2014

Magellan Midstream Reports Significantly Higher Third-Quarter Financial Results

TULSA, Okla., Oct. 31, 2013 /PRNewswire/ -- Magellan Midstream Partners, L.P. (NYSE: MMP) today reported operating profit of $154.6 million for third quarter 2013 compared to $79.3 million for third quarter 2012. Net income grew to $125.6 million for third quarter 2013 compared to $50.5 million for third quarter 2012.

Diluted net income per limited partner unit was 55 cents in third quarter 2013 versus 22 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 54 cents for third quarter 2013 was higher than the 48-cent guidance provided by management in early Aug. due to higher refined transportation revenue, lower power costs and less integrity expenses than initially expected due to timing of project work that is now scheduled for later in the year.

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 $141.1 million for third quarter 2013, or 40% higher than the third-quarter 2012 DCF of $100.7 million.

"Magellan continued its solid performance in 2013, generating significantly higher third-quarter financial results for each of our segments compared to the year-ago period," said Michael Mears, chief executive officer. "Contributions from our growing crude oil segment, driven by Longhorn pipeline's activation into crude oil service, our newly-acquired New Mexico refined products pipeline system and a more favorable pricing environment for our commodity-related activities benefited Magellan's quarterly results."

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 third quarter 2013 to third 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 $146.8 million, an increase of $50.9 million. Transportation and terminals revenues increased between periods primarily due to operating results from the New Mexico pipeline system acquired on July 1, 2013 and higher weighted average tariff rates resulting from the partnership's 4.6% tariff increase in mid-2013 and deficiency payments during third quarter 2013 for committed volumes that did not ship. Operating expenses increased slightly between periods. Expenses related to the recently-acquired New Mexico pipeline system and less favorable product gains (which reduce operating expenses) in the current period were partially offset by lower environmental accruals and less asset retirements.

Product margin (a non-GAAP measure defined as product sales revenues less product purchases) increased $40.4 million between periods resulting in part from a $31.8 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 butane blending profits as a result of more sales volume and higher blending margins.

Crude oil. Crude operating margin was $50.6 million, an increase of $28.2 million. Revenues increased significantly due to crude oil shipments on the Longhorn pipeline, which began during 2013, as well as joint venture management fees and additional condensate throughput at the partnership's Corpus Christi, Texas terminal. Operating expenses increased slightly between periods. Costs related to the 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 expenses).

Marine storage. Marine operating margin was $24.5 million, an increase of $4.9 million. Revenues increased between periods primarily due to storage fees from recently-constructed tanks and incremental throughput fees at the partnership's Galena Park, Texas terminal. Expenses declined due to lower environmental accruals in the current period partially offset by more integrity spending and higher property taxes in third quarter 2013.

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, higher payout expectations for the partnership's annual bonus and costs related to the partnership's pending Rocky Mountain refined products pipeline system acquisition, which it expects to close in the near future.

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 Sept. 30, 2013, the partnership had $2.4 billion of debt outstanding and $14.2 million of cash on hand. During early Oct., the partnership received net proceeds of approximately $295.6 million from its issuance of $300 million of 30-year senior notes.

Expansion capital projects
Magellan continues to pursue opportunities to grow its business, and its current slate of expansion projects remains on schedule.

The Longhorn pipeline continued to add pumping capacity and averaged approximately 100,000 barrels per day (bpd) of crude oil deliveries to the Houston market during third quarter 2013. The pipeline has been capable of operating at its full 225,000-bpd capacity since mid-Oct. and is expected to average approximately 190,000 bpd during the fourth quarter. As previously announced, Magellan plans to expand the capacity of the Longhorn pipeline by 50,000 bpd to an increased capacity of 275,000 bpd, all fully committed by long-term customer agreements. Subject to regulatory approval, the operating capacity of the Longhorn pipeline is expected to reach 275,000 bpd by mid-2014.

The Double Eagle pipeline joint venture commenced condensate shipments on the eastern leg of the pipeline beginning late Oct. and on the western leg from Cooke Ranch, Texas during late Aug., with the western extension to Gardendale, Texas projected to be operational by year-end. The pipeline system is currently capable of transporting up to 100,000 bpd.

The partnership continues to make significant progress on the BridgeTex pipeline joint venture, with tank and pipeline construction currently underway and an operational date of mid-2014 still targeted.

As previously announced, the partnership acquired approximately 250 miles of refined products pipeline in Texas and New Mexico for $57 million on July 1, 2013. Acquisition of the remaining pipeline system in the Rocky Mountain region is expected to close in the near future.

The partnership plans to spend approximately $925 million during 2013 for its current slate of growth projects and its pending Rocky Mountain pipeline acquisition, with an additional $400 million of spending in 2014 to complete the expansion projects now underway.

Magellan 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 $10 million to $640 million and remains committed to its goal of increasing annual cash distributions by 16% for 2013 and 15% for 2014. Including actual results so far this year, net income per limited partner unit is estimated to be $2.54 for 2013, resulting in fourth-quarter guidance of 81 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 third-quarter results and outlook for the remainder of 2013 is scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 533-7619 and provide code 3858290. 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 Nov. 6. To access the replay, dial (888) 203-1112 and provide code 3858290. 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 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 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.

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, 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.

 

Contact:

Paula Farrell


(918) 574-7650


paula.farrell@magellanlp.com

 


MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per unit amounts)

(Unaudited)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2013


2012


2013

Transportation and terminals revenue

$

255,492


$

295,326


$

721,807


$

805,059

Product sales revenues

70,178


144,852


546,476


504,485

Affiliate management fee revenue

199


3,657


596


10,624

Total revenue

325,869


443,835


1,268,879


1,320,168

Costs and expenses:








Operating

103,272


103,262


254,050


245,858

Product purchases

85,819


120,299


478,929


396,025

Depreciation and amortization

31,692


35,270


94,688


105,788

General and administrative

27,551


32,755


76,709


96,073

Total costs and expenses

248,334


291,586


904,376


843,744

Earnings of non-controlled entities

1,749


2,375


4,875


5,162

Operating profit

79,284


154,624


369,378


481,586

Interest expense

29,113


31,852


87,354


95,295

Interest income

(16)


(215)


(80)


(250)

Interest capitalized

(1,439)


(3,780)


(3,331)


(10,474)

Debt placement fee amortization expense

519


540


1,556


1,620

Income before provision for income taxes

51,107


126,227


283,879


395,395

Provision for income taxes

585


604


2,012


3,165

Net income

$

50,522


$

125,623


$

281,867


$

392,230










Basic and diluted net income per limited partner unit

$

0.22


$

0.55


$

1.25


$

1.73









Weighted average number of limited partner units outstanding used for basic and diluted net income per unit calculation

226,431


226,866


226,348


226,812

 

MAGELLAN MIDSTREAM PARTNERS, L.P.

OPERATING STATISTICS






Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2013


2012


2013

Refined products:








Transportation revenue per barrel shipped

$

1.228


$

1.306


$

1.233


$

1.274

Volume shipped (million barrels):








Gasoline

61.8


61.9


163.8


174.6

Distillates

36.5


36.1


99.9


105.4

Aviation fuel

5.9


5.9


16.7


15.4

Liquefied petroleum gases

3.2


4.0


7.9


7.3

Total volume shipped

107.4


107.9


288.3


302.7









Crude oil:








Transportation revenue per barrel shipped

$

0.311


$

1.010


$

0.298


$

0.765

Volume shipped (million barrels)

19.3


28.6


51.4


72.6

Crude oil terminal average utilization (million barrels per month)

12.6


12.3


12.6


12.4









Marine storage:








Marine terminal average utilization (million barrels per month)

23.6


23.2


23.8


22.9









 

 

MAGELLAN MIDSTREAM PARTNERS, L.P.

OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT

(Unaudited, in thousands)






Three Months Ended


Nine Months Ended


September 30,


September 30,


2012


2013


2012


2013

Refined products:








Transportation and terminals revenue

$

193,880


$

205,859


$

538,812


$

573,615

Less: Operating expenses

80,705


82,174


204,064


194,911

Transportation and terminals margin

113,175


123,685


334,748


378,704









Product sales revenue

66,776


143,549


539,434


499,285

Less: Product purchases

84,041


120,429


475,839


393,187

Product margin

(17,265)


23,120


63,595


106,098

Operating margin

$

95,910


$

146,805


$

398,343


$

484,802









Crude oil:








Transportation and terminals revenue

$

23,868


$

49,519


$

67,626


$

113,905

Less: Operating expenses

3,441


4,034


4,046


13,168

Transportation and terminals margin

20,427


45,485


63,580


100,737

Affiliate management fee revenue

199


3,369


596


9,767

Earnings of non-controlled entities

1,752


1,770


4,913


3,255

Operating margin

$

22,378


$

50,624


$

69,089


$

113,759









Marine storage:








Transportation and terminals revenue

$

37,744


$

39,948


$

115,369


$

117,539

Less: Operating expenses

19,824


17,813


48,042


40,060

Transportation and terminals margin

17,920


22,135


67,327


77,479









Product sales revenue

3,402


1,303


7,042


5,200

Less:  Product purchases

1,778


(130)


3,090


2,838

Product margin

1,624


1,433


3,952


2,362

Affiliate management fee revenue


288



857

Earnings (loss) of non-controlled entities

(3)


605


(38)


1,907

Operating margin

$

19,541


$

24,461


$

71,241


$

82,605









Segment operating margin

$

137,829


$

221,890


$

538,673


$

681,166

Add: Allocated corporate depreciation costs

698


759


2,102


2,281

Total operating margin

138,527


222,649


540,775


683,447

Less:








Depreciation and amortization expense

31,692


35,270


94,688


105,788

General and administrative expense

27,551


32,755


76,709


96,073

Total operating profit

$

79,284


$

154,624


$

369,378


$

481,586










Note: Amounts may not sum to figures shown on the consolidated statement of income due to intersegment eliminations and allocated corporate depreciation costs.

 

 

MAGELLAN MIDSTREAM PARTNERS, L.P.

RECONCILIATION OF NET INCOME AND NET INCOME PER LIMITED PARTNER UNIT

EXCLUDING MARK-TO-MARKET COMMODITY-RELATED PRICING ADJUSTMENTS

TO GAAP MEASURES

(Unaudited, in thousands except per unit amounts)






Three Months Ended



September 30, 2013



Net Income


Basic and Diluted
Net Income Per
Limited Partner
Unit

As reported


$

125,623


$

0.55

Deduct:  Unrealized derivative gains associated with future physical product transactions


(2,770)


(0.01)

Lower-of-cost-or-market inventory adjustment


(551)


Excluding commodity-related adjustments


$

122,302


$

0.54






Weighted average number of limited partner units outstanding used for basic and diluted net income per unit calculation


226,866



 

*Please see Distributable Cash Flow Reconciliation to Net Income for further descriptions of the commodity-related adjustments.

 

 

MAGELLAN MIDSTREAM PARTNERS, L.P.

DISTRIBUTABLE CASH FLOW RECONCILIATION TO NET INCOME

(Unaudited, in thousands)








Three Months Ended


Nine Months Ended




September 30,


September 30,


2013


2012


2013


2012


2013


Guidance











Net income

$

50,522


$

125,623


$

281,867


$

392,230


$

576,000

Interest expense, net

27,658


27,857


83,943


84,571


116,000

Depreciation and amortization(1)

32,211


35,810


96,244


107,408


145,000

Equity-based incentive compensation(2)

5,548


4,217


(443)


2,239


8,000

Asset retirements and impairments

3,216


1,971


10,575


4,269


6,000

Commodity-related adjustments:










Derivative (gains) losses recognized in the period associated with future product transactions(3)

33,562


(2,770)


18,409


(8,317)



Derivative gains (losses) recognized in previous periods associated with product sales completed in the period (4)

238


1,301


(6,681)


(5,738)



Lower-of-cost-or-market adjustments

(4,106)


(551)


(1,017)


(494)



Houston-to-El Paso cost of sales adjustments(5)

106



8,227




Total commodity-related adjustments

29,800


(2,020)


18,938


(14,549)


(18,000)

Other

(92)


(2,011)


437


(2,928)


(2,000)

Adjusted EBITDA

148,863


191,447


491,561


573,240


831,000











Interest expense, net

(27,658)


(27,857)


(83,943)


(84,571)


(116,000)

Maintenance capital

(20,484)


(22,533)


(47,194)


(55,519)


(75,000)

Distributable cash flow

$

100,721


$

141,057


$

360,424


$

433,150


$

640,000











Distributable cash flow per limited partner unit

$

0.45


$

0.62


$

1.59


$

1.91


$

2.82











Weighted average number of limited partner units paid distributions

226,201


226,679


226,201


226,679


226,679

 

(1)

Depreciation and amortization includes debt placement fee amortization.



(2)

Because the partnership intends to satisfy vesting of units under its equity-based incentive compensation program with the issuance of limited partner units, expenses related to this program generally are deemed non-cash and added back for distributable cash flow purposes.  Total equity-based incentive compensation expense for the nine months ended September 30, 2012 and 2013 was $12.6 million and $14.5 million, respectively.  However, the figures above include an adjustment for minimum statutory tax withholdings paid by the partnership in 2012 and 2013 of $13.0 million and $12.3 million, respectively, for equity-based incentive compensation units that vested on the previous year end, which reduce distributable cash flow.



(3)

Certain derivatives the partnership uses as economic hedges have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in earnings. These amounts represent the gains or losses from economic hedges in the partnership's earnings for the period associated with products that had not yet been physically sold as of the period end date.



(4)

When the partnership physically sells products that it has economically hedged (but were not designated as hedges for accounting purposes), it includes in its distributable cash flow calculations the full amount of the change in fair value of the associated derivative agreement.



(5)

Cost of goods sold adjustment related to commodity activities for the partnership's Houston-to-El Paso pipeline to more closely resemble current market prices for the applicable period for distributable cash flow purposes rather than average inventory costing as used to determine the partnership's results of operations. We discontinued these commodity activities during 2012 in conjunction with the Longhorn crude pipeline project.

SOURCE Magellan Midstream Partners, L.P.



RELATED LINKS
http://www.magellanlp.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.