TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported net income of $146.3 million for
second quarter 2014 compared to $153.6 million for second quarter 2013. The
2014 results include a $9.4 million non-cash impairment charge related to a
non-strategic pipeline terminal that may be sold in the future.
Diluted net income per limited
partner unit was 64 cents in second quarter 2014 and 68 cents in second 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, of 70 cents for second quarter 2014 was
lower than the 72-cent guidance provided by management in May 2014 primarily
due to the 4-cent unfavorable impact of the non-cash impairment charge. Otherwise,
the partnership’s assets generated better financial results than expected due
to continued strong demand for refined products transportation and higher crude
oil shipments 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 $195.8 million
for second quarter 2014, an increase of $27.6 million or 16% higher than the second-quarter
2013 DCF of $168.2 million.
“Magellan has generated strong financial
results so far this year with solid demand for our fee-based transportation and
terminal services in our refined products, crude oil and marine storage
businesses and an attractive environment for our commodity-related activities,”
said Michael Mears, chief executive officer. “We remain on track to produce
record annual financial results in 2014, increasing distributable cash flow
guidance again this quarter, while making significant progress on construction
projects designed to fuel Magellan’s future growth.”
An analysis by segment comparing second
quarter 2014 to second 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 $162.7 million, a decrease of $15.1 million
primarily related to timing of MTM adjustments for New York Mercantile Exchange
(NYMEX) positions. Transportation and terminals revenue increased $30.1 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 mid-2013 tariff increase, and 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 $30.8
million between periods primarily due to operating costs related to the
recently-acquired New Mexico and Rocky Mountain pipeline systems, a favorable
adjustment in second quarter 2013 to reverse an accrual for potential air
emission fees as well as less favorable product overages (which reduce operating
expenses) during the current period.
Product margin (a non-GAAP measure defined
as product sales revenue less cost of product sales) decreased $14.3 million
between periods resulting from a $19.3 million unfavorable variance associated
with the timing of MTM adjustments for 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 improved
profitability of the partnership’s butane blending activities as a result of higher
sales volumes in the current period.
Crude oil.
Crude operating margin was $73.5 million, an increase of $33.0 million. Transportation
and terminals revenue increased $38.4 million primarily due to increased crude
oil shipments on the Longhorn pipeline. From its mid-April 2013 start-up,
Longhorn pipeline shipments averaged approximately 90,000 barrels per day (bpd)
during second quarter 2013 compared to approximately 250,000 bpd during second
quarter 2014. Operating expenses increased between periods as power costs
associated with higher volumes and additional personnel and integrity spending were
partially offset by more favorable product overages (which reduce operating expenses).
Marine storage.
Marine operating margin was $27.4 million, a decrease of $5.5 million primarily
related to a favorable expense adjustment in the 2013 period. Revenue increased
between periods primarily due to higher average storage rates and fees for additional
customer activity. Expenses increased due to reversal of an accrual in second
quarter 2013 for potential air emission fees as well as higher asset integrity
costs in the current period.
Other
items. Depreciation, amortization and impairments increased
due to recent expansion capital expenditures and the impairment charge for a
pipeline terminal the partnership may sell in the future, and higher G&A
expenses reflect the partnership’s increasing unit price that impacts
equity-based incentive compensation and deferred board of director expense. Net
interest expense increased primarily due to additional borrowings to fund
capital spending. As of June 30, 2014, the partnership had $2.9 billion of debt
outstanding, including $221.0 million outstanding under its new commercial
paper program that was used to refinance the partnership’s June 2014 note
maturity.
Expansion capital projects
Magellan continues to assess
additional opportunities to grow the business and is making significant
progress on its current slate of expansion projects.
The BridgeTex pipeline is in the
final stages of construction. Tank construction at the Colorado City, Texas
origin point is complete, and pipeline linefill activities are underway on
portions of the pipeline. Pipeline shipments are expected to begin in Sept. to
deliver up to 300,000 barrels per day of crude oil from the Permian Basin to
the Houston area.
Progress continues on permitting
and contractor selection 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 and permitting work
are underway for the partnership’s Little Rock pipeline project, which is expected
to be operational in early 2016.
Further, the partnership has
announced plans to reactivate an idle 135-mile segment of pipeline in southern
Oklahoma to deliver crude oil and condensate from Healdton to Cushing beginning
in the third quarter of 2015.
Based on the progress of expansion
projects already underway, including the reactivated pipeline and a number of
new smaller projects, the partnership currently plans to spend approximately $775
million in 2014 with additional spending of $350 million in 2015 and $75
million in 2016 to complete its current slate of construction projects. The
partnership now estimates that its share of spending for the BridgeTex pipeline
will be approximately $625 million.
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
Based on solid financial results to
date and outlook for the remainder of the year, management is raising its 2014
DCF guidance by $30 million to $840 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 $3.30 for 2014,
with third-quarter guidance of 62 cents. Guidance excludes future 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 2014 is scheduled
today at 1:30 p.m. Eastern. To join the conference call, dial (888) 401-4669
and provide code 3902777. 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. 11.
To access the replay, dial (888) 203-1112 and provide code 3902777. 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
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 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.