UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM 10-Q
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20202021
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.: 1-16335
__________________________________
Magellan Midstream Partners, L.P.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Delaware | | 73-1599053 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification No.) |
One Williams Center, P.O. Box 22186, Tulsa, Oklahoma 74121-2186
(Address of principal executive offices and zip code)
(918) 574-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Units | | MMP | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ☐ Non-accelerated filer ☐
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
As of October 29, 2020,November 1, 2021, there were 223,700,943213,445,238 common units outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
| ITEM 1. | ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS | | ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS | |
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| | | | | CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL | |
| | CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL | | | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: | |
| | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS: | | | 1. | | | |
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ITEM 2. | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
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ITEM 3. | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | | ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | |
ITEM 4. | ITEM 4. | CONTROLS AND PROCEDURES | | ITEM 4. | CONTROLS AND PROCEDURES | |
PART II OTHER INFORMATION | PART II OTHER INFORMATION | PART II OTHER INFORMATION |
ITEM 1. | ITEM 1. | | | ITEM 1. | | |
ITEM 1A. | ITEM 1A. | | | ITEM 1A. | | |
ITEM 2. | ITEM 2. | | | ITEM 2. | | |
ITEM 3. | ITEM 3. | | | ITEM 3. | | |
ITEM 4. | ITEM 4. | | | ITEM 4. | | |
ITEM 5. | ITEM 5. | | | ITEM 5. | | |
ITEM 6. | ITEM 6. | | | ITEM 6. | | |
INDEX TO EXHIBITS | INDEX TO EXHIBITS | | INDEX TO EXHIBITS | |
SIGNATURES | SIGNATURES | | SIGNATURES | |
Forward-Looking Statements
Except for statements of historical fact, all statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words like “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “plans,” “potential,” “projected,” “scheduled,” “should,” “will” and other similar expressions. The absence of such words or expressions does not necessarily mean the statements are not forward-looking. Although we believe our forward-looking statements are reasonable, statements made regarding future results are not guarantees of future performance and are subject to numerous assumptions, uncertainties and risks that are difficult to predict, including those described in Part II, Item 1A – Risk Factors of this Quarterly Report on Form 10-Q. Actual outcomes and results may be materially different from the results stated or implied in such forward-looking statements included in this report. You should not put any undue reliance on any forward-looking statement.
The following are among the important factors that could cause future results to differ materially from any expected, projected, forecasted, estimated or budgeted amounts, events or circumstances we have discussed in this report:
•changes in overall demand for refined products, crude oil and liquefied petroleum gases;
•price fluctuations for refined products, crude oil and liquefied petroleum gases and expectations about future prices for these products;
•changes in the production of crude oil in the basins served by our pipelines;
•changes in general economic conditions, interest ratesincluding market and price levels;macro-economic disruptions resulting from pandemics and related governmental responses;
•changes in the financial condition of our customers, vendors, derivatives counterparties, lenders or joint venture co-owners;
•our ability to secure financing in the credit and capital markets in amounts and on terms that will allow us to execute our business strategy, refinance our existing obligations when due and maintain adequate liquidity;
•development and increasing use of alternative energy sources, including but not limited to natural gas, solar power, wind power, electric and battery-powered engines and geothermal energy, increased use of biofuelsrenewable fuels such as ethanol, biodiesel and renewable diesel, increased conservation or fuel efficiency, increased use of electric vehicles, as well as regulatory developments, technological developments or other trends that could affect demand for our services;
•changes in population in the markets served by our refined products pipeline system and changes in consumer preferences, driving patterns or rates of automobile ownership;
•changes in the product quality, throughput or interruption in service of refined products or crude oil pipelines owned and operated by third parties and connected to our assets;
•changes in demand for transportation orand storage in ourof refined products orand crude oil segments;services we provide;
•changes in supply and demand patterns for our facilities due to geopolitical events, the activities of the Organization of the Petroleum Exporting Countries (“OPEC”) and other non-OPEC oil producing countries with large production capacity, changes in U.S. trade policies or in laws governing the importing and exporting of petroleum products, technological developments or other factors;products;
•our ability to manage interest rate and commodity price exposures;
•changes in our tariff rates or other terms of service implementedrequired by the Federal Energy Regulatory Commission or state regulatory agencies;
•shut-downs or cutbacks at refineries, oil wells,fields, petrochemical plants or other customers or businesses that use or supply our services;
•the effect of weather patterns and other natural phenomena, including climate change, on our operations and demand for our services;
•an increase in the competition our operations encounter, including the effects of capacity over-build in the areas where we operate;
•the occurrence of natural disasters, epidemics, terrorism, sabotage, protests or activism, operational hazards, equipment failures, system failures or unforeseen interruptions;
•changes in general economic conditions, including market and macro-economic disruptions resulting from the COVID-19 pandemic and related governmental responses;
•our ability to obtain adequate levels of insurance at a reasonable cost, and the potential for losses to exceed the insurance coverage we do obtain;
•the treatment of us as a corporation for federal or state income tax purposes or if we become subject to significant forms of other taxation or more aggressive enforcementinterpretation or increased assessments under existing forms of taxation;
•our ability to identify expansion projects, accretive acquisitions and joint ventures with acceptable expected returns orand to complete identified expansionthese projects on time and at projected costs;
•our ability to make and integrate accretive acquisitions and joint ventures and successfully execute our business strategy;capital allocation priorities including unit repurchases with acceptable expected returns;
•the effect of changes in accounting policies and uncertainty of estimates, including accruals and costs of environmental remediation;
•our ability to cooperate with and rely on our joint venture co-owners;
•actions by rating agencies concerning our credit ratings;
•our ability to timely obtain and maintain all necessary approvals, consents and permits required to operate our existing assets and to construct, acquire and operate any new or modified assets;
•our ability to promptly obtain all necessary services, materials, labor, supplies and rights-of-way required for maintenance and operation of our current assets and construction of our growth projects, without significant delays, disputes or cost overruns;
•risks inherent in the use and security of information systems in our business and implementation of new software and hardware;
•changes in laws and regulations or the interpretations of such laws that govern our gas liquids blending activities including the potential applicability of the Carmack Amendment, which broadly covers claims for damage or loss incurred to goods transported by a carrier in interstate commerce, to such activities, or changes regarding product quality specifications or renewable fuel obligations that impact our ability to produce gasoline volumes through our gas liquids blending activities or that require significant capital outlays for compliance;
•changes in laws and regulations to which we or our customers are or could become subject, including tax withholding requirements, safety, security, employment, hydraulic fracturing, derivatives transactions, trade and environmental, laws and regulations, including laws and regulations designed to address climate change;
•the cost and effects of legal and administrative claims and proceedings against us, our subsidiaries or our joint ventures;
•the amount of our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;
•the effect of changes in accounting policies;
•the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful;
•the ability and intent of our customers, vendors, lenders, joint venture co-owners or other third parties to perform their contractual obligations to us;
•petroleum product supply disruptions;
•global and domestic repercussions from terrorist activities, including cyberattacks, and the government’s response thereto; and
•other factors and uncertainties inherent in the transportation, storage and distribution of petroleum products and the operation, acquisition and construction of assets related to such activities.
This list of important factors is not exhaustive. The forward-looking statements in this Quarterly Report speak only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions or otherwise, unless required by law.
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per unit amounts)
(Unaudited)
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2019 | | 2020 | | 2019 | | 2020 |
Transportation and terminals revenue | $ | 506,432 | | | $ | 473,531 | | | $ | 1,473,629 | | | $ | 1,343,741 | |
Product sales revenue | 144,807 | | | 119,445 | | | 497,791 | | | 481,842 | |
Affiliate management fee revenue | 5,357 | | | 5,288 | | | 15,810 | | | 15,895 | |
Total revenue | 656,596 | | | 598,264 | | | 1,987,230 | | | 1,841,478 | |
Costs and expenses: | | | | | | | |
Operating | 169,387 | | | 161,982 | | | 484,341 | | | 457,597 | |
Cost of product sales | 108,757 | | | 96,119 | | | 430,727 | | | 395,864 | |
Depreciation, amortization and impairment | 56,627 | | | 71,822 | | | 181,028 | | | 193,896 | |
General and administrative | 51,156 | | | 38,016 | | | 149,534 | | | 117,092 | |
Total costs and expenses | 385,927 | | | 367,939 | | | 1,245,630 | | | 1,164,449 | |
Other operating income (expense) | (379) | | | (2,863) | | | 1,538 | | | 539 | |
Earnings of non-controlled entities | 50,189 | | | 39,135 | | | 122,229 | | | 116,484 | |
Operating profit | 320,479 | | | 266,597 | | | 865,367 | | | 794,052 | |
Interest expense | 53,750 | | | 54,212 | | | 165,322 | | | 179,371 | |
Interest capitalized | (5,831) | | | (1,272) | | | (14,419) | | | (10,451) | |
Interest income | (648) | | | (260) | | | (2,646) | | | (903) | |
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Gain on disposition of assets | (2,532) | | | 0 | | | (28,966) | | | (12,887) | |
Other (income) expense | 2,602 | | | 1,455 | | | 9,222 | | | 3,708 | |
Income before provision for income taxes | 273,138 | | | 212,462 | | | 736,854 | | | 635,214 | |
Provision for income taxes | 100 | | | 824 | | | 2,450 | | | 2,169 | |
Net income | $ | 273,038 | | | $ | 211,638 | | | $ | 734,404 | | | $ | 633,045 | |
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Basic net income per common unit | $ | 1.19 | | | $ | 0.94 | | | $ | 3.21 | | | $ | 2.80 | |
Diluted net income per common unit | $ | 1.19 | | | $ | 0.94 | | | $ | 3.21 | | | $ | 2.80 | |
Weighted average number of common units outstanding used for basic net income per unit calculation | 228,720 | | | 225,222 | | | 228,642 | | | 226,045 | |
Weighted average number of common units outstanding used for diluted net income per unit calculation | 228,754 | | | 225,222 | | | 228,667 | | | 226,045 | |
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| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2020 | | 2021 | | 2020 | | 2021 |
Transportation and terminals revenue | $ | 459,940 | | | $ | 464,910 | | | $ | 1,305,217 | | | $ | 1,332,271 | |
Product sales revenue | 111,220 | | | 168,815 | | | 443,127 | | | 575,575 | |
Affiliate management fee revenue | 5,288 | | | 5,329 | | | 15,895 | | | 15,925 | |
Total revenue | 576,448 | | | 639,054 | | | 1,764,239 | | | 1,923,771 | |
Costs and expenses: | | | | | | | |
Operating | 157,716 | | | 146,556 | | | 446,102 | | | 422,907 | |
Cost of product sales | 89,375 | | | 145,855 | | | 364,916 | | | 488,614 | |
Depreciation, amortization and impairment | 68,439 | | | 61,401 | | | 183,226 | | | 168,304 | |
General and administrative | 37,497 | | | 46,632 | | | 115,480 | | | 148,671 | |
Total costs and expenses | 353,027 | | | 400,444 | | | 1,109,724 | | | 1,228,496 | |
Other operating income (expense) | (2,863) | | | 2,591 | | | 539 | | | 4,033 | |
Earnings of non-controlled entities | 39,135 | | | 36,466 | | | 116,484 | | | 116,107 | |
Operating profit | 259,693 | | | 277,667 | | | 771,538 | | | 815,415 | |
Interest expense | 54,212 | | | 57,016 | | | 179,371 | | | 170,976 | |
Interest capitalized | (1,272) | | | (315) | | | (10,451) | | | (1,240) | |
Interest income | (260) | | | (138) | | | (903) | | | (439) | |
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Gain on disposition of assets | — | | | (3,231) | | | (12,887) | | | (72,933) | |
Other (income) expense | 1,455 | | | 2,224 | | | 3,708 | | | 18,111 | |
Income from continuing operations before provision for income taxes | 205,558 | | | 222,111 | | | 612,700 | | | 700,940 | |
Provision for income taxes | 824 | | | 821 | | | 2,169 | | | 2,044 | |
Income from continuing operations | 204,734 | | | 221,290 | | | 610,531 | | | 698,896 | |
Income from discontinued operations | 6,904 | | | 15,309 | | | 22,514 | | | 39,438 | |
Net income | $ | 211,638 | | | $ | 236,599 | | | $ | 633,045 | | | $ | 738,334 | |
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Basic and diluted income from continuing operations per common unit | $ | 0.91 | | | $ | 1.01 | | | $ | 2.70 | | | $ | 3.15 | |
Basic and diluted income from discontinued operations per common unit | 0.03 | | | 0.07 | | | 0.10 | | | 0.18 | |
Basic and diluted net income per common unit | $ | 0.94 | | | $ | 1.08 | | | $ | 2.80 | | | $ | 3.33 | |
Weighted average number of common units outstanding used for basic net income per unit calculation | 225,222 | | | 218,637 | | | 226,045 | | | 221,637 | |
Weighted average number of common units outstanding used for diluted net income per unit calculation | 225,222 | | | 218,788 | | | 226,045 | | | 221,730 | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2020 | | 2019 | | 2020 | | 2020 | | 2021 | | 2020 | | 2021 |
Net income | Net income | $ | 273,038 | | | $ | 211,638 | | | $ | 734,404 | | | $ | 633,045 | | Net income | $ | 211,638 | | | $ | 236,599 | | | $ | 633,045 | | | $ | 738,334 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Derivative activity: | Derivative activity: | | Derivative activity: | |
Net loss on cash flow hedges | Net loss on cash flow hedges | (14,181) | | | 0 | | | (25,216) | | | (10,444) | | Net loss on cash flow hedges | — | | | — | | | (10,444) | | | — | |
Reclassification of net loss on cash flow hedges to income | Reclassification of net loss on cash flow hedges to income | 699 | | | 896 | | | 1,927 | | | 2,552 | | Reclassification of net loss on cash flow hedges to income | 896 | | | 887 | | | 2,552 | | | 2,662 | |
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income: | Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income: | | Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income: | |
Net actuarial loss | 0 | | | 0 | | | (10,913) | | | (333) | | |
Net actuarial gain (loss) | | Net actuarial gain (loss) | — | | | — | | | (333) | | | 10,801 | |
Curtailment gain | Curtailment gain | 0 | | | 0 | | | 0 | | | 1,703 | | Curtailment gain | — | | | — | | | 1,703 | | | — | |
| Recognition of prior service credit amortization in income | Recognition of prior service credit amortization in income | (46) | | | (46) | | | (136) | | | (136) | | Recognition of prior service credit amortization in income | (46) | | | (46) | | | (136) | | | (136) | |
Recognition of actuarial loss amortization in income | Recognition of actuarial loss amortization in income | 1,412 | | | 1,473 | | | 4,385 | | | 4,462 | | Recognition of actuarial loss amortization in income | 1,473 | | | 1,433 | | | 4,462 | | | 4,536 | |
Recognition of settlement cost in income | Recognition of settlement cost in income | 439 | | | 0 | | | 2,499 | | | 969 | | Recognition of settlement cost in income | — | | | 1,300 | | | 969 | | | 2,751 | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | (11,677) | | | 2,323 | | | (27,454) | | | (1,227) | | Total other comprehensive income (loss) | 2,323 | | | 3,574 | | | (1,227) | | | 20,614 | |
Comprehensive income | Comprehensive income | $ | 261,361 | | | $ | 213,961 | | | $ | 706,950 | | | $ | 631,818 | | Comprehensive income | $ | 213,961 | | | $ | 240,173 | | | $ | 631,818 | | | $ | 758,948 | |
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See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
| | | | | | | | | | | |
| December 31, 2019 | | September 30, 2020 |
ASSETS | | | (Unaudited) |
Current assets: | | | |
Cash and cash equivalents | $ | 58,030 | | | $ | 8,541 | |
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Trade accounts receivable | 125,440 | | | 109,051 | |
Other accounts receivable | 23,887 | | | 27,735 | |
Inventory | 184,399 | | | 129,033 | |
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Commodity derivatives deposits | 27,415 | | | 14,031 | |
Reimbursable costs | 7,878 | | | 17,065 | |
Other current assets | 32,359 | | | 35,787 | |
Total current assets | 459,408 | | | 341,243 | |
Property, plant and equipment | 8,431,227 | | | 8,319,400 | |
Less: accumulated depreciation | 2,027,193 | | | 2,036,351 | |
Net property, plant and equipment | 6,404,034 | | | 6,283,049 | |
Investments in non-controlled entities | 1,240,551 | | | 1,211,079 | |
Right-of-use asset, operating leases | 171,868 | | | 152,082 | |
Long-term receivables | 20,782 | | | 21,850 | |
Goodwill | 53,260 | | | 52,830 | |
Other intangibles (less accumulated amortization of $6,255 and $8,575 at December 31, 2019 and September 30, 2020, respectively) | 47,898 | | | 45,578 | |
Restricted cash | 26,569 | | | 11,792 | |
Other noncurrent assets | 13,359 | | | 20,693 | |
Total assets | $ | 8,437,729 | | | $ | 8,140,196 | |
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LIABILITIES AND PARTNERS’ CAPITAL | | | |
Current liabilities: | | | |
Accounts payable | $ | 150,992 | | | $ | 124,612 | |
Accrued payroll and benefits | 75,511 | | | 40,285 | |
Accrued interest payable | 64,276 | | | 49,501 | |
Accrued taxes other than income | 66,007 | | | 65,283 | |
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Deferred revenue | 109,654 | | | 92,227 | |
Accrued product liabilities | 90,788 | | | 79,388 | |
Commodity derivatives contracts, net | 10,222 | | | 2,888 | |
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Current portion of operating lease liability | 26,221 | | | 27,177 | |
| | | |
Other current liabilities | 73,205 | | | 50,258 | |
Total current liabilities | 666,876 | | | 531,619 | |
Long-term operating lease liability | 144,023 | | | 121,764 | |
Long-term debt, net | 4,706,075 | | | 4,900,311 | |
Long-term pension and benefits | 145,992 | | | 142,154 | |
Other noncurrent liabilities | 59,735 | | | 55,904 | |
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Commitments and contingencies | | | |
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Partners’ capital: | | | |
Common unitholders (228,403 units and 223,701 units outstanding at December 31, 2019 and September 30, 2020, respectively) | 2,877,105 | | | 2,551,748 | |
Accumulated other comprehensive loss | (162,077) | | | (163,304) | |
Total partners’ capital | 2,715,028 | | | 2,388,444 | |
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Total liabilities and partners’ capital | $ | 8,437,729 | | | $ | 8,140,196 | |
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| December 31, 2020 | | September 30, 2021 |
ASSETS | | | (Unaudited) |
Current assets: | | | |
Cash and cash equivalents | $ | 13,036 | | | $ | 12,593 | |
| | | |
Trade accounts receivable | 103,568 | | | 134,281 | |
Other accounts receivable | 37,075 | | | 33,735 | |
Inventory | 158,204 | | | 222,567 | |
Commodity derivatives contracts, net | — | | | 4,469 | |
Commodity derivatives deposits | 34,165 | | | 47,609 | |
| | | |
Assets held for sale | 15,059 | | | 299,304 | |
Other current assets | 44,086 | | | 44,738 | |
Total current assets | 405,193 | | | 799,296 | |
Property, plant and equipment | 7,943,760 | | | 8,021,353 | |
Less: accumulated depreciation | 1,956,926 | | | 2,088,990 | |
Net property, plant and equipment | 5,986,834 | | | 5,932,363 | |
Investments in non-controlled entities | 1,213,856 | | | 993,290 | |
Right-of-use asset, operating leases | 166,078 | | | 180,470 | |
Long-term receivables | 22,755 | | | 22,768 | |
Goodwill | 50,121 | | | 50,121 | |
Other intangibles (less accumulated amortization of $9,228 and $11,186 at December 31, 2020 and September 30, 2021, respectively) | 44,925 | | | 42,967 | |
Restricted cash | 9,411 | | | 7,847 | |
Noncurrent assets held for sale | 277,566 | | | — | |
Other noncurrent assets | 20,243 | | | 17,543 | |
Total assets | $ | 8,196,982 | | | $ | 8,046,665 | |
| | | |
LIABILITIES AND PARTNERS’ CAPITAL | | | |
Current liabilities: | | | |
Accounts payable | $ | 97,988 | | | $ | 129,088 | |
Accrued payroll and benefits | 52,055 | | | 63,321 | |
Accrued interest payable | 58,998 | | | 49,992 | |
Accrued taxes other than income | 67,710 | | | 68,740 | |
| | | |
Deferred revenue | 98,635 | | | 101,800 | |
Accrued product liabilities | 75,180 | | | 117,126 | |
Commodity derivatives contracts, net | 21,621 | | | 22,350 | |
| | | |
Current portion of operating lease liability | 27,533 | | | 25,618 | |
| | | |
Liabilities held for sale | 8,423 | | | 15,516 | |
Other current liabilities | 50,431 | | | 63,741 | |
Total current liabilities | 558,574 | | | 657,292 | |
Long-term debt, net | 4,978,691 | | | 5,103,226 | |
Long-term operating lease liability | 137,483 | | | 151,650 | |
Long-term pension and benefits | 163,776 | | | 151,922 | |
Long-term liabilities held for sale | 1,508 | | | — | |
Other noncurrent liabilities | 53,144 | | | 68,622 | |
| | | |
Commitments and contingencies | 0 | | 0 |
| | | |
Partners’ capital: | | | |
Common unitholders (223,120 units and 213,445 units outstanding at December 31, 2020 and September 30, 2021, respectively) | 2,486,996 | | | 2,076,529 | |
Accumulated other comprehensive loss | (183,190) | | | (162,576) | |
Total partners’ capital | 2,303,806 | | | 1,913,953 | |
| | | |
| | | |
Total liabilities and partners’ capital | $ | 8,196,982 | | | $ | 8,046,665 | |
| | | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
| 2019 | | 2020 |
Operating Activities: | | | |
Net income | $ | 734,404 | | | $ | 633,045 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation, amortization and impairment expense | 181,028 | | | 193,896 | |
Gain on sale and retirement of assets | (29,227) | | | (13,330) | |
Earnings of non-controlled entities | (122,229) | | | (116,484) | |
Distributions from operations of non-controlled entities | 138,140 | | | 152,645 | |
Equity-based incentive compensation expense | 22,577 | | | 5,580 | |
Settlement gain, amortization of prior service credit and actuarial loss | 6,748 | | | 3,953 | |
| | | |
| | | |
Debt prepayment costs | 8,270 | | | 12,893 | |
Changes in operating assets and liabilities: | | | |
| | | |
Trade accounts receivable and other accounts receivable | (24,954) | | | 8,253 | |
Inventory | (20,217) | | | 54,127 | |
| | | |
| | | |
Accounts payable | 29,014 | | | 9,040 | |
Accrued payroll and benefits | (13,599) | | | (35,226) | |
Accrued interest payable | (15,060) | | | (14,775) | |
Accrued taxes other than income | 10,282 | | | 1,101 | |
Accrued product liabilities | 33,402 | | | (11,400) | |
Deferred revenue | (13,233) | | | (17,427) | |
| | | |
| | | |
Other current and noncurrent assets and liabilities | (2,749) | | | (25,786) | |
Net cash provided by operating activities | 922,597 | | | 840,105 | |
Investing Activities: | | | |
Additions to property, plant and equipment, net(1) | (718,605) | | | (371,170) | |
| | | |
Proceeds from sale and disposition of assets | 65,574 | | | 334,583 | |
| | | |
| | | |
| | | |
Investments in non-controlled entities | (158,145) | | | (73,678) | |
Distributions from returns of investments in non-controlled entities | 7,500 | | | 0 | |
Deposits received from undivided joint interest third party | 68,928 | | | 0 | |
| | | |
Net cash used by investing activities | (734,748) | | | (110,265) | |
Financing Activities: | | | |
Distributions paid | (688,635) | | | (697,264) | |
Net commercial paper borrowings | 0 | | | 248,000 | |
| | | |
Borrowings under long-term notes | 996,405 | | | 499,400 | |
Payments on long-term notes | (550,000) | | | (550,000) | |
Debt placement costs | (12,012) | | | (4,255) | |
Net payment on financial derivatives | (33,342) | | | (10,444) | |
| | | |
Payments associated with settlement of equity-based incentive compensation | (9,764) | | | (14,700) | |
Debt prepayment costs | (8,270) | | | (12,893) | |
Repurchases of common units | 0 | | | (251,950) | |
| | | |
Net cash used by financing activities | (305,618) | | | (794,106) | |
Change in cash, cash equivalents and restricted cash | (117,769) | | | (64,266) | |
Cash, cash equivalents and restricted cash at beginning of period | 309,261 | | | 84,599 | |
Cash, cash equivalents and restricted cash at end of period | $ | 191,492 | | | $ | 20,333 | |
| | | |
Supplemental non-cash investing activities: | | | |
| | | |
| | | |
| | | |
(1) Additions to property, plant and equipment | $ | (775,109) | | | $ | (317,680) | |
Changes in accounts payable and other current liabilities related to capital expenditures | 56,504 | | | (53,490) | |
Additions to property, plant and equipment, net | $ | (718,605) | | | $ | (371,170) | |
| | | | | | | | | | | |
| Nine Months Ended |
| September 30, |
| 2020 | | 2021 |
Operating Activities: | | | |
Net income | $ | 633,045 | | | $ | 738,334 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Income from discontinued operations | (22,514) | | | (39,438) | |
Depreciation, amortization and impairment expense | 183,226 | | | 168,304 | |
Gain on disposition of assets | (13,330) | | | (72,933) | |
Earnings of non-controlled entities | (116,484) | | | (116,107) | |
Distributions from operations of non-controlled entities | 152,645 | | | 140,616 | |
Equity-based incentive compensation expense | 5,580 | | | 15,686 | |
Settlement cost, amortization of prior service credit and actuarial loss | 3,953 | | | 7,151 | |
| | | |
| | | |
Debt extinguishment costs | 12,893 | | | — | |
Changes in operating assets and liabilities: | | | |
| | | |
Trade accounts receivable and other accounts receivable | 8,954 | | | (24,245) | |
Inventory | 49,802 | | | (64,363) | |
| | | |
| | | |
Accounts payable | 9,056 | | | 23,405 | |
Accrued payroll and benefits | (34,239) | | | 11,266 | |
Accrued interest payable | (14,775) | | | (9,006) | |
| | | |
Accrued product liabilities | (8,352) | | | 41,946 | |
Deferred revenue | (17,342) | | | 3,165 | |
| | | |
| | | |
Other current and noncurrent assets and liabilities | (23,523) | | | 17,206 | |
Net cash provided by operating activities of continuing operations | 808,595 | | | 840,987 | |
Net cash provided by operating activities of discontinued operations | 31,510 | | | 38,090 | |
Net cash provided by operating activities | 840,105 | | | 879,077 | |
Investing Activities: | | | |
Additions to property, plant and equipment, net(1) | (357,093) | | | (106,458) | |
| | | |
Proceeds from sale and disposition of assets | 334,583 | | | 271,964 | |
| | | |
| | | |
| | | |
Investments in non-controlled entities | (73,678) | | | (5,616) | |
| | | |
| | | |
| | | |
Net cash provided (used) by investing activities of continuing operations | (96,188) | | | 159,890 | |
Net cash provided (used) by investing activities of discontinued operations | (14,077) | | | 254 | |
Net cash provided (used) by investing activities | (110,265) | | | 160,144 | |
Financing Activities: | | | |
Distributions paid | (697,264) | | | (685,018) | |
Repurchases of common units | (251,950) | | | (473,059) | |
Net commercial paper borrowings | 248,000 | | | 123,000 | |
| | | |
Borrowings under long-term notes | 499,400 | | | — | |
Payments on notes | (550,000) | | | — | |
Debt placement costs | (4,255) | | | — | |
Net payment on financial derivatives | (10,444) | | | — | |
| | | |
Payments associated with settlement of equity-based incentive compensation | (14,700) | | | (6,151) | |
Debt extinguishment costs | (12,893) | | | — | |
| | | |
Net cash used by financing activities | (794,106) | | | (1,041,228) | |
Change in cash, cash equivalents and restricted cash | (64,266) | | | (2,007) | |
Cash, cash equivalents and restricted cash at beginning of period | 84,599 | | | 22,447 | |
Cash, cash equivalents and restricted cash at end of period | $ | 20,333 | | | $ | 20,440 | |
| | | |
Supplemental non-cash investing activities: | | | |
| | | |
| | | |
| | | |
(1) Additions to property, plant and equipment | $ | (304,321) | | | $ | (110,505) | |
Changes in accounts payable and other current liabilities related to capital expenditures | (52,772) | | | 4,047 | |
Additions to property, plant and equipment, net | $ | (357,093) | | | $ | (106,458) | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
CONSOLIDATED STATEMENTSTATEMENTS OF PARTNERS’ CAPITAL
(Unaudited, in thousands)
| | Common Unitholders | | Accumulated Other Comprehensive Loss | | Total Partners’ Capital | |
Balance, July 1, 2019 | | $ | 2,774,047 | | | | $ | (136,268) | | | | $ | 2,637,779 | | |
Comprehensive income: | | |
Net income | | 273,038 | | | — | | | 273,038 | | |
Total other comprehensive loss | | — | | | (11,677) | | | (11,677) | | |
Total comprehensive income (loss) | | 273,038 | | | (11,677) | | | 261,361 | | |
Distributions | | (231,258) | | | — | | | (231,258) | | |
Equity-based incentive compensation expense | | 6,773 | | | — | | | 6,773 | | |
| Other | | (199) | | | — | | | (199) | | |
Three Months Ended September 30, 2019 | | $ | 2,822,401 | | | $ | (147,945) | | | $ | 2,674,456 | | |
| | | | | | | | Common Unitholders | | Accumulated Other Comprehensive Loss | | Total Partners’ Capital |
Balance, July 1, 2020 | Balance, July 1, 2020 | | $ | 2,620,365 | | | $ | (165,627) | | | $ | 2,454,738 | | Balance, July 1, 2020 | | $ | 2,620,365 | | | | $ | (165,627) | | | | $ | 2,454,738 | |
Comprehensive income: | Comprehensive income: | | Comprehensive income: | |
Net income | Net income | | 211,638 | | | — | | | 211,638 | | Net income | | 211,638 | | | — | | | 211,638 | |
Total other comprehensive income | Total other comprehensive income | | — | | | 2,323 | | | 2,323 | | Total other comprehensive income | | — | | | 2,323 | | | 2,323 | |
Total comprehensive income | Total comprehensive income | | 211,638 | | | 2,323 | | | 213,961 | | Total comprehensive income | | 211,638 | | | 2,323 | | | 213,961 | |
Distributions | Distributions | | (231,245) | | | — | | | (231,245) | | Distributions | | (231,245) | | | — | | | (231,245) | |
Equity-based incentive compensation expense | Equity-based incentive compensation expense | | 1,169 | | | — | | | 1,169 | | Equity-based incentive compensation expense | | 1,169 | | | — | | | 1,169 | |
Repurchases of common units | Repurchases of common units | | (49,968) | | | — | | | (49,968) | | Repurchases of common units | | (49,968) | | | — | | | (49,968) | |
| | Other | Other | | (211) | | | — | | | (211) | | Other | | (211) | | | — | | | (211) | |
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2020 | | $ | 2,551,748 | | | $ | (163,304) | | | $ | 2,388,444 | | Three Months Ended September 30, 2020 | | $ | 2,551,748 | | | $ | (163,304) | | | $ | 2,388,444 | |
| Balance, July 1, 2021 | | Balance, July 1, 2021 | | $ | 2,451,939 | | | $ | (166,150) | | | $ | 2,285,789 | |
Comprehensive income: | | Comprehensive income: | |
Net income | | Net income | | 236,599 | | | — | | | 236,599 | |
Total other comprehensive income | | Total other comprehensive income | | — | | | 3,574 | | | 3,574 | |
Total comprehensive income | | Total comprehensive income | | 236,599 | | | 3,574 | | | 240,173 | |
Distributions | | Distributions | | (226,633) | | | — | | | (226,633) | |
Equity-based incentive compensation expense | | Equity-based incentive compensation expense | | 5,626 | | | — | | | 5,626 | |
Repurchases of common units | | Repurchases of common units | | (390,735) | | | — | | | (390,735) | |
| Other | | Other | | (267) | | | — | | | (267) | |
Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 | | $ | 2,076,529 | | | $ | (162,576) | | | $ | 1,913,953 | |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL (Continued) (Unaudited, in thousands)
|
| | | | | | |
| | Common Unitholders | | Accumulated Other Comprehensive Loss | | Total Partners’ Capital |
Balance, January 1, 2019 | | $ | 2,763,925 | | | | $ | (120,491) | | | | $ | 2,643,434 | |
Comprehensive income: | | | | | | | | |
Net income | | 734,404 | | | | — | | | | 734,404 | |
Total other comprehensive loss | | — | | | | (27,454) | | | | (27,454) | |
Total comprehensive income (loss) | | 734,404 | | | | (27,454) | | | | 706,950 | |
Distributions | | (688,635) | | | | — | | | | (688,635) | |
Equity-based incentive compensation expense | | 22,577 | | | | — | | | | 22,577 | |
Issuance of limited partner units in settlement of equity-based incentive plan awards | | 480 | | | | — | | | | 480 | |
Payments associated with settlement of equity-based incentive compensation | | (9,764) | | | | — | | | | (9,764) | |
| | | | | | | | |
Other | | (586) | | | | — | | | | (586) | |
Nine Months Ended September 30, 2019 | | $ | 2,822,401 | | | | $ | (147,945) | | | | $ | 2,674,456 | |
| | | | | | | | |
Balance, January 1, 2020 | | $ | 2,877,105 | | | | $ | (162,077) | | | | $ | 2,715,028 | |
Comprehensive income: | | | | | | | | |
Net income | | 633,045 | | | | — | | | | 633,045 | |
Total other comprehensive loss | | — | | | | (1,227) | | | | (1,227) | |
Total comprehensive income (loss) | | 633,045 | | | | (1,227) | | | | 631,818 | |
Distributions | | (697,264) | | | | — | | | | (697,264) | |
Equity-based incentive compensation expense | | 5,580 | | | | — | | | | 5,580 | |
Repurchases of common units | | (251,950) | | | | — | | | | (251,950) | |
Issuance of limited partner units in settlement of equity-based incentive plan awards | | 600 | | | | — | | | | 600 | |
Payments associated with settlement of equity-based incentive compensation | | (14,700) | | | | — | | | | (14,700) | |
Other | | (668) | | | | — | | | | (668) | |
Nine Months Ended September 30, 2020 | | $ | 2,551,748 | | | | $ | (163,304) | | | | $ | 2,388,444 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (Continued) (Unaudited, in thousands)
|
| | | | | | |
| | Common Unitholders | | Accumulated Other Comprehensive Loss | | Total Partners’ Capital |
Balance, January 1, 2020 | | $ | 2,877,105 | | | | $ | (162,077) | | | | $ | 2,715,028 | |
Comprehensive income: | | | | | | | | |
Net income | | 633,045 | | | | — | | | | 633,045 | |
Total other comprehensive loss | | — | | | | (1,227) | | | | (1,227) | |
Total comprehensive income (loss) | | 633,045 | | | | (1,227) | | | | 631,818 | |
Distributions | | (697,264) | | | | — | | | | (697,264) | |
Equity-based incentive compensation expense | | 5,580 | | | | — | | | | 5,580 | |
Repurchases of common units | | (251,950) | | | | — | | | | (251,950) | |
Issuance of common units in settlement of equity-based incentive plan awards | | 600 | | | | — | | | | 600 | |
Payments associated with settlement of equity-based incentive compensation | | (14,700) | | | | — | | | | (14,700) | |
| | | | | | | | |
Other | | (668) | | | | — | | | | (668) | |
Nine Months Ended September 30, 2020 | | $ | 2,551,748 | | | | $ | (163,304) | | | | $ | 2,388,444 | |
| | | | | | | | |
Balance, January 1, 2021 | | $ | 2,486,996 | | | | $ | (183,190) | | | | $ | 2,303,806 | |
Comprehensive income: | | | | | | | | |
Net income | | 738,334 | | | | — | | | | 738,334 | |
Total other comprehensive income | | — | | | | 20,614 | | | | 20,614 | |
Total comprehensive income | | 738,334 | | | | 20,614 | | | | 758,948 | |
Distributions | | (685,018) | | | | — | | | | (685,018) | |
Equity-based incentive compensation expense | | 15,686 | | | | — | | | | 15,686 | |
Repurchases of common units | | (473,059) | | | | — | | | | (473,059) | |
Issuance of common units in settlement of equity-based incentive plan awards | | 520 | | | | — | | | | 520 | |
Payments associated with settlement of equity-based incentive compensation | | (6,151) | | | | — | | | | (6,151) | |
Other | | (779) | | | | — | | | | (779) | |
Nine Months Ended September 30, 2021 | | $ | 2,076,529 | | | | $ | (162,576) | | | | $ | 1,913,953 | |
| | | | | | | | |
See notes to consolidated financial statements.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Organization, Description of Business and Basis of Presentation
Organization
Unless indicated otherwise, the terms “our,” “we,” “us” and similar language refer to Magellan Midstream Partners, L.P. together with its subsidiaries. Magellan Midstream Partners, L.P. is a Delaware limited partnership, and its common units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a wholly-owned Delaware limited liability company, serves as its general partner.
During first quarter 2020, we completed a reorganization of our reportable segments. This reorganization was effected to reflect changes in the management of our business in conjunction with the sale of 3 of our marine terminals. Following this sale, 2 of our remaining marine terminals were combined with our refined products segment and 1 terminal was combined with our crude oil segment based on the predominant types of product stored at the facilities. Accordingly, we have restated our segment disclosures for all previous periods included in this report.
Description of Business
On March 20, 2020, we sold 3 marine terminals to a subsidiary of Buckeye Partners, L.P. (“Buckeye”) for $251.8 million, net of working capital adjustments. These terminals are located in New Haven, Connecticut, Wilmington, Delaware and Marrero, Louisiana. We recognized a $6.2 million impairment loss related to the sale on our consolidated statements of income.
We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, 2020,2021, our asset portfolio, excluding assets associated with discontinued operations, consisted of:
•our refined products segment, comprised of our approximately 9,800-mile refined petroleum products pipeline system with 54 connected terminals as well as 25 independent terminals not connected to our pipeline system and 2 marine storage terminals (1 of which is owned through a joint venture); and
•our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 37 million barrels of aggregate storage capacity, of which approximately 2527 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 30 million barrels of this storage capacity (including 2224 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.
Terminology commonThe following terms are commonly used in our industry includes the following terms, whichto describe products that we transport, store, and distribute or otherwise handle through our petroleum pipelines and terminals:
•refined products are the output from crude oil refineries that are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil. Diesel fuel, kerosene and heating oil are also referred to as distillates;
•transmix is a mixture ofthat forms when different refined products that forms whenare transported in pipelines. Transmix is fractionated and blended into usable refined products;
•liquefied petroleum gases, or LPGs, are liquids produced as by-products of the crude oil refining process and in connection with natural gas production. LPGs include butane and propane;
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•blendstocks are products blended with refined products to change or enhance their characteristics such as increasing a gasoline’s octane or oxygen content. Blendstocks include alkylates, oxygenates and natural gasoline;
•heavy oils and feedstocks are products used as burner fuels or feedstocks for further processing by refineries and petrochemical facilities. Heavy oils and feedstocks include No. 6 fuel oil and vacuum gas oil;
•crude oil, which includes condensate, is a naturally occurring unrefined petroleum product recovered from underground that is used as feedstock by refineries, splitters and petrochemical facilities; and
•biofuelsrenewable fuels, such as ethanol, biodiesel and biodiesel,renewable diesel, are fuels derived from living materials and typically blended with other refined products as required by government mandates.
We use the term petroleum products to describe any, or a combination, of the above-noted products.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Basis of Presentation
In the opinion of management, our accompanying consolidated financial statements which are unaudited, except for the consolidated balance sheet as of December 31, 2019,2020, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of September 30, 2020,2021, the results of operations for the three and nine months ended September 30, 20192020 and 20202021 and cash flows for the nine months ended September 30, 20192020 and 2020.2021. The results of operations for the nine months ended September 30, 20202021 are not necessarily indicative of the results to be expected for the full year ending December 31, 20202021 for several reasons. Profits from our gas liquids blending activities are realized largely during the first and fourth quarters of each year. Additionally, gasoline demand, which drives transportation volumes and revenues on our refined products pipeline system, generally trends higher during the summer driving months. Further, the volatility of commodity prices impacts the profits from our commodity activities and the volume of petroleum products we transport on our pipelines. Finally, we expect the impact of COVID-19 on demand for petroleum products and the decline in commodity prices to continue to affect our results of operations in the remaining quarter of 2020, resulting in decreased transportation and terminalling revenues and reduced profits from our gas liquids blending activities.
Pursuant to the rules and regulations of the Securities and Exchange Commission, the financial statements in
this report have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information. Accordingly, they do not include all of the information and notes normally included withfootnotes required by GAAP for complete financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 8-K filed with the Securities and Exchange Commission on May 4, 2020, which reflects changes in our reporting segments since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Discontinued Operations
In June 2021, we entered into an agreement to sell our independent terminals network comprised of 26 refined petroleum products terminals with approximately 6000000 barrels of storage located primarily in the southeastern United States. The sale is expected to close upon the receipt of required regulatory approvals. The related results of operations, financial position and cash flows have been classified as discontinued operations for all periods presented. See Note 2 - Discontinued Operations and Assets Held for Sale for further details.
Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to continuing operations.
Reclassifications
PriorCertain prior period amounts related to intrastate crude oil volumes shipped by our marketing affiliate have been reclassified from product sales revenue to transportation revenue to conform with the current period’s presentation.presentation, including amounts related to our discontinued operations.
Use of Estimates
The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our consolidated financial statements, as well as their impact on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.
New Accounting Pronouncements
In June 2016,We evaluate Accounting Standards Updates issued by the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326). Theon an ongoing basis. There are no new guidance is effective for reporting periods beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodologyaccounting pronouncements that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We adopted the new guidance as of January 1, 2020 using the modified retrospective approach related to our accounts receivables and contract assets, resulting in no cumulative adjustment to retained earnings. The adoption of this guidance did notwe anticipate will have a material impact on our financial statements.
2.Discontinued Operations and Assets Held for Sale
On June 10, 2021, we announced an agreement to sell our independent terminals network comprised of 26 refined petroleum products terminals with approximately 6 million barrels of storage located primarily in the southeastern U.S. to Buckeye Partners, L.P. (“Buckeye”) for $435 million. The sale is expected to close upon the receipt of required regulatory approvals. The related results of operations, which were previously included in our refined products segment, have been classified as discontinued operations.
Summarized Results of Discontinued Operations
The following table provides the summarized results that have been reclassified from continuing operations to discontinued operations on the consolidated statements of income for the three and nine month periods ended September 30, 2020. (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2021 | | 2020 | | 2021 |
Transportation and terminals revenue | | $ | 13,591 | | | $ | 13,119 | | | $ | 38,524 | | | $ | 39,946 | |
Product sales revenue | | 8,225 | | | 14,550 | | | 38,715 | | | 59,141 | |
Total revenue | | 21,816 | | | 27,669 | | | 77,239 | | | 99,087 | |
Costs and expenses: | | | | | | | | |
Operating | | 4,266 | | | 2,814 | | | 11,495 | | | 10,070 | |
Cost of product sales | | 6,744 | | | 8,846 | | | 30,948 | | | 40,620 | |
Depreciation, amortization and impairment | | 3,383 | | | 57 | | | 10,670 | | | 7,059 | |
General and administrative | | 519 | | | 643 | | | 1,612 | | | 1,900 | |
Total costs and expenses | | 14,912 | | | 12,360 | | | 54,725 | | | 59,649 | |
| | | | | | | | |
| | | | | | | | |
Income from discontinued operations | | $ | 6,904 | | | $ | 15,309 | | | $ | 22,514 | | | $ | 39,438 | |
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2.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized Assets and Liabilities of Discontinued Operations
The following table provides the summarized assets and liabilities classified as held for sale on the consolidated balance sheets (in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2020 | | September 30, 2021 |
Assets: | | | | |
Trade accounts receivable | | $ | 5,568 | | | $ | 7,013 | |
Inventory | | 9,185 | | | 12,641 | |
| | | | |
Net property, plant and equipment | | 274,857 | | | 269,468 | |
Goodwill | | 2,709 | | | 2,709 | |
Other assets | | 306 | | | 7,473 | |
Total assets classified as held for sale | | $ | 292,625 | | | $ | 299,304 | |
| | | | |
Liabilities: | | | | |
Accounts payable | | $ | 2,034 | | | $ | 4,087 | |
Accrued product liabilities | | 3,986 | | | 7,123 | |
Other liabilities | | 3,911 | | | 4,306 | |
Total liabilities classified as held for sale | | $ | 9,931 | | | $ | 15,516 | |
3.Segment Disclosures
Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately asbecause each segment requires different marketing strategies and business knowledge. Management evaluates performance based on segment operating margin, which includes revenue from affiliates and third-party customers, operating expenses,expense, cost of product sales, other operating (income) expense and earnings of non-controlled entities.
We believe that investors benefit from having access to the same financial measures used by management. Operating margin, which is presented in the following tables, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a GAAP measure, but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is itsthe nearest comparable GAAP financial measure, is included in the tables below (presented in thousands). Operating profit includes depreciation, amortization and impairment expense and general and administrative (“G&A”) expense that management does not consider when evaluating the core profitability of our separate operating segments.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 352,611 | | | $ | 155,377 | | | | | $ | (1,556) | | | $ | 506,432 | |
Product sales revenue | 136,464 | | | 8,343 | | | | | 0 | | | 144,807 | |
Affiliate management fee revenue | 1,764 | | | 3,593 | | | | | 0 | | | 5,357 | |
Total revenue | 490,839 | | | 167,313 | | | | | (1,556) | | | 656,596 | |
Operating expenses | 127,328 | | | 44,961 | | | | | (2,902) | | | 169,387 | |
Cost of product sales | 100,416 | | | 8,341 | | | | | 0 | | | 108,757 | |
Other operating (income) expense | (3,249) | | | 3,628 | | | | | 0 | | | 379 | |
Earnings of non-controlled entities | (4,142) | | | (46,047) | | | | | 0 | | | (50,189) | |
Operating margin | 270,486 | | | 156,430 | | | | | 1,346 | | | 428,262 | |
Depreciation, amortization and impairment expense | 39,660 | | | 15,621 | | | | | 1,346 | | | 56,627 | |
G&A expense | 36,806 | | | 14,350 | | | | | 0 | | | 51,156 | |
Operating profit | $ | 194,020 | | | $ | 126,459 | | | | | $ | 0 | | | $ | 320,479 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 320,809 | | | $ | 154,652 | | | | | $ | (1,930) | | | $ | 473,531 | |
Product sales revenue | 114,252 | | | 5,193 | | | | | 0 | | | 119,445 | |
Affiliate management fee revenue | 1,579 | | | 3,709 | | | | | 0 | | | 5,288 | |
Total revenue | 436,640 | | | 163,554 | | | | | (1,930) | | | 598,264 | |
Operating expenses | 118,579 | | | 46,956 | | | | | (3,553) | | | 161,982 | |
Cost of product sales | 86,356 | | | 9,763 | | | | | 0 | | | 96,119 | |
Other operating (income) expense | (193) | | | 3,056 | | | | | 0 | | | 2,863 | |
Earnings of non-controlled entities | (7,134) | | | (32,001) | | | | | 0 | | | (39,135) | |
Operating margin | 239,032 | | | 135,780 | | | | | 1,623 | | | 376,435 | |
Depreciation, amortization and impairment expense | 41,620 | | | 28,579 | | | | | 1,623 | | | 71,822 | |
G&A expense | 27,487 | | | 10,529 | | | | | 0 | | | 38,016 | |
Operating profit | $ | 169,925 | | | $ | 96,672 | | | | | $ | 0 | | | $ | 266,597 | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | Nine Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total | | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | Transportation and terminals revenue | $ | 1,009,812 | | | $ | 467,652 | | | | $ | (3,835) | | | $ | 1,473,629 | | Transportation and terminals revenue | $ | 307,218 | | | $ | 154,652 | | | | $ | (1,930) | | | $ | 459,940 | |
Product sales revenue | Product sales revenue | 478,441 | | | 19,350 | | | | 0 | | | 497,791 | | Product sales revenue | 106,027 | | | 5,193 | | | | — | | | 111,220 | |
Affiliate management fee revenue | Affiliate management fee revenue | 5,085 | | | 10,725 | | | | 0 | | | 15,810 | | Affiliate management fee revenue | 1,579 | | | 3,709 | | | | — | | | 5,288 | |
Total revenue | Total revenue | 1,493,338 | | | 497,727 | | | | (3,835) | | | 1,987,230 | | Total revenue | 414,824 | | | 163,554 | | | | (1,930) | | | 576,448 | |
Operating expenses | 362,870 | | | 129,431 | | | | (7,960) | | | 484,341 | | |
Operating expense | | Operating expense | 114,313 | | | 46,956 | | | | (3,553) | | | 157,716 | |
Cost of product sales | Cost of product sales | 411,012 | | | 19,715 | | | | 0 | | | 430,727 | | Cost of product sales | 79,612 | | | 9,763 | | | | — | | | 89,375 | |
Other operating (income) expense | Other operating (income) expense | (9,648) | | | 8,110 | | | | 0 | | | (1,538) | | Other operating (income) expense | (193) | | | 3,056 | | | | — | | | 2,863 | |
Earnings of non-controlled entities | Earnings of non-controlled entities | (145) | | | (122,084) | | | | 0 | | | (122,229) | | Earnings of non-controlled entities | (7,134) | | | (32,001) | | | | — | | | (39,135) | |
Operating margin | Operating margin | 729,249 | | | 462,555 | | | | 4,125 | | | 1,195,929 | | Operating margin | 228,226 | | | 135,780 | | | | 1,623 | | | 365,629 | |
Depreciation, amortization and impairment expense | Depreciation, amortization and impairment expense | 128,724 | | | 48,179 | | | | 4,125 | | | 181,028 | | Depreciation, amortization and impairment expense | 38,237 | | | 28,579 | | | | 1,623 | | | 68,439 | |
G&A expense | G&A expense | 107,179 | | | 42,355 | | | | 0 | | | 149,534 | | G&A expense | 26,968 | | | 10,529 | | | | — | | | 37,497 | |
Operating profit | Operating profit | $ | 493,346 | | | $ | 372,021 | | | | $ | 0 | | | $ | 865,367 | | Operating profit | $ | 163,021 | | | $ | 96,672 | | | | $ | — | | | $ | 259,693 | |
|
| | | Nine Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total | | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | Transportation and terminals revenue | $ | 914,887 | | | $ | 433,947 | | | | $ | (5,093) | | | $ | 1,343,741 | | Transportation and terminals revenue | $ | 349,430 | | | $ | 116,920 | | | | $ | (1,440) | | | $ | 464,910 | |
Product sales revenue | Product sales revenue | 461,701 | | | 20,141 | | | | 0 | | | 481,842 | | Product sales revenue | 153,352 | | | 15,463 | | | | — | | | 168,815 | |
Affiliate management fee revenue | Affiliate management fee revenue | 4,676 | | | 11,219 | | | | 0 | | | 15,895 | | Affiliate management fee revenue | 1,643 | | | 3,686 | | | | — | | | 5,329 | |
Total revenue | Total revenue | 1,381,264 | | | 465,307 | | | | (5,093) | | | 1,841,478 | | Total revenue | 504,425 | | | 136,069 | | | | (1,440) | | | 639,054 | |
Operating expenses | 327,866 | | | 139,645 | | | | (9,914) | | | 457,597 | | |
Operating expense | | Operating expense | 114,612 | | | 35,042 | | | | (3,098) | | | 146,556 | |
Cost of product sales | Cost of product sales | 365,314 | | | 30,550 | | | | 0 | | | 395,864 | | Cost of product sales | 128,372 | | | 17,483 | | | | — | | | 145,855 | |
Other operating (income) expense | Other operating (income) expense | (2,223) | | | 1,684 | | | | 0 | | | (539) | | Other operating (income) expense | (2,873) | | | 282 | | | | — | | | (2,591) | |
Earnings of non-controlled entities | Earnings of non-controlled entities | (25,946) | | | (90,538) | | | | 0 | | | (116,484) | | Earnings of non-controlled entities | (8,160) | | | (28,306) | | | | — | | | (36,466) | |
Operating margin | Operating margin | 716,253 | | | 383,966 | | | | 4,821 | | | 1,105,040 | | Operating margin | 272,474 | | | 111,568 | | | | 1,658 | | | 385,700 | |
Depreciation, amortization and impairment expense | Depreciation, amortization and impairment expense | 128,708 | | | 60,367 | | | | 4,821 | | | 193,896 | | Depreciation, amortization and impairment expense | 42,552 | | | 17,191 | | | | 1,658 | | | 61,401 | |
G&A expense | G&A expense | 84,802 | | | 32,290 | | | | 0 | | | 117,092 | | G&A expense | 33,478 | | | 13,154 | | | | — | | | 46,632 | |
Operating profit | Operating profit | $ | 502,743 | | | $ | 291,309 | | | | $ | 0 | | | $ | 794,052 | | Operating profit | $ | 196,444 | | | $ | 81,223 | | | | $ | — | | | $ | 277,667 | |
| | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 876,363 | | | $ | 433,947 | | | | | $ | (5,093) | | | $ | 1,305,217 | |
Product sales revenue | 422,986 | | | 20,141 | | | | | — | | | 443,127 | |
Affiliate management fee revenue | 4,676 | | | 11,219 | | | | | — | | | 15,895 | |
Total revenue | 1,304,025 | | | 465,307 | | | | | (5,093) | | | 1,764,239 | |
Operating expense | 316,371 | | | 139,645 | | | | | (9,914) | | | 446,102 | |
Cost of product sales | 334,366 | | | 30,550 | | | | | — | | | 364,916 | |
Other operating (income) expense | (2,223) | | | 1,684 | | | | | — | | | (539) | |
Earnings of non-controlled entities | (25,946) | | | (90,538) | | | | | — | | | (116,484) | |
Operating margin | 681,457 | | | 383,966 | | | | | 4,821 | | | 1,070,244 | |
Depreciation, amortization and impairment expense | 118,038 | | | 60,367 | | | | | 4,821 | | | 183,226 | |
G&A expense | 83,190 | | | 32,290 | | | | | — | | | 115,480 | |
Operating profit | $ | 480,229 | | | $ | 291,309 | | | | | $ | — | | | $ | 771,538 | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation and terminals revenue | $ | 984,895 | | | $ | 351,817 | | | | | $ | (4,441) | | | $ | 1,332,271 | |
Product sales revenue | 487,551 | | | 88,024 | | | | | — | | | 575,575 | |
Affiliate management fee revenue | 4,802 | | | 11,123 | | | | | — | | | 15,925 | |
Total revenue | 1,477,248 | | | 450,964 | | | | | (4,441) | | | 1,923,771 | |
Operating expense | 314,241 | | | 118,072 | | | | | (9,406) | | | 422,907 | |
Cost of product sales | 394,316 | | | 94,298 | | | | | — | | | 488,614 | |
Other operating (income) expense | (6,279) | | | 2,246 | | | | | — | | | (4,033) | |
Earnings of non-controlled entities | (25,528) | | | (90,579) | | | | | — | | | (116,107) | |
Operating margin | 800,498 | | | 326,927 | | | | | 4,965 | | | 1,132,390 | |
Depreciation, amortization and impairment expense | 112,754 | | | 50,585 | | | | | 4,965 | | | 168,304 | |
G&A expense | 106,749 | | | 41,922 | | | | | — | | | 148,671 | |
Operating profit | $ | 580,995 | | | $ | 234,420 | | | | | $ | — | | | $ | 815,415 | |
| | | | | | | | | |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.4.Revenue from Contracts with Customers
Statement of Income Disclosures
The following tables provide details of our revenuesrevenue disaggregated by key activities that comprise our performance obligations by operating segment (in thousands):
| | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total | | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total |
Transportation | Transportation | | $ | 208,073 | | | $ | 95,530 | | | | $ | 0 | | | $ | 303,603 | | Transportation | | $ | 192,194 | | | $ | 90,156 | | | | $ | — | | | $ | 282,350 | |
| Terminalling | Terminalling | | 48,428 | | | 3,176 | | | | 0 | | | 51,604 | | Terminalling | | 30,650 | | | 5,651 | | | | — | | | 36,301 | |
Storage | Storage | | 53,433 | | | 30,037 | | | | (1,556) | | | 81,914 | | Storage | | 49,104 | | | 32,876 | | | | (1,930) | | | 80,050 | |
Ancillary services | Ancillary services | | 36,375 | | | 7,278 | | | | 0 | | | 43,653 | | Ancillary services | | 29,955 | | | 6,828 | | | | — | | | 36,783 | |
Lease revenue | Lease revenue | | 6,302 | | | 19,356 | | | | 0 | | | 25,658 | | Lease revenue | | 5,315 | | | 19,141 | | | | — | | | 24,456 | |
Transportation and terminals revenue | Transportation and terminals revenue | | 352,611 | | | 155,377 | | | | (1,556) | | | 506,432 | | Transportation and terminals revenue | | 307,218 | | | 154,652 | | | | (1,930) | | | 459,940 | |
Product sales revenue | Product sales revenue | | 136,464 | | | 8,343 | | | | 0 | | | 144,807 | | Product sales revenue | | 106,027 | | | 5,193 | | | | — | | | 111,220 | |
Affiliate management fee revenue | Affiliate management fee revenue | | 1,764 | | | 3,593 | | | | 0 | | | 5,357 | | Affiliate management fee revenue | | 1,579 | | | 3,709 | | | | — | | | 5,288 | |
Total revenue | Total revenue | | 490,839 | | | 167,313 | | | | (1,556) | | | 656,596 | | Total revenue | | 414,824 | | | 163,554 | | | | (1,930) | | | 576,448 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | |
Lease revenue(1) | Lease revenue(1) | | (6,302) | | | (19,356) | | | | 0 | | | (25,658) | | Lease revenue(1) | | (5,315) | | | (19,141) | | | | — | | | (24,456) | |
(Gains) losses from futures contracts included in product sales revenue(2) | (Gains) losses from futures contracts included in product sales revenue(2) | | (17,061) | | | (564) | | | | 0 | | | (17,625) | | (Gains) losses from futures contracts included in product sales revenue(2) | | 6,560 | | | 884 | | | | — | | | 7,444 | |
Affiliate management fee revenue | Affiliate management fee revenue | | (1,764) | | | (3,593) | | | | 0 | | | (5,357) | | Affiliate management fee revenue | | (1,579) | | | (3,709) | | | | — | | | (5,288) | |
Total revenue from contracts with customers under ASC 606 | Total revenue from contracts with customers under ASC 606 | | $ | 465,712 | | | $ | 143,800 | | | | $ | (1,556) | | | $ | 607,956 | | Total revenue from contracts with customers under ASC 606 | | $ | 414,490 | | | $ | 141,588 | | | | $ | (1,930) | | | $ | 554,148 | |
(1) Lease revenue is accounted for under Accounting Standards Codification (“ASC”) 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 192,194 | | | $ | 90,156 | | | | | $ | 0 | | | $ | 282,350 | |
Terminalling | | 41,227 | | | 5,651 | | | | | 0 | | | 46,878 | |
Storage | | 49,366 | | | 32,876 | | | | | (1,930) | | | 80,312 | |
Ancillary services | | 32,707 | | | 6,828 | | | | | 0 | | | 39,535 | |
Lease revenue | | 5,315 | | | 19,141 | | | | | 0 | | | 24,456 | |
Transportation and terminals revenue | | 320,809 | | | 154,652 | | | | | (1,930) | | | 473,531 | |
Product sales revenue | | 114,252 | | | 5,193 | | | | | 0 | | | 119,445 | |
Affiliate management fee revenue | | 1,579 | | | 3,709 | | | | | 0 | | | 5,288 | |
Total revenue | | 436,640 | | | 163,554 | | | | | (1,930) | | | 598,264 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (5,315) | | | (19,141) | | | | | 0 | | | (24,456) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 6,850 | | | 884 | | | | | 0 | | | 7,734 | |
Affiliate management fee revenue | | (1,579) | | | (3,709) | | | | | 0 | | | (5,288) | |
Total revenue from contracts with customers under ASC 606 | | $ | 436,596 | | | $ | 141,588 | | | | | $ | (1,930) | | | $ | 576,254 | |
(1) Lease revenue is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 584,662 | | | $ | 290,754 | | | | | $ | 0 | | | $ | 875,416 | |
Terminalling | | 138,968 | | | 13,146 | | | | | 0 | | | 152,114 | |
Storage | | 162,139 | | | 89,313 | | | | | (3,835) | | | 247,617 | |
Ancillary services | | 103,287 | | | 20,488 | | | | | 0 | | | 123,775 | |
Lease revenue | | 20,756 | | | 53,951 | | | | | 0 | | | 74,707 | |
Transportation and terminals revenue | | 1,009,812 | | | 467,652 | | | | | (3,835) | | | 1,473,629 | |
Product sales revenue | | 478,441 | | | 19,350 | | | | | 0 | | | 497,791 | |
Affiliate management fee revenue | | 5,085 | | | 10,725 | | | | | 0 | | | 15,810 | |
Total revenue | | 1,493,338 | | | 497,727 | | | | | (3,835) | | | 1,987,230 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (20,756) | | | (53,951) | | | | | 0 | | | (74,707) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 39,761 | | | 1,743 | | | | | 0 | | | 41,504 | |
Affiliate management fee revenue | | (5,085) | | | (10,725) | | | | | 0 | | | (15,810) | |
Total revenue from contracts with customers under ASC 606 | | $ | 1,507,258 | | | $ | 434,794 | | | | | $ | (3,835) | | | $ | 1,938,217 | |
| | | | | | | | | | |
(1) Lease revenue is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | Nine Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total | | Refined Products | | Crude Oil | | | Intersegment Eliminations | | Total |
Transportation | Transportation | | $ | 533,451 | | | $ | 244,154 | | | | $ | 0 | | | $ | 777,605 | | Transportation | | $ | 241,685 | | | $ | 58,172 | | | | $ | — | | | $ | 299,857 | |
Terminalling | Terminalling | | 117,916 | | | 14,702 | | | | 0 | | | 132,618 | | Terminalling | | 26,468 | | | 3,280 | | | | — | | | 29,748 | |
Storage | Storage | | 152,933 | | | 97,103 | | | | (5,093) | | | 244,943 | | Storage | | 42,316 | | | 28,199 | | | | (1,440) | | | 69,075 | |
Ancillary services | Ancillary services | | 93,340 | | | 20,746 | | | | 0 | | | 114,086 | | Ancillary services | | 34,157 | | | 7,667 | | | | — | | | 41,824 | |
Lease revenue | Lease revenue | | 17,247 | | | 57,242 | | | | 0 | | | 74,489 | | Lease revenue | | 4,804 | | | 19,602 | | | | — | | | 24,406 | |
Transportation and terminals revenue | Transportation and terminals revenue | | 914,887 | | | 433,947 | | | | (5,093) | | | 1,343,741 | | Transportation and terminals revenue | | 349,430 | | | 116,920 | | | | (1,440) | | | 464,910 | |
Product sales revenue | Product sales revenue | | 461,701 | | | 20,141 | | | | 0 | | | 481,842 | | Product sales revenue | | 153,352 | | | 15,463 | | | | — | | | 168,815 | |
Affiliate management fee revenue | Affiliate management fee revenue | | 4,676 | | | 11,219 | | | | 0 | | | 15,895 | | Affiliate management fee revenue | | 1,643 | | | 3,686 | | | | — | | | 5,329 | |
Total revenue | Total revenue | | 1,381,264 | | | 465,307 | | | | (5,093) | | | 1,841,478 | | Total revenue | | 504,425 | | | 136,069 | | | | (1,440) | | | 639,054 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | |
Lease revenue(1) | Lease revenue(1) | | (17,247) | | | (57,242) | | | | 0 | | | (74,489) | | Lease revenue(1) | | (4,804) | | | (19,602) | | | | — | | | (24,406) | |
(Gains) losses from futures contracts included in product sales revenue(2) | (Gains) losses from futures contracts included in product sales revenue(2) | | (89,763) | | | 483 | | | | 0 | | | (89,280) | | (Gains) losses from futures contracts included in product sales revenue(2) | | 26,992 | | | 2,634 | | | | — | | | 29,626 | |
Affiliate management fee revenue | Affiliate management fee revenue | | (4,676) | | | (11,219) | | | | 0 | | | (15,895) | | Affiliate management fee revenue | | (1,643) | | | (3,686) | | | | — | | | (5,329) | |
Total revenue from contracts with customers under ASC 606 | Total revenue from contracts with customers under ASC 606 | | $ | 1,269,578 | | | $ | 397,329 | | | | $ | (5,093) | | | $ | 1,661,814 | | Total revenue from contracts with customers under ASC 606 | | $ | 524,970 | | | $ | 115,415 | | | | $ | (1,440) | | | $ | 638,945 | |
|
(1) Lease revenue is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2020 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 533,451 | | | $ | 244,155 | | | | | $ | — | | | $ | 777,606 | |
Terminalling | | 88,038 | | | 14,702 | | | | | — | | | 102,740 | |
Storage | | 152,186 | | | 97,103 | | | | | (5,093) | | | 244,196 | |
Ancillary services | | 85,441 | | | 20,745 | | | | | — | | | 106,186 | |
Lease revenue | | 17,247 | | | 57,242 | | | | | — | | | 74,489 | |
Transportation and terminals revenue | | 876,363 | | | 433,947 | | | | | (5,093) | | | 1,305,217 | |
Product sales revenue | | 422,986 | | | 20,141 | | | | | — | | | 443,127 | |
Affiliate management fee revenue | | 4,676 | | | 11,219 | | | | | — | | | 15,895 | |
Total revenue | | 1,304,025 | | | 465,307 | | | | | (5,093) | | | 1,764,239 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (17,247) | | | (57,242) | | | | | — | | | (74,489) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | (82,109) | | | 483 | | | | | — | | | (81,626) | |
Affiliate management fee revenue | | (4,676) | | | (11,219) | | | | | — | | | (15,895) | |
Total revenue from contracts with customers under ASC 606 | | $ | 1,199,993 | | | $ | 397,329 | | | | | $ | (5,093) | | | $ | 1,592,229 | |
| | | | | | | | | | |
(1) Lease revenue is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2021 |
| | Refined Products | | Crude Oil | | | | Intersegment Eliminations | | Total |
Transportation | | $ | 667,148 | | | $ | 172,922 | | | | | 0 | | $ | 840,070 | |
Terminalling | | 74,223 | | | 12,615 | | | | | 0 | | 86,838 | |
Storage | | 135,938 | | | 87,237 | | | | | (4,441) | | | 218,734 | |
Ancillary services | | 94,640 | | | 23,224 | | | | | 0 | | 117,864 | |
Lease revenue | | 12,946 | | | 55,819 | | | | | 0 | | 68,765 | |
Transportation and terminals revenue | | 984,895 | | | 351,817 | | | | | (4,441) | | | 1,332,271 | |
Product sales revenue | | 487,551 | | | 88,024 | | | | | — | | | 575,575 | |
Affiliate management fee revenue | | 4,802 | | | 11,123 | | | | | — | | | 15,925 | |
Total revenue | | 1,477,248 | | | 450,964 | | | | | (4,441) | | | 1,923,771 | |
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers: | | | | | | | | | | |
Lease revenue(1) | | (12,946) | | | (55,819) | | | | | — | | | (68,765) | |
(Gains) losses from futures contracts included in product sales revenue(2) | | 108,595 | | | 14,165 | | | | | — | | | 122,760 | |
Affiliate management fee revenue | | (4,802) | | | (11,123) | | | | | — | | | (15,925) | |
Total revenue from contracts with customers under ASC 606 | | $ | 1,568,095 | | | $ | 398,187 | | | | | $ | (4,441) | | | $ | 1,961,841 | |
| | | | | | | | | | |
(1) Lease revenue is accounted for under ASC 842, Leases.
(2) The impact on product sales revenue from futures contracts falls under the guidance of ASC 815, Derivatives and Hedging.
Balance Sheet Disclosures
The following table summarizes our accounts receivable, contract assets and contract liabilities resulting from contracts with customers (in thousands):
| | | December 31, 2019 | | September 30, 2020 | | December 31, 2020 | | September 30, 2021 |
Accounts receivable from contracts with customers | Accounts receivable from contracts with customers | | $ | 124,701 | | | $ | 107,317 | | Accounts receivable from contracts with customers | | $ | 103,275 | | | $ | 132,586 | |
Contract assets | Contract assets | | $ | 8,071 | | | $ | 13,834 | | Contract assets | | $ | 12,220 | | | $ | 12,284 | |
Contract liabilities | Contract liabilities | | $ | 111,670 | | | $ | 94,865 | | Contract liabilities | | $ | 102,702 | | | $ | 106,879 | |
For the respective three and nine months ended September 30, 2020, respectively,2021, we recognized $9.3$2.9 million and $89.3$76.7 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2019.2020.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unfulfilled Performance Obligations
The following table provides the aggregate amount of the transaction price allocated to our unfulfilled performance obligations (“UPOs”) as of September 30, 20202021 by operating segment, including the range of years remaining on our contracts with customers and an estimate of revenues expected to be recognized over the next 12 months (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | Refined Products | | Crude Oil | | | | Total |
Balances at September 30, 2020 | | $ | 2,137,259 | | | $ | 1,276,836 | | | | | $ | 3,414,095 | |
Remaining terms | | 1 - 18 years | | 1 - 11 years | | | | |
Estimated revenues from UPOs to be recognized in the next 12 months | | $ | 407,914 | | | $ | 269,156 | | | | | $ | 677,070 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | Refined Products | | Crude Oil | | | | Total |
Balances at September 30, 2021 | | $ | 1,937,717 | | | $ | 1,111,166 | | | | | $ | 3,048,883 | |
Remaining terms | | 1 - 17 years | | 1 - 10 years | | | | |
Estimated revenues from UPOs to be recognized in the next 12 months | | $ | 365,383 | | | $ | 263,798 | | | | | $ | 629,181 | |
4.5.Investments in Non-Controlled Entities
Our equity investments in non-controlled entities at September 30, 20202021 were comprised of:
| | | | | | | | |
Entity | | Ownership Interest |
BridgeTex Pipeline Company, LLC (“BridgeTex”) | | 30% |
Double Eagle Pipeline LLC (“Double Eagle”) | | 50% |
HoustonLink Pipeline Company, LLC (“HoustonLink”) | | 50% |
MVP Terminalling, LLC (“MVP”) | | 50%25% |
Powder Springs Logistics, LLC (“Powder Springs”) | | 50% |
Saddlehorn Pipeline Company, LLC (“Saddlehorn”) | | 30% |
Seabrook Logistics, LLC (“Seabrook”) | | 50% |
Texas Frontera, LLC (“Texas Frontera”) | | 50% |
.
In the first quarter of 2020,April 2021, we sold a 10%nearly half of our membership interest in Saddlehorn to an affiliateMVP. As a result of Black Diamond Gathering LLC, which is majority-owned by Noble Midstream Partners LP, reducing our ongoing investment in Saddlehorn to a 30% interest. We received $79.9 million in cash from the sale, we received proceeds of $272.1 million and we recorded a gain of $12.9$70.4 million on our consolidated statements of income forincome. Following the nine month period ended September 30, 2020.sale, we own approximately 25% of MVP and remain the operator of the facility.
We serve as operator of BridgeTex, HoustonLink, MVP, Powder Springs, Saddlehorn, Texas Frontera and the pipeline activities of Seabrook. We receive fees for management services as well as reimbursement or payment to us for certain direct operational payroll and other overhead costs. The management fees we receive are reported as affiliate management fee revenue on our consolidated statements of income. Cost reimbursements we receive from these entities in connection with our operating services are included as reductions to costs and expenses on our consolidated statements of income and totaled $1.2$0.7 million and $0.7$0.9 million during the three months ended September 30, 20192020 and 2020,2021, respectively, and $3.8$2.9 million and $2.9$2.1 million during the nine months ended September 30, 20192020 and 2020,2021, respectively.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We recorded the following revenue and expense transactions withfrom certain of these non-controlled entities in our consolidated statements of income (in thousands):
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2020 | | 2019 | | 2020 | | 2020 | | 2021 | | 2020 | | 2021 |
Transportation and terminals revenue: | Transportation and terminals revenue: | | | | | | | | | Transportation and terminals revenue: | | | | | | | | |
BridgeTex, pipeline capacity and storage | BridgeTex, pipeline capacity and storage | | $ | 10,737 | | | $ | 9,323 | | | $ | 31,063 | | | $ | 32,748 | | BridgeTex, pipeline capacity and storage | | $ | 9,323 | | | $ | 10,669 | | | $ | 32,748 | | | $ | 34,367 | |
Double Eagle, throughput revenue | Double Eagle, throughput revenue | | $ | 1,582 | | | $ | 995 | | | $ | 4,813 | | | $ | 4,016 | | Double Eagle, throughput revenue | | $ | 995 | | | $ | 631 | | | $ | 4,016 | | | $ | 2,464 | |
Saddlehorn, storage revenue | Saddlehorn, storage revenue | | $ | 566 | | | $ | 580 | | | $ | 1,669 | | | $ | 1,711 | | Saddlehorn, storage revenue | | $ | 580 | | | $ | 594 | | | $ | 1,711 | | | $ | 1,753 | |
Operating expenses: | | |
Operating expense: | | Operating expense: | |
Seabrook, storage lease and ancillary services | Seabrook, storage lease and ancillary services | | $ | 6,267 | | | $ | 7,175 | | | $ | 19,417 | | | $ | 21,553 | | Seabrook, storage lease and ancillary services | | $ | 7,175 | | | $ | 4,477 | | | $ | 21,553 | | | $ | 15,336 | |
| Other operating income: | Other operating income: | | Other operating income: | |
Seabrook, gain on sale of air emission credits | Seabrook, gain on sale of air emission credits | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,410 | | Seabrook, gain on sale of air emission credits | | $ | — | | | $ | — | | | $ | 1,410 | | | $ | 434 | |
MVP, easement sale | | $ | 289 | | | $ | 0 | | | $ | 289 | | | $ | 0 | | |
|
Our consolidated balance sheets reflected the following balances related to transactions with our investments in non-controlled entities (in thousands):
| | | December 31, 2019 | | December 31, 2020 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables | | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables |
BridgeTex | BridgeTex | | $ | 392 | | | $ | 26 | | | $ | — | | | $ | — | | BridgeTex | | $ | 355 | | | $ | 27 | | | $ | 970 | | | $ | — | |
Double Eagle | Double Eagle | | $ | 445 | | | $ | — | | | $ | — | | | $ | — | | Double Eagle | | $ | 277 | | | $ | — | | | $ | — | | | $ | — | |
HoustonLink | HoustonLink | | $ | 60 | | | $ | — | | | $ | — | | | $ | — | | HoustonLink | | $ | — | | | $ | — | | | $ | 144 | | | $ | — | |
MVP | MVP | | $ | — | | | $ | 418 | | | $ | — | | | $ | — | | MVP | | $ | — | | | $ | 467 | | | $ | 2,297 | | | $ | — | |
Powder Springs | Powder Springs | | $ | 161 | | | $ | — | | | $ | — | | | $ | 6,006 | | Powder Springs | | $ | — | | | $ | — | | | $ | — | | | $ | 10,223 | |
Saddlehorn | Saddlehorn | | $ | — | | | $ | 126 | | | $ | — | | | $ | — | | Saddlehorn | | $ | — | | | $ | 121 | | | $ | — | | | $ | — | |
Seabrook | Seabrook | | $ | 941 | | | $ | — | | | $ | 1,349 | | | $ | — | | Seabrook | | $ | — | | | $ | — | | | $ | 7,274 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables |
BridgeTex | | $ | 382 | | | $ | 441 | | | $ | 225 | | | $ | — | |
Double Eagle | | $ | 286 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
MVP | | $ | — | | | $ | 460 | | | $ | — | | | $ | — | |
Powder Springs | | $ | — | | | $ | — | | | $ | — | | | $ | 8,970 | |
Saddlehorn | | $ | — | | | $ | 142 | | | $ | — | | | $ | — | |
Seabrook | | $ | 497 | | | $ | — | | | $ | 4,267 | | | $ | — | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2021 |
| | Trade Accounts Receivable | | Other Accounts Receivable | | Other Accounts Payable | | Long-Term Receivables |
BridgeTex | | $ | 2,310 | | | $ | 15 | | | $ | — | | | $ | — | |
Double Eagle | | $ | 213 | | | $ | — | | | $ | — | | | $ | — | |
HoustonLink | | $ | — | | | $ | — | | | $ | 96 | | | $ | — | |
MVP | | $ | — | | | $ | 542 | | | $ | — | | | $ | — | |
Powder Springs | | $ | 8 | | | $ | — | | | $ | — | | | $ | 12,429 | |
Saddlehorn | | $ | — | | | $ | 187 | | | $ | — | | | $ | — | |
Seabrook | | $ | — | | | $ | 11 | | | $ | 810 | | | $ | — | |
| | | | | | | | |
We are a party toentered into a long-term terminalling and storage contract with Seabrook for our exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast (see Note 78 – Leases for more details regarding this lease).
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The financial results from MVP, Powder Springs and Texas Frontera are included in our refined products segment and the financial results from BridgeTex, Double Eagle, HoustonLink, Saddlehorn and Seabrook are included in our crude oil segment, each as earnings of non-controlled entities.
A summary of our investments in non-controlled entities (representing only our proportionate interest) follows (in thousands):
| | | | | | | | |
| | |
Investments at 12/31/2019December 31, 2020 | | $ | 1,240,5511,213,856 | |
Additional investment | | 73,6785,616 | |
Sale of ownership interest in SaddlehornMVP | | (66,989)(201,673) | |
| | |
Earnings of non-controlled entities: | | |
Proportionate share of earnings | | 117,848117,413 | |
| | |
Amortization of excess investment and capitalized interest | | (1,364)(1,306) | |
Earnings of non-controlled entities | | 116,484116,107 | |
Less: | | |
Distributions from operations of non-controlled entities | | 152,645140,616 | |
| | |
Investments at 9/30/2020September 30, 2021 | | $ | 1,211,079993,290 | |
| | |
5.6.Inventory
Inventory at December 31, 20192020 and September 30, 20202021 was as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2019 | | September 30, 2020 |
Refined products | $ | 96,128 | | | $ | 60,515 | |
Liquefied petroleum gases | 29,982 | | | 30,155 | |
Transmix | 39,546 | | | 20,821 | |
Crude oil | 12,714 | | | 12,872 | |
Additives | 6,029 | | | 4,670 | |
Total inventory | $ | 184,399 | | | $ | 129,033 | |
| | | | | | | | | | | |
| December 31, 2020 | | September 30, 2021 |
Refined products | $ | 71,982 | | | $ | 86,362 | |
Crude oil | 32,431 | | | 28,269 | |
Liquefied petroleum gases | 25,040 | | | 54,604 | |
Transmix | 23,397 | | | 47,978 | |
Additives | 5,354 | | | 5,354 | |
Total inventory | $ | 158,204 | | | $ | 222,567 | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.7.Debt
Long-term debt at December 31, 20192020 and September 30, 20202021 was as follows (in thousands):
| | | | December 31, 2019 | | September 30, 2020 | | | December 31, 2020 | | September 30, 2021 |
Commercial paper | Commercial paper | | $ | 0 | | | $ | 248,000 | | Commercial paper | | $ | — | | | $ | 123,000 | |
| 4.25% Notes due 2021 | | 550,000 | | | 0 | | |
3.20% Notes due 2025 | 3.20% Notes due 2025 | | 250,000 | | | 250,000 | | 3.20% Notes due 2025 | | 250,000 | | | 250,000 | |
5.00% Notes due 2026 | 5.00% Notes due 2026 | | 650,000 | | | 650,000 | | 5.00% Notes due 2026 | | 650,000 | | | 650,000 | |
3.25% Notes due 2030 | 3.25% Notes due 2030 | | 0 | | | 500,000 | | 3.25% Notes due 2030 | | 500,000 | | | 500,000 | |
6.40% Notes due 2037 | 6.40% Notes due 2037 | | 250,000 | | | 250,000 | | 6.40% Notes due 2037 | | 250,000 | | | 250,000 | |
4.20% Notes due 2042 | 4.20% Notes due 2042 | | 250,000 | | | 250,000 | | 4.20% Notes due 2042 | | 250,000 | | | 250,000 | |
5.15% Notes due 2043 | 5.15% Notes due 2043 | | 550,000 | | | 550,000 | | 5.15% Notes due 2043 | | 550,000 | | | 550,000 | |
4.20% Notes due 2045 | 4.20% Notes due 2045 | | 250,000 | | | 250,000 | | 4.20% Notes due 2045 | | 250,000 | | | 250,000 | |
4.25% Notes due 2046 | 4.25% Notes due 2046 | | 500,000 | | | 500,000 | | 4.25% Notes due 2046 | | 500,000 | | | 500,000 | |
4.20% Notes due 2047 | 4.20% Notes due 2047 | | 500,000 | | | 500,000 | | 4.20% Notes due 2047 | | 500,000 | | | 500,000 | |
4.85% Notes due 2049 | 4.85% Notes due 2049 | | 500,000 | | | 500,000 | | 4.85% Notes due 2049 | | 500,000 | | | 500,000 | |
3.95% Notes due 2050 | 3.95% Notes due 2050 | | 500,000 | | | 500,000 | | 3.95% Notes due 2050 | | 800,000 | | | 800,000 | |
Face value of long-term debt | Face value of long-term debt | | 4,750,000 | | | 4,948,000 | | Face value of long-term debt | | 5,000,000 | | | 5,123,000 | |
Unamortized debt issuance costs(1) | Unamortized debt issuance costs(1) | | (35,263) | | | (37,407) | | Unamortized debt issuance costs(1) | | (40,143) | | | (38,419) | |
Net unamortized debt discount(1) | | (8,662) | | | (10,282) | | |
Net unamortized debt premium(1) | | Net unamortized debt premium(1) | | 18,834 | | | 18,645 | |
| Long-term debt, net | Long-term debt, net | | $ | 4,706,075 | | | $ | 4,900,311 | | Long-term debt, net | | $ | 4,978,691 | | | $ | 5,103,226 | |
|
(1) Debt issuance costs and note discounts and premiums and realized gains and losses of historical fair value hedges are being amortized or accreted to the applicable notes over the respective lives of those notes.
All of the instruments detailed in the table above are senior indebtedness.
2020 Debt Issuance
In May 2020, we issued $500.0 million of 3.25% senior notes due 2030 in an underwritten public offering. The notes were issued at 99.88% of par. Net proceeds from this offering were approximately $495.2 million after underwriting discounts and offering expenses. The net proceeds from this offering, along with commercial paper borrowings and cash on hand, were used to redeem our $550 million senior notes due in 2021. We recognized $12.9 million of debt prepayment costs as interest expense in our consolidated statements of income related to this early redemption, partially offset by the recognition of a $0.7 million unamortized debt premium, for the nine months ended September 30, 2020.
Other Debt
Revolving Credit Facility. At September 30, 2020,2021, the total borrowing capacity under our revolving credit facility maturing in May 2024 was $1.0 billion. Any borrowings outstanding under this facility are classified as long-term debt on our consolidated balance sheets. Borrowings under thisthe facility are unsecured and bear interest at LIBOR plus a spread ranging from 0.875% to 1.500% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between 0.075% and 0.200% depending on our credit ratings. The unused commitment fee was 0.125% at September 30, 2020.2021. Borrowings under this facility may be used for general partnership purposes, including capital expenditures. As of December 31, 20192020 and September 30, 2020,2021, there were 0no borrowings outstanding under this facility and $3.5 million was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets, but decrease our borrowing capacity
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
under this facility.
Commercial Paper Program. We have a commercial paper program under which we may issue commercial paper notes in an amount up to the available capacity under our $1.0 billion revolving credit facility. The maturities of the commercial paper notes vary, but may not exceed 397 days from the date of issuance. Because the commercial paper we can issue is limited to amounts available under our revolving credit facility, amounts outstanding under the program are classified as long-term debt. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. Commercial paper borrowings outstanding at September 30, 20202021 were $248.0$123.0 million. The weighted-average interest rate for commercial paper borrowings based on the number of days outstanding was 0.6%0.2% for the nine months ended September 30, 2020.2021.
7.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.Leases
Operating Leases – Lessee
Related-Party Operating Lease. We haveentered into a long-term terminalling and storage contract with Seabrook for our exclusive use of dedicated tankage that provides our customers with crude oil storage capacity and dock access for crude oil imports and exports on the Texas Gulf Coast.
The following tables provide information about our third-party and Seabrook operating leases (dollars in(in thousands):
| | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2021 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Total lease expense | Total lease expense | | $ | 6,206 | | | $ | 6,267 | | | $ | 12,473 | | | $ | 6,474 | | | $ | 7,175 | | | $ | 13,649 | | Total lease expense | | $ | 6,474 | | | $ | 7,175 | | | $ | 13,649 | | | $ | 6,321 | | | $ | 4,288 | | | $ | 10,609 | |
| | | Nine Months Ended September 30, 2019 | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2021 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Total lease expense | Total lease expense | | $ | 17,631 | | | $ | 19,417 | | | $ | 37,048 | | | $ | 18,173 | | | $ | 21,553 | | | $ | 39,726 | | Total lease expense | | $ | 18,173 | | | $ | 21,553 | | | $ | 39,726 | | | $ | 20,266 | | | $ | 15,147 | | | $ | 35,413 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | September 30, 2020 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Current lease liability | | $ | 15,136 | | | $ | 11,085 | | | $ | 26,221 | | | $ | 15,721 | | | $ | 11,456 | | | $ | 27,177 | |
Long-term lease liability | | $ | 81,508 | | | $ | 62,515 | | | $ | 144,023 | | | $ | 67,323 | | | $ | 54,441 | | | $ | 121,764 | |
Right-of-use asset | | $ | 98,268 | | | $ | 73,600 | | | $ | 171,868 | | | $ | 86,185 | | | $ | 65,897 | | | $ | 152,082 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | September 30, 2021 |
| | Third-Party Leases | | Seabrook Lease | | All Leases | | Third-Party Leases | | Seabrook Lease | | All Leases |
Current lease liability | | $ | 17,099 | | | $ | 10,434 | | | $ | 27,533 | | | $ | 17,733 | | | $ | 7,885 | | | $ | 25,618 | |
Long-term lease liability | | $ | 84,982 | | | $ | 52,501 | | | $ | 137,483 | | | $ | 105,095 | | | $ | 46,555 | | | $ | 151,650 | |
Right-of-use asset | | $ | 103,142 | | | $ | 62,936 | | | $ | 166,078 | | | $ | 126,029 | | | $ | 54,441 | | | $ | 180,470 | |
| | | | | | | | | | | | |
8.9.Employee Benefit Plans
We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan, including expense related to discontinued operations, were $2.8 million and $2.7 million for each of the three months ended September 30, 2019 and 2020 and $9.32021, respectively, and $9.7 million and $9.7$8.1 million for the nine months ended September 30, 20192020 and 2020,2021, respectively.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, we sponsor 2 pension plans, including 1 for all non-union employees and 1 that covers union employees, and a postretirement benefit plan for certain employees. PriorThe following disclosures related to the March 2020 sale of our New Haven terminal (See Note 1 – Organization, Description of Business and Basis of Presentation), we sponsored an additional union pension plan that covered union employees at that terminal.these plans include amounts related to discontinued operations. Net periodic benefit expense for the three and nine months ended September 30, 20192020 and 2020 was2021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2019 | | September 30, 2020 |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | | | | | | | |
Service cost | $ | 6,260 | | | $ | 48 | | | $ | 6,898 | | | $ | 64 | |
Interest cost | 3,026 | | | 126 | | | 2,738 | | | 121 | |
Expected return on plan assets | (2,354) | | | 0 | | | (2,829) | | | 0 | |
Amortization of prior service credit | (46) | | | 0 | | | (46) | | | 0 | |
Amortization of actuarial loss | 1,352 | | | 60 | | | 1,346 | | | 127 | |
Settlement cost | 439 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
| | | | | | | |
Net periodic benefit cost | $ | 8,677 | | | $ | 234 | | | $ | 8,107 | | | $ | 312 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2019 | | September 30, 2020 |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | | | | | | | |
Service cost | $ | 19,145 | | | $ | 145 | | | $ | 20,836 | | | $ | 193 | |
Interest cost | 9,136 | | | 380 | | | 8,251 | | | 360 | |
Expected return on plan assets | (7,045) | | | 0 | | | (8,524) | | | 0 | |
Amortization of prior service credit | (136) | | | 0 | | | (136) | | | 0 | |
Amortization of actuarial loss | 4,137 | | | 248 | | | 4,080 | | | 382 | |
Settlement cost | 2,499 | | | 0 | | | 969 | | | 0 | |
Settlement gain on disposition of assets | 0 | | | 0 | | | (1,342) | | | 0 | |
Net periodic benefit cost | $ | 27,736 | | | $ | 773 | | | $ | 24,134 | | | $ | 935 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Three Months Ended |
| September 30, 2020 | | September 30, 2021 |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | | | | | | | |
Service cost | $ | 6,898 | | | $ | 64 | | | $ | 6,953 | | | $ | 75 | |
Interest cost | 2,738 | | | 121 | | | 2,395 | | | 103 | |
Expected return on plan assets | (2,829) | | | — | | | (2,960) | | | — | |
Amortization of prior service credit | (46) | | | — | | | (46) | | | — | |
Amortization of actuarial loss | 1,346 | | | 127 | | | 1,273 | | | 160 | |
Settlement cost | — | | | — | | | 1,300 | | | — | |
| | | | | | | |
| | | | | | | |
Net periodic benefit cost | $ | 8,107 | | | $ | 312 | | | $ | 8,915 | | | $ | 338 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended | | Nine Months Ended |
| September 30, 2020 | | September 30, 2021 |
| Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Components of net periodic benefit costs: | | | | | | | |
Service cost | $ | 20,836 | | | $ | 193 | | | $ | 21,269 | | | $ | 225 | |
Interest cost | 8,251 | | | 360 | | | 7,078 | | | 310 | |
Expected return on plan assets | (8,524) | | | — | | | (8,927) | | | — | |
Amortization of prior service credit | (136) | | | — | | | (136) | | | — | |
Amortization of actuarial loss | 4,080 | | | 382 | | | 4,058 | | | 478 | |
Settlement cost | 969 | | | — | | | 2,751 | | | — | |
Settlement gain on disposition of assets | (1,342) | | | — | | | — | | | — | |
Net periodic benefit cost | $ | 24,134 | | | $ | 935 | | | $ | 26,093 | | | $ | 1,013 | |
| | | | | | | |
The service component of our net periodic benefit costs is presented in operating expense and G&A expense, and the non-service components are presented in other (income) expense in our consolidated statements of income.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The changes in accumulated other comprehensive loss (“AOCL”) related to employee benefit plan assets and benefit obligations for the three and nine months ended September 30, 20192020 and 20202021 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended |
| | September 30, 2019 | | September 30, 2020 |
Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | | $ | (93,876) | | | $ | (6,105) | | | $ | (98,610) | | | $ | (9,269) | |
| | | | | | | | |
| | | | | | | | |
Recognition of prior service credit amortization in income | | (46) | | | 0 | | | (46) | | | 0 | |
Recognition of actuarial loss amortization in income | | 1,352 | | | 60 | | | 1,346 | | | 127 | |
Recognition of settlement cost in income | | 439 | | | 0 | | | 0 | | | 0 | |
Ending balance | | $ | (92,131) | | | $ | (6,045) | | | $ | (97,310) | | | $ | (9,142) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended |
| | September 30, 2020 | | September 30, 2021 |
Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | | $ | (98,610) | | | $ | (9,269) | | | $ | (101,270) | | | $ | (11,656) | |
| | | | | | | | |
| | | | | | | | |
Recognition of prior service credit amortization in income | | (46) | | | — | | | (46) | | | — | |
Recognition of actuarial loss amortization in income | | 1,346 | | | 127 | | | 1,273 | | | 160 | |
Recognition of settlement cost in income | | — | | | — | | | 1,300 | | | — | |
Ending balance | | $ | (97,310) | | | $ | (9,142) | | | $ | (98,743) | | | $ | (11,496) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended |
| | September 30, 2019 | | September 30, 2020 |
Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | | $ | (88,602) | | | $ | (5,409) | | | $ | (104,739) | | | $ | (8,378) | |
Net actuarial gain (loss) | | (10,029) | | | (884) | | | 813 | | | (1,146) | |
Curtailment gain | | 0 | | | 0 | | | 1,703 | | | 0 | |
Recognition of prior service credit amortization in income | | (136) | | | 0 | | | (136) | | | 0 | |
Recognition of actuarial loss amortization in income | | 4,137 | | | 248 | | | 4,080 | | | 382 | |
Recognition of settlement cost in income | | 2,499 | | | 0 | | | 969 | | | 0 | |
Ending balance | | $ | (92,131) | | | $ | (6,045) | | | $ | (97,310) | | | $ | (9,142) | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended | | Nine Months Ended |
| | September 30, 2020 | | September 30, 2021 |
Gains (Losses) Included in AOCL | | Pension Benefits | | Other Postretirement Benefits | | Pension Benefits | | Other Postretirement Benefits |
Beginning balance | | $ | (104,739) | | | $ | (8,378) | | | $ | (117,782) | | | $ | (10,409) | |
Net actuarial gain (loss) | | 813 | | | (1,146) | | | 12,366 | | | (1,565) | |
Curtailment gain | | 1,703 | | | — | | | — | | | — | |
Recognition of prior service credit amortization in income | | (136) | | | — | | | (136) | | | — | |
Recognition of actuarial loss amortization in income | | 4,080 | | | 382 | | | 4,058 | | | 478 | |
Recognition of settlement cost in income | | 969 | | | — | | | 2,751 | | | — | |
Ending balance | | $ | (97,310) | | | $ | (9,142) | | | $ | (98,743) | | | $ | (11,496) | |
| | | | | | | | |
Contributions estimated to be paid into the plans in 20202021 are $29.3$27.6 million and $0.9 million for the pension plans and other postretirement benefit plan, respectively.
9.10.Long-Term Incentive Plan
The compensation committee of our general partner’s board of directors administers our long-term incentive plan (“LTIP”) covering certain of our employees and the independent directors of our general partner. In April 2021, our compensation committee and our limited partners approved an amendment to the LTIP increasing the number of common units available for issuance from 11.9 million to 13.7 million. The LTIP primarily consists of phantom units and permits the grant of awards covering an aggregate payout of 11.9 million of our common units. The estimated units remaining available under the LTIP at September 30, 2020 total 1.02021 totaled approximately 2.4 million.
Equity-based incentive compensation expense for the three and nine months ended September 30, 2019 and 2020, primarily recorded as G&A expense on our consolidated statements of income, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2020 | | 2019 | | 2020 |
Performance-based awards | | $ | 5,162 | | | $ | (1,121) | | | $ | 18,123 | | | $ | (1,247) | |
Time-based awards | | 1,611 | | | 2,290 | | | 4,454 | | | 6,827 | |
Total | | $ | 6,773 | | | $ | 1,169 | | | $ | 22,577 | | | $ | 5,580 | |
| | | | | | | | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Equity-based incentive compensation expense for the three and nine months ended September 30, 2020 and 2021, primarily recorded as G&A expense on our consolidated statements of income, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2021 | | 2020 | | 2021 |
Performance-based awards | | $ | (1,121) | | | $ | 3,053 | | | $ | (1,247) | | | $ | 7,923 | |
Time-based awards | | 2,290 | | | 2,573 | | | 6,827 | | | 7,763 | |
Total | | $ | 1,169 | | | $ | 5,626 | | | $ | 5,580 | | | $ | 15,686 | |
| | | | | | | | |
During 2020, we reduced our LTIP accrualsexpense related to performanceperformance-based awards vesting in 2020 and 2021was reduced due to reflect the estimated impacts of COVID-19 related reductions in economic activity and the significant decline in commodity prices.prices on our financial results.
On January 31, 2020, 378,144February 5, 2021, 558,516 unit awards were granted pursuant to our LTIP. These awards included both performance-based and time-based awards and have a three-year vesting period that will end on December 31, 2022.2023.
Basic and Diluted Net Income Per Common Unit
The difference between our actual common units outstanding and our weighted-average number of common units outstanding used to calculate basic net income per unit is due to the impact of: (i) the unit awards issued to non-employee directors and (ii) the weighted average effect of units actually issued or repurchased during a period. The difference between the weighted-average number of common units outstanding used for basic and diluted net income per unit calculations on our consolidated statements of income is primarily due to the dilutive effect of unit awards associated with our LTIP that have not yet vested.
10.11.Derivative Financial Instruments
Interest Rate Derivatives
In second quarter 2020, upon issuance of $500.0 million of 3.25% notes due 2030, we terminated and settled $100.0 million of treasury lock agreements that we had previously entered into to protect against the variability of future interest payments for a loss of $10.4 million, which was included in our statements of cash flows as a net payment on financial derivatives. These agreements were accounted for as cash flow hedges. The loss was recorded to other comprehensive income and will be recognized into earnings as an adjustment to our periodic interest expense over the term of the hedged transaction in accordance with our hedging strategy.
Commodity Derivatives
Our open futures contracts at September 30, 20202021 were as follows:
| | | | | | | | | | | | | | |
Type of Contract/Accounting Methodology | | Product Represented by the Contract and Associated Barrels | | Maturity Dates |
| | | | |
| | | | |
Futures - Economic Hedges | | 3.14.9 million barrels of refined products and crude oil | | Between October 20202021 and November 2022 |
Futures - Economic Hedges | | 0.61.2 million barrels of gas liquids | | Between October 2021 and December 2020April 2022 |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Commodity Derivatives Contracts and Deposits Offsets
At December 31, 20192020 and September 30, 2020,2021, we had made margin deposits of $27.4$34.2 million and $14.0$47.6 million, respectively, for our futures contracts with our counterparties, which were recorded as current assets under commodity derivatives deposits on our consolidated balance sheets. We have the right to offset the combined fair values of our open futures contracts against our margin deposits under a master netting arrangement for each counterparty; however, we have elected to present the combined fair values of our open futures contracts separately from the related margin deposits on our consolidated balance sheets. Additionally, we have the right to offset the fair values of our futures contracts together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the deposit amounts we could offset under a master netting arrangement are provided below as of December 31, 20192020 and September 30, 20202021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Gross Amounts of Recognized Liabilities | | Gross Amounts of Assets Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets | | Net Asset Amount(1) |
As of 12/31/2019 | | $ | (11,033) | | | $ | 811 | | | $ | (10,222) | | | $ | 27,415 | | | $ | 17,193 | |
As of 9/30/2020 | | $ | (4,386) | | | $ | 2,740 | | | $ | (1,646) | | | $ | 14,031 | | | $ | 12,385 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Gross Amounts of Recognized Liabilities | | Gross Amounts of Assets Offset in the Consolidated Balance Sheets | | Net Amounts of Liabilities Presented in the Consolidated Balance Sheets | | Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets | | Net Asset Amount(1) |
As of December 31, 2020 | | $ | (21,748) | | | $ | 1,201 | | | $ | (20,547) | | | $ | 34,165 | | | $ | 13,618 | |
As of September 30, 2021 | | $ | (44,605) | | | $ | 22,325 | | | $ | (22,280) | | | $ | 47,609 | | | $ | 25,329 | |
| | | | | | | | | | |
(1) Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.
Basis Derivative Agreement
During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we account for this agreement as a derivative. The agreement will expire in early 2022. We recognize the changes in fair value of this agreement based on forward price curves for crude oil in West Texas and the Houston Gulf Coast in other operating income (expense) in our consolidated statements of income. The liability for this agreement at December 31, 20192020 and September 30, 20202021 was $17.3$10.2 million and $12.3$3.1 million, respectively.
Impact of Derivatives on Our Financial Statements
Comprehensive Income
The changes in derivative activity included in AOCL for the three and nine months ended September 30, 20192020 and 20202021 were as follows (in thousands):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, | | September 30, | | September 30, |
Derivative Losses Included in AOCL | Derivative Losses Included in AOCL | 2019 | | 2020 | | 2019 | | 2020 | Derivative Losses Included in AOCL | 2020 | | 2021 | | 2020 | | 2021 |
Beginning balance | Beginning balance | $ | (36,287) | | | $ | (57,748) | | | $ | (26,480) | | | $ | (48,960) | | Beginning balance | $ | (57,748) | | | $ | (53,224) | | | $ | (48,960) | | | $ | (54,999) | |
Net loss on cash flow hedges | Net loss on cash flow hedges | (14,181) | | | 0 | | | (25,216) | | | (10,444) | | Net loss on cash flow hedges | — | | | — | | | (10,444) | | | — | |
Reclassification of net loss on cash flow hedges to income | Reclassification of net loss on cash flow hedges to income | 699 | | | 896 | | | 1,927 | | | 2,552 | | Reclassification of net loss on cash flow hedges to income | 896 | | | 887 | | | 2,552 | | | 2,662 | |
Ending balance | Ending balance | $ | (49,769) | | | $ | (56,852) | | | $ | (49,769) | | | $ | (56,852) | | Ending balance | $ | (56,852) | | | $ | (52,337) | | | $ | (56,852) | | | $ | (52,337) | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following is a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 20192020 and 20202021 of derivatives that were designated as cash flow hedges (in thousands):
| | | Interest Rate Contracts | | Interest Rate Contracts |
| | Amount of Loss Recognized in AOCL on Derivatives | | Location of Loss Reclassified from AOCL into Income | | Amount of Loss Reclassified from AOCL into Income | | Amount of Loss Recognized in AOCL on Derivatives | | Location of Loss Reclassified from AOCL into Income | | Amount of Loss Reclassified from AOCL into Income |
Three Months Ended September 30, 2019 | | $ | (14,181) | | | Interest expense | | $ | (699) | | |
Three Months Ended September 30, 2020 | Three Months Ended September 30, 2020 | | $ | 0 | | | Interest expense | | $ | (896) | | Three Months Ended September 30, 2020 | | $ | — | | | Interest expense | | $ | (896) | |
Nine Months Ended September 30, 2019 | | $ | (25,216) | | | Interest expense | | $ | (1,927) | | |
Three Months Ended September 30, 2021 | | Three Months Ended September 30, 2021 | | $ | — | | | Interest expense | | $ | (887) | |
Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | | $ | (10,444) | | | Interest expense | | $ | (2,552) | | Nine Months Ended September 30, 2020 | | $ | (10,444) | | | Interest expense | | $ | (2,552) | |
Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 | | $ | — | | | Interest expense | | $ | (2,662) | |
As of September 30, 2020,2021, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately $3.3$3.5 million. This amount relates to the amortization of losses on interest rate contracts over the life of the related debt instruments.
The following table provides a summary of the effect on our consolidated statements of income for the three and nine months ended September 30, 20192020 and 20202021 of derivatives that were not designated as hedging instruments (in thousands):
| | | | | | Amount of Gain (Loss) Recognized on Derivatives | | | | | Amount of Gain (Loss) Recognized on Derivatives |
| | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | | Location of Gain (Loss) Recognized on Derivatives | | September 30, | | September 30, | | | Location of Gain (Loss) Recognized on Derivatives | | September 30, | | September 30, |
Derivative Instrument | Derivative Instrument | | 2019 | | 2020 | | 2019 | | 2020 | Derivative Instrument | | 2020 | | 2021 | | 2020 | | 2021 |
Futures contracts | Futures contracts | | Product sales revenue | | $ | 17,626 | | | $ | (7,734) | | | $ | (41,504) | | | $ | 89,280 | | Futures contracts | | Product sales revenue | | $ | (7,444) | | | $ | (29,626) | | | $ | 81,626 | | | $ | (122,760) | |
| Futures contracts | Futures contracts | | Cost of product sales | | (5,581) | | | 1,815 | | | (9,456) | | | (2,529) | | Futures contracts | | Cost of product sales | | 1,261 | | | 19,303 | | | (2,756) | | | 26,910 | |
Basis derivative agreement | Basis derivative agreement | | Other operating income (expense) | | (3,910) | | | (3,155) | | | (8,869) | | | (2,654) | | Basis derivative agreement | | Other operating income (expense) | | (3,155) | | | (1,702) | | | (2,654) | | | (3,629) | |
| | Total | | $ | 8,135 | | | $ | (9,074) | | | $ | (59,829) | | | $ | 84,097 | | | Total | | $ | (9,338) | | | $ | (12,025) | | | $ | 76,216 | | | $ | (99,479) | |
The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance Sheets
The following tables provide a summary of the fair value of derivatives, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, 20192020 and September 30, 20202021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 811 | | | Commodity derivatives contracts, net | | $ | 11,033 | |
Basis derivative agreement | | Other current assets | | 0 | | | Other current liabilities | | 8,457 | |
Basis derivative agreement | | Other noncurrent assets | | 0 | | | Other noncurrent liabilities | | 8,847 | |
| | Total | | $ | 811 | | | Total | | $ | 28,337 | |
| | | | | | | | |
| | September 30, 2020 |
| | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 1,095 | | | Commodity derivatives contracts, net | | $ | 3,983 | |
Futures contracts | | Other noncurrent assets | | 1,645 | | | Other noncurrent assets | | 403 | |
Basis derivative agreement | | Other current assets | | 0 | | | Other current liabilities | | 9,280 | |
Basis derivative agreement | | Other noncurrent assets | | 0 | | | Other noncurrent liabilities | | 2,994 | |
| | Total | | $ | 2,740 | | | Total | | $ | 16,660 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 127 | | | Commodity derivatives contracts, net | | $ | 21,748 | |
Future contracts | | Other noncurrent assets | | 1,074 | | | Other noncurrent liabilities | | — | |
Basis derivative agreement | | Other current assets | | — | | | Other current liabilities | | 8,774 | |
Basis derivative agreement | | Other noncurrent assets | | — | | | Other noncurrent liabilities | | 1,468 | |
| | Total | | $ | 1,201 | | | Total | | $ | 31,990 | |
| | | | | | | | |
| | September 30, 2021 |
| | Asset Derivatives | | Liability Derivatives |
Derivative Instrument | | Balance Sheet Location | | Fair Value | | Balance Sheet Location | | Fair Value |
Futures contracts | | Commodity derivatives contracts, net | | $ | 22,325 | | | Commodity derivatives contracts, net | | $ | 40,206 | |
Futures contracts | | Other noncurrent assets | | — | | | Other noncurrent liabilities | | 4,399 | |
Basis derivative agreement | | Other current assets | | — | | | Other current liabilities | | 3,120 | |
| | | | | | | | |
| | Total | | $ | 22,325 | | | Total | | $ | 47,725 | |
11.12.Fair Value
Fair Value Methods and Assumptions - Financial Assets and Liabilities
We used the following methods and assumptions in estimating fair value of our financial assets and liabilities:
•Commodity derivatives contracts. These include exchange-traded futures contracts related to petroleum products. These contracts are carried at fair value on our consolidated balance sheets and are valued based on quoted prices in active markets. See Note 1011 – Derivative Financial Instruments for further disclosures regarding these contracts.
•Basis derivative agreement. During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day (see Note 1011 - Derivative Financial Instruments for further disclosures regarding this agreement). The fair value of this derivative was calculated based on observable market data inputs, including published commodity pricing data and market interest rates. The key inputs in the fair value calculation include the forward price curves for crude oil, the implied forward correlation in crude oil prices between West Texas and the Houston Gulf Coast, and the implied forward volatility for crude oil futures contracts.
•Long-term receivables. These include payments receivable under a sales-type leasing arrangement and cost reimbursement agreements. These receivables were recorded at fair value on our
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•Long-term receivables. These primarily include payments receivable under a sales-type leasing arrangement and cost reimbursement payments receivable. These receivables were recorded at fair value on our consolidated balance sheets, using then-current market rates to estimate the present value of future cash flows.
•Guarantees and contractualContractual obligations. At September 30, 2020,2021, these primarily include a long-term contractual obligation we entered into in connection with the 2020 sale of our 3 marine terminals to a subsidiary of Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven, Connecticut terminal. TheThis contractual obligation was recorded at fair value on our consolidated balance sheets upon initial recognition and was calculated using our best estimate of potential outcome scenarios to determine our liability for the remediation costs required in this agreement.
•Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, 20192020 and September 30, 2020;2021; however, where recent observable market trades were not available, prices were determined using adjustments to the last traded value for that debt issuance or by adjustments to the prices of similar debt instruments of peer entities that are actively traded. The carrying amount of borrowings, if any, under our revolving credit facility and our commercial paper program approximates fair value due to the frequent repricing of these obligations.
Fair Value Measurements - Financial Assets and Liabilities
The following tables summarize the carrying amounts, fair values and fair value measurements recorded or disclosed as of December 31, 20192020 and September 30, 20202021 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in thousands):
| | | December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (Liabilities) | Assets (Liabilities) | | | | | Fair Value Measurements using: | Assets (Liabilities) | | | | Fair Value Measurements as of December 31, 2020 using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Commodity derivatives contracts | Commodity derivatives contracts | | $ | (10,222) | | | $ | (10,222) | | | $ | (10,222) | | | $ | — | | | $ | — | | Commodity derivatives contracts | | $ | (20,547) | | | $ | (20,547) | | | $ | (20,547) | | | $ | — | | | $ | — | |
| Basis derivative agreement | Basis derivative agreement | | $ | (17,304) | | | $ | (17,304) | | | $ | — | | | $ | (17,304) | | | Basis derivative agreement | | $ | (10,242) | | | $ | (10,242) | | | $ | — | | | $ | (10,242) | | |
Long-term receivables | Long-term receivables | | $ | 20,782 | | | $ | 20,782 | | | $ | — | | | $ | — | | | $ | 20,782 | | Long-term receivables | | $ | 22,755 | | | $ | 22,755 | | | $ | — | | | $ | — | | | $ | 22,755 | |
Guarantees and contractual obligations | | $ | (408) | | | $ | (408) | | | $ | — | | | $ | — | | | $ | (408) | | |
Contractual obligations | | Contractual obligations | | $ | (11,207) | | | $ | (11,207) | | | $ | — | | | $ | — | | | $ | (11,207) | |
Debt | Debt | | $ | (4,706,075) | | | $ | (5,192,685) | | | $ | — | | | $ | (5,192,685) | | | $ | — | | Debt | | $ | (4,978,691) | | | $ | (5,880,850) | | | $ | — | | | $ | (5,880,850) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Assets (Liabilities) | | | | | | Fair Value Measurements as of September 30, 2021 using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | | | |
Commodity derivatives contracts | | $ | (22,280) | | | $ | (22,280) | | | $ | (22,280) | | | $ | — | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Basis derivative agreement | | $ | (3,120) | | | $ | (3,120) | | | $ | — | | | $ | (3,120) | | | $ | — | |
Long-term receivables | | $ | 22,768 | | | $ | 22,768 | | | $ | — | | | $ | — | | | $ | 22,768 | |
Contractual obligations | | $ | (9,806) | | | $ | (9,806) | | | $ | — | | | $ | — | | | $ | (9,806) | |
Debt | | $ | (5,103,226) | | | $ | (5,786,692) | | | $ | — | | | $ | (5,786,692) | | | $ | — | |
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2020 |
Assets (Liabilities) | | | | | | Fair Value Measurements using: |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | | | |
Commodity derivatives contracts | | $ | (1,646) | | | $ | (1,646) | | | $ | (1,646) | | | $ | — | | | $ | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Basis derivative agreement | | $ | (12,274) | | | $ | (12,274) | | | $ | — | | | $ | (12,274) | | | $ | — | |
Long-term receivables | | $ | 21,850 | | | $ | 21,850 | | | $ | — | | | $ | — | | | $ | 21,850 | |
Guarantees and contractual obligations | | $ | (11,239) | | | $ | (11,239) | | | $ | — | | | $ | — | | | $ | (11,239) | |
Debt | | $ | (4,900,311) | | | $ | (4,872,340) | | | $ | — | | | $ | (4,872,340) | | | $ | — | |
12.13.Commitments and Contingencies
Butane Blending Patent Infringement Proceeding
On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) are infringinghave infringed patents related to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco subsequently submitted pleadings alleging that Magellan is also infringing various patents related to butane blending at 9 Magellan facilities, in addition to Powder Springs. Sunoco is seeking monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing the subject patents. We deny and are vigorously defending against all claims asserted by Sunoco. AlthoughThe amounts we have accrued in relation to the claims are immaterial, and although it is not possible to predict the ultimate outcome, we believe the ultimate resolution of this matter will not have a material adverse impact on our results of operations, financial position or cash flows.
Environmental Liabilities
Liabilities recognized for estimated environmental costs were $14.9$14.3 million and $11.9$11.8 million at December 31, 20192020 and September 30, 2020,2021, respectively. We have classified environmental liabilities as other current or noncurrent based on management’s estimates regarding the timing of actual payments. Environmental expenses recognized as a result of changes in our environmental liabilities are generally included in operating expensesexpense on our consolidated statements of income. Environmental expenses were $0.8$0.1 million and $0.1$0.4 million for the three months ended September 30, 20192020 and 2020,2021, respectively, and $4.2$1.3 million and $1.3$2.4 million for the nine months ended September 30, 20192020 and 2020,2021, respectively.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Environmental Receivables
Receivables from insurance carriers and other third parties related to environmental matters were $2.9 million at December 31, 2019, of which $1.8 million and $1.1 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets. Receivables from insurance carriers and other third parties related to environmental matters were $1.8 million at September 30, 2020, of which $1.0 million and $0.8 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets.
Other
In first quarter 2020, we entered into a long-term contractual obligation in connection with the sale of 3 marine terminals to Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven, Connecticut terminal. As of September 30,At December 31, 2020 our consolidated balance sheets reflectedsheet includes a current liability of $0.6 million and a noncurrent liability of $10.2 million, to reflectand as of September 30, 2021 our balance sheet includes a current liability of $0.5 million and a noncurrent liability of $8.9 million, reflecting the fair valuevalues of this obligation.these obligations.
We have entered into an agreement to guarantee our 50% pro rata share, up to $25.0 million, of contractual obligations under the Powder Springs’ credit facility. As of September 30, 2020,2021, our consolidated balance sheets reflected a $0.4 million other current liability and a corresponding increase in our investmentinvestments in non-controlled entities on our consolidated balance sheets to reflect the fair value of this guarantee.
We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our results of operations, financial position or cash flows.
13.Related Party Transactions
Stacy Methvin is an independent member of our general partner’s board of directors and is also a director of one of our customers. We received tariff, terminalling and other ancillary revenue from this customer of $7.1 million and $8.6 million for the three months ended September 30, 2019 and 2020, respectively, and $21.4 million and $24.3 million for the nine months ended September 30, 2019 and 2020, respectively. We recorded receivables of $3.8 million and $3.7 million from this customer at December 31, 2019 and September 30, 2020, respectively. We also received storage and other miscellaneous revenue of $0.1 million and $0.3 million for the three and nine months ended September 30, 2020, respectively, from a subsidiary of a separate company for which Stacy Methvin serves as a director.
See Note 4 – Investments in Non-Controlled Entities and Note 7 –Leases for details of transactions with our joint ventures.
14.Partners’ Capital and Distributions
Partners’ Capital
Our general partner’s board of directors authorized the repurchase of up to $750 million of our common units through 2022. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units, and the repurchase program may be suspended or discontinued at any time.
The following table details the changes in the number of our common units outstanding from December 31, 2019 through September 30, 2020:
| | | | | | | | |
Common units outstanding on December 31, 2019 | | 228,403,428 | |
Units repurchased during 2020 | | (4,987,128) | |
January 2020–Settlement of employee LTIP awards | | 275,093 | |
During 2020–Other(a)
| | 9,550 | |
Common units outstanding on September 30, 2020 | | 223,700,943 | |
| | |
(a) Common units issued to settle the equity-based retainers paid to independent directors of our general partner.
Distributions
Distributions we paid during 2019 and 2020 were as follows (in thousands, except per unit amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment Date | | Per Unit Cash Distribution Amount | | Total Cash Distribution |
02/14/2019 | | | $ | 0.9975 | | | | | $ | 227,832 | | |
05/15/2019 | | | 1.0050 | | | | | 229,545 | | |
| | | | | | | | |
08/14/2019 | | | 1.0125 | | | | | 231,258 | | |
Through 09/30/2019 | | | 3.0150 | | | | | 688,635 | | |
11/14/2019 | | | 1.0200 | | | | | 232,971 | | |
Total | | | $ | 4.0350 | | | | | $ | 921,606 | | |
| | | | | | | | |
02/14/2020 | | | $ | 1.0275 | | | | | $ | 234,774 | | |
05/15/2020 | | | 1.0275 | | | | | 231,245 | | |
| | | | | | | | |
08/14/2020 | | | 1.0275 | | | | | 231,245 | | |
Through 09/30/2020 | | | 3.0825 | | | | | 697,264 | | |
11/13/2020(a) | | | 1.0275 | | | | | 229,853 | | |
Total | | | $ | 4.1100 | | | | | $ | 927,117 | | |
| | | | | | | | |
(a) Our general partner’s board of directors declared this cash distribution in October 2020 to be paid on November 13, 2020 to unitholders of record at the close of business on November 6, 2020.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.Related Party Transactions
Stacy Methvin is an independent member of our general partner’s board of directors and also serves as a director of one of our customers. We received tariff, terminalling and other ancillary revenue from this customer of $8.6 million and $23.2 million for the three months ended September 30, 2020 and 2021, respectively, and $24.3 million and $51.6 million for the nine months ended September 30, 2020 and 2021, respectively. We occasionally have transmix settlements with this customer as well. We recorded receivables of $3.9 million and $2.3 million from this customer at December 31, 2020 and September 30, 2021, respectively.
See Note 5 – Investments in Non-Controlled Entities and Note 8 –Leases for details of transactions with our joint ventures.
15.Partners’ Capital and Distributions
Partners’ Capital
In 2020, we announced that our general partner’s board of directors had authorized the repurchase of up to $750 million of our common units through 2022. During the third quarter of 2021, we completed the repurchases authorized under this program (see Note 16 - Subsequent Events regarding a subsequent expansion of this program).
The following table details the changes in the number of our common units outstanding from December 31, 2020 through September 30, 2021:
| | | | | | | | |
Common units outstanding on December 31, 2020 | | 223,119,811 | |
Units repurchased during 2021 | | (9,837,580) | |
January 2021–Settlement of employee LTIP awards | | 150,435 | |
During 2021–Other(1) | | 12,572 | |
Common units outstanding on September 30, 2021 | | 213,445,238 | |
| | |
(1) Common units issued to settle the equity-based retainers paid to independent directors of our
general partner.
MAGELLAN MIDSTREAM PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Distributions
Distributions we paid during 2020 and 2021 were as follows (in thousands, except per unit amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Payment Date | | Per Unit Distribution Amount | | Total Distribution |
02/14/2020 | | | $ | 1.0275 | | | | | $ | 234,774 | | |
05/15/2020 | | | 1.0275 | | | | | 231,245 | | |
08/14/2020 | | | 1.0275 | | | | | 231,245 | | |
Through 09/30/2020 | | | 3.0825 | | | | | 697,264 | | |
11/13/2020 | | | 1.0275 | | | | | 229,853 | | |
Total | | | $ | 4.1100 | | | | | $ | 927,117 | | |
| | | | | | | | |
02/12/2021 | | | $ | 1.0275 | | | | | 229,423 | | |
05/14/2021 | | | 1.0275 | | | | 228,962 | | |
08/13/2021 | | | 1.0275 | | | | 226,633 | | |
Through 09/30/2021 | | | 3.0825 | | | | 685,018 | | |
11/12/2021(1) | | | 1.0375 | | | | 221,449 | | |
Total | | | $ | 4.1200 | | | | | $ | 906,467 | | |
| | | | | | | | |
(1) Our general partner’s board of directors declared this distribution in October 2021 to be paid on November 12, 2021 to unitholders of record at the close of business on November 5, 2021. The estimated total distribution is based upon the number of common units currently outstanding.
16.Subsequent Events
Recognizable events
No recognizable events occurred subsequent to September 30, 2020.2021.
Non-recognizable events
Cash Distribution. In October 2020,2021, our general partner’s board of directors declared a quarterly cash distribution of $1.0275$1.0375 per unit for the period of July 1, 20202021 through September 30, 2020.2021. This quarterly cash distribution will be paid on November 13, 202012, 2021 to unitholders of record on November 6, 2020.5, 2021.
Unit Repurchase Program. Following the completion of the $750 million repurchase program announced in 2020, our general partner’s board of directors in October 2021 authorized the expansion of our unit repurchase program by $750 million for a total of $1.5 billion and extended the program through 2024. The expanded program allows unit repurchases in compliance with Securities Exchange Act Rules 10b-18, 10b5-1 or both. Our unit repurchase program does not obligate us to acquire a specific number of units during any period, and our decision to commence, discontinue or resume repurchases in any period will depend on a number of factors, including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our units.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
We are a publicly traded limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of September 30, 2020,2021, our asset portfolio, excluding assets associated with discontinued operations, consisted of:
•our refined products segment, comprised of our approximately 9,800-mile refined petroleum products pipeline system with 54 connected terminals as well as 25 independent terminals not connected to our pipeline system and two marine storage terminals (one of which is owned through a joint venture); and
•our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, a condensate splitter and 37 million barrels of aggregate storage capacity, of which approximately 2527 million barrels are used for contract storage. Approximately 1,000 miles of these pipelines, the condensate splitter and 30 million barrels of this storage capacity (including 2224 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.
During first quarter 2020, we completed a reorganization of our reportable segments. This reorganization was effected to reflect changes in the management of our business in conjunction with the sale of three of our marine terminals. Following this sale, two of our remaining marine terminals were combined with our refined products segment and one terminal was combined with our crude oil segment based on the types of product stored at the facilities. Accordingly, we have restated our segment disclosures for all previous periods included in this report.
The following discussion provides an analysis of the results for each of our operating segments, an overview of our liquidity and capital resources and other items related to our partnership. The following discussion and analysis should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our Form 8-K filed with the Securities and Exchange Commission on May 4, 2020, which reflects changes in our reporting segments since the filing of our Annual Report on Form 10-K for the year ended December 31, 2019.
2020.
Recent Developments
COVID-19 and Decline in Commodity PricesDiscontinued Operations. . This year’s unprecedented events impacting travel and economic activity have significantly reduced demand forIn June 2021, we entered into an agreement to sell our independent terminals network comprised of 26 refined petroleum products terminals with approximately six million barrels of storage located primarily in the markets we serve.southeastern United States. The related declines in commodity prices have also significantly reducedsale is expected to close upon the valuereceipt of tender barrels we receive from our transportation customers and the margins we earn from our gas liquids blending activities.required regulatory approvals. The reduction in refined products demand and lower crude oil prices have combined to put significant downward pressure on domestic crude oil production. While we benefit from take-or-pay commitments for the majority of the capacity of our long-haul crude oil pipelines, a sustained reduction in crude oil production could cause delays in the timing of our recognition of revenue from these commitments. These factors have also significantly decreased the creditworthiness of certain of our crude oil transportation customers, resulting in an increased risk of customer defaults. To date, our operations and our employees have successfully adapted to the current environment, enabling our customers to continue benefiting from the services they rely on from our critical infrastructure, and our customers have continued to meet their obligations to us. Given the uncertain timing of a return of refined products demand to historical levels and a recovery in commodity prices, the extent of the impact these events will continue to have on ourrelated results of operations, is unclearfinancial position and could be material. However, we do not believe these events will impact our ability to meet anycash flows have been classified as discontinued operations for all periods presented. See Note 2 - Discontinued Operations and Assets Held for Sale in Item 1 of our financial obligations or result in any significant impairments to our assets.Part I of this report for further details.
Cash Sale of Partial Interest in MVP Terminalling, LLC. In April 2021, we sold nearly half of our membership interest in MVP and received proceeds of $272.1 million. Following the sale, we own approximately 25% of MVP and remain the operator of the facility.
Distribution. In October 2020,2021, our general partner’s board of directors declared a quarterly cash distribution of $1.0275$1.0375 per unit for the period of July 1, 20202021 through September 30, 2020.2021. This quarterly cash distribution will be paid on November 13, 202012, 2021 to unitholders of record on November 6, 2020.5, 2021.
Results of Operations
We believe that investors benefit from having access to the same financial measures utilized by management. Operating margin, which is presented in the following tables, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a generally accepted accounting principles (“GAAP”) measure, but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is itsthe nearest comparable GAAP financial measure, is included in the following tables. Operating profit includes expense items, such as depreciation, amortization and impairment expense and general and administrative (“G&A”) expense, which management does not focus on when evaluating the core profitability of our separate operating segments. Additionally, product margin, which management primarily uses to evaluate the profitability of our commodity-related activities, is provided in these tables. Product margin is a non-GAAP measure but itsthe components of product sales revenue and cost of product sales are determined in accordance with GAAP. Our gas liquids blending, fractionation and other commodity-related activities generate significant revenue. However, we believe the product margin from these activities, which takes into account the related cost of product sales, better represents itsthe importance to our results of operations.
During first quarter 2020, we revised our reporting segments. See Note 1 – Organization, Description of Business and Basis of Presentation of the consolidated financial statements included in Item 1 of Part I of this report for a discussion of this matter.
Three Months Ended September 30, 20192020 compared to Three Months Ended September 30, 20202021
| | | Three Months Ended September 30, | | Variance Favorable (Unfavorable) | | Three Months Ended September 30, | | Variance Favorable (Unfavorable) |
| | 2019 | | 2020 | | $ Change | | % Change | | 2020 | | 2021 | | $ Change | | % Change |
Financial Highlights ($ in millions, except operating statistics) | Financial Highlights ($ in millions, except operating statistics) | | | | | | | | Financial Highlights ($ in millions, except operating statistics) | | | | | | | |
Transportation and terminals revenue: | Transportation and terminals revenue: | | Transportation and terminals revenue: | |
Refined products | Refined products | $ | 352.6 | | | $ | 320.8 | | | $ | (31.8) | | | (9) | Refined products | $ | 307.2 | | | $ | 349.4 | | | $ | 42.2 | | | 14 |
Crude oil | Crude oil | 155.3 | | | 154.6 | | | (0.7) | | | — | Crude oil | 154.6 | | | 116.9 | | | (37.7) | | | (24) |
Intersegment eliminations | Intersegment eliminations | (1.5) | | | (1.9) | | | (0.4) | | | (27) | Intersegment eliminations | (1.9) | | | (1.4) | | | 0.5 | | | 26 |
Total transportation and terminals revenue | Total transportation and terminals revenue | 506.4 | | | 473.5 | | | (32.9) | | | (6) | Total transportation and terminals revenue | 459.9 | | | 464.9 | | | 5.0 | | | 1 |
Affiliate management fee revenue | Affiliate management fee revenue | 5.3 | | | 5.3 | | | — | | | — | Affiliate management fee revenue | 5.3 | | | 5.3 | | | — | | | — |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Refined products | Refined products | 127.4 | | | 118.5 | | | 8.9 | | | 7 | Refined products | 114.2 | | | 114.6 | | | (0.4) | | | — |
Crude oil | Crude oil | 44.9 | | | 47.0 | | | (2.1) | | | (5) | Crude oil | 47.0 | | | 35.1 | | | 11.9 | | | 25 |
Intersegment eliminations | Intersegment eliminations | (3.0) | | | (3.5) | | | 0.5 | | | 17 | Intersegment eliminations | (3.5) | | | (3.1) | | | (0.4) | | | (11) |
Total operating expenses | Total operating expenses | 169.3 | | | 162.0 | | | 7.3 | | | 4 | Total operating expenses | 157.7 | | | 146.6 | | | 11.1 | | | 7 |
Product margin: | Product margin: | | Product margin: | |
Product sales revenue | Product sales revenue | 144.8 | | | 119.4 | | | (25.4) | | | (18) | Product sales revenue | 111.2 | | | 168.8 | | | 57.6 | | | 52 |
Cost of product sales | Cost of product sales | 108.7 | | | 96.0 | | | 12.7 | | | 12 | Cost of product sales | 89.4 | | | 145.8 | | | (56.4) | | | (63) |
Product margin | Product margin | 36.1 | | | 23.4 | | | (12.7) | | | (35) | Product margin | 21.8 | | | 23.0 | | | 1.2 | | | 6 |
Other operating income (expense) | Other operating income (expense) | (0.4) | | | (3.0) | | | (2.6) | | | (650) | Other operating income (expense) | (2.9) | | | 2.6 | | | 5.5 | | | n/a |
Earnings of non-controlled entities | Earnings of non-controlled entities | 50.1 | | | 39.2 | | | (10.9) | | | (22) | Earnings of non-controlled entities | 39.2 | | | 36.5 | | | (2.7) | | | (7) |
Operating margin | Operating margin | 428.2 | | | 376.4 | | | (51.8) | | | (12) | Operating margin | 365.6 | | | 385.7 | | | 20.1 | | | 5 |
Depreciation, amortization and impairment expense | Depreciation, amortization and impairment expense | 56.6 | | | 71.8 | | | (15.2) | | | (27) | Depreciation, amortization and impairment expense | 68.4 | | | 61.4 | | | 7.0 | | | 10 |
G&A expense | G&A expense | 51.1 | | | 38.0 | | | 13.1 | | | 26 | G&A expense | 37.5 | | | 46.7 | | | (9.2) | | | (25) |
Operating profit | Operating profit | 320.5 | | | 266.6 | | | (53.9) | | | (17) | Operating profit | 259.7 | | | 277.6 | | | 17.9 | | | 7 |
Interest expense (net of interest income and interest capitalized) | Interest expense (net of interest income and interest capitalized) | 47.3 | | | 52.7 | | | (5.4) | | | (11) | Interest expense (net of interest income and interest capitalized) | 52.7 | | | 56.6 | | | (3.9) | | | (7) |
Gain on disposition of assets | Gain on disposition of assets | (2.6) | | | — | | | (2.6) | | | (100) | Gain on disposition of assets | — | | | (3.2) | | | 3.2 | | | — |
Other expense | 2.6 | | | 1.5 | | | 1.1 | | | 42 | |
Income before provision for income taxes | 273.2 | | | 212.4 | | | (60.8) | | | (22) | |
Other (income) expense | | Other (income) expense | 1.4 | | | 2.1 | | | (0.7) | | | (50) |
Income from continuing operations before provision for income taxes | | Income from continuing operations before provision for income taxes | 205.6 | | | 222.1 | | | 16.5 | | | 8 |
Provision for income taxes | Provision for income taxes | 0.2 | | | 0.8 | | | (0.6) | | | (300) | Provision for income taxes | 0.9 | | | 0.8 | | | 0.1 | | | 11 |
Income from continuing operations | | Income from continuing operations | 204.7 | | | 221.3 | | | 16.6 | | | 8 |
Income from discontinued operations | | Income from discontinued operations | 6.9 | | | 15.3 | | | 8.4 | | | 122 |
Net income | Net income | $ | 273.0 | | | $ | 211.6 | | | $ | (61.4) | | | (22) | Net income | $ | 211.6 | | | $ | 236.6 | | | $ | 25.0 | | | 12 |
| Operating Statistics: | Operating Statistics: | | | | | | | Operating Statistics: | |
Refined products: | Refined products: | | Refined products: | |
Transportation revenue per barrel shipped | Transportation revenue per barrel shipped | $ | 1.618 | | | $ | 1.719 | | | Transportation revenue per barrel shipped | $ | 1.719 | | | $ | 1.724 | | |
Volume shipped (million barrels): | Volume shipped (million barrels): | | Volume shipped (million barrels): | | |
Gasoline | Gasoline | 74.5 | | | 71.9 | | | Gasoline | 71.9 | | | 80.3 | | |
Distillates | Distillates | 47.0 | | | 42.5 | | | Distillates | 42.5 | | | 53.0 | | |
Aviation fuel | Aviation fuel | 11.1 | | | 4.7 | | | Aviation fuel | 4.7 | | | 8.4 | | |
Liquefied petroleum gases | Liquefied petroleum gases | 3.8 | | | 0.1 | | | Liquefied petroleum gases | 0.1 | | | 0.1 | | |
Total volume shipped | Total volume shipped | 136.4 | | | 119.2 | | | Total volume shipped | 119.2 | | | 141.8 | | |
Crude oil: | Crude oil: | | | | | Crude oil: | | | | |
Magellan 100%-owned assets: | Magellan 100%-owned assets: | | Magellan 100%-owned assets: | | |
Transportation revenue per barrel shipped | Transportation revenue per barrel shipped | $ | 0.935 | | | $ | 1.401 | | | Transportation revenue per barrel shipped | $ | 1.401 | | | $ | 0.803 | | |
Volume shipped (million barrels)(1) | Volume shipped (million barrels)(1) | 79.2 | | | 45.1 | | | Volume shipped (million barrels)(1) | 45.1 | | | 49.2 | | |
Terminal average utilization (million barrels per month) | Terminal average utilization (million barrels per month) | 22.9 | | | 25.9 | | | Terminal average utilization (million barrels per month) | 25.9 | | | 24.9 | | |
Select joint venture pipelines: | Select joint venture pipelines: | | Select joint venture pipelines: | | |
BridgeTex - volume shipped (million barrels)(2) | BridgeTex - volume shipped (million barrels)(2) | 40.8 | | | 30.6 | | | BridgeTex - volume shipped (million barrels)(2) | 30.6 | | | 29.1 | | |
Saddlehorn - volume shipped (million barrels)(3) | Saddlehorn - volume shipped (million barrels)(3) | 17.0 | | | 15.1 | | | Saddlehorn - volume shipped (million barrels)(3) | 15.1 | | | 19.9 | | |
(1) Volume shipped includes shipments related to our crude oil marketing activities.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 30% by us.
(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which is owned 30% by us.
Transportation and terminals revenue increased $5.0 million resulting from:
•an increase in refined products revenue of $42.2 million primarily due to increased transportation revenue as a result of higher volumes versus the pandemic levels of 2020 due to the recovery in travel, economic and drilling activity as well as additional contributions from our Texas pipeline expansion projects. Transportation revenues for the current period also benefited from our mid-year 2021 tariff increase. These favorable items were partially offset by lower storage revenues due to lower utilization and rates following recent contract expirations; and
•a decrease in crude oil revenue of $37.7 million primarily due to lower average tariff rates and reduced storage revenues. Average tariff rates decreased primarily as a result of the late 2020 expiration of several higher-priced contracts on our Longhorn pipeline, with much of this volume replaced by activities of our marketing affiliate. In addition, deficiency revenue recognized in the year-ago period did not recur in third quarter 2021. Storage revenues decreased primarily due to the 2020 period benefiting from increased short-term storage utilization at higher rates, with recent contract renewals at lower rates in the current period.
Operating expenses decreased by $11.1 million primarily resulting from:
•an increase in refined products expenses of $0.4 million. An increase in integrity spending related to the timing of maintenance work, higher power costs due to higher volume shipped and higher property taxes were mainly offset by favorable product overages (which reduce operating expenses); and
•a decrease in crude oil expenses of $11.9 million primarily due to a decrease in integrity spending related to the timing of maintenance work, lower fees paid to Seabrook for ancillary services and favorable product overages.
Product margin increased $1.2 million primarily due to recognition of losses on futures contracts in third quarter 2020 offset by lower margins and lower sales volumes on our gas liquids blending and fractionation activities in the current period.
Other operating income (expense) was $5.5 million favorable in part due to reduced estimates for retained liabilities related to our 2020 marine terminals sale and lower losses recognized on a basis derivative agreement during the current period.
Earnings of non-controlled entities decreased $2.7 million primarily due to the sale of a portion of our interest in MVP during second quarter 2021. We also earned less from Seabrook due to lower throughput fees and additional depreciation for recently-constructed assets and BridgeTex due to less favorable product overages. These decreases were partially offset by additional earnings from Powder Springs due to gains on futures contracts in the current quarter.
Depreciation, amortization and impairment expense decreased $7.0 million primarily due to the impairment in third quarter 2020 of certain terminalling assets.
G&A expense increased $9.2 million primarily due to higher incentive compensation costs as a result of improved financial results in 2021.
Interest expense, net of interest income and interest capitalized, increased $3.9 million due to lower capitalized interest as a result of reduced ongoing expansion capital spending and higher debt outstanding. Our weighted-average debt outstanding was $5.1 billion in third quarter 2021 compared to $4.9 billion in third quarter 2020. The weighted average interest rate was 4.4% in third quarter 2021 compared to 4.3% in third quarter 2020.
Gain on disposition of assets of $3.2 million in the current period resulted from true-ups for previous asset sales, including the final working capital adjustments related to the sale of a portion of our interest in MVP.
Income from discontinued operations increased by $8.4 million due to improved product margin for our independent terminals as a result of higher gas liquids blending volume sold at increased pricing and less depreciation now that the assets are classified as held for sale.
Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Variance Favorable (Unfavorable) |
| 2020 | | 2021 | | $ Change | | % Change |
Financial Highlights ($ in millions, except operating statistics) | | | | | | | |
Transportation and terminals revenue: | | | | | | | |
Refined products | $ | 876.4 | | | $ | 984.9 | | | $ | 108.5 | | | 12 |
Crude oil | 433.9 | | | 351.8 | | | (82.1) | | | (19) |
Intersegment eliminations | (5.1) | | | (4.4) | | | 0.7 | | | 14 |
Total transportation and terminals revenue | 1,305.2 | | | 1,332.3 | | | 27.1 | | | 2 |
Affiliate management fee revenue | 15.9 | | | 15.9 | | | — | | | — |
Operating expenses: | | | | | | | |
Refined products | 316.3 | | | 314.2 | | | 2.1 | | | 1 |
Crude oil | 139.7 | | | 118.1 | | | 21.6 | | | 15 |
Intersegment eliminations | (9.9) | | | (9.4) | | | (0.5) | | | (5) |
Total operating expenses | 446.1 | | | 422.9 | | | 23.2 | | | 5 |
Product margin: | | | | | | | |
Product sales revenue | 443.1 | | | 575.6 | | | 132.5 | | | 30 |
Cost of product sales | 364.9 | | | 488.6 | | | (123.7) | | | (34) |
Product margin | 78.2 | | | 87.0 | | | 8.8 | | | 11 |
Other operating income (expense) | 0.5 | | | 4.0 | | | 3.5 | | | 700 |
Earnings of non-controlled entities | 116.5 | | | 116.1 | | | (0.4) | | | — |
Operating margin | 1,070.2 | | | 1,132.4 | | | 62.2 | | | 6 |
Depreciation, amortization and impairment expense | 183.2 | | | 168.3 | | | 14.9 | | | 8 |
G&A expense | 115.5 | | | 148.7 | | | (33.2) | | | (29) |
Operating profit | 771.5 | | | 815.4 | | | 43.9 | | | 6 |
Interest expense (net of interest income and interest capitalized) | 168.0 | | | 169.3 | | | (1.3) | | | (1) |
Gain on disposition of assets | (12.9) | | | (72.9) | | | 60.0 | | | 465 |
Other (income) expense | 3.7 | | | 18.1 | | | (14.4) | | | (389) |
Income from continuing operations before provision for income taxes | 612.7 | | | 700.9 | | | 88.2 | | | 14 |
Provision for income taxes | 2.2 | | | 2.0 | | | 0.2 | | | 9 |
Income from continuing operations | 610.5 | | | 698.9 | | | 88.4 | | | 14 |
Income from discontinued operations | 22.5 | | | 39.4 | | | 16.9 | | | 75 |
Net income | $ | 633.0 | | | $ | 738.3 | | | $ | 105.3 | | | 17 |
| | | | | | | |
Operating Statistics: | | | | | | | |
Refined products: | | | | | | | |
Transportation revenue per barrel shipped | $ | 1.658 | | | $ | 1.697 | | | | | |
Volume shipped (million barrels): | | | | | | | |
Gasoline | 199.4 | | | 224.1 | | | | | |
Distillates | 127.6 | | | 152.4 | | | | | |
Aviation fuel | 16.8 | | | 21.7 | | | | | |
Liquefied petroleum gases | 0.5 | | | 0.6 | | | | | |
Total volume shipped | 344.3 | | | 398.8 | | | | | |
Crude oil: | | | | | | | |
Magellan 100%-owned assets: | | | | | | | |
Transportation revenue per barrel shipped | $ | 1.145 | | | $ | 0.803 | | | | | |
Volume shipped (million barrels)(1) | 167.9 | | | 145.3 | | | | | |
Terminal average utilization (million barrels per month) | 24.7 | | | 25.1 | | | | | |
Select joint venture pipelines: | | | | | | | |
BridgeTex - volume shipped (million barrels)(2) | 99.9 | | | 84.6 | | | | | |
Saddlehorn - volume shipped (million barrels)(3) | 46.5 | | | 56.0 | | | | | |
(1) Volume shipped in 2020 reflects a change in the wayincludes shipments related to our customers contract for our services pursuant to which customers are able to utilize crude oil storage capacity at East Houston and dock access at Seabrook. Subsequent to this change, the services we provide no longer include a transportation element. Therefore, revenues related to these services are reflected entirely as terminalling revenues and the related volumes are no longer reflected in our calculation of transportation volumes.marketing activities.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 30% by us.
(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which was owned 40% by us through January 31, 2020 and 30% thereafter.
Transportation and terminals revenue decreased $32.9 million resulting from:
•a decrease in refined products revenue of $31.8 million. Transportation volumes decreased primarily due to lower demand in the current year associated with the ongoing impact from COVID-19 and related restrictions as well as reduced drilling activity in response to the lower commodity price environment. Revenues also decreased due to the sale of three marine terminals in first quarter 2020 and discontinuation of the ammonia pipeline operations in late 2019. These declines were partially offset by an increase in the average tariff rate in the current period as well as contributions from the recently-constructed East Houston-to-Hearne pipeline segment that became operational in late 2019 and the West Texas expansion that began operations in the third quarter of 2020. Average tariff rates increased as a result of the 2020 mid-year adjustment as well as reduced short-haul shipments on the South Texas pipelines, which move at a lower rate; and
•a decrease in crude oil revenue of $0.7 million. Lower third-party spot shipments on our Longhorn pipeline due to less favorable differentials between the Permian Basin and Houston were largely offset by the activities of our marketing affiliate. Average tariff rates increased as a result of lower shipments on our Houston distribution system, which move at a lower rate than longer-haul shipments. Lower transportation volume on our Houston distribution system resulted primarily from a change in the way customers now contract for services at our Seabrook export facility, and was offset by incremental revenue from the related terminal transfer fee. Tender deduction revenues also decreased due to lower crude oil prices. These declines were partially offset by increased storage revenues as more contract storage was utilized at higher rates.
Operating expenses decreased by $7.3 million primarily resulting from:
•a decrease in refined products expenses of $8.9 million primarily due to timing of planned integrity spending as well as no costs in the current period associated with the sold or discontinued assets, partially offset by less favorable product overages (which reduce operating expenses); and
•an increase in crude oil expenses of $2.1 million due to the timing of integrity spending and less favorable product overages.
Product margin decreased $12.7 million primarily due to recognition of losses on futures contracts in third quarter 2020 compared to gains in 2019, partially offset by higher sales volume related to our fractionation activities.
Other operating income (expense) was $2.6 million unfavorable primarily due to insurance proceeds received in third quarter 2019 related to Hurricane Harvey.
Earnings of non-controlled entities decreased $10.9 million primarily due to decreased earnings from BridgeTex Pipeline Company, LLC (“BridgeTex”) mainly due to lower volume resulting from less spot shipments based on unfavorable market conditions and customer use of previously earned credits. We also earned less from Saddlehorn Pipeline Company, LLC (“Saddlehorn”) due to our reduced ownership interest. These decreases were partially offset by additional earnings from MVP Terminalling, LLC (“MVP”) from the recent start-up of newly-constructed storage and dock assets.
Depreciation, amortization and impairment expense increased $15.2 million primarily due to the impairment in third quarter 2020 of certain terminalling assets and more assets placed into service.
G&A expense decreased $13.1 million primarily due to lower incentive compensation accruals to reflect the impacts of COVID-19 related reductions in economic activity and the significant decline in commodity prices.
Interest expense, net of interest income and interest capitalized, increased $5.4 million primarily due to lower capitalized interest as a result of lower ongoing construction project spending and higher outstanding debt. Our weighted-average debt outstanding was $4.9 billion in third quarter 2020 compared to $4.6 billion in third quarter 2019. The weighted average interest rate was 4.3% in third quarter 2020 compared to 4.6% in third quarter 2019.
Gain on disposition of assets was $2.6 million unfavorable due to additional gain recorded in third quarter 2019 related to our discontinued Delaware Basin pipeline construction project that was subsequently sold to a third party.
Other expense was $1.1 million favorable due to lower pension-related costs in the current period.
Nine Months Ended September 30, 2019 compared to Nine Months Ended September 30, 2020
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Variance Favorable (Unfavorable) |
| 2019 | | 2020 | | $ Change | | % Change |
Financial Highlights ($ in millions, except operating statistics) | | | | | | | |
Transportation and terminals revenue: | | | | | | | |
Refined products | $ | 1,009.8 | | | $ | 914.9 | | | $ | (94.9) | | | (9) |
Crude oil | 467.6 | | | 433.9 | | | (33.7) | | | (7) |
Intersegment eliminations | (3.8) | | | (5.1) | | | (1.3) | | | (34) |
Total transportation and terminals revenue | 1,473.6 | | | 1,343.7 | | | (129.9) | | | (9) |
Affiliate management fee revenue | 15.8 | | | 15.9 | | | 0.1 | | | 1 |
Operating expenses: | | | | | | | |
Refined products | 362.9 | | | 327.8 | | | 35.1 | | | 10 |
Crude oil | 129.4 | | | 139.7 | | | (10.3) | | | (8) |
Intersegment eliminations | (8.0) | | | (9.9) | | | 1.9 | | | 24 |
Total operating expenses | 484.3 | | | 457.6 | | | 26.7 | | | 6 |
Product margin: | | | | | | | |
Product sales revenue | 497.8 | | | 481.8 | | | (16.0) | | | (3) |
Cost of product sales | 430.7 | | | 395.8 | | | 34.9 | | | 8 |
Product margin | 67.1 | | | 86.0 | | | 18.9 | | | 28 |
Other operating income (expense) | 1.5 | | | 0.5 | | | (1.0) | | | (67) |
Earnings of non-controlled entities | 122.2 | | | 116.5 | | | (5.7) | | | (5) |
Operating margin | 1,195.9 | | | 1,105.0 | | | (90.9) | | | (8) |
Depreciation, amortization and impairment expense | 181.0 | | | 193.9 | | | (12.9) | | | (7) |
G&A expense | 149.5 | | | 117.0 | | | 32.5 | | | 22 |
Operating profit | 865.4 | | | 794.1 | | | (71.3) | | | (8) |
Interest expense (net of interest income and interest capitalized) | 148.3 | | | 168.0 | | | (19.7) | | | (13) |
Gain on disposition of assets | (29.0) | | | (12.9) | | | (16.1) | | | (56) |
Other expense | 9.2 | | | 3.8 | | | 5.4 | | | 59 |
Income before provision for income taxes | 736.9 | | | 635.2 | | | (101.7) | | | (14) |
Provision for income taxes | 2.5 | | | 2.2 | | | 0.3 | | | 12 |
Net income | $ | 734.4 | | | $ | 633.0 | | | $ | (101.4) | | | (14) |
Operating Statistics: | | | | | | | |
Refined products: | | | | | | | |
Transportation revenue per barrel shipped | $ | 1.600 | | | $ | 1.658 | | | | | |
Volume shipped (million barrels): | | | | | | | |
Gasoline | 207.4 | | | 199.4 | | | | | |
Distillates | 138.8 | | | 127.6 | | | | | |
Aviation fuel | 29.8 | | | 16.8 | | | | | |
Liquefied petroleum gases | 8.9 | | | 0.5 | | | | | |
Total volume shipped | 384.9 | | | 344.3 | | | | | |
Crude oil: | | | | | | | |
Magellan 100%-owned assets: | | | | | | | |
Transportation revenue per barrel shipped | $ | 0.952 | | | $ | 1.145 | | | | | |
Volume shipped (million barrels)(1) | 239.1 | | | 167.9 | | | | | |
Terminal average utilization (million barrels per month) | 22.7 | | | 24.7 | | | | | |
Select joint venture pipelines: | | | | | | | |
BridgeTex - volume shipped (million barrels)(2) | 117.3 | | | 99.9 | | | | | |
Saddlehorn - volume shipped (million barrels)(3) | 39.4 | | | 46.5 | | | | | |
| | | | | | | |
(1) Volume shipped includes shipments related to our crude oil marketing activities. Volume shipped in 2020 reflects a change in the way our customers contract for our services pursuant to which customers are able to utilize crude oil storage capacity at East Houston and dock access at Seabrook. Subsequent to this change, the services we provide no longer include a transportation element. Therefore, revenues related to these services are reflected entirely as terminalling revenues and the related volumes are no longer reflected in our calculation of transportation volumes.
(2) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 30% by us.
(3) These volumes reflect the total shipments for the Saddlehorn pipeline, which was owned 40% by us through January 31, 2020 and 30% thereafter.
Transportation and terminals revenue decreased $129.9increased $27.1 million resulting from:
•a decreasean increase in refined products revenue of $94.9 million. Transportation volumes decreased$108.5 million primarily due to lower demand duringincreased transportation revenue as a result of higher volumes versus the pandemic levels of 2020 associated withdue to the ongoing impact from COVID-19recovery in travel, economic and related restrictionsdrilling activity as well as reduced drilling activity in response to the lower commodity price environment.additional contributions from our Texas pipeline expansion projects. Revenues also decreased due to the sale of three marine terminals in first quarter 2020 and discontinuation of the ammonia pipeline operations in late 2019. These declines were partially offset bybenefited from an increase in the average tariff rate in the current period as a result of the 20192020 and 20202021 mid-year adjustments, as well as contributions fromadjustments. These favorable items were partially offset by the recently-constructed East Houston-to-Hearne pipeline segment that became operational in late 2019 and the West Texas expansion that began operationsabsence of revenues in the third quarter of 2020;current period associated with the three marine terminals we sold in March 2020 and lower storage revenues due to lower utilization and lower rates following recent contract expirations; and
•a decrease in crude oil revenue of $33.7 million. Lower third-party spot shipments$82.1 million primarily due to lower average tariff rates, less volume shipped and reduced storage revenues. Average tariff rates decreased primarily as a result of the late 2020 expiration of several higher-priced contracts on our Longhorn pipelinepipeline. In addition, deficiency revenue recognized in the year-ago period did not recur in 2021. Transportation volumes also declined partially due to less favorable differentials between the Permian Basin and Houston were partially offsetthose Longhorn contract expirations, with much of this volume replaced by the activities of our marketing affiliate. Average tariff rates increasedaffiliate, as a result of lowerwell as short-term supply disruptions caused by the 2021 winter storm that negatively impacted shipments mainly on our Houston distribution system, which movesystem. Storage revenues decreased primarily due to the 2020 period benefiting from increased short-term storage utilization at ahigher rates and contract renewals at lower rate than longer-haul shipments. Lower transportation volume on our Houston distribution system resulted primarily from a changerates in the way customers now contract for services at our Seabrook export facility, and was offset by incremental revenue from the related terminal transfer fee. Tender deduction revenues also decreased due to lower crude oil prices. These declines were partially offset by increased storage revenues as more contract storage was utilized at higher rates.current period.
Operating expenses decreased by $26.7$23.2 million primarily resulting from:
•a decrease in refined products expenses of $35.1 million primarily due to timing$2.1 million. Favorable product overages and the absence of planned integrity spending as well as no costs in the current period associated with the sold or discontinued assets,divested marine terminals were partially offset by less favorable product overages;higher compensation costs and more integrity spending due to timing of project work; and
•an increasea decrease in crude oil expenses of $10.3$21.6 million primarily due to lower power costs as a result of our recent optimization efforts as well as gains on power hedges driven by the timing ofwinter storm in first quarter 2021, lower fees paid to Seabrook for ancillary services and lower integrity spending and less favorable product overages.spending.
Product margin increased $18.9$8.8 million primarily due to recognitionlower of gains on futures contracts in the current period compared to losses in 2019, partially offset by lower gas liquids blending margins driven by lower sales volumes and lower commodity prices and unfavorable lower-of-cost-or-net-realizable-valuecost or net realizable value adjustments duringthat negatively impacted 2020 due toas a result of the significant decrease in commodity prices.prices that year and higher margins on our fractionator and crude over/short activities, partially offset by reduced margins on our gas liquids blending activities in the current year.
Other operating income (expense) was $1.0$3.5 million unfavorable in 2020favorable primarily due to insurance settlements received in 2019sales of unused air emission credits and reduced estimates for retained liabilities related to Hurricane Harvey, partially offset by less losses recognized on a basis derivative agreement during the current period.our 2020 marine terminals sale.
Earnings of non-controlled entities decreased $5.7 million primarily$0.4 million. Lower earnings from MVP following the sale of a portion of our interest during second quarter 2021 and from Powder Springs due to lower earnings from BridgeTex and Saddlehorngains recognized in 2020, partiallythe current year on futures contracts were mostly offset by additional earningscontributions from expansion projects at MVP from the recent start-up of newly-constructed storage and dock assets and increased earnings from Powder Springs Logistics, LLC (“Powder Springs”).Saddlehorn.
Depreciation, amortization and impairment expense increased $12.9decreased $14.9 million primarily due to the impairment oflosses recognized in 2020 related to certain terminalling assets in 2020 and more assets placed into service.assets.
G&A expense decreased $32.5increased $33.2 million primarily due to lowerhigher incentive compensation accruals to reflect the impactscosts as a result of COVID-19 related reductionsimproved financial results, as well as higher benefits costs in economic activity and the significant decline in commodity prices.2021.
Interest expense, net of interest income and interest capitalized, increased $19.7$1.3 million primarily due to higher outstanding debt and higher costs associated with early debt retirement, as well as lower capitalized interest (due to lowerin the current year as a result of reduced ongoing construction project spending in 2020).expansion capital spending. Our averageweighted-average debt outstanding debt increased from $4.5was $5.1 billion in 2019the 2021 period compared to $4.9 billion in 2020. Our weighted-averageThe weighted average interest rate decreased from 4.6%was 4.4% in 20192021 compared to 4.5% in 2020.
Gain on disposition of assets of $72.9 million in 2021 was $16.1 million unfavorable. In 2020, we recognized a gain onprimarily the result of the sale of a portion of our interest in Saddlehorn ofMVP and $12.9 million. In 2019, wemillion recognized a deferred gain of $11.0 million relatedin 2020 was due to the 2018 sale of a portion of our investmentinterest in BridgeTex, a gain of $12.7 million related to our discontinued Delaware Basin crude oil pipeline construction project that was sold to a third party and a gain of $5.3 million resulting from the sale of an inactive terminal along our refined products pipeline system.
Saddlehorn.
Other expense was $5.4$14.4 million favorableunfavorable primarily due to lower pension-related costsamounts recognized in second quarter 2021 related to certain legal matters.
Income from discontinued operations increased by $16.9 million due to improved product margin for our independent terminals as a result of higher gas liquids blending volume sold at increased pricing and less depreciation now that the current period.
assets are classified as held for sale.
Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow
We calculatebelieve that investors benefit from having access to the non-GAAPsame financial measures utilized by management. In the following tables, we present the financial measures of adjusted EBITDA, distributable cash flow (“DCF”) and free cash flow (“FCF”), which are non-GAAP measures. These measures include the results of our discontinued operations.
Adjusted EBITDA is an important measure utilized by management and the investment community to assess the financial results of a company. A reconciliation of adjusted EBITDA to net income, the nearest comparable GAAP measure, is included in the table below. Management uses
Our partnership agreement requires that all of our available cash, less amounts reserved by our general partner’s board of directors, be distributed to our unitholders. DCF is used by management to determine the amount of cash that our operations generated, after maintenance capital spending, that is available for distribution to our unitholders, as well as a basis for recommending to our general partner’s board of directors the amount of cash distributions to be paid to our common unitholders each period. ManagementWe also usesuse DCF as athe basis for determining the payouts for thecalculating our performance-based awards issued under our equity-based compensation plan. Adjusted EBITDA is an important measure that we and the investment community use to assess the financial results of an entity. We believe that investors benefit from having access to the same financial measures utilized by management for these evaluations.equity long-term incentive compensation. A reconciliation of DCF to net income, the nearest comparable GAAP measure, is included in the table below.
FCF is a financial metric used by many investors and adjustedothers in the financial community to measure the amount of cash generated by a company during a period after accounting for all investing activities, including both maintenance and expansion capital spending, as well as proceeds from divestitures. We believe FCF is important to the financial community as it reflects the amount of cash available for distributions, unit repurchases, debt reduction, additional investments or other partnership uses. A reconciliation of FCF to net income and to net cash provided by operating activities, the nearest comparable GAAP measure, is included in the following tables.
Since the non-GAAP measures presented here include adjustments specific to us, they may not be comparable to similarly-titled measures of other companies.
Adjusted EBITDA, DCF and FCF are non-GAAP measures. A reconciliation of each of these measures to net income for the nine months ended September 30, 20192020 and 2020 to net income, which2021 is its nearest comparable GAAP financial measure,as follows (in millions):
| | | Nine Months Ended September 30, | | Increase (Decrease) | | Nine Months Ended September 30, | | |
| | 2019 | | 2020 | | | 2020 | | 2021 | | |
Net income | Net income | | $ | 734.4 | | | $ | 633.0 | | | $ | (101.4) | | Net income | | $ | 633.0 | | | $ | 738.3 | | | |
Interest expense, net | Interest expense, net | | 148.3 | | | 168.0 | | | 19.7 | | Interest expense, net | | 168.0 | | | 169.3 | | | |
Depreciation, amortization and impairment(1) | Depreciation, amortization and impairment(1) | | 176.9 | | | 193.4 | | | 16.5 | | Depreciation, amortization and impairment(1) | | 193.4 | | | 174.4 | | | |
Equity-based incentive compensation(2) | Equity-based incentive compensation(2) | | 12.8 | | | (9.1) | | | (21.9) | | Equity-based incentive compensation(2) | | (9.1) | | | 9.5 | | | |
| Gain on disposition of assets(3) | Gain on disposition of assets(3) | | (16.3) | | | (10.5) | | | 5.8 | | Gain on disposition of assets(3) | | (10.5) | | | (68.5) | | | |
| Commodity-related adjustments: | Commodity-related adjustments: | | Commodity-related adjustments: | | |
Derivative (gains) losses recognized in the period associated with future transactions(4) | Derivative (gains) losses recognized in the period associated with future transactions(4) | | 13.7 | | | 6.7 | | | (7.0) | | Derivative (gains) losses recognized in the period associated with future transactions(4) | | 6.7 | | | 21.1 | | | |
Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | | 71.2 | | | (18.9) | | | (90.1) | | Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4) | | (18.9) | | | (32.2) | | | |
Inventory valuation adjustments(5) | Inventory valuation adjustments(5) | | (9.7) | | | 9.5 | | | 19.2 | | Inventory valuation adjustments(5) | | 9.6 | | | 2.4 | | | |
Total commodity-related adjustments | Total commodity-related adjustments | | 75.2 | | | (2.7) | | | (77.9) | | Total commodity-related adjustments | | (2.6) | | | (8.7) | | | |
Distributions from operations of non-controlled entities in excess of earnings | Distributions from operations of non-controlled entities in excess of earnings | | 15.9 | | | 36.2 | | | 20.3 | | Distributions from operations of non-controlled entities in excess of earnings | | 36.2 | | | 24.5 | | | |
| Adjusted EBITDA | Adjusted EBITDA | | 1,147.2 | | | 1,008.3 | | | (138.9) | | Adjusted EBITDA | | 1,008.4 | | | 1,038.8 | | | |
Interest expense, net, excluding debt issuance cost amortization(6) | Interest expense, net, excluding debt issuance cost amortization(6) | | (137.5) | | | (152.3) | | | (14.8) | | Interest expense, net, excluding debt issuance cost amortization(6) | | (152.4) | | | (167.0) | | | |
Maintenance capital(7) | Maintenance capital(7) | | (70.1) | | | (81.2) | | | (11.1) | | Maintenance capital(7) | | (81.2) | | | (50.2) | | | |
DCF | | $ | 939.6 | | | $ | 774.8 | | | $ | (164.8) | | |
Distributable cash flow | | Distributable cash flow | | 774.8 | | | 821.6 | | | |
Expansion capital(8) | | Expansion capital(8) | | (310.0) | | | (67.6) | | | |
Proceeds from asset sales | | Proceeds from asset sales | | 334.6 | | | 270.7 | | | |
Free cash flow | | Free cash flow | | 799.4 | | | 1,024.7 | | | |
Distributions paid | | Distributions paid | | (697.3) | | | (685.0) | | | |
Free cash flow after distributions | | Free cash flow after distributions | | $ | 102.1 | | | $ | 339.7 | | | |
|
(1) Depreciation, amortization and impairment expense is excluded from DCF to the extent it represents a non-cash expense.
(2) Because we intend to satisfy vesting of unit awards under our equity-based long-term incentive compensation plan with the issuance of common units, expenses related to this plan generally are deemed non-cash and added backexcluded for DCF purposes. The amounts above have been reduced by cash payments associated with the plan, which are primarily related to tax withholdings.
(3) Gains on disposition of assets are excluded from DCF to the extent they are not related to our ongoing operations.
(4) Certain derivatives have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in net income. We exclude the net impact of these derivatives from our determination of DCF until the
transactions are settled and, where applicable, the related products are sold. In the period in which these transactions are settled and any related products are sold, the net impact of the derivatives is included in DCF.
(5) We adjust DCF for lower of average cost or net realizable value adjustments related to inventory and firm purchase commitments as well as market valuation of short positions recognized each period as these are non-cash items. In subsequent periods when we physically sell or purchase the related products, we adjust DCF for the valuation adjustments previously recognized.
(6) Interest expense includes $8.3 million of debt prepayment costs in 2019 andof $12.9 million in the nine months ended September 30, 2020, which are excluded from DCF as they are financing activities and not related to our ongoing operations.
(7) Maintenance capital expenditures maintain our existing assets and do not generate incremental DCF (i.e. incremental returns to our unitholders). For this reason, we deduct maintenance capital expenditures to determine DCF.
(8) Includes additions to property, plant and equipment (excluding maintenance capital and capital-related changes in accounts payable and other current liabilities), acquisitions and investments in non-controlled entities, net of distributions from returns of investments in non-controlled entities and deposits from undivided joint interest third parties.
A reconciliation of FCF to net cash provided by operating activities for the nine months ended September 30, 2020 and 2021 is as follows (in millions):
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2021 |
Net cash provided by operating activities | | $ | 840.1 | | | $ | 879.1 | |
Changes in operating assets and liabilities | | 30.4 | | | 0.6 | |
Net cash provided (used) in investing activities | | (110.3) | | | 160.1 | |
Payments associated with settlement of equity-based incentive compensation | | (14.7) | | | (6.2) | |
Settlement gain, amortization of prior service credit and actuarial loss | | (4.0) | | | (7.2) | |
Changes in accrued capital items | | 52.8 | | | (4.0) | |
Commodity-related adjustments(1) | | (2.6) | | | (8.7) | |
Other | | 7.7 | | | 11.0 | |
Free cash flow | | 799.4 | | | 1,024.7 | |
Distributions paid | | (697.3) | | | (685.0) | |
Free cash flow after distributions | | $ | 102.1 | | | $ | 339.7 | |
| | | | |
(1) Please refer to the preceding table for a description of these commodity-related adjustments.
Liquidity and Capital Resources
Cash Flows and Capital Expenditures
Operating Activities. Net cash provided by operating activities was $922.6$840.1 million and $840.1$879.1 million for the nine months ended September 30, 20192020 and 2020,2021, respectively. The $82.5$39.0 million decreaseincrease in 20202021 was due to lowerhigher net income as previously described and changes in our working capital, partially offset by adjustments for non-cash items and distributions in excess of earnings of our non-controlled entities.
Investing Activities. Net cash used by investing activities for the nine months ended September 30, 2019 and 2020 was $734.7$110.3 million and $110.3net cash provided by investing activities for the nine months ended September 30, 2021 was $160.1 million. During the 2021 period, we used $106.5 million respectively.for capital expenditures. Also, during 2021, we sold a portion of our interest in MVP for cash proceeds of $271.0 million. During the 2020 period, we used $371.2$357.1 million for capital expenditures, which included $0.2 million for undivided joint interest projects for which cash was received from a third party.expenditures. Also during 2020, we sold three marine terminals for cash proceeds of $251.8 million and sold a portion of our interest in Saddlehorn for cash proceeds of $79.9 million. Additionally, we contributed capital of $73.7 million in conjunction with our joint venture capital projects, which we account for as investments in non-controlled entities. During the 2019 period, we used $718.6 million for capital expenditures, which included $87.9 million for undivided joint interest projects for which cash was received from a third party. Additionally, we contributed net capital of $150.6 million in conjunction with our joint ventures, of which $145.6 million related to capital projects.
Financing Activities. Net cash used by financing activities for the nine months ended September 30, 20192020 and 20202021 was $305.6$794.1 million and $794.1$1,041.2 million, respectively. During the 2021 period, we paid distributions of $685.0 million to our unitholders and repurchased common units for $473.1 million. Additionally, we had net commercial paper borrowings of $123.0 million. Also, in January 2021, our equity-based incentive compensation awards that vested December 31, 2020 were settled by issuing 163,007 common units and distributing those units to the long-term incentive plan (“LTIP”) participants, resulting in payments primarily associated with tax withholdings of $6.2 million. During the 2020 period, we paid cash distributions of $697.3 million to our unitholders and maderepurchased common unit repurchases ofunits for $252.0 million. Additionally, we received net proceeds of $499.4 million from the issuance of long-term senior notes and had net commercial paper borrowings of $248.0 million, which collectively were used to repay our $550.0 million of 4.25% notes due 2021. Also, in January 2020, our equity-based incentive compensation awards that vested December 31, 2019 were settled by issuing 284,643 common units and distributing those units to the long-term incentive plan (“LTIP”)LTIP participants, resulting in payments primarily associated with tax withholdings of $14.7 million. During the 2019 period, we paid cash distributions of $688.6 million to our unitholders. Additionally, we received net proceeds of $996.4 million from borrowings under long-term notes, which were used to repay our $550.0 million of 6.55% notes due 2019 and outstanding commercial borrowings at that time. Also, in January 2019, our equity-based incentive compensation awards that vested December 31, 2018 were settled by issuing 208,268 common units and distributing those units to the LTIP participants, resulting in payments primarily associated with tax withholdings of $9.8 million.
The quarterly distribution amount related to our third-quarter 2020 financial resultsthird quarter 2021 earnings is $1.0375 per unit (to be paid in fourth quarter 2020) is $1.0275 per unit.2021). If we were to continue paying cash distributions at this level on the number of common units
currently outstanding, total cash distributions of approximately $922$898 million would be paid to our unitholders related to 20202021 earnings. Management believes we will have sufficient DCF to fund these distributions.
During 2020, we initiated our common unit repurchase program, with authorization to repurchase up to $750 million of our common units through 2022. During the nine months ended September 30, 2020, we repurchased 5.0 million of our common units for $252 million. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available,
balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units.
Capital Requirements
Our businesses require continual investments to maintain, upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations. Capital spending for our business consists primarily of:
•Maintenance capital expenditures. These expenditures include costs required to maintain equipment reliability and safety and to address environmental or other regulatory requirements rather than to generate incremental DCF; and
•Expansion capital expenditures. These expenditures are undertaken primarily to generate incremental DCF and include costs to acquire additional assets to grow our business and to expand or upgrade our existing facilities and to construct new assets, which we refer to collectively as organic growth projects. Organic growth projects include, for example, capital expenditures that increase storage or throughput volumes or develop pipeline connections to new supply sources.
For the nine months ended September 30, 2020,2021, our maintenance capital spending was $81.2 million.$50.2 million, including $1.5 million for discontinued operations. For 2020,2021, we expect to spend approximately $95$80 million on maintenance capital.
During the first nine months of 2020,2021, we spent $236.3$62.0 million for our expansion capital projects, including $0.2 million for discontinued operations, and contributed $73.7$5.6 million for expansion capital projects in conjunction with our joint ventures. Based on the progress of expansion projects already underway, we expect to spend approximately $400$80 million in 20202021 and $40$20 million in 20212022 to complete our current slate of expansion capital projects.
In addition, we may repurchase our common units through our unit repurchase program (see Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds of Part II of this report for additional details). We may also repurchase portions of our existing long-term debt from time-to-time through open market transactions, tender offers or privately-negotiated transactions.
Liquidity
Cash generated from operations is a key source of liquidity for funding debt service, maintenance capital expenditures, quarterly distributions and unit repurchases.repurchases of our common units. Additional liquidity for purposes other than quarterly distributions, such as expansion capital expenditures, and debt repayments, is available through borrowings under our commercial paper program and revolving credit facility, as well as from other borrowings or issuances of debt or common units (see Note 67 – Debt and Note 1415 – Partners’Partners’ Capital and Distributions of the consolidated financial statements included in Item 1 of Part I of this report for detail of our borrowings and changes in partners’ capital). If capital markets do not provide us access to capital or the ability to issue additional debt or equity securities on acceptable terms, our business may be adversely affected, and we may not be able to acquire additional assets and businesses, fund organic growth projects or continue paying cash distributions at the current level.
Off-Balance Sheet Arrangements
None.
Other Items
Executive Officer Promotions. Mark B. Roles, who previously held the position of Vice President, Business Optimization, was elected by our general partner’s board of directors as Senior Vice President, Commercial - Refined Products effective May 22, 2021. He has served in various positions of increasing responsibilities in commercial and operations since joining us and our predecessor company in 1998.
Pipeline Tariff Changes. TheHistorically, the tariff rates on approximately 40% of our refined products shipments have been regulated by the Federal Energy Regulatory Commission (“FERC”) regulatesprimarily through an annual index methodology, and nearly all the remaining rates chargedare adjustable at our discretion based on market factors. Due to the recent expansion of our interstate common carrier pipelines. We increasedTexas refined products pipeline system, for which rates are not regulated by the FERC, we expect a smaller percent of our total refined products shipments to be subject to the index methodology in the future. The new 5-year FERC index beginning July 2021 is based on the change in the producer price index for finished goods plus 0.78%. Based on this methodology, we decreased our index rates by approximately 2.0% in0.6% on July 1, 2021, with an average increase of more than 4% on the 40%remainder of our refined products markets that are subject to the FERC’s index methodology on July 1, 2020. In the 60% of our remaining refined products markets, we increased ourtariff rates, by an average of nearly 4.5%, forresulting in an overall average refined products ratemid-year tariff increase of 3.5%nearly 3%. Most of the tariffs on our long-haul crude oil pipelines are established at negotiated rates that generally provide for annual adjustments in line with changes in the FERC index, subject to certain modifications. As a result, we also increasedchanged the rates on the majority of our crude oil pipelines by approximately 2.0%between 0% and 2% in July 2020.
The FERC-approved indexing method for the past five years has been the annual change in the producer price index for finished goods plus 1.23%. In June 2020, the FERC issued a Notice of Inquiry (“NOI”) to initiate a review of the rate index to be utilized over the next five-year period beginning July 1, 2021. The FERC’sproposal in the NOI preliminarily recommends the use of the producer price index for finished goods plus 0.09% as the new index level to calculate annual tariff changes. The FERC has received comments from industry participants on the NOI and is in the process of finalizing the new index level.
Commodity Derivative Agreements. Certain of our business activities result in our owning various commodities, which exposes us to commodity price risk. We generally use forward physical commodity contracts and exchange-traded futures contracts to hedge against changes in prices of the commodities that we expect to sell or purchase in future periods. We also entered intoare a party to a basis derivative agreement for which settlements are determined based on the basis differential of crude oil prices at different market locations.
ForSee Item 3. Quantitative and Qualitative Disclosures about Market Risk for further information regarding the quantities of refined products and crude oil hedged at September 30, 20202021 and the fair value of open hedge and basis derivative contracts at that date, please see Item 3. Quantitative and Qualitative Disclosures about Market Risk.date.
Related Party Transactions. See Note 1314 – Related Party Transactions in Item 1 of Part I of this report for detail of our related party transactions.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to market risk through changes in commodity prices and interest rates and have established policies to monitor and mitigate these market risks. We use derivative agreements to help manage our exposure to commodity price and interest rate risks.
Commodity Price Risk
Our commodity price risk primarily arises from our gas liquids blending and fractionation activities, and from managing product overages and shortages associated with our refined products and crude oil pipelines and terminals. We generally use derivatives such as forward physical contracts and exchange-traded futures contracts to help us manage our commodity price risk.
Forward physical contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting. As of September 30, 2020,2021, we had commitments under forward purchase and sale contracts as follows (in millions):
| | | Total | | 2020 | | 2021-2022 | | Total | | 2021 | | 2022-2025 | | Beyond 2025 |
Forward purchase contracts – notional value | Forward purchase contracts – notional value | $ | 53.5 | | | $ | 30.1 | | | $ | 23.4 | | Forward purchase contracts – notional value | $ | 516.8 | | | $ | 172.2 | | | $ | 205.0 | | | $ | 139.6 | |
Forward purchase contracts – barrels | Forward purchase contracts – barrels | 1.4 | | | 0.8 | | | 0.6 | | Forward purchase contracts – barrels | 11.4 | | | 2.6 | | | 4.3 | | | 4.5 | |
Forward sales contracts – notional value | Forward sales contracts – notional value | $ | 19.5 | | | $ | 18.4 | | | $ | 1.1 | | Forward sales contracts – notional value | $ | 78.2 | | | $ | 72.5 | | | $ | 5.7 | | | $ | — | |
Forward sales contracts – barrels | Forward sales contracts – barrels | 0.4 | | | 0.4 | | | — | | Forward sales contracts – barrels | 0.9 | | | 0.8 | | | 0.1 | | | — | |
We generally use exchange-traded futures contracts to hedge against changes in the price of the petroleum products we expect to sell or purchase. We did not elect hedge accounting treatment under ASC 815, Derivatives
and Hedging, for our open contracts and as a result we accounted for these contracts as economic hedges, with changes in fair value recognized currently in earnings. The fair value of these open futures contracts, representing 3.14.9 million barrels of petroleum products we expect to sell and 0.61.2 million barrels of gas liquids we expect to purchase, was a net liability of $1.6$22.3 million. With respect to these contracts, a $10.00 per barrel increase (decrease) in the prices of petroleum products we expect to sell would result in a $31.0$49.0 million decrease (increase) in our operating profit, while a $10.00 per barrel increase (decrease) in the price of gas liquids we expect to purchase
would result in a $6.0$12.0 million increase (decrease) in our operating profit. These increases or decreases in operating profit would be substantially offset by higher or lower product sales revenue or cost of product sales when the physical sale or purchase of those products occurs.occurs, respectively. These contracts may be for the purchase or sale of products in markets different from those in which we are attempting to hedge our exposure, and the resultingrelated hedges may not eliminate all price risks.
During 2019, we entered into a basis derivative agreement with a joint venture co-owner’s affiliate, and, contemporaneously, that affiliate entered into an intrastate transportation services agreement with the joint venture. Settlements under the basis derivative agreement are determined based on the basis differential of crude oil prices at different market locations and a notional volume of 30,000 barrels per day. As a result, we are exposed to the differential in the forward price curves for crude oil in West Texas and the Houston Gulf Coast. With respect to this agreement, a $0.50 per barrel increase (decrease) in the differential would result in an approximately $2.0 million increase (decrease) in our operating profit.
Interest Rate Risk
Our use of variable rate debt and any future issuances of fixed rate debt expose us to interest rate risk. As of September 30, 2020,2021, we did not have any variable rate debt outstanding.
ITEM 4.CONTROLS AND PROCEDURES
We performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. We performed this evaluation under the supervision and with the participation of our management, including our general partner’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon that evaluation, our general partner’s CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed so that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure. There has been no change in our internal control over financial reporting that occurred during the quarter ended September 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Butane Blending Patent Infringement Proceeding. On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan Midstream Partners, L.P. (“Magellan”) and Powder Springs Logistics, LLC (“Powder Springs”) are infringing patents related to butane blending at the Powder Springs facility located in Powder Springs, Georgia. Sunoco subsequently submitted pleadings alleging that Magellan is also infringing various patents related to butane blending at nine Magellan facilities, in addition to Powder Springs. Sunoco is seeking monetary damages, attorneys’ fees and a permanent injunction enjoining Magellan and Powder Springs from infringing the subject patents. We deny and are vigorously defending against all claims asserted by Sunoco. Although it is not possible to predict the ultimate outcome, we believe the ultimate resolution of this matter will not have a material adverse impact on our results of operations, financial position or cash flows.
New Tank Construction Proceeding. In May 2020, we received a Notice of Probable Violation and Proposed Civil Penalty from the Pipeline and Hazardous Materials Safety Administration alleging a violation related to a new tank construction project and associated release of product at our terminal in Cushing, Oklahoma. The matter was resolved in September 2020 for approximately $125,000.
Valves and Overfill Protection Systems Proceeding. In October 2019, we received a Notice of Probable Violation, Proposed Civil Penalty and Proposed Compliance Order from the Pipeline and Hazardous Materials Safety Administration alleging violations related to the records and maps necessary for the safe operation of remotely controlled valves at two facilities and the failure to inspect the overfill protection system on four breakout tanks at our terminal in Des Moines, Iowa. The penalties associated with these alleged violations could exceed $100,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.
Hurricane Harvey Enforcement Proceeding. In July 2018, we received a Notice of Enforcement letter from the Texas Commission on Environmental Quality alleging two air emission violations at our Galena Park, Texas terminal that occurred during Hurricane Harvey in third quarter 2017. The penalties associated with these alleged violations could exceed $100,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.
U.S. Oil Recovery, EPA ID No.: TXN000607093 Superfund Site. We have liability at the U.S. Oil Recovery Superfund Site in Pasadena, Texas as a potential responsible party (“PRP”) under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). As a result of the EPA’s Administrative Settlement Agreement and Order on Consent for Removal Action, filed August 25, 2011, EPA Region 6, CERCLA Docket No. 06-10-11, we voluntarily entered into the PRP group responsible for the site investigation, stabilization and subsequent site cleanup. We have paid approximately $42,000 associated with the assessment phase. Until this assessment phase has been completed, we cannot reasonably estimate our proportionate share of the remediation costs associated with this site. While the results cannot be reasonably estimated, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.
Lake Calumet Cluster Site, EPA ID No.: ILD000716852 Superfund Site. We have liability at the Lake Calumet Cluster Superfund Site in Chicago, Illinois as a PRP under Sections 107(a) and 113(f)(1) of CERCLA. As a result of the EPA’s Administrative Settlement Agreement and Order for Remedial Investigation/Feasibility Study of June 2013, we voluntarily entered into the PRP group responsible for the investigation, cleanup and installation of an appropriate clay cap over the site. We have paid approximately $9,000 associated with the Remedial
Investigation/Feasibility Study and cleanup costs to date. Our projected portion of the estimated cap installation is $55,000. While the results cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material impact on our results of operations, financial position or cash flows.
We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our future results of operations, financial position or cash flows.
ITEM 1A.RISK FACTORS
In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019,2020, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition or operating results.
The COVID-19 pandemic has adversely affected, and could continue to adversely affect, our business.
The COVID-19 pandemic has negatively impacted the global economy. In response to the pandemic, governments around the world have implemented stringent measures to help reduce the spread of the virus, including stay-at-home orders, travel restrictions and other measures. Due to reductions in economic activity, the world is experiencing reduced demand for petroleum products and depressed petroleum products commodity prices, which has adversely affected our business. Continuing uncertainty regarding the global impact of COVID-19 is likely to result in continued weakness in demand for the services we provide. The reduction in refined products demand and lower crude oil prices have combined to put significant downward pressure on domestic crude oil production, and a sustained reduction in crude oil production could cause delays in the timing of our recognition of revenue from take-or-pay pipeline transportation commitments. These factors have also significantly decreased the creditworthiness of certain of our crude oil transportation customers, resulting in an increased risk of customer defaults. Customers and vendors could also seek to assert claims for relief from some of their obligations on the basis of force majeure. We may also experience disruptions to supply chains and the availability and efficiency of our workforce as a result of the pandemic, which could adversely affect our ability to conduct our business and operations. The extent and duration of the impacts these events will have on our results of operations is unclear but will likely be material and may impact our ability to pay cash distributions.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Common Units
In first quarter 2020, we announced that our general partner’s board of directors authorized the repurchase of up toinitiated a $750 million of our common unit repurchase program, which allowed us to repurchase units through 2022. We completed the repurchases authorized under this program in September 2021. In October 2021, this program was expanded by $750 million to allow unit repurchases totaling $1.5 billion through December 31, 2024. We intend to purchase our common units from time-to-time through a variety of methods, including open market purchases and negotiated transactions, all in compliance with the rules of the Securities and Exchange CommissionAct Rules 10b-18, 10b5-1 or both and other applicable legal requirements. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending, needs, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units, and the repurchase program may be suspended or discontinued at any time.
47The following table provides details of our unit repurchases in 2021 under our initial $750 million program:
Activity during 2020 is detailed in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Common Units Purchased | | Average Price Paid Per Unit | | Total Number of Units Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions) |
January 1-31, 2020 | | — | | | $ | — | | | — | | | $ | 750.0 | |
February 1-29, 2020 | | 1,514,719 | | | $ | 59.19 | | | 1,514,719 | | | $ | 660.4 | |
March 1-31, 2020 | | 2,117,065 | | | $ | 53.06 | | | 2,117,065 | | | $ | 548.1 | |
First Quarter 2020 | | 3,631,784 | | | $ | 55.62 | | | 3,631,784 | | | |
April 1-30, 2020 | | — | | | | | — | | | $ | 548.1 | |
May 1-31, 2020 | | — | | | | | — | | | $ | 548.1 | |
June 1-30, 2020 | | — | | | | | — | | | $ | 548.1 | |
Second Quarter 2020 | | — | | | | | — | | | |
July 1-31, 2020 | | — | | | | | — | | | $ | 548.1 | |
August 1-31, 2020 | | — | | | | | — | | | $ | 548.1 | |
September 1-30, 2020 | | 1,355,344 | | | $ | 36.87 | | | 1,355,344 | | | $ | 498.0 | |
Third Quarter 2020 | | 1,355,344 | | | $ | 36.87 | | | 1,355,344 | | | |
Year-to-Date 2020 | | 4,987,128 | | | $ | 50.52 | | | 4,987,128 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Common Units Purchased | | Average Price Paid Per Unit | | Total Number of Units Purchased as Part of Publicly Announced Program | | Approximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions) |
Year Ended 2020 | | 5,568,260 | | | $ | 49.74 | | | 5,568,260 | | | $ | 473.1 | |
January 1-31, 2021 | | — | | | | | — | | | $ | 473.1 | |
February 1-28, 2021 | | — | | | | | — | | | $ | 473.1 | |
March 1-31, 2021 | | — | | | | | — | | | $ | 473.1 | |
First Quarter 2021 | | — | | | | | — | | | |
April 1-30, 2021 | | — | | | | | — | | | $ | 473.1 | |
May 1-31, 2021 | | 1,723,188 | | | $ | 47.77 | | | 1,723,188 | | | $ | 390.7 | |
June 1-30, 2021 | | — | | | | | — | | | $ | 390.7 | |
Second Quarter 2021 | | 1,723,188 | | | $ | 47.77 | | | 1,723,188 | | | |
July 1-31, 2021 | | 251,947 | | | $ | 47.24 | | | 251,947 | | | $ | 378.8 | |
August 1-31, 2021 | | 6,289,504 | | | $ | 47.94 | | | 6,289,504 | | | $ | 77.3 | |
September 1-30, 2021 | | 1,572,941 | | | $ | 49.14 | | | 1,572,941 | | | $ | — | |
Third Quarter 2021 | | 8,114,392 | | | $ | 48.15 | | | 8,114,392 | | | |
Year-to-Date 2021 | | 9,837,580 | | | $ | 48.09 | | | 9,837,580 | | | |
Total Inception-to-Date | | 15,405,840 | | | $ | 48.68 | | | 15,405,840 | | | $ | — | |
| | | | | | | | |
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
ITEM 6.EXHIBITS
The exhibits listed below on the Index to Exhibits are filed or incorporated by reference as part of this report.
INDEX TO EXHIBITS
| | | | | | | | | | | |
| | | |
| Exhibit Number | | Description |
| | | |
| Exhibit 3.1 | — | |
| | | |
| Exhibit 31.1 | — | |
| | | |
| Exhibit 31.2 | — | |
| | |
| Exhibit 32.1 | — | |
| | | |
| Exhibit 32.2 | — | |
| | | |
| Exhibit 101.INS | — | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | | |
| Exhibit 101.SCH | — | XBRL Taxonomy Extension Schema Document. |
| | | |
| Exhibit 101.CAL | — | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | | |
| Exhibit 101.DEF | — | XBRL Taxonomy Extension Definition Linkbase Document. |
| | | |
| Exhibit 101.LAB | — | XBRL Taxonomy Extension Label Linkbase Document. |
| | | |
| Exhibit 101.PRE | — | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | | |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in Tulsa, Oklahoma on October 30, 2020.November 2, 2021.
| | | | | | | | |
MAGELLAN MIDSTREAM PARTNERS, L.P. |
| | |
By: | | Magellan GP, LLC, |
| | its general partner |
| | |
/s/ Jeff Holman |
Jeff Holman |
Chief Financial Officer |
(Principal Accounting and Financial Officer) |