TULSA, Okla. – Magellan Midstream
Partners, L.P. (NYSE: MMP) today reported operating profit of $122.8 million
for first quarter 2012 compared to $116.7 million for first quarter 2011, and net
income was $93.5 million for first quarter 2012 compared to $90.1 million for first
Diluted net income per limited
partner unit was 83 cents in first quarter 2012 versus 80 cents in the
corresponding 2011 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 94 cents for first quarter
2012 was less than the 98-cent guidance provided by management in early Feb.
due to higher than expected non-cash asset retirements.
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 $125.7 million for first
quarter 2012 compared to $117.7 million during first quarter 2011.
“Magellan’s first quarter results
increased compared to the 2011 period driven by higher results from our growing
crude oil pipeline and storage infrastructure, offsetting reduced demand for
gasoline so far in 2012,” said Michael Mears, chief executive officer. “We are
excited about our current growth opportunities, most notably our
recently-expanded project to reverse and convert our Crane-to-Houston pipeline
to crude oil service, which will create a foundation for Magellan’s growth for
years to come.”
An analysis by segment comparing first
quarter 2012 to first quarter 2011 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:
Petroleum pipeline system.
Pipeline operating margin was $125.4 million, a decline of $1 million as higher
expenses more than offset improved revenues. Transportation and terminals
revenues increased between periods primarily due to the partnership’s higher
average tariff and 2% higher shipments. Higher crude oil volumes more than
offset lower gasoline demand in first quarter 2012. Revenues also benefited
from higher demand for storage and capacity leases. Operating expenses
increased between periods primarily due to higher asset integrity costs,
property taxes and asset retirements resulting from recently replaced assets.
Product margin (defined as product
sales revenues less product purchases) increased $2.9 million between periods,
including a $7.8 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. 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 excludes MTM timing differences and reflects only
transactions that settled during the quarter, increased between periods
primarily due to higher petroleum products blending profits as a result of
selling more product at higher prices.
Terminals operating margin was $48 million, an increase of $8.1 million and a
quarterly record for this segment. The current period primarily benefited from recently-constructed
crude oil storage in Cushing, Oklahoma and new refined products tanks and
higher rates at the partnership’s marine terminals. Operating expenses decreased
due to an insurance reimbursement received in first quarter 2012 for
maintenance work necessary following historical hurricane-related damage.
Product margin declined due to the sale of less product overages in the current
Ammonia pipeline system.
Ammonia operating margin was $3.9 million, an increase of $0.2 million. Revenues
declined due to lower shipments during the 2012 period, and expenses decreased
due to reduced environmental accruals.
items. Depreciation and amortization increased due to
recent expansion capital expenditures, while G&A costs declined due to
lower equity-based incentive compensation expense. Net interest expense increased
in the current quarter as a result of additional borrowings over the last year to
fund capital spending. As of March 31, 2012, the partnership had $2.1 billion
of debt outstanding and more than $150 million of cash on hand.
Expansion capital spending expectations
Management continues to pursue expansion
opportunities, including organic growth construction projects and acquisitions.
Based on the progress of expansion projects already underway, the partnership plans
to spend approximately $500 million during 2012 with an additional $180 million
of spending in 2013 to complete these projects. The latest spending estimates
include $375 million for the Crane-to-Houston crude oil pipeline project, which
the partnership recently announced it was expanding to 225,000 barrels per day
following a successful binding open season.
The partnership also continues to evaluate
more than $500 million of potential growth projects in earlier stages of
development, which have been excluded from these spending estimates.
Financial guidance for 2012
Management is raising its 2012 DCF
guidance by $10 million to approximately $490 million and remains committed to
its stated goal of 9% distribution growth for the year. Net income per limited
partner unit is estimated to be $3.75 for 2012, with second-quarter guidance of
83 cents. Guidance assumes no future NYMEX MTM adjustments on the partnership’s
Earnings call details
An analyst call with management
regarding first-quarter results and outlook for the remainder of 2012 is
scheduled today at 1:30 p.m. Eastern. To participate, dial (800) 289-0487 and
provide code 2268478. 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
May 8. To access the replay, dial (888) 203-1112 and provide code 2268478. 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, 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.
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 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.
Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership that primarily
transports, stores and distributes petroleum products. 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 80 million
barrels of petroleum products such as gasoline, diesel fuel and crude oil. More
information is available at www.magellanlp.com.
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 overall demand for refined
petroleum products, crude oil and natural gas liquids; (3) changes in the
partnership’s tariff rates imposed by the Federal Energy Regulatory Commission,
the United States Surface Transportation Board or state regulatory agencies; (4)
shut-downs or cutbacks at major refineries, petrochemical plants, ammonia
production facilities or other businesses that use or supply the partnership’s
services; (5) changes in the throughput or interruption in service on petroleum
pipelines owned and operated by third parties and connected to the
partnership’s petroleum terminals or petroleum pipeline system; (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,
2011 and subsequent reports on Forms 8-K. The partnership undertakes no
obligation to revise its forward-looking statements to reflect events or
circumstances occurring after today's date.