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Must-know: Analysis of Sunoco Logistics' first quarter earnings

Part 4
Must-know: Analysis of Sunoco Logistics' first quarter earnings (Part 4 of 8)

Why refined products and pipelines slow business

Terminal facilities

The terminal facilities have grown in 2011 and 2012 through the inorganic route. In 2013, terminal facilities operated with an aggregate storage capacity of approximately 46 million barrels. In 2Q13, SXL acquired Sunoco Inc.’s Marcus Hook facility. The acquisition included 5 million barrels of terminalling and storage assets in Pennsylvania and Delaware, with approximately 2 million barrels of natural gas liquid (or NGL) storage. Earlier, in September 2011, it acquired a refined products terminal located in Massachusetts from affiliates of ConocoPhillips. Also, in July 2011, it acquired the Eagle Point tank farm and related assets from Sunoco, Inc.

Terminals ProductsEnlarge Graph

In 1Q14, adjusted EBITDA increased by 38.7%, primarily from 35.3% higher throughput in the Nederland terminal, partially offset by 30.3% lower refinery terminals throughput at the Marcus Hook facility.

The most significant asset that SXL holds in this segment is the Nederland Terminal, which is a marine terminal located between Beaumont and Port Arthur, Texas. It provides storage and distribution services for refiners and other large transporters of crude oil. By the end of 2013, the terminal had a total storage capacity of approximately 22 million barrels in nearly 130 above ground storage tanks.

Refined products pipelines

The refined products pipelines transport refined petroleum products in New York, New Jersey, Pennsylvania, Ohio, Michigan, and Texas. The mix of refined products are typically seasonal, with gasoline demand peaking during the summer months, and demand for heating oil and other distillate fuels peaking in the winter. In addition, weather conditions have had short-term effects on the products transported through the refined products pipelines.

Refined PipelinesEnlarge Graph

Adjusted EBITDA increased by 30.7% in 1Q14 over 4Q13. Refined products pipelines throughput decreased by 11.1% while pipeline revenue per barrel improved by 38.1% in 1Q14 over 4Q13. The increase was due primarily to operating results from the Mariner West project. It commenced operations in the fourth quarter 2013.

Also, the revenues from these pipelines, which usually have multiple delivery points, are influenced by the market-based rates at places like Port Arthur, Texas and Illinois. The pipelines are also regulated by Federal Energy Regulatory Commission (or FERC)-set tariffs in places like Montana and Washington. A substantial portion of the refined products pipelines is located in the northeast United States. The pipelines generally enjoy barriers to entry because of huge capital requirements, environmental clearances, and difficulty acquiring permits to set up new pipelines.

Sunoco Logistics Partners L.P. (SXL) is a master limited partnership (or MLP) that operates in the midstream business. The general partnership (or GP) interest of SXL is owned by Energy Transfer Partners (ETP); while the GP interest of ETP is owned by Energy Transfer Equity L.P. (ETE). Other energy players operating in the same sector as SXL include Enterprise Products Partners L.P. (EPD), Plains All American Pipeline L.P. (PAA), and Energy Transfer Partners L.P. (ETP). All of these companies are components of the Alerian MLP ETF (AMLP). ETE is a component of Global X MLP & Energy Infrastructure ETF (MLPX).

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