TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported operating profit of $154.6 million
for third quarter 2013 compared to $79.3 million for third quarter 2012. Net
income grew to $125.6 million for third quarter 2013 compared to $50.5 million
for third quarter 2012.
Diluted net income per limited
partner unit was 55 cents in third quarter 2013 versus 22 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 54 cents for third quarter
2013 was higher than the 48-cent guidance provided by management in early Aug. due
to higher refined transportation revenue, lower power costs and less integrity
expenses than initially expected due to timing of project work that is now
scheduled for later in the year.
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 $141.1 million for third quarter
2013, or 40% higher than the third-quarter 2012 DCF of $100.7 million.
“Magellan continued its solid performance
in 2013, generating significantly higher third-quarter financial results for
each of our segments compared to the year-ago period,” said Michael Mears,
chief executive officer. “Contributions from our growing crude oil segment,
driven by Longhorn pipeline’s activation into crude oil service, our
newly-acquired New Mexico refined products pipeline system and a more favorable
pricing environment for our commodity-related activities benefited Magellan’s
quarterly results.”
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 by segment comparing third quarter 2013 to third quarter
2012 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 $146.8 million, an increase of $50.9 million. Transportation
and terminals revenues increased between periods primarily due to operating
results from the New Mexico pipeline system acquired on July 1, 2013 and higher
weighted average tariff rates resulting from the partnership’s 4.6% tariff
increase in mid-2013 and deficiency payments during third quarter 2013 for
committed volumes that did not ship. Operating expenses increased slightly between
periods. Expenses related to the recently-acquired New Mexico pipeline system
and less favorable product gains (which reduce operating expenses) in the
current period were partially offset by lower environmental accruals and less
asset retirements.
Product margin (a non-GAAP measure defined
as product sales revenues less product purchases) increased $40.4 million between
periods resulting in part from a $31.8 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, increased
between periods primarily due to higher butane blending profits as a result of more
sales volume and higher blending margins.
Crude oil.
Crude operating margin was $50.6 million, an increase of $28.2 million. Revenues
increased significantly due to crude oil shipments on the Longhorn pipeline,
which began during 2013, as well as joint venture management fees and additional
condensate throughput at the partnership’s Corpus Christi, Texas terminal. Operating
expenses increased slightly between periods. Costs related to the operation of
the Longhorn pipeline in crude oil service, including higher personnel costs, power
and integrity spending, were partially offset by more favorable product
overages (which reduce expenses).
Marine storage.
Marine operating margin was $24.5 million, an increase of $4.9 million. Revenues
increased between periods primarily due to storage fees from recently-constructed
tanks and incremental throughput fees at the partnership’s Galena Park, Texas
terminal. Expenses declined due to lower environmental accruals in the current
period partially offset by more integrity spending and higher property taxes in
third quarter 2013.
Other
items. Depreciation and amortization increased primarily
due to recent expansion capital expenditures, and G&A expenses increased
due to more personnel costs as a result of additional headcount, higher payout
expectations for the partnership’s annual bonus and costs related to the
partnership’s pending Rocky Mountain refined products pipeline system
acquisition, which it expects to close in the near future.
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 Sept. 30, 2013, the
partnership had $2.4 billion of debt outstanding and $14.2 million of cash on
hand. During early Oct., the partnership received net proceeds of approximately
$295.6 million from its issuance of $300 million of 30-year senior notes.
Expansion capital projects
Magellan continues to pursue opportunities
to grow its business, and its current slate of expansion projects remains on schedule.
The Longhorn pipeline continued to
add pumping capacity and averaged approximately 100,000 barrels per day (bpd)
of crude oil deliveries to the Houston market during third quarter 2013. The
pipeline has been capable of operating at its full 225,000-bpd capacity since
mid-Oct. and is expected to average approximately 190,000 bpd during the fourth
quarter. As previously announced, Magellan plans to expand the capacity of the
Longhorn pipeline by 50,000 bpd to an increased capacity of 275,000 bpd, all
fully committed by long-term customer agreements. Subject to regulatory
approval, the operating capacity of the Longhorn pipeline is expected to reach
275,000 bpd by mid-2014.
The Double Eagle pipeline joint
venture commenced condensate shipments on the eastern leg of the pipeline beginning
late Oct. and on the western leg from Cooke Ranch, Texas during late Aug., with
the western extension to Gardendale, Texas projected to be operational by
year-end. The pipeline system is currently capable of transporting up to
100,000 bpd.
The partnership continues to make
significant progress on the BridgeTex pipeline joint venture, with tank and
pipeline construction currently underway and an operational date of mid-2014
still targeted.
As previously announced, the
partnership acquired approximately 250 miles of refined products pipeline in
Texas and New Mexico for $57 million on July 1, 2013. Acquisition of the
remaining pipeline system in the Rocky Mountain region is expected to close in
the near future.
The partnership plans to spend approximately
$925 million during 2013 for its current slate of growth projects and its pending
Rocky Mountain pipeline acquisition, with an additional $400 million of
spending in 2014 to complete the expansion projects now underway.
Magellan also continues to evaluate
well over $500 million of potential growth projects in earlier stages of
development as well as additional acquisition opportunities, 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 $640 million and remains committed to its goal of
increasing annual cash distributions by 16% for 2013 and 15% for 2014. Including
actual results so far this year, net income per limited partner unit is
estimated to be $2.54 for 2013, resulting in fourth-quarter guidance of 81
cents. Guidance excludes future NYMEX MTM adjustments on the partnership’s
commodity-related activities and expected financial results from the pending
Rocky Mountain pipeline acquisition.
Earnings call details
An analyst call with management
regarding third-quarter results and outlook for the remainder of 2013 is
scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 533-7619 and
provide code 3858290. 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 Nov. 6.
To access the replay, dial (888) 203-1112 and provide code 3858290. 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 management and 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 performance measure
as a basis for recommending to the board of directors the amount of cash distributions
to be paid each period and for determining the payouts under the partnership’s
equity-based incentive plan.
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 of Magellan Midstream Partners, L.P. believes any such
statements are based on reasonable assumptions, actual outcomes may 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 operational hazards or unforeseen interruptions;
(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 10-Q and 8-K. The partnership undertakes no obligation to
revise its forward-looking statements to reflect events or circumstances
occurring after today's date.