Magellan Midstream Reports First-Quarter Financial Results, Increases Distributable Cash Flow Guidance for 2013

    Magellan Midstream Reports First-Quarter Financial Results, Increases
                  Distributable Cash Flow Guidance for 2013

PR Newswire

TULSA, Okla., May 2, 2013

TULSA, Okla., May 2, 2013 /PRNewswire/ -- Magellan Midstream Partners, L.P.
(NYSE: MMP) today reported operating profit of $142.5 million for first
quarter 2013 compared to $122.8 million for first quarter 2012. Net income was
$113.0 million for first quarter 2013 compared to $93.5 million for first
quarter 2012.

Diluted net income per limited partner unit was 50 cents in first quarter 2013
versus 41 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
51 cents for first quarter 2013 was higher than the 45-cent guidance provided
by management in early Feb. due to stronger refined products transportation
volumes and additional product overages.

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 $123.9 million for first quarter 2013 compared to $125.7
million during first quarter 2012.

"Magellan started the year 2013 with solid results, exceeding our initial
expectations for the first quarter and generating positive momentum for the
remainder of the year," said Michael Mears, chief executive officer. "Further,
we continue to make significant strides to develop Magellan's growing crude
oil transportation and storage profile. So far this year, we have announced
plans to add crude oil capabilities to our Galena Park, Texas marine terminal
and during mid-April, reached our milestone to begin crude oil deliveries into
Houston via our Longhorn pipeline, currently at partial capacity but with full
capabilities still expected later this year. Each of these strategic steps
builds upon the growth platform we have created for Magellan's future.

"If these favorable trends continue and the timing of our growth projects
proceeds as projected, we will consider increasing our 2013 distributions
beyond the 10% annual guidance provided earlier this year."

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 comparing first quarter 2013 to
first quarter 2012 for each of these new segments 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 $160.2 million, an increase of
$34.7 million. Transportation and terminals revenues increased between periods
primarily due to a 13% increase in transportation volumes and the
partnership's mid-2012 tariff increase. Significantly higher gasoline and
distillate shipments resulted from stronger demand in the markets served by
the partnership, in part due to the seasonal reversal of a portion of the
partnership's Oklahoma system in 2013, which allowed deliveries south into
Texas markets historically served from the Gulf Coast, and an incentive tariff
implemented for the partnership's South Texas pipeline. The average tariff
rate declined between periods as the benefit from the 8.6% tariff increase
implemented on July 1, 2012 was more than offset by additional short-haul
movements in part due to higher South Texas volumes, which ship at a lower
rate than the partnership's other pipeline shipments.

Operating expenses decreased between periods primarily due to more favorable
product overages (which reduce operating expenses) as well as lower
environmental accruals in first quarter 2013.

Product margin (a non-GAAP measure defined as product sales revenues less
product purchases) increased $16.1 million between periods primarily resulting
from a $21.3 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, decreased between
periods primarily due to timing of sales for the partnership's butane blending
activities and a lower average sales margin.

Crude oil. Crude operating margin was $22.7 million, a decline of $1.3
million. Revenues increased due to joint venture management fees and increased
crude oil transportation volumes and rates on the partnership's Houston-area
distribution system. Operating expenses increased due to higher integrity
spending and less favorable product overages, which reduce expenses.

Marine storage. Marine operating margin was $25.3 million, a decrease of $2.6
million. Revenues were essentially flat between periods as storage fees from
newly-constructed tanks at the partnership's Galena Park, Texas terminal
offset lower overall utilization due in part to timing of tank maintenance
work. Expenses increased due to additional integrity costs and an insurance
reimbursement received in first quarter 2012 for historical hurricane-related
damage, with no such item benefitting first-quarter 2013 results. Product
margin declined due to the sale of additional overages in the 2012 period.

Other items. Depreciation and amortization increased primarily due to recent
expansion capital expenditures and the one-time amortization of an intangible
asset, and G&A expenses increased primarily due to additional personnel and
higher expenses resulting from the partnership's increasing unit price that
impacts equity-based incentive compensation and deferred board of director
expense. 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 March 31, 2013, the partnership had $2.4 billion
of debt outstanding and $221 million of cash on hand.

Expansion projects

Magellan continues to make significant progress on its current slate of
expansion projects. The Longhorn pipeline successfully began deliveries of
crude oil to the Houston market beginning mid-April. Management expects the
delivery rate to average approximately 90,000 barrels per day (bpd) from
mid-April through the second quarter, ramping to its full 225,000-bpd capacity
in the third quarter of 2013.

The Double Eagle joint venture is in the process of filling the condensate
pipeline for initial deliveries from Three Rivers to Corpus Christi, Texas
this month, with full operation expected in the third quarter of 2013.
Further, the BridgeTex pipeline joint venture continues to target an
operational date of mid-2014, with right-of-way, permitting and tank
construction activities underway.

During Feb. 2013, the partnership announced plans to acquire approximately 800
miles of refined products pipeline for $190 million and is currently awaiting
regulatory approval to complete this transaction.

The partnership currently plans to spend approximately $900 million during
2013 with an additional $320 million of spending in 2014 to complete its
current slate of growth projects and pending pipeline acquisition.

The partnership also continues to evaluate more than $500 million of potential
growth projects in earlier stages of development as well as possible
acquisitions, 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 $580 million.
Management remains committed to its goal of increasing annual cash
distributions by at least 10% for 2013 with the potential for even higher
distribution growth this year if favorable business trends continue and growth
projects are placed into service as currently projected. Further, management
still projects at least 10% annual distribution growth for 2014.

Including actual results for first quarter, net income per limited partner
unit is estimated to be $2.25 for 2013, with second-quarter guidance of 52
cents. Guidance excludes future NYMEX MTM adjustments on the partnership's
commodity-related activities and expected financial results from the pending
pipeline acquisition.

Earnings call details

An analyst call with management regarding first-quarter results and outlook
for the remainder of 2013 is scheduled today at 1:30 p.m. Eastern. To
participate, dial (888) 427-9411 and provide code 1399345. 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 1399345. 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 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 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 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 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 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 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, 2012 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.



MAGELLAN MIDSTREAM PARTNERS, L.P
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
                                                        Three Months Ended
                                                        March 31,
                                                        2012        2013
Transportation and terminals revenues                   $ 217,554   $ 227,271
Product sales revenues                                  275,730     201,711
Affiliate management fee revenue                        199         3,439
Total revenues                                          493,483     432,421
Costs and expenses:
Operating                                               68,452      65,181
Product purchases                                       248,612     160,398
Depreciation and amortization                           31,510      36,332
General and administrative                              23,744      30,056
Total costs and expenses                                372,318     291,967
Earnings of non-controlled entities                     1,648       2,051
Operating profit                                        122,813     142,505
Interest expense                                        29,123      31,723
Interest income                                         (35)        (22)
Interest capitalized                                    (864)       (3,451)
Debt placement fee amortization expense                 519         540
Income before provision for income taxes                94,070      113,715
Provision for income taxes                              546         748
Net income                                              $ 93,524    $ 112,967
Basic and diluted net income per limited partner unit   $ 0.41      $ 0.50
Weighted average number of limited partner units
outstanding used for basic and diluted net income per   226,182     226,705
unit calculation



MAGELLAN MIDSTREAM PARTNERS, L.P
OPERATING STATISTICS
                                                            Three Months Ended
                                                            March 31,
                                                            2012      2013
Refined products:
Transportation revenue per barrel shipped                   $ 1.197   $ 1.136
Volume shipped (million barrels):
Refined products:
Gasoline                                                    45.9      53.6
Distillates                                                 29.8      33.8
Aviation fuel                                               5.6       4.5
Liquefied petroleum gases                                   1.0       1.1
Total volume shipped                                        82.3      93.0
Crude oil:
Transportation revenue per barrel shipped                   $ 0.276   $ 0.313
Volume shipped (million barrels)                            14.9      15.9
Crude oil terminal average utilization (million barrels per 12.6      12.8
month)
Marine storage:
Marine terminal average utilization (million barrels per    24.1      22.7
month)



MAGELLAN MIDSTREAM PARTNERS, L.P.
OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
(Unaudited, in thousands)
                                            Three Months Ended
                                            March 31,
                                            2012        2013
Refined products:
Transportation and terminals revenues       $ 157,670   $ 165,359
Less: Operating expenses                    57,206      46,281
Transportation and terminals margin         100,464     119,078
Product sales revenues                      272,818     199,415
Less: Product purchases                     247,836     158,298
Product margin                              24,982      41,117
Operating margin                            $ 125,446   $ 160,195
Crude oil:
Transportation and terminals revenues       $ 21,213    $ 23,228
Less: Operating expenses (credit)           (897)       5,107
Transportation and terminals margin         22,110      18,121
Affiliate management fee revenue            199         3,159
Earnings of non-controlled entities         1,668       1,375
Operating margin                            $ 23,977    $ 22,655
Marine storage:
Transportation and terminals revenues       $ 38,671    $ 38,684
Less: Operating expenses                    12,877      14,553
Transportation and terminals margin         25,794      24,131
Product sales revenues                      2,912       2,296
Less: Product purchases                    776         2,100
Product margin                              2,136       196
Affiliate management fee revenue            —           280
Earnings (loss) of non-controlled entities  (20)        676
Operating margin                            $ 27,910    $ 25,283
Segment operating margin                    $ 177,333   $ 208,133
Add: Allocated corporate depreciation costs 734         760
Total operating margin                      178,067     208,893
Less:
Depreciation and amortization expense       31,510      36,332
General and administrative expense          23,744      30,056
Total operating profit                      $ 122,813   $ 142,505



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
                                      March 31, 2013
                                      Net Income  Basic and Diluted Net Income
                                                  Per Limited Partner Unit
As reported                           $ 112,967   $        0.50
Add: Unrealized derivative losses
associated with future physical       2,261       0.01
product transactions
Excluding commodity-related           $ 115,228   $        0.51
adjustments
Weighted average number of limited
partner units outstanding used for    226,705
basic 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
                                            March 31,               2013
                                            2012        2013        Guidance
Net income                                  $ 93,524    $ 112,967   $ 510,000
Interest expense, net                       28,224      28,250      120,000
Depreciation and amortization^(1)           32,029      36,872      150,000
Equity-based incentive compensation^(2)     (10,156)    (7,403)     7,000
Asset retirements and impairments           5,407       1,791       7,000
Commodity-related adjustments:
Derivative losses/(gains) recognized in the
period associated with future product       13,162      2,261
transactions^(3)
Derivative gains (losses) recognized in
previous periods associated with product    3,163       (5,195)
sales completed in the period ^ (4)
Lower-of-cost-or-market adjustments         (1,017)     (2,000)
Houston-to-El Paso cost of sales            1,039       —
adjustments^(5)
Total commodity-related adjustments         16,347      (4,934)     (10,000)
Other                                       520         (1,279)     (9,000)
Adjusted EBITDA                             165,895     166,264     775,000
Interest expense, net                       (28,224)    (28,250)    (120,000)
Maintenance capital                         (11,958)    (14,108)    (75,000)
Distributable cash flow                     $ 125,713   $ 123,906   $ 580,000
Distributable cash flow per limited partner $ 0.56      $ 0.55      $ 2.56
unit
Weighted average number of limited partner  226,200     226,679     226,679
units paid distributions



^(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 three months ended March 31, 2012 and
2013 was $2.8 million and $4.9 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 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.

Contact: Paula Farrell
         (918) 574-7650
         paula.farrell@magellanlp.com

SOURCE Magellan Midstream Partners, L.P.

Website: http://www.magellanlp.com
 
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