18
HALF-TERM REPORT
MIDSTREAM • FIRST-HALF RESULTS FROM NORTH AMERICAN MIDSTREAM OPERATORS SHOW THE BENEFITS OF CONCENTRATING ON FEE-BASED REVENUE
THE MASTER LIMITED partnership firms that these days control the bulk of the business of distributing crude oil, refined products, natural gas and NGLs around North America have once again released a mixed bag of financial results for the second quarter and first half of 2016. For these companies, tank storage activities represent a necessary part of the supply chain but for most exist primarily as a way of staging product on its way from wellhead or refinery to downstream users. Some, particularly Kinder Morgan and NuStar Energy, have long had interests in marine terminals serving import and export trades, but it is apparent that others, most notably Magellan Midstream Partners and Enterprise Products Partners, are now moving in the same way as new upstream production is seeking export markets. What is noticeable about the recent set of
results is that most operators are reporting increased income, despite the fall in the price of oil, natural gas and refined products. Although some have a tradition of trading
product, most have reduced their exposure to price volatility by concentrating primarily on fee-based services and see this as a way of ensuring reliable returns to shareholders.
CASH IN THE PIPE Enterprise Products Partners reported second- quarter operating income of $837m, up from $800m last year, with adjusted EBITDA rising from $1.30bn to $1.32bn. First half operating income was up 3.3 per cent at $1.75bn and adjust EBITDA rose 0.8 per cent to $2.64bn. “Enterprise reported record onshore liquid pipeline volumes and marine terminal volumes in the second quarter,” says CEO Jim Teague. “Volume growth was primarily driven by the expansion of our LPG marine terminal, the ramp up of contracted volumes on our Aegis and ATEX ethane pipelines, the acquisition of EFS Midstream, as well as higher volumes on the Mid-America, Seminole and TE Products pipeline systems.” During the second quarter Enterprise
completed $600m of growth capital projects, including the commissioning of over 2m
barrels of additional crude oil storage capacity at the Houston and Beaumont Marine West terminals. It is due to start operations at the new ethane export terminal at Morgan’s Point, Texas in the third quarter. Magellan Midstream Partners reported net
income of $187.9m for the second quarter, up from $177.4m last year. The operating margin for Magellan’s marine storage activities fell by $1.3m to $28.9m, due to “lower fees resulting from reduced ancillary customer activity”. Overall capacity utilisation was down, partly due to the timing of work to convert tanks at the Galena Park terminal to crude oil service, but this was offset by higher lease rates. “Despite the challenging backdrop within the
energy industry, Magellan continues to produce sound financial results while delivering growth opportunities to strengthen our future,” says CEO Michael Mears.
Magellan is also spending heavily, with
investment in current projects of $1.3bn to the end of 2018 and another $500m of potential projects on the table. As well as the $335m committed to the new Pasadena marine terminal, it is also looking at other options to increase its Gulf Coast marine capabilities, including further development of the Pasadena terminal and its Seabrook Logistics joint venture.
MIDSTREAM OPERATORS OFFERING FEE-BASED SERVICES CAN REAP REWARDS DURING A PERIOD OF LOW COMMODITY PRICES AND HIGH THROUGHPUT VOLUMES
HCB MONTHLY | SEPTEMBER 2016
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