TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported record operating profit of $167.3
million for second quarter 2012 compared to $128.7 million for second quarter
2011, and net income was a record $137.8 million for second quarter 2012
compared to $103 million for second quarter 2011.
Diluted net income per limited
partner unit was also a quarterly record of $1.22 in second quarter 2012 versus
91 cents in the corresponding 2011 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, was $1.01 for second
quarter 2012, exceeding the 83-cent guidance provided by management in early
May by 22% due to improved gasoline and crude oil transportation volumes and
higher commodity sales.
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 14% to a quarterly
record of $134 million for second quarter 2012 compared to $117.6 million
during second quarter 2011.
“We are pleased to report record
quarterly results for Magellan for the second quarter of 2012, driven by improved
results from each of our operating segments due to increased demand and higher
rates for our services and additional profits from our commodity-related
activities,” said Michael Mears, chief executive officer. “Magellan remains on
track for a record year in 2012 due to our business model of providing
essential transportation and storage services for refined petroleum products
and crude oil. Our stable base operations, significant growth projects and disciplined
management philosophy give us confidence in Magellan’s future.”
An analysis by segment comparing second
quarter 2012 to second quarter 2011 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:
Petroleum pipeline system.
Pipeline operating margin was $176.3 million, an increase of $29.9 million and
a quarterly record for this segment. Transportation and terminals revenues
increased between periods primarily due to 10% more volume transported, driven
primarily by increased gasoline and crude oil shipments, and a higher average
tariff that resulted in part from the partnership’s mid-2011 tariff increase.
Revenues also benefited from higher demand for leased pipeline capacity, storage
leases and additive services. Operating expenses increased between periods
primarily due to lower product overages (which reduce operating expenses) and higher
asset integrity costs in the current period, partially offset by expenses in
the 2011 period that did not recur in the current year for the impairment of a
system terminal we closed and an accrual for potential air emission fees.
Product margin (defined as product
sales revenues less product purchases) increased $16.9 million between periods,
including an $11.5 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 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 petroleum products blending profits as a result of selling
more product in the second quarter of 2012.
Petroleum terminals.
Terminals operating margin was $42.7 million, an increase of $7.3 million. Revenues
in the current period benefited primarily from recently-constructed crude oil
storage in Cushing, Oklahoma and new refined products tanks and higher rates at
the partnership’s marine terminals. Operating expenses decreased due to an accrual
in the 2011 period for potential air emission fees partially offset by higher asset
integrity costs in the current period. Product margin declined due to the sale
of less product overages at lower prices in the current period.
Ammonia pipeline system.
Ammonia operating margin was $4.5 million, an increase of $2.5 million. Revenues
increased due to slightly more volume transported at a higher average tariff during
the 2012 period, and expenses decreased because of lower asset integrity costs
now that the pipeline’s hydrostatic testing procedures are complete.
Other
items. Depreciation and amortization increased due to
recent expansion capital expenditures, and net interest expense increased in
the current quarter as a result of additional borrowings over the last year to
fund capital spending. As of June 30, 2012, the partnership had $2.1 billion of
debt outstanding and more than $230 million of cash on hand.
Expansion capital spending expectations
Management continues to pursue expansion
opportunities, including organic growth construction projects and acquisitions.
Based on the progress of expansion projects already underway, the partnership plans
to spend approximately $500 million during 2012 with an additional $200 million
of spending in 2013 to complete these projects.
The partnership is making
substantial progress on its tank construction projects and expects to complete
1.5 million barrels of new refined products storage, primarily at its Galena
Park, Texas marine terminal, by the end of 2012, with another 0.6 million
barrels expected to come online during early 2013. Further, Magellan’s
Crane-to-Houston crude project is still expected to begin transporting crude
oil at partial capacity by early 2013, ramping to its full 225,000 barrel-per-day
capacity by mid-2013. The Double Eagle joint venture is also proceeding and
expected to be partially operational in early 2013, with full operation in
mid-2013.
The partnership continues to evaluate
more than $500 million of potential growth projects in earlier stages of
development, which have been excluded from these spending estimates. In
addition, management and Occidental Petroleum continue to jointly assess the potential
BridgeTex pipeline, which also has been excluded from the spending estimates.
Financial guidance for 2012
Management is raising its 2012 DCF
guidance by $30 million to approximately $520 million and recently announced
its intention to increase annual distributions by 18% for 2012, or double its
previous 9% growth target, with the goal of raising distributions an additional
10% for 2013. Net income per limited partner unit is estimated to be $3.90 for
2012, with third-quarter guidance of 76 cents. Guidance excludes future NYMEX
MTM adjustments on the partnership’s commodity-related activities.
Earnings call details
An analyst call with management
regarding second-quarter results and outlook for the remainder of 2012 is
scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 946-0720 and
provide code 7860410. 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 Aug. 7. To access the replay, dial (888) 203-1112 and provide code 7860410. 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, 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 product purchases, is used by management to
evaluate the profitability of the partnership’s commodity-related activities.
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 measure as a basis
for recommending to the board of directors the amount of cash distributions to
be paid each period.
Reconciliations of operating margin
to operating profit 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 petroleum products. 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 80 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 believes any such statements are based on reasonable
assumptions, there is no assurance that actual outcomes will not 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 imposed by the
Federal Energy Regulatory Commission, the United States Surface Transportation
Board or state regulatory agencies; (4) shut-downs or cutbacks at major
refineries, petrochemical plants, ammonia production facilities or other
businesses that use or supply the partnership’s services; (5) changes in the throughput or interruption in service on petroleum pipelines
owned and operated by third parties and connected to the partnership’s
petroleum terminals or petroleum pipeline system; (6) the occurrence of an
operational hazard or unforeseen interruption for which the partnership is not
adequately insured; (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,
2011 and subsequent reports on Forms 8-K. The partnership undertakes no
obligation to revise its forward-looking statements to reflect events or
circumstances occurring after today's date.