MMP - Earnings call transcript Q1 2022 | Magellan Midstream Partners, L.P.

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Operator

Greetings, and welcome to the Magellan Midstream Partners First Quarter '22 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded, Thursday, May 5, 2022. I would now like to turn the conference over to the President and Chief Executive Officer, Aaron Milford. Please go ahead.

Aaron Milford

for results. today you first discuss thank financial quarter and joining to us Magellan's Hello,

started, must the could actual getting our impact forward-looking Commission. Before the we statements be current statements be management Such of factors as materially making judgments will future regarding different. defined that based performance outcomes by are Securities the Exchange remind and on you could that but Magellan,

and the risk is filings factors and your discussed Magellan's information about our to SEC to my speak this review other with publicly CEO, in future the express to lead as I should like how form opportunity Since am opinions exceptional own this Magellan's You performance. would honored I first organization.

entire as including the recently, my career and most As with Chief Chief Officer you serving Operating Officer. as I've company, Financial know, spent

to investor I've known remain intend though CEO consistent long-term maximizing for. the even around So that on strong our disciplined I focused the new And approach a is to position Magellan financial for value retaining I'm and while of while. goal role, been overarching

call your as review our a back Jeff Then our in I'll times. turn to investors. projects the serve operating doing create for that, outlook our a long-term reviewed very to before I'm our We our questions. to needs our to expansion As value no consider, CFO, safe ability things at status our nation's few of the our first needed and answering efficient we the that for to are time, Analyst critical and come. for as remain matter the long ensuring discuss briefly With committed energy quarter decades financial expect at our Day, company to well latest be to is projections of we our right be industry confident and services to which Magellan's recent poised you results. all a way, for year I'll Holman, future in manner over

Jeffrey Holman

Thanks, Aaron.

making financial margin, usual, free as to nearest or to First, let we've non-GAAP DCF, be GAAP mention that including these that, operating I'll release And flow. tender higher-than-expected revenue metrics lower as gains the primarily million DCF shipments. storms results. $XX was product the was storms of for of our due refined XXXX mentioned. and unit and exceeding winter than as the of earnings reconcile Earlier to exhibits hedges references on our favorable year net million this just the well year-over-year of the first for their certain morning, primarily the winter on to reported prices included of quarter cash of to At me our as due distributable the measures. mark-to-market which of a of higher $X.XX million quarter cash XXXX in and high $X.XX, $XXX flow, first commodity favorable guidance period current impact impact we in product quarter to decline compared impact from mark-to-market impact the the the year as adjustments, for results income on Adjusted from primarily prior million the quarter, our earnings XXXX. excludes commodity the adjustments level, resulted per $XXX well $XXX last metrics, quarter

variances cash million in million, As flow is those in million. about cash last $XXX flow detailed A a of in we release earnings distributions resulting impact available for about a of we estimated was $XX $XX issued quarter-over-quarter the description the reminder, free of this quarter favorable after storms Free morning. year.

mentioned. segment. the with lower Operating the approximately $XXX of 'XX to than I mainly our products usual, a So on touch quarterly XX% period refined the already million just due as Starting I'll of highlights margin few results. mark-to-market was adjustments

refined fee-based between business products increased periods. actually Our

along we've past contributions and more as life to we As benefit has overall from normal, recovery to continue our XX% an we demand back gotten more throughout additional seen expansion Overall, with total year projects. saw the proportion year, increase offset from period. the move refined to rates tariff, were a more as a shipments, slightly volumes short-haul lower transportation prior of transportation increases. tariff at lower Average relative higher XXXX midyear which than in Texas

portion the a and on our trend from average before, a to expenses, than mentioned. our higher were the we've we Pasadena in shipment. of product including power which our joint lower gains at of to venture. final quarter, rate the prior benefit expense commitments the more favorable periods, expenses East which higher products again slightly between As reduced power year we mainly at increases segment due other primarily decreased costs, noted already Equity Houston-to-Hearne in offset benefit from more on interest with expect a year of refined the ramp operating I sale shorter a this distance experienced winter to continue to hedges, the decreased to our in the project connection than Operating for storms throughout due due this move overages, earnings

that You'll in April occurred last of year. sale recall that,

between should the this time periods. Product we need variance. last be to this margin, largest variance the the quarter, for So mention decreased

in year. in about sales, noted, in on year unrealized the a commodity period. this due current $X.XX increase activities in losses prior versus our versus our of as hedging the result recent respect the With to already was the gains gallon actually gallon our gas closer realized prices As period unrealized $X.XX increased per prior per to to year-over-year blending margins liquids to

oil crude our to Turning business.

was approximately XXX,XXX mix quarter moved average Houston distribution periods, throughput from higher incremental about day per the during as to shipments margin due fees elected more by while of offset system, the were higher recent to the we On quarter benefited period. our lower We've period in during such customer averaged First HDS interest the seen Houston barrels moved volumes terminal increased, arrangements, our for customers tariff barrels volumes has customer showing same connections revenues Longhorn simplified rather use during $XXX fiscal as resulting pricing the our last with the year. added both the from rate as the volume X% within transportation million, down operating though we terminal pricing transportation even than result structure that in simplified up reflected to growing the we statistics. services of the area. were throughput the fees and that revenues have are

volumes this this which revenue related year change change bucket our be original volumes, the in change such our reflects for So be impacts that different a will HDS from to the guidance, our clear, just while really falls in. reported

operating oil I'll slightly, lower crude the note rental the from power segment declined current more also although the than integrity benefited already expenses, and pipeline storm-related 'XX at gains period. for mentioned. the briefly spending only power Lower the offset hedge relatively that expense higher Looking period costs expenses in winter

to note barrels to Eagle ventures. XXXX approximately day when quarter committed a and to were XXX,XXX were the both BridgeTex down timing payments quarter, the lower segment. XXX,XXX and the our day expansion. 'XX, time. our also for of important the under barrels on offset in oil point did to to revenue as distributed It's before per crude equity more Saddlehorn, recognized this barrels associated driven in XXX,XXX the of of by year our pipeline's on revenue elected deficiency ventures shippers more new barrels BridgeTex joint their ramp-up received average associated for partially commitments day per results XXX,XXX at the volumes proportionate customers additional per want during efficiency the increase and in than volumes than while that those by in us recognized recognition commitments, Double out crude that of to I our us oil equity in volumes per DCF cash primarily overall periods first pipelines rates of due which of with already resulting slight in payments earnings Moving were increased the earnings, approximately prior from nearly move share we joint that from day by compared to have higher to Saddlehorn although

would to other touch few items I a Just on. like

G&A million associated comp an acceleration his our with expense periods which awards. the resulted CEO, retirement to expense costs former related primarily incentive to incentive between First, of the due in compensation increased outstanding $XX recent higher of

overall during the slightly also we incentive to due a higher due balance. current Net increased addition, In expense Magellan's higher comp just quarter to debt improved reported expense primarily financial interest results. average

the debt of March As rate with of XX, X.X%. face $X.X about of the that was outstanding average debt weighted billion, on value interest our

our incorporates at ratio for realized purposes, compliance part leverage of on of sale in which XXXX. the interest gain was X.XXx the in Pasadena Our quarter the the we of end

touch I'll little a brings leverage capital last Excluding that over on is item the X.Xx. that been us And today, gain, to allocation. would which have

financial investors through committed while us we combination our the heard before, say equity delivering for you've discipline known we remain As repurchases. maintaining cash for long-term are investments, value to distributions capital and of a

since X for spend total million, at quarter, of of total the $XX repurchased first During a XX.X units an to under average units for purchase just million million inception $XX we price bringing $XXX over repurchases million.

generally equity. we to after distributions repurchase expect be As previously flow used currently free our to cash stated,

sale review as note long-standing nearing legal In flow and sheet factors, the independent free proceeds over course, leverage and conditions terminal market which capital timing government as requirements also, of on note, back Of turn the Xx and repurchases of price including I'll limit process, careful remains with call from are as volume to we expansion will Aaron. particular, that, and our we to always the expected of cash timing, price committed to believe of our And subject well the a we to regulatory balance the is I'll number unit the depend trading metrics, completion. that spending, equity. remain the available, that

Aaron Milford

DCF outlook by Jeff. Thank increased as have year, of better-than-expected remainder for you, we results quarter million as to our billion. the $X.XX XXXX our our Considering $XX guidance well the first

value commodity the increase One knows, to product for benefited butane pricing Jeff from margins as expect the also everyone our noted. originally is has which expected just higher of commodity the overages, our blending naturally prices. in benefit the As environment year, might than

However, already our for full is prices in on muted reason per had most for our average of blending prices had spring impact about higher business blending of gallon we're before still activity forecasting most occurred. $X.XX of run-up of the the we the margin A margins hedged blending that year. an for significant

in ago our differential Analyst addition, originally resulted few sold in we net than recently has for gasoline basis has lower Day, been margins as a the In expected. at and discussed our unfavorable Mid-Continent markets weeks we had quite

exposure hedge Mid-Continent to the ability efficiently activity, Although contracts related utilized limited. our to our to most basis futures we of product hedge liquids differentials blending margin is

blended the means sell subject And so generally have at when as margins as are the to net time actually which, differentials are of unfavorable differentials gasoline, course, we lately. those we they been lower

offset For lower fall are the for margins the season. near-term these year, be margins by to essentially blending higher expected

progress We expected locking have around with in fall $X.XX made fall margins at blending of gallon. significant at activity hedged XX% this margins per of about point,

in started we our with trends these guidance, basis margin proceeds estimates capital available, coverage we which year higher for the spring our spring significant independent margins as of $X.XX we per currently XXXX sale of million $XXX line be $XXX hedged excess next with gallon. about represents of of of to expect Combined to attractive XX% consistent cash with the as of the assume we've margins available value the investors, allocation Given priorities. DCF create historical returns our so receive cash. distribution additional our about also hedging for X.XXx more at XXXX, overall flow note, in month terminals, differential or With have to with well, progresses. should from pending million more the than the now next activity Of expect

after expect be currently flow distributions repurchase to generally we mentioned, used to previously Jeff our As cash equity. free

our for capital. expansion of addition new the higher estimate on However, or continue projects to quarter, Xx we connectivity due already on our Based expect is also to committed, than threshold $XX value oil our projects to crude $XX million Xx to meet future in of we low-risk Cushing part spend expansion multiple This to that to further capital approximately investors. XXXX pursue million in last terminal. create exceed now improve investment EBITDA a

next expansions created forward pipelines and week footprint. to consistent of Texas the last designed moving $XX conditions, also Paso, from in currently or sourcing this current pipeline potential diesel closures This we around the our is other with related been by to of an completed refining refineries From a that that after XX,XXX underway, gasoline per a needed. Along our that the delay refined within those markets. not launched updated to which needed Because New further product that of which some those expect system product through spending recent of continue capacity. mainly also fill open to deliver pump connections week to our day to barrel resulting can is We third-party refined for gaps start Paso. were to end of pipeline nature Mexico set theme be opportunity expansion our Albuquerque current included year, up be million -- refined of the to repurposing expansion nearly have additional we distributed estimate El have El demonstrating with Arizona to market products season our we expansion or or system via of to demand to changing fuel origin to yet flexibility short access and our our Mexico the asset points, broad If by important supply the up can on extensive mid-XXXX. was able pipeline cost lines, project, we potential expected system, of nation's satisfy by a our XX% products for market from work

to our concludes call Operator, Colorado of service open and addition, progressing expected In the by questions. remarks. the we're Kansas the market. expansion Denver the meet year help That in ready is prepared to to for still in demand our be to end

Operator

[Operator Instructions].

first comes of Praneeth Fargo. the Wells Our from line with question Satish

Praneeth Satish

but just customers get you to and I I see have And do and on Longhorn, to contracts challenges? so expect that, update on I I get if an anticipate received significant two, information permitting you enough would guess shippers wanted potential forward, when to project what if could you reverse far. move you the feedback do from any more one, guess,

Aaron Milford

of of part today significant Starting as to you first market continue a Longhorn. with we potential can the that depending want A the need see expansion that get the to reverse kind where Longhorn. assets what do the to first that, demand there open does may XX,XXX what or barrel-a-day bring to need and started reversal this in step is season we is But our have your demand, upon for week, with not the have understand and understand we we want. reverse we may evaluate some we We for without the current out the don't Longhorn to what last question, forward. update to potential really respects,

the the permitting the to one to your of line products, do from things have that's back we And originally a hurdles, part to expect products, that refined to to we was reverse question of we're that evaluate. second refined regarding crude to Now in continue process going through. the line that go and recall regulatory

our to we can But products something the evaluate isn't Longhorn needed. overnight. out is evolve. of happen and need just in fingers is it first that that sort It's make that something really step what's for to reversal demand we'll refined the and West So a of snap

Praneeth Satish

in I And And Got a same mean, up time, Longhorn, follow-up just XXXX whole back did mean oil while. it the time starting Longhorn. at convert this, kind up take it. frame. is would I on the it sounds process Permian of pick on a it, in to the could like to if maybe you the tighten production Permian.

potentially you in kept than higher crude at, fair you $X.XX? it you say, if it assume that from convert it or return do would $X.XX in did benefited to you service XXXX contracting earn would if So Longhorn, is and a so that

Aaron Milford

of is, the Certainly, Longhorn, in Yes. in. today service part it's analysis valuable the it's that

along we its service. value make the it, reversing what if be of We reverse it decision you current see and the to more in just So it described. lines it in would keeping

the is of with do transportation. the part and production I seeing be improve increasing, you're right, going the value in creates valuation. Permian where you're certainly, what us. part the the most evaluating pipeline And think, Basin of think to fundamentals, it's So equation, we that's That's some overall for Permian for --

Operator

line question Theresa comes of with the Barclays. next from Chen Our

Theresa Chen

I related the a far proceeds, process go. FTC the first And repurchases wanted pace that terminal that to towards as us you you your How sense get of as the ask excess repurchases, sales of give about you to especially once about plan? going? using Southeast can is comments the cash flow

Aaron Milford

it's Well, Theresa, last we're we're of one. first approaching news year year long is middle we process, good assumed the mean, end guidance the The hopeful consistent that has a question. process the part all owned started that seem I'm independent with on and The of to track. with to the we is, FTC It -- been going we year. start the and be I gave through terminals this that that your

we close, of process, we're the and month we're said, as we're So that next going reaching to I that so. hopeful the think end in or

terms buybacks, -- growth on that will units up depend projects depend. It one will In with. we on depend of the where capital trading. will would are the come pace is what It pace of it our

would just to we generate free over will have It tell going of is, tell on be of then you, it. amount So we're pace and you proceeds top of Theresa. these these our operations, defined have obviously, x cash months. sort going a to from amount All don't flow I to we're

proceeds put it. have upon think ability units, we decisions is to of to suggest contingent don't have back the amount make, you you caveats we terms pace a that that that and we're of around But to would I our buy ample opportunity going to we in back. units So all have our the make I All buying need to for about. the that consider prescribed

Theresa Chen

various Understood. additional and El by as to opportunities Albuquerque, products Paso westward, And spend on additional and towards time a going under the of the lot well the contemplation, refined service commitments the capacity as Europe markets. seeking you through debottlenecking to the clearly, mid-XXXX side, expansion projects currently including capacity Colorado

the of do the your commitments just that as away. similar MLP be out there, has look overcrowding to medium markets think exact similar tariff competed the competitors you we markets. that? there How could these term, large-cap some spaces, or such think I'm about projects that One or you should very could be towards in curious,

Aaron Milford

terms projects, expansions considering those us. Paso, think Well, El are there competing projects have commitments of making our in are we specifically, we the we're out that that into as competing folks to

each So we're do. known think it's quantity in of of still We west. a going lot what trying a terms to demand there's

So the if And getting you to perfectly. pipeline. we're overlap we expand the our don't need look will optimistic about at themselves, very still then they markets that commitments

in not potentially they're different But can markets, there's If put Western geographic up way coming annoyed that areas. new slightly the on map, fact to of Colorado. them all which you capacity the a these we're access into

account. overall, that's Colorado Paso, where growth overly So have look think we're points growth there. even a worried we're I the We if about of within see. you happening the see still But bit at occur opportunity we'll of we volume quite in El can don't in out that's forward. if to Mexico, west capacity in into move the the look think that as the we're a occurring too taking at further that much at Permian, We point you that, look growth at

Theresa Chen

was the that? eventually and distillates refined that product like that lastly, and and from supplier taking system you as the one, kind be refinery, down, Coast, market, think markets the beyond How the think a especially to And of Gulf of if two, incremental shifts, that in wondering, Gulf Houston clean away diesel, off Russian be see are be do I your your seem and system. will connected shuts some exports? of seems just products, of to Mid-Con pull volumes to to about product specifically Got Lyondell tighter to should we it. about Coast you the balances And we as given off favor international the the that pipes tighter coming and

Aaron Milford

But lot the first to would the is I take say Lyondell exposure. have a do let's So a part. we of connection refinery. what We don't have

from bunch a should that assets conclusions I So we we're demand other that to that down, that, is the draw have demand. our refinery refineries a negative wouldn't and at end mean if our frankly, because any connected shuts of of the something for pipe

to I significant any foresee specifically related don't So risks Lyondell.

to think demand demand. are and should question for the The the markets. we things world Coast about diesel. Obviously, Now tight with about really draw your heavy Gulf diesel is from how export

talking we're barrels Coast, many the sure. impacts Gulf have Gulf price about Coast to draw But tends that supplied. that of are of which draw connected to So -- markets premium you're the the to still be to for the also markets

The adapt in last the equation exactly for is So of it demand there to our markets reality Coast someone what year change all diesel, more to a barrels system up really demand and that has like to netback we made just the is, the out more starts refiner wants you're overseas, because fill have the late the talking it. have, of and working of which still in the Coast one if it the ship products. did price of Gulf sense the origin, for the to hasn't potentially, has Gulf There's lot refiners. flexibility about. group And because the is beauty to

seeing So occur, Gulf also draws. opposite Coast, degree, to the we're Mid-Continent. But the some it moves the where fewer from into up can actually

export Coast from draw it more, Mid-Continent barrels Texas and Gulf the places west. to can potentially refiners in even further As

that thing that exists that there, is the the and pipes, demand serving away. we're balance end in I keep going bit mind the So at there's our a of not is, would of a demand

to not we're markets different shift the just, our system, breadth Gulf the single-threaded the supplied as keep supplies So course, from those of adapt that to We're and and origins. Coast. given of able many to

system. strengths one -- Did the the that's So of your answer our that of question? really

Theresa Chen

thorough responses. very the Thank you much Yes. for

Operator

[Operator Instructions].

question with Our next of line from Jeremy comes the JPMorgan. Tonet

Jeremy Tonet

would bit to about, talk And future. here, this point pivot where wondering think do just up just expires, It condensate the And little the another in asset look that diesel. think about for arrangement, you sell to is here I your there you at not-too-distant just the when tolling would you good would contract think use like that I about splitter the that and pretty seems how splitter that Corpus how coming to and wanted Christi wondering point. there's the yourself. asset, you look economics with you a asset I some your options guess, at

Aaron Milford

of We se. think risk per part, like for we slate it's options, that, don't have a we most take lot good expertise we of not or justified don't where have pretty to a given the commodity

recently tolling did a we So deal.

arranging pays then taking customer money the a us oil doing Our and the crude offtake they're fee, then and making so. and

through frankly. if we're the time, developing years. a that's preferred But our at same more option, toll expertise can way, it in So probably reasonable also a the lot we

first do it it. came our could we chose we maybe choice, our to do the if So that's capability I to have run we do to that. probably that if though think first we not it, needed Even -- to

the in So it in that margin is things, from has that of can make value how money think the side the splitter up about asset. you terms of asset is and available with we gone that the

We from of point little of we continuing benefit that right number a splitter don't not sustain where been including overly concerned just is economic know. have significant that uncertain about sort the just a at take would to to have of to us. We're made, we now, renewing decisions the options, drive the toll not now. but value Which right we path the So should have splitter. we're

Jeremy Tonet

That's maybe helpful kind it. demand a Got step context just in there. overall recovery. taking back And of

further, in to more, just year of this demand on and out balance and willing currently seeing guess, markets expectations the you expand of or share. pace what you're trends If your recovery a could you bit over if there I

sense Just for trying that get to looks a you. for how

Aaron Milford

thought, So guidance volumes X%. you the of expect to it for beginning XXXX may versus basis, be. year, increase we recall, the to for on the where we year-over-year we gave we at year XXXX so still a expect the that's And year, that

basis, and growth refined So of is also on our had products on course, over And the last that growth, contribution projects serial we markets which in some in brought still growth our driven by volumes. we seeing of a few from expect we're our the recovery, that years.

to growth about So of little got a recovering. We've that we have up system, continue year-over-year, they recover, but markets to X%. some the slower our are expect part northern been in frankly, of

we've think, outlook to got And so year a year. this versus I going our pretty, volumes grow are an optimistic for what last

Operator

Sachs. the question of Goldman next Michael Our comes with Lapides line from

Michael Lapides

And role. again, congrats the this I mentioned at Day, Analyst on the new

are XXXX? year on talk way on kind Just elevated the you're revenue a per you system, high little the little to increases side us what this index inflationary expecting and a bit market the both refined can to cost question. of stays into think going about of a and We product bit you in the lot all kind of know, it barrel this that a and whether kind you for what -- cost-wise competitive talk

Aaron Milford

about as good doing our Michael, we're question, where a where of it's We the Think and you thank Well, our today, labor. on contractors. inflation, it's well. for capital, seeing some business hiring well-wishes maintenance work, see primarily Inflation, interesting. pockets we're

but expense hard -- although alarm It's it, see us we're We inflation. are really how some about it, much seeing seeing inflation that's again, seeing it's extrapolate rate the bell for going to or any the change the some so raise to of wouldn't I when translate there, bells alarm -- on but or I from you wouldn't then here. we're And raise side.

on Secondly, you work we're of to to front our with lot inflationary the a combine have doing business. the what's optimize happening

at come offset regardless the inflation, growth that optimizing in well to hope our some same experiencing business, overall inflation under time, that of we're look for while, you in shooting total we most we're at expense when So to business our of. where is because

good if inflation a move in for our have as business. do certain managing we of we equation So our see even think parts we we some forward, costs

So the and we're of extent But to have well with as our rest to that. wait not changing how the see outlook to out. we're plays some going year

Operator

Mr. call Milford, turn Please back continue presentation or you. I'll time. closing to questions at remarks. this your further there are with no the

Aaron Milford

Well, guys time a thank interest your I Magellan. And for you all today in you day. and hope great your have

Operator

conclude your participation does for We thank conference ask line. today. disconnect please you you the your That call and for that

Magellan Midstream Partners (MMP) 5 May 222022 Q1 Earnings call transcript