TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported operating profit of $142.5 million
for first quarter 2013 compared to $122.8 million for first quarter 2012. Net
income was $113.0 million for first quarter 2013 compared to $93.5 million for first
quarter 2012.
Diluted net income per limited
partner unit was 50 cents in first quarter 2013 versus 41 cents in the
corresponding 2012 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, of 51 cents for first quarter
2013 was higher than the 45-cent guidance provided by management in early Feb. due
to stronger refined products transportation volumes and additional product
overages.
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, was $123.9 million for first quarter
2013 compared to $125.7 million during first quarter 2012.
“Magellan started the year 2013 with
solid results, exceeding our initial expectations for the first quarter and
generating positive momentum for the remainder of the year,” said Michael Mears,
chief executive officer. “Further, we continue to make significant strides to
develop Magellan’s growing crude oil transportation and storage profile. So far
this year, we have announced plans to add crude oil capabilities to our Galena
Park, Texas marine terminal and during mid-April, reached our milestone to
begin crude oil deliveries into Houston via our Longhorn pipeline, currently at
partial capacity but with full capabilities still expected later this year.
Each of these strategic steps builds upon the growth platform we have created
for Magellan’s future.
“If these favorable trends continue
and the timing of our growth projects proceeds as projected, we will consider
increasing our 2013 distributions beyond the 10% annual guidance provided
earlier this year.”
Beginning in 2013, the partnership
reorganized its reporting segments to reflect strategic changes in its
business, particularly its increasing crude oil activities. Historical
financial results have been restated to conform to the new segment
presentation. An analysis comparing first quarter 2013 to first quarter 2012 for
each of these new segments 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:
Refined products.
Refined operating margin was $160.2 million, an increase of $34.7 million. Transportation
and terminals revenues increased between periods primarily due to a 13%
increase in transportation volumes and the partnership’s mid-2012 tariff
increase. Significantly higher gasoline and distillate shipments resulted from
stronger demand in the markets served by the partnership, in part due to the
seasonal reversal of a portion of the partnership’s Oklahoma system in 2013,
which allowed deliveries south into Texas markets historically served from the
Gulf Coast, and an incentive tariff implemented for the partnership’s South
Texas pipeline. The average tariff rate declined between periods as the benefit
from the 8.6% tariff increase implemented on July 1, 2012 was more than offset
by additional short-haul movements in part due to higher South Texas volumes,
which ship at a lower rate than the partnership’s other pipeline shipments.
Operating expenses decreased between
periods primarily due to more favorable product overages (which reduce
operating expenses) as well as lower environmental accruals in first quarter
2013.
Product margin (a non-GAAP measure defined
as product sales revenues less product purchases) increased $16.1 million between
periods primarily resulting from a $21.3 million favorable variance 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, decreased
between periods primarily due to timing of sales for the partnership’s butane
blending activities and a lower average sales margin.
Crude oil.
Crude operating margin was $22.7 million, a decline of $1.3 million. Revenues
increased due to joint venture management fees and increased crude oil transportation
volumes and rates on the partnership’s Houston-area distribution system. Operating
expenses increased due to higher integrity spending and less favorable product
overages, which reduce expenses.
Marine storage.
Marine operating margin was $25.3 million, a decrease of $2.6 million. Revenues
were essentially flat between periods as storage fees from newly-constructed tanks
at the partnership’s Galena Park, Texas terminal offset lower overall
utilization due in part to timing of tank maintenance work. Expenses increased
due to additional integrity costs and an insurance reimbursement received in
first quarter 2012 for historical hurricane-related damage, with no such item
benefitting first-quarter 2013 results. Product margin declined due to the sale
of additional overages in the 2012 period.
Other items. Depreciation and amortization increased primarily
due to recent expansion capital expenditures and the one-time amortization of
an intangible asset, and G&A expenses increased primarily due to additional
personnel and higher expenses resulting from the partnership’s increasing unit
price that impacts equity-based incentive compensation and deferred board of
director expense. Net interest expense was substantially unchanged as
additional borrowings from the partnership’s Nov. 2012 debt offering to fund
capital spending was offset by higher capitalized interest for the related
construction projects. As of March 31, 2013, the partnership had $2.4 billion
of debt outstanding and $221 million of cash on hand.
Expansion projects
Magellan continues to make significant
progress on its current slate of expansion projects. The Longhorn pipeline successfully
began deliveries of crude oil to the Houston market beginning mid-April.
Management expects the delivery rate to average approximately 90,000 barrels
per day (bpd) from mid-April through the second quarter, ramping to its full
225,000-bpd capacity in the third quarter of 2013.
The Double Eagle joint venture is
in the process of filling the condensate pipeline for initial deliveries from
Three Rivers to Corpus Christi, Texas this month, with full operation expected
in the third quarter of 2013. Further, the BridgeTex pipeline joint venture
continues to target an operational date of mid-2014, with right-of-way,
permitting and tank construction activities underway.
During Feb. 2013, the partnership
announced plans to acquire approximately 800 miles of refined products pipeline
for $190 million and is currently awaiting regulatory approval to complete this
transaction.
The partnership currently plans to
spend approximately $900 million during 2013 with an additional $320 million of
spending in 2014 to complete its current slate of growth projects and pending
pipeline acquisition.
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 is raising its 2013 DCF guidance
by $10 million to $580 million. Management remains committed to its goal of
increasing annual cash distributions by at least 10% for 2013 with the
potential for even higher distribution growth this year if favorable business
trends continue and growth projects are placed into service as currently
projected. Further, management still projects at least 10% annual distribution
growth for 2014.
Including actual results for first
quarter, net income per limited partner unit is estimated to be $2.25 for 2013,
with second-quarter guidance of 52 cents. Guidance excludes future NYMEX MTM
adjustments on the partnership’s commodity-related activities and expected
financial results from the pending pipeline acquisition.
Earnings call details
An analyst call with management
regarding first-quarter results and outlook for the remainder of 2013 is
scheduled today at 1:30 p.m. Eastern. To participate, dial (888) 427-9411 and
provide code 1399345. 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 May 8.
To access the replay, dial (888) 203-1112 and provide code 1399345. 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, adjusted
EBITDA, 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.
Adjusted EBITDA is an important
measure utilized by the investment community to assess the financial results of
an entity.
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 adjusted EBITDA 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.
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.
Magellan
Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership that primarily
transports, stores and distributes refined petroleum products and crude oil. 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 over
80 million barrels of petroleum products such as gasoline, diesel fuel and
crude oil. More information is available at www.magellanlp.com.
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Forward-Looking
Statement Disclaimer
Portions
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 or other terms imposed
by state or federal regulatory agencies; (4) shut-downs or cutbacks at major
refineries or other businesses that use or supply the partnership’s services;
(5) changes in the throughput or interruption in service on 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, 2012 and subsequent reports on
Forms 8-K. The partnership undertakes no obligation to revise its
forward-looking statements to reflect events or circumstances occurring after
today's date.