Magellan Midstream Partners LP's refined products business is already starting to recover from a collapse in demand prompted by bleak crude prices and the COVID-19 pandemic, the midstream partnership's general partner Chairman, President and CEO Mike Mears said.
"Clearly the markets that we serve have not seen as dramatic reduction as other parts of the country and the data would suggest that we've seen the bottom and we're seeing a trajectory upwards," Mears said during the company's May 1 first-quarter earnings conference call. Magellan's refined products volumes were down 26% for April, and the reduction for the last seven days of April was only 20%, he noted.
Mears added that Magellan expects demand for refined products will bounce back to pre-coronavirus levels sometime during the third quarter, with the exception of jet fuel.
In the meantime, the pipeline firm plans to keep investor payouts flat for 2020 "out of an abundance of caution," according to Mears.
"We had a long discussion about whether we were going to maintain our 3% growth and I think it's clear the market's not paying for growth right now," he said.
Several midstream companies have been forced to slash distributions as the scope of crude oil demand destruction expands.
Like other pipeline firms with significant infrastructure along the Texas Gulf Coast, Magellan is also looking to potentially convert more storage in this case, at the Galena Park terminal on the Houston Ship Channel to crude amid mounting concerns that capacity at the Cushing, Okla., hub is running out.
Magellan on May 1 posted first-quarter adjusted EBITDA of $380.5 million, down from $386.4 million a year earlier. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA for the first quarter was almost $363.5 million.
The partnership's distributable cash flow in the first quarter was $306.5 million, a decrease from $318.0 million in the prior-year period.