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Executives

Michael N. Mears - Chairman of Magellan GP LLC, Chief Executive Officer of Magellan GP LLC, President of Magellan GP LLC and Chief Operating Officer of Magellan Gp LLC

John D. Chandler - Chief Financial Officer of Magellan Gp Llc - General Partner, Principal Accounting Office of Magellan Gp Llc - General Partner, Senior Vice President of Magellan Gp Llc - General Partner and Treasurer of Magellan Gp Llc - General Partner

Analysts

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

James Jampel

Brian J. Zarahn - Barclays Capital, Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Elvira Scotto - RBC Capital Markets, LLC, Research Division

Magellan Midstream Partners LP (MMP) Q2 2012 Earnings Call August 1, 2012 1:30 PM ET

Operator

Good day, everyone, and welcome to today's Magellan Midstream Partners Second Quarter 2012 Earnings Results Conference. Just as a reminder, today's call is being recorded. At this time, I would like to turn the conference over to your host for today, Mr. Mike Mears. Please go ahead, sir.

Michael N. Mears

Thank you. Well, good afternoon, and thank you, all, for joining us today to discuss our record quarterly financial results for the second quarter of 2012.

Before we get started, I'll remind you that management will be making forward-looking statements as defined by the SEC. Such statements are based on our current judgments, regarding some of the factors that could impact the future performance of Magellan. You should form your own opinions about Magellan's future performance based on the risk factors and other information discussed on our filings with the SEC.

We reported second quarter net income per unit of $1.22 this morning. Normalizing for mark-to-market commodity adjustments, which we generally exclude from our guidance, we generated net income per unit of $1.01, per unit. Our quarterly results significantly exceeded the $0.83 guidance we gave back in early May, due to 2 primary factors. First, transportation volumes were higher than expected, with gasoline shipments improving with lower gasoline pricing during the start of the higher-demand summer driving season. Crude oil volumes were also significantly higher, as shippers increased their utilization of our Houston-area distribution network.

The second factor contributing to our improved performance in the quarter was an increase in product sales from our commodity activities. Our quarterly distributable cash flow increased to a record $134 million, resulting in a 1.3x coverage ratio for both the quarter and year-to-date, even with our latest quarterly distribution payout of $0.9425 per unit. I know a number of you were pleasantly surprised with the significant increase to our distribution that was announced last week, and I think these very strong coverage ratios clearly demonstrate why our management team believe now is the time for a step change in Magellan's distribution, to provide additional value back to our investors. Even though we had a strong second quarter, this was not the only reason for the decision to raise the distribution beyond guidance.

At the end of the first quarter, our DCF guidance was $490 million, which would have resulted in excess DCF of approximately $100 million for 2012, assuming a 9% distribution growth for the year. As you recall, we have indicated that we believe around $75 million of excess cash is prudent, based on the current market environment. So our DCF projections for 2012 were already in excess of what we felt was necessary. However, as you may also recall, there were a number of items still being worked out, when we first advertised the 9% distribution growth target for 2012 earlier this year.

First, we had not yet determined if we would keep our ammonia pipeline system, which is expected to generate close to $20 million of DCF this year. In addition, although we knew we were moving ahead with our Crane-to-Houston crude oil pipeline at the beginning of this year, the project's scope was still at its initial size of 135,000 barrels per day. Even though this project doesn't begin contributing until 2013, we do look out a few years in making distribution decisions, so we can be confident in the long-term sustainability to our investors.

Now that we have decided to retain the ammonia pipeline system and have increased the size of our Crane-to-Houston project to 225,000 barrels per day, of fully committed capacity, we see our base business and growth projects generating enough cash flow to comfortably increase our distribution to a higher level. We have now increased our growth expectation accordingly, and are targeting distributions for full year 2012 that are 18% higher than 2011, with the goal of raising distributions, an additional 10% for 2013, as our growth projects are expected to come online and benefit future periods.

With that being said, we also did see an improvement in our base business in the second quarter, which further strengthened our decision that this was the right time to step up the distribution. And with the increased DCF guidance of $520 million for 2012, that we provided in our earnings announcement this morning, we are even more confident in our new distribution level, and now expect to generate a still very healthy coverage ratio of 1.2x for the full year, generating almost $100 million of excess cash, giving us plenty of cushion this year.

Now that we've discussed our thoughts around the recent distribution step-change in detail, I'll turn the call over to our CFO, John Chandler, to discuss our second quarter results versus the comparable 2011 period. Then I'll be back to discuss our forecast for the rest of 2012 and the status of some of our larger growth capital projects.

John D. Chandler

Thanks, Mike. Before I begin discussing specific business unit performance, I 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 the economic success of the partnership's core operations.

As noted in our press release this morning, we had record net income and record earnings per unit. Net income increased by 34% versus the same quarter last year. The quarter benefited from strong profit increases at each of our businesses, or it benefited from higher pipeline shipment volumes, higher tariff rates, higher lease storage at our marine and storage terminals, higher commodity-related profits, and even higher throughput at our inland terminals. Our net income was $137.8 million for the current period versus $103 million for the 2011 period.

As is usual, I'll go through the operating margin performance for each of our business lines, 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 $39.6 million or 21% higher versus the same period last year. Our petroleum pipeline system saw operating margin increases of $29.9 million for the period, going from $146.4 million last year to $176.3 million this period.

Looking deeper, our transportation and terminalling revenues for the pipeline segment were $17.6 million more than the same period last year. Approximately, 80% of the revenue increase came from increased tariff revenues, as a result of higher average tariff rates and higher shipment volumes. Shipment volumes for the period was at -- shipment volume was 10.5 million barrels or about 10% more than the same period last year. If you dissect this by product, our crude shipment volumes on our South Texas pipeline actually increased 7 million barrels, or about -- or it was about 70% higher than last year, while our shipments on our refined product systems increased 3.5 million barrels or 4%.

Crude volumes have increased in part, due to connections our system has, to new crude coming into the Houston area, with more than 1/2 of this quarter's volume increase coming from new crude, coming in from the Eagle Ford. Crude throughput also increased, due to the expanded connectivity of our system and higher utilization from existing customers. We expect throughput for the crude systems to continue to grow, as this was the fifth consecutive quarterly increase in volume on the system.

The refined products increases were primarily driven by higher gasoline shipments. Gasoline increased 7% versus last year, with increased shipments on the Longhorn System to El Paso, on the South Texas assets that we acquired from BP, and on our other legacy pipeline systems. Those shipments' increases were the result of improved demand, due to reduced gasoline prices, and in a few locations, refinery maintenance issues that required more shipments via our pipeline, to meet the local market demand.

Tariff rates for the period went from $1.097 per barrel last year to $1.126 per barrel this year, or a 2.6% increase. Now obviously, a major contributor to this variance is the fact that we raised rates on July 1, 2011, in both the index markets and our market-based -- rate markets by nearly 7%. The reason we didn't see the full 7% increase in rates, though, is because more crude was shipped during the quarter versus last year, with ships at a much lower average tariff rate because of the shorter distance it travels. In fact, the crude rates are about 1/4 that of our average -- of our other average tariff rates. If you exclude the crude oil shipments on our South Texas assets, the average rates on everything else, increased by 7% this quarter.

The remaining 20% of our pipeline revenue increases came from higher system-lease storage revenue, which was the result of a combination of higher rates on the outstanding storage and approximately 700,000 barrels of new storage being leased from trains, brought into service over the last year, higher book additive fees, because of the increased diesel additives, where off-road diesel consumption is increasing, especially in drilling regions, and higher capacity lease revenues.

Going to commodity-related activities, our operating margin for commodity-related activities for the pipeline increased $16.9 million for the period, going from $35.3 million last year to $52.2 million this quarter. This increase is somewhat impacted for mark-to-market noise, for out-of-period hedges, lower cost of market adjustments, and other cost of goods sold adjustments made during the quarter. If you eliminate this noise and match up hedges with the actual sales made during the quarters, we made about $5 million more this quarter than the same period last year. You can arrive at this number by taking the product margin from our income statement, and make the adjustments identified as commodity-related adjustments on the DCF reconciliation page, attached to our press release this morning. This $5 million increase in commodity-related profits can be entirely explained by higher butane-blending profits, as a direct result of increased volumes. Our margin per barrel, realized from blending, is about the same as last year.

Our blending volumes increased in a large part, due to an increased focus on blending on our Texas pipeline assets, which is driven in part, by capital investments we made over the last year in the blending assets on the system. Otherwise, lower profits from fractionation activities were offset by higher profits from our Longhorn line to inventory sales, as we purged the line and sell that inventory to make way for the crude reversal.

Our petroleum pipeline expenses were about $4.6 million more than the same period last year. The increase in expense was primarily due to higher asset integrity expenditures, partly just due to timing, as more work is completed in the second quarter of 2012 -- in the second quarter of 2011, but also due to the fact that we have planned to do more integrity work in 2012, as part of our long-term cyclical integrity plan.

Otherwise, lower pipeline gains were offset by lower contingency accruals in 2012, where the 2011 period included an accrual for historical excess air emissions at our East Houston terminal. And also, during the 2012 period, we had lower impairment costs, whereas in 2011, we had an asset impairment on one of our pipeline terminals that we closed.

Now going to the terminals group, our operating margin for our terminals group was up $7.3 million or 21% versus the same quarter last year. Terminalling revenues were $7.1 million more than the same period last year, with essentially the entire increase coming from our storage terminals where revenues increased predominantly due to tank additions at our Cushing tank farm, tank additions at our Marrero, Louisiana marine terminal, and storage rate increases, with the most significant of those increases coming from our Galena Park and Corpus Christi, Texas terminals.

Our average lease storage utilization rose by 3.7 million barrels for the quarter, going from 31.1 million barrels per month leased for the 2011 period, to 34.8 million barrels leased this quarter. Of this amount, 3.1 million barrels of the increase came from incremental crude stores that came online at our Cushing terminal, all backed by long-term contracts, and an additional 600,000 barrels coming online at Marrero, Louisiana.

Our net product margins for the terminal segment was $1.9 million less than the same period last year, largely due to lower volume of inland terminals overages sold during this quarter. And our terminal expenses were $2.2 million less than the same period last year, largely due to lower contingency expenses, where the 2011 period included a large accrual for historical excess air emissions for our Galena Park terminal for the period of 2008 to 2010. Somewhat offsetting this positive variance were higher integrity expenditures due to increased tank inspections and tank work, which were expected coming into the year.

And finally, consistent with our expectations, given that our hydro testing is behind us on the ammonia pipeline system, our ammonia operations generated operating margin that was $2.5 million more than the same quarter last year, going from $2 million last year to $4.5 million this year. Transportation revenues for the pipeline were up $900,000 for the second quarter of 2011, as a result of shipment volumes increasing 2,000 tons and average rates increasing about 11%. In part, the rate increase was the result of the tariff rate increases of 7% that occurred at midyear last year, as well as more full rate tons shipped, as opposed to discount rate shipments that occurred in the 2011 period.

In 2011, we experienced higher discount rate shipments, as our line was used to move volume in the far Northern markets via a connection that we have to the Nustar ammonia pipeline. We discount our tariff to make this movement economic for our shippers. This year, our line was more heavily utilized to meet demand in our pipeline's market area, at full rate tariffs.

Expenses for the ammonia system were down by $1.5 million, again largely due to lower integrity expenses as the pipeline hydro testing was largely completed in 2011.

Therefore, in summary, those are the reasons operating margin for the quarter increased by $39.6 million. Stepping down from operating margin to net income, depreciation was up by $800,000, due to capital additions. G&A expenses were essentially unchanged, and interest expense, net of interest income and capitalized interest, was up by approximately $3.3 million. This is primarily as a result of the $139 million in additional average borrowing outstanding for the second quarter of 2012. You may recall in the third quarter of 2011, we proactively issued $250 million in debt, to take advantage of the low-rate environment and pre-fund future expansion capital. As a result of that offering, we retired $110 million in revolver debt that was in place during the second quarter of 2011, with higher costing permanent notes. During the second quarter of 2012, we had no borrowings outstanding on our revolver, and we had no debt that was swapped to floating.

Therefore, in total, MMP's net income increased $34.8 million, going from $103 million for the 2011 period, to $137.8 million in the second quarter of 2012. Our leverage metrics include $2.1 billion in debt outstanding at the end of the second quarter of 2012, and after reducing for cash that we're holding of $234 million, our net debt of $1.9 billion results in a net debt-to-EBITDA ratio of 2.9x for the last 12 months.

Again, as of the end of the second quarter, our $800 million revolver had 0 borrowings outstanding. I'll now turn the call back over to Mike, to discuss capital spending and DCF guidance for the remainder of 2012. Mike?

Michael N. Mears

Thanks, John. As I've previously mentioned, we were projecting a record annual distributable cash flow for 2012, and have raised our DCF guidance by $30 million to $520 million. Much of this increase relates from improved results that we saw in the second quarter for both transportation volumes and commodity volumes. We expect these favorable variances to continue for the rest of the year. We also expect to see an impact from our midyear tariff increases of approximately 8.6%, which went into effect in virtually all of our markets on July 1.

Further, we are also now approximately 75% hedged for the third and fourth quarters, with our blending volumes at margins consistent with what we realized with the first 2 quarters. You may have also noticed that we reduced our maintenance capital estimates for 2012 to $65 million from $70 million. We had previously expected to replace a number of our pipeline pump engines this year due to recent EPA emission rules, that were set to go into effect mid-2013. We have received an extension until mid-2014, and are actively assessing the best option for compliance with these rules. As a result, we do not plan to spend those funds this year, if at all. We still believe an annual run rate of approximately $70 million is reasonable for future modeling purposes, absent unique one-time items, such as this, that might arise.

Moving on to growth capital, we expect to spend $500 million during 2012, with another $200 million in 2013 to complete the projects we currently have under construction. Through the first half of the year, we have spent close to $100 million on growth projects, so clearly, we expect a dramatic ramp-up in spending during the second half of the year, as the heart of the construction phase gets underway, especially for our Crane-to-Houston pipeline crude oil project.

Speaking of that project, we are currently in the process of transferring the refined products out of the Crane-to-Houston pipeline, and we'll be using our new route to transport gasoline and diesel fuel to El Paso. Once the product is purged from the system, we will be able to make the necessary modifications to convert the Crane-to-Houston pipeline segment to crude oil service. And we'll plan to sell that line sale that we've held for this pipeline system, generating close to $40 million in cash over the next few months. We appear on target to spend approximately $375 million on the total project, and subject to regulatory approvals, begin moving at least 75,000 barrels a day of crude oil to Houston in early 2013, ramping up to the full 225,000 barrel-a-day capacity during mid-2013.

Our Double Eagle joint venture pipeline project and associated Corpus Christi storage are also well underway, and we expect to begin limited operation in early 2013, with full operation expected in mid-2013. You may recall that we are in the process of expanding our Houston crude oil distribution system as well, to allow us to increase deliveries of Eagle Ford crude oil that has entered the Houston market to local refineries. We still expect these enhancements to be operational by the end of 2012. The spending on this project is close to $20 million, and provides us immense strategic value to deliver new domestic Eagle Ford barrels straight to the refinery gate.

On the refined products side, we also have a significant amount of fully contracted refined product storage that will be coming online in the near term. Specifically, we are completing construction of almost 300,000 barrels of storage in our Tulsa pipeline terminal and 1.2 million barrels of storage at our Galena Park marine facility that will be operational by the end of 2012, with 800,000 of the new Galena Park storage jointly owned with a third party. Further, we have another 600,000 barrels of Magellan-owned storage at Galena Park that will be operational early next year.

Also, I had previously mentioned that we were evaluating making our Dallas to Southern Oklahoma line bidirectional, so that we can physically ship barrels to Dallas, and Central and West Texas, with the relative pricing levels support such movements, similar to what we saw last winter. As an update, we have decided to proceed with this project. While the capital spending on this project is relatively small, we believe this enhancement will create value for our customers due to the flexibility it provides, allowing our shippers to react to seasonal industry dynamics.

And of course, we continue to find more opportunities for consideration, with our potential project pool well exceeding $500 million at this time. While we are seeing potential opportunities in all of our businesses, crude oil prospects comprise about 80% of the current list of growth opportunities.

In addition, we continue to analyze the BridgeTex pipeline joint venture with Occidental Petroleum that we announced in June. The open season closed a few weeks ago, and we are currently assessing committed volumes received through that process. We remain in advanced discussions with Occidental, and will announce any further developments on this project as they develop.

As always, we continue to analyze a number of acquisition opportunities, but intend to be selective, and only acquire assets if the right opportunities come along at what we consider to be a reasonable price. And we have plenty of debt capacity for financing growth projects for the foreseeable future.

That concludes our prepared comments. So operator, we'll now turn it over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Darren Horowitz of Raymond James.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

John, I might have missed it, but within the petroleum pipeline segment, can you quantify the pace of crude volume growth across the South Texas assets that you alluded to? You think it's going to grow on an absolute basis at the same pace that we saw this quarter?

Michael N. Mears

Well, this is Mike, responding to that. That -- it's a little hard for us to give you a specific projection of that. I think that we saw 70% growth in this quarter versus last year. I think that's a pretty strong growth. I would probably hesitate to forecast it growing at that rate, going forward. I think the best way for me to answer that is, we think we're early on in the growth profile for distribution, crude oil distribution volumes down there. I would expect it to continue to grow. I don't think we're in a strong position to give you a percentage growth factor, but we do expect a strong growth in the future.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Okay. And then Mike, shifting over to BridgeTex, recognizing that the open season's closing and you're still working with Occi, but from a bigger picture perspective, when you look at the supply push, effectively coming through Colorado City and needing to get to the Houston Gulf Coast area, do you think that the current scale or proposed scale of about 278,000 barrels is going to be enough?

Michael N. Mears

Well, that's a good question. If you look at -- I mean, our projections show that we anticipate over the next 5 years or so, that the Permian Basin production could be growing versus where it is today, up to 800,000 barrels a day of incremental production. Longhorn is 225,000. The proposed BridgeTex project is 278,000. Sunoco has some proposed projects out there to move barrels. And if you add all of those up, you're getting up close to that 800,000, a barrel-a-day number. So I think at this point, it appears that if all those lines get built, you've got somewhat of a balanced market. But there's a lot of ifs in there. Is that production going to grow at that rate? Is it going to be higher than that, will all these projects happen? I think, given all of those variables, our best judgment at this time is that we've sized this appropriately at this time.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

If you look at those numbers -- and by the way, we tend to agree with you, but if you look at those numbers and the sequential pace is to when that production hits the market, doesn't that just effectively push the bottleneck into the, if you will, kind of the Texas City and Houston area, which would probably underscore more CapEx being spent on enhancing the facilities around the terminal point for all that crude? Is that the right way to think about it?

Michael N. Mears

Well, I think part of our BridgeTex proposed project is to build additional storage in Houston and to loop our distribution system. So we would intend to address those if we built the BridgeTex system.

Operator

Sharon Lui of Wells Fargo has our next question.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

I guess, one question about your distribution target for 2013, I guess, looking at the incremental cash flow from some of your larger projects, I think they're slated to come in during the year and the excess cash flow that you have from this year, it seems like the 10% target seems a bit conservative. Maybe if you could talk about your -- how you came up with that target?

John D. Chandler

Well, I think...

Michael N. Mears

Sharon, to start with, we are a conservative company when we give guidance. We are building some cushion in there, just based on the risk that we don't get this system up as quick as we think we can get it up. We don't want to give guidance that's right up to the maximum, if everything was aligned. Clearly, if the pipeline starts up earlier than expected, if we don't have any hiccups, and there aren't anything else that happens that we aren't aware of, that 10% guidance is conservative. But there's a lot of variables that could happen and that's why we've chosen to stick with the 10% guidance number at this time.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And then I guess just a follow-up on BridgeTex. If you, I guess, delineate between the pipeline project and the expansions that you plan to do to the Magellan system, can you just tell me how much CapEx that would entail for both projects?

Michael N. Mears

We haven't disclosed total capital on that yet and we're probably not prepared to do that until we actually have a project. As I mentioned, we are actively negotiating with Occi. I can't tell you with certainty at this point, that we'll be able to consummate that transaction. And so, we're not going to talk about the capital numbers until we actually have a project. Again, all I can tell you is that we're actively negotiating and we'll either be able to put it together or not, and we'll let everyone know when we've reached a conclusion on that.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And would, I guess, Occi be a 1/2 of 50% interest in the JV? Like, how should we think about the split?

Michael N. Mears

We are -- our current discussions contemplate a 50-50 JV with Occi, yes.

Operator

[Operator Instructions] We'll go next to James Jampel.

James Jampel

The increase in refined products movements on your pipeline, did I hear you right? You said that the increase was all in Texas?

Michael N. Mears

No, no. It wasn't all in Texas. I mean, there was a significant amount of it that was in Texas, that we increased our volumes on our Longhorn System to West Texas. We saw increased gasoline volumes on our South Texas pipes from Texas City up to the Ship Channel, but we also saw growth on our legacy system, our upper Midwest system. We saw a growth in all segments.

John D. Chandler

Yes, in fact, I've mentioned, our volumes increased 10.5 million barrels. About 7 million of that was in Texas on the crude system. The rest of it happened on all of our systems and it was predominantly gasoline-driven.

James Jampel

So you did see more gasoline moving north on the legacy systems, up into the sort of Iowa and Minnesota areas?

Michael N. Mears

That's correct.

Operator

We'll go next to Brian Zarahn of Barclays.

Brian J. Zarahn - Barclays Capital, Research Division

Can you provide what the total CapEx was in the second quarter?

John D. Chandler

We have that number. Hold on just a second. Let's see if we've got that handy. You want just maintenance cap or growth capital?

Brian J. Zarahn - Barclays Capital, Research Division

Growth capital.

John D. Chandler

Growth? Yes, our growth capital for the quarter was $68 million.

Brian J. Zarahn - Barclays Capital, Research Division

So a good part of your growth capital is going to be back-ended for the second half of the year. Do you still expect to debt finance the CapEx? Or you may be opportunistic and raise some equity?

John D. Chandler

No. We will debt finance. Well, first of all, we have over $230 million in cash on our balance sheet, but then even in addition, we're at a 2.9x leverage ratio with growing EBITDA. So I would expect, for the foreseeable future, everything will be debt-financed.

Brian J. Zarahn - Barclays Capital, Research Division

And given the low leverage, the growing EBITDA, your cost of capital hasn't been lower historically. How do you view the M&A market given the favorable backdrop you have?

Michael N. Mears

Well, the view of the M&A market hasn't changed significantly for us given our low cost of capital. I mean, our view is, if we're going to acquire something, we want to acquire it -- an asset that makes sense for us to own, at a price that makes sense to acquire it for, and we won't -- it's not our intent to push purchase prices up simply because we have a low cost of capital. That's one of the reasons why you haven't seen us execute a lot of transactions in the current market because we think the prices are generally too high. Again, almost every asset that's exchanged hands in the last year, year and a half, we've looked at, and some of those assets we've been very interested in and we would have really enjoyed owning. However, we were very disciplined on our bidding methodology. And if the prices go beyond what we think is reasonable, then we back out of a deal, and we haven't changed that philosophy, going forward.

Operator

From Goldman Sachs, we'll go to Ted Durbin.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Yes, just a quick one for me on the guidance here, the $0.76, I'm trying to understand the driver there. You did $0.79 last year in the third quarter and you've added assets. You're going to have the tariff bump. Kind of what are you expecting on the year-over-year decline?

Michael N. Mears

Well -- I mean, the first thing to point out, is third quarter is always our lowest quarter.

John D. Chandler

And another element to realize, too, is this quarter -- again, you may recall we had $1.20 -- $1.22 gain on our income, but, yes, we said normalized. We're only at $1.02 because we had huge NYMEX gains in the second quarter, related to some things that will be sold in the third quarter. So you've got that phenomena occurring, too. You got NYMEX hedged gains that are kind of out-of-period that actually flowed in our second quarter this year that won't transpire in the third quarter of next year.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Yes, I was even looking at the third quarter of last year, though. I think the number was more like $0.79, so I'm just trying to understand seasonally.

John D. Chandler

That's right. I mean, there are lots of other little things and then there are like, the LTIP expenses. We're doing well, and so we're increasing our goals for long-term incentive comp. Yes, I mean, there are lots of little items, nothing of significance to point to.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay. And then you mentioned this just briefly, and I'm just wondering, this Dallas to Oklahoma reversal, or I guess bidirectional, how much of an impact would you expect there on, say, volumes or revenues?

Michael N. Mears

Well, it's really hard for us to project. I mean, I think the capital, first of all, the capital for us to do this is very small, so it's not a significant capital project. If last year was any proxy, I think last year, we probably could have moved 50,000 barrels a day. I'm just doing this, kind of math, off the top of my head. 50,000 barrels a day, say, for 3 months, at $1 a barrel roughly. You're talking $4 million to $5 million. That's just us using last year as a proxy. And we don't know what the demand's going to be to actually move those barrels this year. It's going to depend on a lot of things in the market. We just want to be positioned to be able to do it. We're not necessarily building that into our guidance that we're going to move a lot of barrels. That will be upside from our current projections, but we want to be positioned to do it, if the need is there.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay, that's helpful. And then, I've been kind of like a BridgeTex fan. I know there's been a lot of questions, but are you thinking that would be -- I guess, what kind of tariff would you look for there? Would you -- did you have, kind of committed firm volumes, maybe look at -- if you are going to have firm volumes, what kind of term would you be looking for? And then, can you comment -- you mentioned Sunoco briefly, but just, how do you see that one lining up versus the project that they've got proposed?

Michael N. Mears

Well, first of all, I probably shouldn't comment on the tariff or the volumes of what we saw in the open season until we have actually something to announce with BridgeTex. And so unfortunately, I'm not going to be able to address those questions directly. With regards to the competitive position versus Sunoco, I think that there's multiple drivers there for our respective projects. Their project is going to Nederland. Our project is going to Houston. I think there are shippers that are interested in different markets, and so they're going to have different levels of interest in both systems. And so, I mean, that's probably the biggest differentiation there. I don't know, to tell you the truth, what Sunoco's proposing for tariffs and what they are relative to our BridgeTex projects. So I don't know where that stands on a competitive level because those haven't been disclosed. So I really can't address directly the relative merits of the 2. I think in the long term, we think that the market's big enough for all of these pipes, maybe not today, maybe not 2 years from now. But as this production growth continues, we believe that. And it's not just because of the production growth. We also think that there's going to be more barrels, existing production barrels in the Permian that are currently moving into Cushing, that would rather go directly to Houston. And so, I think in the long term, the market's big enough for all these projects.

John D. Chandler

Just one other thing, just to readdress your question about the EPU last year versus last year. Last year's number, you were comparing a normalized number to a normalized number for the third quarter, but still, last year, if you look at our DCF table that's attached to our press release, you'll notice we had $10 million in adjustments -- or $15.7 million in commodity-related adjustments in the second quarter of 2011 and we had $27 million in the second quarter of 2012. Those essentially reversed themselves in the third quarter. So I guess, what I'm saying is, there's a $0.09 variance in the -- incremental negative variance in the third quarter of this year versus last year because there is more gains recognized in the second quarter of this year, than there were in the second quarter of last year related to the third quarter. I'm sure that's very confusing. [indiscernible].

Operator

[Operator Instructions] From RBC Capital Markets, we'll go to Elvira Scotto.

Elvira Scotto - RBC Capital Markets, LLC, Research Division

A couple of questions for me. Have you guys talked about, or have you provided sort of what your outlook is for refined products volumes in the back half of the year?

Michael N. Mears

I mean, our guidance is assuming about 2% growth for the second half of the year, year-over-year.

Elvira Scotto - RBC Capital Markets, LLC, Research Division

Okay, great. And then looking at your CapEx, your expansion CapEx expectations for projects currently underway, to give about $500 million in 2012 and then $200 million in '13. I think last quarter, you were expecting $180 million in 2013. What's driving the difference there?

Michael N. Mears

Just new projects. I mean, we're constantly adding new projects. And those new storage projects have narrowed, of size and magnitude, individually for us to make press releases about, but we have incremental projects that we're adding to the list every quarter.

Elvira Scotto - RBC Capital Markets, LLC, Research Division

Great. And then the last question for me. Any update on Double Eagle on securing additional commitments for that line?

Michael N. Mears

We don't have an update on that. At this point, we still have the basic commitments and we're still working on incremental commitments.

Operator

And it appears we have no further questions at this time. Mr. Mears, I would like to turn the conference back over to you.

Michael N. Mears

All right. Well, thank you for your time today. In summary, we continue to deliver on our core competencies and remain on track for record annual results this year. Looking ahead, we are pleased with the direction we are headed, with significant growth projects underway, and we have a strong balance sheet and disciplined management poised for future opportunities. So we appreciate your commitment to Magellan. Have a good day.

Operator

And that does conclude today's conference. We thank you, all, for joining us.

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