Feb 3, 2010
Executives
Don Wellendorf – Chairman, President and CEO John Chandler – SVP, CFO and Treasurer Mike Mears – COO
Analysts
Brian Zarahn – Barclays Capital Sharon Lui – Wells Fargo Securities Barrett Blaschke – RBC Capital Markets Ross Payne – Wells Fargo Securities James Jampel – HITE Michael Cerasoli – Goldman Sachs Noah Lerner – Hartz Capital Darren Horowitz – Raymond James
Operator
Good day and welcome everyone to the fourth quarter 2009 earnings conference call for Magellan Midstream Partners. This call is being recorded.
At this time for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Don Wellendorf.
Please go ahead, sir.
Don Wellendorf
Thanks. Good afternoon.
Thanks you for joining us today to discuss our fourth quarter earnings and our thoughts about what's ahead for Magellan in 2010. Here with me for the company are John Chandler, Mike Mears, our COO and Paula Farrell, who is responsible for Investor Relations.
Before we discuss the quarter, I want to remind you that during this call, Magellan Management will make forward-looking statements defined by the SEC. Such statements are based on our current adjustments regarding some of the factors that could impact the future performance of Magellan.
You should form your own opinions about Magellan's future performance based on the risk factors and other information discussed in our filings with the SEC. With that out of the way, let's go through the quarter.
Today's announced fourth quarter earnings for limited partner unit were $0.77 which is $0.26 higher than the same quarter last year and a penny under the guidance we provided in November. You may recall that our guidance always assumes no change in our NYMEX market to market position, all of which are taken for hedging purposes.
Excluding for the reported number the actual changes in those positions which were net about $0.11 negative for the quarter, provided $0.88 fourth quarter performance compared to guidance of $0.78. I think any way you want to look at the quarter.
The quarter was a good one overall, setting records, quarterly records in operating profit and distributable cash flow. Our distributable cash flow for the fourth quarter like that I just said a quarterly record, $104.9 million bringing cash flow for the year to $328.4 million versus our guidance from early November of $310 million.
We significantly beat our EPU and DCF guidance primarily due to more favorable product gain loss for the quarter on Magellan pipeline and predicted higher product blending volumes than we expected. And the case of DCF, lower maintenance capital spending as the pace of several relatively small projects resulted in more work carrying over into 2010.
Our distributions for the year, however, did match our guidance. Our recently announced fourth quarter distribution of $0.71 per unit has remained unchanged throughout 2009, as we indicated it would at the beginning of 2009.
That indication reflected our caution about the uncertain economic environment as well as our anticipation of completing simplification of the capital structure and potentially making an acquisition that would be initially dilutive. Those anticipated items, as we know now, became reality with the July purchase of Longhorn Pipeline and the simplification of our capital structure in September.
Our distribution coverage for the full year was 1.1 times. I'll be back in a few minutes to discuss our earnings cash flow and distribution outlook for 2010 and beyond including lot of the assumptions we made to get to those numbers.
And like I say, we are quite enthusiastic about the future. First, I'm going to turn the call over to John, so he can give you details concerning MMP's fourth quarter compared to the same period in 2008.
John?
John Chandler
Thanks, Don. Before I begin discussing specific business unit performance, I want to mention that I will be commenting on the non-GAAP measure operating margin which is simply operating profit before G&A expenses and depreciation and amortizations.
A reconciliation of operating margin to operating profit was included in our earnings release this morning. Management believes that operating margin -- that investors benefit from this information because it does get to the heart of evaluating the economic success of the partnerships and core operations.
As noted in our press release this morning, this quarter we recognized operating profit and net income that were higher than the same period last year. In fact, our operating profit was an all-time quarterly record of 103.7 million for the quarter versus 96.1 million for the 2008 period.
While net income was 82 million for the current period versus 81.1 million for the 2008 period. Quarter-over-quarter, we saw an increase in each of our business lines and have record quarterly operating margins generated by each of our business lines.
We'll dive into some of the driving factors contributing to this in a moment. As usual, I'll go through operating margin performance for each of our business line and then discuss variances in appreciation, G&A and interest to come to an overall variance in net income.
Looking first at operating margin, which was up 15.7 million or 11% versus the same period last year. Our petroleum products pipeline systems operating margin was up 3.1 million versus the same period last year going from 110.1 million to 113.2 million this quarter, which is a new quarterly record for the segment.
Within this number is an improvement in our core transportation and terminal related activities of $11.2 million, somewhat offset by product margins from commodity-related activities that was down 8.1 million. For the quarter, we saw both higher transportation and terminal revenues and lower expenses versus the same period last year.
To that point, transportation and terminaling revenues were 3.5 million more than the same period last year for the pipeline segment. Approximately one half of this increase came from total revenues.
This increase was driven by higher average rates and more than offset slightly lower shipment volumes. The realized tariff rate of $1.22 per barrel was up 3.4% versus the fourth quarter of 2008.
This is not surprising, given the 7.6% tariff increase we made on July 1, 2009. Obviously, we did not see the full benefit of that increase this quarter due to a couple of factors.
The first diesel volumes are down, while gasoline volumes are up on the pipeline. Average tariff earned on diesel shipment tends to be higher than that realized on gasoline shipments and the second reason is that we've been increasing shorter haul shipments on our system in the East Houston and Central Texas markets and we reduced some of our longer haul shipments that were going to places such as Odessa, Texas and Denver, Colorado.
As I mentioned, volumes for the quarter were only slightly down, about $1 million barrels or 1% versus the fourth quarter of 2008, with increases in gasoline shipments of 2.8 million barrels being offset by diesel shipments that were down 3.8 million barrels. Diesel continues to suffer from the weak economy.
Note, Longhorn did not meaningfully contribute to our volume, rate or tariff revenue statistics for the quarter. During the quarter, a majority of the shipment activity on the Longhorn System involved customers selling product to us in Houston and taking that product back in El Paso.
Therefore, the profit from this activity shows up as a commodity margin and we show no volume statistics or shipments for activity for shipments that we make on the line ourselves. Now, the remaining one half of the pipeline revenue increase on this segment came from transportation-related revenues as a result of higher system lease storage revenues because we've either made available existing storage capacity or put new capacity into service, because of higher gasoline additive revenues due to the rebound of gasoline shipments on the system and due to higher capacity lease revenues.
Operating margin for commodity-related activities for the pipeline segment was down 8.1 million versus the fourth quarter of 2008 going from 36.3 million in the fourth quarter of 2008 to 28.2 million this quarter. The majority of this variance had to do with lower butane blending margins, offset by profits associated with activity on the Longhorn Pipeline system.
The lower commodity margin from butane blending activity was the result of realizing significantly lower blending margins in the fourth quarter of 2009 versus the fourth quarter of 2008. We locked in high blending margins for the fourth quarter of 2008 and mid 2009 when crude and gasoline prices were much higher.
Lower blending margin in the fourth quarter of 2009 was offset somewhat by the fact we did blend more volumes this quarter. Offsetting the lower margins from blending activity were profits associated with buy and sell activity BFI and sell activity facilitate product movement on the Longhorn Pipeline system.
Our petroleum products pipeline expenses were down 7.7 million or 50% compared to the same period last year. This expense reduction for the pipeline segment is primarily due to pipeline system gains which were about 18 million higher than the same period last year.
Last year, prices were falling toward the end of the quarter, resulting in a write-down of our overage inventory. Prices were increasing this quarter, plus we had higher barrel gains on our system which helped contribute to the 18 million gain.
This positive expense item was offset somewhat by integrity expenses which were higher than the same quarter last year. A significant portion of this has to do with project timing.
And in fact, for the entire year, asset integrity spending was equal to last year. Our compensation expenses were higher than last year due to higher bonus expenses as a result of better than expected performance for the year.
Environmental expenses were higher this quarter versus last year as a result of some remediation work initiated this quarter to clean up a spill within one of our terminal facilities on the Northern part of our pipeline system. And of course, in the fourth quarter of 2009, we incurred additional operating expenses related to the Longhorn Pipeline system which was acquired in late July.
Moving to the terminal segment, our operating margin for our terminals group was up $9.6 million or about 40% versus the same quarter last year producing a record quarterly operating margin for the segment and record terminal revenues at both of our marine and inland terminals. To that point, our terminal revenues were 12.2 million more and the same period last year with about 80% of this increase in revenues coming from our marine terminals, where we experienced increased revenues at all of our facilities.
At our marine terminals, approximately a third of the marine revenue increase came from new tankage put into service. During the quarter, we leased 3.7 million barrels in new tankage with the largest increase coming from our Delaware terminal, where we added an incremental 1.3 million barrels of tankage, followed by large additions at each Houston, Galena Park and Marrero where we added about 600,000 barrels of tankage as a result of a terminal acquisition during the fourth quarter of 2009.
Another third of the marine terminal revenue increase came from rate increases where we've been increasing rates on contracts and they come due. And in fact, we've been renegotiating contracts with customers even before their contracts come due and in an effort on the customer's part to ensure they will be able to reextend their contracts with us for longer terms.
In the remaining revenue increases at marine terminals are result of higher utilization rates where we've been bringing tankage back in the service with utilization rates increasing from 95% in the fourth quarter of 2008 and 99% in the fourth quarter of 2009. Our inland terminal revenues were also up, primarily as a result of higher fees earned for ethanol blending, while to a lesser degree they were up due to higher throughput through our terminal facilities, where volumes have increased 1.1 million barrels or 4% versus the fourth quarter of 2008.
The higher ethanol fees are a result of ethanol blending that has more than tripled in the fourth quarter of 2009 versus the fourth quarter of 2008. This is because of the fact that we've been adding blending infrastructure at our terminals.
During the fourth quarter of 2009, we had 14 facilities capable of blending versus only 5 in the fourth quarter of 2008. Net product margin for our terminal segment was 1.6 million less in the same period last year, primarily as a result of selling fewer overage barrels gained at our inland terminals during the fourth quarter of 2009 versus 2008.
Our terminal expenses were about $1 million more than the same period last year, largely due to higher bonus expenses, again, due to the better than expected performance this year. And our ammonia operations generated operating margin that was 3 million better than the same quarter last year going from 1.9 million to 4.9 million.
This also was a quarterly for this segment. Transportation revenues for the ammonia pipeline were up 1.1 million in the same period last year as a result of shipment volumes increasing 25,000 tons which is about a 13% increase versus the same period last year.
And expenses were also lower than the prior period by $1.8 million largely as a result of reduced environmental expenses where in the fourth quarter of 2008 we had some accruals for fines and settlements related to previous releases on the pipeline system. Therefore, in summary, operating margins for the quarter for the entire company increased 15.7 million going from 136.9 to 152.6 million.
Now, stepping down from operating margins to net income, depreciation was up 3.6 million due to capital additions. Our G&A expenses were up $4.5 million versus the same period last year, again, largely due to incremental accruals related to our long-term and short-term incentive compensation plans, due to the better than planned performance of the company and/or higher unit prices.
And interest expense net of interest income was up $6 million versus the fourth quarter of 2008 as a result of 578 million in additional average borrowings outstandings for the quarter. 393 million of these borrowings relate to the Longhorn Pipeline system and the related line fill inventory with the remaining 185 million borrowed coming from organic capital spending and small acquisitions we've made over the last year.
Therefore in total, MMP's net income increased $900,000, going from 81.8 million in the fourth quarter of 2008 to 82 million for the fourth quarter of 2009. I will now turn the call back over to Don to discuss our outlook for 2010, Don.
Don Wellendorf
Thanks, John. Let's move on to the management team's thoughts about Magellan's future performance.
I think the best place to start is to layout the key assumptions we have incorporated into the 2010 guidance, we'll be giving you today. First, regarding our tariff assumptions for 2010, there really isn't much of an assumption involved since we know that the PPI for 2009 once finalized is going to end up at or about a negative 2.5%, with the 1.3% allowed by the FERC, our tariff change on July 1, 2010 would be a reduction of 1.2% in market deem noncompetitive by the FERC.
That's about 40% of our markets. The other 60% of our markets, so it's deem to be competitive markets would in most cases remain unchanged.
Remember that in July 2009, we raised virtually all of our tariffs by 7.6%. For the full calendar year 2010 we'll see substantially higher tariffs versus calendar year 2009, even with the July 2010 projected reduction in 40% of our markets.
Also mentioned here is a side note that the FERC will be reexamining the 1.3% adder [ph] after 2010. The cost trend data we have seen so far suggests that this adder should be maintained or perhaps even increased for the next five-year period.
Obviously only time will tell if this is the outcome. The second key assumption in our guidance is throughput volume on our petroleum products pipeline system.
Please note that the projections I'm going to give you for each product type exclude new throughput from growth projects and exclude Longhorn, which will be addressed separately in a few minutes. Gasoline volumes made a strong comeback in 2009 exceeding 2008 by 11%.
We're only looking a half a percent growth in 2010 over 2009 volumes. Distillate volumes declined almost 13% in 2009 and we expect volumes to stay about flat in 2010 for distillate.
Distillate volumes on our system seem to track the overall housing in the U.S. economy and we're not building any great recovery expectations into our guidance.
Jet fuel volumes decline about 11% in 2009 and we are both projecting both volumes are going to stay about flat in 2010 as well. So, for our base petroleum products pipeline as a whole, throughput before the impact of Longhorn and before the impact of growth projects is expected to be very similar to 2009.
If you add the throughput from growth projects, our volumes overall expected to increase about 4% over last year. An example of our growth project, Delaware throughput in 2010 is our Motiva Port Arthur Project that is expected to be online in mid-2010.
Moving on to the third key assumption, for our commodity related activities, we are assuming an average crude price of $73 per barrel for the year. This, of course, primarily impacts our assumptions on butane blending profitability.
We continue to project that our, that over the long run, community-related activities, I'm sorry, commodity-related activities will account for 15% or less of our operating margin. As a note, the activity we are currently conducting on Longhorn where we purchased transport and sell product ourselves as an interim step to stimulate a business, may temporarily add another 3 or 4% to the 15%.
As most of you know, these activities are hedged such that the risks associated with commodity price volatility are minimized. The fourth key assumption involves potential fess that's going apart that might be imposed by the Texas commission environmental quality, based on the Houston area, potentially not meeting certain MB and air quality standards turning back to 2008.
Now, this issue is impacting many operators in the Houston area, some more than others. At this point, it is uncertain how much, if any, we also may be paying concerning this matter.
It is possible that there's a determination of probable liability is reached this year that we would have to accrue the liability in 2010. Our guess as to the worst case scenario is the $16 million accrual in 2010 for fees related to historical periods and for the year 2010 itself.
We are confident that any payment, actual payments for this liability and therefore any DCF impact will not begin until 2011 and be spread over at least three years. We have not reflected this potential accrual in our EPU guidance.
The fifth key assumption is the amount of 2010 maintenance capital spending. We expect maintenance capital spending to be $45 million in 2010.
The $45 million at first blush appears to be a pretty big increase over the 38 million reported net spent in 2009. However, that comparison is apples to oranges.
It has historically we have excluded spending related to an indemnity settlement with the former owner of our general partner. We spent about 3 million in 2009 on these previously indemnified items.
Starting with 2010 and going forward, we no longer are going to exclude these indemnified expenditures from our reported maintenance capital number. This change in accounting relates to our simplified capital structure.
You can call Paula Farrell if you want further explanation. The expected increase in capital spending after allowing for the change in treatment of the indemnified item results primarily from an incremental 2 million for Longhorn and expenditures required to meet new government regulations.
The sixth and last key assumption, I wanted to mention is the pace of the ramp-up of Longhorn throughput and cash flow. That pace is pretty hard to predict, but for 2010, we are incorporating into our guidance an assumed average utilization rate of 25% for Longhorn.
With an assumed average tariffs for, as replacement of margins for volume we move under our own name of $0.7 per gallon, Longhorn DCF would be a negative $27 million. This obviously is after incorporating the interest costs associated with the acquisition and the line fill and it includes 4 million of maintenance capital spending that is part of the 45 million maintenance capital guidance I mentioned a minute ago.
We still expect distributable cash flow from Longhorn to meet or exceed our original acquisition economics no later than 2012, hopefully before. I'm going to turn the call over to Mike for a minute here, so he can give you just a little bit more color what's going on commercially around Longhorn, Mike.
Mike Mears
Thanks, Don. We continue to see growth on Longhorn with both third party shipments and shipments made on our own account increasing each month through the fourth quarter with an overall utilization for the quarter of about 15%.
We are currently bringing online an additional 200,000 barrels of storage at El Paso and expect another 200,000 barrels to be placed into service in the second quarter. We also plan for the completion of the Longhorn connection to our East Houston facility in the third quarter, which will make available new refinery access to the system.
We are also evaluating further tankage expansions at both Galena Park and East Houston to improve origin into Longhorn, as well as tankage expansions at El Paso and Crane to provide specific storage, so that shippers can react quickly to changing market conditions. We have successfully integrated Longhorn into our existing Magellan Pipeline South System.
This integration is allowing us to ship product to Odessa and other destinations historically served by the Magellan South System through Longhorn, which result in substantial power cost savings and reduced transit times. We continue to be very active in discussions with multiple potential shippers, with discussions ranging from product sales from our own shipments to term commitments from third party shippers.
PMI, which is trading on PEMEX is in the process of starting up a new pipeline from our El Paso terminal to their facility in Juarez, Mexico and we expect this new connection will lead to incremental shipments over time.
Don Wellendorf
Okay. Thanks, Mike.
Moving on to organic growth in 2010, our approach is to reflect in our current year guidance the impact of approved and in most cases, already under way projects. As reported in our earnings release, we now expect to spend around 210 million in 2010 and 30 million in 2011 to finish these active projects.
Assuming reasonable accuracy in all the key assumptions I've just mentioned and of course I mean the other perhaps less material, but still important assumptions, we estimate EPU in 2010 to be $2.66 per limited partner unit. For the first quarter, we estimate around $0.65 per unit.
As always, our guidance assumes 09 NYMEX mark to market adjustments. Perhaps most important to unit holders, our guidance for distributable cash flow in 2010 is approximately $345 million, which would be a new annual record, that's 5% higher than 2009, even though as I mentioned earlier, the 2010 guidance has been reduced by spending indemnified items but historically they are not included in the DCF calculation.
Overall, that reduces DCF in 2010 by $8 million, 3 million capital that I talked about a minute ago and 5 million expense. Without that accounting change, our distributable cash flow would actually be up over 7% in 2010.
Nevertheless, based on our 345 million cash flow guidance, we estimate that we would be comfortable with distribution growth of about 4% full year 2010 over full year 2009. That would leave us with about a 1:1 coverage ratio for the year, which is a very healthy coverage ratio for a company where the cash flow stream is stable as ours.
If we meet that 4% target by raising our distribution ratably over 2010, that would result in our fourth quarter 2010 distribution being around the 6.5% higher than our fourth quarter 2009 distribution. We're not going to provide any specific guidance for periods beyond 2010, but I will say that our prospects for continued attractive growth in our distribution, possibly even at a higher growth rate than we are targeting for 2010 appear to be good.
Internally when we look at our potential cash flow out beyond one year, we generally build in a presumably very conservative $75 million in engineering organic growth capital and assuming we'll take one year from the beginning of the project for the project to become operational. With respect to acquisitions, we very much expect to make accretive acquisitions in 2010 and beyond and any such acquisitions would be pure upside to the guidance provided today.
No potential acquisitions are assumed in our guidance since they are truly impossible to predict. However, thanks to the elimination of our general partners in the same distribution rights, we are armed with one of lowest, if not the lowest, cost of capital among those competing for assets.
That advantage is great, if we see a return to economic discipline, perhaps I should say sanity in the acquisition market. I personally believe we will see return to discipline sooner or later and when that happen the upside for us is quite exciting.
That concludes our prepared comments. I'll now open up the call for questions.
Operator
Thank you. (Operator Instructions) Our first question is from Brian Zarahn with Barclays Capital.
Please go ahead.
Brian Zarahn – Barclays Capital
Good afternoon.
Don Wellendorf
Good afternoon.
Brian Zarahn – Barclays Capital
You touched on acquisition spending. Obviously, you ramped up M&A 2009.
I guess in anticipation of your simplification the major, the strongest desire to shed Midstream assets. Can you give us a little more color on where you see more probable growth opportunities storage pipeline assets?
Don Wellendorf
Are you talking about acquisitions or organic growth?
Brian Zarahn – Barclays Capital
Acquisitions, acquisitions.
Don Wellendorf
Well, I don't know that that's really possible to have a real worthwhile view on what's more probable. I mean we certainly are very, very aware of the major intentions and as many always probably too I’ve been talking to them already and there is a number of other projects that are underway.
But it really is impossible to know how it's going to turn out. There's some acquisitions that we're working on that aren't part of a bidding process like a lot of the bigger assets are or will be.
And I think the chances of knocking off a number of those, which are smaller in scale 20, $30 million at times, are pretty darn good. When you get into the larger scale acquisitions, I mean we have been and we continue to be very aggressive but not so aggressive that it doesn't make to surprises don't make sense to our unit holders.
I think it's both of our unit holders very well at this point, the discipline that we've shown in that regard. But I can assure you, we will be in the middle of all of those transactions.
Brian Zarahn – Barclays Capital
Okay. And touching on…
Don Wellendorf
That's about all I can say.
Brian Zarahn – Barclays Capital
Okay. Touching on Longhorn, you ran through some numbers on your borrowing.
Can you reiterate how much borrowing was due to Longhorn in the quarter?
Don Wellendorf
About $390 million. That includes the line fill inventory.
Brian Zarahn – Barclays Capital
Okay. And then third-party shipped interests, can you give us, you mentioned PEMEX, I mean what -- is there a tough market the gasoline is improving still tough for refiners.
Can you give us a little color as to what you're seeing in terms of third-party interest?
Don Wellendorf
Well, I don't know how much more I can add to that. I mean first of all, I want to be clear that PEMEX isn't a committed shipped Longhorn.
We're just projecting that they will make shipments once they have their new line complete. But with regards to other third-parties, all I really con tell you that we are having detailed discussions with a large number of them from Gulf Coast refiners to end-users in the market.
And those discussions have been promising on many fronts. And as we make more storage available in the Gulf Coast to access the system and we -- and we connect East Houston into the system.
So we have access to more refining capacity to supply the system, we expect that those volumes to ramp up. But that's probably about as much color as I could put on that right now.
Brian Zarahn – Barclays Capital
All right. Thanks and I appreciate the color on your assumptions on 2010 guidance.
Don Wellendorf
Sure.
Operator
And our next question's from Sharon Lui with Wells Fargo. Please go ahead.
Sharon Lui – Wells Fargo Securities
Hi, good afternoon. Just following-up, I guess a question on Longhorn, in terms of your DCF assumption, I guess negative 27 million for this year.
What are the assumptions behind the product margin sales? Is it close to about 10 million?
Don Wellendorf
Well, I think what we said as we expect Longhorn to be operating at 25% of capacity for the year, with an average $0.07 per gallon margin.
Sharon Lui – Wells Fargo Securities
Okay. And I'm sorry.
Can you just remind me what was the total capacity on the pipe?
Don Wellendorf
90,000 barrels a day.
Sharon Lui – Wells Fargo Securities
90,000, okay. Your growth CapEx budget for 2010 increased a bit.
Would you be able to just break it out between pipeline versus terminals and some of the bigger projects in that number?
Don Wellendorf
I can address the some of the bigger projects. I mean first of all, the majority of what we're projecting is storage related.
We have a number of storage projects under construction on the pipeline system. And so we've got a number of projects under construction.
We're adding storage in West Tulsa about 600,000 barrels of storage this year. We're expanding our East Houston rack.
And then we're also investing some capital to enhance our product lending capabilities this year.
Don Wellendorf
Those are all in the pipeline system and then what Mike's referring to are the new ones that added to our number. I think that was your question.
Sharon Lui – Wells Fargo Securities
Yeah. Okay.
Thank you.
Operator
Our next question is from Barrett Blaschke with RBC Capital Markets. Mr.
Blaschke, your line is open. Please go ahead.
Barrett Blaschke – RBC Capital Markets
Hi guys. Great quarter.
Just wanted to see if we could get kind of the breakdown of percentage of product across the products pipeline system what's -- how much is gasoline versus distillate and jet fuel?
Don Wellendorf
Yeah. I think we can give you that, just a second.
For the year or for the quarter?
Barrett Blaschke – RBC Capital Markets
For the quarter.
Don Wellendorf
Okay. Hold on a second.
Roughly, call it 55% is gasoline.
Barrett Blaschke – RBC Capital Markets
Okay.
Don Wellendorf
About 35% is diesel. The rest is jet fuel and LPGs.
Barrett Blaschke – RBC Capital Markets
Okay. So diesel is obviously is a higher tariff product.
So is there any chance that number pushes up a little bit or?
Don Wellendorf
Well, your guess is as good as ours really. It's -- we're not assuming that it does anything at all really in 2010 compared to 2009.
But it's really a function of the economy. Gasoline not as much because gasoline is kind of driven by the mid-con areas demand and it's held up very, very well obviously even in bad economic times.
But diesel seems to be more subject to the overall health of the U.S. economy.
Barrett Blaschke – RBC Capital Markets
Okay. Thank you.
Operator
Our next question's from Ross Payne with Wells Fargo. Please go ahead.
Ross Payne – Wells Fargo Securities
My first question is, you mentioned mark-to-market gains I think under the product pipeline margins. If you can kind of tell us what numbers you saw there.
And I assume that's unrealized or is that realized mark-to-market gains?
Don Wellendorf
No. On the product gains, those are realized type numbers.
I mean but basically what happens we collect into that barrels for shipping product -- for our shippers. When they ship on our pipeline system, we collect a tender to that basically take care of any trans mix or losses in metering or masses and any other way for shipped on the system.
And so we carry the amount of barrels each year related to managing that line or to managing that trans mix position on our pipeline system. It just so happens that 2008 prices were increasing throughout the year and basically mark-to-market the value of that product and so we had some -- I mean actually prices were falling in 2008.
So we had a write-down of the value of the inventory in 2008 and the inverse is happening in 2009. Prices were increasing and we saw a mark-to-market increase in the value for that inventory in 2009.
Ross Payne – Wells Fargo Securities
Okay. John, do you remember what the write-down lower cost of market was for the fourth quarter of '08?
John Chandler
It was, yeah, it was 6 or $7 million.
Don Wellendorf
Actually, it was larger than that.
John Chandler
Yeah. It was -- I don't have it offhand, might have it here in a minute.
Ross Payne – Wells Fargo Securities
And also you mentioned the total debt associated with Longhorn. Can you tell us what the debt associated with just the line fill was?
John Chandler
It's going to be around 130 million or so 130, 140 million.
Ross Payne – Wells Fargo Securities
What was the actual debt number at quarter end?
John Chandler
I’m sorry?
Ross Payne – Wells Fargo Securities
Actual debt in quarter end?
John Chandler
The debt was 1.6 billion, 1.652.
Ross Payne – Wells Fargo Securities
And lastly, just refinings obviously been in the news in a huge way. If you can just kind of opined on your thoughts on just the general state of refining, refining I guess you've given your guidance on where you think volumes are going, but any just general impact from the weakness, weakness seen across the board?
John Chandler
Well, I think I don't know that we're experts on the refining industry. I think that in general we would agree with everything you're reading, that it's extremely weak and that you've got refining capacity that's probably at risk all over the country.
I will say and we've said this numerous times and it's accurate for our pipeline systems that we're a demand driven system. To the extent refineries shut down in our part of mid-continent that supply us.
It doesn't have a negative effect on us. Those barrels, if a refiner were to shut down would be replaced with barrels coming up from the gulf and so we would have the potential for a Longhorn movement to replace those barrels and there's plenty of pipeline capacity available from the Gulf to the mid-continent.
So we -- we're not overly concerned with the potential that somebody's going to shut down either temporarily or indefinitely in our market or we're prepared to react to that with little financial exposure, as I said, in some cases it could actually add to our revenue.
Mike Mears
And Ross, just going back to your original question, on the $18 million bearings for the quarter, about $10 million bearings had to do with the different movement of this of inventory case based the write-down into inventory. The other $8 million increase in profits has to do to just gains that happened this quarter.
Gains happening in the fourth quarter of '09 were bad a lot higher than gains that were had to do in the fourth quarter of 2008. Obviously, prices in the fourth quarter of 2008 ended in the 30, about $40 range.
So, 10 million is the inventory write-down impact.
Ross Payne – Wells Fargo Securities
Got you. Okay.
Great. Thanks, guys.
Operator
Our next question is from James Jampel with HITE. Go ahead.
James Jampel – HITE
Hi. This question is for Don.
I guess you've implied there's a lack of sanity in the acquisition market out there. Could you comment on what types of multiples you're seeing from what kind of assets that would lead you to that conclusion?
Don Wellendorf
Well, I'm really speaking over the period of the last couple of years. And of course multiples are quite a bit of an art as much science and they are also kind of in the eyes of the beholder and they can be trailing or future or all kinds of things.
But we, I think the right answer that is, we have been in deals or negotiations on deals that with parties for assets of size over the last year, year and a half. But we were really flat down to the last maybe couple of people in the process and knew those assets very, very well.
And did what we thought was a pretty darn aggressive price for them only to not just lose the bidding war but to lose it by order of magnitude of 1.5 or even more times what we thought could possibly be worth and I could tell you a lot of those cases that's proven to be very -- the results of all of that have proven to be very true. People are quite good at I guess putting a good, good story around those results but we just know that the multiples were right high, really, really high.
I mean over 15%. I'll say at least that.
I'm not going to get into any detail. I don't want to name any names.
But we have a very low cost of capital and then we're looking forward to allow it to using it to get assets that even may be we have to bid a little more for and they will still be as accretive as they have always wanted them to be or maybe we will looking in for more reasonable price but be more accretive. Even at the lowest cost of capital doesn't overcome like let's just say insanity in, in the bidding process.
Hopefully that won't continue. I think the people that have done that, it has just been one company and several companies.
I think do kind of recreate that problem that being hit once. So I'm thinking that soon it will start to prevail.
James Jampel – HITE
Yeah. Certainly, appreciate the conservatism.
It is disconcerting to hear that the company was arguably the lowest cost of capital out there is calling the market insane. Do you consider yourself to have the lowest cost of capital of people that are bidding?
Don Wellendorf
I think we probably very possibly do now, yeah. I don't need to overreact to my comment.
I mean I call it insane. It's only that -- I guess you could say it's all in the eyes of the beholder but I am very confident in Magellan's ability to analyze companies and to thoroughly look at everything you ought to be looking at when you're making a decision to buy a company.
And I think that served us well.
James Jampel – HITE
Thanks.
Operator
And our next question's from Michael Cerasoli with Goldman Sachs. Please go ahead.
Michael Cerasoli – Goldman Sachs
Thanks. The -- on the terminal segment, you said there was some improved utilization at your marine terminals.
Can you let us know if that's sustainable?
Mike Mears
It is. I mean towards the fourth quarter of last year, we had some tankage out of service just due to natural inspections but also due to the hurricane in 2008, we had some takes out of service obviously in need of repair as a result of the hurricane.
So we historically have run in the 97, 98% range and that's what we're really back to. We were at 99%.
No reason to believe we can't stay in a range close to that.
Michael Cerasoli – Goldman Sachs
Okay. So this is less economy-related and more just a return of service improvement?
Mike Mears
I mean demand for tankage is huge and there's a huge demand for us to build additional tankage. So there's, there's a desire for every capacity -- every barrel of capacity we've got.
It's just -- there's a reality that you always have to have a few tank -- so a little bit of your tanks had service for inspection and cleaning. Right and for clarity, 100% of our tanks are leased.
When we flow utilization, it's, as John said, we have to take the tanks out of service temporarily to inspect them and prepare them and we don't charge the customer when we're doing that and so that's what brings the utilization down to the 97 to 98% range.
Michael Cerasoli – Goldman Sachs
Okay. You also spoke to about the number I think you said was 15% of your operating margins are commodity-related.
I think was that guidance for 2010 or -- if so, what was it in 2009?
Mike Mears
That was guidance for 2010. I remember, I mentioned that in 2010 because of the kind of activity we're conducting on Longhorn, we're really buying product and transporting it ourselves and selling it.
That's really classified in the commodity rate activities. In other words, we define that, it's going to add to that percentage by 3 or 4 percentage points temporarily until that activity no longer is necessary.
So 15% plus Longhorn has is guidance for 2010. For 2009, it was about less slightly over 11%.
Michael Cerasoli – Goldman Sachs
Okay. And the 25% utilization for Longhorn, does that include -- is that just third parties transporting product or does that include your product sales?
Mike Mears
No. That's all-in.
Michael Cerasoli – Goldman Sachs
That's all-in, okay. That's it.
Thank you.
Operator
And our next question is from Noah Lerner with Hartz Capital. Please go ahead.
Noah Lerner – Hartz Capital
Thank you. First of all, really thorough explanation, we appreciate all the information.
I just have a couple of quick questions on the follow-up. Regarding marine terminals, you mentioned one third of this year's increase came from contract roll-over.
I was wondering if you could talk a little bit about what percentage of your tax might be rolling over in 2010 and with the huge demand for storage, do you think that there's still potential for rolling them over for higher price or leave the prices you rolled them over in 2009 on a multiyear basis?
Don Wellendorf
Sure. In 2010, we have, a little less than 10% of our storage is going to roll over in 2010 and then we've got about 15% that's going to roll over in 2011.
We would expect that those renewals would be at substantially higher prices than what the current contracts are which is the same experience we had in 2009 as we were entering new contracts, so we expect that to continue to go forward.
Noah Lerner - Hartz Capital
And what is the typical term of a contract when you roll it over? Is it five years, three years?
Don Wellendorf
Five years is pretty typical.
Noah Lerner – Hartz Capital
Okay. Turning the subject real quick to the ever-present ethanol pipeline that's on hold waiting for the congressional approval, the loan guarantee, with the stall of the cap and trade bill and I believe if I'm not mistaken, that's where it was attached, do you know where another attempt might be to attach the loan guarantee to as different bills work through the house and senate this year?
Don Wellendorf
Well, we might make an effort to get something attached to the jobs bill. There is the potential for energy legislation this year.
We are actively trying to attach it to any bill that we can get it attached to. So we're very active in that regard.
But those two are, are two others that we're looking at.
Noah Lerner - Hartz Capital
Okay. great.
And I guess my last question is regarding Longhorn, where it will be about 25% utilized this year, still generating a negative DCF, do you have any sense of at what level of utilization would the 7-cent margin or combination, what margin, what utilization you need for at least break-even looking forward out into the future?
Don Wellendorf
My guess is 40 to 50%. Mike, you guess?
Mike Mears
That's, that's probably the right range. We would have to go back and calculate the exact number but that's probably about right, about 40 or 50%.
Noah Lerner - Hartz Capital
Okay. great.
Thanks a lot for your time.
Operator
This is a reminder, if you would like to ask a question, please press star one. Our next question is from Darren Horowitz from Raymond James.
Darren Horowitz – Raymond James
Hi guys. Good afternoon.
Just a couple of quick questions. First, John, on the terminal side of business, you mentioned 14 facilities that were ethanol blending in the fourth quarter, are you guys still on track for somewhere in the low 20s to have the blending capability by the end of the first quarter here into the second quarter?
John Chandler
Yes.
Darren Horowitz – Raymond James
Okay and Don as it relates to Port Arthur coming online in the middle of this year and if you mentioned this I'm sorry but can you remind me how much is left to spend on that specific project?
Don Wellendorf
I don't know. It’s top of my head.
Hold on a second and tell, I mean, how much we're going to spend in 2010?
Darren Horowitz – Raymond James
No. How much is left to go to complete Port Arthur?
Don Wellendorf
Darren Horowitz – Raymond James
Okay. And Don, just one big picture question, my final question, when you look at that 4% projected cash distribution guidance and lot of the timing of your projects being completed and entering the income statement including Port Arthur it, kind of points to more of a back half of the year emphasis.
Can you give us any thoughts as to how you think that 4% year-over-year target involves?
Don Wellendorf
You mean just how it would be, how it will be rolled out?
Darren Horowitz – Raymond James
Yeah. Is here you had taking more of a sequential progression towards it?
Don Wellendorf
I would rather not commit to a certain approach to that. I think I'll just keep that one.
You know, I think the way that you would probably assume -- I'm not going to say anything about that.
Mike Mears
It's going to be 4% and we'll figure out how we're going to get you there. But if it's 4% for the whole year and that's adjusted, it's not going to all happen in the fourth quarter.
Darren Horowitz – Raymond James
Of course. Okay.
Just wanted to ask. I appreciate it.
Thanks.
Mike Mears
Okay.
Operator
That appears to be the last question I have in our question queue. At this time, I would like to turn the conference back over to Mr.
Don Wellendorf. Please go ahead.
Don Wellendorf
Well, thanks for the good questions. In closing, all I want to say is, I think Magellan’s resilience in tough economic conditions that we experienced in 2009 supports the position I have stated many times and that is that Magellan offers one of the best risk, reward profiles in the MLP space, relatively stable, demand-driven cash flow stream and low commodity risk, solid investment grade balance sheet and low cost of capital, relatively low risk growth opportunities, asset base is the key piece of the refine product distribution infrastructure in the United States and a seasoned management team all combined to provide what I believe is a very attractive investment scenario for unit holders.
We believe the future holds great opportunity for our company and we look forward to continuing to create significant returns for our unit holders. Thanks for your support of Magellan and we'll talk to you soon.
Bye.
Operator
This does conclude today's conference call. Thank you for your participation.