Magellan Midstream Partners Announces 94% Increase in Quarterly Net Income

TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported  third-quarter 2007 operating profit of $71.5 million compared to $44.4 million for third quarter 2006, representing a 61% increase. Net income grew to $59.4 million during third quarter 2007, which is a 94% increase over the $30.6 million reported for the corresponding 2006 period.

“Overall, we are pleased with our third-quarter results despite outages at several refineries served by our pipeline system, which reduced throughput volumes,” said Don Wellendorf, chief executive officer. “We benefited from higher pipeline rates, favorable commodity margins, lower pipeline operating expenses and profits from recent expansion projects.”

An analysis of variances by segment comparing third quarter 2007 to third 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 $83.5 million, an increase of $28.3 million. Transportation revenues increased between periods primarily due to higher average pipeline tariffs resulting in part from the partnership’s 2007 mid-year tariff increase, partially offset by lower transportation shipments due to temporary reductions in production during 2007 at refineries connected to the partnership’s pipeline system. The current quarter also benefited from higher fees for leased storage and increased demand for the partnership’s terminal and renewable fuels services.

The 2007 quarter also benefited from higher product margin because the 2006 period was negatively impacted by rapidly declining commodity prices, resulting in a lower-of-cost-or-market adjustment in third quarter 2006 for inventory held by the partnership for its third-party supply agreement and transmix fractionation activity. Comparatively, petroleum prices were essentially unchanged during the 2007 quarter so no similar negative cost adjustment was required.

Operating expenses declined between periods principally due to more favorable product overages, which reduce operating expenses, lower maintenance expense due to project timing and reduced environmental accruals during the current period. Third quarter 2006 included environmental costs related to a risk mitigation agreement that transferred certain historical environmental risks to a third party to minimize the partnership’s future financial exposure to potential cost increases for remediation work at these sites.

Petroleum products terminals. Terminals operating margin was $22.7 million, an increase of $1.5 million. The current period benefited from increased revenues due to expansion projects at the partnership’s marine terminals, record throughput volumes for its inland terminals and higher additive fees. Operating expenses were higher primarily due to timing of maintenance projects and additional personnel costs.

Ammonia pipeline system. Ammonia operating margin was a loss of $2.3 million, a decrease of $1.6 million. Although revenues increased slightly between periods due to higher average tariff rates, third quarter 2007 was negatively impacted by higher expenses for maintenance work necessary to comply with federal regulatory testing of high consequence areas.


Basic and diluted net income per limited partner unit was 65 cents for third quarter 2007 compared to 43 cents for third quarter 2006.

Distributable cash flow, which represents the amount of cash generated during the period that is available to pay distributions, was $72.8 million during third quarter 2007 compared to $52.3 million during the corresponding 2006 quarter.

Management currently expects net income per limited partner unit for the full year 2007 of approximately $2.57, which results in a fourth-quarter 2007 estimate of approximately 71 cents per unit. Management’s goal for 2007 cash distribution growth remains 8% to 10%.

Management expects volumes on its refined petroleum products pipeline to return to more normal levels as refinery outages are anticipated to end during late fourth quarter. While the partnership continues to project that the large majority of its operating margin will be generated by its fee-based operations, management estimates that commodity margin will produce approximately 15% of total operating margin during 2007 based on its assumption that gasoline and diesel fuel prices will follow the current commodities futures market for the remainder of the year. Further, management continues to develop distribution growth targets based on the expectation that product-margin related activities will generate 10% or less of the partnership’s annual operating margin in the future.

Management has increased its total expansion capital spending forecast and currently estimates $160 million for 2007, with an additional $190 million of spending in 2008 and $15 million in 2009 to complete projects underway at this time. These expansion capital estimates exclude potential acquisitions or spending on more than $500 million of other potential growth projects in earlier stages of development.

Consistent with past practice, management intends to provide 2008 guidance for net income per limited partner unit, capital spending and distribution growth targets in early 2008.

An analyst call with management regarding third-quarter earnings and fourth-quarter outlook is scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 289-0741 and provide code 1431090. 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. 13. To access the replay, dial (888) 203-1112 and provide code 1431090. 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.



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