Magellan Midstream reports on record first quarter

Financial highlights

Magellan Midstream Partners, L.P. reported record quarterly operating profit of US$ 275.1 million for Q1 2014, an increase of US$ 132.6 million, or 93%, compared to US$ 142.5 million for Q1 2013.

Net income more than doubled to a quarterly record of US$ 242.6 million for Q1 2014 compared to US$ 113 million for Q1 2013, and diluted net income per limited partner unit increased to a record US$ 1.07 in Q1 2014 versus US$ 0.5 in the corresponding 2013 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 US$ 1.07 for Q1 2014 was higher than the US$ 0.7 guidance provided by management in February 2014 – primarily due to stronger-than-expected refined products and crude oil transportation volumes and rates, more favourable product overages and the sale of additional volumes from the partnership’s butane blending activities. Distributable cash flow (DCF) US$ 253.2 million for Q1 2014, more than double the Q1 2013 DCF of US$ 123.9 million.

“Magellan kicked off 2014 with exceptional strength, generating record quarterly financial results due to strong performance from all aspects of our business, including fee-based transportation and terminal assets and commodity-related activities,” said Michael Mears, Chief Executive Officer. “Further, we continue to build the framework for Magellan’s future growth, achieving significant progress on crude oil projects currently under construction and launching new projects for critical energy infrastructure that will sustain our growth trajectory.”

Refined products

Refined operating margin was US$ 255 million, an increase of US$ 94.8 million and a quarterly record for this segment. Transportation and terminals revenue increased by US$ 44.9 million between periods due to higher shipment volumes and average tariffs. Shipments grew primarily as a result of strong demand for gasoline and distillates in the markets served by the partnership, in part due to the seasonal reversal of a portion of the partnership’s Oklahoma system to deliver refined products south into Texas, start-up of Magellan’s recently-constructed pipeline from the partnership’s El Paso, Texas, terminal to a new locomotive fueling facility in New Mexico, and shipments through a new connection to a third-party pipeline for further distribution to other markets. Higher tariff rates were mainly driven by the partnership’s 4.6% tariff increase in mid-2013 and longer-haul movements to meet increased demand. Revenues also benefited from operating results from a New Mexico pipeline system acquired in July 2013 and a Rocky Mountain pipeline system acquired in November 2013.

Operating expenses increased between periods primarily due to expenses related to the recently acquired New Mexico and Rocky Mountain pipeline systems. Increased property taxes, power expenses and personnel costs on the partnership’s legacy pipeline system were primarily offset by more favorable product overages (which reduce operating expenses).

Product margin increased by US$ 54.8 million between periods primarily due to improved profitability of the partnership’s butane blending activities as a result of significantly lower butane costs in the current period and higher sales volumes. The increased volume was attributable to selling additional blended product carried over from the partnership’s Q4 2013 blending activities as well as more blending opportunities during Q1 2014 in part due to higher gasoline demand.

Crude oil

Crude operating margin was US$ 63.3 million, an increase of US$ 40.6 million. Transportation and terminals revenue increased by US$ 44.7 million primarily due to crude oil shipments on the Longhorn pipeline, which began operation during Q2 2013, and higher pipeline volume on the partnership’s Houston crude oil distribution system. Operating expenses increased between periods as costs related to 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 operating expenses).

Expansion capital projects

Magellan continues to make significant progress on its expansion opportunities and recently announced plans to construct a fee-based condensate splitter at its Corpus Christi, Texas terminal and to deliver refined products to Little Rock, Arkansas, by extending the reach of the partnership’s pipeline system from Ft. Smith, Arkansas, to the Little Rock market. The Longhorn pipeline continues to increase crude oil volume and averaged approximately 200 000 bpd during Q1 2014. Magellan has received regulatory approval to increase the capacity of the pipeline to 275 000 bpd and expects to average approximately 240 000 bpd during Q2 2014 and 250 000 bpd during the 2H 2014.

The partnership continues to make significant progress on tank and pipeline construction for the BridgeTex pipeline joint venture. Initial linefill is expected to occur during late Q2 2014, with pipeline movements expected to begin mid Q3 2014 to deliver crude oil from the Permian Basin to the Houston Gulf Coast area.

Based on the progress of expansion projects already underway, the partnership currently plans to spend approximately US$ 700 million in 2014 with additional spending of US$ 325 million in 2015 and US$ 75 million in 2016 to complete its current slate of construction projects. In addition, Magellan continues to evaluate well in excess of US$ 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.

Adapted from press release by Rosalie Starling

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