Provides 2007 Guidance
TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported record quarterly and annual results for operating profit, net income and net income per limited partner unit.
Fourth-quarter 2006 operating profit was $73.4 million compared to $51.2 million for fourth quarter 2005, representing a 43% increase. For the year ended Dec. 31, 2006, operating profit grew 20% to $252.1 million from $210.3 million in the comparable 2005 period.
Net income was $59.5 million during fourth quarter 2006 versus $37.6 million in fourth quarter 2005, representing a 58% increase. For the year ended Dec. 31, 2006, net income grew 23% to $195.7 million from $159.5 million in the corresponding 2005 timeframe.
“Higher pipeline tariffs and petroleum products blending margins were primary contributors to the partnership's record performance in the fourth quarter,” said Don Wellendorf, chief executive officer. “Magellan finished 2006 in a strong position and we expect to continue to provide exceptional results for our unitholders in 2007 as new growth projects become operational.”
An analysis of variances by segment comparing fourth quarter 2006 to fourth quarter 2005 is provided below based on operating margin, a financial measure that reflects operating profit before affiliate general and administrative (G&A) expense and depreciation and amortization:
Petroleum products pipeline system. Pipeline operating margin was $79.2 million, an increase of $21.5 million. Transportation revenues increased between periods primarily due to higher transportation rates per barrel shipped resulting from the partnership's mid-year tariff increase and increased gasoline shipments. The current quarter also benefited from higher ancillary fees for services such as additives. Commodity margin increased during fourth quarter 2006 due to more favorable margins on the partnership's petroleum products blending activities. Total segment expenses were relatively unchanged between periods as higher asset integrity spending was primarily offset by lower net product losses and reduced environmental accruals.
Petroleum products terminals. Terminals operating margin was $24.4 million, an increase of $6.4 million. The 2006 period primarily benefited from revenues related to a variable-rate storage agreement, record inland terminal throughput and higher additive fees at the partnership's marine and inland terminals. Higher product margin more than offset additional asset retirements during the current quarter.
Ammonia pipeline system. Ammonia operating margin was $0.3 million, a decrease of $4.3 million. The current period was negatively impacted by increased integrity spending and an Oct. 2006 pipeline release that resulted in reduced revenues and increased environmental expense.
Diluted net income per limited partner unit was 64 cents during fourth quarter 2006 compared to 46 cents during 2005. For the year ended Dec. 31, 2006, diluted net income per limited partner unit was $2.24 compared to $2.03 for the corresponding 2005 period.
Management expects the partnership's cash generation to increase in 2007, enabling the partnership to continue its six-year history of cash distribution growth. Targeted distribution growth for 2007 is 8% to 10%. Further, management currently expects 2007 net income per limited partner unit of approximately $2.31, with a first-quarter 2007 estimate of 41 cents. Guidance specific to 2007 has not been provided previously.
The partnership continues to focus on its expansion opportunities and spent $135.6 million during 2006 on growth projects. Based on the progress of expansion projects already started or in advanced stages of development, management currently expects expansion capital spending of approximately $115 million during 2007 and $20 million in 2008 to complete these projects. Both amounts exclude potential future acquisitions and the development of additional expansion projects.
As part of the 2007 growth capital estimate noted above, the partnership is in the process of spending almost $28 million to construct infrastructure along the southern portion of its petroleum products pipeline system to expand its operational capabilities. These construction projects include additional refined petroleum products storage capacity of 300,000 barrels at its new Wynnewood, Okla. pipeline storage facility, 100,000 barrels at its Oklahoma City, Okla. terminal and 200,000 barrels at its Frost, Texas pipeline storage facility. Further, the partnership is constructing 250,000 barrels of storage and a truck rack at its East Houston, Texas terminal. These projects are expected to be fully operational by the end of 2007.
An analyst call with management regarding fourth-quarter 2006 financial results and 2007 outlook is scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 500-0311 and provide code 6674832. Investors also may listen to the call via the partnership's web site at http://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. 7. To access the replay, dial (888) 203-1112 and provide code 6674832. The replay also will be available at http://www.magellanlp.com.
Management believes that investors benefit from having access to the same financial measures being utilized by the partnership. As a result, this news release and supporting schedules include the non-generally accepted accounting principles measures of operating margin and distributable cash flow, which are important performance measures used by management to evaluate the economic success of the partnership's operations. Operating margin reflects operating profit before G&A expense and depreciation and amortization, and distributable cash flow is an indicator of the cash available to pay distributions. Reconciliations of operating margin to operating profit and distributable cash flow to net income accompany this release.
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. is a publicly traded partnership formed to own, operate and acquire a diversified portfolio of energy assets. The partnership primarily transports, stores and distributes refined petroleum products. More information is available at http://www.magellanlp.com.
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Portions of this document may 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. 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.