Magellan Midstream Partners' CEO Sees a Chance to Be Greedy While Others Are Fearful

By Tyler

While almost every other energy company has been tossed about by the storm that is cheap oil, Magellan Midstream Partners has had some pretty smooth sailing. A large part of that experience is due to the company's business model, but it also has to do with how management had the discipline to keep from overextending itself during the boom of the past few years.

Now, while in the middle of the market downturn and so many companies around it scaling back, Magellan seems to be ramping up. Here are five quotes from Magellan's CEO that suggest the company is about to become a more aggressive player in the midstream space.

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Spending a little more now ...It's pretty rare as of late to hear that a company in the energy space is increasing its spending, but there are some opportunities that Magellan's management feel are too good to pass up. According to Magellan Midstream CEO Michael Mears:

It's not a huge uptick in spending, but one thing Magellan has proved over the years is that you don't need to spend a lot to get a decent return.

... with more on the way"While many of the marine opportunities that we are developing are not at a stage that we can discuss yet, examples of those that we can discuss include building additional storage in our Galena Park terminal for use once the new dock is operational and constructing additional tankage and docks at the new 100-acre tract of land that we recently acquired in Corpus Christi," Mears said. "We also continue to assess opportunities to expand various other terminals and pipelines within our portfolio, both on the refined products and crude oil side."

Now that the oil export restrictions have been lifted, it's very possible that Magellan's ports and terminals for refined product export could be fitted to move crude oil as well. While we're still a little uncertain how much crude exports will affect volumes and movement, chances are it will keep Magellan's terminals busy.

Optional investingUnlike other midstream companies that issue the size of their project backlog, Magellan prefers to not disclose its projects under consideration. One of the reasons, according to Mears, is that it keeps management from needing to allocate capital to projects that may not necessarily beeconomicalat that time:

One of the benefits of being on both sides of a refinery is that when the market for one product is weak, the other is rather strong. With strong results from its refined product system, it can shift its spending from one side of the refinery to the other to address the greatest needs of the market.

Stuff is still expensiveInvestors across the energy space have pretty much assumed that some industry consolidation would take place as companies put assets up for sale. According to Mears, though, Magellan still hasn't seen the right deal on the table for management to bite:

You would think that by now, companies would be begging to shed some assets for some cash. But it seems that isn't the case. We can probably safely assume that Magellan's management is still assessing potential deals, but don't be surprised if something doesn't materialize soon.

Becoming generousThe recent scare in master limited partnerships and midstream companies mostly came about because companies were too aggressive with their payout policies. So when the amount of cash coming in the door started to decline, investors got nervous that distributions would be cut to free up cash to invest in the business. Surprisingly, according to Mears, Magellan is going in the opposite direction:

Considering the fits and starts that other master limitedpartnershipshave had with distribution coverage ratios in the 1.0-1.1 range as of late, this one is a bit of a surprise. Thanks to Magellan's more conservative payout policies of late, it has been able to retain a decent amount of cash to be reinvested in those development projects, allowing it to avoid dipping too much into the debt or equity markets. While Magellan has shown to have a pretty resilient cash-generating business, there is something to be said about keeping a little extra cash around and avoid raising capital for new projects all the time.

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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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