Ahead of Magellan Midstream's fourth quarter results, we are
lowering our investment thesis on the oil pipeline and storage
partnership to Neutral from Outperform. We believe that the firm's
operating scenario will remain critical in the near to medium term.
Magellan is also susceptible to lower-than-expected demand for
refined products, commodity price fluctuations and cost overruns on
expansion projects. However, we acknowledge the partnership's
strong portfolio of energy infrastructure assets, capacity
expansion plans and its sound liquidity position. Other positive
attributes include its investment grade rating and strong track
record for distribution growth.
Tulsa, Oklahoma-based Magellan Midstream Partners, L.P. (MMP) is
a master limited partnership (MLP) that owns and operates a
diversified portfolio of energy infrastructure assets. The
partnership primarily transports, stores, and distributes refined
petroleum products and, to a lesser extent, ammonia. In 2012, the
partnership's pipeline volumes comprised 48% gasoline, 30%
distillates (which include diesel fuels and heating oil), 16% crude
oil, and 6% Liquefied Petroleum Gas (LPG)/aviation fuel. Magellan
conducts its operations in three segments: Refined Products, Crude
Oil, and Marine Storage.
Refined Products: The Refined Products unit primarily comprises
Magellan's approximately 8,800-mile pipeline system with 49
integrated terminals and 27 independent terminals (not linked to
Magellan's pipeline infrastructure). Additionally, the segment
looks after the partnership's 1,100-mile ammonia pipeline system
with 6 Magellan-owned terminals that extends from Texas and
Oklahoma to Minnesota, and caters to the mid-continent region.
Crude Oil: The Crude Oil division includes roughly 800 miles of
pipelines as well as storage services with a total storage capacity
of approximately 15 million barrels.
Marine Storage: This contains marine terminals that are spread
along coastal waterways with a collective storage capacity of
approximately 26 million barrels.
In a major transaction, the partnership acquired its publicly
traded general partner, Magellan Midstream Holdings, through an
all-equity exchange. With the completion of the transaction, in the
third quarter of 2009 following unit-holder approvals from both
entities, Magellan dissolved Magellan Midstream Holdings and the
associated incentive distribution rights.
Magellan Midstream Partners, L.P. (MMP): Read the
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