Tulsa-based Magellan Midstream Partners, L.P. reported a net income of $194.6 million for third quarter 2016 compared to $251.0 million for third quarter 2015, according to earnings reports released Wednesday.
The decrease in current year net income was attributed to reduced profits from the partnership’s commodity-related activities due to pricing adjustments for hedging positions which were partially offset by higher fee-based transportation and terminal activities.
“Magellan continues to deliver solid financial results while maintaining our focus on developing opportunities to grow our business in a disciplined manner,” said Michael Mears, chief executive officer. “During the third quarter of 2016, we successfully started operation of the Little Rock and Saddlehorn pipelines, representing key infrastructure projects to deliver refined petroleum products and crude oil to important demand centers.”
Operating expenses decreased $13.2 million due to lower spending for tank maintenance in the third quarter as a result of the timing of project work, reduced environmental accruals for historical remediation sites and more favorable product overages.
Magellan’s crude oil operating margin was $98.7 million, an increase of $4.1 million. Transportation and terminals revenue decreased slightly primarily due to lower pipeline volumes, partially offset by new leased storage contracts at the partnership’s East Houston, Texas terminal. Shipments declined on the Longhorn pipeline as customers utilized credits set to expire during third quarter 2016 that had been earned by moving volume in excess of minimum commitments in the past. Affiliate management fee revenue increased primarily due to a one-time start-up fee associated with the Saddlehorn pipeline, according to the earnings reports.
Magellan saw an earnings increase of non-controlled entities in the amount of $3.3 million. This growth is associated with Saddlehorn Pipeline Company, LLC, which is owned 40% by Magellan and began operations in Sept. 2016, as well as higher shipments on the pipeline owned by BridgeTex Pipeline Company, LLC, which is 50% owned by Magellan, as customers moved additional volume to BridgeTex due to operational issues on a competing pipeline.
Magellan will continue to focus on several capital expansion projects to identify new opportunities for future growth. Based on the progress of expansion projects already underway, the partnership expects to spend $850 million in 2016, $300 million in 2017 and $250 million in 2018 to complete its current slate of construction projects. These estimates include an incremental $100 million of spending for new growth projects, such as construction of additional storage at the partnership’s Galena Park, Texas terminal and along Magellan’s refined products pipeline system as well as a new Wyoming origin for the Saddlehorn pipeline.
The Little Rock pipeline began operations in July 2016 and the Platteville-to-Cushing segment of the Saddlehorn pipeline became operational during September, as previously reported by OK Energy Today. Pipeline installation continues for the Carr-to-Platteville segment of Saddlehorn, with this pipe extension expected to be operational in early 2017.
Construction is nearing completion for Magellan’s Corpus Christi condensate splitter, with commissioning underway at the facility. The splitter is expected to be commercially operational before the end of 2016.
