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Oiltanking Partners, L.P. (NYSE:OILT)

Q4 2013 Results Earnings Conference Call

February 25, 2014 10:00 AM ET

Executives

Mark Buscovich - Manager FP&A and IR

Anne-Marie Ainsworth - President and CEO of General Partners

Bo McCall - Senior Vice President of Commercial and Business Development

Jon Ackerman - Vice President and CFO

Analysts

Brian Zarahn - Barclays

Michael Peterson - MLV & Company

Darren Horowitz - Raymond James

Jeremy Tonet - JPMorgan

James Carreker - U.S. Capital Advisors

Operator

Good morning ladies and gentlemen and thank you for standing by. And welcome to the Oiltanking Partners’ Fourth Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode and following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today, February 25, 2014.

I would now like to turn the conference over to Mark Buscovich. Please go ahead, sir.

Mark Buscovich

Thank you, [Craig]. Good morning, everyone. And welcome to today's conference call to discuss Oiltanking Partners’ fourth quarter and full year 2013 results. On the call this morning, are Anne-Marie Ainsworth, President and CEO of the Partnership's General Partner; Bo McCall, Senior Vice President of Commercial and Business Development; and Jon Ackerman, Vice President and Chief Financial Officer, as well as other members of management team.

After market close yesterday, we issued a press release announcing our financial results which is available on our website at oiltankingpartners.com. You can also access a replay of today's call from the Investor Relations section of the Partnership's website or via recorded replay until March 07, 2014. Information on how to access the replay was provided in yesterday's earnings release. Information reported on the call is only as of today, Tuesday, February 25, 2014. And therefore, you're advised that any time since this information may no longer be accurate as of the time of any replay.

Before I turn the call over to Anne-Marie, I would like to remind you that certain statements made by management during the conference call are forward looking in nature. These statements refer to management's expectations or future predictions and reflect current opinions, views or beliefs with respect to future events, based on what we believe are reasonable assumptions.

No assurance can be given, however that these events will occur and many factors could cause result to differ management's expectations and actual results may differ materially from those projected in any forward-looking statements. Our filings with the SEC described the material factors that could cause our actual results to differ from our projected results.

We expressly disclaim any obligation to update or revise any forward-looking statements made during this call. For additional information regarding forward-looking statements please review our earnings release and filings with the SEC.

With that, I'll turn the call over to Anne-Marie.

Anne-Marie Ainsworth

Thank you, Mark. Good morning, everyone. Thank you for joining us on the call this morning. Our record performance in the fourth quarter of 2013 was a strong finish to a landmark year for the Partnership. In addition to record financial performance, we achieved a number of important operational milestones. These achievements were due to the strength of our business model and excellent execution of our strategic plan by our dedicated employees. Our financial results were driven by strong growth in our storage fee revenues and higher exports of liquefied petroleum gas. The Partnership reported fourth quarter 2013 net income of $34.5 million or $0.59 per common unit, an increase of over 125% over fourth quarter of 2012.

Net income for the full year of 2013 increased 87% to $117 million or $2.45 per common unit compared to the full year of 2012. On the operational side, we increased crude storage in 2013 by nearly 50% when we brought 4.1 million barrels of new storage online. We also handled more than 1.1 million barrels per day in projects for our customers in the fourth quarter.

For the year we averaged more than 1 million barrels per day. These results demonstrate the effectiveness of our business strategy. As an independent terminal operator, our strategy is to grow our fee income by meeting the needs of our customers and delivering the highest possible customer service.

Our facilities are connected to 23 key area refineries of petrochemical facilities and pipelines. In just the last few years we have seen a [titanic] shift in North American energy landscape. This dynamic environment has intensified the needs of our customers to be connected to multiple outlets whether through our comprehensive pipeline led network or our deepwater docks.

In 2014 we expect this trend to continue due to the increased production of domestic crude oil and natural gas liquids. To capitalize on the opportunity this creates for the partnership, we have announced more than $500 million of capital projects since our IPO to significantly increase our storage capacity and expand on our excessive pipeline network and waterfront capabilities. These projects are all accretive to the Partnership with return multiples of five to eight times.

We reached the benefits of our customer focus approach this year in our LPG export business. Given the very strong demand for LPG exports, we work continuously with our customer enterprise to create the largest and most attractive LPG marine export terminal in the country.

Last month we announced the further expansion of our relationship with enterprise. Under the new 50 year agreement we will provide additional vast capacity to load LPG vessel and land for enterprise to expand its refrigeration. Upon completion of this expansion, we will be able to load more than 16 million barrels per month of propane and butane.

Our fee structure remains the same under the extended agreement and we will continue to earn volume-based throughput fees and share in the margin received at all customer vessels loaded in our Houston terminal.

Our preliminary estimates for the Partnership’s share of capital expenditures for the expansion is approximately $10 million to $15 million pending completion of the required engineering and technical analysis.

We believe that product exports will continue to drive opportunities. To expand our leading waterfront capacity in Houston, we are constructing dock nine, a new deepwater dock at our Houston terminal. The new dock will add additional flexibility for waterborne movements of crude and refined products.

The Partnership has also benefited from the additional crude volumes being delivered directly to the Houston market from the Permian and Eagle Ford Basin. In 2013, we brought online 1.1 million barrels of storage within the Houston terminal at our 600 manifold. We also brought online 3 million barrels as a part of the first phase of our Appelt expansion.

In the first week of 2014, the last take of Appelt I, a 210,000 barrels take was placed in the service. This completed our 3.2 million barrel Appelt phase more than expansion. We are excited about the progress of the second phase of our Appelt expansion. Construction is moving along as planned and we are on-time and on-budget. All foundations are in place for the 11 tanks which will total 3.3 million barrels of new storage capacity. Meanwhile construction has been completed on 7 of the tanks and is ongoing for the other 4.

Floating Group construction is also underway, but the external Geodesic domes raise on 5 of the tanks. The first tanks are currently targeted to be online early third quarter of 2014 with the final completion by the end of 2014. When Appelt II is complete, the Partnership’s total storage capacity will exceed to 25 million barrels.

In addition to the Appelt Phase II build out, we are also constructing a single 390,000 barrel tank. The timing of this tank was driven by customer need and our ability to quickly react to an evolving market.

We continue to evaluate both organic and external opportunities to leverage our business model and asset footprint. We are also actively preparing for the first dropdown by the General Partner which could occur in the next 12 months. The asset is likely to be our Texas City terminal. Texas City similar to Beaumont in Houston has deepwater docks connectivity to area petrochemical facilities our diverse customer base and strong financial performance.

To ensure we have the tools to execute on these plans we’ve strengthened our liquidity by raising $160 million of new equity in November. As a result we closed 2013 with no leverage and a very strong balance sheet. We currently have ample financial flexibility to not only fund our ongoing expansion, but to move quickly at potential acquisition or capital projects.

I am proud of our operational and financial performance since going public and strongly believe we are well positioned both strategically and financially to capitalize on the growth opportunities ahead of us.

I will now take a moment to recognize Carlin Conner and thank you for his service to the Partnership. As you may know, Carlin has announced his intention to step down from his position at M&B, our parent company and he will be leading the Board of our General Partner. On behalf of the Oiltanking family, I would like to thank Carlin for his leadership and dedication to the Partnership. Carlin was instrumental in the creation of the Partnership, its IPO, establishing our early strategic vision, his steadiness on the exciting growth trajectory we are on today. We wish Carlin the best in his future endeavor.

I will now turn the call over to Bo to discuss our growth projects and prospects in more detail.

Bo McCall

Thank you, Anne-Marie. Our focus for 2014 is to continue to build on the strong foundation we've licensed our IPO. We expect to bring 12 more tanks online between now and the end of 2014. In addition to our first two phases of Appelt, we are currently commercializing the first phase of Appelt. When completed a 3rd Appelt phase would add up to 3.1 million barrels of new storage and logistics infrastructure.

Based on strong customer interest we have secured exit up to additional land in our Houston terminal. This property has a number of potential uses including the new track rack, rail facilities, optimizing our Houston inbound and outbound logistics systems in potential new storage capacity.

The expansions we are seeing in Houston is partially due to new pipelines delivering additional crude barrels into the Gulf Coast markets. The Seaway plant and the (inaudible) expansion of this long run pipeline are both set to come online this year. These two projects underlying the trend of crude volumes arise in the Gulf Coast and specifically the user market.

Additionally, the Gulf Coast project on the Keystone pipeline [answers] in January bringing 520,000 barrels a day of domestic light crude to Gulf Coast refineries within the first year and eventually increasing to 830,000 barrels a day.

The pipeline currently terminates in Inland, Texas, near Beaumont facility. About the middle of next year, Keystone’s Houston lateral will be complete allowing these barrels to flow to both markets. And by the end of 2015 market data indicates that the Houston market will be receiving approximately 3.5 million barrels per day by pipeline.

Producers and refiners will benefit with these additional pipelines with the flexibility to send the barrels with their most [economy]. Most of the growth in the crude volumes is being driven by customers’ pipeline activity.

We believe the operational advantage the Gulf Coast refineries have will drive a record number of domestic barrels of the market in the coming years. Although remains if you have seeing how these barrels are being absorbed, we anticipate that their certain volumes would became our basis for our expansion projects. In 2014, the Partnership will be adding two new pipelines, a 36-inch line and a 24-inch line between Appelt terminal in Crossroads Junction also known as Moore Road Junction.

This is the termination point of a Keystone Gulf Coast project Houston lateral as well as the origination point of the Ho-Ho pipeline. We’re constructing a 36-inch line that will bring crude from Crossroads into our facility. The 24-inch line will deliver crude to Crossroads for delivery into Ho-Ho pipeline which will serve the Beaumont, Louisiana markets.

Our existing 24-inch line will primarily be used for Exxon Baytown refinery deliveries, the either connection point of Crossroads. We continue to see a gradual decline in crude imports by water in spite of this we are still receiving force into our facility primarily heavy side of crude. The volumes and diversity of rates turning the Gulf Coast are improving to in more liquid, the complex marketplace.

Over the next several years, we expect to Gulf Coast to continue to receive ample heavy water on barrels from South America and heavy Canadian crude be a new pipelines in the standard oil infrastructure. We also believe that it will be continued interest in taking barrels, we used to be a pipeline or bars and to various distant markets via ocean going vessels.

For these macro factors in mind, we’re only looking our ways and capitalize on big opportunity of these changes are created, specifically we are now seeing in 12 months some of the same drivers of growth that we previously took advantage of in Houston.

With lightly crude volumes loving the Gulf Coast the Beaumont market is starting to see deliveries of price advantage crudes. We are in discussions with current and potential customers about operating a world-class crude terminal in the Beaumont, [Inland] market. We are evaluating process look forward to save some million barrels of storage, deep-water dock access and extensive connectivity to our pipelines, distribution points and local refiners.

The strong customer interest is based on our ability to deliver the same best in class connectivity and logistic services that Oiltanking is known for around the world and in similar to the Oiltanking Houston operating model. We are very excited about the opportunities in Beaumont and also evaluating ways to expand our existing Beaumont distillate system and local pipeline infrastructure.

We continue to analyze ways and utilize the Beaumont terminal to drive growth in crude and refinery products including a potential splitter project. While we continue discussions with customers about the viability of the project we are closely monitoring the evolving local climate and its impact on crude exports.

With that I will turn it over to Jon.

Jon Ackerman

Thanks Bo. As a reminder we will discuss today certain non-GAAP financial metrics, by distributable cash flow and adjusted EBITDA, which is defined and reconciled in our earnings release.

For the fourth quarter of 2013, our net income was $34.5 million or $0.69 per common unit compared to $15.2 million or $0.30 per common unit for the fourth quarter of 2012.

Adjusted EBITDA increased 113% to $42.2 million for the fourth quarter of 2013 compared to $19.8 million for the fourth quarter of 2012. The Partnership’s strong results for the fourth quarter of 2013 were primarily led by higher storage and throughput volumes and higher ancillary service fees compared to the same period in 2012.

Revenues increased approximately $26.1 million or 77% to $60.2 million during the fourth quarter. Storage service fees increased due to 4.1 million at new storage capacity placed in service in 2013 and to a lesser extent higher contract rates.

Throughput fee revenues grew by $15.3 million during the fourth quarter of 2013 due in large part to an increase in fees related to our LPG exports at our Houston terminal and to a lesser extent the fees degenerated on pipeline place and service in the first quarter of 2013.

Looking at our revenues by service category, we achieved a 38% increase in storage service fees, 183% increase in throughput fees and a 91% increase in ancillary service fees in the fourth quarter of 2013 compared to the prior year period.

For the full year of 2013, our net income was $117 million or $2.45 per common unit compared to $62.6 million or $1.57 per unit in 2012. Adjusted EBITDA for the year 2013 increased 80% to $145.3 million compared to $80.6 million for 2012. 2013 revenues increased 56% or $75.5 million to $211 million due to higher storage service fee revenues of $22.7 million attributable to additional storage capacity and higher contract rates. Throughput fee revenues were higher by $50.6 million, primarily due to an increase in fees related to LPG export at our Houston terminal, which included approximately $30.9 million received under a margin sharing arrangement. Fees were also higher on pipeline placed in service in the first quarter of 2013.

On January 21st of this year, we declared a quarterly cash distribution of $0.47 per unit or $1.88 on an annualized basis. The fourth quarter distribution represented ninth consecutive quarterly distribution increase since going public in the third quarter of 2011. The $0.47 per unit distribution was a 6% increase over the distribution for the third quarter of 2013 and a 21% increase over the distribution for the fourth quarter of 2012.

Distributable cash flow for the fourth quarter of 2013 provided a distribution coverage ratio of 1.9 times the amount needed to fund distributions to both the general and limited partners. For the full year of 2013, our distribution coverage ratio was also 1.9 times.

The Partnership will retain excess cash flow to fund announced expansion projects. During 2013 we spent more than $180 million on capital expenditures. For 2014 we currently anticipate capital spending to be between $230 and $250 million. In addition to amounts to be spent on previously announced expansion projects we also expect to spend approximately $10 million to $15 million to upgrade our existing Houston infrastructure to increase throughput rates and expand our ability to provide value-added services to our customers.

As Anne-Marie mentioned in November the Partnership issued 150 million of new equity at a price of 61 and 65 per unit. At the end of 2013, we have $117 million of cash and expected proceeds from short-term notes receivable on hand. We also had no borrowings under our $150 million revolving line of credit.

With total debt outstanding of $190.8 million at year-end the Partnership had a debt to EBITDA ratio of 1.3 times. Based on our current capital budget, we likely will resume borrowing under our revolver in late 2014.

Before I open the call up to questions I would like to let everyone know that we will be hosing the Partnership’s first Analyst Day in Houston on June 4th. Look for and be patience to this event in the next few weeks. If you do not receive an invitation and would like to attend please do not hesitate to contact us.

With that we would be happy to take your questions. Operator?

Question-and-Answer Session

Operator

Thank you very much. Ladies and gentlemen, at this time we will begin the question-and-answer session. (Operator Instructions) And our first question does come from line of Brian Zarahn with Barclays.

Brian Zarahn - Barclays

Good morning.

Anne-Marie Ainsworth

Good morning Brian.

Brian Zarahn - Barclays

On the expected dropdown, can you provide some color on potential size in terms of cost?

Jon Ackerman

Sure Brain, this is Jon. On the dropdown, I think at this time, we’re still evaluating the financial performance and looking at the size. I think we’ll have more details on that later. I think the Texas City terminal maybe new to some of our investors and analysts who are familiar with our story, it’s a great terminal, it’s located just like our Houston and Beaumont facilities. In that Texas City complex new refineries and petro chemical complexes, it has waterfront access, it’s currently part of the export storey and also has both rail and truck facilities and it also has a diverse customer base with a contract profile that you’ve been used to seeing in the past.

At this point, I think we are still finishing out some of our analysis and preparation and then we’ll be going to the complex committee process, so there will be more information on that one soon.

Brian Zarahn - Barclays

So, in terms of timing, is it more likely to be a second half of the year event or it’s still potentially first half of the year?

Anne-Marie Ainsworth

We’re looking at the second half of the year, so within the next 12 months is what we are looking at.

Brian Zarahn - Barclays

Okay. And then on product mix of Texas City, is that more refined products, chemicals, how would you describe it?

Jon Ackerman

Brian, it’s got both refined product and chemical, as a slight majority of the product there today is refined products and that’s part of our analysis in terms of timing and overall sequencing of the dropdowns to manage some of the non-qualifying income that’s generated through some of the chemical product that we store and handle at that facility. I think given where we’re seeing the partnership growth and the overall ability to add additional non-qualifying income to the partnership that has been one of the aspects or components of our timing on this particular dropdown.

Anne-Marie Ainsworth

Brian it was an (inaudible) facility and we have significantly diversified our customer base. And so now we have 50% chemical as Jon referred to but we have refined products as well.

Brian Zarahn - Barclays

Appreciate the color on Texas City. I guess turning to -- I guess maybe looking at the first quarter of this year, how should we think about the impact of higher propane demand in the Midwest and Northeast in terms of your export volumes out of Houston?

Jon Ackerman

Hey Brian, I think it’s still early in the quarter. I think we can look to what enterprise has set on this earnings call and that they have expected to see at least in February perhaps a couple of cancellation of vessels as you have seen the price of propane even in the Mont Belvieu complex go up. I think so far overall the volumes have been consistent with past, although I think in February in addition to the price impact that we have seen, we have also had a number of [odd] days as well and we’ll have to see how things go. On the LPG exports, I think one important point worth noting and what we have seen at the end of last quarter and into this quarter as well is a substantial uptick in loading the butanes. And again that’s a nice balancing, if you will of our overall product mix and it gives our customer the ability to optimize its overall facility and to use our docks to meet the demand with its customers and that’s been a welcome development on our side.

Brian Zarahn - Barclays

And last one from me, given your identified organic projects lead and it looks like the pending dropdown, Texas City and the high distribution coverage, how do you view the current distribution growth run rate as a good sustainable rate for now or how should we think about that?

Jon Ackerman

Sure. And I think again, we’ve been running high coverage for several quarters now. We continue to analyze the distribution quarter-by-quarter. We do look to the long-term, both to our long-term distribution coverage target of 1.15 times, but also to the growth trajectory that we’ve established our track record in going forward. I think as things look right now, we would that we will be able to continue on the path that we have established while at the same time having some excess coverage as well that we can use to put back into organic projects or other opportunities.

Brian Zarahn - Barclays

Thank you.

Operator

And our next question does come from the line of Michael Peterson with MLV & Company.

Michael Peterson - MLV & Company

Thank you. Good morning everyone. Two questions this morning, the first one regards the February 18th changes in the Board of Directors. I recognize that there may not be a direct association but Oiltanking units went from outperforming the peer group to underperforming peer group since that announcement. Given that it seems that market has some concern in this area that’s yet to have been satisfied, I would like to ask Anne-Marie or others from the management team to provide a little bit more color or context surrounding these changes?

Anne-Marie Ainsworth

Yes. We are without question were said Carlin leaving Oiltanking. He announced (inaudible) mentioned that he’s leaving for personal reasons. Observing him from North America, there isn’t any question, it’s clear that he has made a very positive impact in the global role as Managing Director of Oiltanking GmbH and as a member of M&B’s Executive Board. And why I arrived at Oiltanking 15 months ago, I found very carrying culture, a talented organization, we have a strong strategic direction, and we’ve been executing on that direction, and the results speak for themselves. And I could not be any more pleased with the strong Board of Directors that we have, the strength of this leadership team, and this organization, and the full support that we have from M&B, and I’m very excited about our future.

Michael Peterson - MLV & Company

Okay. I appreciate the color. Thank you, Anne-Marie. Next, I’d like to follow up on your comments with regard to the Texas City prospective dropdown and also try to follow up little bit on some of Brian’s question as well. Given the proactive equity raise that you had in November and your characterization of financial flexibility is ample. How should we think about incremental equity, should the partnership acquire Texas City, should we think of it as a predominantly debt financed acquisition or how would you characterize that for us?

Jon Ackerman

Yes. Mike, I think looking at that some of the ultimate financing that we have there will in large part depend on the other project that we’re evaluating. I think again with the 220, the 250 or so of capital spending that we have, we will use some of our excess liquidity, but I think still be at ample leverage capacity to do things like dropdown or other, other projects that I think in light of some of the initiatives that Bo mentioned on his call, I think we’ve got a very ambitious 2014 ahead of us. And our intention is to continue to maintain a strong balance sheet and maintain our financial flexibility. And so, there may be to the extent that we do, go through the dropdown as well as all of our capital spending this year and look to take some pressure off of the revolver or some of our leverage, depending on ultimately the size and the other opportunities that we could add on in addition to that.

Michael Peterson - MLV & Company

That makes sense Jon, and I certainly understand we can’t look at Texas City in isolation. In aggregate, would it be fair to say that you’re going to be more comfortable or at least comfortable with debt to EBITDA something in and around the 3.0 range over the next 12 months to 24 months, is that a reasonable comfort level certainly below your covenant but more in line with kind of where your peers leverage?

Jon Ackerman

Yes, I don’t know if we’ll get all the way up to three times again that will depend on the ultimate spend and the projects that are available to us. I do think that today we have been conservatively leveraged and probably less levered than our peers and we expect that that will go up over time and closer to where our debt covenants are and probably closer to the number that you just threw out there as an example. Again, I think that’s got to be balanced with the strong cash flow generation that we’re seeing as well as some of liquidity that we have on hand. But I do think over time you will see us make our way up to a more highly levered position.

Michael Peterson - MLV & Company

Very good. Thank you, Jon. Those are all my questions this morning.

Anne-Marie Ainsworth

Thank you.

Operator

And our next question does come from the line of Darren Horowitz with Raymond James.

Darren Horowitz - Raymond James

Good morning.

Anne-Marie Ainsworth

Good morning, Darren.

Darren Horowitz - Raymond James

Bo, a few questions for you; first, can you give us a sense of the CapEx that could be spent at Beaumont and the timing to accomplish all the projects that you outlined? And I think previously you spoke about the need to secure somewhere between 3 million and 5 million barrels in order to get a viable project and you just mentioned the potential for 4 million to 6 million barrels. So I am just curious what the target unlevered IRR reflects?

Bo McCall

Yes. Darren, the CapEx range is probably $300 million to $400 million that we’re kind of looking at. And I think in terms of getting the project commercialized, we’re probably around 4 million barrels of total capacity, and we are pretty far along with customers, negotiating contracts and hopeful within the second quarter to give some of those [fees] and get that project off the ground.

Darren Horowitz - Raymond James

Okay. Did you have the rank, the ops there just across the entire spectrum. Where do you think the most immediate need to add capacity is, Bo? Is it more of a priority to get cognizant splitting capacity and dock access to export petroleum products or just given that wave of lights we hid in that area, do you think the more immediate need might be to get that crude storage capacity and associated connectivity for truck or rail?

Bo McCall

Yes. I think the latter, Darren, I think more from a crude standpoint; we have customers today in Houston that we design just to match that scores to meet their needs, I think this tank could be [applied] on Beaumont. We've been in the crude business in Beaumont over the years and have been then and now that we look forward to an opportunity to get back into it. And if we like we will be able meet the needs of some of our customers with Canadian, West Texas, Eagle Ford and potentially some offshore barrels as well.

Darren Horowitz - Raymond James

Okay. And then lastly, I was just curious have you all made any progress on as you put it in the previous conference call getting a little bit closer to the well head with regard to Eagle Ford, Permian volumes. Whether or not that was incremental truck and rail loading capacity or even some pipes that would effectively feed into the existing terminal facility, just your thoughts there?

Bo McCall

Yes. We participated in a couple of the options that are out there last fall. We did in fact real hard to ramp those, I think we went back and took a little bit more strategic look in our direction I think as opposed to going out and targeting assets very broad way from our assets were in kind of looking our assets working back out so we’re kind of taking a different approach. And we are working some pipeline projects into our facilities and kind of focusing on that versus kind of deferred revenue.

Darren Horowitz - Raymond James

Thank you.

Bo McCall

Okay.

Operator

(Operator instructions) And our next question does come from line of Jeremy Tonet with JPMorgan.

Jeremy Tonet - JPMorgan

Good morning.

Anne-Marie Ainsworth

Good morning, Jeremy.

Jeremy Tonet - JPMorgan

I just want to follow-up on the topic of LPG exports and it seems like in the first quarter international arbitrage opportunities have come in versus where they were historically. And it’s good to hear that the product mix has shifted from propane to butane reacting to some of these market dynamics. So I was just curious if you could provide some color or thoughts for us on how that might impact throughput revenues in first quarter ‘14 from what you have seen for the first two months here versus where we have been during 2013?

Jon Ackerman

Yes sure, Jeremy. I think it’s still very early in the quarter, we’re probably not in a position to give you a kind of guidance on that and generally speaking we don’t provide guidance in the general policy. With that said, I think January again volumes where we’re headed consistently and I think the margin share and overall performance was consistent as well. February is again a month of we’ll have to wait and see and as we go into March, again that will depend on vessels that are customer loads and our overall performance.

We are optimistic that some of the pricing and our margin compression that you have seen is more of a short-term nature more due to infrastructure of bottlenecks and other constraints in the Midwest market rather than anything having to be dealt within the end markets for the ultimate propane and butanes that are delivered. So stay tuned on that.

Jeremy Tonet - JPMorgan

Okay, appreciate the color. Thank you.

Operator

And our next question does come from line of James Carreker with U.S. Capital Advisors.

James Carreker - U.S. Capital Advisors

Good morning.

Anne-Marie Ainsworth

Good morning James.

James Carreker - U.S. Capital Advisors

Not to be the dead horse but just wondering if you could talk generally about the need for those propane and butane cargos kind of relative to the price. Are those -- are there certain volumes there that are kind of shift-regardless of what Mont Belvieu propane or Mont Belvieu butane does?

Jon Ackerman

James, look I don’t want to go into too much speculation about how our customer enterprise will operate its business in structure overall. I do think that you can look to some of the statements that they have made on the business which are that again they see very strong continued demand for term contracts, even in light of some of the recent price movements. And they again are very enthusiastic about the business going forward. I think -- in fronts that you could make from that is that there is strong demand in those end markets for that and that these customers are looking to secure supplies of propane, butane and product over the long-term and not just on an opportunistic or short-term basis.

James Carreker - U.S. Capital Advisors

No that’s fair enough I appreciate that color. And then I just had one other question. I noticed that your rail cars for the fourth quarter were down call it 90% over the previous few quarters I was wondering if you could comment on maybe what’s causing that dynamic?

Bo McCall

James, this is Bob, the customer that has been bringing the railcars primarily sourcing them from West Texas and I think a lot of pipelines that have been coming on board that has shifted a lot of barrels to pipe versus rail and that was always contemplated in the arrangement and that’s why the big reduction there.

James Carreker - U.S. Capital Advisors

Does that free up rail car capacity for perhaps other customers down the road?

Bo McCall

Yes, I think it will. I’m not too sure what the length of the rail commitment is with that customer well free us in space. We are working at other facilities in our facility and also adjacent to our facility. I think the shift is primarily from the light barrels to the heavy barrel. I’m sure you’ve seen a lot of the announcements will be Canadian rail origination facilities. And we’re talking to a lot of our existing customers, potential customers about bringing Canadian rail down as well, which obviously has some handling characteristics that we need to engineer and design for, but we’re investigating that right now.

James Carreker - U.S. Capital Advisors

Okay, fair enough. Thanks guys.

Bo McCall

You bet.

Operator

And at this time, there are no further questions. I would like to turn the call back over to management for any closing comments.

Anne-Marie Ainsworth

Well, my thanks to each of you for joining us on the call today. I appreciate your questions and interest in the Partnership, and we look forward to our next quarterly update with you. Thank you all and have a great day.

Jon Ackerman

Thank you very much.

Operator

Ladies and gentlemen, that will conclude the conference for today. If you would like to listen to a replay of this conference, you may do so by dialing 303-590-3030. You will need to enter the access code of 4666713. The telephone number once again is 303-590-3030 with the access code of 4666713. Again, we do thank you for your participation on today’s call. You may now disconnect your lines at this time.

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