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Magellan Midstream Partners LP (NYSE:MMP)

Q4 2013 Earnings Call

February 05, 2014 1:30 pm ET

Executives

John D. Chandler - Chief Financial Officer of Magellan GP LLC, Principal Accounting Office of Magellan GP LLC, Senior Vice President of Magellan GP LLC and Treasurer of Magellan GP LLC

Jeff R. Selvidge - Senior Vice President of Commercial of Magellan Gp Llc

Analysts

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

Brian J. Zarahn - Barclays Capital, Research Division

John Edwards - Crédit Suisse AG, Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Edward Rowe

Abhishek Sinha - Wunderlich Securities Inc., Research Division

Operator

Good day, and welcome to the Magellan Midstream Partners Fourth Quarter 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Chandler, Chief Financial Officer. Please go ahead, sir.

John D. Chandler

Thank you, and good afternoon, and thank you for joining us today to discuss Magellan's fourth quarter financial results and what we see ahead for 2014. I do want to apologize in advance for Mike Mears, our CEO, who is unable to participate in our call this morning. Unfortunately, the flu bug has found its way to Mike's doorstep and he wanted to be here, but he's just too under the weather, and we wish him a speedy recovery.

Before we get started, I will 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 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 in forming your own opinions about Magellan's future performance.

As announced this morning, we closed out a record year by producing strong financial results during the fourth quarter of 2013, generating records for operating profit, record net income, EPU and record distributable cash flow.

We've generated $670 million of distributable cash flow for the year, which allowed us to successfully reach our goal of increasing cash distributions to our investors by 16% for the year, while maintaining a healthy coverage ratio of 1.35x distributions. We exceeded our previous DCF guidance by $30 million, primarily due to stronger refined products transportation revenues, driven by higher diesel fuel and gasoline demand along our pipeline system. Not only did we have a great quarter and year, but we continue to build a platform for sustainable growth, and we are now targeting distribution growth of 20% for 2014 and another 15% for 2015. I'll talk more about the base assumptions that build up to our confidence in these numbers in a few most, but first, I'll go through a discussion of the fourth quarter earnings before moving to our 2014 expectations.

Before I begin discussing specific business unit performance, I do want to mention that I will be commenting on the non-GAAP measure operating margin, which is simply operating profit before G&A expenses and depreciation and amortizations. A reconciliation of operating margin to operating profit was included in our earnings release this morning. Management believes that investors benefit from this information because it gets to the heart of evaluating economic success of the partnership's core operations.

As noted in our press releases this morning, we reported net income of $190 million this quarter versus net income of $153.8 million in the fourth quarter of 2012 or a $36.2 million increase. Distributable cash flow also set a new quarterly record, going from $179.4 million to $236.6 million this quarter, a $57 million or 32% increase this quarter. A reconciliation of distributable cash flow to net income can be found as an exhibit to our press release this morning.

Our crude segment led the way to higher results for the quarter, as our Longhorn Pipeline System ramped up. In addition, we saw a significant increase in our refined product segment profits as a result of increased throughput on our Mid-Continent pipeline system and all of the ancillary revenues that benefits -- that comes along with increased shipments on the system like additive injection fees and additional blending opportunities.

As is usual, I'll go through the operating margin performance of each of our business lines and then discuss variances in depreciation, G&A and interest to come to an overall explanation of the variance in net income.

So first, let's look at operating margin, which was up $47.6 million versus the same period last year. Our refined product segments saw operating margin increased $14.7 million versus the same period last year, going from $194.5 million to $209.2 million this period. This segment's variance, however, was impacted by out-of-period NYMEX hedge activity and other commodity-related adjustments. And in fact, if you factor out the commodity-related adjustments, the variance between the periods shows an even stronger increase of $35 million for the quarter. Again, you can find commodity-related adjustments related to these out-of-period commodity activities on our DCF reconciliation, which is attached to our press release this morning.

Transportation and terminal revenues for the refined product segment were $42.5 million more than the same period last year. About 80% of this revenue increase comes from increased tariff revenues. The most significant contributor to this increase was the growth in gasoline and diesel transportation volumes, mostly on our central pipeline system. Tariff revenues also increased as a result of the 4.6% PPI tariff adjustment made on the majority of our tariffs in July 2013. Also, tariff revenues benefited from the New Mexico and Rocky's pipeline acquisitions completed during 2013 and from deficiency revenues earned on our pipeline systems for committed volumes that did not ship.

Looking at statistics, our shipment volumes overall for the pipeline increased 10.3 million barrels or about 10%, again, most significantly due to volume increases in gasoline and diesel on our central pipeline system, which increased by 7 million barrels. Those increases were the result of higher gasoline demand, resulting from lower prices and the addition of sub-octane gasoline shipments on our system; also, the higher diesel demand due to the weather, which pushed more farm activity into the fourth quarter of this year; and as it relates to both gasoline and diesel, higher Mid-Continent refinery output, given the strong margins and the additional outlets we have made available to those refiners via our pipeline reversal out of Tulsa.

In addition, we had 7 million barrels of new shipments coming from the New Mexico and Rocky's pipeline system that, again, we acquired in 2013. These increases in volumes were offset somewhat by lower shipments on our Texas City assets. However, the Texas City shipments are at much lower rates and do not have a significant impact on the revenues. Our pipeline rates increased from $1.22 per barrel last year to $1.42 per barrel this year. About $0.06 of this increase is due to the 4.6% rate increase that occurred, again, in July of 2013. Another $0.06 of the increase is due to, longer-haul shipments, especially on the central system, again, as Mid-Continent refiners are shipping incremental production to new markets, especially south on our pipeline that is reversed out of Tulsa. And then finally, about $0.07 of the increase is due to the reduction in shipments on our Texas City pipeline system because these shipments are short-haul barrels and at significantly lower rates to the rest of our system. And as our long-haul shipments increase, our blended average rate will go up just because of the change in mix of long-haul and short-haul shipments on our pipeline system. So again, that explains 80% of our revenue increase for the refined product segment. The remaining 20% of our revenue increase is due to the result of higher throughput revenue at our Southeast terminals, higher pipeline lease revenue related in part to idle pipes being leased to oil and gas producers, higher additive fees that coincide with the increased shipment volume on the pipeline and higher system lease storage due to the addition of new storage capacity.

Now moving to product margin for the refined products segment. The product margin from commodity-related activities for the segment decreased $15.6 million versus the fourth quarter of 2012, going from $73.1 million last year to $57.5 million this quarter. Again, both periods were impacted by the mark-to-market activity for hedges related to future periods and other commodity-related adjustments. Taking out the commodity-related adjustments, income between periods, actually increased $4.6 million. Again, you can arrive at this number by taking the product margin from our operating margin reconciliation and make the adjustments identified as commodity-related adjustments on the distributable cash flow reconciliation page, both of which are attached to our press release this morning.

Higher butane blending profits explain much of the positive variance where we saw higher volumes offset somewhat by lower blending margins. Blending opportunities increased with the incremental gasoline being produced and shipped on our pipeline this year. Our refined product segment expenses were $12.2 million more than the same period last year. The increase in expense was primarily due to higher integrity spending from our ongoing integrity plan with the biggest portion of that increase coming from pipeline testing and rehabilitation, as well as tank maintenance. We also had expense increases from the newly acquired Rocky's and New Mexico pipeline assets. We also had higher property taxes as a result of the increasing profitability of this segment's assets, and we had higher power costs related to the increased shipments. These expense increases were offset somewhat by higher product overages which reduced operating expenses.

Now moving to the crude oil segment. Our operating margin from the crude oil segment increased $40.4 million versus the same quarter last year, going from $22.3 million to $62.7 million this period, as Longhorn shipment volumes have continued to ramp up. Transportation and terminal revenues for the segment were $39.8 million more than the same period last year. Nearly 90% of this increase can be attributed to incremental revenues coming from our Longhorn Pipeline System where the pipeline began shipment services in the second quarter of 2013 and continued to ramp up during the fourth quarter. The remaining increases came primarily from incremental terminaling revenue at our Corpus Christi terminal as Double Eagle condensate volumes are now flowing into Corpus Christi. Pipeline shipment volumes for the crude oil segment increased 20 million barrels versus the same period last year, again, with about 85% of that increase coming from the Longhorn Pipeline System. The average tariff realized for the crude oil segment increased from $0.32 per barrel in the fourth quarter of 2012 to $1.09 per barrel in the fourth quarter of 2013. This increase in rate is primarily because of the growth of the Longhorn shipment volumes which ship at much higher rates than our Houston area distribution system. For the quarter, the average tariff realized on the Longhorn shipments, which is about 45% of our shipments for that quarter, was $2.14 per barrel versus $0.31 per barrel on our Houston area distribution system, which represented by 55% of shipments in the fourth quarter of 2013.

One other side, you'll notice in our statistics that our crude oil terminal utilization declined 800,000 barrels. This reduction had very little revenue impact as the majority of this decrease related to crude tanks that had been leased to a third-party since our acquisition of the East Houston terminal from Shell in 2004. The lease rate was at a very low rate, and we have now terminated those leases and are utilizing those tanks as part of our Longhorn Pipeline System and to facilitate originating barrels into the Ho-Ho pipeline system in lieu of constructing additional system operational storage.

Our crude segment expenses were $4.8 million more than the same period last year with increases in compensation and other fuel costs and higher power costs, which all relate to the ramp-up of the Longhorn Pipeline system, being partially offset by higher product gains, which also benefited from the ramp-up of the Longhorn system. Affiliated management revenue increased $2.5 million due to fees being collected for construction management on BridgeTex, and earnings from noncontrolled entities increased $2.9 million, coming off of a quarterly loss encountered in the 2012 period due to a settlement of a tariff protest on the Osage Pipeline system.

Now moving to our marine storage segment. Operating margins for the marine segment was down by $7.5 million versus the same quarter last year. Terminal revenues were $2 million more than the same period last year, largely as a result of new storage coming into service at Galena Park. If you look at our statistics page, for the period, our average lease storage utilization declined 200,000 barrels, going from 23.5 million barrels per month leased in the fourth quarter of 2012 to 23.3 million barrels leased per month this quarter. Of this change, we had about 500,000 barrels of new storage come online, mostly at Galena Park, Texas, offset by about 500,000 barrels of tanks taken out of service for maintenance and 200,000 barrels going unleased.

Revenues increased -- even though statistically, our average utilization went down, revenues increased in part because the new tanks brought into service have higher rates than tanks taken out of service for maintenance. In addition, ancillary revenues increased at Galena Park due to the increased activity at this terminal.

Our net product margin for the marine storage segment was about $900,000 less than the same period last year, and our terminal expenses were $8.9 million more than the same period last year. This is largely due to tank maintenance and painting, which is simply part of our ongoing asset integrity program and write-offs of some tank bottoms and the demolition of some small tanks at our Galena Park terminal.

In addition, in the fourth quarter of 2012, we reduced an accrual for a historical environmental site that, after further analysis, we concluded had been over-accrued, thereby reducing expenses in the 2012 period by $3 million. Therefore, in summary, those are the reasons operating margin for the quarter increased by $47.6 million, going from $248.7 million to $296.3 million this quarter.

Now stepping down to net income, depreciation was up $3.1 million due to capital additions. G&A expenses were up $3.7 million due in large part to higher equity-based incentive compensation costs, both as a result of Magellan's significant increase in unit price and because of increases in the estimated payouts due to Magellan's strong financial performance. And finally, interest expense net of interest income and capitalized interest increased $3.5 million.

During the fourth quarter of 2013, we had about $380 million in additional average borrowings outstanding versus the fourth quarter of 2012, resulting from the fact that in November of 2012, we proactively issued $250 million in 30-year notes to take advantage of the low-rate environment. And again, in October 2013, we issued another $300 million in 30-year debt to help finance the acquisition of the refined products pipeline assets. The increase in interest from these financings was offset somewhat by about $1 million of incremental interest being capitalized due to the substantial organic capital projects that we have been constructing. As of the end of the fourth quarter, we had $25 million in cash on the balance sheet and had 0 borrowings outstanding on our revolver, and our debt is currently 100% fixed.

Therefore, in total, MMP's net income increased $36 million, going from $153.8 million for the fourth quarter of 2012 to $190 million in the fourth quarter of 2013. One of the side note, our leverage metrics include $2.7 billion in debt outstanding at the end of the fourth quarter of 2013, resulting in a debt-to-EBITDA ratio of approximately 3.1x for the last 12 months. And that ratio will be well inside of 3x if you pro forma it for full year Longhorn and BridgeTex economics.

So with that, I'll move to our 2014 guidance. Now that we closed out 2013, we'd like to share with you our key assumptions that form the building blocks for another record year in 2014, with distributable cash flow of $730 million projected for the year. Concerning our refined products business, we expect our refined products volumes to grow by 6% during 2014, primarily driven by incremental volume from our recently acquired New Mexico and Rocky Mountain pipeline systems. If you exclude these new assets, we expect volume growth on the rest of our refined products pipeline system of about 1% based on government projections in the markets that we serve and also based on input from our customers. For pipeline rates, we again expect to increase all of our refined products tariffs by the current FERC indexation methodology, which is based on the change in the Producer Price Index plus 2.65%. Based on preliminary PPI estimates for 2013, we have assumed a tariff increase of 3.9% on July 1, 2014. You may recall again that we increased our tariffs by 4.6% in mid-2013.

Our second key assumptions relates to our commodity-related activity, which is primarily comprised of butane blending. We generated record profits from this activity during 2013 due to the wide price differential between butane and gasoline. Based on our assumptions that butane prices will remain at historically low levels, we expect our 2014 commodity-related profits to be very similar to 2013 levels. We have 80% of our projected spring blending volumes hedged, which works up about 40% of our total projected 2014 blending activities. The RIN pricing volatility from early 2013 has quieted down for now. And in fact, we have purchased all of the necessary RINs for our 2014 expected blending volumes. You may recall that we must purchase RINs as we produce gasoline through our butane blending activities and are thus an obligated party under the Renewable Fuel Standard. However, we purchased RINs at or before the time we lock in our butane to gasoline margins, so we are not exposed to any RIN price volatility after that point.

For the blending activity not yet hedged, primarily related to our fall blending season, we currently look to the forward curves for both the butane costs and gasoline prices to estimate the future margins we should expect. You may recall that we don't speculate on this activity but lock in the margins with NYMEX gasoline hedges when we purchased the butane. And as a reminder, we expect to generate the large majority of our operating margin from fee-based transportation and terminal services, continuing to expect commodity-related activities to contribute 15% or less of our operating margin going forward, especially as our fee-based growth projects come online over the next few years.

With regard to maintenance capital, we expect our spending to be very similar to 2013 levels, with $77 million expected for the new year. For modeling purposes, our maintenance capital should remain around this level going forward for our current asset base.

Of course, our growth projects should significantly contribute to our future financial results, with the Longhorn pipeline at the top of that list. We are pleased with the progress made on Longhorn today, with our team working diligently to safely bring the system into crude oil service last April and ramping volumes up throughout 2013. We have been capable of operating Longhorn at the pipeline's current 225,000 barrels per day nameplate capacity since mid-October. As a result, 2014 will be the first full year of Longhorn operations in crude oil service.

As you know, we are also in the process of expanding the pipeline further to a maximum operational capacity of 275,000 barrels a day. While we await regulatory approval to increase the capacity, we have started making the preparations necessary to increase to the higher level. As discussed last quarter, pipelines don't run at their nameplate capacity 24 hours a day, 7 days a week, but are expected to run at around 85% to 95% of this capacity on average during the month, which allows downtime for scheduled and unscheduled maintenance, as well as scheduling processes for multiple supply points at the origin. We currently expect to operate at about 200,000 barrels a day during the first quarter, ramping up to the 250,000 barrel a day range in mid-2014.

As a reminder, the entire capacity of this pipeline is fully committed with an average tariff of about $2 per barrel. We plan to leave 10% of the capacity available for spot shippers, but that capacity will be filled with committed shippers if no additional customers nominate to ship on a spot basis. We continue to expect this project to generate a 3x EBITDA multiple on the $430 million of spending.

Our largest construction project to date is the BridgeTex pipeline, which is our joint venture with Occidental Petroleum. We continue to make significant progress on tank and pipeline construction work, and this project remains on time and within budget with more than 80% of the project costs committed at this point. We expect to begin initial line fill during the late second quarter with the pipeline operational in mid-2014 to deliver crude oil from the Permian Basin to the Houston Gulf Coast area. It is likely that throughput on this system will take a few months after start-up to ramp up to the full committed capacity as normal origin supply and start-up processes are completed. As a reminder, the capacity of the system is expected to be 300,000 barrels per day. While this pipeline is not fully committed, the commitments we do have should generate Magellan an EBITDA multiple of 8x, with substantial upside potential if we ship additional volumes above the current committed levels.

One thing I'd like to point out about BridgeTex is that even though we expect to be operational for the second half of the year, the distributable cash flow impact to Magellan will be minimal in 2014. As with any joint venture, we count the cash distributions received from a joint venture as distributable cash flow at the time the distribution is received. Because this project will come online mid-year and because cash distribution payments are generally made to the JV members a quarter in arrears, Magellan will receive only minimal cash distributions from BridgeTex during 2014. As a result, 2015 will be the first year of meaningful distributable cash flow impact from this project. Although this may seem like a nuance, we just wanted to make sure your models were synching with this approach. Assuming the accuracy of all these assumptions, these key assumptions, we expect to generate record distributable cash flow of approximately $730 million in 2014. And these assumptions provide us with confidence in our new annual distribution growth target of 20% for 2014, while leaving us with a 1.2x coverage ratio for the year.

This guidance anticipates excess cash flow of about $135 million, which is in line with our latest thoughts on distributable -- on distribution coverage. You may recall that we've indicated we believe the appropriate level of excess cash coverage is a point-in-time calculation based on the current operating environment and the impact that environment may have on our distributable cash flow. Since we expect our commodity profits to be similar to 2013 levels, we believe an excess cash cushion of about $125 million remains appropriate for Magellan at this time. Like usual, we will plan to use those excess cash flows to reinvest in the business and fund our future growth opportunities.

While we do not plan to provide further distributable cash flow guidance for periods beyond 2014, we believe we'll also be able to grow distributions by 15% in 2015, as our growth projects come online and begin to generate cash flow. Concerning expansion capital, we spent right at $561 million on organic growth projects during 2013, representing a record year of organic growth spending for Magellan.

Further, we acquired $215 million of assets during 2013, most notably, the New Mexico and Rocky Mountain refined products pipeline systems during the second half of the year. These pipelines fit very nicely with our existing asset footprint and serve our existing customers. The integration has gone well so far, and we're in discussions with these customers on further ways we can add value to them with these assets.

Based on the projects we currently have under construction, we expect to spend $550 million during 2014 to complete the projects now in process. Clearly, the bulk of the spending is related to our BridgeTex joint venture, but we also continue to spend expansion capital to further expand the Longhorn and bring crude oil capabilities to our Galena Park facility, to name just a few of the larger projects. With our solid balance sheet, we intend to fund our current slate of growth projects with debt financing, as needed.

We also continue to evaluate well over $500 million worth of potential opportunities that are still in the development phase. One of the more high-profile projects we are considering is a condensate splinter in Corpus Christi. We remain in advanced discussions with potential counterparties for this project with Magellan's intent to structure our ownership as a fee-based activity. We also continue to assess a potential refined products pipeline to Little Rock, Arkansas. The open season on this project has closed, and we're evaluating that throughput commitments received during this process and fine-tuning the engineering scope for this opportunity. We remain optimistic about both of these opportunities and expect to make a go, no-go decision on both of them in the near future.

In addition, our list of potential projects includes a number of opportunities of varying sizes. While our 2014 expansion spending is still heavily weighted towards crude projects, we seek potential expansion opportunities in all of our business lines with the split fairly even between crude oil and refined products at this point. And as always we remain on -- in the hunt for acquisition opportunities, better looking for assets at a reasonable price that fit nicely with our existing assets, either as a strategic extension of what we do now or as a complementary business model. We believe the New Mexico and Rocky Mountain pipelines that we recently acquired fit that build, and we are pleased to own these assets that fit so nicely with our asset footprint.

With our active organic growth opportunities, we don't plan to stretch for acquisitions, but rather maintain our conservative approach that has served our investors well so far.

That concludes my prepared comments. So now, we'll open the call for questions. So operator, if you could do that.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Shneur Gershuni from UBS.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

As we think about your guidance with respect to this year, can you walk us through your expectation with respect to the ramp-up of your growth projects? For example, when Longhorn expansion is ready to go, is it 90% capacity running full out on day 1? Or is there going to be somewhat of a ramp? And is it fair to assume, given your prepared remarks about BridgeTex, that there's not much in there for this year, it's really going to be about next year?

John D. Chandler

Yes. So just to kind of go back to that a little bit, Longhorn is at its current full capacity of 225,000 barrels a day, and we've been operating that way since October. What we expect and what I mentioned is that we'll operate at 200,000 barrels a day for 2014 for that -- for Longhorn as it stands today. But as mentioned, we're pursuing the expansion of the line to take it up to 275,000 barrels a day nameplate capacity. With that, we'll increase our actual throughput, and we expect to increase it to 250,000 barrels a day in mid-year. So that's Longhorn. So 200,000 barrels a day through the first 6 months and then going up to 250,000 mid-year. On BridgeTex, BridgeTex will be brought into service mid-year, and as we mentioned, we'll be ramping that up in the first -- in the third quarter of 2014, again, just due to origin connections and just the natural and normal startup process. But we will be at our full committed levels, which we haven't ever really disclosed as volumes, but we will be at those full levels in the fourth quarter, but as we mentioned, for distributable cash flow purposes. Because it's a JV, we won't receive the distributions from that activity until the first quarter of 2015. So it really -- BridgeTex won't have a meaningful impact on DCF for 2014.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

But it will still have a fourth quarter equity earnings?

John D. Chandler

It will have an earnings impact, absolutely.

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Okay, great. And just one follow-up question, if you don't mind. You sort of have talked about the tariff at Longhorn being around $2. It was about $2.35 last quarter. I think in your prepared remarks, you mentioned it was about $2.14 this quarter. Should we continue to be thinking it's around $2?

John D. Chandler

Well, the swing amount there is whether or not there are spot shippers. Spot shippers ship at a much higher rate than our committed shippers do as you would expect. And depending on the state of the market, if the differentials are large, you have -- and we have to, again, we keep 10% of the shipment capacity on Longhorn available for spot shippers. So if the market is really attractive, the spot shippers show up in spades and fill up that 10% space, and if they do that, our rates end up being higher on average. And so that's why you heard the $2.35 rate and it was a little bit lower in the fourth quarter because there wasn't as much spot shipper capacity. I'll say the differentials have widened again now and we're seeing demand again from spot shippers, so off and on, you'll see cycles like that.

Operator

We'll go next to Steve Sherowski from Goldman Sachs.

Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

There's been increasing talk recently about light oil saturation in the U.S. and how that could impact production growth trends and which basins are the most sensitive. Would you mind just talking about how you're thinking about that sort of environment? And how that relates to -- or I guess, what the sensitivity of it is to your $500 million potential project backlog?

John D. Chandler

I think Jeff Selvidge, who's here with me, he's our VP of Commercial, could probably address that better.

Jeff R. Selvidge

Yes, I guess, with regard to the crude oil movements themselves, I mean, we like our position in the Permian. We think that, that basin will fare any lower-price environment better than most. So we're comfortable with that plus, as John pointed out earlier, we are fully committed on Longhorn. We have commitments on BridgeTex. Those are long-term agreements, so we're comfortable with that. As it relates our expansion spending, again, about half of that is in the refined products area, which isn't affected by this. In the crude area, we're pursuing projects like our splitter in Corpus Christi, which really aren't necessarily impacted by that phenomenon. In fact, the splitter would actually be helped by a link in the light crude oil market.

John D. Chandler

One of the things that I'd point to, too, is we use 500 as our -- at least 500 and our list is -- it's significantly above that level, so I'd make that point, number one, that if there were a reduction in expansion spending, we would likely still be talking about something north of 500. The other point I would make is, it is an important shift that you see this quarter a little bit. We're seeing more refined products opportunities now than in previous quarters. I think it's just a phenomena associated with the strengthened Mid-Continent refiners, and there's a new demand for infrastructure and the ability for them to be more mobile with their barrels. And again, cheaper light crude oil is going to help them as well and probably push for even more refined products opportunities.

Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

Got you. I guess, sort of jumping back to the condensate splitter. Do you see any additional opportunities to help relieve these light oil bottlenecks?

Jeff R. Selvidge

You mean, in addition to -- I mean, there are opportunities, and we're pursuing them or evaluating them for different geographical locations for splitters. That's in our to-do list.

John D. Chandler

I think it's fair to say there's significant -- there's probably several people looking at splitters. And in our case, we're looking at a splitter, but there's more demand than just one customer out there or one partner looking for capacity. So there's significant demand for additional capacity.

Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

Got you. And just a quick follow-up question. Your Corpus Christi terminal, what is the capacity on that, the loading capacity?

Jeff R. Selvidge

I don't know that we -- I mean, it depends on what products you're shipping out. So it never...

John D. Chandler

Well, and part of the project...

Steven C. Sherowski - Goldman Sachs Group Inc., Research Division

I guess, on the condensate or crude side, what's your capacity?

Jeff R. Selvidge

Well, the capacity of Double Eagle coming in is a little over 100,000 barrels a day, and we have sufficient dock capacity to handle what needs to go out on Double Eagle.

John D. Chandler

To the extent, we've talked about our splitter project, and a big part of the spending on that project would involve tankage pipe infrastructure and dock work at Corpus Christi to make that happen. More so than the splitter itself, I think to the extent we talk about numbers around splitters is probably 75% of the spending is really more on infrastructure in Corpus Christi than it is in the splitter itself.

Operator

Our next question is from Brian Zarahn with Barclays.

Brian J. Zarahn - Barclays Capital, Research Division

Can you talk a little bit about what drove your increase in 2014 distribution growth guidance from 15% to 20%?

John D. Chandler

What drove that was the fact that refined products volumes came in so much stronger than I think we've anticipated coming in to 2013. And a lot of it again has to do with the strengthening Mid-Continent refiners and their desire to run their refiners at higher utilization levels throughout the entire year. And I think as we look forward, we see that still happening and those higher production levels happening. And as we work to our math, we realize there is a reasonable amount of excess cash flow you can keep in a level beyond which investors probably start wondering why are you doing that. And that really prompted us or motivated us to say, "Had we not done that and taking it to 20%. We're probably keeping too much, and so it just -- simply that, that looking at our base business performance, 2013 was exceptional, significantly better than we thought, and we see continued strength going forward on the refined products side.

Brian J. Zarahn - Barclays Capital, Research Division

Do you also expect the favorable mix of longer-haul volumes on the refined product side to continue?

John D. Chandler

We do. We do expect that, and we do see that in 2014.

Brian J. Zarahn - Barclays Capital, Research Division

Anything changed in the crude oil side of things for your expectations in '14? Was it more...

John D. Chandler

No, I think our expectations are pretty much the same. Again, Longhorn had been and is and will be fully committed. So there's no new news there other than we've been pursuing the expansion, but we feel confident about that for some time. There is capacity on BridgeTex. We're not -- when we look forward and look to our projections, we're pretty much relying on the commitments on BridgeTex and not filling it up with spot shippers. So there's upside to that if that happens. So nothing has really changed on the BridgeTex side and similarly, nothing's changed on Double Eagle.

Brian J. Zarahn - Barclays Capital, Research Division

Then on the Little Rock and Corpus splitter projects, would you expect this to be more of a first half or a second half of 2014 decision?

John D. Chandler

First half. We've been working on this for some time, and I think we've had 3 or 4 open seasons on the Little Rock pipeline. And every time we do that, there are shippers willing to do certain things for some changes to what we're asking for, and that's why we have a follow-on open season. So I think we're kind of coming to the end of that and kind of scrubbing our final economics on the project cost to reach a final conclusion. So I would think we're getting pretty close on that one. Same thing on the splitter, we're in advanced negotiations on that, and I would expect something in the first half.

Brian J. Zarahn - Barclays Capital, Research Division

Then is there any update to the little packed storage JV in the Gulf Coast?

Jeff R. Selvidge

No. We continue to pursue storage expansion in and around crude and refined products, but we don't have anything new to announce on that project.

Operator

[Operator Instructions] We'll go next to John Edwards with Credit Suisse.

John Edwards - Crédit Suisse AG, Research Division

I'm just curious with regard to your butane blending business. I know you said that you're pretty much hedged out for this year, obviously, with the backward-dated oil market. Just how are you kind of thinking about that business going forward. If you could comment on that.

John D. Chandler

Well, first of all, just to clarify, we're significantly hedged for the spring, around 80% hedged for the spring, and we're not hedged for the fall yet. And if you blend all that together, it's 40% hedged for the entire year. But as we look forward right now, gasoline prices, still, are high relative to butane. We don't expect any meaningful moves in crude oil prices or butane prices this year. And in fact, developing our forecast here, we're looking at the forward strip price for gasoline and butane. So this is not some correlation or anything like that. We're looking at forward prices to come up with that conclusion. Over the long term, we recognize margins are very attractive. They were very attractive in 2013. They're going to remain very attractive in 2014. We don't expect that to last forever. And again, that's why we took our excess cash flow coverage from $75 million up to $125 million to just recognize the fact that we're not going to make distribution decisions on the abundance of what we're seeing today. So we would expect that to come down over time.

John Edwards - Crédit Suisse AG, Research Division

Okay. That's helpful. And then I've just -- maybe you commented on this, I just missed it. But just -- on BridgeTex, what do you think the likelihood is of you on being able to exceed your committed volumes? I think you said committed volumes around 300,000, and I think you're at an 8x EBITDA. What's your thoughts on that?

John D. Chandler

Well, again, we haven't talked about what the commitments are with the capacity of the line at 300,000 barrels a day. The commitments support an 8x multiple, it's -- and so we haven't disclosed that. I'd say it's a function of the market. Right now, it would be silly for people not to ship on a spot basis on BridgeTex. There's, again, a $10 price differential right now on WTI Midland versus LOS, and our tariff is substantially under that. So it's really, I think, going to be a function where the spot markets are, over time. To be honest with you, we haven't concluded whether or not we're going to go out. There is additional capacity, and there is a possibility that perhaps we'd go out with another open season to seek additional commitments, but we haven't reached a conclusion that, that's something we want to do yet. So I'm sorry for the non-answer, but it really is a function of the market.

Operator

And we'll go next to Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Just, I guess, touching on the 2015 guidance for 15% distribution growth. Can you maybe just talk about the key drivers supporting that? Is it just contributions, a full year contributions from BridgeTex?

John D. Chandler

That's -- I mean, that's obviously a major driver of that since there is really very little, very little -- if any, contribution -- the very small contribution from BridgeTex in 2014. So if you think about our investment, we've told you that our investments around $600 million in the JV, 8x multiple, you can kind of look at what the -- and of course, we're financing all of that right now, so there's no new financing costs that will show up in 2015. So you can project there's going to be a pretty significant increase in distributable cash flow from that in 2015. And our other businesses are continuing to do well and are stable fronts there. And of course, we talked about the Longhorn expansion, too, and we'll be ramping Longhorn up. And it won't be at its new full capacity until mid-2014. So you get a full year of Longhorn, as well, of the incremental capacity.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And I guess...

John D. Chandler

And just one other thing, too -- we continue to see BridgeTex -- or not BridgeTex, Double Eagle ramp up, too. We had mentioned that the commitments, too, that support Double Eagle ramp up with the producers' commitments that support Double Eagle ramp-up with their production in the field over time and reach their full capacity in 2016. So you'll be seeing that grow through 2014 and 2015, as well.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And I guess, John, based on your comments about contributions from butane blending, is it reasonable to assume that you're assuming more normalized contributions in 2015 and maybe a lower excess cash flow coverage for your 2015 number?

John D. Chandler

We -- our plans, if you look at over time, we are looking at the forward curve for gasoline and butane. And it would suggest gasoline prices do come down over time. So yes, we are expecting a, lower margin from butane blending in '15 and '16.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. But not necessarily a lower excess cash flow coverage?

John D. Chandler

Well, yes, I mean, it's -- to the extent that happens, we would probably, most likely, change our coverage ratio back to $75 million. I mean, it's purely the phenomena of going from a $75 million to $125 million is almost entirely driven by the current butane blending margin environment. So yes, it would not have the impact on our distribution outlook because we would take it out of our excess cash cushion.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

And then, maybe if you could talk about the additional investments you're making for Double Eagle in terms of constructing that pipeline. Is that all 2014 spending? And how much is that?

Jeff R. Selvidge

It is 2014 spending and it's $20 million. And what we're doing there is connecting Double Eagle pipe with Kinder's pipe to be able to offer producers both a Corpus Christi and a Houston market.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

And I guess, lastly, is just an update on the performance of the acquisitions of the refined product pipeline.

John D. Chandler

The acquisitions both the Rocky system and New Mexico system have done -- are doing better than what we had in our acquisition economics. In fact, we saw one of the longest haul shipments we've ever seen on our system come all the way from Mid-Continent and go to Albuquerque. And it was the longest haul ever on our system, so -- and we didn't expect something like that to happen, I can promise you, on our economics. And on top of all that, beyond just volumes and rates coming in like we expected, we're seeing deal flow already on the systems where customers are coming to us and saying that there is some pent-up demand for some development work along those assets that we they like to see. So we're seeing some good deal flow coming from those projects.

Operator

We'll go next to Edward Rowe with Raymond James.

Edward Rowe

Most of my questions have been asked, but given there's been a lot of talks about assets coming to the market, the Gulf Coast, like Ho-Ho and Morgan Stanley's TransMontaigne. Given your footprint around the Gulf and your Longhorn pipeline, how do you look at these assets in terms of how they could fit within your asset footprint?

John D. Chandler

Well, if you think about other pipeline assets that extend beyond Longhorn or BridgeTex, it's hard for us to see synergies or linkages that way because frankly, the volume coming out of the Permian are going to use our pipes irrespective of whether or not they move on from these other assets. So by owning them, it's not incremental to what we already own. So when we look at those assets, Ho-Ho, for example, if we want to use that as an example, it has to stand on its own merits from a return standpoint, and we measure and look at the it just like we've looked at any of our other assets. So invariably, the market is a little bit more aggressive than we think it should be. So we tend not to be successful at some of these, but -- so I think that's probably all I can really say about that. Obviously, to the extent there are terminals on the market, there may be synergies there with terminals just -- and we have an operating infrastructure in place. We have management teams that manage those things. So maybe there's an opportunity around terminal assets. That probably wouldn't -- we've had those kind of synergies on other assets we've looked at before and the low-cost capital and somehow, still came in second place. So I don't know that, that's going to drive us to be a winner, necessarily or not. Bottom line, Magellan is seeing tremendous growth. We have tremendous organic capital projects, and we don't feel overly compelled that we have to stretch for these assets in the market. They're certainly not better than the ones that we have within our house already. So I think that keeps us very conscientious of appropriate returns and doing the right thing, so -- but I don't particularly see real strong synergies on assets like that.

Edward Rowe

That's helpful. Last and final question. You talked about the Mid-Con guys looking for opportunity to be able to be a little bit more mobile with their barrels. Are there any opportunities in terms of refined products in the Ohio, Pennsylvania area where we can bring some direct access to the East Coast for some of the refined products?

Jeff R. Selvidge

We're pursuing some of the opportunities we have made available. For example, we connected our Tulsa system into Explorer, which allows shippers to reach some of those Upper Midwest markets. So I don't think you'll see a direct step-out of a pipeline from Tulsa, for example, into Ohio. But we're affecting some of those movements through our interconnections with other pipes.

Operator

We'll go next to Abhishek Sinha from Wunderlich Securities.

Abhishek Sinha - Wunderlich Securities Inc., Research Division

Maybe this has been answered, I wasn't really clear. What's your expectation for coverage ratio in 2015? Is it 1.2? Or is it lower than that?

John D. Chandler

Oh, for 2015. I'm sorry. Yes, we haven't given any projections for 2015 other than distribution guidance. I think it's fair to say, we've talked about our coverage ratio, and obviously, depending on our forward projections butane blending, being somewhere between the $75 million to $125 million level at least, but we haven't given guidance on that. I mean, I think you could assume it's at least 1.1x.

Abhishek Sinha - Wunderlich Securities Inc., Research Division

And in your credit facility, I know you're not drawn on anything. So how do you expect consistently to change in 2014, I mean, in terms of how much, I mean, near capacity or ramping up and things like that? How does your credit facility changes?

John D. Chandler

Your question is about how the economy, the change in economy is really going to drive our system performance?

Abhishek Sinha - Wunderlich Securities Inc., Research Division

No. How is your credit facility going to change in 2014 versus what you have, what the expectations there on that?

John D. Chandler

Well, our credit facility we have nothing drawn today. We like the long-term market, so I think you'll see us term out debt in 2014, if rates stay where they are. I'll say one other thing we're evaluating we want to do a commercial paper program, and we may conclude that we want to do that also, afford us even cheaper floating rates. But for now, we're at 100% fixed. We have $800 million of capacity on our revolver and a debt market that's what wide open to us.

Operator

And we do have a follow-up question from John Edwards of Crédit Suisse.

John Edwards - Crédit Suisse AG, Research Division

Just a quick one, just -- and I've asked this probably on past conference calls. Just -- you always state $500 million or greater on your backlog. So I'm just curious if you've seen that number increase the last quarter or decrease. Can you just tell us kind of qualitatively how that's moving?

John D. Chandler

I think it's generally the same, but some projects have come and some projects have gone. And one thing you've might be -- I think you should pick up on is the mix has changed a little bit. It was much more heavily crude-weighted a quarter or 2 ago, and we've seen some refined products. We've seen some crude projects fall off the list, and we've seen some refined products projects come on the list. But I think it generally hovers at a level that's quite a bit above $500 million.

Operator

And with no other questions in queue, I'll turn the call back over to Mr. Chandler for any additional or closing remarks.

John D. Chandler

Okay. Thank you. Thank you, everyone, for the time today. Magellan finished 2013 in strong form with record financial results and key milestones achieved for our largest construction projects in our history. We look forward to a successful 2014 as we benefit from these growth projects and seek additional opportunities to generate value for our customers and investors. We appreciate your continued support of Magellan. Thank you.

Operator

That does conclude today's conference. Thank you all for your participation.

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