TULSA, Okla. – Magellan Midstream Partners, L.P. (NYSE: MMP) today reported operating profit of $184.5 million for second quarter 2013, an increase of $17.2 million, or 10%, compared to $167.3 million for second quarter 2012. Net income grew 11% to $153.6 million for second quarter 2013 compared to $137.8 million for second quarter 2012.
Diluted net income per limited partner unit was 68 cents in second quarter 2013 versus 61 cents in the corresponding 2012 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 65 cents for second quarter 2013 was significantly higher than the 52-cent guidance provided by management in early May due to stronger-than-expected demand for refined products, additional product overages and reversal of a $10.6 million accrual for potential air
emission fees at the partnership’s terminals in the Houston, Texas area that will not be assessed for historical periods based on final environmental regulations adopted during June 2013.
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 $168.2 million for second quarter 2013, or 26% higher than the second-quarter 2012 DCF of $134.0 million.
“Magellan continues to generate stronger-than-expected financial results for 2013 driven by our solid fee-based transportation and terminals business and a favorable pricing environment for
our commodity-related activities,” said Michael Mears, chief executive officer. “In addition to strong financial performance, Magellan successfully commissioned two significant industry projects during the second quarter of 2013 -- start-up of our Longhorn pipeline with initial crude oil deliveries to the Houston Gulf Coast refining region and beginning condensate deliveries to
the Corpus Christi petrochemical market via our Double Eagle pipeline joint venture.
“The start-up of these projects helps frame Magellan’s future growth and contributed to our recent increased cash distribution guidance, allowing us to now target annual distribution growth of 16% for 2013 and 15% for 2014.”
Beginning in 2013, the partnership reorganized its reporting segments to reflect strategic changes in its business, particularly its increasing crude oil activities. Historical
financial results have been restated to conform to the new segment presentation. An analysis by segment comparing second quarter 2013 to second quarter 2012 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 $177.8 million, an increase of $0.8 million. Increases in transportation and terminals revenues were largely offset by decreases in product margin due to timing of MTM commodity-related pricing adjustments that favorably impacted the 2012 period.
Transportation and terminals revenues increased $15.1 million between periods primarily due to the partnership’s 8.6% tariff increase in mid-2012 and 3% higher transportation
volumes in the current period. Operating expenses increased slightly between periods. Higher property taxes and power costs in the current period were mostly offset by reversal of the accrual for potential air emission fees at the partnership’s East Houston, Texas terminal and favorable gains on asset sales and replacements in the second quarter of 2013.
Product margin (a non-GAAP measure defined as product sales revenues less product purchases) decreased $14.0 million between periods resulting from a $19.6 million unfavorable 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 contributions from the partnership’s butane blending activities
as a result of lower butane costs.
Crude oil.
Crude operating margin was $40.5 million, an increase of $17.7 million. Revenues increased primarily due to crude oil shipments on the Longhorn pipeline, which began during mid-April 2013, as well as joint venture management fees and higher utilization and rates on the partnership’s Houston-area distribution system. Operating expenses increased primarily due to costs related to the
operation of the Longhorn pipeline in crude oil service, including higher personnel costs, integrity spending and pipeline rental costs to access product from third-party origination sources, partially offset by more favorable product overages, which reduce expenses.
Marine storage.
Marine operating margin was $32.9 million, an increase of $9.1 million. Revenues were essentially flat between periods as storage fees from newly-constructed tanks at the partnership’s Galena Park, Texas terminal offset lower overall utilization due in part to timing of tank maintenance work. Expenses declined due to reversal of the accrual for potential air emission fees at the partnership’s
Galena Park terminal. Product margin increased due to the sale of additional overages in the current period.
Other items.
Depreciation and amortization increased primarily due to recent expansion capital expenditures, and G&A expenses increased due to higher personnel costs as a result of additional headcount, improved payout expectations for the partnership’s annual bonus and equity-based incentive compensation programs and a higher unit price, which also impacts equity-based incentive compensation.
Net interest expense was substantially unchanged as additional borrowings from the partnership’s Nov. 2012 debt offering to fund capital spending was offset by higher capitalized
interest for the related construction projects. As of June 30, 2013, the partnership had $2.4 billion of debt outstanding and $119.5 million of cash on hand.
Expansion projects
Magellan continues to assess additional opportunities to grow its business, and its current slate of expansion projects remains on schedule.
The Longhorn pipeline successfully began deliveries of crude oil to the Houston market beginning mid-April, averaging approximately 90,000 barrels per day (bpd) from start-up through the second quarter. Additional capacity is expected over the coming months as third-party supply connections, newly-constructed storage tanks and additional pump stations come online. Management expects the delivery rate to average approximately 120,000 bpd during the third quarter, with full operating capacity of 225,000 bpd attained by the end of Sept.
The Double Eagle pipeline joint venture successfully began deliveries of condensate from its newly-constructed truck unloading facility at Three Rivers, Texas to Magellan’s Corpus Christi, Texas terminal during May, with the expectation that all pipeline segments will be operational in early Sept. with the capability to transport up to 100,000 bpd.
Further, the BridgeTex pipeline joint venture continues to progress, with an operational date of mid-2014 still targeted. Significant progress has been made on right-of-way acquisition and permitting, and tank construction and pipeline production are currently underway.
As previously announced, the partnership acquired approximately 250 miles of refined products pipeline in Texas and New Mexico for $57 million on July 1. Acquisition of the remaining
pipeline system in the Rocky Mountain region is pending, subject to regulatory approvals.
The partnership currently plans to
spend approximately $900 million during 2013 with an additional $320 million of
spending in 2014 to complete its current growth projects and pending pipeline
acquisition.
The partnership also continues to evaluate
well over $500 million of potential growth projects in earlier stages of
development as well as additional acquisition opportunities, both of which have
been excluded from these spending estimates.
Financial guidance for 2013
Management is raising its 2013 DCF guidance
by $50 million to $630 million primarily as a result of strong financial results
to date and the expectation of continued low butane costs, which favorably
impact the partnership’s butane blending activities.
Further, management recently increased
its annual distribution growth targets to 16% for 2013 and 15% for 2014 based
on its confidence in Magellan’s future, driven by strong performance from the
partnership’s base business and anticipated contributions from expansion
projects that are progressing as expected.
Including actual results so far
this year, net income per limited partner unit is estimated to be $2.50 for 2013,
with third-quarter guidance of 48 cents. Guidance excludes future NYMEX MTM
adjustments on the partnership’s commodity-related activities and expected
financial results from the pending Rocky Mountain pipeline acquisition.
Earnings call details
An analyst call with management
regarding second-quarter results and outlook for the remainder of 2013 is
scheduled today at 1:30 p.m. Eastern. To participate, dial (888) 211-0193 and
provide code 3283315. 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 3283315. 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 revenues less product purchases, 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 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 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 more than 40% of the nation’s refining capacity, and can store over
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 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 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, 2012 and subsequent reports on
Forms 10-Q and 8-K. The partnership undertakes no obligation to revise its
forward-looking statements to reflect events or circumstances occurring after
today's date.