Oklahoma-headquartered Magellan Midstream Partners has seen record operating profit for Q4 2009 from product gains on its pipeline system and higher marine storage revenues due to expansion projects and higher rates charged for existing storage.
The partnership experienced a record quarterly operating profit of $103.7 million (75.6 million) for the quarter, an increase of $7.6 million, or 8%, compared to $96.1 million for Q4 2008.
Terminals operating margin was $33.5 million, an increase of $9.6 million and a quarterly record for this segment.
The current period benefited from higher revenues at the partnerships marine and inland terminals primarily due to expansion projects, including additional marine storage and ethanol blending, higher marine storage rates and improved utilization at the partnerships marine terminals.
Operating expenses increased primarily due to higher personnel costs in the 2009 period. Product margin declined due to the sale of fewer product overages in the 2009 quarter.
Management remains focused on expansion opportunities and spent about $480 million during 2009 on growth capital projects, including acquisitions, $84.4 million of which was spent in the fourth quarter. Based on the progress of expansion projects now underway, including several new projects, the partnership plans to spend approximately $210 million during 2010 and $30 million in 2011 to complete these projects.
New projects include the construction of 0.6 million barrels of storage at the partnerships petroleum products pipeline terminal in Tulsa, Oklahoma, expansion of truck loading capabilities at the partnerships East Houston, Texas terminal and enhancements to the partnerships petroleum products blending capabilities.
Pipeline operating margin was $113.2 million, an increase of $3.1 million and a quarterly record for this segment.
Transportation and terminals revenues increased between periods primarily due to higher average transportation rates and incremental leased storage, partially offset by approximately 1% lower transportation volumes for the quarter. Annual transportation volumes were in line with 2008 performance as increases in gasoline volumes offset declines in diesel and aviation fuel.
Operating expenses declined between periods due to $17.7 million more favourable product overages, which reduce operating expenses, partially offset by higher personnel costs and additional expenses related to the 700-mile Texas pipeline system the partnership acquired late July 2009.
Fourth-quarter 2008 product overages had been negatively impacted by a lower-of-cost-or-market adjustment resulting from the rapidly declining commodity price environment at the end of 2008.
While the partnership is in the process of establishing third-party customers to transport product on this new pipeline system, which was inactive prior to Magellan acquiring it, the partnership intends to purchase and sell petroleum products to be shipped on this pipeline during the transition period.
In addition, the partnership continues to analyse more than $500 million of potential growth projects in earlier stages of development, which have been excluded from these spending estimates.