Filed by Magellan Midstream Partners, L.P. pursuant to
Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
under the Securities Exchange Act of 1934
Subject Company: Magellan Midstream Partners, L.P.
Commission File No. 001-16335
Date: May 23, 2023
On May 23, 2023, Aaron L. Milford, President and Chief Executive Officer of Magellan Midstream Partners, L.P. (Magellan), participated in a fireside chat and question and answer session at the 20th Annual Energy Infrastructure CEO & Investor Conference. Below is a transcript of the fireside chat and question and answer session.
This transcript has been edited by Magellan. It is generally consistent with the original fireside chat and question and answer session transcript. For a replay of the fireside chat and question and answer session, please view the webcast presentation posted on www.magellanlp.com under the headings Investors, Webcasts & Presentations.
Company Name: Magellan Midstream Partners, L.P. (MMP)
Event: 20th Annual Energy Infrastructure CEO & Investor Conference
Date: May 23, 2023
<<Selman Akyol, Analyst, Stifel>>
So good morning, and thank you for taking the time to join us. Im Selman Akyol with Stifel. And in case you missed it last week, Magellan agreed to be acquired by ONEOK in cash and stock for $67.50 at the time of the announcement. Today, were very fortunate to have Aaron Milford, President and CEO of Magellan with us. And I may be the last person to have the opportunity to host a fireside chat. So guys, thank you very much for that privilege. And Im sure theres going to be things you cant talk about. But what you can and I appreciate you being here and doing this. Let me just start with sort of with a general question. Whats the feedback youve been receiving?
<<Aaron L. Milford, President and Chief Executive Officer>>
Well, I think surprised is the word that I would use to sort of be the theme of the entire announcement. And to us thats surprising in and of itself in some respects, but surprise, I think, is the word of the day. It caught everyone off guard. Well take some credit for that being a really good confidentiality process on our part. But so surprise, I think, is the summary. For us, as we think about it, weve talked for some time about the idea of being able to diversify if we could find the right opportunity to do that. We talked about NGLs. We talked about natural gas. And its not because we dont see strength in our current refined products or crude oil business. We just think that longer term, having a more diversified portfolio creates more opportunities for us to deploy capital and create value for unitholders.
So for us, the idea of extending into NGLs and natural gas is not that unusual or sort of unexpected from our perspective. So the feedback weve been getting is that everyones surprised. Its taking a minute for people to sort of think about what does the pro forma company really look like, whats its value proposition. And then the questions were getting, you guys are reading all the headlines about taxes from an MMP unitholder perspective. And the second thing that youre hearing is questions about what really is the strategic rationale when you look at the pro forma. So on the tax side, its I think its important to understand that we think we got fair value for our company, and we think the pro forma provides upside for our unitholders from there.
Now as part of that, its going to trigger taxes. But its not creating taxes. This is a liability that our unitholders have depending on how long theyve held our units to determine how big that tax liability might be, but the liability exists. Whats happening with the transaction is its going to essentially accelerate or trigger that liability that really already exists with our unitholders. So weve got to do some education. Were doing that. Were getting a lot of calls about taxes. Were explaining that to our unitholders. And its important that I highlight that when we made the decision that we thought this was the best interest for our unitholders to do, we took the after-tax consideration into account. We did a lot of work looking at each trade group, folks that have owned us a long time, folks that havent owned us maybe quite so long. And does it make sense for them. Does this transaction make sense considering the tax position and became a conclusion that it does. And we think thats just an even better proposition as you start thinking about the pro forma.
So when you think about the pro forma, again, for us, the idea of diversification and the pro forma having essentially NGLs, natural gas, crude oil, refined products. If you think about that diversified portfolio through time, we see that creating more opportunities. When you think about a long-term position of a pro forma company like this, we like to think about it in terms of risk and opportunities. We think the diversification manages some of the risk. The pro forma company should be less risky, more stable, more resilient than either of our companies by themselves, frankly. And with that diversification, it should also come more opportunity. And so if you put those two together, we think it makes a lot of sense for a pretty strong value proposition for the pro forma company going forward.
So to round it all together, the value we got for Magellan, we think is a fair value. So just looking at the upfront transaction. But when you consider the potential of pro forma, we think it has the potential to be even better. And as you look at it on a risk-adjusted basis, we think we have more ways to win going forward.
<<Selman Akyol, Analyst, Stifel>>
And so as you explain and describe that to people in your conversations, are they coming around and they agree and theyre seeing absolutely your viewpoint?
<<Aaron L. Milford, President and Chief Executive Officer>>
Yes, its taking a minute, Id say, getting past the surprise, getting folks to sit back and consider what the pro forma company can really look like. And I think its starting to sink in. I think its just taken a moment or two for folks to sort of digest what just happened, so to speak, because it was so surprising.
<<Selman Akyol, Analyst, Stifel>>
Got it. I know youre going to have a lot more information in your proxy, but Im just kind of curious, what is your thinking about your timing of getting your proxy out there?
<<Aaron L. Milford, President and Chief Executive Officer>>
Were still a few weeks away.
<<Selman Akyol, Analyst, Stifel>>
Still a few weeks out. Okay. And you and I were talking a little bit about this before, but in terms of exports, I think more and more people are wanting to get to the water, Im sure ONEOK was attracted to that. Could you just talk about maybe your different export facilities, which one has the greatest opportunity for expansion? Just sort of what the footprints look like? And what might be the opportunity that you potentially could see there?
<<Aaron L. Milford, President and Chief Executive Officer>>
Sure. So just focusing on our facilities first. Weve got a joint venture terminal thats primarily focused on crude oil. We call it Seabrook. And then we have our legacy Galena Park terminal in Houston, which is refined products and does a little bit of crude oil as well. And then we have another joint venture, we call it MVP, its in Pasadena, also in the ship channel thats primarily all refined products. We also have a terminal in Corpus Christi, but just focusing on Houston for a moment.
If you look at the footprint of the assets themselves, the one with the most space to build new things is our MVP terminal. Its our joint venture in Pasadena. We bought that land and built that facility several years ago, and we still have a lot of excess land at MVP to add tankage stores, do things as we expand it.
Now thats not new for us. Weve been looking for ways to expand it and continue to grow that facility. But from a footprint perspective, thats the one with the most sort of immediate footprint. Its available to us. But I also want to caution that I think at the end of the day, when we think about exports, the facilities are important, but its really how long weve been operating export facilities for refined products and crude oil. Weve developed some expertise and how to build them, develop them, operate them.
And if you think about taking that expertise and putting that into the pro forma company with some of their objectives on the NGL side, we think its a good fit just from a being able to actually execute on opportunities, whether its at existing facilities or whether its at new ones.
<<Selman Akyol, Analyst, Stifel>>
Okay. Ive got one more here, and then were going to open up to questions because Im sure theres a lot of questions out there on this, and I want to allow time for that. So I think theres going to be a mic theyre going to pass around. So if you want to get your hands up, that would be great.
So youre a very focused return company. Everything goes through a DCF. And Im just curious in whatever broad strokes you can discuss it. Did is this what you saw that you thought in terms of sort of a present value of what you could create with the assets that you had with sort of your project backlog, does this all kind of come back to you got a value thats greater than or equal to what you could create on a risk-adjusted basis from what you kind of saw your trajectory?
<<Aaron L. Milford, President and Chief Executive Officer>>
Yeah. I mean I think thats exactly right. I mean at the end of the day, were a very disciplined company, and we look at all opportunities from as many angles as we can. So when were evaluating this opportunity, obviously, the first step is to figure out well, if we dont do this, what other things might we go do? What other things can we accomplish? What is the trajectory? And we have a very solid business. Were very confident in it.
But as everyone has realized over the last few years, the amount of growth capital and return high returning, appropriately returning projects for us has declined. Theres no way around it. Hence, weve been focused on buybacks and such of late. So that opportunity to invest in projects that we really like on a risk-adjusted basis, theres still opportunity. Were still doing things, but its nothing like the scale of what it used to be. So you look at that case, then you look at what happens if the world changes, it becomes more optimistic, less optimistic?
And you look at all those trajectories for our business, you look at what other strategic moves could you make? And you look at all that potential and then you compare it to this alternative. And as we did all that math and all that consideration, this was the best alternative for our unitholders in our opinion. And its really again, its based on the value upfront, which we think is fair, but its also what we think we can do inside the pro forma company, what our unitholders will be able to benefit from in the pro forma company.
<<Selman Akyol, Analyst, Stifel>>
And just sort of reading that you like the growth profile in the pro forma company better for on a longer term?
<<Aaron L. Milford, President and Chief Executive Officer>>
Yeah, I just think mathematically, when we look at it and you look at the opportunities that exist in NGLs, in natural gas, in refined products and crude oil. When you kind of look at that as a total sort of pie of opportunity and you look at all the different ways you can sort of execute those opportunities, we think the pro forma company will be better positioned to pursue opportunities in all of those.
So that opportunity set is just greater. I mean for us, its just there are more avenues for us to find and fund good projects than what we have as a stand-alone basis. And I would argue that when you look at it even from ONEOKs perspective, if we put the two together, were going to find more opportunities than either one of us are going to find by ourselves.
So thats the thesis. We believe it. The synergy number thats been thrown out there is 200 million baseline, maybe greater than 400 through time. And I think I dont think you have to assume heroics to see that sort of value. So when you look at putting the pro forma together and setting the tax benefit to the step-up to the pro forma going forward, set that aside, Im not ignoring it. Theres value there. We shouldnt ignore it. But the commercial opportunities, we think will also be very vast as we get everything pulled together.
Q&A
<Q Selman Akyol>: Okay. As I said, I wanted to stop there and take questions. Is there a mic thats going to be going around for people, just one second here. We got a question up here.
<Q>: Thanks. Thanks for that explanation. So Ive held ONEOK for my clients for a really long time, like almost since inception. So I did the math on it. One of my clients owns roughly $1 million. Hes going to have a $200,000 tax bill, which gives him a 20% haircut right off the bat. If theres 10% upside in the shares from here, hes 10% in the hole. Plus now hes going to have taxable income going forward versus tax deferred. If I wanted to diversify, I can buy my own MLP basket. I can buy ONEOK on my own. So for me, this really doesnt work. And I dont even listening to you like I dont really understand how its better for most of the shareholders.
<A Aaron L. Milford>: Well, I certainly understand your perspective. I think you have to think of the pro forma. And on the MMP side, youre saying the taxes are on the MMP side. So on the MMP side, what was super interesting is that tax liability exists.
<Q>: No, I get that. And thats why I plan to hold it until I die.
<A Aaron L. Milford>: Right. So thats the one outcome that we cant control for. And that is, at the end of the day, if you own a partnership and you pass away and pass it on to an heir, theres an ability to step that up. So whatever youve deferred, whatever tax liability you would otherwise incur essentially is erased, and you re-step up to fair value and then your heirs get to benefit from that. Thats the one scenario that we cant plan for for our own unitholders.
So if you look at how our units have actually traded, 60% of our units approximately have been held for five years or less. So and then we have about less than 25% of our units that have been held for 10 years or longer. So when you look at that unitholder base across all the trade groups, now we cant make actuarial assumptions about when people are going to pass away. But if you just look at how theyve traded and the behavior of our unitholders, most of our unitholders arent holding it until they pass away.
So as we think about that, its how we then make decisions to maximize value for all of our unitholders. We considered everyones perspective. But we have to make it for the unitholder base as a whole, and I dont know how to control for when people might pass away. So I understand that I understand what youre saying, if that was the intent of your clients to hold it until they pass, we are essentially removing that option for them. But absent that option, we think this makes a lot of sense even on an after-tax basis for the vast majority of our unitholders, if not all of them, when you look at the value proposition.
And I think your point about, well, Im an investor and my clients can buy ONEOK and they can buy Magellan. So why are you diversifying for me? Why dont you just let me do that? And I think the logic there is we think the synergies, the tax synergy to one, the commercial synergies are another, where we cant achieve those unilaterally. Theres going to be value that comes out of the combination that is greater than what an individual unitholder could realize just diversifying for themselves. Its on the cost side, its on the management side, its on the commercial side. So thats the logic.
I agree with your logic in the sense that if we dont have that, we dont see that, we dont believe that the pro forma company can create more value than either one of us by ourselves, theres a lot of logic to the argument that you make what the investors do it. We think theres going to be more value that comes out of it that should benefit all investors.
<Q Selman Akyol>: Anyone else out there with a question? All right. Well, if you have something, just raise your hand, well get to you. Otherwise, you get to listen to my questions. So you mentioned a little bit earlier in terms of Corpus and Houston. Maybe you could just talk about those as sort of two destinations for exports and how you see that evolving over time?
<A Aaron L. Milford>: Sure. So speaking specifically about crude oil. Theres a split between Corpus and Houston. I think as we sit here today, we could all agree that Corpus is getting the lions share of the marginal barrels coming out for export. Its closer to the basin. Its cheaper for producers to get there at least today it is. And the facilities in many respects, they can light load VLCCs, theres some efficiencies in the system to Corpus that make it a really advantageous place to export.
So whats happening is youre starting to see the infrastructure in Corpus start filling up. But thats what it is. Its an export play. Theres not really a refining base in Corpus thats very large: 700,000, 800,000 barrels a day of refining capacity. So its primarily a play to come out of the Permian and load on to a vessel and go to international markets. Thats what Corpus is best at.
So now fast forward and lets look at Houston from a fundamental perspective. Youve got a much larger refining base. You can also export from Houston, but its not as efficient as exporting from Corpus as it is today. And then we dont really have a VLCC, even really a light-loaded VLCC option in the Houston area. That is likely to change through time. But theres not really a light-loaded even light-loaded VLCC option in Houston.
So Houston is at a bit of an export disadvantage to Corpus. But as we think long-term, we think Houston will continue to be the more attractive market when you think about the optionality for what shippers can do with barrels once they get to a destination. Its not just exporting it. If you get to Corpus, thats all youre going to do with it is export it. But as the market evolves, Houstons capabilities catch up to Corpus, which they will through time, we believe, that optionality of Houston should make it still a premium market and that dynamic should start to change when we think Houston will start pulling more barrels to Houston, especially as Corpus continues to fill up from a utilization standpoint. So we think theres going to be more flows through time through Houston for export and all the other destinations that you can get to refining or otherwise.
<Q Selman Akyol>: Okay. And if I can just pursue that just for a minute. Does Houston then get almost by definition if Corpus fills, then Houston would get the remaining barrels. I get that. But if Houston gets to a point where they can do VLCCs either light or the offshore port thats being discussed out there, does that draw barrels away from Corpus to the point where then Corpus is not full?
<A Aaron L. Milford>: Theres certainly that potential there. I mean, the environment were in right now is from just an export capability, Corpus has an advantage. As the capabilities of Houston improve, youre going to create more of that competition, where youre going to see the actual export capabilities, maybe not be equal, but theyre going to equalize to some extent. And how that plays out, well all have to watch and see. But at the end of the day, we still believe that Houston will be a premium market for the crude oil. And as it develops further capabilities to compete just on a heads-up basis for exports, that dynamic is going to change.
<Q Selman Akyol>: Got it. So maybe just talk a little bit and just this is more operational. But can you just talk about blending margins. They were strong for the first quarter. How are you viewing the back half of the year and early any early comments as you look into 2024?
<A Aaron L. Milford>: Yes. So focusing on this year, just to recap, you may recall 20, the first quarter this year was a really strong blending quarter for us. And what I think some people may or may not realize is that we only we not only had good margins, they were around $0.75 in the first quarter. We also had really strong volumes, so its one thing when you have when your margins going, its great, but were also getting better at moving more volume. So we had a sort of a double benefit in the first quarter. It was both a volume and a margin sort of outperformance.
As you look into the fall, were not foreseeing the same margin that we saw in the first quarter for the rest of the year. Thats not what were expecting, thats not what our guide, whats in our guidance. Its still going to be a little over $0.50 in the fall. Most of that is hedged, I think were around 60% hedged in the fall already, still early for spring 2024. But if you look at the year, were expecting average margins around $0.65 per gallon for the whole year. So $0.75, a little over $0.55, kind of weighted average, thats $0.65 for the year. And thats about $0.20 higher than the five year average has been. Its been around $0.45 over the last five years. So, were seeing good margins, but just as, makes me just as happy to really see the volumes because thats something we can control and were just getting better at capturing opportunities.
<Q Selman Akyol>: And, I would think thatd be one of the opportunities with this combination for you guys to work together well there, in terms of you take one
<A Aaron L. Milford>: Its certainly interesting, there are, while theyre very different businesses, NGLs and refined from the markets are different, what customers need and expect are different, there are places where those value chains intersect. And butane blending is one of those places where our value chain intersects. We buy butane, do all the logistics to get it to where we need it, we blend it, and it benefits us. So when you think about the whole value chain and the pro forma company where it participates, theres going to be a lot of opportunity for us to sort of get optimization out of that whole value chain where itll benefit both companies.
<Q Selman Akyol>: So certainly part of that $200 million that you were seeing in synergies.
<A Aaron L. Milford>: I would expect blending to be a part of that. Absolutely, absolutely.
<Q>: Just, excuse me for one moment, I just want to let of people know if they dont want to do live my questions, you may also submit your questions to slido.com and use that code there and youll be able to see it on the confidence monitor. So I just wanted to, you want to be anonymous, feel free to put your questions in that way as well.
<A Aaron L. Milford>: Thank you.
<Q>: Sorry to interrupt.
<A Aaron L. Milford>: No problem.
<Q Selman Akyol>: Okay, well no questions coming up yet there either. So let me just ask you, in terms of EV adoption and how youre viewing it, are there any changes? Youve certainly got large funding for charging stations coming out of Washington. Is any of that sort changing your outlook rate of adoption? Does that move the curve at all for anything that youre seeing?
<A Aaron L. Milford>: The short answer is, no. And its one of the questions weve received related to the proposed transaction with ONEOK is, your willingness to consider this transaction, is it some sort of is it a vote that youre less confident in your own business? And the reality is, no, were just as confident in our core business as we have been. We think were going to have a really healthy, stable, maybe not growing as fast as it did the previous 10 or so years, but a really good business for a really long time.
And that assumption is based on what I think is a pragmatic or realistic view of EV, its not like were assuming EV adoptions never going to happen or is going to happen super slow so to speak, or that well just have our head in the sand, so to speak. We think we have a pretty good idea on what the range of outcomes for what EV adoptions going to be, and thats in our base case. And what I would say is, what were seeing right now is within our base case, were not seeing anything that is sort of a surprise or different. If you remember a couple of years ago we talked about how we view energy transition. We tried to hit head on, and we put a triangle up there. If you havent seen it, I think you could still see it in our analyst deck. But we talked about theres three pieces that have to come together. Its policy, so the IRA, EPA standards, all the things thatre sort of driving EVs, thats one. Capability is what can we actually build, whats the quality that we can actually build in terms of batteries, cars, that sort of thing. The other ones the consumer, the market. And where those three meet. And I dont think we still have a really clear answer. Weve got a really clear answer on the policy side of what they want to see happen. But you still have to meet capability. What can you actually do? And we can talk about that for a long time if we really want to from our perspective.
But its not exactly clear if the capability matches the policy expectation. And then I think its even less clear about what consumers are really going to do. And if you look at our geographic market area regardless of what your opinion on EVs may be. In the central part of the United States, EVs, the utility of an EV just doesnt fit the lifestyle of the consumers in that geography. People drive long distances, people who want pickup trucks, they pull trailers, boats. Theyre outside. Theyre doing all these things where they really depend on their vehicle. And from what we can tell, what weve seen, the EVs they just dont match that utility. They dont do what a lot of the customers in our market area want them to do.
So one little fact I think as of 2022, 3% of new car sales in our geography were EVs. Three. On the coasts, its 10, 12, depending on where youre at, but it was three. And if you look at the total fleet of vehicles that are on the road in our geographic area, less than 1% were EVs. So whatever is going to happen with EV adoption, its going to happen a lot faster in other geographies. And its going to have to be a lot of advances in the actual utility of the cars, the vehicles themselves before they were really a replacement alternative for what the consumers in our market area need essentially.
<<Selman Akyol, Analyst, Stifel>>
Got it. I guess one little follow-up question on that, and this is more of my own personal interest. But and I know when you did the announcement, there was also some mention of hydrogen. Do you in your crystal ball when you look forward five years, and I know its a long way out, do you see hydrogen being a transportation fuel?
<<Aaron L. Milford, President and Chief Executive Officer>>
Look, hydrogen was called out. I think in my mind, its just one example of what could be, if that makes any sense. Today, were already moving renewable diesel in certain places. Were already talking about sustainable aviation fuel. Weve spent time looking at carbon sequestration. We havent done anything with it. Hydrogen, weve studied hydrogen to a degree. And for us, hydrogen is further down the road.
I mean theres how do you convert physical transportation, liquid transportation infrastructure to a hydrogen infrastructure at scale, how do you do it? And it seems pretty challenging. Thats not to say that it cant happen, but it looks pretty challenging. So as we think about all the things that can be I think its important to remain disciplined. And I think thats the key. Theres clearly discipline that still is applied to these what may be type of opportunities. But for me, personally, hydrogen is down the road.
<<Selman Akyol, Analyst, Stifel>>
Understood. And I thought it was odd that you guys mentioned it in the announcement, but you did. And so thats what was really sort of driving that out there. Can you talk maybe just a little bit about what youre seeing latest on inflation? Have we peaked and rolled over? Is it starting to become less? Is it just stagnating and staying at the same levels? How is that impacting you guys?
<<Aaron L. Milford, President and Chief Executive Officer>>
Well, what were seeing is probably very similar to what you all are seeing in the sense that the headline numbers are still running a little higher than what most people would like or want, theyve come off of the highs for sure. Inside of our own business, this year, our guidance included an assumption that we expected our expenses, total expenses, to go up around 2% year-over-year, which is way less than the inflation that were seeing. Part of that is just our own optimization efforts; its just making sure were being as efficient as we can be. So for us, inflation is occurring, for us as a company inflation is not a terrible thing as long as we can manage the cost side, it really benefits us on the revenue side, and were seeing that this year.
<Q Selman Akyol>: So July should be
<A Aaron L. Milford>: Yeah in July with what were going to see. So inflation is an interesting thing. If we manage it in our own cost structure, which is what weve shown a history of being able to do. And then when you look at the revenue side, it provides, I think, net-net, more of an opportunity for us than it does a particular risk.
<Q Selman Akyol>: Got it. And then, okay. So then, I guess, longer term, can you just talk about the Permian re-contracting rates, what youre seeing out there, how competitive things are?
<A Aaron L. Milford>: Well, things are still really competitive in the crude oil space out of the Permian. Anyone watching the differentials between basically Midland and Permian and Houston, youll see theyre still really low. And so on the re-contracting side what were expecting is production is going to continue to grow out of the Permian. You can debate rates or sort of a range of lets just use 0.5 million barrels a day for this example. So the Permian will continue to grow as it continues to grow, the excess capacity pipeline capacity out of the Permian should decrease, which should drive the differential up, which should allow us the potential to have better rates essentially in the future than what you could get right now in the Permian.
We have seen some interest of producers wanting to go ahead and sign up some longer-term capacity, which weve taken advantage of at rates that are higher than the differential with the anticipation that things are going to get tighter. I wouldnt say that people are just falling out of trees wanting to do that, but there are certain producers motivated to do it. So as we look forward to re-contracting, we think the differential environment is going to improve; we still have several years on average left on really all of our crude pipes. So were getting out several years from now before we get into a heavy re-contracting period of time for us, and we like the fact that that event is still out in time for us a little bit.
In the meantime, we still have commitments, still making the cash flow, and we see opportunities every once in a while where folks want to sign up some more term at rates that we think are fair. So thats going to be the nature of it here until we see the capacity actually starting to tighten up.
<Q Selman Akyol>: Got it. Okay. Anyone else out there with a question? Oh, here we go, Ben.
<Q>: Im here with one.
<Q Selman Akyol>: No, we got a mic.
<Q>: Theres been some consolidation among the customer base in the Permian. And Im interested to know how you see that impact. When we get tight, I would imagine youre going to see a more moderated peak in pricing?
<A Aaron L. Milford>: Yes. You may. The consolidation is certainly interesting in the Permian. For us, weve got really good customers, really high quality customers that have long-dated drilling programs that come out of the Permian. So for us specifically, I dont see consolidation really changing sort of how our business operates. Now as you start thinking about consolidation of people high-grading inventories and sort of the growth, if you have private, which has been growing very rapidly, being consumed by the majors, which clearly have not been investing as much capital, much more of a disciplined approach. You put those together, what happens to that growth rate of the production look is it does it stabilize? Or does it sort of become less peaky?
I guess thats possible, but the reality is, we can make a lot of money in the Permian today at $70 oil and its all a matter of how fast they want to make it. So, I dont know if consolidation is going to change sort of the macro over the longer to intermediate term. It may have some short term impact, one or two years out from now, but I dont know if its going to change the potential of the Permian other than maybe elongate it a little bit, which could push this capacity inflection point that Im talking about. And move that out in time, but I dont think it just removes it, is what I would say.
<Q Selman Akyol>: I think we have time for one more question if anyones got one out there.
<Q>: Thank you. Can you speak to repurposing any assets through this transaction, from crew to NGL or anything in that nature?
<A Aaron L. Milford>: Yeah, so we just signed it were still working our way towards closing and then all those decisions will be made after integration, right? Theres a whole process to try and integrate, but as you look at the pipes, we said in the investor decks, 25,000 miles of liquids pipelines in this portfolio. So as we go through time, I guess is were going to find opportunities to find more efficient ways to serve the distinct NGL market and distinct refined market. Well find ways to optimize that for sure. Takes investment. You dont just get to wake up. There may be a high investment, but, and theres things that making sure that if youre trying to change service and things, how do you connect to the markets that need to be connected to? But theres opportunity there. Its just hard to point to a real specific thing that we might get to.
<Q Selman Akyol>: One more quick one. Thanks.
<Q>: Sorry for a hold back. We talked about capacity coming out of the Permian. What about capacity coming out of the DJ where theres a lot more excess?
<A Aaron L. Milford>: Yeah, so the DJ is super interesting. Were in were actually, our volumes are growing up out of the DJ on our line. And thats really a function of the quality of the shippers and customers that we have, frankly. Theyre still very active in the DJ, so youre right, theres a lot of excess capacity, but were still continuing to grow the volumes on our pipe. And we think thats primarily a function of just how were positioned and who our customers are more so than the DJ Basin itself. So were in a good spot. There again, were still several years left on a contract.
<<Selman Akyol, Analyst, Stifel>>
All right, well were going to leave it there. But Aaron, thank you very much for the privilege. So thank you.
<<Aaron L. Milford, President and Chief Executive Officer>>
Thank you for the questions.
Cautionary Statement Regarding Forward-Looking Statements
This communication includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements, other than statements of historical fact, included in this communication that address activities, events or developments that ONEOK or Magellan expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as estimate, project, predict, believe, expect, anticipate, potential, create, intend, could, would, may, plan, will, guidance, look, goal, future, build, focus, continue, strive, allow or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding the proposed transaction between ONEOK and Magellan (the proposed transaction), the expected closing of the proposed transaction and the timing thereof and as adjusted descriptions of the post-transaction company and its operations, strategies and plans, integration, debt levels and leverage ratio, capital expenditures, cash flows and anticipated uses thereof, synergies, opportunities and anticipated future performance, including maintaining current ONEOK management, enhancements to investment-grade credit profile, an expected accretion to earnings and free cash flow, dividend payments and potential repurchases, increase in value of tax attributes and expected impact on EBITDA. Information adjusted for the proposed transaction should not be considered a forecast of future results. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this communication. These include the risk that ONEOKs and Magellans businesses will not be integrated successfully; the risk that cost savings, synergies and growth from the proposed transaction may not be fully realized or may take longer to realize than expected; the risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect; the possibility that shareholders of ONEOK may not approve the issuance of new shares of ONEOK common stock in the proposed transaction or that shareholders of ONEOK or unitholders of Magellan may not approve the proposed transaction; the risk that a condition to closing of the proposed transaction may not be satisfied, that either party may terminate the merger agreement or that the closing of the proposed transaction might be delayed or not occur at all; potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction; the risk that the parties do not receive regulatory approval of the proposed transaction; the occurrence of any other event, change, or other circumstances that could give rise to the termination of the merger agreement relating to the proposed transaction; the risk that ONEOK may not be able to secure the debt financing necessary to fund the cash consideration required for the proposed transaction; the risk that changes in ONEOKs capital structure and governance could have adverse effects on the market value of its securities; the ability of ONEOK and Magellan to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on ONEOKs and Magellans operating results and business generally; the risk the proposed transaction could distract management from ongoing business operations or cause ONEOK and/or Magellan to incur substantial costs; the risk of any litigation relating to the proposed transaction; the risk that ONEOK may be unable to reduce expenses or access financing or liquidity; the impact of the COVID-19 pandemic, any related economic downturn and any related substantial decline in commodity prices; the risk of changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters; and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond ONEOKs or Magellans control, including those detailed in ONEOKs Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are available on ONEOKs website at www.oneok.com and on the website of the Securities and Exchange Commission (the SEC) at www.sec.gov, and those detailed in Magellans Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that are available on Magellans website at www.magellanlp.com and on the website of the SEC. All forward-looking statements are based on assumptions that ONEOK and Magellan believe to be reasonable but that may not prove to be accurate. Any forward-looking statement speaks only as of the date on which such statement is made, and neither ONEOK nor Magellan undertakes any obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.
No Offer or Solicitation
This communication is not intended to and shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Important Additional Information Regarding the Merger Will Be Filed with the SEC and Where to Find It
In connection with the proposed transaction, ONEOK intends to file with the SEC a registration statement on Form S-4 (the Registration Statement) to register the shares of ONEOKs common stock to be issued in connection with the proposed transaction. The Registration Statement will include a document that serves as a prospectus of ONEOK and joint proxy statement of ONEOK and Magellan (the joint proxy statement/prospectus), and each party will file other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AND OTHER RELEVANT DOCUMENTS FILED BY ONEOK AND MAGELLAN WITH THE SEC BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT ONEOK AND MAGELLAN, THE PROPOSED TRANSACTION, THE RISKS RELATED THERETO AND RELATED MATTERS.
After the Registration Statement has been declared effective, a definitive joint proxy statement/prospectus will be mailed to shareholders of ONEOK and unitholders of Magellan. Investors will be able to obtain free copies of the Registration Statement and the joint proxy statement/prospectus, as each may be amended from time to time, and other relevant documents filed by ONEOK and Magellan with the SEC (when they become available) through the website maintained by the SEC at www.sec.gov. Copies of documents filed with the SEC by ONEOK, including the joint proxy statement/prospectus (when available), will be available free of charge from ONEOKs website at www.ONEOK.com under the Investors tab. Copies of documents filed with the SEC by Magellan, including the joint proxy statement/prospectus (when available), will be available free of charge from Magellans website at www.magellanlp.com under the Investors tab.
Participants in the Solicitation
ONEOK and certain of its directors, executive officers and other members of management and employees, Magellan, and certain of the directors, executive officers and other members of management and employees of Magellan GP, LLC, which manages the business and affairs of Magellan, may be deemed to be participants in the solicitation of proxies from ONEOKs shareholders and the solicitation of proxies from Magellans unitholders, in each case with respect to the proposed transaction. Information about ONEOKs directors and executive officers is available in ONEOKs Annual Report on Form 10-K for the 2022 fiscal year filed with the SEC on February 28, 2023 and its definitive proxy statement for the 2023 annual meeting of stockholders filed with the SEC on April 5, 2023, and in the joint proxy statement/prospectus (when available). Information about Magellans directors and executive officers is available in its Annual Report on Form 10-K for the 2022 fiscal year and its definitive proxy statement for the 2023 annual meeting of unitholders, each filed with the SEC on February 21, 2023, and the joint proxy statement/prospectus (when available). Other information regarding the participants in the solicitations and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the Registration Statement, the joint proxy statement/prospectus and other relevant materials to be filed with the SEC regarding the proposed transaction when they become available. Shareholders of ONEOK, unitholders of Magellan, potential investors and other readers should read the joint proxy statement/prospectus carefully when it becomes available before making any voting or investment decisions.