Higher pipeline lease prices, blending fees and transportation rates vaulted Tulsa-based Magellan to a $64.5 million first-quarter profit, up 57 percent from $41.2 million in the first three months of 2009.
Distributable cash flow, the amount generated for payout to unitholders, increased to $85.2 million, nearly $15 million over the same period last year.
“Higher financial results from each of our business segments resulted from increased rates charged for our core transportation and storage services, recently completed expansion projects and timing of mark-to-market adjustments associated with our commodity-related activities,” CEO Don Wellendorf said in a statement. “We project Magellan will generate record distributable cash flow during 2010 with continuation of strong base business performance and contributions from a number of additional expansion projects scheduled to come online later this year.”
Wellendorf also confirmed that the company is looking to expand into crude oil transport and storage opportunities. One option was reversing and converting part of the former Longhorn pipeline, an 18-inch conduit from Houston to El Paso, Texas, to move crude oil, while also signing a partnership deal with an undisclosed private investment firm to build 2 million barrels’ worth of crude oil storage at the Cushing hub.
“Mainline crude oil transportation and storage are generally stable, fee-based businesses that are consistent with Magellan’s existing low-risk profile,” Wellendorf said. “We believe these crude oil opportunities would be a natural extension of our current petroleum products pipeline and storage expertise.”
The Cushing project, which still needs a definitive agreement between both parties, would cost about $40 million. The Longhorn reversal and conversion could move crude from Crane, Texas, to the east Houston terminal and cost about $100 million.
Also in its report, Magellan said its petroleum product pipeline segment gained capacity, fees for additive and ethanol blending and higher rates over last year. Transportation volume was down 3 percent because of lower gasoline demand, but officials said they expect the volume to rise 4 percent for the year.
The petroleum products terminals and ammonia pipeline segments increase operating margins by $6.8 million and $1 million, respectively, the company said.
Magellan Midstream owns and operates 9,500 miles of refined petroleum pipeline systems nationwide. It also has more than 80 petroleum product terminals and the 1,100-mile ammonia pipeline system.