Key takeaways from Martin Midstream Partners' analyst meeting (Part 6 of 7)
Martin Midstream Partners and marine shipping
Martin Midstream Partners’ Marine Transportation segment operates fleets of tows along major inland and seaborne petroleum product transportation routes in the U.S., the Caribbean, and Central and South America. The assets are located at the Mississippi River inland waterway, Gulf of Mexico, and East Coast. The Gulf Coast region is a major hub for petroleum refining. The petroleum refining process generates products and by-products that require transportation in large quantities from the refinery or processor. In the international market, MMLP has a presence in the Caribbean and Central and South America. The company holds a fleet of 56 inland marine tank barges, 26 inland push-boats, and four offshore tug barge units. It supplies refined petroleum products, including asphalt, fuel oil, gasoline, distillates, crude oil, sulfur, and NGLs.
The growing North American shale production and increasing U.S. export market of NGLs have been a boon for marine transportation. Recent increases in U.S. oil and gas production have increased demand for marine transportation assets. According to the EIA, crude oil production in the U.S. has increased 14%, to 6.4 million barrels per day in 2013. The EIA also estimates that crude oil production will increase 13% and 9.1% in 2014 and 2015, respectively, while natural gas production is projected to increase by 19.3% and 11.7% in 2014 and 2015, respectively. Higher volume of production will require higher supply and terminaling infrastructure.
The integration of marine inland and land-based rail service offerings for MMLP gives it an edge to satisfy customer demand. The petrochemical industry, because of the complexity of products and processes, seek suppliers that can offer marine, land, rail, and terminal distribution services. Typically, marine transportation is a more efficient, and generally less expensive, mode of transporting petroleum products. A typical two-inland-barge unit carries a volume of product equal to approximately 80 railcars or 250 tanker trucks. The entire revenue structure of marine transportation is fee-based, with average contract maturity greater than one year. MMLP’s logistics include inland water barges that cater to internal demand while offshore barge units cater to international demand for oil, gas, and petroleum product supplies. In 2013, MLMP’s Mississippi River inland waterway generated consistent revenues, while its offshore performance improved.
According to the Oil Pollution Act (the OPA) of 1990, all newly constructed tank barges engaged in oil transportation in the U.S. must be double-hulled and all existing single-hull tank barges must be retrofitted with double hulls or phased out by 2015. The new stipulation may result in dry-docking of MMLP’s entire offshore fleet, which will weaken 2014 performance. MMLP currently has one single-hull barge that will be phased out of the petroleum product trade by 2015. The phasing out of these single-hull vessels in accordance with the OPA may require substantial capital expenditures. This could adversely affect MMLP’s operations and market position and reduce its cash available for distribution.
In 2013, the Marine Transportation segment accounted for ~6.0% of MMLP’s revenues and ~9.0% of its operating income. It generated $19.2 million of EBITDA in 2013. Martin Midstream Partners (MMLP) is a limited partnership that has an integrated distribution network consisting of transportation, terminaling, and storage and midstream logistical services. Other major companies that also operate in the same sector as MMLP include Sunoco Logistics Partners (SXL), Enterprise Products Partners (EPD), Genesis Energy (GEL), and NGL Energy Partners (NGL). Some of these companies are components of the Alerian MLP ETF (AMLP).
Browse this series on Market Realist: