Expects Another Record Year in 2008
TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported record quarterly and annual results for operating profit, net income, net income per limited partner unit and distributable cash flow.
Fourth-quarter 2007 operating profit of $84.8 million represented a 20% increase compared to $70.4 million for fourth quarter 2006. For the year ended Dec. 31, 2007, operating profit grew 21% to $300.3 million from $249.1 million in the comparable 2006 period.
Net income grew to $72.2 million during fourth quarter 2007, which is a 28% increase over the $56.5 million reported for fourth quarter 2006. For the year ended Dec. 31, 2007, net income grew 26% to $242.8 million from $192.7 million in the corresponding 2006 timeframe.
“Our strong performance in the fourth quarter, combined with a large slate of active and potential growth projects and a very strong balance sheet, sets the stage for another record-breaking year in 2008,” said Don Wellendorf, chief executive officer.
An analysis of variances by segment comparing fourth quarter 2007 to fourth quarter 2006 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 $96.7 million, an increase of $16.3 million and a quarterly record for this segment. Transportation revenues increased between periods primarily due to higher average pipeline tariffs resulting in part from the partnership’s 2007 mid-year tariff increase and higher transportation shipments as recent refinery supply disruptions subsided. The current quarter also improved due to higher fees for leased storage, increased demand for the partnership’s additive and renewable fuels services and higher product margin primarily due to improved fractionation margins.
The 2007 quarter further benefited from more favorable net product overages on its pipeline system, which reduce operating expenses, partially offset by higher power costs associated with higher volumes, higher asset retirements and increased maintenance expense.
Petroleum products terminals. Terminals operating margin was $22.7 million, a decrease of $0.5 million. The current period benefited from increased revenues due to expansion projects at the partnership’s marine terminals, higher marine storage rates and more additive service fees. Operating expenses were higher primarily due to timing of maintenance projects and additional personnel costs.
Ammonia pipeline system. Ammonia operating margin was $1.4 million, an increase of $1.1 million. Revenues increased between periods due to higher average tariff rates, and operating expenses declined due to lower maintenance costs and environmental accruals in fourth quarter 2007.
Higher depreciation and amortization due to recent capital spending were primarily offset by reduced net interest expense in the current quarter due to lower interest rates as a result of the partnership’s pipeline note refinancing during early 2007.
Diluted net income per limited partner unit was 74 cents for fourth quarter 2007, or 16% higher than the 64 cents reported for fourth quarter 2006. Diluted net income per limited partner unit also increased 16% for the full year, growing to $2.60 in 2007 from $2.24 for the corresponding 2006 period.
Distributable cash flow, which represents the amount of cash generated during the period that is available to pay distributions, grew 21% to a record $86.3 million during fourth quarter 2007 from $71.3 million for the corresponding 2006 quarter. Distributable cash flow for the full year grew 16%, increasing to $298.1 million in 2007 from $257.7 million in 2006.
Management expects to extend its seven-year history of cash distribution growth and is targeting distribution growth of 8% to 10% again in 2008. Further, management currently expects 2008 net income per limited partner unit to be $2.70, with a first-quarter 2008 estimate of 55 cents. Guidance specific to 2008 has not been provided previously.
Looking beyond 2008, management also is targeting annual distribution increases in the 8% to 10% range through 2010 based on its current slate of active and potential growth projects.
The partnership continues to project that the large majority of its operating margin in 2008 will be generated by its fee-based operations, with commodity margin accounting for only about 12% of total operating margin based on the continuation of high petroleum prices. As previously noted, management develops distribution growth targets based on the expectation that product-margin related activities will generate 10% or less of the partnership’s annual operating margin beyond 2008.
Management remains focused on expansion opportunities and spent $150.5 million during 2007 on growth projects. Based on the progress of expansion projects already started, management expects to spend $210 million of growth capital during 2008, with an additional $25 million in 2009 and $5 million in 2010 to complete projects underway at this time. These expansion capital estimates include $12 million the partnership spent in Jan. 2008 to acquire a petroleum products terminal already connected to its pipeline system in Bettendorf, Iowa but do not include other potential acquisitions or spending on more than $500 million of potential growth projects in earlier stages of development.
An analyst call with management regarding fourth-quarter earnings and 2008 outlook is scheduled today at 1:30 p.m. Eastern. To participate, dial (888) 801-6506 and provide code 1583456. 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. 11. To access the replay, dial (888) 203-1112 and provide code 1583456. The replay also will be available at http://www.magellanlp.com.
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-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 news release.
About Magellan Midstream Partners, L.P.
Magellan Midstream Partners, L.P. (NYSE: MMP) 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 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 projected costs; (2) price fluctuations for natural gas liquids and refined petroleum products; (3) overall demand for natural gas liquids, refined petroleum products, natural gas, oil and ammonia in the United States; (4) changes in the partnership’s tariff rates implemented by the Federal Energy Regulatory Commission, the United States Surface Transportation Board and state regulatory agencies; (5) shut-downs or cutbacks at major refineries, petrochemical plants, ammonia production facilities or other businesses that use or supply the partnership’s services; (6) changes in the throughput or interruption in service on petroleum products pipelines owned and operated by third parties and connected to the partnership’s petroleum products terminals or petroleum products pipeline system; (7) the occurrence of an operational hazard or unforeseen interruption for which the partnership is not adequately insured; (8) 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; and (9) an increase in the competition the partnership’s operations encounter. 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. The partnership undertakes no obligation to revise its forward-looking statements to reflect events or circumstances occurring after today's date.