Magellan Midstream Partners LP recently revealed that it has opted not to sell its 1,100-mile anhydrous ammonia pipeline after all. When the company announced last year (GM Nov. 14, p. 1) that the pipeline was for sale, it noted that it would not be a “fire sale,” and that the company had no intention of selling the pipeline at any price.
Just last month, when Magellan released its earnings (GM Feb. 13, p. 8), it reiterated the same to analysts. Among the major factors for keeping the pipeline were that major hydrotesting for the line was completed in late 2011; tariffs have increased; ammonia volumes are up; and the pipeline has returned to profitability.
The pipeline had $4.3 million in operating income in 2011 on revenues of $23.6 million, up from 2010’s operating loss of $8 million on revenues of $14.9 million. 2011 operating margins were $7.3 million, up from 2010’s negative $4.1 million. Much of the hydrotesting was done in 2010, which contributed toward the loss.
The pipeline represents a very negligible part of Magellan’s total business, representing only 1 percent of 2011 consolidated revenues, operating margin, and total assets. As of Dec. 31, 2011, Magellan listed ammonia segment assets at $41.3 million.
The pipeline originates in Borger, Texas, and Enid and Verdigris, Okla., and terminates in Mankato, Minn. It transports to 13 delivery points along the system, including six owned by Magellan. The pipeline has three customers – Agrium Inc., Koch Nitrogen Co., and CF Industries Holdings Inc. – with each having a production facility and related storage and distribution facilities connected to the pipeline. Magellan has rolling three-year transportation agreements with the three customers, and each contains a ship-or-pay provision whereby each customer commits a tonnage that it expects to ship. If a customer fails to ship its annual commitment, that customer must pay for the unused pipeline capacity. Aggregate annual commitments from the customers for the period July 1, 2011, through June 30, 2012, are 550,000 st, although Magellan says the customers have typically shipped more than the annual commitments. 2011 volumes were 727,000 st versus 2010’s 462,000 st. The prospect of 94 million acres of corn in 2012, and more than 90 million in the next few years, should keep the pipeline busy.
Magellan regards railcars as the pipeline’s major competitor, with some limited competition in the far northern areas of its system by the other ammonia pipeline – owned by NuStar Energy – which originates in the Gulf Coast and transports both domestic and imported ammonia.