Magellan Midstream Partners, L.P. Earnings Call Nuggets: Refined Products Demand, Crude Oil Shipment Increase

On Wednesday, Magellan Midstream Partners, L.P. (NYSE:MMP) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Refined Products Demand

James Jampel – HITE Hedge: It’s actually James Jampel from HITE. A couple questions; first, on refined products demand, are you seeing any kind of uptick in April?

Michael N. Mears – Chairman, President and CEO: Well, we are not prepared to disclose any April volumes yet. I think that – I’ll just reiterate what I said with regards to the first quarter that we did see some unusual things taking place in the first quarter that we would expect to normalize in the latter part of the year, but I don’t have anything specific on April volumes to disclose.

James Jampel – HITE Hedge: What do you think is causing the pricing environment in North Texas to actually consider moving products out?

Michael N. Mears – Chairman, President and CEO: Well, I think there’s couple things happening. I mean, first of all, you’ve got continued sluggish demand and particularly with gasoline you’ve got gasoline contraction happening in the Upper Midwest. You have refiners that are enjoying very wide crack spreads. So they have every incentive to run their refineries at full capacity in that environment and you have Gulf Coast refiners that are expanding and looking for more markets. So what you’re seeing is the Dallas price that is being – that’s higher during the winter in particular than the midcontinent price. If you look at what happened to us in January and February, we were essentially full on gasoline. Again, that was a product with low demand and high refinery utilization. So when – yeah, our storage was full. So, once our storage became full in the midcontinent and refiners continued to want to run the refineries at full capacity, that was depressing the market and they were looking for – so, the entire Midwest became a very depressed pricing market and the refiners were looking for other outlets and during that period of time, for instance, Dallas was more attractive market.

James Jampel – HITE Hedge: Turning to M&A, when looking at something like Sunoco (NYSE:SUN). Did you find that their retail operation to be something that would be something that you wouldn’t want to be involved in and would discourage you from being interested in something like Sunoco (NYSE:SUN)?

Michael N. Mears – Chairman, President and CEO: Well, I guess, the short answer is, I mean, we weren’t actively evaluating Sunoco. So, I really don’t have any specific comments on the retail. I mean the first thing to address there is that retail is not a qualifying asset. So, unless you’ve got enough qualifying revenue to dilute the revenue from the retail business, you’ve got a problem you’ve got to deal with initially. But I guess generically speaking, the retail business is not an area that we are focused on, and would not be – and it would be a detraction from looking at an acquisition such as Sunoco (NYSE:SUN) even though again I’d mention we weren’t actively pursuing them.

Crude Oil Shipment Increase

Elvira Scotto – RBC Capital Markets: Can you just run through again or provide a little more color on the comment that you made regarding the crude oil shipment increase? I think you had mentioned something about some special blending requirements. Can you just run through that again for me please?

John D. Chandler – SVP and CFO: Well, I think just to blow it down the bottom line. I mean, what we’re starting to see is more domestic crude being sourced to in our case Texas City refineries versus what happened historically and that domestic crude is moving on our pipeline system. It still happened in the first quarter there were some unique issues down in the – with those refineries where they were looking to blend that some more specific crude blends to bring to their refinery during some periods of maintenance. But I think the more important point to take away is as we look forward, we’re expecting those higher volumes of crude throughput on our system to remain again as the refiners in Texas City and along the ship channel begin to use more domestic crude as it’s showing up in the Houston area.

Elvira Scotto – RBC Capital Markets: Then you mentioned potentially making your Dallas to South Oklahoma line bidirectional. What’s involved in that in terms of costs and how long would something like that take?

Michael N. Mears – Chairman, President and CEO: Well the costs are really immaterial. In order to do it we have got to turn some pumps around, put in some extra valving so that we can make those pumps bidirectional. It’s really not, the capital number is probably less than $2 million to do that and the timing of it is something we can certainly have done before the next winter season. The real issue there is more of a product specification issue. Dallas itself is a reformulated fuel market and the Southern Oklahoma refiners today don’t make reformulated fuel. So that’s one issue that we’re working through. Of course if we reverse that line we can access markets in North Texas and West Texas for that matter because we can get barrels down to our Frost terminal, which I think can be shipped out to Odessa and El Paso, that there is plenty of the conventional gasoline market down there as well as the diesel market. But to get some real growth there the Oklahoma refiners would look to – need to start producing an RFG gasoline. It’s our understanding that looking at that, but even absent that we think the conventional gasoline market and the diesel market will support reverse movements especially again during the winter periods.

Elvira Scotto – RBC Capital Markets: Then just the last one, I guess, from me. On the joint venture with Copano, the Double Eagle, have you secured additional commitments for that line?

Michael N. Mears – Chairman, President and CEO: We haven’t secured additional commitments. We are still talking to a number of potential shippers. The interest is high. I guess, I’d characterize, the Eagle Ford is still a very dynamic market. There’s a lot of players out there that are looking to put in infrastructure and the producers aren’t in any big hurry at this point in time to make commitments given the range of options that they have. We still believe though that we are going to have a very competitive system at the end of the day due to both of our marine capabilities in Corpus Christi and the fact that we are planning to move a purity chemical grade condensate which is unique at least from what we’ve heard from our other competitors. So, we think we are going to have a competitive position, but we haven’t signed any additional commitments to date.