Based on Magellan Midstream Partners' recent stock performance, you might think that the company is hitting hard times just like the rest of the industry. Looking at itsmost recent quarterly results, though, that doesn't appear to be the case. Not only was it able to raise its guidance for distributable cash flow, but management hinted at a few things that suggest the company will be able to keep growing that cash load for a while. Here are five quotes from CEO Michael Mears on the company's most recent conference call that give some indication as to how it plans to fuel further distribution growth.
1. We've got some growth in the pipelineLooking across the pipeline landscape in the United States, one thing that sticks out in many investors' heads are the attention-grabbing dollar figures attached to some companies' growth pipeline. By comparison, Magellan's $500 million just doesn't look as impressive.
Source: Magellan midstream partners investor presentation.
Just because that number isn't headline worthy compared to its peers, Magellan sees lots of opportunity to grow from that number in the coming years.
Some of these are what you would consider smaller bolt-on additions to the company's current infrastructure network and aren't huge projects by themselves. Combined with the rest of the system, though, it can give customers many more options for where to sell its products, which will increase demand for Magellan's services.
2. Keeping the bookkeeping cleanOver the past several years, investors in pipelines or master limited partnerships like Magellan have reluctantly accepted the fact that in order to grow, companies would need to raise capital through equity issuances. Ever since Magellan bought out its general partner and eliminated incentive distribution rights, though, the company has been able to more easily retain cash from its operations to help fuel its growth. According to Mears, this trend will continue for some time.
At present, the company has a debt to EBITDA ratio of 2.9 times, a very comfortable debt position for a company in this space that gives it room to grow without compromising its financial standing too much. This bodes well for the company's plan to increase distributions by 15% in 2015 and another 10% in 2016.
3. No buying for buying sakeA question that has been on the minds of many investors and analysts is when we will start to see some consolidation in the oil and gas space, especially the rather fragmented pipeline business. According to Mears, the market just isn't as attractive as it might seem today because the asking price for assets remains rather high.
Magellan will probably do an acquisition sometime in the future -- after all, it's has been a major part of the company's strategy over the years. However, the chances of it happening anytime soon appears to be slim based on this kind of statement.
4. What pipeline oversupply?As drilling activity has declined in the U.S., one fear is that pipeline capacity will exceed total transport volumes. While that may be a concern for some, it doesn't seem to be influencing much of Magellan today.
Most of these kinds of contracts are 10 to 20 years long. So unless some of the companies Magellan work with go belly up, a lack of revenue from its crude oil pipeline segment shouldn't be an issue.
5. Opportunities hitting the waterSo with land activity in the U.S. slightly in decline, where do midstream and logistics providers like Magellan see future growth potential? Mears believes there is a lot of opportunity getting U.S.-produced products to the coast.
This sort of strategy seems like a harbinger of easing export restrictions. While there is no clear indication that this will happen soon, it appears that Magellan sees it as a long-term opportunity.
What a Fool believesMagellan Midstream Partners may not wow you when you look at the company's growth prospects, but you can rest assured that the projects it has selected will definitely generate long-term value for the company while maintaining financial flexibility. This approach has been working for years. And based on what management is saying, that should continue for years to come.
The article 5 Things Magellan Midstream Partners' CEO Wants You to Know originally appeared on Fool.com.
Tyler Crowe owns shares of Magellan Midstream Partners.You can follow him at Fool.comor on Twitter@TylerCroweFool. The Motley Fool recommends Magellan Midstream Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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