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| SXL > SEC Filings for SXL > Form 10-Q on 5-Aug-2009 | All Recent SEC Filings |
5-Aug-2009
Quarterly Report
Results of Operations - Three Months Ended June 30, 2009 and 2008
Sunoco Logistics Partners L.P.
Operating Highlights
Three Months Ended June 30, 2009 and 2008
Three Months Ended
June 30,
2009 2008
Refined Products Pipeline System:(1)(2)(3)
Total shipments (barrel miles per day)(4) 58,066,789 43,138,696
Revenue per barrel mile (cents) 0.591 0.601
Terminal Facilities:
Terminal throughput (bpd):
Refined product terminals(3) 463,611 428,704
Nederland terminal 646,368 526,350
Refinery terminals(5) 599,503 622,011
Crude Oil Pipeline System:(1)(2)
Crude oil pipeline throughput (bpd) 670,133 694,124
Crude oil purchases at wellhead (bpd) 181,496 177,414
Gross margin per barrel of pipeline throughput (cents)(6) 80.4 51.2
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(1) Excludes amounts attributable to equity ownership interests in corporate joint ventures.
(2) Effective January 1, 2009 the Partnership realigned its operating segments. Prior period amounts have been recast to reflect the current operating segments.
(3) Includes results of the Partnership's purchase of the MagTex refined products pipeline and terminals system from the acquisition date.
(4) Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.
(5) Consists of the Partnership's Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.
(6) Represents total segment sales minus cost of products sold and operating expenses and depreciation and amortization divided by crude oil pipeline throughput.
Analysis of Consolidated Net Income
Net income was $66.6 million for the second quarter 2009 as compared with $51.3 million for the second quarter 2008, an increase of $15.3 million. This increase was due mainly to operating income improvements driven by significantly higher lease acquisition results, increased crude oil pipeline and storage revenues and results from the November 2008 acquisition of the MagTex refined products and terminals system.
Net interest expense increased $3.6 million to $11.7 million for the second quarter 2009 due primarily to higher borrowings associated with the $185.4 million MagTex acquisition, organic growth initiatives, and increased contango inventory positions.
Analysis of Segment Operating Income
On January 1, 2009 the Partnership realigned its reporting segments. Prior to this date, the reporting segments were designated by geographic region. The Partnership has determined it more meaningful to functionally align its reporting segments. As such, the updated reporting segments as of January 1, 2009 are Refined Products Pipeline System, Terminal Facilities, and Crude Oil Pipeline System. The primary difference in the new reporting is the consolidation of an eastern area crude oil pipeline with the western area crude oil pipelines. For comparative purposes all prior year amounts have been recast to reflect the new segment reporting and these changes do not impact consolidated net income.
Refined Products Pipeline System
Operating income for the Refined Products Pipeline System increased $2.0 million to $10.6 million for the second quarter ended June 30, 2009 compared to the prior year's quarter. Sales and other operating revenue increased by $7.6 million to $31.2 million due primarily to results from the Partnership's acquisition of the MagTex refined products pipeline and terminals system in November 2008, and increased pipeline fees. Operating expenses increased $4.5 million to $15.3 million for the second quarter 2009 due primarily to the MagTex acquisition and a reduction in refined product operating gains. Depreciation and amortization expense increased for the three months ended June 30, 2009 primarily due to the MagTex acquisition.
Terminal Facilities
Operating income for the Terminal Facilities segment increased $3.3 million to $21.2 million for the second quarter ended June 30, 2009 compared to the prior year's quarter. Sales and other operating revenues for the second quarter of 2009 increased $7.6 million to $46.9 million due primarily to increased throughput, higher fees and additional tankage at the Nederland terminal facility, as well as results from the MagTex acquisition. Other income increased $0.6 million from the prior year's second quarter as a result of an insurance recovery associated with the Partnership's refinery terminals. Cost of products sold and operating expenses increased $3.7 million for the second quarter of 2009 to $17.6 million due primarily to increased costs associated with the MagTex acquisition and lower operating gains. Depreciation and amortization expense increased $0.6 million to $4.6 million for the second quarter of 2009 due to the MagTex acquisition and increased tankage at the Nederland facility. Selling, general and administrative expenses increased to $4.9 million compared to $4.2 million in the prior year period due to increased employee costs, along with an insurance recovery recorded in the second quarter of 2008.
Crude Oil Pipeline System
Operating income for the Crude Oil Pipeline System increased $13.7 million to $46.6 million for the second quarter of 2009 compared to the prior year's quarter due primarily to significantly higher lease acquisition results and optimization of crude oil storage capabilities as the crude oil markets remained in contango during the second quarter of 2009. Increased pipeline fees associated with the resolution of a $6.8 million prior year tariff adjustment also contributed to the improved operating performance during the second quarter of 2009. Other income decreased $1.6 million compared to the prior year's quarter due primarily to reduced equity income from the Partnership's joint venture interests and an insurance gain recognized during the second quarter of 2008.
Lower crude oil prices were a key driver of the decrease in total revenue and cost of products sold and operating expenses from the prior year's quarter. The average price of West Texas Intermediate crude oil at Cushing, Oklahoma decreased to $59.61 per barrel for the second quarter of 2009 from $124.00 per barrel for the second quarter of 2008.
Results of Operations - Six Months Ended June 30, 2009 and 2008
Sunoco Logistics Partners L.P.
Operating Highlights
Six Months Ended June 30, 2009 and 2008
Six Months Ended
June 30,
2009 2008
Refined Products Pipeline System:(1)(2)(3)
Total shipments (barrel miles per day)(4) 58,805,197 44,310,512
Revenue per barrel mile (cents) 0.586 0.594
Terminal Facilities:
Terminal throughput (bpd):
Refined product terminals(3) 461,831 423,662
Nederland terminal 649,501 539,702
Refinery terminals(5) 591,179 648,604
Crude Oil Pipeline System:(1)(2)
Crude oil pipeline throughput (bpd) 667,156 684,808
Crude oil purchases at wellhead (bpd) 186,302 174,436
Gross margin per barrel of pipeline throughput (cents)(6) 92.0 49.8
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(1) Excludes amounts attributable to equity ownership interests in corporate joint ventures.
(2) Effective January 1, 2009 the Partnership realigned its operating segments. Prior period amounts have been recast to reflect the current operating segments.
(3) Includes results of the Partnership's purchase of the MagTex refined products pipeline and terminals system from the acquisition date.
(4) Represents total average daily pipeline throughput multiplied by the number of miles of pipeline through which each barrel has been shipped.
(5) Consists of the Partnership's Fort Mifflin Terminal Complex, the Marcus Hook Tank Farm and the Eagle Point Dock.
(6) Represents total segment sales minus cost of products sold and operating expenses and depreciation and amortization divided by crude oil pipeline throughput.
Analysis of Consolidated Net Income
Net income was $147.5 million for the six month period ended June 30, 2009 as compared with $88.8 million for the comparable period in 2008. The increase was the result of significant improvements in the lease acquisition business, contribution from the MagTex acquisition and increased crude oil pipeline and storage revenues.
Net interest expense increased $5.5 million to $21.2 million for the first six months of 2009 due primarily to higher borrowings associated with the $185.4 million MagTex acquisition, organic growth initiatives, and increased contango inventory positions.
Analysis of Segment Operating Income
On January 1, 2009 the Partnership realigned its reporting segments. Prior to this date, the reporting segments were designated by geographic region. The Partnership has determined it more meaningful to functionally align its reporting segments. As such, the updated reporting segments as of January 1, 2009 are Refined Products Pipeline System, Terminal Facilities, and Crude Oil Pipeline System. The primary difference in the new reporting is the consolidation of an eastern area crude oil pipeline with the western area crude oil pipelines. For comparative purposes all prior year amounts have been recast to reflect the new segment reporting and these changes do not impact consolidated net income.
Refined Products Pipeline System
Operating income for the Refined Products Pipeline System increased $5.9 million to $21.2 million for the first six months of 2009 from $15.3 million for the first six months of 2008. Sales and other operating revenue increased from $47.9 million for the prior year's period to $62.6 million for the six months ended June 2009 due primarily to the MagTex acquisition and increased pipeline fees. Other income increased by $1.1 million to $5.3 million for the first six months of 2009 as a result of an increase in equity income associated with the Partnership's joint venture interests. Operating expenses increased by $6.8 million to $29.3 million for the first six months of 2009 due primarily to the MagTex acquisition and a reduction in refined product operating gains. Depreciation and amortization expense increased by $2.0 million to $6.4 million for the first six months of 2009 due primarily to the MagTex acquisition. Selling, general and administrative expenses increased by $1.2 million to $11.1 million for the first six months of 2009 due to increased incentive compensation expense and general employee cots.
Terminal Facilities
Operating income for the Terminal Facilities segment increased $13.3 million to $42.4 million for the first six months of 2009 from $29.1 million for the first six months of 2008. Sales and other operating revenue increased $14.5 million to $93.2 million in the first half of 2009 due primarily to increased throughput, higher fees and additional tankage at the Nederland terminal facility, along with the MagTex acquisition. Other income increased $0.6 million from the first six months of 2009 as a result of the insurance recovery discussed above. Cost of goods sold and operating expenses increased by $5.1 million to $32.7 million for the six months ended June 2009 due primarily to the MagTex acquisition and lower operating gains. Depreciation and amortization expense increased to $9.3 million for the six months ended June 2009 due to the MagTex acquisition and increased tankage at the Nederland facility. During the first six months of 2008, a $5.7 million non-cash impairment charge was recognized related to the Partnership's decision to discontinue efforts to expand LPG storage capacity at its Inkster, Michigan facility. Selling, general and administrative expenses increased by $1.0 million to $10.1 million for the six months ended June 30, 2009 due to increased incentive compensation expense, general employee costs and an insurance recovery recorded in second quarter of 2008.
Crude Oil Pipeline System
Operating income for the Crude Oil Pipeline System increased $45.0 million to $105.2 million for the first six months of 2009 from $60.2 million for the first six months of 2008 due primarily to significantly higher lease acquisition results and higher pipeline fees described above. Other income decreased $2.7 million to $5.8 million for the first six months of 2009 due primarily to decreased equity income associated with the Partnership's joint venture interests and an insurance gain recognized during the second quarter of 2008. Selling, general and administrative expenses increased to $11.7 million for the first six months of 2009 compared to $10.5 million in the prior year period due to increased incentive compensation expense, along with general employee and legal costs.
Lower crude oil prices were a key driver of the decrease in total revenue and cost of products sold and operating expenses from the prior year's quarter. The average price of West Texas Intermediate crude oil at Cushing, Oklahoma decreased to $51.46 per barrel for the first six months of 2009 from $110.98 per barrel for the first six months of 2008.
Liquidity and Capital Resources
Liquidity
Cash generated from operations and borrowings under the $400 million Credit Facility and the $62.5 million Credit Facility are the Partnership's primary sources of liquidity. At June 30, 2009, the Partnership had available borrowing capacity under the credit facilities of $196.5 million. The Partnership's working capital position reflects crude oil inventories based on historical costs under the LIFO method of accounting. If the inventories had been valued at their current replacement cost, the Partnership would have had working capital of $382.8 million at June 30, 2009.
In February 2009, Sunoco Logistics Partners Operations L.P. (the "Operating Partnership") issued $175 million of 8.75 percent Senior Notes, due February 15, 2014 ("2014 Senior Notes"). The 2014 Senior Notes are redeemable, at a make-whole premium, and are not subject to sinking fund provisions. The 2014 Senior Notes contain various covenants limiting the Operating Partnership's ability to incur certain liens, engage in sale/leaseback transactions, or merge, consolidate or sell substantially all of its assets. The net proceeds from the 2014 Senior Notes were used to repay outstanding borrowings under the $400 million Credit Facility, which were associated with the MagTex acquisition.
In April and May 2009, the Partnership completed a public offering of 2.25 million common units. Net proceeds of $109.5 million were used to reduce outstanding borrowings under the Partnership's $400 million revolving credit facility and for general partnership purposes. In connection with these offerings, the general partner contributed $2.3 million to the Partnership to maintain its 2.0 percent general partner interest.
Capital Resources
The Partnership periodically supplements its cash flows from operations with proceeds from debt and equity financing activities.
$400 Million Credit Facility
The Operating Partnership has a five-year $400 million Credit Facility, which is available to fund the Operating Partnership's working capital requirements, to finance future acquisitions, to finance future capital projects and for general partnership purposes. The Credit Facility matures in November 2012. At December 31, 2008, there was $323.4 million outstanding under the credit facility. During the first six months of 2009, the Partnership had net repayments of $93.7 million resulting in an outstanding balance of $229.7 million at June 30, 2009.
The $400 million Credit Facility bears interest at the Operating Partnership's option, at either (i) LIBOR plus an applicable margin, (ii) the higher of the federal funds rate plus 0.50 percent or the Citibank prime rate (each plus the applicable margin) or (iii) the federal funds rate plus an applicable margin.
The $400 million Credit Facility contains various covenants limiting the Operating Partnership's ability to a) incur indebtedness, b) grant certain liens, c) make certain loans, acquisitions and investments, d) make any material change to the nature of its business, e) acquire another company, f) or enter into a merger or sale of assets, including the sale or transfer of interests in the Operating Partnership's subsidiaries. The $400 million Credit Facility also limits the Operating Partnership, on a rolling four-quarter basis, to a maximum total debt to EBITDA ratio of 4.75 to 1, which can generally be increased to 5.25 to 1 during an acquisition period. The Operating Partnership is in compliance with this requirement as of June 30, 2009. The Partnership's ratio of total debt to EBITDA was 2.3 to 1 at June 30, 2009.
In September 2008, Lehman Brothers, one of the participating banks with a commitment under the facility amounting to $5 million, declared bankruptcy and its loan commitment is no longer in effect.
$100 Million Credit Facility
In anticipation of the MagTex Acquisition, the Operating Partnership, entered into a $100 million 364-day revolving credit facility ("$100 million Credit Facility") on May 28, 2008. During the second quarter of 2009 the $100 million Credit Facility expired and was not renewed by the Partnership.
$62.5 Million Credit Facility
On March 13, 2009, the Operating Partnership entered into a $62.5 million
revolving credit facility ("$62.5 million Credit Facility") with a syndicate of
2 participating financial institutions. The $62.5 million Credit Facility is
available to fund the Operating Partnership's working capital requirements, to
finance future acquisitions and for general partnership purposes. The $62.5
million Credit Facility matures in September 2011 and may be prepaid at any
time. It bears interest at the Operating Partnership's option, at either
(i) LIBOR plus an applicable margin or (ii) the higher of (a) the federal funds
rate plus 0.50 percent plus an applicable margin, (b) Toronto Dominion's prime
rate plus an applicable margin or (c) LIBOR plus 1.0 percent plus an applicable
margin. The $62.5 million Credit Facility contains various covenants similar to
the $400 million credit facility and also requires the Operating Partnership to
maintain, on a rolling four-quarter basis, a maximum total debt to EBITDA ratio
of 4.0 to 1, which can generally be increased to 4.5 to 1 during an acquisition
period. The Operating Partnership is in compliance with this requirement as of
June 30, 2009. As of June 30, 2009, the Partnership had outstanding borrowings
of $31.3 million under the $62.5 million credit facility. As noted above, the
Partnership's ratio of total debt to EBITDA was 2.3 to 1 at June 30, 2009.
Equity Offering
As noted above, the Partnership completed a public offering of 2.25 million common units during the second quarter. Net proceeds of $109.5 million were used to reduce outstanding borrowings under the Partnership's $400 million revolving credit facility and for general partnership purposes. In connection with these offerings, the general partner contributed $2.3 million to the Partnership to maintain its 2.0 percent general partner interest.
Cash Flows and Capital Expenditures
Net cash used in operating activities for the six months ended June 30, 2009 was $61.2 million compared with $134.2 million of net cash provided by operating activities for the first six months of 2008. The net cash used in operating activities in 2009 related to a $208.2 million increase in working capital, partially offset by net income of $147.5 million and depreciation and amortization of $23.1 million. The increase in working capital was the result of increases in accounts receivable and contango inventory positions partially offset by an increase in accounts payable. Net cash provided by operating activities for the first six months of 2008 was primarily the result of net income of $88.8 million, depreciation and amortization of $19.5 million, the $5.7 million impairment charge, and an $18.7 million decrease in working capital. The decrease in working capital was the result of an increase in both accounts payable and accounts receivable activity driven primarily by commodity prices.
Net cash used in investing activities for the six months of 2009 was $70.4 million compared with $63.0 million for the first six months of 2008.
Net cash provided by financing activities for the first six months of 2009 was $131.6 million compared with $71.2 million net cash used in financing activities for the first six months of 2008. Net cash provided by financing activities for the first six months of 2009 resulted from $173.4 million issuance of senior notes and $109.5 million public offering completed in April and May of 2009. The net proceeds from these sources were partially offset by $62.4 million net repayment of the Partnership's credit facilities, and $81.8 million in distributions paid to limited partners and the general partner. Net cash provided by financing activities was utilized to finance operating and investing activities, including contango inventory positions. Net cash used in financing activities for the first six months of 2008 resulted from $64.7 million in distributions paid to limited partners and the general partner and an increase in advances to affiliates of $6.2 million.
Under a treasury services agreement with Sunoco, the Partnership participates in Sunoco's centralized cash management program. Advances to affiliates in the Partnership's condensed consolidated balance sheets at June 30, 2009 and December 31, 2008 represent amounts due from Sunoco under this agreement.
Capital Requirements
The pipeline, terminalling, and crude oil transport operations are capital intensive, requiring significant investment to maintain, upgrade or enhance existing operations and to meet environmental and operational regulations. The capital requirements have consisted, and are expected to continue to consist, primarily of:
• Maintenance capital expenditures, such as those required to maintain equipment reliability, tankage and pipeline integrity and safety, and to address environmental regulations; and
The following table summarizes maintenance and expansion capital expenditures, including net cash paid for acquisitions, for the periods presented (in thousands of dollars):
Six Months Ended
June 30,
2009 2008
Maintenance $ 9,022 $ 7,771
Expansion 61,377 44,724
$ 70,399 $ 52,495
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Management continues to expect maintenance capital expenditures to be approximately $30.0 million for the year ended December 31, 2009, excluding reimbursements from Sunoco in accordance with the terms of certain agreements. Maintenance capital expenditures for both periods presented include recurring expenditures such as pipeline integrity costs, pipeline relocations, repair and upgrade of field instrumentation, including measurement devices, repair and replacement of tank floors and roofs, upgrades of cathodic protection systems, crude trucks and related equipment, and the upgrade of pump stations.
Expansion capital expenditures for the six months ended June 30, 2009 were $61.4 million compared to $44.7 million for the first six months of 2008. Expansion capital for 2009 includes construction in progress, pursuant to the Partnership's agreement with Motiva Enterprises LLC to construct three crude oil storage tanks at its Nederland Terminal with a combined capacity of 1.8 million shell barrels and a crude oil pipeline from Nederland to Motiva's Port Arthur, Texas refinery. Expansion capital also includes refined products terminal optimization and construction of two additional crude oil storage tanks at Nederland, which are expected to be placed into service during the second half of 2009. These two crude oil storage tanks will have a total capacity of approximately 1.2 million shell barrels.
Management expects to invest approximately $125.0 million to $150.0 million in expansion capital projects in 2009, which includes the continued construction of new tankage and pipeline connections associated with the previously discussed agreement with Motiva Enterprises LLC, the continued construction of tankage at the Nederland facility and further integration of the MagTex refined product pipeline system.
The Partnership expects to fund capital expenditures, including pending and future acquisitions, from both cash provided by operations and, to the extent necessary, from the proceeds of borrowings under its credit facilities, other borrowings and the issuance of additional common units.
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