Magellan Midstream Partners LP (NYSE:MMP) Q2 2016 Earnings Conference Call - Final Transcript

Aug 02, 2016 • 01:30 pm ET

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Magellan Midstream Partners LP (NYSE:MMP) Q2 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good day, and welcome to the Magellan Midstream Partners Second Quarter 2016 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Mears, Chief Executive Officer. Please go ahead, sir.

Executive
Michael N. Mears

Okay. Well, hello, and thank you for joining us today to discuss Magellan's Second Quarter Financial Results. Before we get started, I'll remind you that management will be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments regarding some of the factors that could impact the future performance of Magellan. You should review the risk factors and other information discussed in our filings with the SEC, and form your own opinions about Magellan's future performance.

Since we last spoke, a number of positive events have occurred for Magellan. First, we began commercial operations in early July for our new pipeline to deliver refined products to the Little Rock market. Market interest for our Little Rock pipeline remains strong and we continue to be very optimistic that demand for this system will exceed the minimum commitments received for this project. We also announced our plans to build a new Marine Terminal in Pasadena, Texas, to handle refined products for a customer under a long-term commitment. The initial phase of this terminal includes approximately 1 million barrels of storage on nearly 200 acres of land and a ship dock. The capital cost for this project is expected to be $335 million, and will be operational in early 2019.

For this initial phase, we expect to realize by the 12 times EBITDA multiple, which includes all of the upfront costs such as the land purchase and pipeline infrastructure that will benefit all future phases. If we are successful in building this facility to its maximum capability with up to 10 million barrels of storage in five docks, the total capital invested would be approximately $1 billion and it will generate an estimated eight times EBITDA multiple.

As you recall, we're generally targeting an eight times multiple projects, but are willing to accept a lower return for a strategic project with significant upside potential, which is exactly what this first phase of the Pasadena Marine Terminal represents. We are currently in active negotiations with a number of parties to expand a new Pasadena terminal and are optimistic that we will be able to build the facility out to its full potential. Now, shifting to earnings, as you saw this morning, Magellan continues our steady financial performance again this quarter despite the challenging backdrop within the energy industry.

I'll now turn the call over to our CFO, Aaron Milford, to review Magellan's second quarter financial results in more detail. Then I'll be back to discuss our outlook for the rest of the year and review the status of a few of our other large expansion projects before opening the call for your questions. Aaron?

Executive
Aaron L. Milford

Thank you, Mike. Today, I will be making references to certain non-GAAP