TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported net income of $252.1 million for fourth
quarter 2014 compared to $190.0 million for fourth quarter 2013.
Diluted net income per limited
partner unit was $1.10 in fourth quarter 2014 and 83 cents in fourth quarter 2013.
Diluted net income per unit excluding mark-to-market (MTM) commodity-related
pricing adjustments, a non-generally accepted accounting principles (non-GAAP)
financial measure, was 93 cents for fourth quarter 2014, similar to the 92-cent
guidance provided by management in Oct. 2014.
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 $248.1 million for fourth
quarter 2014 compared to $236.6 million for fourth quarter 2013.
“Magellan closed out 2014 with a strong quarter,
generating higher financial results from each of our segments compared to the
year-ago period, increasing annual cash distributions to our investors by 20% and
solidifying 2014 as a record year for our company,” said Michael Mears, chief
executive officer. “Demand for Magellan’s fee-based transportation and
terminals services remains solid, and our disciplined, predominantly fee-based
business model should serve us well in the current energy environment. Magellan
enters the new year in strong financial standing with an investment-grade
balance sheet and the goal of growing annual cash distributions to our
investors by 15% for 2015 and at least 10% for 2016.”
An analysis by segment comparing fourth
quarter 2014 to fourth quarter 2013 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 products operating margin was $252.0 million, an increase of $42.8
million. Transportation and terminals revenue increased $13.6 million between
periods due to slightly higher refined products pipeline volumes, additional fees
for leased storage, increased throughput for the partnership’s ammonia pipeline
system and independent refined products terminals and operating results from the
Rocky Mountain pipeline system acquired in Nov. 2013.
Operating expenses increased between
periods primarily due to operating costs related to the Rocky Mountain pipeline
system, acquired in late 2013. Otherwise, higher personnel costs and less
favorable product overages (which reduce operating expenses) were mainly offset
by lower asset integrity spending due to timing of project work.
Product margin (a non-GAAP measure defined
as product sales revenue less cost of product sales) increased $35.0 million
between periods primarily due to a $44.7 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 (plus an
additional $8.6 million of commodity-related adjustments not associated with
the Refined products segment) 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, decreased between periods primarily due to lower sales
volumes for the partnership’s butane blending activities in the current period.
Crude oil.
Crude oil operating margin was $88.8 million, an increase of $26.1 million. Transportation
and terminals revenue increased $19.3 million primarily due to increased crude
oil shipments on the Longhorn pipeline, which averaged approximately 250,000
barrels per day (bpd) during fourth quarter 2014 compared to approximately 185,000
bpd during fourth quarter 2013, and contribution from the 40-mile Houston crude
oil pipeline that Magellan acquired in Nov. 2014. Earnings of non-controlled
entities increased $14.1 million due to the late Sept. 2014 start-up of
BridgeTex pipeline, which is owned 50% by Magellan. Operating expenses increased
$10.1 million between periods due to higher power costs associated with increased
volumes, additional personnel costs and less favorable product overages (which
reduce operating expenses).
Marine storage.
Marine storage operating margin was $31.3 million, an increase of $7.7 million.
Revenue increased primarily due to higher average storage rates and the
one-time benefit from a customer buying out of its remaining storage contract
in 2014. This tank has subsequently been leased to a new customer. Operating
expenses declined between periods due to the timing of asset integrity spending.
Other
items. Depreciation and amortization increased due to
recent expansion capital expenditures, and higher G&A expenses reflect additional
personnel costs in part due to increased headcount and higher benefits accruals.
Other expense increased $8.6 million related to a non-cash MTM pricing adjustment
for hedged crude oil tank bottom inventory owned by the partnership. Net
interest expense increased due to less interest capitalized for construction
projects in the current period. As of Dec. 31, 2014, the partnership had $2.9
billion of debt outstanding, including $296.9 million outstanding under its
commercial paper program.
Annual results
The partnership produced record
annual financial results in 2014. For the year ended Dec. 31, 2014, net income
was $839.5 million compared to $582.2 million in 2013 primarily related to
increased shipments on the Longhorn pipeline, which began transporting crude
oil in increasing quantities beginning in April 2013, strong demand for refined
products, which benefited Magellan’s refined products pipeline system, and
higher profitability from the partnership’s butane blending activities. Full-year
diluted net income per limited partner unit was $3.69 in 2014 and $2.56 in
2013. Annual DCF was a record $880.5 million in 2014, or 1.5 times the amount
needed to pay distributions related to 2014, compared to $669.7 million in 2013.
Expansion capital projects
Magellan remains focused on
expansion opportunities, making significant progress on its current slate of
projects with a record $703 million spent during 2014 on organic growth
construction projects. Further, the partnership spent $75 million to acquire 40
miles of crude oil pipeline in the Houston area. Based on the progress of
expansion projects already underway, including a number of new smaller projects,
the partnership currently plans to spend approximately $650 million in 2015
with additional spending of $100 million in 2016 to complete its current construction
projects.
The BridgeTex pipeline began
commercial service during late Sept. 2014, delivering crude oil from West Texas
to the Houston Gulf Coast area. The pipeline is capable of transporting up to
300,000 bpd and averaged nearly 200,000 bpd during fourth quarter 2014. For DCF
purposes, operating results of the BridgeTex pipeline will initially benefit
Magellan beginning in 2015 due to the timing of the pipeline’s start-up and
cash distribution payments from the joint venture to Magellan, which will be
paid in arrears on a quarterly basis.
Right-of-way, permitting work and
contractor selection continue for the partnership’s Little Rock pipeline
project, with construction expected to commence in mid-2015. The Little Rock pipeline is expected to be
operational in early 2016.
Site preparation and contractor
selection continue for the partnership’s condensate splitter in Corpus Christi,
Texas, with construction expected to commence in mid-2015. The splitter is expected to be operational
during the second half of 2016.
Although the open season continues
for the Saddlehorn pipeline, Magellan is in the process of obtaining permits
and right-of-way and has secured an 80-acre tract of land to serve as the
pipeline origin. As previously announced, Magellan has received binding
commitments from Noble Energy, Inc. and a wholly owned subsidiary of Anadarko
Petroleum Corporation. In addition, Magellan has entered into a letter of
intent with Anadarko for potential equity ownership in the Saddlehorn pipeline
and is in advanced discussions with an additional strategic party for possible
equity ownership in the project. The equity option held by Saddle Butte
Pipeline II, LLC has expired.
In addition, Magellan continues to evaluate
well in excess of $500 million of potential growth projects in earlier stages
of development as well as possible acquisitions, both of which have been excluded
from the partnership’s spending estimates. Further, the future spending
estimates do not currently include spending for the Saddlehorn pipeline because
the ownership structure has not yet been finalized. The total projected cost
for the Saddlehorn pipeline is approximately $1 billion, and Magellan is
expected to serve as construction manager and pipeline operator.
Financial guidance for 2015
Management remains committed to its
goal of increasing annual cash distributions by 15% for 2015 and currently
expects to generate annual DCF of $840 million in 2015, resulting in 1.2 times
the amount needed to pay cash distributions for 2015. Current DCF guidance
assumes an average crude oil price of approximately $50 per barrel for 2015,
with each $1 change in the price of crude oil estimated to impact Magellan’s 2015
financial results by approximately $2 million, primarily related to the
partnership’s butane blending activities and the value of its pipeline product
overages.
Net income per limited partner unit
is estimated to be $2.95 for 2015, with first-quarter guidance of 80 cents.
Guidance excludes future NYMEX MTM adjustments on the partnership’s
commodity-related activities.
Management is targeting annual
distribution growth of at least 10% for 2016. Distribution growth guidance
specific to 2016 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 2015 guidance is scheduled today at 1:30 p.m.
Eastern. To join the conference call, dial (888) 430-8694 and provide code 8069780.
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 8069780. 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 revenue 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 and its crude oil tank bottom inventory. 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 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 nearly 50% of the nation’s refining capacity, and can store more
than 90 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, 2013 and subsequent
reports on Forms 8-K and 10-Q. The partnership undertakes no obligation to
revise its forward-looking statements to reflect events or circumstances
occurring after today's date.