Q3 2019 Earnings Call
Greetings and welcome to the Magellan Midstream partners third quarter earnings call. During the presentation, all participants will be no listen only mode.
Afterward to conduct a question answer session at that time, if you have a question. They supposed to one followed by the four on your telephone if at any time during the conference you need to reach an operator, Please press star zero.
A reminder, this conference is being recorded Thursday October 31st 2019.
I would now like to turn the conference over to Mike Myers, Chief Executive Officer. Please go ahead.
Thank you.
Good afternoon, and thank you for joining us today to discuss magellan's third quarter results.
Before we get started I remind you that management will be making forward looking statements as defined by the FCC such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan, but actual outcomes could be materially different.
You should review the risk factors and other information discussed or a filings with the FCC and form your own opinions about magellan's future performance.
With the favorable financial results. We reported this morning, Magellan continued its positive trend for 2019.
Our third quarter earnings significantly exceeded our expectations for the quarter by 16 cents per unit or 15%.
Allowing us to increase our guidance for the year once again.
I'll now turn the call over to our CFO , Jeff Coleman to review, our third quarter financial results in more detail then I'll be back to discuss our latest outlook for 2019 and the status of our larger expansion projects before opening the call to your question.
Thank you Mike.
During my comments today, I'll be making references to certain non-GAAP financial metrics, including operating margin and distributable cash flow.
We have included exhibits to our earnings release.
Reconcile these metrics to their nearest GAAP measures.
Earlier. This morning, we reported third quarter net income of $273 million or $1.19 cents per unit.
Alluded basis, compared to $594.5 million or $2 to 60 cents per diluted unit in third quarter 2018.
Please recall the 2018 third quarter net income was elevated due to $353.8 million gain on our sale of a 20% interest in bridgetex, excluding that game third quarter 2018 earnings for $240.7 million.
Dollar and five cents per limited partner unit.
Regarding the impact of Mark to market activity third quarter 2019, adjusted diluted earnings per unit was also $1.19 cents, which exceeded our guidance for the quarter of the dollar and three cents.
Distributable cash flow for the quarter was $306.8 million $25 million higher than third quarter 2018, driven primarily by stronger results from our from our refined products business I will now discuss the performance of each of our operating segments in turn starting with our refined products segments.
Five products generated $240.1 million of operating margin in the third quarter of 2019, an increase of $25.4 million over the 2015 period.
Transportation and terminals revenue for the refined products segment increased $10.4 million, driven primarily by higher volumes as well as slightly higher average rates.
Volumes were favorable due to solid demand across our system as well as higher shipments associated with the recent connection neural Paso and the startup of our east Houston to earn pipeline project.
Rate in the current quarter or Favourably impacted by the tariff increase at 4.3% we implemented in July of this year, partially offset by the impact of higher short haul movements, which caused our overall average rate to decrease.
I might also note that these shorter haul movement, particularly on the more supply push south Texas portion of our system experienced more volatility both in product mix and overall demand than the rest of our refined products system.
2019 year to date throughput statistics in the financial schedule that accompanies our earnings release.
Shows the decline, which showed a decline in gasoline volumes an increase in aviation volumes as compared to 2018 reflect the impact of these more volatile south Texas movements as the demand for both gasoline and aviation fuel on our system, excluding South Texas was essentially unchanged between periods.
Operating expenses for the refined products segment were slightly lower in the current period has lower integrity spending was mostly offset by higher property taxes.
Product margin increased $13.4 million compared to third quarter 2018, primarily due to higher noncash gains on futures contracts, we used to hedge future product sales as well as lower butane costs in the current period.
Moving now to our crude oil segment.
Third quarter operating margin of $154.4 million was zero point $5 million higher than third quarter 2018.
Crude oil transportation and terminals revenue increased $5.8 million largely as a result of new tanks at Cushing and Corpus Christi, as well as higher storage and dock fees associated with our see brick joint venture terminal. Following the addition of export capabilities at the terminal in August of 2018.
Our crude oil transportation volumes also increased in the current period with most of the increase resulting from significantly higher volumes on our Houston distribution system due in part to the previously mentioned higher seabrook activity.
As we have seen throughout 2019, the increase in Houston distribution volumes, which move at lower rates than longer haul want more shipments was the primary driver of a decline in the average tariff rate we reported for our wholly owned crude oil assets.
Lower average terrorists earned on our longhorn pipeline system as a result of contract renewals in October of last year also contributed to the decrease in average rate between periods.
Volumes on longhorn averaged a little over 280000 barrels per day compared to 275000 barrels per day in third quarter 2018, as we saw continued demand.
For spot shipments through August and volumes for July and August represented the two highest monthly volumes on record for longhorn.
As anticipated new cap new capacity out of the base and came online during the quarter narrowing the price differential between Midland in Houston in late August .
However, longhorn continue to operate at full capacity in September due to incentive tariffs and our own marketing activities.
Our profits from these marketing activities are reflected as crude commodity margin on our consolidated financials and the associated volumes are eliminated eliminated from the operating statistics quoted in the financial schedules that accompany our earnings release.
As a result of these marketing activities and incentive tariffs, we expect longhorn to remain fully utilized for the remainder of 2019 and our forecasted throughput on the line for 2019 as a whole it's approximately 274000 barrels per day.
Operating expenses for the crude oil segment decreased $2.7 million due to lower environmental accruals and more favorable product overages, which reduced operating expenses.
Partially offset by additional storage and dock fees paid to seabrook.
Crude oil other operating expense was $3.6 million higher in the 2019 period, driven by the unrealized mark to market valuation of the basis derivatives agreement with a joint venture co owners affiliates as we discussed last quarter.
Crude oil equity earnings decreased $3.4 million between periods as lower Bridgetex equity earnings offset increases from our other crude oil joint ventures Saddlehorn equity earnings were higher primarily as a result of new commitments received in connection with the recently announced expansion of the Saddlehorn pipeline as well as.
Higher uncommitted volumes from incentive tariffs saddlehorn volumes averaged approximately 185000 barrels per day in the quarter compared to approximately 75000 barrels per day in third quarter of last year and we now expect average volume on Saddlehorn for 2019 as a whole of approximately 155000 barrels per day.
Seabrook equity earnings also increased driven by the higher volumes at sea brick noted previously.
These increases were more than offset by lower Bridgetex earnings higher average bridgetex volumes of approximately 444000 barrels per day compared to approximately 395000 barrels per day in the same period last year were offset by our lower ownership interest in the 2019 period.
Consistent with our remarks regarding spot barrels on longhorn scenario differential between Midland in Houston has reduced demand for spot shipments on bridgetex at our published pop tariffs.
We are using new incentive tariffs to optimize throughput on the line, but the rate bridgetex runs on such movements driven primarily by the prevailing differential at the time.
Based on utilization of these tools as well as commitments on the line. We currently project to average between 19 volume for Bridgetex to be about 415000 barrels per day.
Finally to wrap up the discussion of our performance by segment, our Marine segment generated $32.4 million of operating margin in the current quarter, which has an increase of about $3.4 million over the 2018 period.
Revenues for $2.1 million higher primarily due to more tankage being available for contracts storage due the timing of maintenance for.
These higher revenues were partially offset by higher property tax accruals in the current period as well as higher asset integrity spending.
In addition, marine segment other income was higher by $2.2 million as we recognize insurance proceeds on damage sustained from Hurricane Harvey.
Moving now to other variances to last year's quarter, depreciation amortization and impairment expense with basically unchanged between periods 14 expense increased $3.7 million in 2019.
Driven primarily by higher employee headcount due to the growth of our business.
Net interest expense was $4.2 million lower and the core current quarter, primarily due to lower average debt outstanding and a slightly lower average interest rate.
Our weighted average rate was approximately 4.6% during the third quarter and our average debt outstanding was $4.6 billion as of September Thirtyth long term debt this $4.75 billion with $135 million of cash on hand.
Gain on disposition of assets was $351.2 million lower in third quarter 2019 of the 28 period 2018 period reflected the sale of a portion of our interest in Bridgetex as already mentioned.
Moving briefly to balance sheet metrics and liquidity our leverage ratio for compliance purposes was approximately 2.8 times at the end of the quarter. We continue to expect to fund all of our current slate of growth projects with retained excess cash flow and debt, while saying well within our long standing four times leverage limit.
Without any need to issue equity.
In terms of liquidity, we continue to maintain our multiyear credit facility with capacity of $1 billion as well as our 500 million dollar 364 day facility both of which are currently undrawn.
Ill now turn the call back over to Mike to discuss our guidance for the balance of the year as well as give an update on some of the growth projects. We are working on.
Thank you, Jeff as mentioned earlier based on our strong third quarter results. We have increased our annual DCF guidance for 2019 by $40 million to $1.26 billion.
The increased guidance includes are better than expected results from the third quarter as well as continued projected solid results for the remainder of the year.
As Jeff noted a few minutes ago and consistent with our previous guidance.
We expect demand for transportation at both spot tariff rates to declined significantly during the fourth quarter on the longhorn and Bridgetex pipeline as the basis differential between Midland and Houston has narrowed to level well below the spot rates for both pipe.
However, we do expect to move volume above the committed levels on both pipeline through our recent incentive tear strategies and marketing initiatives to optimize utilization of these crude oil pipelines and a lower differential environment.
For our commodity activities our outlook is very similar to where we stood last quarter. We still expect average net butane blending margins of roughly 55 cents per gallon for 2019 was about 90% of our fourth quarter activity hedged.
Looking ahead to next year, we've locked in approximately three quarters of our spring 2020 margin with hedges of around 60 cents per gallon.
Last week, we raised our quarterly distribution into a dollar two per unit, which is consistent with our plan to increase our annual distribution by 5% for 2019.
With our updated 2019 annual DCF guidance of 1.26 billion. We now expect the 2019 full year coverage ratio of 1.35 times.
Which results in more than $300 million of excess cash flow for the year.
One of our objective is to maintain a coverage ratio that ensures ratability in safety of our quarterly cash distribution, especially as we enter a period of increased competitive pressure for long haul crude oil pipelines in the Permian basin.
Moving onto expansion capital, we continue to make progress on our significant construction projects.
Most notably we began commercial operations for our new East Houston different pipeline during mid September .
Magellan's refined products pipeline system in Texas has been constrained for quite some time in this project to step one for us to increase our capacity to meet demand for gasoline and diesel fuel in the Texas in mid continent market served by our system.
The next step of this strategy is expansion of our West, Texas pipeline system for which we are making excellent progress as well the vast majority of right away has been obtained in construction remains in high gear with a mid 2020 startup still expected.
The second phase of our new Pasadena joint venture Marine terminal is nearing completion with the next 4 million barrels of storage and supporting dock pipeline infrastructure expected to be in service during December .
Upon completion, we will have one half of this of this facility built out and remain the discussions with industry players to seek additional commitments to further build out this site.
Progress continues for additional storage and export capabilities at Seabrook, which are expected to come online in early 2020, and we announced this more this morning Seabrooks plan to build another 750000 barrels of crude oil storage.
Early 2021 startup.
And of course, Saddlehorn announced plans to move forward with its full 100000 barrels per day expansion since our last call, which is supported by long term take or pay commitment.
As a reminder, the expansion will cost a little over $100 million in total to Saddlehorn and will be achieved by adding incremental pumping and storage capabilities.
The new capacity of 290000 barrels per day is expected to be available in late 2020.
Based on the progress of expansion projects underway, we now expect the spend $1 billion in 2019 in $400 million in 2020 to complete our current slate of construction projects.
The 2020 spending estimate has increased by $250 million from the last estimates we provided.
About 100 million of that increase simply relates the timing for spending previously expected to occur in late 2019 that shifted to the new year with remainder due to new projects through a recently launched.
We've already talked about the C broken saddlehorn expansions, but we've also added a number of other attractive projects.
A few of the new projects include additional long term contracted crude oil storage in the Permian basin and pipeline enhancements to accommodate new commitments and connections to our west, Texas refined products pipeline.
Beyond these capital projects, we remain focused on identifying additional opportunities for future growth with well in excess of $500 million of potential organic growth projects still under review.
Some examples of projects under development includes significant supply optimization projects to our crude oil pipelines and a potential further expansion of our west, Texas refined products pipeline within additional open season to commence soon.
As you've come to expect from Magellan capital discipline remains a top priority for our company and as a kid critical attribute especially in light of the current competitive marketplace.
I also wanted to provide a brief update on the status of the voice of project.
After the close of our open season in August it became apparent to us that we would only be successful with this project. If we could develop a more capital efficient solution than what was originally proposed.
We have been actively working on this over the past few months with multiple parties and we've made significant progress.
The project is currently designed will require a fraction of the capital that was originally contemplated and includes multiple value, adding components as happened negotiated with certain counterparties.
While we still can't guarantee that the project for retail I'd, we're significantly more optimistic that we will be successful with these new development.
That concludes our prepared remarks, so operator, we can open the line for questions.
Thank you if you like to read just a question. Please press the one followed by the four on your telephone you will hear with me Tom prompt to acknowledge your request. If your question has been answered Hey, you would like to withdraw your registration fees plus the one followed by the story.
Our first question comes from Jeremy Tonet with JP Morgan You May proceed with your question.
Good afternoon.
Hi, Jeremy that's right the topic of.
Buybacks, it's been really picking up in the marketplace.
Recently and while.
Many MLP fees or not really in a position where they could act on that seems like Magellan is uniquely positioned where this is.
You have a lot more flexibility to actually.
Employee buybacks and a meaningful way in the near term and so I was just wondering if you could update us as far as your capital allocation porosity and how you think about that.
Well we.
Yes, we evaluate our use of excess cash.
Frequently and.
I've said before publicly that were not opposed to buying back equity.
We as we sit here today don't have a plan to do that.
But as we go forward or we're going to continue to evaluate that amid if you look at our excess cash for this year and.
You'll kind of pairing up with.
What our capital forecasts are for next year.
They're fairly well balanced.
So at least in this environment, if unless something changed I mean, we would be essentially.
Leveraging to a higher level in order to buyback equity.
I'm not going to say, we would never do that thats, probably not the most likely thing we would do.
But.
I think the point for you to take away from this is.
That under frequent evaluation.
Here and we're not opposed to buying back equity, but at this point in time.
I don't have any plans to do it.
Maybe just kind of building on that point, I guess, I mean, and then piece.
Leverage falls much lower than than most peers out there in seems like asset sales is something that was under consideration at points in the past. So I'm wondering how those two items play into it and also at the same time, if you're targeting six eight times on growth projects.
I'm wondering how you think about that relative to if you view of the MMP unit price as undervalued by a certain amount in it and you can get a very big uptick as far as capturing the intrinsic value gap right off the bat.
Does that factor into your calculations as well when you're thinking about buybacks.
Well.
Obviously, we haven't authorized a program to do buybacks. If we had one we would evaluate what we thought the intrinsic value of our equity was I'm not going to comment on whether or not.
What that value is.
I'll, let let the experts.
Handle that but with regards to your first part of the question.
With regards to.
Selling assets.
We've mentioned before and it's still true today that we frequently look at our portfolio of assets.
And make assessments as to whether components or individual assets might make sense or might have more value to other parties than two less and so.
It would not be unusual for us to test the market if we have determined that.
Assets fall into that category.
We don't typically talk about that openly unless there.
Is an actionable transaction.
As part of the reason, we don't do that is because if we if we do choose to test the market. We're doing it from a position of strength in other words, we don't need to sell assets. We don't have a problem to fix it really would be a process to assess if.
If the counter a potential counterparty can put more value on it there we think we can.
And so.
If we were to conduct a process theres a significant probability that we would not transact at the if we don't get numbers, we like and so thats why we don't like to talk about those in advance I can tell you. If we do reach an agreement to sell something obviously, we would let you know and then there would be a discussion on the use of proceeds and.
And we would just have to have discussed that on a case by case basis.
That's very helpful. I'll stop there thanks.
Our next question comes from Tristan Richardson with Suntrust. You May proceed with your question.
Hey, good afternoon, guys just curious.
Comments on.
Advancing.
Discussions on Voyager and taking on a different form potentially.
You noted.
Several value enhancing components could you give sense of.
What would enhance value to.
Your current Voyager project and then also just to clarify your 2020 outlook does not include any capital associated with this potential project is that right.
That's correct.
Let me.
Thats correct on the second part of your question our 2020 capital outlook doesn't include anything for Voyager.
I'm hesitant to really get into the details of what.
Those items are that we are.
Incorporating into the Voyager project and.
If the project.
Advances I think there'll be more clarity on that but.
As you know, it's a very very competitive market right now so I'd, rather not talk about those items.
I will say that.
In the course.
Pursuing a more capital efficient.
Solution.
Probably well probably the biggest factor that's made this project now competitive is the dramatic reduction in capital it needs to be spent to make this happened which as you.
I would assume involves using substantial amount of pipe that's already in the ground.
That's the primary factor that's going to make this competitive the other elements are very very important.
But but we're not prepared to talk about those right now.
Great helpful and then.
Talked about project opportunities, you're evaluating around supply optimization for your crude business should we think about that as activities closer to the wellhead or gathering infrastructure curious what those projects could look like.
Yes, again, I don't want to get into two specific of what we're talking about there again, just given the competitive nature of the market right now, but but you're right. It's all up it's all upstream.
Our current origin.
And.
By definition that puts us closer to the wellhead, but.
I don't want to.
I want to elaborate that on on their further but but.
What we're what we're talking about specifically is.
Our projects that will.
If successful.
Lower the cost of supply into our pipelines and improve the security of supply into our pipeline.
Understood and then just last one from me just curious about you talk about marketing efforts to facilitate intrastate shipments.
Should we think about that as your.
Basis derivative agreement or.
Can I help us understand that a little better.
That's one.
Thats one tool we've got others that are that we're using but that is one of them.
Okay. Thank you guys very much.
Sure.
Our next question comes from Keith Stanley with Wolfe Research you May proceed with your question.
Hi, Good afternoon, one follow up on on Voyager just a clarification.
When you say, you're looking at a more capital efficient project.
I clarify is it's still for a new pipeline.
Whether re purpose store greenfield or could it possibly involve partnering with entities that have already announced pipeline projects.
That's that's a loaded question.
It.
The nature of the project the same it's going to provide service from Cushing to Houston.
And.
It does involve working with partners.
But.
I don't think I'm going to go any further than that.
Okay.
Separate question, you mentioned potentially doing an open season soon for another refined products.
Expansion project.
Can you give great anymore color, there or just what this might entail in terms of I mean is the size of this project that you could look at potentially similar to east Houston to Hernan.
And the West, Texas expansion or are we looking at something smaller.
It's smaller than that it's still a material projects, but it's smaller than that.
Got it thank you.
Yes.
Our next question comes from Shneur Gershuni with you'll be asked you May proceed with your question.
Good afternoon, everyone.
I thought maybe add shifts away from talking about the Capex project. If you don't want to talk about.
Just wondering if you can talk about DRA a little bit.
Pricing sort of mentioned about the high cost.
But that it takes to run DRA and I'm kind of wondering how much DRA you used to enhance your system over.
The last couple of years and what's the volume metric change and that would occur.
You weren't going to use it and what would be offset from an opex perspective.
Well, we use a substantial amount of DRA as I would suspect almost everyone does that has a full pipeline.
The.
And the incremental cost as you increase the capacity or pipe.
Moves up significantly with the use of DRA.
So.
Yes, I guess.
Yes, and typically I don't want to talk specifically about capacity increases on our pipe specifically, but.
Yes, it's not unusual or out of the ordinary take yet.
20 to.
30% plus kind of capacity increases through a pipe.
With.
With the use of DRA.
So.
And maybe I can give you another number just to put in context. The total amount of our DRA spend across our entire pipeline system. So this just wouldn't be crude oil pipe so to be on refined products pipe to is about $20 million.
Year to date.
So that maybe to give you a little context, there the flip side of that is.
You have.
A competitive environment say in the crude oil space, where.
The throughput on your pipe declines for the first barrels that you're not moving or your highest cost barrels so you're.
The cost of operating the remaining barrels on your pipe dropped dramatically also so you do get some margin improvement.
On existing barrels if you reduce the number of barrels you're moving on nearby.
If you have to use less DRA.
And that sort of thing.
But.
But if you if the market there to keep your pipe full.
At least up till now I mean, we've had the economics the to maximize DRA.
I mean is DRA kind of like peaking capacity on pipelines essentially and so.
There's a lot of concern about over build out of the Permian, but theres also been a lot of use of DRA across the system. I mean is it something as you sort of think about the base in holistically that.
500000, maybe even 1 million barrels of capacity can be can quickly come offline because of DRA and it sort of we'll keep spreads more normalized.
Well.
First of all of Us and I don't know what everyone else doing obviously, but if everybody in the basin stopped using DRA then yes. The total takeaway capacity would drop and I am not in a position to quantify it but.
20% to 30% is probably not unreasonable if everybody's using it and I can't tell you, whether everybody's using at or not but.
But that.
Every pipeline those still has an incentive to use it I mean, if they can if they can capture the incremental barrel.
At a margin that is higher than our than their variable costs. They still have an incentive to use it so.
I don't think it's a situation where everybody's because its overbuilt everybody is going to cut back on their DRA usage in order to match the the takeaway capacity of the production.
So a very competitive environment and people are going to be.
Trying to secure those incremental barrels that would require DRA, if they can get them.
Okay.
Makes sense, maybe shifting gears a little bit here I was just wondering if you can sort of talk about refined product flows in general is kind of how you see it across your system.
Are you seeing more wanting to hit the Mark you hit the waterborne market.
Or do you think that or kind of in the same holding pattern is kind of where we have been if there been any shifts.
Obviously, you're building your export facilities as well too.
Just wondering if you're kind of seeing that demand pickup for for refined products fit the water.
We haven't seen I mean in the last three to six months, we haven't seen a big step up.
In interest for incremental refined products.
Assets on the water Theres still parties very interested.
But and that's what we're seeing I mean other people are building their own facilities. So.
I don't think that.
I Wouldnt expect that the demand for refined products to go to the water is.
Is declining.
I can tell you on the throughput on our legacy pipeline systems or Texas systems are mid continent systems refined product demand is very stable.
In fact, if you just look at total if you take out all the growth projects from from our results and you take out the South Texas volumes, which are again not necessarily ratable because there.
A push from a refinery rather than demand driven if I take those out.
Year to date.
On total refined product.
We are.
Essentially flat.
Year to date third quarter, we were up by 1%. So is very stable refine product demand.
In in the in our pipeline systems.
So.
I hope that answers your question Rob.
No no definitely does and one final question there were media reports about four or five months ago that.
You retention the evaluating sale of some assets.
Has that process concluded.
Still ongoing or is it just kind of a constant review that you I think you said to somebody else's prior question.
Well as I said earlier, we don't really comment on any processes, we may or may not be running.
So im going to differ on that question.
But I will tell you that we actively evaluate.
And again, it's a conscious decision on our point not to talk about processes because.
It may unnecessarily set expectations in the markets mind as to what we're going to do when we really approach a process. If we conduct one at testing the market with no.
Urgency to actually transact, if we don't like the outcome so apologize for not answering your question directly but.
Thats where were at.
Okay perfect I appreciate the color. Thank you guys.
Our next question comes from Prime Nieces Satish with Wells Fargo. You May proceed with your question.
Hi, good afternoon.
I was just wondering if you talk more about your crude marketing operations I guess, how big do you envision this to become as we go out in time, and then should we assume the marketing profits are all spread based or is there like a blip baseline level of profitability that we should consider as well.
Well generally speaking the marketing margins are going to be differential based I mean, that's.
So they can fluctuate.
As far as how big this business can get.
Let me start by answering this that marketing.
On our own pipeline is not what we prefer to do we would rather contract the space long term and we are still diligently.
Tempting to do that.
But in the absence of being able to secure contracts, we will market on the pipe. So.
So given that I mean, our goal is not to make.
The marketing business a large business.
It could get large if if were unsuccessful in securing contracts, but thats not our goal.
Got it and then.
Just on on the new redesign Voyager project if it if it advances should we assume that the return is better than your typical six to eight times EBITDA target because it sounds like you've got some theres, some brownfield component to it or or does it fall within the six day times range.
If we advance it's likely going to fall in the six to eight times range hopefully at the low end of that but more importantly, it would be contracted.
At that at that return.
Okay got it thank you.
Our next question comes from Derek Walker with Bank of America. You May proceed with your question.
Hi, good afternoon.
Mike just a follow up on some of the refined products.
I think it during a formal remarks, you mentioned some of the short haul volatility.
Thank you reference gasoline and aviation Kansas.
Hi, good color on sort of those dynamics that sort of how you see that playing out.
Either this year into 2020.
Well I think the volatility we're talking about or have been talking about is on.
Small section of our pipe and that's what we call the South Texas pipes, which for more clarity is the pipes that run from Texas City up to the Houston ship channel essentially so those pipes are sourced by the refiners and Texas City.
And the product mix they choose to ship on the pipe.
Remembering that they've got options to take product out on the water.
And other options that.
Can be very variable where.
One month, they can choose to ship a significant amount of gasoline and less jet fuel in the next month. They can do the opposite.
So there is considerable volatility in unpredictability on that product mix.
And for that matter there can be predict predictability on what the actual volume will be if that happens to be an opportunity to put more of the water they might do that put less on the pipe.
So that's where the volatility is.
Yes, it affects our numbers because it's typically high volume is low rate, but its high volume.
So from a financial perspective, it's not a big number but from a volume perspective, it can skew our rate per barrel.
And Thats why we call it out.
Thanks, Mike I appreciate that maybe just one.
Clarification.
Yes, a little bit more about the incentive rate. So you have kind of baked in I think youve referenced.
To 74 number for long horn.
For if you think it was the average for the year in for 15 for Bridgetex.
Assuming the contribution.
In Fourq.
From an incentive rate.
Yes.
Okay great.
Okay, maybe so every little bit more in that sort of so much less than you havent seen.
Well as we sit here today, we expect long form to be essentially full on volume through the end of the year.
Bridgetex.
It's uncertain and there's a chance it could be fall, but.
December so long ways away and as you know I mean in this environment, you really don't know what's going to happen.
With uncommitted space on a pipeline tell you have nominations, which which don't have until the middle of month. So.
Predicting that is tougher.
So.
That's about as much color as I can put on it.
Okay. Thanks appreciate it separately.
Sure.
Our next question comes from Chris Sighinolfi with Jefferies. You May proceed with your question.
Hey, Mike how are you.
Good.
Thanks for the discussion this afternoon I just two questions first to follow up I guess on on the marketing side of the business. Just just a clarification question for me is that solely I know, we talked about the steamy assay conference as an opportunity for you.
Maybe to buttress some of the decline that happens with the narrowing of spreads, but I'm curious is other pipelines that competitors going are drawn to their own systems in Houston Theres also pipes that are destined for other locations I'm. Just wondering if there's any element of this which is to ensure that.
Your Houston network remains coal.
Or is that not a concern.
Well you to the extent that we move barrels through our Houston network that that originate on longhorn and Bridgetex, which we do but that's part of the that's part of the value proposition that we can go out and that and secure barrels through our marketing.
Arm to move barrels on the pipe than they would also moved through our distribution system. So yes, that's part of it.
You're not I mean, the distribution system as lot of other barrels to which are from other pipes.
But with regards to the volumes off of Longhorn and Bridgetex absolutely.
Okay.
I suspect I just want to clarify.
And then I guess separately you mentioned several times in your prepared remarks, just increased competitive nature of the markets in which you operate.
And we've seen very strong performance from butane blending and.
Introduction of marketing margin perhaps.
And then I think it still remains somewhat uncertain as to what the FERC index rate review process will will yield next year.
I guess, when we rolled out all together.
Think about a 1.2 or better coverage that you consistently note in the releases.
Coming off of 1.35.
For this year should we think and I'm not trying to pin you into a distribution growth rate or anything like that but as we think about it sure just thinking about maybe those factors leading to.
Biased higher number initially in terms of maybe what the distribution growth might deal.
Well I mean to be clear we haven.
Announced in for that matter, we haven't determined internally what are our guidance is going to be for next year, but.
So I don't.
So I'm not I can't answer the question as to whether you should buys it up or not I will tell you.
That.
When we look at the crude oil space in particular.
It's no surprise to anyone the next year and probably for the next couple of years, it's going to be highly competitive.
Which will create volatility in earnings.
And.
That will be factored into our distribution.
Now says as we lead up to guidance.
Okay.
Thanks, a lot I appreciate it.
Okay.
Mr Meal, there are no further questions at this time.
I'll now turn the call back to you. Please continue with your presentation or you're closing remarks.
Well. Thank you for your time today. Thank you for your interest in Magellan and have a happy Halloween.
That does conclude the conference call for today, we thank you for your participation and we ask that you. Please disconnect your lines.