Magellan Midstream Delivers Record Quarterly and Annual Financial Results

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.  


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. 

Contact Information:

Paula Farrell Investor Relations 918-574-7650 paula.farrell@magellanlp.com