	S-1	3.4	9/11/2017	333-220407
10.1	Interest Purchase Agreement by and among BP Products North America Inc., BP Offshore Pipelines Company LLC, and BP Pipelines (North America) Inc., collectively, as sellers, and BP Midstream Partners LP, as buyer, dated October 1, 2018	8-K	10.1	10/2/2018	001-38260
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32*	Certifications pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.						X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema Document					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X
101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

* Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 14, 2018	BP MIDSTREAM PARTNERS LP
	By:	BP MIDSTREAM PARTNERS GP LLC,
		its general partner
	By:	/s/ Craig W. Coburn
		Craig W. Coburn
		Chief Financial Officer and Director
		(principal financial officer and principal accounting officer)

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