Income rises 88% in 1Q for Tulsa-based Magellan Midstream Partners

Journal Record, The (Oklahoma City), May 7, 2008 by Kirby Lee Davis

Double-digit operating margin growth by its pipelines and terminals led Magellan Midstream Partners to record quarterly net income and operating profit, beating Wall Street expectations.

Those results led general partner interest-holder Magellan Midstream Holdings to a 53-percent first-quarter net income.

"MMP's very strong performance this quarter has allowed MGG to raise its distribution by 5 percent over last quarter, resulting in a distribution that is 23 percent higher than for the first quarter of 2007," said Don Wellendorf, chief executive of both Tulsa operations.

Boosted by a $26.5 million one-time gain, Magellan Midstream Partners posted a net income of $93.3 million, or 89 cents per diluted unit, up 88 percent from $49.7 million, or 55 cents, the prior year. Operating profit rose 63 percent to $64.7 million.

Even without the one-time gain of 20 cents per unit, the master limited partnership enjoyed a 34-percent hike in net income, beating analyst survey estimates of 58 cents by Thomson Financial and 57 cents by Zacks Investment Research. Operating profit rose 22 percent.

Revenue for the three months ended March 31 jumped 18.6 percent to $346.49 million from $291.98 million.

Distributable cash flow for the Tulsa-based petroleum product and ammonia mover and storer climbed 23 percent to $76.3 million.

Officials said the partnership remains committed to increasing distributions by 8-10 percent each year through 2010.

"That could be the highlight of the report," said M. Jake Dollarhide, chief executive of Longbow Asset Management Co.

Magellan Midstream Holdings net income totaled $17.6 million, or 29 cents per unit, from $11.5 million, or 19 cents, the prior year. That beat Thomson Financial estimates of 25 cents and Zacks estimates of 22 cents. Operating profit rocketed 66.8 percent to $101.3 million.

MGG will receive first-quarter distributions of $20.9 million.

Wall Street took both earnings reports in stride, with Magellan Midstream Partners units rising 10 cents to $41, less than $2 from its 52-week low. Trading volume rose 46 percent from its daily average to 92,702.

Units of Magellan Midstream Holdings slipped 14 cents to $24.31, its 112,802 trading volume falling 6 percent below its daily average.

Dollarhide attributed that to the "cloud of irrelevance" that investors seem to hold to MLPs at this point, equating them to utilities or preferred stocks.

"On a day when the price of oil tops $121, and natural gas businesses are going strong, and downstream businesses are all doing very good, but very little fanfare seems to be surrounding Magellan earnings," said Dollarhide. "To an outsider, an 88-percent increase in net income would be stellar, but the market just yawned."

Magellan names new COO

Michael Mears has taken the chief operating officer post at Magellan Midstream Partners LP.

Mears, 45, served as Magellan's senior vice president of transportation and terminals, with responsibility for all aspects of commercial development. Since joining the Tulsa pipeline and storage terminal operator in 2002, officials said Mears has played an integral part of its strategic growth projects and acquisitions.

A Williams Pipe Line Co. executive since 1985, the Colorado School of Mines graduate was vice president of various subsidiaries at Williams Cos. from 1996 to 2002. He also served as the chairman of the Association of Oil Pipelines (AOPL) from 2006 to 2008.

Magellan said the move reflects its succession plan, facilitating development of its senior management team.

"The board and I have great confidence in Mike's leadership capabilities, creativity and technical knowledge," said Don Wellendorf, chairman of the board, president and chief executive officer of Magellan. "Mike has been a primary contributor to Magellan's success and is highly respected within the industry."