Increases Annual
Distributable Cash Flow Guidance to $810 Million for 2014
TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported record quarterly operating profit of $275.1
million for first quarter 2014, an increase of $132.6 million, or 93%, compared
to $142.5 million for first quarter 2013.
Net income more than doubled to a
quarterly record of $242.6 million for first quarter 2014 compared to $113.0
million for first quarter 2013, and diluted net income per limited partner unit
increased to a record $1.07 in first quarter 2014 versus 50 cents in the
corresponding 2013 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 $1.07 for first quarter
2014 was higher than the 70-cent guidance provided by management in Feb. 2014 primarily
due to stronger-than-expected refined products and crude oil transportation
volumes and rates, more favorable product overages and the sale of additional
volumes from the partnership’s butane blending activities.
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 $253.2 million for first quarter 2014, more than double the first-quarter
2013 DCF of $123.9 million.
“Magellan kicked off 2014 with exceptional
strength, generating record quarterly financial results due to strong
performance from all aspects of our business, including fee-based transportation
and terminal assets and commodity-related activities,” said Michael Mears,
chief executive officer. “Further, we continue to build the framework for
Magellan’s future growth, achieving significant progress on crude oil projects currently
under construction and launching new projects for critical energy
infrastructure that will sustain our growth trajectory.”
An analysis by segment comparing first
quarter 2014 to first 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 operating margin was $255.0 million, an increase of $94.8 million and a
quarterly record for this segment. Transportation and terminals revenue
increased $44.9 million between periods due to higher shipment volumes and
average tariffs. Shipments grew primarily as a result of strong demand for
gasoline and distillates in the markets served by the partnership, in part due
to the seasonal reversal of a portion of the partnership’s Oklahoma system to
deliver refined products south into Texas, start-up of Magellan’s recently-constructed
pipeline from the partnership’s El Paso, Texas terminal to a new locomotive
fueling facility in New Mexico and shipments through a new connection to a
third-party pipeline for further distribution to other markets. 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 a New Mexico pipeline system acquired in July 2013 and a Rocky
Mountain pipeline system acquired in Nov. 2013.
Operating expenses increased between
periods primarily due to expenses related to the recently-acquired New Mexico and
Rocky Mountain pipeline systems. Increased property taxes, power expenses and
personnel costs on the partnership’s legacy pipeline system were primarily offset
by more favorable product overages (which reduce operating expenses).
Product margin (a non-GAAP measure defined
as product sales revenue less cost of product sales) increased $54.8 million between
periods primarily due to improved profitability of the partnership’s butane blending
activities as a result of significantly lower butane costs in the current
period and higher sales volumes. The increased volume was attributable to
selling additional blended product carried over from the partnership’s
fourth-quarter 2013 blending activities as well as more blending opportunities
during first quarter 2014 in part due to higher gasoline demand.
Crude oil.
Crude operating margin was $63.3 million, an increase of $40.6 million. Transportation
and terminals revenue increased $44.7 million primarily due to crude oil
shipments on the Longhorn pipeline, which began operation during second quarter
2013, and higher pipeline volume on the partnership’s Houston crude oil distribution
system. 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 $28.4 million, an increase of $3.1 million. Revenue
increased between periods primarily due to storage fees from newly-constructed tanks
placed into service at the partnership’s Galena Park terminal over the last
year, and expenses declined slightly due to less spending for maintenance
projects during the current period. Product margin increased 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 more personnel costs as a result of additional headcount and higher 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 recent debt offerings to
fund capital spending. As of March 31, 2014, the partnership had $2.9 billion
of debt outstanding and $196.6 million of cash on hand.
Expansion capital projects
Magellan continues to make
significant progress on its expansion opportunities and recently announced plans
to construct a fee-based condensate splitter at its Corpus Christi, Texas
terminal and to deliver refined products to Little Rock, Arkansas by extending
the reach of the partnership’s pipeline system from Ft. Smith, Arkansas to the
Little Rock market.
The Longhorn pipeline continues to increase
crude oil volume and averaged approximately 200,000 barrels per day (bpd)
during the first quarter of 2014. Magellan has received regulatory approval to
increase the capacity of the pipeline to 275,000 bpd and expects to average approximately
240,000 bpd during the second quarter of 2014 and 250,000 bpd during the second
half of 2014.
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 pipeline movements expected to begin mid-third quarter to
deliver crude oil from the Permian Basin to the Houston Gulf Coast area.
Based on the progress of expansion
projects already underway, the partnership currently plans to spend
approximately $700 million in 2014 with additional spending of $325 million in
2015 and $75 million in 2016 to complete its current slate of construction
projects.
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.
Financial guidance for 2014
Management is raising its 2014 DCF
guidance by $80 million to $810 million primarily as a result of strong
financial results to date and remains committed to its goal of increasing
annual cash distributions by 20% for 2014 and 15% for 2015. For DCF purposes,
BridgeTex is expected to have minimal impact to 2014 results due to the timing of
the pipeline’s start-up and the timing of cash distribution payments from the
joint venture to Magellan, which will be paid in arrears on a quarterly basis.
Including actual results so far
this year, net income per limited partner unit is estimated to be $3.25 for 2014,
with second-quarter guidance of 72 cents. Guidance excludes future MTM
adjustments on the partnership’s commodity-related activities.
Earnings call details
An analyst call with management
regarding first-quarter results and outlook for the remainder of 2014 is
scheduled today at 1:30 p.m. Eastern. To join the conference call, dial (888) 466-4462
and provide code 1956876. 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 May 12.
To access the replay, dial (888) 203-1112 and provide code 1956876. 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 New York Mercantile
Exchange (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 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 Form 8-K. The partnership undertakes no obligation to revise its
forward-looking statements to reflect events or circumstances occurring after
today's date.