Magellan Midstream Partners, L.P. has reported net income of US$213.3 million for 4Q16, compared to US$207.1 million for 4Q15, a rise that has been driven by record quarterly results for the partnership's crude oil and marine storage segments.
Distributable cash flow (DCF) was a record US$277.2 million for 4Q16, compared to US$256.9 million for 4Q15.
Diluted net income per limited partner unit was 93 cents in 4Q16 and 91 cents in 4Q15. Diluted net income per unit excluding mark-to-market (MTM) commodity-related pricing adjustments of US$1.04 for 4Q16 was higher than the 91 cent guidance provided by management in early November.
This was primarily due to continued strong performance from the partnership's fee-based activities, including higher than expected earnings from the BridgeTex pipeline and lower operating costs.
Magellan’s crude oil operating margin was US$111.7 million, an increase of US$16.5 million and a quarterly record for this segment. Transportation and terminals revenue increased primarily due to additional leased storage contracts at Magellan's East Houston terminal.
Earnings of non-controlled entities increased by US$10.9 million due to contributions from Saddlehorn Pipeline Company, LLC (40% owned by Magellan) and began operations in September 2016. Improved earnings from BridgeTex Pipeline Company, LLC, (50% owned by Magellan) also contributed to this as a result of higher transportation volumes and recognition of deficiency revenue for volume committed but not moved.
Operating expenses declined slightly as costs related to incremental headcount to support the crude oil segment were more than offset by lower integrity spending, primarily related to timing of tank maintenance work in the current period and more favourable product overages (which reduce operating expenses).
For the year ending on 31 December 2016, net income was US$802.8 million, compared to US$819.1 million in 2015, primarily due to MTM adjustments and overall lower margins for the partnership's commodity-related activities. Otherwise, Magellan's fee-based activities increased between years primarily due to higher refined products and crude oil pipeline tariffs, along with contributions from recently completed growth projects such as the Little Rock and Saddlehorn pipelines.
Magellan is focused on expansion. In 2016, the company spent a record US$736 million on organic growth construction projects. Based on the progress of expansion projects already underway, the partnership expects to spend US$550 million in 2017 and US$350 million in 2018 to complete its current slate of construction projects.
The above estimates include spending for recently announced projects, such as expansion of the Seabrook Logistics joint venture to construct an incremental 1.7 million bbls of storage and to connect the facility to Magellan's Houston crude oil distribution system, expansion of the BridgeTex pipeline to 400 000 bpd and construction of a new pipeline segment from Magellan's East Houston terminal to Holland Avenue.
Significant progress has been made on the partnership's joint venture construction projects. For example, the Carr-to-Platteville segment of the Saddlehorn pipeline is nearing completion, with linefill expected to begin in late this month. Project costs for the Saddlehorn pipeline have continued to be favourable, with Magellan's share of the spending expected to be approximately US$220 million, US$10 million lower than previous estimates.
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