Targets Annual Distribution Growth of 10% for
2013 and at Least 10% for 2014
TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported record quarterly operating profit of $182.7
million for fourth quarter 2012, an increase of $42.9 million, or 31%, compared
to $139.8 million for fourth quarter 2011.
Net income grew 39% to a quarterly
record of $153.8 million for fourth quarter 2012 compared to $110.3 million for
fourth quarter 2011, and diluted net income per limited partner unit increased to
a record 68 cents in fourth quarter 2012 versus 49 cents in the corresponding
2011 period. Diluted net income per unit excluding mark-to-market (MTM)
commodity-related pricing adjustments, a non-generally accepted accounting
principles (non-GAAP) financial measure, was 69 cents for fourth quarter 2012, slightly
higher than the 68-cent guidance provided by management in Oct. 2012. All net
income per unit amounts reflect the partnership’s Oct. 2012 two-for-one split
of its units.
Distributable cash flow (DCF), a non-GAAP
financial measure that represents the amount of cash generated during the
period that is available to pay distributions, increased to a quarterly record
of $179.4 million for fourth quarter 2012 compared to $131.3 million during fourth
“Magellan produced exceptional returns
during 2012, generating record operating and financial results from our current
assets, launching new crude oil opportunities that solidify our position as a
key storage and logistics provider in the crude oil space and increasing cash
distributions to our investors by 18% for the year,” said Michael Mears, chief
executive officer. “We enter 2013 poised for an exciting year, with our solid business
model, strong balance sheet and attractive fee-based growth projects expected
to provide significant benefit for our investors and customers for years to
An analysis by segment comparing fourth
quarter 2012 to fourth quarter 2011 is provided below based on operating
margin, a non-GAAP financial measure that reflects operating profit before general
and administrative (G&A) expense and depreciation and amortization:
Petroleum pipeline system.
Pipeline operating margin was $193.4 million, an increase of $43.2 million and
a quarterly record for this segment. Transportation and terminals revenues
increased between periods primarily due to a 10% increase in transportation
volumes, driven by significantly increased crude oil and gasoline shipments,
and the partnership’s mid-2012 tariff increase. Crude volumes increased 54%
resulting from deliveries to additional locations that are now connected to the
partnership’s pipeline system and increased deliveries to existing customers.
Gasoline shipments increased 7% primarily attributable to higher volumes on the
partnership’s South Texas pipeline segments. The average tariff rate increased only
slightly between periods as the benefit from the 8.6% rate increase implemented
on July 1, 2012 was mostly offset by more crude oil and South Texas gasoline
movements, which ship at a lower rate than the partnership’s other pipeline
Operating expenses increased between
periods primarily due to less favorable product overages (which reduce
operating expenses) in fourth quarter 2012, partially offset by lower
environmental accruals and less integrity spending in the current period based
on the timing of maintenance projects.
Product margin (defined as product
sales revenues less product purchases) increased $35.3 million between periods,
including a $21.3 million increase associated with the timing of MTM
adjustments for New York Mercantile Exchange (NYMEX) positions used to
economically hedge the partnership’s commodity-related activities and other
inventory adjustments. Details of these items can be found on the Distributable
Cash Flow Reconciliation to Net Income schedule that accompanies this news
release. The partnership's actual cash product margin, which reflects only transactions
that settled during the quarter, increased between periods primarily due to
higher petroleum products blending profits as a result of selling more product
at higher margins.
Terminals operating margin was $50.1 million, an increase of $5.3 million and a
quarterly record for this segment. The current period primarily benefited from new
refined products tanks and higher rates at the partnership’s marine terminals. Operating
expenses decreased due to accruals in fourth quarter 2011 for potential
historical air emission fees and increased integrity spending, partially offset
by favorable adjustments in 2011 for property taxes and an insurance settlement
to replace historical hurricane-damaged assets, with no such items benefitting
fourth-quarter 2012 results. Product margin increased due to the sale of
additional product overages in the current period.
Ammonia pipeline system.
Ammonia operating margin was $4.3 million, an increase of $1 million. Revenues
increased due to a higher average rate resulting from the partnership’s
mid-2012 tariff increase and more volumes transported under a higher-rate
movement in 2012. Expenses decreased slightly because of lower asset integrity
costs resulting from hydrostatic testing conducted on the pipeline during 2011.
Other items. Depreciation and amortization increased due to
recent expansion capital expenditures, and G&A expenses increased primarily
due to higher personnel costs resulting from increased benefit costs and enhanced
payout expectations for equity-based incentive compensation programs due to the
partnership’s better-than-expected current and projected financial results. Net
interest expense also increased in the current quarter as a result of additional
borrowings due to the partnership’s Nov. 2012 debt offering to fund capital spending.
As of Dec. 31, 2012, the partnership had $2.4 billion of debt outstanding and $328.3
million of cash on hand.
Annual results. The partnership also produced
record annual financial results in 2012. For the year ended Dec. 31, 2012,
operating profit was $552.1 million compared to $522.9 million in the
corresponding 2011 timeframe. Annual net income was $435.7 million in 2012
compared to $413.6 million in 2011, and full-year diluted net income per
limited partner unit was $1.92 in 2012 and $1.83 in 2011. Annual DCF was a
record $539.8 million in 2012, or 1.3 times the amount needed to pay
distributions related to 2012, compared to $460.5 million in 2011.
Expansion capital spending expectations. Management remains focused on
expansion opportunities, making significant progress on its current slate of
projects with a record $365 million spent during 2012 on organic growth construction
projects. Based on the progress of expansion projects already underway, the
partnership plans to spend approximately $700 million during 2013 with an additional
$290 million of spending in 2014 to complete these projects.
Magellan’s Crane-to-Houston pipeline
project (also known as the Longhorn pipeline) remains on schedule, with the
partnership expecting to begin filling the reversed pipeline with crude oil in
mid-March 2013 and beginning partial operations at an estimated 75,000 barrels
per day (bpd) in mid-April, increasing to its full 225,000-bpd capacity in the
third quarter of 2013. The Double Eagle joint venture is also proceeding and
expected to be partially operational in March 2013, with full operation
expected in the third quarter of 2013.
The recently-launched BridgeTex
pipeline joint venture is underway, with right-of-way and permitting work in
process. This pipeline is still expected to be operational in mid-2014.
The partnership also continues to evaluate
more than $500 million of potential growth projects in earlier stages of
development as well as possible acquisitions, both of which have been excluded
from these spending estimates.
Financial guidance for 2013. Management currently expects to
generate record DCF in 2013 of $570 million and is targeting annual
distribution growth of 10% for 2013. Net income per limited partner unit is
estimated to be $2.20 for 2013, with first-quarter guidance of 45 cents. Guidance
excludes future NYMEX MTM adjustments on the partnership’s commodity-related
Based on the progress of Magellan’s
active growth projects, management currently believes it will be able to
achieve annual distribution growth of at least 10% for 2014.
Management continues to believe the
large majority of the partnership’s operating margin will be generated by
fee-based transportation and terminals services, with commodity-related
activities contributing 15% or less of the partnership’s operating margin.
Earnings call detailsAn analyst call with management
regarding fourth-quarter results and 2013 guidance is scheduled today at 1:30
p.m. Eastern. To participate, dial (888) 389-5988 and provide code 1041722.
Investors also may listen to the call via the partnership’s website at www.magellanlp.com/webcasts.aspx.
Audio replays of the conference
call will be available from 4:30 p.m. Eastern today through midnight on Feb. 11.
To access the replay, dial (888) 203-1112 and provide code 1041722. The replay
also will be available at www.magellanlp.com.
Non-GAAP financial measures
Management believes that investors
benefit from having access to the same financial measures utilized by the
partnership. As a result, this news release and supporting schedules include
the non-GAAP financial measures of operating margin, product margin, DCF and
net income per unit excluding MTM commodity-related pricing adjustments, which
are important performance measures used by management.
Operating margin reflects operating
profit before G&A expense and depreciation and amortization. This measure
forms the basis of the partnership’s internal financial reporting and is used
by management to evaluate the economic performance of the partnership’s operations.
Product margin, which is calculated
as product sales revenues less product purchases, is used by management to
evaluate the profitability of the partnership’s commodity-related activities.
DCF is important in determining the
amount of cash generated from the partnership’s operations that is available
for distribution to its unitholders. Management uses this measure as a basis
for recommending to the board of directors the amount of cash distributions to
be paid each period.
Reconciliations of operating margin
to operating profit and DCF to net income accompany this news release.
The partnership uses NYMEX futures
contracts to hedge against price changes of petroleum products associated with
its commodity-related activities. Most of these NYMEX contracts do not qualify
for hedge accounting treatment. However, because these NYMEX contracts are
generally effective at hedging price changes, management believes the
partnership’s profitability should be evaluated excluding the unrealized NYMEX
gains and losses associated with petroleum products that will be sold in future
periods. Further, because the financial guidance provided by management
generally excludes future MTM commodity-related pricing adjustments, a
reconciliation of actual results to those excluding these adjustments is
provided for comparability to previous financial guidance.
The partnership’s supporting
schedules also include the non-GAAP financial measure of Adjusted EBITDA, which
is an important financial measure utilized by the investment community to
assess the financial results of an entity. A reconciliation of Adjusted EBITDA
to net income accompanies this news release.
Because the non-GAAP measures
presented in this news release include adjustments specific to the partnership,
they may not be comparable to similarly-titled measures of other companies.
About Magellan Midstream Partners, L.P.
Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership that primarily
transports, stores and distributes petroleum products. The partnership owns the
longest refined petroleum products pipeline system in the country, with access to
more than 40% of the nation’s refining capacity, and can store 80 million
barrels of petroleum products such as gasoline, diesel fuel and crude oil. More
information is available at www.magellanlp.com.
of this document constitute forward-looking statements as defined by federal
law. Although management believes any such statements are based on reasonable
assumptions, there is no assurance that actual outcomes will not be materially
different. Among the key risk factors that may have a direct impact on the
partnership’s results of operations and financial condition are: (1) its
ability to identify growth projects or to complete identified projects on time
and at expected costs; (2) price fluctuations and changes in demand for refined
petroleum products, crude oil and natural gas liquids, or changes in demand for
transportation or storage of those commodities through its existing or planned
facilities; (3) changes in the partnership’s tariff rates imposed by the
Federal Energy Regulatory Commission, the United States Surface Transportation
Board or state regulatory agencies; (4) shut-downs or cutbacks at major
refineries, petrochemical plants, ammonia production facilities or other
businesses that use or supply the partnership’s services; (5) changes in the
throughput or interruption in service on petroleum pipelines owned and operated
by third parties and connected to the partnership’s terminals or pipelines; (6)
the occurrence of an operational hazard or unforeseen interruption for which
the partnership is not adequately insured; (7) the treatment of the partnership
as a corporation for federal or state income tax purposes or if the partnership
becomes subject to significant forms of other taxation; (8) an increase in the
competition the partnership’s operations encounter; (9) disruption in the debt
and equity markets that negatively impacts the partnership’s ability to finance
its capital spending; and (10) failure of customers to meet or continue
contractual obligations to the partnership. Additional information about issues
that could lead to material changes in performance is contained in the
partnership's filings with the Securities and Exchange Commission, including
the partnership’s Annual Report on Form 10-K for the fiscal year ended Dec. 31,
2011 and subsequent reports on Forms 8-K and 10-Q. The partnership undertakes
no obligation to revise its forward-looking statements to reflect events or
circumstances occurring after today's date.