Magellan Midstream Partners Announces Third-Quarter Financial Results

  Record Quarterly Volumes Generated by Petroleum Products Pipeline and Inland Terminals  

TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported third-quarter 2006 operating profit of $44.4 million compared to $53.7 million for third quarter 2005. For the nine months ended Sept. 30, 2006, operating profit grew to $178.7 million from $159.1 million in the comparable 2005 period.

Net income was $30.6 million during third quarter 2006 versus $40.8 million in third quarter 2005. For the nine months ended Sept. 30, 2006, net income grew to $136.3 million from $121.8 million in the corresponding 2005 timeframe.

“The performance of Magellan's core operating assets continued to be excellent, setting record quarterly volumes for our petroleum products pipeline system and inland terminals,” said Don Wellendorf , chief executive officer. “However, our strong operational performance was offset by the impact on product margins of the recent sharp downturn in petroleum prices. Even with the impact of declining product prices in the quarter, our cash-flow generation continues on a record-setting pace for the year 2006.”

An analysis of variances by segment comparing third quarter 2006 to third quarter 2005 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 $54.1 million, a decline of $12.8 million due to lower product margins. The reduced product margin resulted from a significant drop in the price of petroleum products during Sept. 2006, which impacts inventory values related to a third-party supply agreement assumed by the partnership as part of an Oct. 2004 acquisition. The partnership values its cost of product sold utilizing a weighted average inventory price methodology, which can significantly reduce product margin in a rapidly declining price environment because the weighted average inventory cost of product sold is valued much higher than the corresponding product sales revenues, which are recorded at current lower market prices. Accounting rules require an adjustment of the carrying value of inventories to current market values if those values are lower, which further negatively impacted third-quarter 2006 results. For comparative purposes, the 2005 period experienced rapidly increasing product prices, an environment with the opposite impact on product margin as the product sales revenues are significantly higher than the weighted average inventory cost of the product sold.

Transportation revenues increased between periods primarily due to higher diesel fuel and gasoline shipments, which resulted in record quarterly volumes transported for this segment. The current quarter also benefited from higher fees for services such as additive injections and leased storage.

Operating expenses in this segment decreased between periods primarily due to the smaller impact from asset retirements and product losses during 2006. These reductions were partially offset by increased integrity spending and higher environmental expenses during the current period. The increased environmental costs principally were associated with a risk mitigation agreement entered in third quarter 2006, which transferred certain historical environmental risks to a third party to minimize the partnership's future financial exposure to potential cost increases related to remediation work at these sites.

Petroleum products terminals. Terminals operating margin was $22.3 million, an increase of $6.7 million. The 2006 period benefited from higher rates and from expansion projects completed over the past year at the partnership's marine terminals. The current period further benefited from record throughput and higher additive fees at the partnership's inland terminals, from incremental operating results from the Wilmington, Delaware marine facility which was acquired in Sept. 2005, and from higher product margins.

Ammonia pipeline system. Ammonia operating margin was a loss of $0.6 million, a decrease of $1.3 million. Higher expenses during the current period resulting from increased integrity spending primarily resulted in the unfavorable variance.

Depreciation and amortization increased between quarters primarily due to capital spending over the last year. G&A expense increased due to higher equity-based compensation expense related to a higher unit price and additional unit awards.

Net income per limited partner unit was 43 cents during third quarter 2006 compared to 56 cents during 2005. For the nine months ended Sept. 30, 2006, net income per limited partner unit was $1.60 compared to $1.58 for the corresponding 2005 period.

Management currently expects net income per limited partner unit for 2006 of approximately $2.20, which results in a fourth-quarter 2006 estimate of approximately 60 cents per unit. Management's goal for distribution growth in 2006 remains 8% to 10%.

In addition, the partnership continues to project that the large majority of its operating margin will be generated by its fee-based operations, with less than 10% expected to come from product-margin related activities on an annual basis beyond 2006. As previously noted, management does not develop distribution growth targets based on the expectation that the high petroleum pricing environment experienced during 2006 will continue in future years.

Based on the progress of expansion projects currently underway or in advanced stages of development, management currently expects expansion capital spending of approximately $140.0 million during 2006. An additional $115.0 million is expected to be spent during 2007 and 2008 to complete these projects. Both amounts are exclusive of potential future acquisitions and the development of additional expansion projects.

Consistent with past practice, management intends to provide 2007 guidance for net income per limited unit, capital spending and distribution growth targets in early 2007.

An analyst call with management regarding third-quarter 2006 financial results and 2006 outlook is scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 406-5356 and provide code 7901645. 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 Nov. 8. To access the replay, dial (888) 203-1112 and provide code 7901645. The replay also will be available at http://www.magellanlp.com.

Management believes that investors benefit from having access to the same financial measures being 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 reflects the cash available to pay distributions. Reconciliations of operating margin to operating profit and distributable cash flow to net income accompany this release.



About Magellan Midstream Partners, L.P.  

Magellan Midstream Partners, L.P. 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.




Portions of this document may 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. 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. 

Contact Information:

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