MMP - Earnings call transcript Q1 2018 | Magellan Midstream Partners, L.P.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day and welcome to the Magellan Midstream Partners First Quarter 2018 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chief Executive Officer, Mike Mears.

Michael N. Mears

All right. Well, thank you for joining us today. by attend of our start the who to to opportunity Analyst like thanking you those had I'd Day. use to We detail hope a event about valuable time. good be our company you and found received of your some the

could I'll of our Before management you the current as by judgments will we statements Magellan. Such that statements that the forward-looking regarding remind SEC. quarter impact making are dive performance first defined into the earnings, future be based factors on

contracts, factors we and with our $X.XX setting related morning risk stronger first unit, revenues by aside information to discussed form You exceeded own filings primarily onetime the per quarter. the should results Magellan's for solid other year, in our start transportation expected crude and oil to We the and the your futures refined mark-to-market during this review products good quarter financial announced and than correction guidance SEC the a future opinions open about pension on our performance.

Our activities of stability model. the our business solid and generate core results, continue consistency fee-based emphasizing to

will and review the of Aaron outlook Milford, the opening to questions. our the expansion your our results the I'll be now detail. of CFO, Magellan's back discuss financial first for of projects before rest in the Our status more year, quarter Then, larger few call to

Aaron L. Milford

you, Mike. Thank

$XXX.X or quarter be the to reconcile a cash non-GAAP their unit certain reported that unit will lower references million GAAP to first $X.XX financial operating or making this earnings was today, per of included first per million income diluted the which We've Earlier basis, flow. reported $XXX.X XXXX. distributable nearest morning, we I than exhibits diluted margin metrics of including on quarter During and net for my to $X.XX comments these measure. release metrics, our

a similar of current than in reported XXXX quarter on of basis of diluted million XX% flow first of unit February. Distributable in was of our Excluding exceeded guidance activity the the contract of first in XXXX. futures $X.XX almost quarter, cash $X.XX million impact the the adjusted quarter $XXX.X mark-to-market the $XXX.X provided per earnings for back higher

any pension and since As both were our our million mentioned dating to and pension decisions. back by to by rely XXXX. pension the expense of flow net calculating liabilities. made liability impacted In actuary funding expertise negatively onetime We income in our also the estimation $XX resulted significant for to out the would cash errors require pension we our catch estimates actuary a our the The obligations correction our our our pension recognize in to between distributable and reported essence, in for third-party funding error in XXXX. we release, our of expense annually result represents of recognize cumulative minimum requirements that estimating XXXX XXXX, change our have recognizing errors us amount the up. being not pension the It's to otherwise as with in us of much pension made the nor will correction plans funding needed any to note in as of liabilities quarter XXXX. important we earnings benefit due on third-party actuary did compliance to they amount is impact not pension estimate made expense periods These first expense by

period If on of material actuary any results, to time. the or financial our been errors a basis. this seven-year per cumulative correction by this historical quarter quarter fact considering $X.XX the made were we Finally, is adjust for not of our estimation the especially results that first unit a the correction unrealized have $XXX.X income mark-to-market and pension impacts, net for for diluted our million would

off is would the year quarter the Fundamentally, of business discussion will each outlook talk XXXX margin start, and remainder performance a a more the to about of move segments. brief is of Our distributable for I our our a Mike flow of for in cash the operating been moment, good positive. have will as million. now $XXX.X to

almost first being costs volumes $X.X the with higher margins our and lower earlier. offset decreased we margin of in Transportation as higher generated segment to products as revenues by $XXX.X compared to mentioned valuations refined increased in and futures of of compared of expense million resulted the and contracts impacts, mark-to-market the of the hedge in costs million increase for $XXX.X producing to for as included X% costs expenses. we commodity in butane were compared demand fuel quarter note, first This continues Our the personnel Ignoring program lower cash also blending operating was oil or our volumes quarter of in back higher fuel quarter to the first Rock Product guidance to compared in the provided the distillate to in XXXX higher demand regions quarter mark-to-market between same lower environmental flat XXXX periods first gains quarter the related increase, used correction exchange-traded a primarily our due expenses power and driven of the higher our as Denver and quarter XXXX, hedging margin XX% pension the result crude we XXXX Of to from period mostly personnel terminals of serve market. as This anticipated and essentially our quarter. X% had gasoline $XX XXXX volumes. were decline unrealized of XXXX. $XX.X other in million exposure. to jet by million impact million margin to volumes February. Little higher the of first operating Operating by with lower compared higher well XXXX the associated

from was $X.X the our June million as slightly million, as terminals volumes, Houston which Transportation substantially. increased increased margin at the as of year. which operating higher crude a higher our operational with distribution compared associated in increased operating system, on personnel significantly well rate than quarter was began of caused in in approximately average expenses $XXX.X contributions year, quarter-over-quarter on power quarter million distribution and on to which Longhorn For splitter, higher our costs rates Longhorn last revenue overall splitter, $XX operations higher oil crude pipeline. year. transportation segment, our result our rates well oil of million XXXX, increased to revenue as our costs. of due volumes volumes first lower higher the move our system These our substantially decline operating while expenses higher to condensate of Further, by average Segment first last not and $XX.X last mostly Christi Corpus as Houston

Our a of quarter. $X.X personnel the result expense costs primarily as of to related recognizing in made million the correction increased pension

XXXX. recall, XXXX. of million XXX,XXX and barrels the were per first is to my of back barrels a day. the million the shipments. during earnings maintenance quarter in pipeline you quarter, also compared the barrels of the Saddlehorn day rates higher continue originated the pipeline quarter may barrels volumes of was compared of BridgeTex commitments, impacted Operating by started quarter the as day Saddlehorn work higher XXXX. XXXX. period-over-period up the generated per of essentially operating day correction. margin per XXX,XXX per expenses XXX,XXX from as personnel volumes costs. in to averaged as the year XXXX, to related guidance first the our operating first marine $XX than XXXX. and of that Volumes increased with delayed the to to a primarily on which, Revenues of spot reduce by Of day pension committed increased in last day in our day higher our pipeline during segment lower averaged volumes the to Longhorn and higher Harvey were joint compared which contractual result quarter attributable in first volume per utilization pipeline as in quarter annual storm. approximately note, to we costs tank Equity XX,XXX lower $XX.X online $X.X quarter first higher well XXX,XXX product of in higher XXXX barrels volumes due to compared the act of quarter as million $XX damaged of performance, new of XXXX. the various quarter necessary approximately increase the tanks to the complete first from XXX,XXX September first complete million discussion to our overages compared offsetting averaged segment BridgeTex's compared quarter storage on expenses Finishing were million per during bring volumes other result was our step-up approximately approximately negatively previous current current the to approximately in as approximately For Eaglebine quarter barrels This our of XXXX per Personnel flat the with Hurricane ventures XX,XXX approximately current $X.X barrels quarter

Net million increased variances of to higher a to placed due to increase move costs. XX, as quarter, the $X.X pension million and increase approximately correction long-term discussion rate $X.X and result as debt capital. new the to liquidity of quarter. I as correction with XXXX the year's a of expenses were last moving of now to of sheet into quarter Now, an years. continue was by $X.X will to we income other attributable growth the increased XXXX, X.X% balance grow. personnel the to was interest $X.X higher Depreciation average higher amortization made outstanding interest G&A outstanding of the billion were personnel to million. Approximately had and in and regarding was expense tenure million increased We as borrowings expense our net of million used pension other count than our service approximately higher of the position. $X.X costs XX $X.X attributable related assets March expense finance head balance our and average higher to in result other

X.X Our leverage ratio debt-to-EBITDA. times was about

to our maintain $X paper had also We this not paper the $XX quarter-end, did commercial outstanding facility borrowings on commercial which or and we totaling At billion, have of facility program backstops hand. continue under program. on million our about cash credit any

not since did been during equity program has also but not issue under in this at-the-market quarter available, any We program a $XXX the place. this under units issued units any and have it have million program

leverage fund expect projects target We we to maximum able current continue will growth of that exceeding long-standing our slate of ratio to without be our long-term, our times. X underway

as year remain back call guidance over rise, the as now progress to of we leverage growth below the underway. we turn to balance of our for the targeted the our projects but also to our expect Mike As well updated year, ratio maximum. I'll discuss some significant our through

Michael N. Mears

Thank DCF the increased XXXX guidance start initially favor by remainder of XXXX. Based we number the on time $X.XX for our the A in this since moved provided for to solid dynamics expectations guidance you, $XX of annual billion million Aaron. year. our to and we earlier industry have our our year,

For can yesterday. spot The current one, Permian and easily has the over barrel, close between the moving per pipelines BridgeTex climbing late, Houston barrel both $X barrels of to spot so Basin tariff the this differential to environment. shippers for pricing on crude of $XX favorable shipments pricing per Longhorn oil justify and is been in as

since blending BridgeTex, in assumed gallon the using locked this of this forward year. hedge impacts few the which to favorably indeed especially so currently of hedges margins Earlier for year, volume, we blending our also per are average your point. to The margins butane far mind, a the know this we expect and about like blending gallon of process. margins for least upcoming fall around sales is currently on remaining curve our uncommitted shipments continued margins be for at have $X.XX fall continue we earlier on in the the blending put expected and three With activities per we to year, for softening to spot place seeing butane so $X.XX next outlook months. in due guidance at that we blending butane and have now average provided I into Longhorn prices, has expected spot are. primarily where improved recontracting We've We closer the quarters year. I'd our flow, on briefly for interest space hit to to the barrels

to always As strong September related Longhorn, for from expiring for expire almost roll long-term for oil Hopefully, the space allowed Longhorn we under when with saying Analyst the these active of Magellan we current in differential shippers discussions the on the especially that the of duration years now two with extended their possible, contracts environment. the Day, their still that agreements willingness customers In on contracts online and these our extensions competing demand removes at originating contracts. that, quite expected XX. Pricing extend have an pipelines and current with some prefers competitive, next capacity by are mentioned come the existing to uncertainty all really years these length few additional commitments the over the on contracts so believe to Permian terms current we emphasizes as contract against. is on rate crude new remains lower rates, these we remain to

the rates on that longer-term still in will fourth of we prefer additional result, reduction rate assume a a means to be we those as continue beginning commitments, guidance in even length that quarter tariff As our XXXX average if for lower Longhorn likely DCF surety. that to

intention raised XXXX nearly wrapping during us year, bumping this was the $X.XXXX guidance company quarter, pension the is expectations goal the remainder to with annual the for overcome we million fact this expect We the payout quarter. So remain $X.XX adjustment X% unit our over and generating unexpected get allowing that our our million by still item the increase to increasing for for on the of a results committed year billion $XXX remember guidance, our X.X per the to for one-time quarter by of we shows to of regards coverage guidance, XXXX year, to year. strong Based quarterly you first boost clearly up distribution $X.XX still per stated which the times, while distributions With our that $X.XXXX the quarterly our increased there. of the if for of excess to updated cash year. our distribution generating cash last us $XX DCF reduced distributions,

for we target to future. further range with Looking indicated intentions of ahead, XXXX XXXX, expectations to DCF foreseeable the distribution growth and both the DCF X% manage for consistent to continue growth in growth annual and we've our X%

out-years, maintain distribution which in plan result for X.X of growth annual We and well. to also to these will as X% annual of X% times for XXXX distribution XXXX

is than opportunities generate XXXX, This currently for due spend with expansion expected million capital, launched $XXX Based complete an attractive to in expected early third to pipeline to Houston-to-Hearne to and fractionator is additional develop completion venture in a Expansion we in will volume transmix is on joint continue we construct nearing recently online Seabrook now the the million to investors. as commence and Texas expansion profile incremental once Moving new new spending XXXX projects to market, investment be to late-XXXX, in refined $XXX fractionator year. discussed, we Texas. our operational mainly million and now higher products in quarter. expect East handle progress. projects This construction, a returns expected needed $XXX especially Logistics be comes previously more project in to of under is our more the to our that Frost, in operations

the system. strong industry's crude reminder, a storage export distribution and this X.X the second in connectivity As oil quite increased Houston crude storage our to of phase export this to appears million for of barrels Demand capabilities. interest facility oil includes

great marine to tank swing. in continue make also Pasadena We joint our full strides with construction terminal venture at

of remaining of X XXXX, storage projected barrels The by be storage of online million barrels come the by should X January of XXXX. first January operational to million with

right-of-way in oil work crude pipeline products mid-XXXX. the both refined are for scale Basin pipeline, pipeline Houston-to-Hearne in ordered, East and steel operational large Delaware and projects, our progress For permit has be with expected and been the to

the capital are the during we discipline. As optimization landscape maintain the we with currently estimates optimization to these continue indicated our of project. Pending outcome spend our million spending of for due Day, $XXX to current the third-parties recent entire project this and commitment Delaware evaluating Basin our efforts, to include Analyst competitive

to totaling expansion continue oil both ventures. and Pasadena West Texas also in in refined continue Seabrook still refined been the Significant concludes assess develop from potential continue excess crude shippers investments their finalize Texas. that interest of interest currently Discussions discussions season potential week new remarks. of products other all regarding expansion infrastructure of regions further our commitments. system our $XXX proposed to well of time customer And million. An and to leg is our recently opportunities, joint Active additional underway to pipeline Texas western expansion, customers to and also to for with evaluate has extended with XX May season the shippers expressed potential We products for open provide by services. this other Logistics for in one open potential prepared interested the

turn So, now over can it for operator, we questions.

Operator

sir. Yes,

Theresa Barclays. Our question first from comes Chen,

Theresa Chen

that Good light Crane forward, up your pipelines afternoon. for in new competitive announcements in moving Gray particular, of you Longhorn of Oak Wink as change Mike, of for project, the how recontracting? in does the customers Permian dynamics to as well signing for terms

Michael N. Mears

I secure their Gray dramatically. Well, the been market, changed announced other as fact mean, commitments participants the many hasn't fact Gray I well Oka, proceeding for that that hasn't actively last situation as the that Oak the trying changed to year-and-a-half. the have think

to recontracting And so, and we've environment. Crane Longhorn in been pipeline developing the that working Wink on

to the point. with that I some or at proceeding way is built be situation that So, one nature really shipper a of phrase the we're another that the announced changed going another Longhorn to fact fully hasn't Permian in everyone recontracting. regards pipeline the is, guess pipeline their dynamic has was out expected to

the party least to anyone's to for who may but win to I going this at mean, them. race and mind doubt the point have somebody be race was in was been won the the that another doubt, wasn't actually so, at And – some in news was not built. there any that's new going that pipeline

Theresa Chen

Okay.

So, to it your Houston at what think is offer Is distribution differentiated this that point? do can related Magellan mainly downstream system? you

Michael N. Mears

it chain talking element Well, which you're about. value depends on of the

in to export If you're crude of a distribution Houston our Longhorn oil Longhorn, critical all to in specifically we to obviously, points and what component access efforts is have demand system and recontract our talking the capabilities. offer of about and Houston

think it's recontracting that other high high regards the differentials and rates to I The built. self-evident lower be that likely until the are is now today item at pretty Longhorn to gets with next are pipeline going

So, extent and today next can years, two to shippers. is or that would the fee would be contract someone think during high priced a attractive on the the to apply that this negotiate it I for attractive environment, lower Longhorn

Theresa Chen

Got expected a the expansion do project, multiple times? of similar the turning system, around season your it. open to your be for of of still products to the Texas like western expect kind And you it X project East the would what generate, and million $XXX would is cost be Houston-to-Hearne to around refined leg such

Michael N. Mears

multiple expecting the be We is capital $XXX around an and X are times million. still around expected to

Theresa Chen

deep the itself the Island area? I you project? that fully focusing side would be perhaps lastly, seems in partially And on in port the to Christi an potential light projects of the the be on ability your of Harbor can especially to that of Would Corpus Okay. Houston on give it's focused some the exports partner on and land, with projects of via the bay competitors channel, you there, one the but position in in that of or very down going, expansion, terms your difficult. you And via (XX:XX:XX) pretty that's update north are how willing the or understand given options with of the

Michael N. Mears

publicly partner think to a I about parties port viable And in Absolutely. our talked with to willingness other the we've project or Corpus. have

Theresa Chen

Thank you.

Michael N. Mears

Okay.

Operator

Jeremy Tonet, Our comes next from question JPMorgan.

Jeremy Bryan Tonet

Good afternoon.

Michael N. Mears

Hi, Jeremy.

Jeremy Bryan Tonet

do tenor given want you longest quite this to – the but your in I and are be you how it contract right contract, tenure for how tight to you're of want some you could to tenor? type more just see situation? to inside versus time, on regards back bit the trade-off? What away to the wondering of discussion wondering to kind differentials information rate rate think that get circle is just you in could not if realistically want versus negotiating appreciate here, thanks, Just this going you're as and like as trade-off expand can give mean, where a philosophy far now in presumably with

Michael N. Mears

the Well, long-term are contracts. now having negotiations we're

are XX active So, contracts X to we anywhere years years. from – negotiations

looking So, that's at. range the we're

Jeremy Bryan Tonet

you. Got

Michael N. Mears

clearly, than a command five-year rate would a a agreement. agreement XX-year And lower

And so, of balance kind those the what the are. are of negotiations

Jeremy Bryan Tonet

think crude Okay. then, the than XQ Thanks And for that. oil segment, XXXX. were bit a results lower earnings within I equity XQ

little if bit on Just it, maybe wondering color provide there? more – I missed could you the a drivers

Michael N. Mears

was BridgeTex. Well, me what most And if the dependent year, let high – quarter, lot movements the a back was to BridgeTex if BridgeTex. moving differential back on highly in of that's Houston of on due to recall look differential you quarter movements the probably there you obviously And spot Midland is. fourth fourth at are up, the if and look on the you last at spot

quarter on differential, have weak BridgeTex. April, significant so has That everyone the look that in didn't and as we blow this late-March to spot the knows, first you at and If out. early year, movements first and changed in the it quarter, started got the pretty in part

in with mode least So, at spot at in we're significant the time shipments. of back point this

to compress the that it quarter to the fourth January quite the first comparing in fact the a you're bit February. if do had quarter, all did with and So, margin

Jeremy Bryan Tonet

That's it me. for Thanks. That's helpful color.

Michael N. Mears

Sure.

Operator

comes from Our Coleman, next Bank Dennis America. of question

Dennis P. Coleman

Good very afternoon. Thanks much.

contracts having laddering? I wonder kind terms of there it sort kind of the the be be due come And time? the one what all how of towards have talk you will I little of type will can go all little laddering question back some the some sort shippers desirable you that if not Just contract? Will to – same outcomes you of at to a Will Longhorn a think if the of bit Is go in for might bit. be?

Michael N. Mears

probably I Well, likely the nature my tell hard this is of company, XX-year that's and you preferred have our predict the to at likely. What to I nature given everybody, preference conservative contracts from be can will that point. of – not

I think have terms. we'll a mix of

through I is have we don't that that is longer-term years. will what can't will in, now. till not agreement hopefully contract the negotiating I we that's sign then expire the case we're nature signed could precise the before someone for stick to a early the the signs, be two shippers higher rights the summer XX, extensions that and possible September this base shippers possible mix fall it months secured mean sooner they've be for that that got few and with of doesn't and these just But the given the these certainty unfortunately, think next potential I actually of into and extension since a right able kick on present. not predict than the for And of that having more have secured two fact don't later. and the some rather extensions that and the get everyone's is But at the it's two-year years rate least

assumed want our you look can't long-term like. sign of I and will rate. don't guess in essentially the as to can we've guidance guess I that what all tell extensions to shippers and reduced I unfortunately really mix So, the that But

happen, year doesn't is upside that extent guidance. to there current to our So, the

Dennis P. Coleman

there is an be but continue saying helpful. guidance? with guess topic spot some that out to but the that quarter, That's choose hear shipments that bit, you could third of to shipments, I perhaps stick longer, differential you're holds it little could that logic none sort maybe Clearly, the two-year. interesting you to preference for a seems longer. build the Okay. that think changing for With spot regard Any sort third or the of to argument behind quarter the

Michael N. Mears

in conservative guidance year, guidance. our be rest stays of the our If low. is high to then decided the We margin through the

Dennis P. Coleman

something the a future cause regard run on just issue, about higher think some well, couple Is numbers, years perfect. expenses higher as at we given to A pension operating That's with ones, detailed you've will various to in be this the Okay. businesses. good impact rate? should quick that

Aaron L. Milford

No. to up actuary cumulative It just This This where isn't the is forward. needed to our Aaron. impact structure our be catch for going was to cost really going made. error a we that

structure to impact. it's not So, cost future going have any

Dennis P. Coleman

And then the one just hedges. one commodity Perfect. last me, for Great.

this, some I know impact sales against the future had I the positions, unwind answer actual (XX:XX:XX) you mark-to-market, periods you presumably realize think to that but from is as right? in those

Michael N. Mears

Yes.

Dennis P. Coleman

Okay. That's for Thanks. it me.

Michael N. Mears

All you. Thank right.

Operator

next Our Barrett comes Blaschke, MUFG Securities. from question

Barrett Blaschke

guys. Hey,

around you update, you see? a little spot As if more can give is it way much the widens, a guidance far far as us there color shipments any could the as how can quantify sensitivity as And differential, and you it little?

Michael N. Mears

I filled pretty spot mean up well Well, shipments. least we've shipments, much pretty that the with spot assumed not – it's we full on that with at for the months next few pipeline

our again, quarter. into the is only no next there for few lasting to upside few fourth not really months. next for we've assumed But forecast this and So, the months the

next much of the our not pipe over guidance up And there upside – – we've months. there, the pretty fill we assume few mean, is I so, but

Barrett Blaschke

Okay. Thank you.

Michael N. Mears

Okay.

Operator

I'd to We have to in no call like the questions Mr. further turn the back queue. Mears. over

Michael N. Mears

All everyone's right. Have investment and Well, in a thank you appreciate time afternoon. for interest today, good continued your we Magellan. and

Operator

today's concludes Ladies Thank and teleconference. gentlemen, you. this

disconnect. now may You

Magellan Midstream Partners (MMP) 3 May 182018 Q1 Earnings call transcript