www.magellanlp.com NYSE: MMP 2022 Analyst Day Houston, Texas March 29, 2022 Moving What Moves America
Welcome and Agenda Paula Farrell Associate vice president, investor relations
Todays agenda Magellans track record Mike Mears, CEO Long-term outlook Aaron Milford, COO 15-minute break Refined products Mark Roles, Sr. VP Crude oil Robb Barnes, Sr. VP Capital allocation Jeff Holman, CFO Closing…
Magellans track record Mike Mears Chairman, president and chief executive officer
Keys to Magellans track record Resiliency of assets and underlying business model U.S. petroleum midstream infrastructure that will be needed for decades Consistent commitment to a strong balance sheet and prudent financial…
Long-term outlook Energy transition Aaron Milford Chief operating officer (chief executive officer effective May 22)
An energy transition framework We view energy transition as dependent on 3 major forces: policy, capability and the consumer Policy All 3 forces must balance There is a feedback loop for transition to continue among all 3 that will…
Policy assessment Clearly a current desire by Policy many policymakers to drive the energy transition However there is not a clear quickly: consensus for action: Electric vehicle (EV) Build Back Better subsidies / mandates stalled…
Example of patchwork approach States are taking varied approaches Often driven by varying state economic interests Increases difficulty as a logistics provider to support transition efforts Opportunities will depend on…
Capability assessment Policy Clearly making progress: Obstacles remain: Battery / storage technology Cost competitiveness Renewable energy / fuels Electric grid readiness Increasing investment Intermittency of supply CCUS…
Renewable and biofuel example Fundamental economics are challenging Government subsidies are required for investments to be profitable Biofuel production cost summary Biofuel production cost summary 8.00 6.00 5.85 6.00 5.46…
Consumer assessment Supportive attitudes: Other attitudes: Policy 75% - climate change 80% - economy very / happening extremely important 59% - climate change 52% - support 1 per month very / extremely to combat climate change…
External shocks Policy Potential for external Economic cycles factors to hasten or slow the pace of transition Geopolitical dynamics External Shocks Capability Consumer 14
Takeaways Energy transition will progress, but.. Magellan approach: Policy Likely slower pace than Engaged predicted by many Complete view of Likely more volatile in its opportunities and risk course Policy can create opportunity…
Energy transition opportunities Magellans advantages Pipeline transportation is sustainable transportation Flexible refined products pipeline system with breadth Complete crude oil logistics chain of custody from receipt to delivery…
WoodMac view on EV adoption According to Wood Mackenzie, EV adoption cannot be viewed as deterministic; its relative advantage as a means of transport is minimal Climate policy and decarbonization goals are the primary drivers for…
Modeling policy driven adoption Wood Mackenzie also notes that relative advantage is historically the biggest driver [of adoption] and the advantage provided to the end user by electric cars pales in comparison to smart phones or air…
Modeling EV adoption EVs will likely continue to represent an increasing share of new vehicle sales However, the pace and degree of electrification and resulting impact on gasoline demand is uncertain Current forecasts for EV…
Summary observations from our work EV adoption rates in Magellans area of operations would suggest slower demand impacts relative to the rest of the U.S. There is general consensus around relatively stable refined products demand for…
EVs in operation in the U.S. The average number of vehicles in operation (VIO) in the U.S. has risen 6.5% since 2016 to 283mm as of January 2022 In the states outside of Magellans area of operations, the average number of vehicles…
Outlook for EV sales Many EV sales forecasts appear to back-solve from assumed outcomes (including non- binding manufacturer targets) which could result in aggressive outlooks given risks to adoption Lack of a strong relative…
Modeling scenario assumptions The Magellan internal model cases below are identified based on the projected percentage of total U.S. sales in 2050 that are assumed to be EVs (including plug-in hybrids) 80% Case: adoption curve…
Modeling scenario summaries: U.S. EV sales % % VIO Light-duty vehicle gasoline demand (battery + plug-in hybrid) (ICE + traditional hybrids) (000 bpd) 24 Source: Wood Mackenzie, S&P Global, U.S. Energy Information Administration…
Modeling scenario summaries: MMP area 80% case As previously noted, Magellans area of operations is expected to be less impacted by electrification compared to the rest of the U.S. 60% case 40% case 25 Source: MMP…
2022 EIA perspectives In its March 2022 Annual Energy Outlook, EIAs Reference case forecasts a relatively slow turnover to electric equipment and robust gasoline demand past 2050 (i.e. throughout the entire term of their analysis)…
Refined products outlook Magellans base business is expected to remain healthy, with industry and government forecasts projecting petroleum products to remain essential to our everyday lives for decades to come Forecasted U.S.…
Current valuation does not reflect MMPs resiliency In higher gasoline displacement scenarios, our refined products operating margin can be maintained (on an inflation-adjusted basis) with tariff rate increases generally consistent…
Essential business for decades to come All of this together we think leads to a slower energy transition pace than many are expecting, especially in the geographic areas Magellan serves, and as such our business will be relevant and…
Questions
15-minute break
Refined products Mark Roles Senior vice president, commercial refined products
Refined products segment overview Longest refined petroleum products pipeline system in the U.S., primarily transporting gasoline and diesel fuel, with 9,800 miles, 54 terminals and 47mm barrels of storage 2 Houston-area marine…
Resiliency of refined products demand over time Over time, demand for refined products has been resilient despite various economic cycles, emphasizing the essential nature of these fuels EIA refined products demand in MMP's markets…
Rebound from pandemic on Magellans system Although temporarily impacted by the pandemic, refined products demand has rebounded on Magellans system as travel, economic and drilling activity recovered Expect continued increase in 2022,…
Refined products shifts provide opportunities Kansas-to-Colorado expansion 5k bpd expansion completed end of 20 Additional 5k bpd expansion underway, expected to be operational late 22 Considering other options to provide more…
Market-based vs. indexation 70% of our refined products pipeline Refined products pipeline system tariff revenue is generated from markets deemed workably competitive by the FERC or subject to state regulations The remaining 30%…
Annual FERC index history Index is intended to allow pipelines to raise rates to recover actual cost increases while earning a reasonable return without a complicated cost-of-service filing FERC has utilized index methodology since…
Refined products pipeline rates Our average rate/bbl is impacted by the FERC index, market environment and distribution pattern of shipments Despite an all-in mid-year tariff increase of 6%, overall average rate in 22 expected to be…
Refined products storage market Magellan has nearly 40mm barrels of refined products storage along our pipeline system and at our marine terminals (incl. JVs) that is used for contract storage Demand for storage driven by a number of…
Gas liquids blending Quality margin of our fungible refined products pipeline system creates opportunities for gas liquids blending typically 2% of overall gasoline shipped Function of regulated gasoline specifications and seasonal…
Renewable fuels Ethanol: Ability to blend E10, E15 and E85 at our terminals, with E10 heavily favored to date Biodiesel: Limited system-wide demand so far, primarily in Minnesota Currently adding biodiesel blending capabilities in…
Crude oil segment overview 2,200 miles of crude oil pipelines 39mm barrels of total crude oil storage, including 29mm barrels used for contract storage, with largest locations in strategic Houston and Cushing storage hubs Industry…
Permian crude oil pipelines Although the Permian basin has excess pipeline capacity today, production is forecasted to increase, providing better balance to the region Longhorn (100% owned): 75% committed with avg remaining life of…
Houston destination provides optionality Long-haul Permian pipelines supplying the Houston area (like Longhorn and BridgeTex) provide the greatest optionality to shippers due to the regions extensive local refinery demand as well as…
Enhancing our Permian value chain Diversifying supply sources for our long-haul pipes to attract incremental volume Simplified all-in pricing structure for customer ease to seamlessly deliver crude oil from Midland / Crane to…
New HOU joint futures contract New HOU joint futures contract structure improves liquidity and price transparency for industry Houston contract allows market to price WTI at the Gulf Coast (vs Cushing), reducing pricing risk Began…
Houston distribution system enhancements Magellans Houston distribution system provides comprehensive access to essentially all refineries and export terminals along the Houston Gulf Coast, including our Seabrook JV export facility…
Corpus Christi condensate splitter Magellan has a significant presence in Corpus Christi, including a 50k bpd condensate splitter Splitter supported by take-or-pay commitment with an initial term expiring mid 23 o Spread between…
Rockies production vs pipeline capacity Production expected to remain stable or slightly increasing over the next 10 years Saddlehorn (30% owned): 80% committed with avg remaining life of 5 years Joint owners Chevron and Western…
Questions
Capital allocation Finance Jeff Holman Chief financial officer
Capital allocation rationale Current landscape Potential considerations Core business is generally Significant shifts in refined stable and generating products flows significant DCF Refinery closures, Balance sheet strong exports…
Return of capital rationale Current landscape Potential considerations Relatively modest growth Equity valuation reaches in core transportation and or exceeds risk-adjusted terminals business fair value Potential volatility from…
Buyback program philosophy Not wanting to simply return capital to unitholders irrespective of price, and potentially shift value to selling unitholders from holding unitholders Focused on fundamental value: we believe buybacks make…
Capital allocation: delivering value to investors Focused on delivering long-term value for our investors through a disciplined combination of capital 1.4B value returned investments, cash distributions and equity repurchases 800mm…
Disciplined approach to capital investments Reduction in expansion capital spending reflects limited opportunities that meet our risk-adjusted return requirements We do not include sustaining capex in our expansion capital, and do…
MMP does not rely on equity markets Magellan has avoided relying on equity issuances to finance growth, despite 6 billion of expansion capital spending over last 10 years Reinvested 2.3 billion of retained cash flow over that period…
Approach to recent asset sales Recent divestitures reflect our focus on creating value for unitholders Similar to our approach with acquisitions, we do not make decisions based on any attachment to particular assets or a desire to be…
Best-in-class capital returns Magellan has a proven track record of delivering superior returns on invested capital Reflects disciplined management style, high quality asset base and strong business position 15%+ Return on invested…
Reliable cash distribution payments Resilient business model has provided strong cash flow to consistently pay distributions through various business cycles since our 2001 IPO 20 years of uninterrupted annual distribution growth,…
Steady distribution growth amid volatility Magellans distribution vs midstream peers Percentage change in annual distribution / dividend Source: Bloomberg 66
Track record of sector-leading credit quality Committed to maintaining solid balance sheet One of the highest-rated midstream companies at BBB+ / Baa1 Long-standing target maximum leverage ratio of < 4x debt-to-EBITDA Continue to…
MMPs total return proposition MMPs total return characteristics are compelling MMP yield 8.5% MMP growth1 1%-2% Healthy and sustainable yield MMP return2 9.5%-10.5% (compare to yield on S&P of 1.3%) Expect to deliver growth in…
Questions
www.magellanlp.com NYSE: MMP
Supplemental information
Essential midstream infrastructure 72
Straight-forward business model Investment grade MLP with no incentive distribution rights Strong governance with independent board elected by the public Primarily focused on transportation, storage and distribution of refined…
Primarily fee-based business Magellans business model is primarily focused on fee-based, low-risk activities, which are expected to comprise 85%+ of future operating margin* 2021 operating margin* 85%+ Contract storage fee-based…
Commitment to sustainable business Magellans most important social obligation is to safely and reliably transport and store the fuels our nation relies on every day Committed to running our business sustainably, consistent with our…
Customer credit update Crude oil revenues Refined products revenues (30% of total) largely 2021 revenue breakdown* (70% of total) primarily contract dependent demand-driven, customer Mostly long-haul credit not usually relevant…
How we think about cost of capital We look at several methods when estimating the cost of equity: Dividend discount model MMP yield 8.5% Distribution growth3 1%-2% Cost of equity 9.5%-10.5% 30-year treasury rate 2.2% Bond yield…
No near-term debt maturities Nearest maturity is 250mm due in 25 Essentially all debt is fixed, with minimal 4.4% average floating rate exposure related to commercial paper borrowings coupon 19 yrs avg life to maturity MMP debt…
Refined products
Sources of fee-based refined products revenue Refined products pipeline tariff revenue was nearly 930mm during 2021 Accounted for 70% of transportation and terminals revenue for the segment Remaining 30% is derived from other…
Refined products pipeline system Longest refined petroleum products pipeline system in the U.S. at 9,800 miles with 54 terminals and 47mm barrels of storage Demand-driven system with multiple supply options Access to nearly 50% of…
Critical U.S. infrastructure Our refined products pipeline system is During 2021, we transported an essential component of the U.S. 40% or more of the gasoline / petroleum infrastructure to meet distillate consumed in 8 of demand…
Refined products pipeline commitments Volume historically driven by stable demand in the markets served by our pipeline system, with published tariffs generally serving as contracts with volume nominated up to a month in advance 50%…
Refined products pipeline volumes Volumes generally trend with overall demand for refined products in the markets served by our assets Although temporarily impacted by the pandemic, refined products demand rebounded during 2021 as…
Commodity-related activities During 2021, the refined products segment generated 131mm* of product margin from our commodity-related activities Primarily related to our gas liquids blending Transmix processing at 3 fractionators next…
Gas liquids blending overview Magellan transported 300mm+ barrels of gasoline during 2021 Quality margin associated with our fungible pipeline system typically creates opportunities for gas liquids blending Vast majority of our gas…
Gas liquids blending margin Blending margins more dependent on the spread between the price of gasoline and gas liquids than the overall price level of crude oil Gas liquids prices impacted by domestic supply and export options…
Gas liquids blending risk mitigation Our realized margin will not precisely track spot margins throughout the year as it is affected by: Timing of gas liquids purchasing activities and related futures contracts Pool costing of gas…
Crude oil
Sources of fee-based crude oil revenue Crude oil transportation and terminals revenue was 465mm+ in 2021, with pipeline tariffs comprising 1/3 of these fee-based revenues Including pipeline capacity leases, we earned 45% from…
Longhorn pipeline 275k bpd pipeline handling various grades of crude oil from the Permian Basin Primarily receives product through strategic interconnects with Centurion, Medallion, Oryx and Plains pipelines Proven track record of…
Longhorn volumes and rate 75% of capacity currently contracted with weighted average remaining life of 6 years Marketing affiliate has secured multi-year, fixed differential agreements with third parties, in part to bridge the gap…
BridgeTex pipeline 440k bpd pipeline handling various grades of crude oil from the Permian Basin and Eaglebine Primarily receives product through interconnects with Centurion, Medallion, NuStar and Plains pipelines Ownership…
BridgeTex volumes and rate 70% of capacity currently contracted with weighted average remaining life of 4 years Some smaller contracts set to expire in 2022-23, including the commitment from a pipeline affiliate in connection with…
Houston distribution system Our strategic Houston distribution system physically moved 280mm bbls of crude oil during 2021 to refineries in the Houston and Texas City region, third-party export facilities and our Seabrook JV export…
Saddlehorn pipeline Joint venture pipeline primarily delivering crude oil from the DJ and Powder River Basins to Cushing 600-mile pipeline with 290k bpd capacity Ownership structure: Magellan 30%, Plains 30%, WES 20%, Black…
Saddlehorn volumes and rate 80% of capacity currently contracted with weighted average remaining life of 5 years New commitments associated with recent pipeline expansion ramped over time, more than replacing initial commitments that…
Crude oil contract storage Magellan wholly owns approx. 25mm barrels of crude oil tankage used for contract storage, with our largest positions at the strategic Cushing and Houston storage hubs Cushing continues to be an important…
Sources and disclaimers A. Wood Mackenzie The data and information provided by Wood Mackenzie should not be interpreted as advice, and you should not rely on it for any purpose. You may not copy or use this data and information except…
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