TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported net income of $198.6 million for third
quarter 2014, significantly higher than third-quarter 2013 net income of $125.6
million.
Diluted net income per limited
partner unit was 87 cents in third quarter 2014 and 55 cents in third 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 71 cents for third quarter 2014, exceeding the 62-cent
guidance provided by management in Aug. 2014 primarily due to stronger-than-expected
demand for refined products during the quarter.
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 $183.4 million
for third quarter 2014, an increase of $42.3 million or 30% higher than the third-quarter
2013 DCF of $141.1 million.
“Magellan’s assets are continuing to perform
well, generating higher financial results for each of our segments compared to
the year-ago period,” said Michael Mears, chief executive officer. “Demand for Magellan’s
transportation and terminals services remains strong, and our commodity-related
activities continue to benefit from the historically attractive pricing
environment. Further, we successfully placed the BridgeTex Pipeline into
commercial service during the third quarter, providing a pipeline solution for
growing West Texas crude oil production while solidifying an important piece of
Magellan’s future growth.”
An analysis by segment comparing third
quarter 2014 to third 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 $200.5 million, an increase of $53.7
million. Transportation and terminals revenue increased $32.1 million between
periods due to higher shipment volumes, driven by increased demand for gasoline
and distillates in the markets served by the partnership, and additional fees
for ancillary services, such as storage, additives and terminaling. Revenues also
benefited from higher average tariffs, resulting from the July 2014 tariff
increase and longer-haul shipments (which move at a higher tariff rate), and operating
results from a Rocky Mountain pipeline system acquired in Nov. 2013.
Operating expenses increased $19.0
million between periods primarily due to operating costs related to the
recently-acquired Rocky Mountain pipeline system as well as higher asset
integrity, personnel and property tax expenses during the current period.
Product margin (a non-GAAP measure defined
as product sales revenue less cost of product sales) increased $40.6 million
between periods primarily due to a $38.6 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 slightly
between periods primarily due to improved profitability of the partnership’s butane
blending activities as a result of higher sales volumes in the current period.
Crude oil.
Crude oil operating margin was $70.3 million, an increase of $19.7 million. Transportation
and terminals revenue increased $29.3 million primarily due to increased crude
oil shipments on the Longhorn pipeline, which averaged approximately 240,000 barrels
per day (bpd) during third quarter 2014 compared to approximately 100,000 bpd
during third quarter 2013. Operating expenses increased between periods due to
higher power costs associated with increased volumes and additional personnel and
integrity spending.
Marine storage.
Marine storage operating margin was $27.6 million, an increase of $3.1 million,
primarily due to a one-time storage contract adjustment, which resulted in
incremental revenue being recognized in 2014. Otherwise, higher average storage
rates were offset by less product margin during the current period. Operating
expenses were essentially flat between periods for this segment.
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. Net interest expense decreased
due to more interest capitalized for construction projects. As of Sept. 30, 2014,
the partnership had $3.0 billion of debt outstanding, including $316.0 million
outstanding under its commercial paper program.
Expansion capital projects
Magellan continues to pursue
expansion opportunities, including organic growth construction projects and
acquisitions. Based on the progress of expansion projects already underway,
including a number of new small projects, the partnership currently plans to
spend approximately $775 million in 2014 with additional spending of $450
million in 2015 and $75 million in 2016 to complete its current slate of
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 has averaged 160,000 bpd during its first month of operation,
with shipments expected to ramp up over time.
Site preparation and contractor
selection are underway for the partnership’s condensate splitter in Corpus
Christi, Texas, which is expected to be operational during the second half of
2016.
Right-of-way, permitting work and
contractor selection are in process for the partnership’s Little Rock pipeline
project, which is expected to be operational in early 2016.
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 spending estimates do
not include the partnership’s proposed Saddlehorn pipeline, which is currently hosting
an open season for binding commitments.
Financial guidance for 2014
Based on solid financial results to
date and outlook for the remainder of the year, management is raising its 2014
DCF guidance by $25 million to $865 million and remains committed to its goal
of increasing annual cash distributions by 20% for 2014 and 15% for 2015.
For DCF purposes, operating results
of the BridgeTex pipeline will not impact 2014, with the initial DCF benefit
expected to occur 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.
Including actual results so far
this year, net income per limited partner unit is estimated to be $3.50 for 2014,
which results in fourth-quarter guidance of 92 cents. Guidance excludes future
MTM adjustments on the partnership’s commodity-related activities.
Earnings call details
An analyst call with management
regarding third-quarter results and outlook for the remainder of 2014 is
scheduled today at 11:00 a.m. Eastern. To join the conference call, dial (888) 505-4369
and provide code 6281817. 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 2:00 p.m. Eastern today through midnight on Nov. 6.
To access the replay, dial (888) 203-1112 and provide code 6281817. 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. 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.