May 3, 2017
Executives
Michael N. Mears - Magellan Midstream Partners LP Aaron L.
Milford - Magellan Midstream Partners LP
Analysts
Theresa Chen - Barclays Capital, Inc. Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Shneur Z. Gershuni - UBS Securities LLC Kristina Kazarian - Deutsche Bank Securities, Inc.
John Edwards - Credit Suisse Group Lin Shen - HITE Hedge Asset Management LLC Jeremy B. Tonet - JPMorgan Securities LLC
Operator
Good day, and welcome to the Magellan Midstream Partners first quarter 2017 earnings results conference call. Today's call is being recorded.
At this time, I would like to turn the conference over to Mike Mears, Chief Executive Officer. Please go ahead.
Michael N. Mears - Magellan Midstream Partners LP
Good afternoon, and thank you for joining us today to discuss Magellan's first quarter financial results. Before we get started, I'll remind you that management will be making forward-looking statements as defined by the SEC.
Such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan. You should review the risk factors and other information discussed in our filings with the SEC, and form your own opinions about Magellan's future performance.
As you probably saw this morning, Magellan reported solid earnings for the first quarter of 2017. These results exceeded our previous guidance with each of our operating segments generating higher financial results than the year-ago period.
Our CFO, Aaron Milford, will review Magellan's first quarter financial results in more detail. Then, I'll back to discuss our guidance for the year and review the status of some of our larger expansion projects before opening the call to your questions.
Aaron?
Aaron L. Milford - Magellan Midstream Partners LP
Thank you, Mike. In my comments today, I will be making references to certain non-GAAP financial metrics, including operating margin and distributable cash flow.
We've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measure. Earlier this morning, we reported first quarter net income of $222.7 million or $0.98 per unit on a diluted basis, which was higher than the $207.1 million or $0.91 per diluted unit reported for the first quarter of 2016.
Excluding the impact of mark-to-market futures contract activity in the current quarter, adjusted diluted earnings per unit of $0.96 exceeded our guidance of $0.90 provided back in February. Distributable cash flow was $227.6 million in the first quarter of 2017 compared to $205.3 million reported in the first quarter of 2016.
Overall, we're off to a good start for 2017, with all of our business segments showing improved operating margin performance compared to last year's quarter. I will now move to a brief discussion of the operating margin performance for each of our business segments.
Our refined products segment generated $221.3 million of operating margin in the first quarter of 2017, compared to $171.1 million for the same period of 2016. This $50.2 million increase from the first quarter of 2016 is primarily the result of $40 million of out of period mark-to-market adjustments related to our commodity hedging activities.
Segment fee-based activities also demonstrated growth over the previous year's quarter. Transportation and terminals revenues increased $17.1 million, compared to the 2016 quarter.
This increase was driven by higher revenues from our Little Rock pipeline which came into service in July of 2016, as well as 4% higher demand for refined products including both gasoline and diesel in our markets excluding Little Rock, as well as 2% higher average tariffs as a result of our mid-2016 tariff adjustment. Operating expenses increased $7.7 million, compared to the first quarter of 2016, as a result of timing of maintenance costs as well as costs associated with the operation of the Little Rock pipeline.
These increased costs were partially offset by higher product overages for the quarter. As mentioned a moment ago, product margin increased by $40.4 million compared to the first quarter of 2016, as a result of out of period unrealized gains associated with our hedging program.
When we evaluate our cash margin, which takes into account when we physically sell product and normalizes for these unrealized gains and losses, the current quarter's cash margin performance was essentially flat between periods. For our crude oil segment, operating margin of $101.9 million was $1.1 million higher than the first quarter of last year.
Revenue increased $3.7 million mostly due to new contracts at our East Houston terminal and higher transportation revenue from our Houston distribution system. Volumes associated with our Houston distribution system were down compared to the 2016 quarter, but higher average rates due to deficiency in revenues recognized in the current period resulted in higher realized tariff that more than offset the decline in revenue-generating volume.
Segment operating expenses increased $6.3 million as a result of slightly higher integrity expenses and lower product gains compared to the previous year's quarter. For the quarter, volumes in our Longhorn pipeline averaged approximately 270,000 barrels per day, consistent with last year's quarter and slightly higher than our full-year guidance of 260,000 barrels per day.
Equity earnings from our various joint ventures were $3.7 million higher than the first quarter of 2016. This increase primarily resulted from contributions from Saddlehorn which came online in September of last year and averaged approximately 40,000 barrels per day in the first quarter of 2017, which is consistent with its minimum volume commitment.
BridgeTex volumes averaged approximately 210,000 barrels per day during the first quarter of 2017, which is similar to the comparable 2016 quarter and also consistent with its minimum volume commitments. Finishing up my discussion of our segment performance, our marine segment generated $34.5 million of operating margin in the current quarter, compared to $27.9 million in the first quarter of 2016.
Revenues were higher as a result of higher overall customer activity and additional capacity at our Corpus Christi terminal. Operating expenses were favorable compared to last year's quarter, as a result of more favorable product overages in the current period.
Now, moving to other net income variances to last year's quarter, our G&A expenses were essentially flat compared to the 2016 period, and our depreciation and amortization expense was up by $3.5 million as result of assets being placed into service. Our net interest expense increased by $9.5 million due to a slightly higher weighted average interest rate of 4.8%, a higher weighted average debt balance of $4.2 billion, as well as lower capitalized interest related to capital spending in the current quarter.
Other income items decreased compared to the previous year due to last year's quarter benefiting from the $26.9 million non-cash gain resulting from the transfer of our Osage Pipe Line equity interest to Holly Corporation, as well as the current quarter being negatively impacted by non-cash changes in value of certain hedge positions related to our tank bottom inventory, as well as higher pension settlement expenses. I will now move to a discussion regarding our balance sheet and liquidity position.
As mentioned earlier, our long-term debt balance was $4.2 billion as of March 31 of this year, which included $167 million of commercial paper. Our leverage ratio was approximately 3.4 times.
We continue to maintain credit facilities totaling $1.25 billion with $1 billion as a backstop to our commercial paper program. And other than a de minimis amount for letters of credit outstanding, the facilities remain undrawn As discussed in past calls, we continue to make progress in establishing an at-the-market equity program to use as another tool for funding future growth.
But with current leverage at approximately 3.4 times, we do not anticipate using this program immediately once formally established. This program will essentially help us manage our leverage in a manner that is consistent with our 4 times targeted maximum leverage ratio as we continue to make investments and grow.
I will now turn the call back over to Mike to discuss our guidance for the balance of the year as well as our significant growth projects.
Michael N. Mears - Magellan Midstream Partners LP
Thanks, Aaron. As part of our earnings release this morning, we reaffirmed our 2017 DCF guidance of $1 billion, which you may recall was in line with our original guidance for the year.
Since that time, we have resolved the contractual issue with our condensate splitter and now expect to commence commercial operations during the late second quarter. However, this is somewhat offset by the contraction of the forward gasoline price curve, which would result in lower profits from our commodity-related activities.
We usually begin hedging fall activity around this time to coincide with the traditional seasonal decline in butane pricing. Since the majority of our fall blending volumes have not yet been hedged, our forecast for butane blending income for the rest of the year closely tracks the current pricing curves.
So, while there have been a number of pluses and minuses, we still believe our earlier guidance remains reasonable at this point. And as a reminder, DCF guidance of $1 billion would represent a record year for Magellan, with distribution growth of 8% and a healthy coverage ratio of 1.2 times.
Moving to expansion projects. Magellan recently achieved a number of important milestones, mainly related to our joint venture projects.
During March, we commenced operations of our Powder Springs butane blending joint venture with Colonial Pipeline and also the Carr extension of the Saddlehorn pipeline. Further, Phase I of Seabrook Logistics is now operational and accepting crude oil imports under long-term commitment.
As a reminder, Phase II of Seabrook Logistics is currently under construction, with a mid-2018 expected completion date. Once Phase II is complete, Seabrook Logistics will be connected to our Houston area crude oil distribution system and will accommodate crude oil and condensate exports as well as providing a broader range of crude oil import delivery options.
There's also been a lot of recent activity surrounding the BridgeTex pipeline, which we own jointly with Plains. We recently started operations at our new Bryan, Texas, origin to accept Eaglebine barrels into the system.
As you may recall, we also announced plans to expand the capacity of BridgeTex from 300,000 barrels a day to 400,000 barrels per day, and that incremental capacity is expected to be operational by the end of the second quarter. In addition, we are currently evaluating a further expansion of BridgeTex up to its maximum capacity of 475,000 barrels a day, which we believe could be achieved by the construction of additional pumping capacity.
Our latest growth spending estimates are now $600 million in 2017 and $350 million in 2018 to complete the construction projects currently underway. These spending estimates are $50 million higher than the last guidance we provided due to the launch of new projects primarily related to the construction of 1.2 million barrels of crude oil storage at our East Houston terminal, and as previously announced, an additional 300,000 barrels of storage to support our Corpus Christi condensate splitter.
And as we've stated in the past, we do not anticipate the need to issue equity in the near future to finance the growth projects currently underway due to Magellan's solid balance sheet and low leverage ratio. We continue to evaluate well in excess of $500 million of other potential organic growth opportunities.
We've been discussing a few of these potential projects with you, such as further expansion phases at our Pasadena terminal and additional build-out of our Seabrooks Logistics joint venture. In addition, we are currently assessing the results of a recent refined products open season to determine if sufficient interest exists to expand our refined products pipeline from Houston to Dallas, Texas.
And, like a number of other players in the industry, we are also evaluating a new pipeline to transport crude oil and condensate from the Permian Basin to Corpus Christi. Active discussions are progressing for each of these potential projects.
But as a reminder, these opportunities can take considerable time to negotiate based on their size and complexity, especially in light of the current dynamic market. We will provide further details as it becomes clear that these projects are moving forward.
And of course, we remain active in evaluating potential acquisitions. In the past, we've discussed our desire to extend our value chain to include gathering assets that could direct barrels to our long-haul pipelines in the Permian Basin, and that interest remains.
There have been a number of assets marketed recently, which we believe were attractive assets towards accomplishing this goal. We have analyzed and valued these assets at terms that we believe are reasonable and in the best long-term interest of Magellan's investors.
We have not been able to execute on this acquisition opportunities since the market clearing valuations have been higher than we are comfortable with. Our preferred growth strategy continues to be construction of new assets which generally provides better returns.
In saying that, we do believe acquisitions can be an important element of growth and we will continue to search for acquisition opportunities that fit our company well, while maintaining our disciplined approach to acquire the right assets at a price we believe makes sense. And that concludes our prepared remarks.
So, operator, we'll now turn it over for questions.
Operator
Thank you. Our first question is from Theresa Chen from Barclays.
Theresa Chen - Barclays Capital, Inc.
Hi. My first question is related to your comment about potentially constructing a crude line from the Permian to Corpus Christi.
Can you talk about how you view your competitive positioning versus other midstream players who have indicated interest and some have substantial downstream assets at Corpus, one, as you alluded to just acquired upstream gathering assets. How do you think Magellan will win this project?
Michael N. Mears - Magellan Midstream Partners LP
Well, I won't talk about the competition too much. It is clear that there are a number of parties, both that have announced their intent and perhaps some that haven't announced their intents that are evaluating a pipeline to Corpus.
I think it's fair to say that not all of those pipelines will be necessary. We feel like we've got a good competitive position to start with.
We also have a strong position, asset position in the Corpus Christi market. We have a large marine facility there with significant expansion capability.
We are operating a condensate splitter at our facility that is a demand point for product moving in into the market. So we think we're just as well positioned in the Corpus Christi market as others.
And our business model and the way we are proposing to operate this pipeline, we think, is attractive to the market. I'm not going to sit here and say that it's clear-cut that we are the most likely winner of this.
But we think we have a very good and realistic shot of providing a competitive offering to the market. At the end of the day, the winners in this – on this opportunity are going to be those parties that can secure the commitments necessary to make it happen.
And we are, as we expect all of our competition, are talking to all of these parties as we speak and it is going to evolve over time. I really don't have much more to say on that other than we think we've got a reasonable shot at this.
And we'll keep you informed.
Theresa Chen - Barclays Capital, Inc.
Thank you. And a broader follow-up question to that.
There has been a lot of discussion on where the optimal destination is for additional Permian barrels in terms of export option from the Gulf Coast, Houston versus Corpus, for example. Since you have a footprint in both areas, would you care to share your view on this?
Michael N. Mears - Magellan Midstream Partners LP
Well, I think the focus is now on Corpus primarily because a significant portion of the growth in the Permian Basin is expected to be very light crude oil and very light and – very light crude oil and the condensate particularly coming out of the Delaware Basin really are not well designed for the Houston refined market. They're more likely to be split at a condensate splitter or put on the water for export.
So, if that's the primary focus of increased production – I'm not saying that's all of their production growth in the basin, and there's still going to be production growth that wants to go to Houston. But there's significant pipeline capacity at Houston.
There's significant – and I shouldn't say just Houston, I mean that the Eastern Gulf Coast market, there is significant available capacity on many of those pipes that are there today. But Corpus Christi doesn't have the same pipeline infrastructure headed to it.
And of a significant portion of this growth is going to be barrels that really don't have an interest to the Houston area refiners, and it has a primary interest to be exported. That's what's going to drive these barrels to Corpus Christi.
So, that's why we and all the other players are focused on Corpus as the next destination for a pipeline.
Theresa Chen - Barclays Capital, Inc.
Got it. And just one last housekeeping question from me.
What was your total CapEx spend for the quarter?
Michael N. Mears - Magellan Midstream Partners LP
Our maintenance capital is right around $14 million, our expansion capital...
Aaron L. Milford - Magellan Midstream Partners LP
For the first quarter, total spend – payout capital $147.3 million, maintenance capital $14.8 million.
Theresa Chen - Barclays Capital, Inc.
Thank you very much.
Operator
And next we'll go to Brian Zarahn from Mizuho.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Good afternoon.
Michael N. Mears - Magellan Midstream Partners LP
Hi, Brian.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
I guess, circling back on your proposed Permian-Corpus pipe, I mean would you entertain JV – obviously of other JV? And the Permian and outside of the Permian, how does that scenario fit into your planning?
Michael N. Mears - Magellan Midstream Partners LP
Well, I won't call that too much on our plans. I mean, we – clearly we've been willing to do JVs in the past.
We did that on BridgeTex. We did that on Saddlehorn.
I'd say, if the situation was right, that would be something we would consider. But I don't really want to talk about the specifics around this pipe.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
And then, I guess going back to BridgeTex, can you talk a little bit about the additional expansion, you're considering potential costs? And then, how do you think about contracts going forward for BridgeTex, are you comfortable with the spot volumes?
Michael N. Mears - Magellan Midstream Partners LP
Well, on BridgeTex, I mean, if you recall the expansion from 300,000 to 400,000, it was a very low capital expansion, single-digits millions of dollars. So, that was something we were willing to do without any form of commitment.
To go from 400,00 to 475,000 will be more expensive than that, since we'll have to add incremental pump stations. It's likely, and I'm not going to say that it's a final decision but it's likely that we would be looking for contracts to underwrite that expansion if we were to do it.
So, it's a little bit different than the one we just did.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
And then, does drag-reducing agent play a role as an option, or you would look for pump stations for the – to get the 475,000?
Michael N. Mears - Magellan Midstream Partners LP
Drag-reducing agent's factored into all the evaluations. To get to 400,000, we're going to be using quite a bit of drag reducer.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Okay.
Michael N. Mears - Magellan Midstream Partners LP
But, no, we cannot get from 400,000 to 475,000 with just drag reducer. We have to add incremental pump stations.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
And then, on the splitter, it looks like the economics are roughly the same. I mean, anything worth noting in terms of the new contract for the Corpus splitter?
Michael N. Mears - Magellan Midstream Partners LP
Well, I don't know that I'd characterize the contracts as roughly the same. I mean it is – I would characterize it as marginally less attractive than the original contract from a pure financial perspective.
If you'll recall, we had initially talked about the splitter as being a six times multiple over the extended life of the contract, if it was renewed, that the early years would be better than that and the later years would be worse than that. If we were to make that same assumption today, it's close to an eight times multiple.
So it's still a very attractive investment. But from a pure financial standpoint, it's a little less attractive.
However, there are number of operational changes that were made to the contract that are very beneficial to us, and I'm not going to go into detail on those, but it was kind of a package deal on the renegotiation.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
From my understanding the timing has changed a bit in terms of the economics, but on average it was one turn higher on the multiple. What about contract length?
Michael N. Mears - Magellan Midstream Partners LP
It's still a long-term contract. But I don't want to comment on it any further than that.
And, as we've said before, a long-term contract to us means five years or longer.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Okay. And last one from me, going to Saddlehorn, understanding you have contracts with two large producers.
But we're seeing some concern over potential ramifications of the explosion that took place in Colorado and maybe some regulatory action. Could those contracts be adjusted for unforeseen regulatory action?
Michael N. Mears - Magellan Midstream Partners LP
I don't have the contracts in front of me, I would – normally, they do not. I can't really speak to those contracts as I don't have in front of me.
But I would think normally they do not.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Thanks, Mike.
Michael N. Mears - Magellan Midstream Partners LP
So, the short answer is I don't know what we actually have in that contract. I'd have to go back and read it.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Understood. Thank you.
Operator
And moving on, our next question is from Shneur Gershuni from UBS.
Shneur Z. Gershuni - UBS Securities LLC
Hi. Good afternoon, guys.
I was wondering if we can sort of talk about sort of the landscape of the Permian, and kind of your decisions to not secure gathering assets. And I recognize you're saying the prices are too high.
But when I sort of think about it in context of your existing pipelines going to Houston, you just mentioned earlier to a previous questioner about light barrels and it makes more sense for it to go to Corpus. Doesn't it make controlling some of the gathering critical, especially when you got a contract rolling on Longhorn, I believe it is in a year or two?
I was just sort of kind of wondering if you can sort of talk about that, and do you sort of loosen up on what you think the expected – or multiple you're willing to pay for just given the multiple impacts it has downstream?
Michael N. Mears - Magellan Midstream Partners LP
Well, I mean, first, I would say and I would characterize it a little differently. I mean, we've said that we're interested in growing in the gathering business.
And the recent few months, it hasn't been our decision not to. It's just been – it's been much more expensive than we're willing to pay.
And I would characterize our interest in being more of a nice-to-have than critical. We believe, and our customers I think would agree with us, that we provide a viable desired transportation service from the Permian to Houston.
And that the producers at the end of the day will – the large producers, in particular, will drive where those barrels go. No matter who owns the gathering system.
And if the gathering systems that are in place won't accommodate that, then the large producers will likely figure out a way to make it happen. So, we're – now I won't concede that owning a gathering system makes that a lot more efficient.
But we don't think it's critical. We don't think it destroys the value proposition of our pipes that we don't have it.
When we talk about valuations of gathering systems, you've kind of in a – there's two ways to look at it. The real value of a gathering system is if you are in a situation where you've got significant excess capacity, pipeline take – excess capacity, which would imply that production growth is not as robust as forecast.
And if that's your scenario, then you certainly don't want to pay a premium for a gathering system based on current production forecast because in those situations, you've really overpaid for it. And you bought an insurance policy at a price that's excessive because the production growth isn't there.
If you look at the flipside of that where the production forecasts are strong and they actually transpire that way, which I think is what most people's belief is today, then that would warrant paying a premium for a gathering system. But it also lessens the need to have (28:37) insurance policy for your takeaway pipe because there's going to be enough production to fill your pipe up anyway.
So, when you balance those two things, you want to put a reasonable price, risk adjusted, on a gathering system. And that's the way we have approached it.
We haven't approached it as it's critical and we have to have it at all costs.
Shneur Z. Gershuni - UBS Securities LLC
Right. No, that makes total sense.
Just shifting over to – in your prepared remarks, you talked about establishing an at-the-money market or ATM program, what kind of CapEx profile would there have to be in, I guess, late 2017 or 2018 that you would then need to tap the ATM? Or I guess said differently, what would the CapEx budget need to be next year that you would be forced to use the ATM?
Or what's that line where you use it or don't use it?
Michael N. Mears - Magellan Midstream Partners LP
I don't have a number to give you. But here is why we're doing it.
I mean, if you look at our current spending, it would suggest that we don't need to do this. But as I mentioned, we are looking at significant expansion of our Pasadena terminal which could be anywhere from $500 million to $1 billion of capital opportunity.
We're looking to expanding our Seabrooks Logistics terminal. We're looking at building a new pipe to Dallas, refined products.
We're looking to build a new crude oil pipe to Corpus out of the Permian. If all of those things happen or even half of those things happen, it's unlikely that we will want to – that we could finance that, all the debt and stay below 4 times debt-to-EBITDA ratio.
And so, we wanted to be prepared if those happen to fund with equity, if needed, and that's why we're putting the program in place.
Shneur Z. Gershuni - UBS Securities LLC
Right. I was just trying to figure out what that number was, like, was it $1.5 billion or $2 billion, and so forth.
So, that makes perfect sense. And then, finally, when does the re-contracting discussions began for Longhorn?
Is it something that happens a couple months in advance of the exploration? Or is that something that you sort of have kind of ongoing, and we could hear about extensions more than a year in advance?
Michael N. Mears - Magellan Midstream Partners LP
They're ongoing. I don't know that anything would be finalized until right before they expire.
But those discussions are taking place now and have been taking place.
Shneur Z. Gershuni - UBS Securities LLC
All right. Perfect.
Thank you very much, guys. Appreciate the color.
Michael N. Mears - Magellan Midstream Partners LP
Sure.
Operator
We'll go next to Kristina Kazarian from Deutsche Bank.
Kristina Kazarian - Deutsche Bank Securities, Inc.
Afternoon, guys.
Michael N. Mears - Magellan Midstream Partners LP
Hi, Kristina.
Kristina Kazarian - Deutsche Bank Securities, Inc.
Two quick clarification. One I – just in case I missed it, I don't think I did but just in case.
Could you guys mention what the proposed capacity could potentially be on the crude pipe to Corpus?
Michael N. Mears - Magellan Midstream Partners LP
We have not. I mean that's all subject to the negotiations and discussions we're in with potential shippers.
Kristina Kazarian - Deutsche Bank Securities, Inc.
And you didn't say either what the cost associated with the 75,000 extension on BridgeTex was, did you?
Michael N. Mears - Magellan Midstream Partners LP
We didn't. We didn't.
Kristina Kazarian - Deutsche Bank Securities, Inc.
Okay. It's not like the – if I was thinking the previous 100,000 barrel a day extension with the low single-digit number, it would be more than that though, correct?
Michael N. Mears - Magellan Midstream Partners LP
It would be more than that. We would have to put in pump stations.
And so, it'd be more than that, yes. But we have – we're not ready to disclose that quite yet.
Kristina Kazarian - Deutsche Bank Securities, Inc.
No, no. It's fair.
I'll go big picture now and a bit more strategic. Increased importance of exports coming off in a lot of the energy earnings call, so far.
So, maybe could you touch on what you kind of would need to see to move forward on either the Pasadena or the Seabrooks terminal expansion projects, and just how you're thinking generally about that timeframe was?
Michael N. Mears - Magellan Midstream Partners LP
Well, on Seabrook, I mean we're focused on the Phase II construction which once it's complete, we're going to have significant export capability at that point in time. Further expansion of that, I think it's probably unlikely that we're going to launch that until we get Phase II into service, and we see what the utilization is and what the – and where the market is at that time.
So, that would be my expectation. I mean, there is a chance it could go quicker than that.
I mean we're having discussions with interested parties on using the facility. And if we reach some sort of tipping point where we think – even before it's up and running, it's going to be full, then we would evaluate the next phase of expansion or approving the next phase states of expansion at that point.
But we're not quite at that point yet. On Pasadena, the interest is there today.
I mean, it's just a matter of negotiations with counterparties, which we're doing and getting the commitments to build the next phases. And so, we're not waiting for anything there.
We're negotiating those opportunities, as we speak.
Kristina Kazarian - Deutsche Bank Securities, Inc.
And then, when we're thinking about Pasadena, you kind of gave a bigger range in response to one of the other questions. I think you said $500 million to $1 billion there in terms of how much the next set of opportunities could be.
Can you just help me bound range that, like thought wise, like – what does that mean in terms of how much we expand when I'm thinking about like – about the lower end versus the upper end?
Michael N. Mears - Magellan Midstream Partners LP
From a capital standpoint?
Kristina Kazarian - Deutsche Bank Securities, Inc.
No, from a, like, volume, like what's the difference? Like is there a smaller segment of the expansion?
Is there a larger – like what are you kind of visioning in your head there?
Michael N. Mears - Magellan Midstream Partners LP
Well, we – yeah, we have been – with regards to Pasadena, I mean, our business model there, which is subject to change. But what it is right now is to bring in three or four large interested parties, and then provide dedicated docks for those parties.
That's kind of how we've been marketing that. The first phase, you would have a customer in there who is taking – I'm trying to remember the storage there, it's 1 million barrels of storage and a dedicated dock.
The footprint there can handle 10 million barrels of storage and up to five docks. So, those would be the incremental expansions, it is additional storage and an additional dock.
And those will likely happen in increment as we sign individual customers to support that. And just from a ballpark standpoint, I mean its increment can be a wide range.
But it's probably $250 million to $400 million range for each individual increment depending on how much storage someone is interested in.
Kristina Kazarian - Deutsche Bank Securities, Inc.
Great. Thank you, guys.
Michael N. Mears - Magellan Midstream Partners LP
Sure.
Operator
Our next question is from John Edwards from Credit Suisse.
John Edwards - Credit Suisse Group
Yeah. Good afternoon, everyone.
Thanks for taking my question. Just coming back to the issue of the gathering systems and the interest there, and you were mentioning that the systems you'd looked at, it just was – with the market clearing price was higher than you're willing to go.
I guess what I'm curious about, are there still the gathering systems remaining that are presumably on the market that are still of interest to you? And what do you think the prospects would be of succeeding with some of those, if you can comment anyway in that regard?
Michael N. Mears - Magellan Midstream Partners LP
Well, I will say, I mean it's no secret, I think, that there are still private equity backed gathering systems that exist. When and if they'll come to the market, I can't tell you.
How competitive we'll be, again, I can't tell you on that either. I mean we will be interested if there is something that comes to market that fits well with our strategy, probably the only answer I can tell you.
John Edwards - Credit Suisse Group
Okay. So, there is no private equity backed systems currently on the market today?
Michael N. Mears - Magellan Midstream Partners LP
I probably should defer on answering that question. I mean typically whether there is or there isn't, typically if there is one, we would have signed a CA that says we can't talk about it anyway.
So probably should defer on that question.
John Edwards - Credit Suisse Group
Okay. All right.
Fair enough. All right.
I was just curious if you saw any other gathering systems that would be what you've envisioned as a potential opportunity for you.
Michael N. Mears - Magellan Midstream Partners LP
There are; there are. But that doesn't mean that they're going to come to the market, and that doesn't mean that we're going to win the bid.
But there are other assets out there that we'd be interested in.
John Edwards - Credit Suisse Group
Okay. Thank you.
And then, just following up on some of Brian's questions on the renegotiation of the arrangement with the splitter. So I was just curious, so you said basically the multiple from being around six has slipped a little bit to around eight.
And maybe I missed it, but it sounded as if there wasn't really any financial compensation involved in that trade-off, but it was more surrounding the duration, that kind of thing, because you were in litigation there. And then you reached an arrangement, you settled it.
So I'm just sort of curious, did you get anything out of that discussion that sort of kept you whole, if you will?
Michael N. Mears - Magellan Midstream Partners LP
Well, we did get the things out of the negotiations, obviously, or we wouldn't have done it. I mean, I think notably we got much more clarity on the contract.
I mean I think it's fair to say our dispute had to do with some difference of opinion on certain terms in the agreement, so we got clarity on that. And we also changed some of the operational terms of the agreement that were beneficial to us.
John Edwards - Credit Suisse Group
Okay. But in terms of a financial upside, is there an opportunity then to return to that approximately six times multiple?
Or is it just going to settle out here at a little bit lower multiple?
Michael N. Mears - Magellan Midstream Partners LP
I think you should assume it's just going to settle at a lower multiple.
John Edwards - Credit Suisse Group
Okay. Okay, great.
Thank you. That's it for me.
Operator
I have another question that comes from Lin Shen from HITE.
Lin Shen - HITE Hedge Asset Management LLC
Hi, good afternoon. Thanks for taking my question.
Mike, can you talk a little bit about what are you seeing for the price curve of gasoline and also butane to make you feel that you may see some margin contraction for this year?
Michael N. Mears - Magellan Midstream Partners LP
Well, when we're doing our forecast, typically, especially this time of year, we will – I mean we look at what we have hedged and we look at what the current – for what's unhedged, we just look at the current forward price curve for gasoline into the fall when we do the actual blending from the current curve for butane. And in many cases, we look at the prompt price of butane because that's the way we typically operate.
If we see an attractive margin, we'd buy the butane now and hedge gasoline. So, at this point in time, we have a small portion of our fall blending hedged.
Historically, that's not uncommon. The last two years, we've been more hedged at this point because, if you remember the last two years, we kind of had big bumps in crude oil price – and it's all relative – in gasoline prices late in the first quarter.
And so we took advantage of that. But historically, it's not unusual for us to go to this time of year unhedged, because historically the bottom of the seasonal butane pricing curve is the next few months, as we go into the driving season, as we go into the low RVP season, and there's an excess of butane because of the low RVP gasoline.
So the situation we're in now with regards to not being hedged is not unusual. But the margins obviously are driven by what the forward price curve of gasoline looks like and those are not particularly strong right now compared to where they have been in the past few years.
And so, that's what we're exposed to. I would anticipate that we will start hedging for the fall here in the next couple months.
And as everyone knows, the price curve can change dramatically at any point in time. And so, as we start to lock those in, we'll have a more certainty around what that's going to be.
So – and I hope that answers your question, but if not...
Lin Shen - HITE Hedge Asset Management LLC
Great. Thank you.
Michael N. Mears - Magellan Midstream Partners LP
Okay.
Lin Shen - HITE Hedge Asset Management LLC
That's fine. Thank you.
Thank you. Great.
Operator
Our next question comes from Jeremy Tonet from JPMorgan.
Jeremy B. Tonet - JPMorgan Securities LLC
Good afternoon.
Michael N. Mears - Magellan Midstream Partners LP
Hi, Jeremy.
Jeremy B. Tonet - JPMorgan Securities LLC
Hi. I was just wondering if you could comment on marine storage rates, any renewals you might have as far as the market structure impacting what you're seeing, any color would be great.
Michael N. Mears - Magellan Midstream Partners LP
I assume you mean on refined products, and we – I mean the refined products renewal rates are very strong, right now. The market structure – with regards to marine storage, the market structure is less important than access to the water, and really the optionality is in multiple markets.
So, I mean currently it's pretty strong right now.
Jeremy B. Tonet - JPMorgan Securities LLC
Great. Thanks.
So, that's it from me.
Operator
We have a follow-up question from Shneur Gershuni from UBS.
Shneur Z. Gershuni - UBS Securities LLC
Hey, guys. Just a quick follow-up question on Lin's question about gasoline and kind of your expectations.
Is the issue just the curve is just not right there right now? Or is it more of a function of where the product is going?
We've been seeing movements from pad two to pad one in terms of gasoline with some infrastructure that's been built, product been going out of Mexico, and so forth. I mean, is there potentially a permanent shift that we may be starting to see the early signals on?
Michael N. Mears - Magellan Midstream Partners LP
No. I think, we're talking about two different things here.
I mean, the kind of shift you're talking about can affect the basis...
Shneur Z. Gershuni - UBS Securities LLC
Yeah.
Michael N. Mears - Magellan Midstream Partners LP
...differentials in the Gulf Coast and the Mid-Continent, where we sell our gasoline. That's not what I was talking about earlier.
I mean, that does affect our margins, and that basis can be seasonal. We really haven't seen anything right now that would suggest there has been a big permanent shift in that.
And so, I mean, there's a lot of dynamics related there. I mean, you've got – sure you've got access to more exports coming from Gulf Coast refiners, but you're – I mean, we're also creating new markets for Mid-Continent refiners such as Little Rock and (46:34) Texas, that somewhat mitigates that also.
So, that's not what I was talking about. What I was talking about was just the NYMEX curve.
I mean start with that and then you have a basis differential. I think your question of basis differential is good one, but we're not seeing what we think is a permanent shift there.
I mean, right now, we do have kind of softness in the Mid-Continent due to large inventories, but we don't think that that's structural change. And so, no, my previous comments were really just the NYMEX forward price versus the prompt price on butane.
Shneur Z. Gershuni - UBS Securities LLC
Okay. That makes perfect sense.
Thank you.
Operator
And that's all the time we have for questions today. Speakers, I'll turn the conference back to you for additional or closing remarks.
Michael N. Mears - Magellan Midstream Partners LP
All right. Well, thank you for your time today.
We appreciate your interest in Magellan. And have a good day.
Operator
And that does conclude our conference. Thank you for your participation.
You may now disconnect.