Targets Annual Distribution
Growth of 20% for 2014 and 15% for 2015
TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported record quarterly operating profit of $223.5
million for fourth quarter 2013, an increase of $40.8 million, or 22%, compared
to $182.7 million for fourth quarter 2012.
Net income grew 24% to a quarterly
record of $190.0 million for fourth quarter 2013 compared to $153.8 million for
fourth quarter 2012, and diluted net income per limited partner unit increased
to a record 83 cents in fourth quarter 2013 versus 68 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 88 cents for fourth
quarter 2013 was higher than the 81-cent guidance provided by management in
Oct. 2013 primarily due to stronger-than-expected refined products
transportation volumes.
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 $236.6 million for fourth quarter 2013, or 32% higher than the
fourth-quarter 2012 DCF of $179.4 million.
“Magellan finished 2013 in strong form, generating
record financial results for the year, successfully achieving key milestones for
the largest construction projects in our partnership’s history and increasing
cash distributions to our investors by 16% for the year,” said Michael Mears,
chief executive officer. “Looking ahead, we expect even stronger performance for
Magellan as we recognize greater benefit from growth projects commissioned
during 2013 and those expected to begin operation during 2014. Magellan enters
the new year in strong financial standing with the goal of growing annual cash
distributions to our investors by 20% for 2014 and 15% for 2015.”
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 fourth quarter 2013 to fourth 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 $209.2 million, an increase of $14.7 million and a
quarterly record for this segment. Transportation and terminals revenues
increased $42.5 million between periods due to significantly higher shipment
volumes and average tariffs. Shipments grew primarily as a result of strong
demand for lower-priced gasoline in the Midwest, including seasonal reversal of
a portion of the partnership’s Oklahoma system to deliver refined products
south into Texas during 2013, and timing of the farming season, which resulted
in higher demand for distillates during the fourth quarter of 2013. Higher tariff
rates were mainly driven by the partnership’s 4.6% tariff increase in mid-2013
and longer-haul movements to meet increased demand. Revenues also benefited
from operating results from the New Mexico pipeline system acquired on July 1,
2013 and the Rocky Mountain pipeline system acquisition that was effective Nov.
1, 2013.
Operating expenses increased between
periods in part due to expenses related to the recently-acquired New Mexico and
Rocky Mountain pipeline systems. In addition, expenses increased on the
partnership’s legacy pipeline systems due to more asset integrity work and
higher property taxes during the current period, partially offset by more
favorable product overages (which reduce operating expenses).
Product margin (a non-GAAP measure defined
as product sales revenues less cost of product sales) decreased $15.6 million between
periods resulting in part from a $20.3 million unfavorable 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 during the fourth quarter of 2013.
Crude oil.
Crude operating margin was $62.7 million, an increase of $40.4 million. Revenues
increased $42.3 million primarily due to crude oil shipments on the Longhorn
pipeline, which began operation during 2013, as well as joint venture
management fees, additional condensate throughput at the partnership’s Corpus
Christi, Texas terminal and operating results from a recently-converted
Oklahoma pipeline to crude oil service. Operating expenses increased between
periods as costs related to 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 operating expenses).
Marine storage.
Marine operating margin was $23.6 million, a decrease of $7.5 million, as
higher revenues were more than offset by additional expenses. Revenues increased
between periods primarily due to storage fees from recently-constructed tanks and
higher rates on existing tankage. Expenses increased due to more integrity
spending, additional asset retirements and a favorable adjustment in the 2012
period to a historical environmental liability, with no such benefit in the
2013 period. Product margin declined due to timing of product sales.
Other
items. Depreciation and amortization increased primarily
due to recent expansion capital expenditures, and G&A expenses increased
due to additional accruals for the partnership’s annual bonus and equity-based
incentive compensation programs as a result of higher payout expectations and an
increasing unit price.
Net interest expense increased
primarily due to borrowings from the partnership’s Oct. 2013 debt offering to
fund capital spending. As of Dec. 31, 2013, the partnership had $2.7 billion of
debt outstanding and $25.2 million of cash on hand.
Annual results
The partnership also produced
record annual financial results in 2013. For the year ended Dec. 31, 2013,
operating profit was $705.1 million compared to $552.1 million in the
corresponding 2012 timeframe. Annual net income was $582.2 million in 2013 compared
to $435.7 million in 2012, and full-year diluted net income per limited partner
unit was $2.56 in 2013 and $1.92 in 2012. Annual DCF was a record $669.7
million in 2013, or 1.35 times the amount needed to pay distributions related
to 2013, compared to $539.8 million in 2012.
Expansion capital projects
Management remains focused on
expansion opportunities, making significant progress on its current slate of
projects with a record $561 million spent during 2013 on organic growth
construction projects. Further, the partnership spent $215 million on
acquisitions during the year, primarily related to the New Mexico and Rocky
Mountain refined products pipelines. Based on the progress of expansion
projects already underway, the partnership plans to spend approximately $550
million during 2014 to complete its current construction projects.
The Longhorn pipeline has been capable
of operating at its full 225,000-barrels per day (bpd) capacity since mid-Oct. and
averaged approximately 185,000 bpd during the fourth quarter of 2013. The
partnership expects to average approximately 200,000 bpd during the first
quarter of 2014. 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 in mid-2014.
During Jan. 2014, Magellan began
operation of its newly-constructed 38-mile pipeline from the partnership’s El
Paso, Texas terminal to a new locomotive fueling facility for Union Pacific
Railroad near Santa Teresa, New Mexico.
The Double Eagle pipeline is now
fully operational to transport condensate from the Eagle Ford shale to
Magellan’s Corpus Christi terminal. As recently announced, Double Eagle is
constructing a 10-mile pipeline to connect to Kinder Morgan’s condensate system
in early 2015, providing flexibility for shippers to move product to Corpus
Christi or the Houston Ship Channel.
The partnership continues to make
significant progress on tank and pipeline construction for the BridgeTex
pipeline joint venture. Initial linefill is expected to occur during late
second quarter, with the pipeline operational in mid-2014 to deliver crude oil
from the Permian Basin to the Houston Gulf Coast area.
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 the partnership’s spending estimates. Advanced discussions continue
for the potential Little Rock pipeline project and potential Corpus Christi
condensate splitter, and while management remains optimistic about both
projects, neither has been included in the partnership’s capital spending
estimates at this time.
Financial guidance for 2014
Management currently expects to
generate record annual DCF of $730 million in 2014 and is raising its annual
distribution growth target to 20% for 2014, resulting in 1.2 times the amount
needed to pay cash distributions for 2014. For DCF purposes, BridgeTex is
expected to have minimal impact to 2014 results due to the mid-year start-up of
the pipeline system and the timing of cash distribution payments from the joint
venture to Magellan, which will be paid in arrears on a quarterly basis.
Net income per limited partner unit
is estimated to be $2.90 for 2014, with first-quarter guidance of 70 cents.
Guidance excludes future NYMEX MTM adjustments on the partnership’s
commodity-related activities.
Based on the progress of Magellan’s
active growth projects, management is also targeting 15% annual distribution
growth for 2015. Distribution guidance specific to 2015 has not been provided
previously.
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 details
An analyst call with management
regarding fourth-quarter results and 2014 guidance is scheduled today at 1:30
p.m. Eastern. To participate, dial (888) 401-4668 and provide code 8110910.
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 8110910. 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 cost of product sales, 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.