wells fargo crude oil infrastructure forum
TRANSCRIPT
Wells FargoCrude Oil Infrastructure Forum
HoustonJune 2011
This presentation contains forward-looking statements. These statements are based on management’s assumptions concerning future performance which we believe are reasonable. Nevertheless, actual outcomes could be materially different. You should make your own assessment as to Magellan’s future performance based on risk factors and other information disclosed in our filings with the Securities and Exchange Commission.
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Current Structure = Competitive Advantage
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• Investment grade MLP with no incentive distribution rights– Provides MMP a competitive advantage with one of the lowest
costs of capital in the MLP space
PetroleumPipeline System –
79%*
100%LP
PetroleumTerminals –
21%*
AmmoniaPipeline System –
<1%*
Magellan Midstream Partners, L.P. (NYSE: MMP)
Public
* Percentage of 2010 operating marginNYSE: MMP
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Key U.S. Petroleum Infrastructure• Longest U.S. refined petroleum products pipeline system• Access to more than 40% of refining capacity in the continental U.S.
+ imports• 85 petroleum terminals with over 70mm barrels of storage
3NYSE: MMP
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Distribution Growth Trend
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• Proven history of distribution growth with 36 quarterly increases• Targeting 7% annual distribution growth for 2011
$3.08
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ytd 2011
(per MMP unit)
$1.13
NYSE: MMP
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Acquisitions & Organic Growth Projects
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• Over the last seven years, Magellan has invested $2.3 billion in acquisitions and organic growth projects
• Many opportunities exist for continued growth− Future acquisitions are difficult to predict but quality assets
remain “on the market”− Continue to assess >$500mm of potential expansion projects,
with ~70% crude oil-related
$0
$100
$200
$300
$400
$500
$600
$700
2004 2005 2006 2007 2008 2009 2010 2011E
$ in M
illions
Organic Growth Acquisitions
Potentialto increase
NYSE: MMP
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Magellan’s Growing Crude Oil Asset Profile
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Current Crude Oil Assets• Cushing storage
– 7.8mm barrels acquired from BP in Sept. 2010– Constructing additional 4.25mm barrels, operational by end of ‘11
• Gibson, LA terminal• 2mm barrels of storage at East Houston terminal• Cushing-to-Tulsa pipeline segment• Houston-to-Texas City pipeline segment acquired from BP in Sept.
2010• 50% ownership in Osage Pipeline
Number of potential crude oil opportunities under consideration
NYSE: MMP
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Growth: BP Storage and Pipeline Acquisition
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• Closed in Sept. 2010, acquiring 7.8mm bbls of crude oil storage in Cushing, OK, 130+ miles of inactive pipeline in OK and more than 100 miles of active petroleum pipelines in the Houston / TX City area
• ~$290mm purchase price + ~$55mm tank bottoms
• Initially expected EBITDA multiple of 9-10x based on ~$290mm purchase price; potential improvement to 6-7x in 4 to 5 years
• Industry response to date very positive. Strong results so far
NYSE: MMP
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Canadian and Central U.S. Crude Pipelines
8NYSE: MMP
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Cushing Crude Oil Storage
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• With the 7.8mm bbls of shell capacity crude oil storage acquired in Cushing, OK and the 4.25mm bbls under construction, Magellan is now one of the largest owners of crude oil storage in Cushing
NYSE: MMP
MagellanEnbridgePlainsEnterpriseGavilon
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Growth in Cushing Crude Oil Storage
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• Significant growth in Cushing storage, with more under construction currently
• Demand continues to be strong for additional storage, evidenced by customer willingness to commit to 5+ year contracts for new storage
NYSE: MMP
Barrels in millions
Source: SEC filings and Magellan estimates
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Cushing Supply / Demand Dynamics
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• An oversupply of crude oil at Cushing has recently caused a wide price spread between WTI and Brent– Start-up of TransCanada’s Keystone earlier this year, White Cliffs near
capacity and barrels railed in from the Bakken have caused a large build of supply at Cushing
• Increasing Bakken, Canadian and other production as well as announced refinery conversions to heavy crude are expected to exacerbate the issue– Seaway could be shut-down or reversed ~110k bpd– However, as Canadian production grows, the need to ship over 230k bpd
north on Ozark goes away– With over 350k bpd flowing north out of the Permian to Cushing, diverting
some or all of this production to the Gulf Coast to relieve the Cushing oversupply makes sense
NYSE: MMP
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Cushing Supply / Demand Dynamics
12NYSE: MMP
Inbound Pipeline SupplyCushing - Net Surplus
Current ~ 70k bpd
OK/KS Refinery Demand
PADD II Demand
Bakken Rail Supply
~ 840k bpd
~ 410k bpd
Oversupply causing disconnect between
WTI and Brent
Source: EIA North American Crude Supply, Refining and Logistics Outlook 2010 and Magellan estimates
~ 60k bpd
~ 420k bpd
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Current Cushing Oversupply
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• Average inventories at Cushing have been building over the last 6+ years• Since mid-2008 the general trend has been upward as the market has often
been in contango and more storage has been built• Since Keystone started up in Feb. 2011, inventories have been rising at about
500k barrels / week• This build in inventory has driven the price of WTI down vs. Brent crude and
Gulf Coast crudes (i.e. LLS)• Alternative markets need to be accessible for WTI / WTS to relieve the
oversupply and bring WTI and Brent closer to parity
Source: EIA
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Current WTI Discount
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• The oversupply of crude oil at Cushing has recently caused a dislocation of prices between WTI and Brent
• The dislocation started last fall and appeared to widen as Keystone started making deliveries to Cushing earlier this year and the unrest in the Middle East began
• Until pipeline capacity is available from Cushing or West Texas to the Gulf Coast, this situation is expected to remain and Brent will continue to be used as the “true” world marker for crude oil
Source: EIA
Historical Crude Oil Prices
$70
$80
$90
$100
$110
$120
$130
Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11
Brent WTI
Protests in Egypt begin
$20
$40
$60
$80
$100
$120
$140
$160
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Brent WTI
Keystone deliveriesbegin to Cushing
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PADD II Supply/Demand Outlook
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• Canadian pipelines will continue to bring more crude into the U.S. – both heavy and light/medium
• Much of this Canadian crude will be processed by PADD II refineries and some will eventually make its way to the Gulf Coast– PADD II refiners will continue to add heavy crude processing capabilities
• Increased runs of heavy Canadian in PADD II will decrease demand for West Texas crude
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Potential Reversal and Crude Oil Conversion
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• Magellan is assessing the potential reversal and crude oil conversion of theeastern leg of our Houston-to-El Paso pipeline; western portion would remain in refined products service, delivering up to 75k bpd to El Paso
• Current spending estimate of $275mm for 135k bpd of crude oil capacity; additional $80mm to $150mm to expand to 225k bpd
• Proceeding with permitting and final engineering, expecting to announce signed contracts sufficient to proceed in the near future
NYSE: MMP
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BP Acquisition: Crude Oil Pipelines
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• Acquired nearly 40 miles of crude oil pipelines running between Houston and TX City refining region in Sept. 2010 as well
• Strategically positioned to be the “last leg” distribution conduit to the refinery gate for growing domestic and Canadian crude oil production
• Currently connected, or potential to connect, to all refineries in region• Capacity into TX City of 240k bpd, utilized 40% at time of acquisition; hydrotest
complete and awaiting approval to increase capacity to 350k bpd
NYSE: MMP
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Potential Corpus Christi Opportunities
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• Magellan’s Corpus Christi terminal is ideally situated to be a landing spot for crude oil and condensate coming from the western portion of the Eagle Ford Shale– 3mm barrels of storage currently, primarily handling heavy oils and
refinery feedstocks– Room to build an additional ~3mm barrels– Access to 3 local Corpus refineries and dock for export to domestic
refineries
• In discussions with a number of parties to determine how our terminal can best fit with potential pipeline opportunities
NYSE: MMP
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Primarily Fee-Based Business
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Expect Future Fee-Based, Lower Risk Activitiesto Comprise ~85% of Operating Margin
2010 Results*
Transportation48%
Commodity-related activities
16%
Terminal delivery fees5%
Fee-based ancillary services
13%
Leased storage18%
* Operating margin represents operating profit before depreciation & amortization and general & administrative costs;excludes $(8)mm of NYMEX adjustments
NYSE: MMP
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Strong Balance Sheet
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• Investment grade credit ratings: BBB / Baa2
• No near-term debt maturities:– Public notes mature 2014, 2016, 2018, 2019, 2021 and 2037– $550mm revolver available thru Sept. 2012
• Equity and bond markets remain very strong for Magellan– Well-received offerings in July and August 2010 to fund BP acquisition– No near-term public funding needs absent another significant transaction
NYSE: MMP
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Total Distributable Cash Flow
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2007 2008 2009 2010 2011E
$298
($ in millions)
Record DCF
$440
Coverage: 1.2x 1.2x 1.1x 1.2x 1.2x(assumes 7%distrib growth)
NYSE: MMP