Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Magellan Midstream Partners First Quarter Earnings Conference Call.

During the presentation, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 4, 2023.

It is now my pleasure to turn the conference over to Aaron Milford, CEO. ahead. go Please

Aaron Milford

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

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

and the risk filings factors and your discussed Magellan’s information about our SEC review other with in future the should form opinions own You performance.

the prices financial Magellan commodity We as opportunity transportation to the network this and This our refinery projections throughout that to in location beat additional extensive as heart and similar report we blend continue the are backfill our to sales turnarounds to in our guidance. as profits pleased began expected West during we both that XXXX quarter. our initial simply early in higher-than-expected revenues system. needed with strong supply resulted differentials results to Midcon had provided primarily volumes improved much to our the regions year related shipments Refined markets various exceeded were higher Texas has of long-haul pipeline

to segment products may pipeline Headline by our revenues. as more disruptions Bottom also well, markets volatile in served some has been impacted actual have the refined Texas remains expected solid which shipments relatively pipeline the push line, supply volume than lighter as refined impact nominal South core supply overall on demand a system. our

then be latest review a to our first back over to the Jeff few quarter before outlook the your year for to our our turn answering questions. Holman, now call I'll discuss highlights from I'll earnings, CFO,

Jeff Holman

Thanks, Aaron.

their reconcile flow nearest non-GAAP to to including that and our earnings cash financial First, making release let margin, to flow cash DCF note be operating free these we've metrics, or included and distributable that certain GAAP references metrics measures. I'll me exhibits

first XXXX. morning, compared reported a higher well improved of mark-to-market primarily from our period, level, in quarter fee-based in to current financial high income quarter $XXX part due from million first we increase this as net on of hedges At transportation the as commodity resulted million, margin, core product year-over-year Earlier results in terminal to overall $XXX and adjustments services. the

$XX cash earnings year, impact of free related $XXX mark-to-market usual, after in description million. the $XXX was of Adjusted detailed the release, I'll on which earnings for $XX to as few touch the variances was just so last highlights. resulting of just for nearly as quarter increased DCF the adjustments our guidance a while available $X.XX, flow million for from free distributions is flow quarter-over-quarter per unit exceeded mentioned quarter excludes in million quarter Aaron our which A cash $X.XX. up million, commodity of

mid-year on Products, higher These to Starting quarter rates. Refined were $XXX our about the average higher XXXX largely driven $XXX product quarter margin operating average. higher of was margin, well increase first transportation rates of primarily due than as in tariffs higher with as first by X% XXXX, million million

In mentioned, rates. to higher more Aaron at period from long-haul which shipments, current addition, continued as benefit move the

how of system. Thanks they've past our our the outages the you've talk few on driving shipments connectivity refinery us incremental quarters, pipeline Over about us network. heard and long-haul benefited to by extensive

in were regions. But compared quarter that transportation a overall, supply we decreased by saw This long-haul again higher the by South Midcontinent XXXX, and impacted of West disruptions in disruptions proportion our which to Texas we driven also in shipments supply quarter, first volumes area. Texas,

to revenues general driven refined impacting without contributing of the can reminder rest moves rate our a South volatility, our a lower at volumes in volumes our system, on more in contributed overall decline compared significantly our to a as in a and This decrease rate. supply of a which products average to and portion Texas experience system disproportionate more higher

To around of around on that transportation volume X% total into contributes Texas the revenue. of XX% that the system our volume South the phenomenon put total only context,

South product result the our on recognition higher commodity compared in as liquids first between margins system flat the gains Texas the favorable sales on as well gas those both activities, which and saw hedges, our largest to of Product of were rest year. of the blending Excluding from of losses higher volume, unrealized volumes, essentially quarter quarter, refined last increased total year-over-year. for the margin, results periods volumes variance a as

processes Our year-over-year blending prior generally per gallon margins increased blending more gallon additional higher experienced year period. and capture to $X.XX make our during those blends of because identify quarter, particularly allows to and several part, profitable, that a of dedicated volumes closer versus result increased our Sales teams, improve efficiencies like but the per blending commercial continually realized operations, also to the the by efforts organizations in to $X.XX margins we as nearly opportunities. our engineering in

the a crude operating our quarter period. ‘XX million down in margin day, we barrels by to Turning lower XXX,XXX Longhorn higher margin actually Even barrels. with increased oil lower from marketing the third-party affiliate $XXX affiliate revenue the the earn shipments first higher Longhorn we volumes, realized averaged volumes is first barrels to as quarter slightly from per in increased to $X about offset on and of than XXXX, committed XXX,XXX a little day business, margin million, up due marketing barrels over partially volumes. third-party

XXXX, related was began the versus contract up Houston from in early in to as well to new additional shipments that distribution our part as year. to Volumes period, on shipment pipeline joint last HOU a increased ramp launched due futures higher connection early prior our year system that

the average lower overall. we Similar long-haul to a on for segment volumes, a what the this activity at rate shipments these side, HDS move in to increased discussed resulted so refined rate lower

since in we oil opportunities continue contracts as as In favorable of that dock fees to quarter. addition, higher the terminal in activity marketing we've increase versus an quarter on period, oil well in current futures product from experience adjustments prior contributions Crude the increased seen export demand. mid-XXXX, mark-to-market part year throughput higher due as in the crude increased a as margin to result

or committed volumes decisions. pay paid lower to nearly our joint crude shippers, volumes day the regardless to that XXXX, over Moving ventures. quarter BridgeTex due from short-term of day to that commitments importance we logistics on barrels oil take ensure per ’XX, first customers' were from just again counterparties in quality our a the in emphasizing down barrels XXX,XXX of from XXX,XXX get

full-year, average the barrels we XXX,XXX in first day BridgeTex line to forecast with the For volume per we activity quarter. now the saw in

compared expect as to Saddlehorn before, the to our shippers. than XXX,XXX well a day updating and this volumes of committed the on barrels currently full-year. year XXX,XXX per trend approximately XXX,XXX are more volumes and of a We increased to day, barrels to Saddlehorn from day outlook as result of per average per record higher both level for an continue committed barrels shipments

which periods. only to results Moving beyond is the G&A, between item our from highlight the individual segments, I want quarterly decreased other

not across in former the had incremental CEO's automation that costs, first technology You we an did in quarter ongoing increase quarter recur expense as efforts. our last first but positive offset of compensation primarily year, mostly course may optimization variance XXXX, to related retirement. in G&A to that the by organization, as of expense This recall the our and well was related current quarter increased in

Moving on sheet metrics allocation. and liquidity, capital to balance

quarter $X at credit had end First, have outstanding to facility borrowings available in and commercial our terms of billion liquidity, on our we program. continue no paper

value of face a debt at X.X%. long-term March $X As interest our remained about unchanged on net the of weighted billion average XX, with debt rate of

for purposes, we of which realized of at still X.X was last the year. times our ratio independent the compliance on gain incorporates Our quarter leverage terminals sale the end the

times. gain, leverage Excluding about would been have that X.X

allocation, capital our same. the remains for strategy As

to approach we capital take a using cash known financial remaining balanced for. are discipline As while all we continue to equity combination distributions, a and the repurchases committed of investments,

spend $XX.XX -- XX% the over $XX X.X inception repurchases for reduction the average than at of quarter, repurchased units representing in of XX% bringing million billion, first units During to price outstanding. unit for units total million we a dollars per million XX a total $X.X more an since

to of ongoing our capital be efforts as repurchase to used continue equity. repurchases continue cash focus see and free expect an flow our unit to generally to important allocation We distributions after

release. Of unit the course, note, we earnings are as repurchases will the number of within to a careful and always detailed timing, our in volume on factors as depend price

the solid and committed our limit, remain balance we a rating Magellan and the to we believe for our business sheet, times of long nature remains leverage model. standing grade investment of X our strong appropriate Additionally, which assets stability given credit

over that, turn the back I'll call to Aaron. With

Aaron Milford

Jeff. you, Thank

higher relates Magellan's view quarter, by guidance DCF This our increased the $X.XX results pipeline financial have for first adjustments during products primarily refined updated the million we full-year, tariff our XXXX. as well increase system. billion the mid-year for For our $XX upcoming to to on as

few last of quarters, current the level especially indicated by approach the allowable the intention environment. to our of inflationary in increases tariff provided we in this year have to thoughtful the be our index unprecedented Over light increases in

assessment. offered to conclude pipeline continue are will warranted incremental to by in methodical that the unique value very We leading been our With most have proposition recent that be for and us analysis adjustments system. our

all-in to expect approximately rates average result, an on increase XX% X. we currently products a As refined our July of by

later rate our out and detail decisions average based not we'll finalizing today, break more index and the provide so still do at market a but rate to of year. are components our increase We XX% the plan rates this point on

average have margin an continued year-to-date per per which nearly to our results, compares our year margin Considering currently XX% favorably For excess $X.XX gas to year, of our average $X.XX gallon. of last $X.XX $X.XX margin nearly at guidance liquids blending generated our the our gallon we hedged and expected our of hedge an we five-year activities, fall for commodity the of expects gallon. per strong activity in with

X.X planned our equity flow year, reinvest in we excess be annual of business, investors. to million that expect for in growth resulting cash per with in coverage X% free value Coupled times otherwise our buyback $XXX can used distributions create or the of unit distribution distribution additional after this

projected enhanced our on and to terminal supported underway. we investment pay a XXXX on generate or related last times target. an area. just Moving we times expansion in higher X range better in rail expect the at expected XXXX $XX to and million new than to $XX approximately commitment quarter, is to is take connectivity customer currently a projects than to Refined Products multiple million generally This X Denver investment we added the by expansion for million primarily spend in $XXX spend The ‘XX capital capital we already EBITDA

new always, with footprint as to opportunities logical we Magellan's continue bolt-on expand And further projects. assess to

discipline. While capital longstanding maintaining our commitment to

questions. answer to ready now are we operator, that, With

Operator

Instructions] Chen you. Theresa question go ahead. Thank First comes Barclays. [Operator from Please of

Theresa Chen

thank my questions. for Hi, taking you

into First, the I'd guidance ask July about of imply as the a strength updated that in the as even would seems first earnings love quarter, increase X. higher to it It well updated the just annual given tariff as assets and than your just new we bump currently the such. in conservatism should the result Is what the of the of how through guidance? account or is cadence think reflected a seasonality about year? Taking this

Aaron Milford

the update, our think current or business additional So are round in expect our the in million be to And of drivers DCF the primary we Products about guidance Refined update $XX if it’s was in rate of increase guidance. mentioned, that first incremental what buckets not quarter. that initial outperformance numbers the then you you

up adds XX. to So that the

the So in this still at we the much point. of be performance perform have pipeline the as first expected, we to this what rest to And to formula different our we're then tariff. expecting pretty that's it's expect point, at so business quarter

Theresa Chen

typically products. actually We're of evidence lot I'm refinery you it. know tariff last of your a you we about has of due seeing [PATX] refined as Got unplanned that And (ph). quarters as don't sure And product downtime your understanding elevated the been two for downtime to second in across where lot blended the footprint. that's quarter, a think it for the source

that into on in in should July second So kicker about comes we quarter the think change before inflation how as tariff the move X? quarter-to-quarter we

Aaron Milford

of Well, things us. are those so that the change, which some generally longer-haul for average you're beneficial planned more on is drives up you're we're as turnarounds. seeing that unexpected quarter-to-quarter And still you happening, A lot that shipping were right, barrels, mentioned.

disruptions. early But too it's to XQ, a business. going predict -- are it's positive those because over be higher for XQ quarter-over-quarter is our So disruptions the of to that it generally

look first kind I of you're say just trying like. would unplanned planned turnaround what or the in to quarter, if think my

refinery the turnarounds quarter, If you have the we value may to look contributed of or us. first million million at $X think $X incremental

and for of band. you a The think sort matters. where of necessarily that's shows us it for out guide issue potential in annualize it a we're and year, for So and don't unpredictable it's up trying plan that, I if that to is

But a sense the the and little that if see unexpected or quarter maybe at hopefully from will a of quarter bit guidepost give second we first give things might the of in for you what magnitude you the benefit happen. least what could a full-year

Theresa Chen

I refined could the a result? as that if follow-up last we've per tariffs third XXXX refining And this in seen so That benefit since your Okay. ask X day you of expect million to quarter volatility continue? point, capacity, just structurally over domestic a that should would of barrels product should closures

Aaron Milford

doesn't the rapidly. in and it demand about talked typically we've refineries as yes, change trend, general a as close, in markets As past,

we in where system, is to some so to from move to lot. Supply in structural to going us, for benefit refinery predict our it's a markets But a efficient through if are experience come usually us by often from of the they the supply things difficult our area, So patterns using changed, adjust that for might closure -- what structurally, market closes happen. But around system. other or given breadth should most it for time. it's one

Theresa Chen

Thank you.

Operator

Thank Tanya Jeremy you. question JPMorgan. The comes next Please of ahead. go from

Jeremy Tonet

afternoon. good Hi,

Aaron Milford

Good Jeremy. afternoon,

Jeremy Tonet

economic into kind more the forward and given moving Hi, business just some in wanted volatility here. to backdrop the the a just products of bit go environment,

sensitivities you thoughts on it you if us and we updated your see do demand with or just Just about recession how you go product share the system wondering into there? as worse, can trends any get across things think

Aaron Milford

expect if today as we recessions, very The be So move really as one recession, refined being more even we has like consumer changes gasoline, resilient, gasoline, behavior that's products a into fairly we sensitive business we demand it's itself not in see to so diesel recessionary product remaining our move really than versus which that's and by is volume a it others maybe about seems our that drastic driven would shown decades and recession healthy. time diesel static we in of through think total economically little a the to the sensitive more is seems to environment. than daily be through is

little sensitive. sensitive. is more Diesel gasoline So less is a

expect really But enter when you quickly. you dramatic put And comes business. once that note to recession, it that decrease have if also side very it shows history we've all would together, there a be of a a get that resilient we wouldn't I got other back us just on we recession. Then I the

it. our I on see So just recession a potential, the we're business don't material volumes or but watching impact result of a as

Jeremy Tonet

remind kind the that. I this step us, it. is of could BridgeTex, if And for Got a is helpful. towards What you bit here That's for little maybe outlook the of contracting you point there? time? I in BridgeTex a Thank status just wondering pivoting at what was saw down bit a just there. we guess,

Aaron Milford

contracts, Right, years today we exist so as here the think we contracts three as extend this at sit about for moment. that another

in So for that's three years. about And XX% we've line in of got the the capacity it's contracts the committed. place total next

So we've customers. got great contracts, strong

decision producing of with multiple are Permian the commitment we ours, some right Most succeed feel as just the and with just really actually cases, out commitments. committed different that's shippers So from their perspective, mentioned, shippers flow In very they're everyone the volumes barrel. comfortable. decisions now. lower a but frankly, making The cash have of not of Jeff marginal this

and their that. marginal them barrel do decision So a they for where to it's best to do they have where move make

where a fills us that the prefer but know now think a change barrel I next market those dynamic becomes still think Corpus, interested of you're Houston We an dynamic Houston in, when, most still seeing you're logical bit Corpus present, of None it's Corpus time. probably do that. will for to as if export that through up, barrels. for you'll

But a they've dealing that think with. differentials, preferred barrels maximize to right trying to we is So the continuing just we're through our now with marginal going sit shippers the still with their speak, already so struck, market. perspective time, that be that's given are deals as to we and low the from Houston value here phenomena

Jeremy Tonet

it. Got And That's it very one one, helpful. last could in just if here. sneak I

I and Just wondering tariff just you the was mind in evaluating talked any drove just was system discussed do. as kind between, was appropriate in decision? your X% determining of there X% the to analysis part about XX% of been have now kind that it I what changes the past wondering if variables changed increase think of, was that and the that that, in

Aaron Milford

the we make that to What more. different work and our just proposition did on I But that's at think that as that proposition we X%. our just -- I decisions And look it's we that's reach expect we is value And it. really what are the We obviously we that we we we've is refine reiterate provided now. market work learned We as work customers? as are shippers serve. to and work And focused dynamics continue some We've look just our we'll of at we're that -- continue continued the to that continues, really conclusions, value customers. it. before we and to the markets different result at work and would happen? continues, the happening? offer to where What just

value overall our customers. higher comfortable primarily provides of our don't increase and because proposition shippers we And the it, impacting doing we're our So we're a driven pipeline negatively tariffs. that's think in what

information time and better information and more it's So of frankly. just really passage

Jeremy Tonet

there. I'll Thanks. it. leave Got it That's helpful.

Operator

Wolfe Keith of Next go comes Thank Please from Research. question Instructions] you. ahead. Stanley [Operator

Keith Stanley

Hi, thank you.

sorry horse Just the -- hike. tariff on beat to the dead

So the a evolving sort the are think. increase the Aaron, high the based like XX% about highly commentary, sounds raise the in the system on side you're if attributes historically in is a markets versus I even it hike XX% done? breadth ceiling is regulated valued getting market more of which unique And your saying XX%, it's you little based and of on pretty did That's what what of you've market. value your and areas,

power characterization? pricing at little Is so a of looking another how kind network fair have put And that you these way, you're more a days? and your

Aaron Milford

context you pricing we're at want look Keith. and system, think power, high. the just put store out can to I in at that's system, probably the want the we at from, it at the optionality seeing move When highly to we they of look our they look nature that of markets shippers in you shippers. our we're the the of of I value look markets the that way our But what handle proposition is they wouldn't time you offer to, the extremely you can supply and barrel them, valuable customers and what go figuring get the that is our

look have the most even good our them. certainly which deal markets it's the best really rates, And And shippers. choose, options the when at alternative we think a have and for at the you we also markets. can they in think alternatives, competitive we They still and higher for but dynamics the of

we just it's think value the tariff rates our the think call wouldn't just end increase have, at shippers our people it's I based think we I looking so pricing to power, of alternatives that when superior. this even it market And it really system

our we more can our again maybe aggressive we're been have be we And in shippers. on recent so little a feel the than proposition value we don't like to harming the because past, rates

Keith Stanley

in the just guidance, question but Several you not are Thanks. the if you guidance? helpful. this, what for said sure prices I'm on just updated basis and -- oil assumptions gasoline still for using are That's updated same Midcon the

Aaron Milford

need at different. the overall the sensitivities but late of the year, you I been to but But you know look or market the seen a staying, crude has same. side. when volatile dramatically the haven't change we not we assumptions. our They're they're dramatically especially Yes, the on give roughly sensitivities,

I think closer our per we of forward. that's to is sort mentioned we probably look barrel underpinning $XX $XX guidance as

bit it's but are So drastically it's not the little a assumptions consistent. but different, different, generally

Keith Stanley

Thank you.

Operator

questions call further for any no are I'll at Milford the back closing time. turn Aaron over this There to remarks.

Aaron Milford

investor many On to We're value the ability in confident Magellan's remain we cash support increased come. not to for weeks. start and only create forward Magellan for few of pleased and year, future, but XXXX and appreciate you Florida you Investor significant in strong guidance our with Thank look behalf for at our Conference our today. your time in Thank of in the generate flow to EIC company, your the seeing decades continued you. in a to

Operator

conference today. the a for thank and conclude participation does Thank your good you, please This you. ask your and day. We you Thank have lines. disconnect for

Magellan Midstream Partners (MMP) 4 May 232023 Q1 Earnings call transcript