Magellan Midstream Reports Third-Quarter Financial Results, Increases 2012 Distributable Cash Flow Guidance

  Magellan Midstream Reports Third-Quarter Financial Results, Increases 2012
                       Distributable Cash Flow Guidance

PR Newswire

TULSA, Okla., Oct. 31, 2012

TULSA, Okla., Oct. 31, 2012 /PRNewswire/ -- Magellan Midstream Partners, L.P.
(NYSE: MMP) today reported operating profit of $79.3 million for third quarter
2012 compared to $137.8 million for third quarter 2011. Both periods were
significantly impacted by mark-to-market (MTM) adjustments for New York
Mercantile Exchange (NYMEX) positions used to economically hedge the
partnership's commodity-related activities, with the 2011 period greatly
benefitting from MTM gains and the 2012 period negatively impacted by
significant MTM losses due to the increase in petroleum prices. Excluding MTM
commodity-related pricing adjustments, operating profit from the partnership's
core fee-based transportation and terminals activities was $109.1 million for
third quarter 2012 compared to $107.3 million for third quarter 2011, an
increase of $1.8 million.

Net income was $50.5 million for third quarter 2012 compared to $110.2 million
for third quarter 2011. Excluding MTM commodity-related pricing adjustments,
net income increased in the current quarter by $0.6 million.

Operating profit excluding MTM commodity-related adjustments and net income
excluding MTM commodity-related adjustments are non-generally accepted
accounting principles (non-GAAP) financial measures.

Diluted net income per limited partner unit was 22 cents in third quarter 2012
versus 49 cents in the corresponding 2011 period. Diluted net income per unit
excluding MTM commodity-related pricing adjustments, a non-GAAP financial
measure, of 35 cents for third quarter 2012 was less than the 38-cent guidance
provided by management in early Aug. due to timing of product sales from the
partnership's blending activities that are now expected to occur in fourth
quarter 2012. All net income per unit amounts reflect the partnership's recent
two-for-one split of its limited partner units.

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 7% to $100.7 million for third quarter 2012 from $94
million during third quarter 2011.

"During third quarter 2012, Magellan's core fee-based transportation and
terminals assets generated improved financial results due to increased demand
for our pipeline and storage services, and cutting through the implications of
mark-to-market accounting on our commodity hedges, the cash impact of our
commodity-related activities was comparable to the year-ago period," said
Michael Mears, chief executive officer. "Magellan's assets continue to produce
solid results, and we remain on track for a record year from both an
operational and financial standpoint."

An analysis by segment comparing third quarter 2012 to third 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 $97.7 million, a
decrease of $51.4 million that resulted exclusively from the timing of MTM
adjustments for NYMEX positions used to economically hedge the partnership's
commodity-related activities. Transportation and terminals margin for this
segment increased $8.6 million between periods.

Transportation and terminals revenues increased between periods primarily due
to a 19% increase in transportation volumes, driven by significantly increased
crude oil and gasoline shipments. Crude volumes increased 53% resulting from
deliveries to additional locations that are now connected to the partnership's
pipeline system and increased deliveries to existing customers. Gasoline
shipments increased 28% primarily attributable to higher volumes on the
partnership's South Texas pipeline segments as well as higher consumer demand
in the markets served by its pipeline system. The average tariff rate
decreased slightly as the 8.6% rate increase implemented on July 1, 2012 was
offset by more crude oil and South Texas gasoline movements, which ship at a
lower rate than the partnership's other pipeline shipments.

Operating expenses increased between periods primarily due to additional asset
integrity work, higher property taxes, more losses on various asset
retirements and replacements and increased environmental remediation accruals
for historical releases. These items were partially offset by higher product
overages (which reduce operating expenses) in the current period.

Product margin (defined as product sales revenues less product purchases)
decreased $59.8 million between periods primarily due to timing of MTM
adjustments for open NYMEX hedges. Significant MTM losses were recorded in the
third quarter of 2012 due to an increasing commodity price environment
compared to significant MTM gains in the third quarter of 2011, resulting in a
$60.3 million unfavorable variance associated with the timing of MTM
adjustments for NYMEX hedges 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 slightly between periods as higher blending profits offset
lower fractionation and linefill management profits.

Petroleum terminals. Terminals operating margin was $36.1 million, a decrease
of $4.2 million. Revenues in the current period benefited primarily 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 increased due to more asset integrity work, higher
personnel costs and an environmental accrual in the current period related to
a historical acquisition. Product margin increased slightly due to the sale of
additional product overages in the current period.

Ammonia pipeline system. Ammonia operating margin was $4 million, an increase
of $5.7 million. Revenues increased due to more volume transported at a higher
average tariff during the 2012 period, and expenses decreased because of lower
asset integrity costs now that the pipeline's hydrostatic testing is complete.

Other items. Depreciation and amortization increased due to recent expansion
capital expenditures, and G&A expenses increased primarily due to enhanced
payout expectations for annual bonus and equity-based incentive compensation
programs due to the partnership's better-than-expected financial results in
2012. Net interest expense also increased in the current quarter as a result
of additional borrowings due to the partnership's Aug. 2011 debt offering to
fund capital spending and higher commitment fees on the partnership's
revolving credit facility. As of Sept. 30, 2012, the partnership had $2.1
billion of debt outstanding and $100 million of cash on hand.

Financial guidance for 2012

Management is raising its 2012 DCF guidance by $5 million to approximately
$525 million and remains committed to its goal of increasing cash
distributions by 18% for 2012 and an additional 10% for 2013. Including actual
results through Sept. 30, 2012, net income per limited partner unit is
estimated to be $1.93 for 2012, resulting in fourth-quarter guidance of 68
cents. Guidance excludes future NYMEX MTM adjustments on the partnership's
commodity-related activities.

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 currently plans to spend
approximately $450 million during 2012 with an additional $280 million of
spending in 2013 to complete these projects.

The partnership completed construction of 1.2 million barrels of new refined
products storage at its Galena Park, Texas marine terminal during late Oct., a
portion of which is jointly owned with a third party. Construction of an
additional 0.6 million barrels of storage at Galena Park is expected to come
online during early 2013.

Magellan's Crane-to-Houston pipeline project remains on schedule to begin
transporting crude oil at partial capacity in early 2013, increasing to its
full 225,000 barrel-per-day capacity during mid-2013. The Double Eagle joint
venture is also proceeding and expected to be partially operational in early
2013, with full operation expected in mid-2013.

Magellan and Occidental Petroleum remain in advanced discussions regarding the
potential BridgeTex pipeline. As currently contemplated, Magellan would own
50% of the joint project, with its share of the project cost expected to be
approximately $600 million. A final decision will be made on the BridgeTex
pipeline pending completion of definitive agreements, and the related spending
has been excluded from the partnership's estimates at this time, accordingly.

In addition, the partnership continues to evaluate more than $500 million of
other potential growth projects in earlier stages of development, which also
have been excluded from its spending estimates.

Earnings call details

An analyst call with management regarding third-quarter results and outlook
for the remainder of 2012 is scheduled today at 1:30 p.m. Eastern. To
participate, dial (888) 329-8893 and provide code 6471308. 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 6471308. 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 MTM gains and losses associated with these NYMEX
contracts. Because the third-quarter 2011 financial results were significantly
impacted by MTM gains and third-quarter 2012 results were significantly
impacted by MTM losses, management believes a comparison of the partnership's
operating results between periods adjusted for these MTM gains / losses is
appropriate in evaluating the partnership's financial results for the current
period. A reconciliation of actual results to those excluding these
adjustments is provided for comparability. 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 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.

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 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 and 10-Q. 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,
                                2011        2012        2011        2012
Transportation and terminals    $ 232,064   $ 255,492   $ 660,664   $ 721,807
revenues
Product sales revenues          203,253     70,178      600,492     546,476
Affiliate management fee        193         199         578         596
revenue
Total revenues                  435,510     325,869     1,261,734   1,268,879
Costs and expenses:
Operating                       89,458      103,272     233,142     254,050
Product purchases               159,550     85,819      489,616     478,929
Depreciation and amortization   30,234      31,692      90,261      94,688
General and administrative      20,470      27,551      70,341      76,709
Total costs and expenses        299,712     248,334     883,360     904,376
Equity earnings                 1,955       1,749       4,765       4,875
Operating profit                137,753     79,284      383,139     369,378
Interest expense                27,332      29,113      79,806      87,354
Interest income                 (11)        (16)        (22)        (80)
Interest capitalized            (665)       (1,439)     (2,526)     (3,331)
Debt placement fee amortization 410         519         1,180       1,556
expense
Income before provision for     110,687     51,107      304,701     283,879
income taxes
Provision for income taxes      447         585         1,397       2,012
Net income                      $ 110,240   $ 50,522    $ 303,304   $ 281,867
Allocation of net income
(loss):
Limited partners' interest      $ 110,240   $ 50,522    $ 303,367   $ 281,867
Non-controlling owners'         —           —           (63)        —
interest
Net income                      $ 110,240   $ 50,522    $ 303,304   $ 281,867
Basic and diluted net income    $ 0.49      $ 0.22      $ 1.34      $ 1.25
per limited partner unit
Weighted average number of
limited partner units
outstanding used for basic and  225,728     226,431     225,649     226,348
diluted net income per unit
calculation

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING STATISTICS
                                        Three Months Ended  Nine Months Ended
                                        September 30,       September 30,
                                        2011      2012      2011      2012
Petroleum pipeline system:
Transportation revenue per barrel       $ 1.118   $ 1.088   $ 1.088   $ 1.091
shipped
Volume shipped (million barrels):
Refined products:
Gasoline                                48.4      61.8      153.1     163.8
Distillates                             36.5      36.5      99.0      99.9
Aviation fuel                           7.5       5.9       20.3      16.7
Liquefied petroleum gases               1.4       3.2       4.5       7.9
Crude oil                               12.6      19.3      29.8      51.4
Total volume shipped                    106.4     126.7     306.7     339.7
Petroleum terminals:
Storage terminal average utilization    33.1      34.3      31.4      34.6
(million barrels per month)
Inland terminal throughput (million     29.4      29.7      86.3      87.7
barrels)
Ammonia pipeline system:
Volume shipped (thousand tons)          134       210       546       592

MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
(Unaudited, in thousands)
                    Three Months Ended              Nine Months Ended
                    September 30,                   September 30,
                    2011            2012            2011            2012
Petroleum pipeline
system:
Transportation and  $  167,500      $  185,575      $  472,730      $ 513,062
terminals revenues
Less: Operating     61,075          70,526          150,522         173,457
expenses
Transportation and  106,425         115,049         322,208         339,605
terminals margin
Product sales       197,932         63,065          577,811         522,362
revenues
Less: Product       157,356         82,335          483,369         468,026
purchases
Product margin      40,576          (19,270)        94,442          54,336
Add: Affiliate
management fee      193             199             578             596
revenue
Equity earnings     1,954           1,756           4,764           4,919
Operating margin    $  149,148      $  97,734       $  421,992      $ 399,456
Petroleum
terminals:
Transportation and  $  60,621       $  62,961       $  172,811      $ 190,194
terminals revenues
Less: Operating     22,780          29,777          71,403          74,399
expenses
Transportation and  37,841          33,184          101,408         115,795
terminals margin
Product sales       5,887           7,114           23,445          24,578
revenues
Less: Product       3,461           4,191           9,319           13,486
purchases
Product margin      2,426           2,923           14,126          11,092
Equity earnings     1               (7)             1               (44)
Operating margin    $  40,268       $  36,100       $  115,535      $ 126,843
Ammonia pipeline
system:
Transportation and  $  4,644        $  7,662        $  17,431       $ 20,670
terminals revenues
Less: Operating     6,349           3,667           13,406          8,296
expenses
Operating margin    $  (1,705)      $  3,995        $  4,025        $ 12,374
Segment operating   $  187,711      $  137,829      $  541,552      $ 538,673
margin
Add: Allocated
corporate           746             698             2,189           2,102
depreciation costs
Total operating     188,457         138,527         543,741         540,775
margin
Less:
Depreciation and
amortization        30,234          31,692          90,261          94,688
expense
General and
administrative      20,470          27,551          70,341          76,709
expense
Total operating     $  137,753      $  79,284       $  383,139      $ 369,378
profit
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 OPERATING PROFIT, NET INCOME AND NET INCOME PER LIMITED
PARTNER UNIT
EXCLUDING MARK-TO-MARKET COMMODITY-RELATED PRICING ADJUSTMENTS
TO GAAP MEASURE
(Unaudited, in thousands except per unit amounts)
                                                        Three Months Ended
                                                        September 30,
                                                        2011        2012
Operating profit, as reported                           $ 137,753   $ 79,284
Commodity-related adjustments:*
Derivative losses/(gains) recognized in the period      (24,098)    33,562
associated with future product transactions
Derivative losses recognized in previous periods        (13,675)    238
associated with product sales completed in the period
Lower-of-cost-or-market adjustments                     2,984       (4,106)
Houston-to-El Paso cost of sales adjustments            4,301       106
Operating profit, excluding commodity-related           $ 107,265   $ 109,084
adjustments

                              Three Months Ended        Three Months Ended
                              September 30, 2011        September 30, 2012
                                                                    Basic and
                                          Basic and                 Diluted
                                          Diluted Net               Net Income
                              Net Income  Income Per    Net Income  Per
                                          Limited                   Limited
                                          Partner Unit              Partner
                                                                    Unit
Net income, as reported       $ 110,240   $   0.49      $  50,522   $  0.22
Commodity-related
adjustments:*
Derivative losses/(gains)
recognized in the period      (24,098)    (0.11)        33,562      0.15
associated with future
product transactions
Derivative losses recognized
in previous periods           (13,675)    (0.06)        238         —
associated with product sales
completed in the period
Lower-of-cost-or-market       2,984       0.01          (4,106)     (0.02)
adjustments
Houston-to-El Paso cost of    4,301       0.02          106         —
sales adjustments
Excluding commodity-related   $ 79,752    $   0.35      $  80,322   $  0.35
adjustments
Weighted average number of
limited partner units
outstanding used for basic    225,728                   226,431
and diluted net income per
unit calculation
*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,           2012
                        2011        2012        2011        2012        Guidance
Net income              $ 110,240   $ 50,522    $ 303,304   $ 281,867   $ 437,000
Interest expense, net   26,656      27,658      77,258      83,943      110,000
Depreciation and        30,644      32,211      91,441      96,244      130,000
amortization ^(1)
Equity-based incentive  2,719       5,548       4,319       (443)       5,000
compensation ^(2)
Asset retirements and   423         3,216       7,529       10,575      11,000
impairments
Commodity-related
adjustments:
Derivative
losses/(gains)
recognized in the       (24,098)    33,562      (25,318)    18,409
period associated with
future product
transactions ^(3)
Derivative losses
recognized in previous
periods associated with (13,675)    238         (15,697)    (6,681)
product sales completed
in the period ^ (4)
Lower-of-cost-or-market 2,984       (4,106)     2,984       (1,017)
adjustments
Houston-to-El Paso cost
of sales                4,301       106         386         8,227
adjustments^(5)
Total commodity-related (30,488)    29,800      (37,645)    18,938      6,000
adjustments
Other                   (651)       (92)        (1,390)     437         1,000
Adjusted EBITDA         139,543     148,863     444,816     491,561     700,000
Interest expense, net   (26,656)    (27,658)    (77,258)    (83,943)    (110,000)
Maintenance capital     (18,915)    (20,484)    (38,285)    (47,194)    (65,000)
Distributable cash flow $ 93,972    $ 100,721   $ 329,273   $ 360,424   $ 525,000
Distributable cash flow
per limited partner     $ 0.42      $ 0.45      $ 1.46      $ 1.59      $ 2.32
unit
Weighted average number
of limited partner      225,474     226,201     225,474     226,201     226,201
units paid
distributions

^(1) Depreciation and amortization includes debt placement fee amortization.
      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
^(2) September 30, 2011 and 2012 was $11.7 million and $12.6 million,
      respectively. However, the figures above include an adjustment for
      minimum statutory tax withholdings paid by the partnership in 2011 and
      2012 of $7.4 million and $13.0 million, respectively, for equity-based
      incentive compensation units that vested on the previous year end, which
      reduce distributable cash flow.
      Certain derivatives the partnership uses as economic hedges have not
      been designated as hedges for accounting purposes and the mark-to-market
^(3) 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.
      When the partnership physically sells products that it has economically
^(4) 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.
      Cost of goods sold adjustment related to commodity activities for the
      partnership's Houston-to-El Paso pipeline to more closely resemble
^(5) current market prices for distributable cash flow purposes rather than
      average inventory costing as used to determine the partnership's results
      of operations.







SOURCE Magellan Midstream Partners, L.P.

Website: http://www.magellanlp.com
 
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