Magellan Midstream Partners L.P.

Greetings and welcome to the Magellan Midstream Partners Second Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct the question and answer session. At this time, if you would like to register for questions, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded today, August 3, 2023. It is now my pleasure to turn the conference over to Aaron Milford, Chief Executive Officer. Please go ahead, sir.

Hello, and thank you for joining us today to discuss Magellan's second quarter financial results. Before getting started, we must remind you that management will be making forward-looking statements as defined by the Securities and Exchange Commission. Such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan and our pending merger with OneUp, but actual outcomes could be materially different. 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 as well as our pending merger. As disclosed in our press release this morning, Magellan delivered another solid quarter. Our second quarter results beat our expectations due to higher contributions from commodity-related activities as well as a higher proportion of longer haul shipments and associated higher average tariffs on our refined product systems. I will now turn the call over to our CFO, Jeff Holman, to review the highlights from our second quarter earnings. Then I'll be back to discuss our expectations for the year and our pending merger with One Oak before answering your questions.

Thanks, Aaron. First, let me note that I'll be making references to certain non-GAAP financial metrics, including distributable cash flow, or DCF, and free cash flow. And we've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measures. Earlier this morning, we reported second quarter net income of $239 million compared to $354 million in second quarter 2022, which included a $162 million gain from the sale of our independent terminals network. Excluding that prior period gain, the year-over-year increase was driven by higher profits from our commodity-related activities, as well as a larger contribution from our core fee-based transportation and terminal services. Adjusted earnings per unit for the quarter, which excludes the impact of commodity-related mark-to-market adjustments, was $1.23, which, as Aaron just mentioned, exceeded our guidance of $1.10. DCF for the quarter increased to $312 million, up nearly $84 million from last year, while free cash flow for the quarter was $271 million, resulting in free cash flow after distributions of $59 million. A detailed description of quarter over quarter variances is available in our earnings release, so as usual, I'll just speak to a few highlights. Starting with refined products, we reported second quarter operating profit of $234 million, which was $67 million higher than second quarter 2022, primarily due to higher average transportation rates, as well as higher product margin. The higher average transportation rates were driven largely by the mid-year 2022 increase in our tariffs of about 6% on average, In addition, the current period continued to benefit from more long-haul shipments, which move at higher rates, in part as a result of ongoing refinery disruptions. Product margin increased between periods primarily due to both higher gas liquids blending margins and sales volumes, as well as lower unrealized losses in the current period related to our hedging activities. Our realized blending margins doubled year over year to more than 80 cents per gallon versus closer to 40 cents per gallon in the prior year period. Turning to our crude oil business, second quarter operating profit was $61 million, down $12 million from the 22 period, primarily due to lower revenues from our condensate splitter, in part due to lower rates provided for in the splitter extension contract executed last year, as well as lower storage revenues in the current period. Otherwise, transportation revenue increased slightly due to additional volume moved. Longhorn volumes averaged a little over 245,000 barrels per day, up from just over 200,000 barrels per day in the second quarter of 22 due to higher third-party volumes resulting from additional volume commitments. Volumes on our Houston distribution system increased versus the prior year period, in part due to higher shipments from a new pipeline connection that was ramping up in 2022. Since these shipments move at a lower rate than long-haul volumes, This increased HDS activity resulted in a lower average rate for the segment overall. Crude oil product margin increased versus the prior year period due to higher contributions from our crude oil marketing activities, as well as favorable mark-to-market adjustments on futures contracts in the current quarter. Moving on to our crude oil joint ventures, bridge tax volumes were about 90,000 barrels per day in the second quarter of 23, down from approximately 215,000 barrels per day in 2022. due to lower volumes from committed shippers. This volume decrease reflects the low prevailing Midland differential and the highly competitive nature of the crude business in general and of the Permian Basin in particular, which we have noted for some time, while again emphasizing the importance of having take or pay commitments from high quality counterparties. Saddlehorn volumes reached a new record of about 265,000 barrels per day compared to approximately 220,000 barrels per day the year before. as a result of higher shipments for both committed and uncommitted shippers. Just briefly touching on expenses, G&A increased by approximately $18 million between periods for our refined and crude segments combined due to higher incentive compensation costs and to approximately $10 million of merger-related costs incurred in the second quarter. In terms of liquidity, we continue to have a $1 billion credit facility available, and at quarter end had no borrowings outstanding on our commercial paper program. As of June 30th, the face value of our long-term debt remained unchanged at $5 billion, with the weighted average interest rate on that debt of about 4.4%. And lastly, our leverage ratio at the end of the quarter was 3.1 times for compliance purposes. And with that, I'll turn the call back over to Ed.