Aug 2, 2017
Executives
Michael N. Mears - Magellan Midstream Partners LP Aaron L.
Milford - Magellan Midstream Partners LP
Analysts
Brian Joshua Zarahn - Mizuho Securities USA, Inc. Theresa Chen - Barclays Capital, Inc.
Justin S. Jenkins - Raymond James & Associates, Inc.
Shneur Z. Gershuni - UBS Securities LLC Jeremy Bryan Tonet - JPMorgan Gabriel P.
Moreen - Bank of America Merrill Lynch Sharon Lui - Wells Fargo Securities LLC Lin Shen - HITE Hedge Asset Management LLC
Operator
Please standby, as we are about to begin. Good day, everyone and welcome to the Magellan Midstream Partners Second Quarter 2017 Earnings Results Conference Call.
Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr.
Mike Mears, President & and Chief Executive Officer. Please go ahead, sir.
Michael N. Mears - Magellan Midstream Partners LP
Good afternoon, and thank you for joining us today to discuss Magellan's second 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.
With that said, Magellan continues to generate strong financial results as announced in our earnings release this morning. Each of our segments produced higher second quarter results than the year-ago period, including a record refined products pipeline volumes.
In addition, we are pleased to report that our condensate splitter began commercial operations on June 1, further benefiting the quarter. Our CFO, Aaron Milford, will now review Magellan's sound quarter financial results in more detail.
Then, I'll be back to discuss our guidance for the year and a few of our expansion projects before opening the call to your questions.
Aaron L. Milford - Magellan Midstream Partners LP
Thank you, Mike. I would like to remind to the audience, that I will be making references to certain non-GAAP financial metrics, including operating margin and distributable cash flow.
We believe these metrics are useful for investors in evaluating our performance, and we've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measure. Earlier this morning, we reported second quarter net income of $210.4 million or $0.92 per unit on a diluted basis, which was higher than the $187.9 million or $0.82 per diluted unit reported for the second quarter of 2016.
Excluding the impact of mark-to-market futures contract activity in the current quarter, adjusted diluted earnings per unit of $0.91 exceeded our guidance of $0.85 provided back in May of this year. Distributable cash flow of $250.4 million in the second quarter of 2017 was $29.4 million higher than the $221 million reported in the second quarter of 2016.
As Mike mentioned, we had a strong second quarter with higher financial results from all three of our business segments. In fact, we set quarterly volume records for total pipeline deliveries and independent terminal throughput volume within our refined product segment as a result of strong demand and contributions from our recently completed Little Rock pipeline project.
Our refined products segment generated $214.4 million of operating margins in the second quarter of 2017 compared to $177.3 million for the same period in 2016. This $37.1 million increase from the second quarter of 2016 is primarily the result of a $30.1 million increase in transportation and terminalling revenue.
Transportation and terminals revenue were higher than the year ago quarter as a result of contributions from our Little Rock pipeline, which began operations in July of last year. In addition, transportation volumes on refined product systems excluding the Little Rock pipeline was 7% higher than last year's quarter.
All products registered gains with diesel being particularly strong with the return of oil drilling activities in our markets, including West Texas. Operating expenses increased slightly compared to the second 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 mainly offset by higher product overages for the quarter. Product margin increased by $8.6 million compared to the second quarter of 2016 as a result of out of period unrealized gains associated with our hedging program.
Our cash margin, which takes into account when we physically sell product and normalizes for these unrealized gains and losses declined between periods due to lower butane blending margins. Our crude oil segment generated operating margin of $105.8 million in the second quarter of 2017.
This represents an $8.9 million increase compared to the second quarter of 2016. Transportation and terminals revenue increased $7.1 million as a result of our condensate splitter operations starting in June as well as deficiency revenues recognized related to volume commitments on our Houston distribution system.
Segment operating expenses increased $10.9 million as a result of higher compensation expenses and costs associated with the condensate splitter, which began operations in the quarter as well as less favorable product overages which act to offset expenses. For the quarter, volumes in our Longhorn pipeline averaged approximately 260,000 barrels per day, which is consistent with the guidance we provided for 2017.
Equity earnings from our crude oil related joint ventures increased by $9.8 million compared to the second quarter of 2016. This increase resulted primarily from higher earnings related to our Saddlehorn and BridgeTex joint ventures.
Saddlehorn began operations in September of 2016 and averaged approximately 40,000 barrels per day in throughput during the second quarter of 2017, which is consistent with our volume commitments. BridgeTex volumes averaged approximately 240,000 barrels per day during the second quarter of 2017, which is 30,000 barrels higher than the same period in 2016.
This volume increase was the result of the Eaglebine origin becoming operational during the second quarter of 2017, as well as additional spot volumes. A portion of these spot volumes were shipped by Magellan.
Finishing up my discussion of our segment performance, our marine segment generated $32.2 million of operating margin in the current quarter, compared to $28.9 million in the second quarter of 2016. Revenues were $4.7 million higher as a result of higher utilization, higher storage rates and higher miscellaneous revenues due to increased customer activity generally.
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 $8.8 million higher than the 2016 period, due to higher head count associated with growth projects, as well as higher equity-based compensation expense.
Depreciation and amortization expense was up by $5.6 million compared to last year's quarter as a result of assets being placed into service. Net interest expense increased by $7 million due to lower capitalized interest in the current quarter, compared to the second quarter of 2016, as well as a higher debt balance overall as we continue to fund our various growth projects.
Other expense was $4 million higher than last year's quarter, due to higher retirement benefit expenses, as well as less favorable non-cash mark-to-market results related to hedged crude oil tank bottom inventory in pushing (07:26). I will now move to a discussion regarding our balance sheet and liquidity position.
Our long-term debt balance was $4.2 billion as of June 30 of this year, which included a $197 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 an insignificant amount for letters of credit outstanding, the facilities remain undrawn.
We now have a $750 million at-the-market equity program in place and we've not issued any units under this program since its inception, including the second quarter of this year. As we stated in the past, this is a tool we plan to use to manage our leverage ratio, should we approach our four times limit.
Given the current slate of expansion projects underway, we do not expect to use this at-the-market program any time soon. I will now turn the call back over to Mike to discuss our updated guidance for the balance of the year, as well as few of our growth projects.
Michael N. Mears - Magellan Midstream Partners LP
Thank you, Aaron. Based on our financial results to-date and our outlook for the remainder of the year, we have increased our DCF guidance for 2017.
Much of the increase comes from stronger refined products pipeline volumes and higher BridgeTex shipments than we expected this year. While we have seen some positive momentum in commodity prices of late, forward curve is still less favorable than we assumed entering 2017.
To-date, we have hedged about 70% of our forecasted fall butane blending volumes and expect an average margin of approximately $0.35 per gallon for the year, compared to the $0.40 margin that we initially expected for 2017. Considering these notable changes, we are increasing our DCF guidance for 2017 by $20 million to $1.02 billion for the year, which represents a record year for Magellan and a healthy distribution coverage of 1.2 times, all while growing distributions by 8% for the year.
Moving to expansion projects. Our latest gross spending estimates are now $600 million in 2017 and $400 million in 2018 to complete the construction projects currently underway.
The 2018 spending estimates are $50 million higher than the last guidance we provided due to the addition of a number of smaller projects such as additional tankage in our Corpus Christi terminal and a few functionality enhancements on existing projects. Concerning BridgeTex, the capacity of this pipeline system has now been expanded from 300,000 barrels a day to 400,000 barrels a day to deliver Permian Basin crude oil to the Houston area.
BridgeTex currently has an open season in process to solicit binding commitments to utilize the incremental 100,000 barrels a day of new pipeline capacity. The open season has not yet closed, but we have already received committed volumes within the open season process and are optimistic that additional commitments will be secured before the open season closes.
In addition, if warranted by customer demand, BridgeTex may further expand the capacity of the line up to approximately 440,000 barrels per day, which is what we estimate to be the maximum capacity of the line at this time. We are also making steady progress on our longer lead-time projects, such as our additional ship dock project at Galena Park and Phase I of our new Pasadena marine terminal.
We've recently received all of the necessary permits to allow construction activities to commence at Pasadena and we still expect an early 2019 startup. We continue to evaluate well and excess to $500 million of other potential organic growth opportunities including further expansion phases of our Pasadena terminal and expansion of our refined products pipeline system in Texas.
Although we don't have definitive projects to announce at this time, customer discussions continue to move forward at a steady pace. We remain optimistic about the direction these projects were headed and hope to have more details to share with you in the near future.
As we discussed last quarter, Magellan is also evaluating a new pipeline to transport crude oil and condensate from the Permian Basin to Corpus Christi. It is still too early to provide any clarity on the likelihood, timing or economics of this potential project, given the current dynamics of the crude oil markets and the number of competitors pursuing the same opportunity.
I will also mention that even though progress may appear to be slow, we're also actively advancing other strategic development opportunities in the Permian that will complement our existing assets in the basin. That concludes my prepared remarks.
So operator, we're now ready to turn the call over for questions.
Operator
And thank you. And we will hear first from Brian Zarahn of 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.
On the refined product volumes, a good quarter. Are you seeing that trend to continue in the third quarter for gas – gasoline and distillate volumes?
Michael N. Mears - Magellan Midstream Partners LP
Our expectations for the year are to continue to see, especially with regards to distillate, continued improvement year-over-year on shipments. That's what we built into our forecast, I probably can't talk to specifically about what's happening in the third quarter yet, but that's what we have in our forecast.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
And then how the Little Rock volumes are coming along on a relative expectations?
Michael N. Mears - Magellan Midstream Partners LP
The Little Rock volumes are right on target with our expectations from our project economics. So we're very satisfied with the performance of Little Rock.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
And then shifting to BridgeTex, I think you commented during your prepared remarks about Magellan transporting some barrels on the system. And if that's so, could you elaborate a bit on, on the thought process and do you expect that to continue?
Michael N. Mears - Magellan Midstream Partners LP
Well, you know we've said, hopefully we've signaled to the market, that we have or would consider shipping on BridgeTex if the opportunity was available and if there was available capacity on the pipeline. And both of those things happened in the second quarter.
Our expectation is that opportunity will exist in the third quarter and possibly the fourth quarter. However, as I said, I mean it's opportunistic driven.
And so, we can't guarantee that that will continue. But we are expecting at least in the third quarter to see some of that activity.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
So in terms of Magellan's barrels on the system, is it reasonable to assume what's above the contracted levels or is it something different than that?
Michael N. Mears - Magellan Midstream Partners LP
I'm not sure what your question is. I mean, clearly that the shipment level on BridgeTex in the second quarter was above the minimum commitments and a portion of that excess was Magellan barrels.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Okay. So a portion above the contracts for Magellan, not all of the incremental barrels above the contracted level?
Michael N. Mears - Magellan Midstream Partners LP
That's correct.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Okay. And then I know you're still in progress on the Permian and Corpus line, but any sense of when do you think discussions will come to a conclusion?
Michael N. Mears - Magellan Midstream Partners LP
I wish I could give you a good answer on that. I can tell you that there is a lot of activity, there is a lot of discussions I'm sure.
I mean, we've had a lot of discussions. I'm sure the other folks that are promoting projects had had a lot of discussions.
The sense we have at this point is that there is probably at least a few more months before anything material moves, and it may even be longer than that. But the way these things work, I mean, it's – I'd kind of characterize this that the pump is primed, all the proposals are out there and once somebody decides to make a commitment, then it'll happen very quick.
Brian Joshua Zarahn - Mizuho Securities USA, Inc.
Thank you, Mike.
Michael N. Mears - Magellan Midstream Partners LP
Sure.
Operator
And we'll hear next from Theresa Chen of Barclays.
Theresa Chen - Barclays Capital, Inc.
Hi. Follow-up on Brian's question on the Permian to Corpus line.
How critical do you think it is for this asset to be a part of the Magellan portfolio over the long-term? I mean, just given the intense competition for such a project between eight players as you've mentioned previously, it seems like it might be difficult to place this within the comfortable six to eight multiple range for your organic project targets.
Michael N. Mears - Magellan Midstream Partners LP
Well, this is certainly an asset that we would like to develop and own. If your question is, do we have to have it, the answer is no.
We don't have to have it. I mean, our business model in the Permian is going to work very well with our existing pipes if we don't have a Corpus pipeline.
And so we will be disciplined with regards to the pursuit of this project and that's how we intend to approach it.
Theresa Chen - Barclays Capital, Inc.
Okay. And Mike, on your comments about being active in other strategic developments in the Permian Basin that will complement your assets, can you give us just additional color on what exactly that means?
Are you talking about organic projects in the basin? Are you talking about potential acquisitions?
Any details will be helpful.
Michael N. Mears - Magellan Midstream Partners LP
Well, it's both. There are acquisition opportunities that we're evaluating.
There are organic development projects that are not associated with those acquisitions that we're developing. So, it's both of those.
And I really don't want to get into more specifically what those are, but there are – in the Permian Basin they are associated with complementing our existing asset base.
Theresa Chen - Barclays Capital, Inc.
Okay. So, I guess expounding on that thought, if you are alluding to potentially buying a gathering system, I know you've talked about before how that would be a nice tool to have in your toolkit, but the valuations out there are very rich and they seem to only get more and more expensive with the latest news of a large gathering system that seems to fit your systems very well.
What's the likelihood that you execute something like that or are you more referring to gathering assets that may not be very well telegraphed to the market that are cheaper and still fit your systems?
Michael N. Mears - Magellan Midstream Partners LP
Well, I'm not going to comment on specifically which gathering systems we may or may not be looking at. Hopefully you can respect the confidentiality around that.
But I will say that we intend to approach the valuation of these assets similar to the valuation – the approach we've taken over the last year. And as far as the probability of winning, it's really almost impossible for me to assess because I don't know what the competitive bidders might do, I mean which is really going to drive the answer to that question.
So, I can't really assess that. But I can tell you that we're not going to significantly change our approach to pursuing gathering assets.
Theresa Chen - Barclays Capital, Inc.
Okay. And on the shipping to the refined products side, can you talk about this potential Houston to Dallas expansion in your system and where you are with that?
Michael N. Mears - Magellan Midstream Partners LP
Well, we conducted an open season for that expansion a few months ago – it closed a few months ago. There is significant interest in that pipeline and we have been in extended negotiations since the open season is closed, and so that project is still very active and we're optimistic that it has good chances of coming across the goal line.
Theresa Chen - Barclays Capital, Inc.
Okay.
Michael N. Mears - Magellan Midstream Partners LP
But as I'd say, usually on any project, I always say it's not done until it's done. I'll say we're optimistic, but until the contracts are signed, it's not a done project and so I have put that caveat in there.
Theresa Chen - Barclays Capital, Inc.
Got it. And then lastly on Galena Park, I believe you've already started to increase rates for your current customers there; can you just talk about how those conversations are going?
Are you facing much push back?
Michael N. Mears - Magellan Midstream Partners LP
Well, every increase in rate has some level of push back to it, but not anything out of the ordinary; we've been successful in increasing those rates.
Theresa Chen - Barclays Capital, Inc.
Thank you very much.
Operator
And our next question is from Justin Jenkins of Raymond James.
Justin S. Jenkins - Raymond James & Associates, Inc.
Okay, great. Good afternoon, everybody.
I guess, maybe starting on Longhorn, is there anything you can quantify in terms of volumes or financially regarding the operational hiccup in early July?
Michael N. Mears - Magellan Midstream Partners LP
Yeah, the incident in early July, the line was down for roughly three days. And so we don't anticipate, and there's no operational restrictions or constraints on the pipeline now.
So, we expect the financial impact of that not to be material.
Justin S. Jenkins - Raymond James & Associates, Inc.
Perfect. Appreciate that, Mike.
And then I think Aaron might have mentioned at a recent event that – that there might be potential to move refined products into Memphis from Little Rock, is there any update to that?
Michael N. Mears - Magellan Midstream Partners LP
We are working on a project to move refined products into Memphis and we expect to be able to do that within the next – early in 2018.
Justin S. Jenkins - Raymond James & Associates, Inc.
Great. That's all I've got.
I appreciate it guys.
Operator
We will hear next from Shneur Gershuni of UBS.
Shneur Z. Gershuni - UBS Securities LLC
Good afternoon everyone. Just a couple of follow-up questions to some of the earlier questions.
I think Brian sort of talked about the contracting process with looking at kind of them, into Corpus strategy. When do you think potential shippers blink, is it when spreads widen?
And if so, how wide do they need to go before they feel the pressure to actually move forward?
Michael N. Mears - Magellan Midstream Partners LP
That's a good question. So, I think probably it's a different answer for each producer, but my sense is it's probably more driven by individual producer, drilling and production forecast is the actual differential, I think that's the primary driver and an assessment of how much available capacity is available today and how long it's going to be available.
Shneur Z. Gershuni - UBS Securities LLC
Okay. And another follow-up would be -
Michael N. Mears - Magellan Midstream Partners LP
I think it's-
Shneur Z. Gershuni - UBS Securities LLC
Yeah, you were saying?
Michael N. Mears - Magellan Midstream Partners LP
I was just going to add to that. I think it's well-known that building a new pipeline is generally at minimum an 18-month, usually longer, exercise.
And so producers are well aware of that and they're well aware that they are well served not to wait until the margins blow out before they support a pipe and then suffer the financial problems for two years while the pipeline is being built. So, they're well aware of that.
So, again it's not – I don't think anyone is waiting for the margin to hit some specified target before they would commit to a pipeline, I don't think that's the way it works.
Shneur Z. Gershuni - UBS Securities LLC
Okay. It just sort of seems sometimes in other bottlenecked areas or future bottlenecked areas they didn't blink until it moved.
Just switching to a follow-up I think it was to Theresa's question about the private asset market. Maybe to ask it a different way, when you consider how high the valuations are for private assets, does it make more sense to start looking at public companies given the valuation disconnect or are you just focused more on bolt-ons rather than going after something much larger?
Michael N. Mears - Magellan Midstream Partners LP
We look at everything. We don't isolate ourselves to private transaction.
I mean obviously those are the ones that are most actionable because they're auctioning their assets. But we don't ignore any opportunities that might exist with public companies.
Shneur Z. Gershuni - UBS Securities LLC
Okay. A couple more questions, strong refined product volumes this quarter.
Directionally, I was wondering if you can give us a sense of where the products are moving. You've been sort of positioning towards building export facilities and so forth.
Directionally, are you ceding more of the product moving like, say, to pad three and moving more towards the export market and just it sort of like support you were – your pivot towards the export side in terms of CapEx that you have slated?
Michael N. Mears - Magellan Midstream Partners LP
No, that is not contributing at all to our incremental growth. Our incremental growth is to some extent gasoline demand, which is, which is spread uniformly across our system.
But more significantly from growth in diesel demand in particular in oil producing area such as West Texas and North Dakota, we've seen significant increases in diesel demand as drilling increases in those regions.
Shneur Z. Gershuni - UBS Securities LLC
So it's really more economic sensitive more than anything else?
Michael N. Mears - Magellan Midstream Partners LP
Right. And just, just to clarify, I mean that's what's driving the refined product throughput on our pipelines.
The refined product export market continues to be strong and growing. But that is not what's driving the throughput on our pipelines.
Shneur Z. Gershuni - UBS Securities LLC
Okay, fair enough. A final question, just with respect to your CapEx backlog and I understand that you don't typically comment until it's ready to move in.
You've talked about a potential expansion of Pasadena. I think that you'd mentioned earlier in the call that conversations are advancing with potential customers.
What kind of milestones should we be looking for to see that project to actually get added to your backlog?
Michael N. Mears - Magellan Midstream Partners LP
Well, I mean, it would be – there would be an announcement. I mean there's a lot of activity that takes place when you negotiate transaction such as that.
And clearly those milestones, internally, we don't disclose. We don't disclose a project until we've signed a contract.
So unfortunately, you won't see those milestones until we announce it. And – but we're optimistic that we'll have something to announce in the near future.
Shneur Z. Gershuni - UBS Securities LLC
Is there a lot of competition to sort of execute on this and so forth or is it more the markets sort of has to move there? I mean, we've got, what did you say, eight potential proposals for Midland to Corpus pipelines.
Is there a similar number of proposals on the – on the export terminal side or is it more about how the market develops?
Michael N. Mears - Magellan Midstream Partners LP
I have to say it's – yeah, it's a competitive market. I don't think this is an issue where the market needs to wait to move that way.
I don't think there's any doubt in anyone's mind the refined products exports are going to grow. But it's a competitive landscape.
And so that's what's taking time to negotiate these deals.
Shneur Z. Gershuni - UBS Securities LLC
Okay. Perfect.
Thank you very much. Really appreciate the color.
Operator
And we'll move onto our next question from Jeremy Tonet of JPMorgan.
Jeremy Bryan Tonet - JPMorgan
Good afternoon. Thanks for...
Michael N. Mears - Magellan Midstream Partners LP
Good afternoon.
Jeremy Bryan Tonet - JPMorgan
...all the color today. Just want to follow up on the splitter and touch base there and make sure everything is kind of in line with your expectations at this point, relationship with Trafigura progressing as expected, anything to put there?
Michael N. Mears - Magellan Midstream Partners LP
I would say that at where we are right now is exactly where we expect to be. We have a good relationship with Trafigura.
The splitter is performing as expected. The economics of the project are as we've previously communicated.
And so there's no surprises there.
Jeremy Bryan Tonet - JPMorgan
Got you. Great.
And then just one last one. I think you might have commented on this a bit in the past, but wondering with all the Permian growth that's coming forward here, do you see more opportunity for within your Houston versus your Corpus Christi footprint to kind of service logistics?
Where do you see more of those barrels moving?
Michael N. Mears - Magellan Midstream Partners LP
Well, we – I mean those are two different areas, so I'll have to answer the question separately. I mean, the opportunities around the Houston area are still large.
I mean, we have capacity on our distribution system and we're marketing it and we would expect that to grow over time. We're making additional connections to the system from other pipelines and really enhancing its value.
Corpus really – I mean, we think we're well positioned to grow the volume through our Corpus facility. It will be greatly enhanced if we're – if we build a pipeline from Midland to Corpus, but even in the absence of us building it, we think we're well positioned to capture incremental volumes in our facility.
So, I would answer it I guess by saying the visibility to growth on the Houston system is clear at this point, and more well defined. The visibility on the Corpus growth, even though we think the growth potential is there is probably less visible until there is more clarity on infrastructure being built to Corpus.
Jeremy Bryan Tonet - JPMorgan
Great. That's it for me.
Thank you.
Operator
And we'll move to our next question from Gabriel Moreen of Bank of America Merrill Lynch.
Gabriel P. Moreen - Bank of America Merrill Lynch
Hey. Good afternoon, everyone.
Just wanted to go back to the Magellan shipping your own barrels on BridgeTex a bit, just a little more color in terms of how you procure those barrels, maybe why someone with a competing marketing arm that's more well established didn't try to get those barrels ahead of you? And then two ancillary questions, whether you see doing that on other pipelines and also whether Magellan might participate in the BridgeTex open season as a shipper itself?
Michael N. Mears - Magellan Midstream Partners LP
Well, I hope you can appreciate, some of those questions I can't answer as to how we procured barrels or where they went and who other shippers might be on the system. I will highlight that we mentioned earlier that we were not – that all of the incremental barrels above the commitment were not us.
So, there were other shippers on the system besides us. With regards to doing this in the future on other systems, we are evaluating from an opportunistic standpoint, whether there is opportunities to do this on pipes we own.
So, we would look to do that if we have an ownership position. Longhorn obviously has little opportunity because it's full.
I'd also say we are only interested in doing this in an opportunistic way for crude oil only. We are not looking to do this in any way on refined products.
And at this point in time, we are not looking at doing it on any third-party pipelines at all either.
Gabriel P. Moreen - Bank of America Merrill Lynch
And as a follow-up, Mike....
Michael N. Mears - Magellan Midstream Partners LP
This is – this is – again, I keep using the word optimistic. This is something that potentially six months from now we won't be talking about because we are not doing it.
Our preference is to fill our pipelines up with third-party volumes. And to the extent there are third-party volumes that fill the pipeline up, we will most likely not be engaged in this activity.
That's – we would rather operate in that form than not. But if we have available capacity, then we will evaluate whether it makes sense for us to use it or not.
Gabriel P. Moreen - Bank of America Merrill Lynch
So, in other words, no change to the longstanding Magellan philosophy of competing against your customers?
Michael N. Mears - Magellan Midstream Partners LP
That's correct.
Gabriel P. Moreen - Bank of America Merrill Lynch
Okay. And then shifting over maybe to butane a bit, any market dynamic, Mike, that you can see there which might loosen the market a bit and get you some distress butane barrels to help with margins at some point in the future?
Michael N. Mears - Magellan Midstream Partners LP
Well, I think clearly we are at very – well, very low margins versus the last six years or seven years of history. These margins aren't particularly low compared to periods before that.
But I mean, I would also highlight that even though these margins are low, it is still a very profitable business at these margins, just not what it was when crude oil was $100 a barrel. I think the – from a structural standpoint, it's likely you're not going to see a significant change in margin here unless crude oil prices rise.
It appears that the ability to export butane is keeping up with any growth in the market. So, we don't really foresee anywhere in the near-term butane prices softening.
So, it's really the other side of the equation that it could improve with regards to gasoline prices following crude oil. As you know, when we do our forecast, we don't get very aggressive with that, but that's the most likely avenue for improvement in blending margins if it's going to – if it's going to happen.
Gabriel P. Moreen - Bank of America Merrill Lynch
Got it. Thanks, Mike.
Operator
And we'll hear next from Sharon Lui of Wells Fargo.
Sharon Lui - Wells Fargo Securities LLC
Hi, good afternoon. So I guess, based on your commentary on butane blending margins, can you maybe talk about activity levels under the Powder Springs JV?
Is it in line with expectations?
Michael N. Mears - Magellan Midstream Partners LP
Yeah. The volume levels are in line with expectations.
The margin we're recognizing there is a little less than we originally assumed. But again back to my comment earlier, I mean blending is still very profitable at these lower margins.
And if you look at the economics of Powder Springs, even at these low margins is still a very attractive multiple on that investment.
Sharon Lui - Wells Fargo Securities LLC
Okay. And I guess with the potential expansion on BridgeTex to 440,000, what's the incremental CapEx and the potential timing, how long would it take and what would entail?
Michael N. Mears - Magellan Midstream Partners LP
Yeah. The CapEx is not significant, it's less than $10 million for us to go from 400,000 to 440,000, and it would take us probably six months to nine months to complete that.
Sharon Lui - Wells Fargo Securities LLC
Okay. And I guess, based on the level of interest in the current open season, is there a potential to secure I guess commitment tied to this expansion?
Michael N. Mears - Magellan Midstream Partners LP
Sure. There is a potential for that.
We won't know until the open season closes.
Sharon Lui - Wells Fargo Securities LLC
Okay. And I guess any update on the FERC application on accrued marketing?
Michael N. Mears - Magellan Midstream Partners LP
I wish I had one. There is none.
The FERC continues to lack a quorum, and so this is stagnant – it's our understanding this is stagnant until a quorum is seated. And even then, we're not sure how quickly and where it would come out.
I mean, one would expect, and this is me theorizing, no one has told me this, but that the new commissioners probably going to want to take some time to understand the issue and research it before they issue an order. So it's really hard to predict when that's going to happen.
Sharon Lui - Wells Fargo Securities LLC
Thanks. That's it from me.
Thank you.
Operator
And we'll hear next from Chris Sighinolfi of Jefferies.
Unknown Speaker
Hey, guys. This is Corey (39:06) filling in for Chris.
Hello?
Michael N. Mears - Magellan Midstream Partners LP
Hello. Yeah.
We're still here.
Unknown Speaker
Okay. Perfect.
Sorry. I thought I lost you.
Just quickly on back to Longhorn, just given the size of that pipeline, understanding there is a limit to what you could say with regards to the question, but in terms of potential renegotiations, to the extent you're trying front run that contract, anything you can comment there in terms of how that's progressing from just given the competitive landscape there? Just any commentary would be helpful.
Michael N. Mears - Magellan Midstream Partners LP
Well, I mean, probably all I could say is that we're obviously in discussions with existing shippers on the system and also other shippers that might be interested in the system once the contracts are at their exploration date. There is significant interest for shippers with regards to Longhorn.
Probably not much more I can say about it at this point. I mean we are – we're still over a year away from the contracts expiring.
So even though that appears to be near from an investment horizon, with regards to contract negotiations it's less actionable until you get closer to that date.
Unknown Speaker
Got you. Okay.
It's probably just I don't know how long it usually takes to before you want to – I know it's a new contract, so it sounds like we have got a few months there. And then kind of a similar question maybe on BridgeTex and this is I'm going to plead ignorance on this one.
But the incremental 100,000 barrel a day expansion that you had recently completed, how do we think about the contracted rate on that expansion? Is that similar to what the existing 300,000 was doing or is this open season, looking for new contracted rates beyond what's already locked in on the 300,000?
Michael N. Mears - Magellan Midstream Partners LP
They're different rates. Without – I won't talk specifically to what the rates are, but these different contracts, they are different rates than the original contracts on BridgeTex.
And I would also just state that the market is very competitive.
Unknown Speaker
Okay. And then, generally, we see the FERC release the rates 30 days before pipes and service, obviously the expansion is done.
Could we expect the tariff rates to be released following the conclusion of the open season?
Michael N. Mears - Magellan Midstream Partners LP
Yes, at some point following the conclusion, we'll file the rates. I don't know exactly when that's going to be yet, but it is typically 30 days in advance of them going into effect.
It doesn't have to be, but that's typically the timeframe.
Unknown Speaker
Understood. Okay.
Now, we really appreciate the color. Thanks, guys.
Operator
And we'll go to our next question from Lin Shen of HITE.
Lin Shen - HITE Hedge Asset Management LLC
Hey. Good afternoon.
Thanks for taking my question. So for BridgeTex, when you are more in the volume or you were more the volume (42:22) in Q2, were you able to charge higher margins than just the tariff rate?
I guess-
Michael N. Mears - Magellan Midstream Partners LP
Well, the pipelines collects the published tariff rate and...
Lin Shen - HITE Hedge Asset Management LLC
Yes.
Michael N. Mears - Magellan Midstream Partners LP
...so if you're asking what margin Magellan made, it's probably not something I can comment on. The pipeline charges the full tariff, and there's no – there's no value above that.
Lin Shen - HITE Hedge Asset Management LLC
Okay. So are you able to capture extra margin on the volume, no movement?
Michael N. Mears - Magellan Midstream Partners LP
Well, there's two pieces here, I mean there's the pipeline tariff itself which we collected and then there is the economics of the shipment itself as a shipper. And I can't comment on that, or I'm not prepared to comment on margins we're making on shipping crude oil.
Lin Shen - HITE Hedge Asset Management LLC
Okay. Great.
Thank you.
Operator
And there are no further questions in the queue at this time. I'll turn the call back over to our presenters for any additional or closing remarks.
Michael N. Mears - Magellan Midstream Partners LP
All right. Well, thank you for your time today and we're very pleased with the direction of the company this year, and we're thankful for your interest and support of Magellan.
Have a good afternoon.
Operator
And so that does conclude our call. We would like to thank everyone for their participation.
You may now disconnect.