MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited, in ~~thousands)~~millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Net income	$	353.9	$	238.7	$	519.4	$	512.6
Other comprehensive income:
Derivative activity:

Reclassification of net loss on cash flow hedges to income	0.9		0.9		1.8		1.8
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Net actuarial gain (loss)	1.1		(2.6)		1.1		(2.6)


Recognition of prior service credit amortization in income	(0.1)		(0.1)		(0.1)		(0.1)
Recognition of actuarial loss amortization in income	1.2		0.5		2.4		0.9

Total other comprehensive income (loss)	3.1		(1.3)		5.2		—
Comprehensive income	$	357.0	$	237.4	$	524.6	$	512.6

Three Months Ended September 30, Nine Months Ended September 30,
2016 2017 2016 2017
Net income $ 194,551
$ 198,500
$ 589,480
$ 631,636
Other comprehensive income:

Derivative activity:
Net gain (loss) on cash flow hedges⁽¹⁾
(3,169 ) (228 ) (24,278 ) (1,735 )
Reclassification of net (gain) loss on cash flow hedges to income⁽¹⁾
512
740
1,288
2,219
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Amortization of prior service credit⁽²⁾
(973 ) (45 ) (2,920 ) (136 )
Amortization of actuarial loss⁽²⁾
1,452
1,568
4,145
4,779
Settlement cost⁽²⁾
202
289
202
2,015
Total other comprehensive income (loss) (1,976 ) 2,324
(21,563 ) 7,142
Comprehensive income $ 192,575
$ 200,824
$ 567,917
$ 638,778

⁽¹⁾ ~~See Note 8–Derivative Financial Instruments~~ for details of the amount of gain/loss recognized in accumulated other comprehensive loss (“AOCL”) for derivative financial instruments and the amount of gain/loss reclassified from AOCL into income.

⁽²⁾ ~~See Note 6–Employee Benefit Plans~~ ~~for details of the changes in employee benefit plan assets and benefit obligations recognized in AOCL.~~

See notes to consolidated financial statements.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS

(In ~~thousands)~~millions)


	December 31, 2022		June 30, 2023
ASSETS			(Unaudited)
Current assets:
Cash and cash equivalents	$	2.0	$	128.4

Trade accounts receivable	219.9		169.5
Other accounts receivable	44.4		34.8
Inventories	356.2		330.1
Commodity derivatives contracts, net	6.5		6.1
Commodity derivatives deposits	14.8		16.2

Assets held for sale	9.9		9.9
Other current assets	56.8		42.3
Total current assets	710.5		737.3
Property, plant and equipment	8,163.9		8,266.9
Less: accumulated depreciation	2,333.6		2,440.7
Net property, plant and equipment	5,830.3		5,826.2
Investments in non-controlled entities	894.0		859.3
Right-of-use asset, operating leases	149.4		95.4
Long-term receivables	8.3		8.1
Goodwill	50.4		50.4
Other intangibles (less accumulated amortization of $14.7 and $16.1 at December 31, 2022 and June 30, 2023, respectively)	41.0		39.6
Restricted cash	4.9		—

Other noncurrent assets	18.9		12.9
Total assets	$	7,707.7	$	7,629.2

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable	$	108.2	$	137.7
Accrued payroll and benefits	76.8		54.2
Accrued interest payable	59.0		59.0
Accrued taxes other than income	86.0		65.3

Deferred revenue	103.9		94.1
Accrued product liabilities	209.3		209.6
Commodity derivatives contracts, net	15.4		13.2

Current portion of operating lease liability	31.0		21.3


Other current liabilities	35.9		26.7
Total current liabilities	725.5		681.1
Long-term debt, net	5,015.0		4,984.1
Long-term operating lease liability	116.9		76.7
Long-term pension and benefits	87.4		91.6

Other noncurrent liabilities	78.0		81.2

Commitments and contingencies

Partners’ capital:
Common unitholders (203.0 units and 202.1 units outstanding at December 31, 2022 and June 30, 2023, respectively)	1,778.8		1,808.4
Accumulated other comprehensive loss	(93.9)		(93.9)
Total partners’ capital	1,684.9		1,714.5


Total liabilities and partners’ capital	$	7,707.7	$	7,629.2

December 31,
2016 September 30,
2017
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 14,701
$ 1,381
Trade accounts receivable 105,689
128,765
Other accounts receivable 25,761
13,349
Inventory 134,378
168,762
Energy commodity derivatives contracts, net —
1,189
Energy commodity derivatives deposits 49,899
31,735
Other current assets 39,966
62,247
Total current assets 370,394
407,428
Property, plant and equipment 6,783,737
7,121,856
Less: Accumulated depreciation 1,507,996
1,638,351
Net property, plant and equipment 5,275,741
5,483,505
Investments in non-controlled entities 931,255
1,066,940
Long-term receivables 23,870
27,166
Goodwill 53,260
53,260
Other intangibles (less accumulated amortization of $2,136 and $1,308 at December 31, 2016 and September 30, 2017, respectively) 51,976
52,845
Other noncurrent assets 65,577
12,303
Total assets $ 6,772,073
$ 7,103,447

LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Accounts payable $ 77,248
$ 120,990
Accrued payroll and benefits 45,690
40,082
Accrued interest payable 65,643
42,257
Accrued taxes other than income 50,166
49,844
Environmental liabilities 10,249
9,870
Deferred revenue 101,891
116,697
Accrued product liabilities 51,600
119,572
Energy commodity derivatives contracts, net 30,738
14,898
Current portion of long-term debt, net —
251,439
Other current liabilities 48,431
44,065
Total current liabilities 481,656
809,714
Long-term debt, net 4,087,192
4,051,411
Long-term pension and benefits 71,461
66,410
Other noncurrent liabilities 25,868
29,799
Environmental liabilities 13,791
10,818
Commitments and contingencies

Partners’ capital:
Limited partner unitholders (227,784 units and 228,025 units outstanding at December 31, 2016 and September 30, 2017, respectively) 2,193,346
2,229,394
Accumulated other comprehensive loss (101,241 ) (94,099 )
Total partners’ capital 2,092,105
2,135,295
Total liabilities and partners’ capital $ 6,772,073
$ 7,103,447

See notes to consolidated financial statements.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in ~~thousands)~~millions)

Nine Months Ended
September 30,
2016 2017
Operating Activities:
Net income $ 589,480
$ 631,636
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense 134,137
146,103
Loss (gain) on sale and retirement of assets 5,397
(10,924 )
Earnings of non-controlled entities (51,543 ) (78,173 )
Distributions of earnings from investments in non-controlled entities 50,047
78,562
Equity-based incentive compensation expense 14,737
14,183
Settlement cost, amortization of prior service credit and actuarial loss 1,427
6,658
Gain on exchange of interest in non-controlled entity (28,144 ) —
Changes in operating assets and liabilities:
Trade accounts receivable and other accounts receivable (49,014 ) (14,413 )
Inventory 7,857
(34,384 )
Energy commodity derivatives contracts, net of derivatives deposits 637
1,135
Accounts payable 5,850
15,576
Accrued payroll and benefits (12,725 ) (5,608 )
Accrued interest payable (2,393 ) (23,386 )
Accrued taxes other than income 2,115
(322 )
Accrued product liabilities (6,183 ) 67,972
Deferred revenue 17,191
14,806
Current and noncurrent environmental liabilities (5,649 ) (3,352 )
Other current and noncurrent assets and liabilities (34,229 ) (11,497 )
Net cash provided by operating activities 638,995
794,572
Investing Activities:
Additions to property, plant and equipment, net⁽¹⁾
(517,810 ) (418,239 )
Proceeds from sale and disposition of assets 6,098
44,303
Investments in non-controlled entities (174,900 ) (114,078 )
Distributions in excess of earnings of non-controlled entities 4,500
71,867
Net cash used by investing activities (682,112 ) (416,147 )
Financing Activities:
Distributions paid (548,388 ) (596,854 )
Net commercial paper borrowings (repayments) (244,963 ) 218,984
Borrowings under long-term notes 1,142,997
—
Debt placement costs (10,500 ) —
Net payment on financial derivatives (19,287 ) —
Payments associated with settlement of equity-based incentive compensation (14,376 ) (13,875 )
Net cash provided (used) by financing activities 305,483
(391,745 )
Change in cash and cash equivalents 262,366
(13,320 )
Cash and cash equivalents at beginning of period 28,731
14,701
Cash and cash equivalents at end of period $ 291,097
$ 1,381

Supplemental non-cash investing and financing activities:
Contribution of property, plant and equipment to a non-controlled entity $ —
$ 93,051
Issuance of limited partner units in settlement of equity-based incentive plan awards $ 7,092
$ 1,669

⁽¹⁾ Additions to property, plant and equipment
$ (514,205 ) $ (443,439 )
Changes in accounts payable and other current liabilities related to capital expenditures (3,605 ) 25,200
Additions to property, plant and equipment, net $ (517,810 ) $ (418,239 )


	Six Months Ended
	June 30,
	2022		2023
Operating Activities:
Net income	$	519.4	$	512.6
Adjustments to reconcile net income to net cash provided by operating activities:
Income from discontinued operations	(175.6)		—
Depreciation, amortization and impairment expense	116.5		113.6
Gain on disposition of assets	(0.2)		(1.1)
Earnings of non-controlled entities	(61.9)		(42.1)
Distributions from operations of non-controlled entities	78.9		76.8
Equity-based incentive compensation expense	22.9		14.2
Settlement cost, amortization of prior service credit and actuarial loss	2.3		0.8



Changes in operating assets and liabilities:

Trade accounts receivable and other accounts receivable	(10.0)		60.0
Inventories	(47.9)		26.1


Accounts payable	6.1		26.5
Accrued payroll and benefits	(16.9)		(22.6)

Accrued taxes other than income	(12.9)		(20.7)
Accrued product liabilities	33.1		0.3
Deferred revenue	(6.6)		(9.8)


Other current and noncurrent assets and liabilities	(73.4)		21.4
Net cash provided by operating activities of continuing operations	373.8		756.0
Net cash provided by operating activities of discontinued operations	23.5		—
Net cash provided by operating activities	397.3		756.0
Investing Activities:
Additions to property, plant and equipment, net(1)	(86.1)		(95.3)

Proceeds from disposition of assets	0.2		1.1



Investments in non-controlled entities	(0.9)		—



Net cash used by investing activities of continuing operations	(86.8)		(94.2)
Net cash provided by investing activities of discontinued operations	448.4		—
Net cash provided (used) by investing activities	361.6		(94.2)
Financing Activities:
Distributions paid	(440.1)		(424.7)
Repurchases of common units, net(2)	(219.0)		(73.7)
Net commercial paper payments	(89.0)		(32.0)







Payments associated with settlement of equity-based incentive compensation	(8.9)		(9.9)


Net cash used by financing activities	(757.0)		(540.3)
Change in cash, cash equivalents and restricted cash	1.9		121.5
Cash, cash equivalents and restricted cash at beginning of period	9.0		6.9
Cash, cash equivalents and restricted cash at end of period	$	10.9	$	128.4

Supplemental non-cash investing and financing activities:


(1) Additions to property, plant and equipment	$	(85.3)	$	(108.3)
Changes in current liabilities related to capital expenditures	(0.8)		13.0
Additions to property, plant and equipment, net	$	(86.1)	$	(95.3)

(2) Repurchases of common units	$	(239.6)	$	(64.3)
Changes in accounts payable related to repurchases of common units	20.6		(9.4)
Repurchases of common units, net	$	(219.0)	$	(73.7)

See notes to consolidated financial statements.

MAGELLAN MIDSTREAM PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(Unaudited, in millions)


	Common Unitholders		Accumulated Other Comprehensive Loss			Total Partners’ Capital
Balance, April 1, 2022	$	1,955.6		$	(152.9)	$	1,802.7
Comprehensive income:
Net income	353.9			—		353.9
Total other comprehensive income	—			3.1		3.1
Total comprehensive income	353.9			3.1		357.0
Distributions	(219.5)			—		(219.5)
Repurchases of common units	(189.6)			—		(189.6)
Equity-based incentive compensation expense	8.5			—		8.5
Issuance of common units in settlement of equity-based incentive plan awards	0.4			—		0.4


Other	(0.1)			—		(0.1)
Three Months Ended June 30, 2022	$	1,909.2		$	(149.8)	$	1,759.4

Balance, April 1, 2023	$	1,774.0		$	(92.6)	$	1,681.4
Comprehensive income:
Net income	238.7			—		238.7
Total other comprehensive loss	—			(1.3)		(1.3)
Total comprehensive income (loss)	238.7			(1.3)		237.4
Distributions	(211.7)			—		(211.7)

Equity-based incentive compensation expense	7.8			—		7.8


Other	(0.4)			—		(0.4)
Three Months Ended June 30, 2023	$	1,808.4		$	(93.9)	$	1,714.5

See notes to consolidated financial statements.




MAGELLAN MIDSTREAM PARTNERS, L.P. CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL (Continued) (Unaudited, in millions)

	Common Unitholders		Accumulated Other Comprehensive Loss			Total Partners’ Capital
Balance, January 1, 2022	$	2,054.8		$	(155.0)	$	1,899.8
Comprehensive income:
Net income	519.4			—		519.4
Total other comprehensive income	—			5.2		5.2
Total comprehensive income	519.4			5.2		524.6
Distributions	(440.1)			—		(440.1)
Repurchases of common units	(239.6)			—		(239.6)
Equity-based incentive compensation expense	22.9			—		22.9
Issuance of common units in settlement of equity-based incentive plan awards	1.1			—		1.1
Payments associated with settlement of equity-based incentive compensation	(8.9)			—		(8.9)

Other	(0.4)			—		(0.4)
Six Months Ended June 30, 2022	$	1,909.2		$	(149.8)	$	1,759.4

Balance, January 1, 2023	$	1,778.8		$	(93.9)	$	1,684.9
Comprehensive income:
Net income	512.6			—		512.6

Total comprehensive income	512.6			—		512.6
Distributions	(424.7)			—		(424.7)
Repurchases of common units	(64.3)			—		(64.3)
Equity-based incentive compensation expense	14.2			—		14.2
Issuance of common units in settlement of equity-based incentive plan awards	2.3			—		2.3
Payments associated with settlement of equity-based incentive compensation	(9.9)			—		(9.9)
Other	(0.6)			—		(0.6)
Six Months Ended June 30, 2023	$	1,808.4		$	(93.9)	$	1,714.5

See notes to consolidated financial statements.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization, Description of Business and Basis of Presentation


1.	~~Organization, Description of Business and Basis of Presentation~~

Organization

Unless indicated otherwise, the terms “our,” “we,” “us” and similar language refer to Magellan Midstream Partners, L.P. together with its subsidiaries. Magellan Midstream Partners, L.P. is a Delaware limited partnership, and ~~its limited partner~~our common units are traded on the New York Stock Exchange under the ticker symbol “MMP.” Magellan GP, LLC, a ~~wholly-owned~~wholly owned Delaware limited liability company, serves as ~~its~~our general partner. The board of directors of our general partner is referred to herein as our “board.”

Description of Business

We are principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of ~~September~~June 30, ~~2017,~~2023, our asset portfolio ~~including the assets of our joint ventures,~~ consisted of:

•our refined products segment, comprised of our ~~9,700-mile~~approximately 9,800-mile refined petroleum products pipeline system with 5354 terminals ~~as well as~~ 26 ~~independent~~and two marine storage terminals ~~not connected to our pipeline system~~(one of which is owned through a joint venture); and ~~our~~ ~~1,100-mile ammonia pipeline system;~~

•our crude oil segment, comprised of approximately 2,200 miles of crude oil pipelines, ~~our~~a condensate splitter and ~~storage facilities with an~~39 million barrels of aggregate storage capacity, of ~~approximately 27 million barrels, of~~ which approximately 1629 million barrels are used for contract ~~storage;~~storage. Approximately 1,000 miles of these pipelines, the condensate splitter and

~~our marine storage segment, consisting~~ 31 million barrels of ~~five marine terminals located along coastal waterways with an aggregate~~this storage capacity (including 25 million barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.

Description of ~~approximately 26 million barrels.~~Products

~~Terminology common~~The following terms are commonly used in our industry ~~includes the following terms, which~~to describe products that we transport, store, ~~and~~ distribute or otherwise handle through our petroleum pipelines and terminals:

•refined productsare the output from crude oil refineries ~~and~~that are primarily used as fuels by consumers. Refined products include gasoline, diesel fuel, aviation fuel, kerosene and heating oil. ~~Collectively, diesel~~Diesel fuel, kerosene and heating oil are also referred to as distillates;

~~liquefied~~•crude oil, which includes condensate, is a naturally occurring unrefined petroleum ~~gases, or~~ product recovered from underground that is used as feedstock by refineries, splitters and petrochemical facilities;

•transmix is a mixture that forms when different refined products are transported in pipelines. Transmix is fractionated and blended into usable refined products; and

•LPGs are liquids produced as by-products of the crude oil refining process and in connection with crude oil and natural gas production. LPGs include ~~butane and propane;~~

~~blendstocks~~ ~~are blended with refined products to change or enhance their characteristics~~gas liquids such as ~~increasing a gasoline’s octane or oxygen content. Blendstocks include alkylates, oxygenates~~butane, natural gasoline and ~~natural gasoline;~~

propane.

~~heavy oils and feedstocks~~ ~~are used as burner fuels or feedstocks for further processing by refineries and petrochemical facilities. Heavy oils and feedstocks include No. 6 fuel oil and vacuum gas oil;~~

~~crude oil and condensate~~ ~~are used as feedstocks by refineries and petrochemical facilities;~~

~~biofuels, such as ethanol and biodiesel, are increasingly required by government mandates; and~~

~~ammonia~~ ~~is primarily used as a nitrogen fertilizer.~~

~~Except for ammonia, we~~We use the term petroleum products to describe any, or a combination, of the above-noted products. In addition, we handle, store and distribute renewable fuels, such as ethanol, biodiesel and renewable diesel.

610

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Merger Agreement

On May 14, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ONEOK, Inc. (“ONEOK”) and Otter Merger Sub, LLC, a newly formed, wholly owned subsidiary of ONEOK (“Merger Sub”). Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Magellan (the “Merger”), with Magellan continuing as a wholly owned subsidiary of ONEOK. The board of directors of ONEOK, and the board of directors of our general partner unanimously approved the Merger Agreement. Under the terms of the Merger Agreement, upon completion of the Merger, Magellan unitholders will receive 0.667 shares of common stock of ONEOK and $25.00 in cash for each common unit of Magellan.

The completion of the Merger is subject to the satisfaction of customary closing conditions, including: (i) adoption of the Merger Agreement by holders of a majority of the outstanding Magellan Units, and (ii) approval of the issuance of ONEOK Shares in connection with the Merger by a majority of the votes cast at the shareholder meeting of ONEOK.

ONEOK and we have each made customary representations and warranties in the Merger Agreement. The Merger Agreement also contains customary covenants and agreements, including covenants and agreements relating to the conduct of each of ONEOK’s and our business between the date of the signing of the Merger Agreement and the closing date of the Merger.

The Merger Agreement provides that in the event of termination of the Merger Agreement under certain circumstances, we may be required to reimburse ONEOK’s expenses up to $125.0 million or pay ONEOK a termination fee equal to $275.0 million less any expenses previously paid. Further, ONEOK may be required to reimburse our expenses up to $75.0 million or pay us a termination fee equal to $450.0 million, less any expenses previously paid. Until the Merger is closed, we must continue to operate as an independent company.

Basis of Presentation

In the opinion of management, our accompanying consolidated financial statements which are unaudited, except for the consolidated balance sheet as of December 31, ~~2016,~~2022, which is derived from our audited financial statements, include all normal and recurring adjustments necessary to present fairly our financial position as of ~~September~~June 30, ~~2017,~~2023, the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017~~2023 and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017.~~2023. The results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2017~~2023 for several reasons. Profits from our ~~butane~~gas liquids blending activities are realized largely during the first and fourth quarters of each year. Additionally, gasoline demand, which drives transportation volumes and revenues on our refined products pipeline ~~systems,~~system, generally trends higher during the summer driving months. Further, the volatility of commodity prices impacts the profits from our commodity activities and ~~to a lesser extent,~~ the volume of petroleum products we transport on our pipelines.

Pursuant to the rules and regulations of the Securities and Exchange Commission, the financial statements in

this report ~~do not include all of the information and notes normally included with financial statements~~have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2022.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Significant Accounting Polices

In ~~September 2017,~~addition to our significant accounting policies disclosed in Part II, Item 8 – Financial Statements and Supplementary Data of our Annual Report on Form 10-K, we ~~recognized an $18.5 million gain in connection~~add the following descriptions of cost of product sales and operating expenses.

Cost of Product Sales. Cost of product sales includes costs associated with the purchase of petroleum products, transportation and storage expenses, renewable fuel standard expenses, gains or losses on hedges for product purchases, and costs related to our blending and fractionating activities including compensation, utilities and power and depreciation.

Operating Expenses.Operating expenses principally include costs associated with asset maintenance, compensation, utilities and power, materials and supplies, environmental remediation, product overages and shortages, property tax, and insurance.

Discontinued Operations

In June 2022, we completed the sale of ~~an inactive terminal~~the independent terminals network comprised of 26 refined petroleum products terminals in ~~Chicago, Illinois,~~the southeastern U.S. to Buckeye Partners, L.P. (“Buckeye”). For the prior periods impacted, the related results of operations, financial position and cash flows have been classified as discontinued operations (see Note 2 – Discontinued Operations for additional details). Additionally, the Notes to the Consolidated Financial Statements relate to continuing operations with the exception of Note 9 Employee Benefit Plans, which ~~is not included in operating profit because~~includes the ~~gain is not related to our ongoing operations.~~impact of discontinued operations for the 2022 period.

Use of Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our consolidated financial statements, as well as their impact on the reported amounts of revenue and expense during the reporting periods. Actual results could differ from those estimates.

New Accounting Pronouncements

~~In March 2017,~~We evaluate new Accounting Standards Codifications (“ASC”) and updates issued by the Financial Accounting Standards Board ~~(“FASB”) issued Accounting Standards Update (“ASU”) 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires companies~~on an ongoing basis. There are no new accounting pronouncements that offer postretirement benefits to present the service cost, which is the amount an employer has to set aside each period to cover the benefits, in the same line item with other employee compensation costs. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outsidewe anticipate will have a ~~subtotal of income from operations. Additionally, only the service cost component will be eligible for capitalization when applicable.~~

Public companies must comply with the new requirements under ASU 2017-07 for fiscal years that start after December 15, 2017, and the amendments must be applied retrospectively except for the capitalization change, which should be applied prospectively. Early adoption is allowed, and we elected to adopt ASU 2017-07 as of January 1, 2017. Prior to adoption, we expensed all components of pension expense through salaries and wages, which impacted operating income. We are now recording only the service component of pension expense to salaries and wages, with the remainder of the expense being recorded to other income and expense below operating profit.

material impact on our financial statements.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.Discontinued Operations

~~Comparative prior periods~~

Summarized Results of Discontinued Operations

The following table provides the summarized results that have been ~~restated for this change. The changes were not material to our financial statements.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842).~~ This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The new accounting model for lessors remains largely the same, although some changes have been made to align it with the new lessee model and the new revenue recognition guidance. This update also requires companies to include additional disclosures regarding their lessee and lessor agreements. Public companies are required to adopt the standard for financial reporting periods that start after December 15, 2018, although early adoption is permitted. We are currentlypresented as discontinued operations in the ~~process of evaluating the impact this new standard will have on our financial statements.~~

~~In July 2015, the FASB issued ASU 2015-11,~~ ~~Inventory (Topic 330): Simplifying the Measurement of Inventory~~. Prior to this update, reporting entities were required to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value or net realizable value less an approximately normal profit margin. Under this update, inventory is to be measured at the lower of cost or net realizable value, which is defined as the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. This ASU became effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. We adopted this standard on January 1, 2017, and it did not have a material impact on our results of operations, financial position or cash flows as we have historically measured our inventory at the lower of cost or net realizable value, as described above.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers.~~ This ASU amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods or services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services. We will adopt this ASU as required on January 1, 2018, and we expect to use the modified retrospective method that will result in a cumulative effect adjustment as of the date of adoption. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.


2.	~~Product Sales Revenue~~

~~The amounts reported as product sales revenue on our~~ consolidated statements of income ~~include revenue from~~(in millions) for 2022:


	Three Months Ended June 30,		Six Months Ended June 30,
	2022		2022
Transportation and terminals revenue	$	9.0	$	21.1
Product sales revenue	23.7		30.0
Total revenue	32.7		51.1
Costs and expenses:
Operating	4.2		8.0
Cost of product sales	18.3		28.8

General and administrative	0.5		1.1
Total costs and expenses	23.0		37.9

Gain on disposition of assets	(162.4)		(162.4)
Income from discontinued operations	$	172.1	$	175.6

Summarized Assets and Liabilities of Discontinued Operations

Subsequent to the ~~physical~~ sale of ~~petroleum products and mark-to-market adjustments from exchange-based futures contracts. See Note 8 –~~ ~~Derivative Financial Instruments~~the independent terminals network in June 2022, no assets or liabilities were classified as held for ~~a discussion of our commodity hedging strategies and how our futures contracts impact product sales revenue.~~sale in relation to discontinued operations.

~~For the three and nine months ended September 30, 2016 and 2017, product sales revenue included the following (in thousands):~~

3.Segment Disclosures

Three Months Ended Nine Months Ended
September 30, September 30,
2016 2017 2016 2017
Physical sale of petroleum products $ 146,006
$ 168,346
$ 412,045
$ 553,076
Change in value of futures contracts (12,650 ) (47,336 ) (8,438 ) (4,442 )
Total product sales revenue $ 133,356
$ 121,010
$ 403,607
$ 548,634

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


3.	~~Segment Disclosures~~

Our reportable segments are strategic business units that offer different products and services. Our segments are managed separately asbecause each segment requires different marketing strategies and business knowledge. Management, including our Chief Executive Officer who serves as our chief operating decision maker, evaluates performance based on segment operating margin, which includes revenue from affiliates and ~~external~~third-party customers, intersegment transactions, operating expenses, cost of product sales, other operating (income) expense and earnings of non-controlled entities.

We believe that investors benefit from having access to the same financial measures used by ~~management. Operating margin, which is presented in the following tables, is an important measure used by~~ management to allocate resources to our segments and to evaluate the economic performance of our core operations. Operating margin is not a GAAP measure, but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included in the tables below. Operating profit includes depreciation and amortization expense and general and administrative (“G&A”) expense that management does not consider when evaluating the core profitability of our separate operating segments.

Three Months Ended September 30, 2016
(in thousands)
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 267,339
$ 100,113
$ 46,182
$ (201 ) $ 413,433
Product sales revenue 105,834
24,750
2,772
—
133,356
Affiliate management fee revenue 218
4,416
359
—
4,993
Total revenue 373,391
129,279
49,313
(201 ) 551,782
Operating expenses 95,535
24,547
16,325
(1,492 ) 134,915
Cost of product sales 93,761
24,108
373
—
118,242
(Earnings) losses of non-controlled entities 272
(18,180 ) (668 ) —
(18,576 )
Operating margin 183,823
98,804
33,283
1,291
317,201
Depreciation and amortization expense 28,432
9,333
8,025
1,291
47,081
G&A expense 22,853
8,445
4,286
—
35,584
Operating profit $ 132,538
$ 81,026
$ 20,972
$ —
$ 234,536

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three Months Ended June 30, 2022
	(in millions)
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation and terminals revenue	$	349.2	$	121.4	$	(1.3)	$	469.3
Product sales revenue	291.0		22.7		—		313.7
Affiliate management fee revenue	1.7		3.9		—		5.6
Total revenue	641.9		148.0		(1.3)		788.6
Operating expenses	136.3		46.6		(2.8)		180.1
Cost of product sales	260.6		21.7		—		282.3
Other operating (income) expense	(3.0)		—		—		(3.0)
(Earnings) losses of non-controlled entities	2.0		(28.5)		—		(26.5)
Segment operating margin	246.0		108.2		1.5		355.7
Depreciation, amortization and impairment expense	39.2		18.1		1.5		58.8
G&A expense	40.3		16.6		—		56.9
Operating profit	$	166.5	$	73.5	$	—	$	240.0
Interest expense (net of interest income and interest capitalized)							57.3

Other (income) expense							0.6
Income from continuing operations before provision for income taxes							$	182.1

Three Months Ended September 30, 2017
(in thousands)
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 289,030
$ 116,305
$ 42,501
$ (901 ) $ 446,935
Product sales revenue 107,175
12,370
1,465
—
121,010
Affiliate management fee revenue 353
3,703
847
—
4,903
Total revenue 396,558
132,378
44,813
(901 ) 572,848
Operating expenses 118,665
31,163
17,723
(2,183 ) 165,368
Cost of product sales 103,391
16,630
1,798
—
121,819
(Earnings) losses of non-controlled entities 700
(31,244 ) (607 ) —
(31,151 )
Operating margin 173,802
115,829
25,899
1,282
316,812
Depreciation and amortization expense 27,469
12,584
8,574
1,282
49,909
G&A expense 23,808
9,266
4,128
—
37,202
Operating profit $ 122,525
$ 93,979
$ 13,197
$ —
$ 229,701

Nine Months Ended September 30, 2016
(in thousands)
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 739,931
$ 303,181
$ 132,837
$ (201 ) $ 1,175,748
Product sales revenue 372,061
26,465
5,081
—
403,607
Affiliate management fee revenue 422
9,686
1,032
—
11,140
Total revenue 1,112,414
339,332
138,950
(201 ) 1,590,495
Operating expenses 279,822
66,228
49,808
(3,847 ) 392,011
Cost of product sales 300,009
26,469
1,052
—
327,530
(Earnings) losses of non-controlled entities 352
(49,870 ) (2,025 ) —
(51,543 )
Operating margin 532,231
296,505
90,115
3,646
922,497
Depreciation and amortization expense 78,523
28,264
23,704
3,646
134,137
G&A expense 68,589
27,333
14,892
—
110,814
Operating profit $ 385,119
$ 240,908
$ 51,519
$ —
$ 677,546

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2017
(in thousands)
Refined Products Crude Oil Marine Storage
Intersegment
Eliminations
Total
Transportation and terminals revenue $ 808,818
$ 329,813
$ 136,702
$ (2,488 ) $ 1,272,845
Product sales revenue 509,068
34,876
4,690
—
548,634
Affiliate management fee revenue 1,035
10,311
1,537
—
12,883
Total revenue 1,318,921
375,000
142,929
(2,488 ) 1,834,362
Operating expenses 312,911
89,991
45,753
(6,401 ) 442,254
Cost of product sales 396,292
37,814
6,564
—
440,670
(Earnings) losses of non-controlled entities 167
(76,388 ) (1,952 ) —
(78,173 )
Operating margin 609,551
323,583
92,564
3,913
1,029,611
Depreciation and amortization expense 81,440
35,947
24,803
3,913
146,103
G&A expense 75,429
30,376
15,071
—
120,876
Operating profit $ 452,682
$ 257,260
$ 52,690
$ —
$ 762,632


	Three Months Ended June 30, 2023
	(in millions)
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation and terminals revenue	$	389.9	$	115.3	$	(2.0)	$	503.2
Product sales revenue	322.8		45.9		—		368.7
Affiliate management fee revenue	1.5		3.8		—		5.3
Total revenue	714.2		165.0		(2.0)		877.2
Operating expenses	129.1		44.5		(3.5)		170.1
Cost of product sales	260.9		35.5		—		296.4
Other operating (income) expense	0.4		0.1		—		0.5
Earnings of non-controlled entities	(0.2)		(15.7)		—		(15.9)
Segment operating margin	324.0		100.6		1.5		426.1
Depreciation, amortization and impairment expense	37.3		17.8		1.5		56.6
G&A expense	53.1		21.4		—		74.5
Operating profit	$	233.6	$	61.4	$	—	$	295.0
Interest expense (net of interest income and interest capitalized)							54.8
Gain on disposition of assets							(1.1)
Other (income) expense							1.0
Income from continuing operations before provision for income taxes							$	240.3

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Six Months Ended June 30, 2022
	(in millions)
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation and terminals revenue	$	658.7	$	236.1	$	(2.6)	$	892.2
Product sales revenue	532.6		27.2		—		559.8
Affiliate management fee revenue	3.5		7.8		—		11.3
Total revenue	1,194.8		271.1		(2.6)		1,463.3
Operating expense	224.5		85.4		(5.6)		304.3
Cost of product sales	493.7		32.0		—		525.7
Other operating (income) expense	(3.1)		2.1		—		(1.0)
Earnings of non-controlled entities	(1.7)		(60.2)		—		(61.9)
Operating margin	481.4		211.8		3.0		696.2
Depreciation, amortization and impairment expense	78.8		34.7		3.0		116.5
G&A expense	86.0		33.7		—		119.7
Operating profit	$	316.6	$	143.4	$	—	$	460.0
Interest expense (net of interest income and interest capitalized)							114.1
Gain on disposition of assets							(0.2)
Other (income) expense							1.2
Income from continuing operations before provision for income taxes							$	344.9


4.	~~Investments in Non-Controlled Entities~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Six Months Ended June 30, 2023
	(in millions)
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation and terminals revenue	$	721.9	$	239.6	$	(4.2)	$	957.3
Product sales revenue	709.3		69.5		—		778.8
Affiliate management fee revenue	3.1		7.7		—		10.8
Total revenue	1,434.3		316.8		(4.2)		1,746.9
Operating expense	224.7		86.6		(7.3)		304.0
Cost of product sales	568.0		48.5		—		616.5
Other operating (income) expense	(5.4)		0.1		—		(5.3)
Earnings of non-controlled entities	(13.8)		(28.3)		—		(42.1)
Operating margin	660.8		209.9		3.1		873.8
Depreciation, amortization and impairment expense	75.0		34.3		3.1		112.4
G&A expense	96.6		38.3		—		134.9
Operating profit	$	489.2	$	137.3	$	—	$	626.5
Interest expense (net of interest income and interest capitalized)							110.9
Gain on disposition of assets							(1.1)
Other (income) expense							1.6
Income from continuing operations before provision for income taxes							$	515.1

4. Revenue

Statements of Income Disclosures

The following tables provide details of our revenue disaggregated by key activities that comprise our performance obligations by operating segment (in millions):

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Three Months Ended June 30, 2022
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation	$	249.3	$	62.1	$	—	$	311.4

Terminalling	29.1		12.8		—		41.9
Storage	38.0		24.6		(1.3)		61.3
Ancillary services	26.3		3.5		—		29.8
Lease revenue	6.5		18.4		—		24.9
Transportation and terminals revenue	349.2		121.4		(1.3)		469.3
Product sales revenue	291.0		22.7		—		313.7
Affiliate management fee revenue	1.7		3.9		—		5.6
Total revenue	641.9		148.0		(1.3)		788.6
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue	(6.5)		(18.4)		—		(24.9)
(Gains) losses from futures contracts included in product sales revenue	86.2		2.8		—		89.0
Affiliate management fee revenue	(1.7)		(3.9)		—		(5.6)
Total revenue from contracts with customers under ASC 606	$	719.9	$	128.5	$	(1.3)	$	847.1


	Three Months Ended June 30, 2023
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation	$	285.0	$	60.3	$	—	$	345.3
Terminalling	31.6		14.2		—		45.8
Storage	37.2		22.4		(2.0)		57.6
Ancillary services	29.8		4.3		—		34.1
Lease revenue	6.3		14.1		—		20.4
Transportation and terminals revenue	389.9		115.3		(2.0)		503.2
Product sales revenue	322.8		45.9		—		368.7
Affiliate management fee revenue	1.5		3.8		—		5.3
Total revenue	714.2		165.0		(2.0)		877.2
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue	(6.3)		(14.1)		—		(20.4)
(Gains) losses from futures contracts included in product sales revenue	8.4		3.3		—		11.7
Affiliate management fee revenue	(1.5)		(3.8)		—		(5.3)
Total revenue from contracts with customers under ASC 606	$	714.8	$	150.4	$	(2.0)	$	863.2

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


	Six Months Ended June 30, 2022
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation	$	462.6	$	117.1	$	—	$	579.7
Terminalling	52.4		19.1		—		71.5
Storage	77.5		51.6		(2.6)		126.5
Ancillary services	53.9		11.4		—		65.3
Lease revenue	12.3		36.9		—		49.2
Transportation and terminals revenue	658.7		236.1		(2.6)		892.2
Product sales revenue	532.6		27.2		—		559.8
Affiliate management fee revenue	3.5		7.8		—		11.3
Total revenue	1,194.8		271.1		(2.6)		1,463.3
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue	(12.3)		(36.9)		—		(49.2)
(Gains) losses from futures contracts included in product sales revenue	194.4		11.0		—		205.4
Affiliate management fee revenue	(3.5)		(7.8)		—		(11.3)
Total revenue from contracts with customers under ASC 606	$	1,373.4	$	237.4	$	(2.6)	$	1,608.2


	Six Months Ended June 30, 2023
	Refined Products		Crude Oil		Intersegment Eliminations		Total
Transportation	$	513.4	$	118.6	$	—	$	632.0
Terminalling	62.6		32.2		—		94.8
Storage	75.0		47.4		(4.2)		118.2
Ancillary services	58.4		7.6		—		66.0
Lease revenue	12.5		33.8		—		46.3
Transportation and terminals revenue	721.9		239.6		(4.2)		957.3
Product sales revenue	709.3		69.5		—		778.8
Affiliate management fee revenue	3.1		7.7		—		10.8
Total revenue	1,434.3		316.8		(4.2)		1,746.9
Revenue not under the guidance of ASC 606, Revenue from Contracts with Customers:
Lease revenue	(12.5)		(33.8)		—		(46.3)
(Gains) losses from futures contracts included in product sales revenue	13.6		4.5		—		18.1
Affiliate management fee revenue	(3.1)		(7.7)		—		(10.8)
Total revenue from contracts with customers under ASC 606	$	1,432.3	$	279.8	$	(4.2)	$	1,707.9

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheet Disclosures

The following table summarizes our accounts receivable, contract assets and contract liabilities resulting from contracts with customers (in millions):


	December 31, 2022		June 30, 2023
Accounts receivable from contracts with customers	$	217.0	$	166.1
Contract assets	$	10.1	$	10.5
Contract liabilities	$	112.7	$	103.1

For the respective three and six months ended June 30, 2023, we recognized $5.7 million and $78.0 million of transportation and terminals revenue that was recorded in deferred revenue as of December 31, 2022.

Unfulfilled Performance Obligations

The following table provides the aggregate amount of the transaction price allocated to our unfulfilled performance obligations (“UPOs”) as of June 30, 2023 by operating segment, including the range of years remaining on our contracts with customers and an estimate of revenues expected to be recognized over the next 12 months (dollars in millions):


	Refined Products		Crude Oil		Total
Balances at June 30, 2023	$	1,984.8	$	1,137.2	$	3,122.0
Remaining terms	1 - 15 years		1 - 9 years
Estimated revenues from UPOs to be recognized in the next 12 months	$	373.2	$	278.4	$	651.6

5.Investments in Non-Controlled Entities

Our equity investments in non-controlled entities at ~~September~~June 30, ~~2017~~2023 were comprised of:



Entity						Ownership Interest
BridgeTex Pipeline Company, LLC (“BridgeTex”)						~~50%~~30%
Double Eagle Pipeline LLC (“Double Eagle”)						50%
HoustonLink Pipeline Company, LLC (“HoustonLink”)						50%
MVP Terminalling, LLC (“MVP”)						~~50%~~25%
Powder Springs Logistics, LLC (“Powder Springs”)						50%
Saddlehorn Pipeline Company, LLC (“Saddlehorn”)						~~40%~~30%
Seabrook Logistics, LLC (“Seabrook”)						50%
Texas Frontera, LLC (“Texas Frontera”)						50%

~~Recently-Formed Company~~

MVP was formed in September 2017 to construct and develop a refined products marine storage facility along the Houston Ship Channel in Pasadena, Texas. We own a 50% equity interest in MVP, with an affiliate of Valero Energy Corporation (“Valero”) owning the other 50% interest. We serve as construction manager and operator of the MVP facility. The initial phase of this facility is expected to be operational in early 2019. Upon formation of MVP, we contributed $93.1 million of property, plant and equipment (“PP&E”) to this entity. Concurrently, Valero contributed cash of $46.5 million, which was distributed to us as reimbursement for its portion of the PP&E we contributed. The $46.5 million is reflected as distributions in excess of earnings of non-controlled entities on our consolidated statement of cash flows.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We serve as operator of BridgeTex, HoustonLink, MVP, Powder Springs, Saddlehorn, Texas Frontera and the pipeline activities of Seabrook. We receive fees for management services as well as reimbursement or payment to us for certain direct operational payroll and other overhead costs. The management fees we ~~have received~~receive are reported as affiliate management fee revenue onin our consolidated statements of income. Cost reimbursements we receive from these entities in connection with our operating services are included as reductions to costs and expenses onin our consolidated statements of income and totaled ~~$1.2~~$1.9 million and ~~$0.7~~$2.6 million during the three months ended ~~September~~June 30, ~~2016~~2022 and ~~2017,~~2023, respectively, and ~~$2.7~~$3.8 million and ~~$3.1~~$4.9 million during the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017,~~2023, respectively.

We recorded the following revenue and expense transactions from certain of these non-controlled entities in our consolidated statements of income (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Transportation and terminals revenue:
BridgeTex, pipeline capacity and storage	$	11.6	$	11.0	$	22.6	$	22.6
Double Eagle, throughput revenue	$	0.3	$	1.1	$	1.0	$	1.7
Saddlehorn, storage revenue	$	0.6	$	0.6	$	1.2	$	1.2
Operating expenses:
Seabrook, storage lease and ancillary services	$	4.5	$	2.1	$	8.7	$	7.1

Three Months Ended September 30, Nine Months Ended September 30,
2016 2017 2016 2017
Transportation and terminals revenue:
BridgeTex, capacity lease $ 8.9
$ 9.1
$ 26.6
$ 27.0
Double Eagle, throughput revenue $ 0.9
$ 1.3
$ 2.5
$ 3.1
Saddlehorn, storage revenue $ —
$ 0.5
$ —
$ 1.6

Our consolidated balance sheets reflected the following balances related to transactions with our non-controlled entities (in millions):


	December 31, 2022
	Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable
BridgeTex	$	4.8	$	—	$	3.1
Double Eagle	$	0.2	$	—	$	—
HoustonLink	$	—	$	—	$	0.3
MVP	$	—	$	0.6	$	—

Saddlehorn	$	—	$	0.2	$	—
Seabrook	$	0.3	$	—	$	0.9


	June 30, 2023
	Trade Accounts Receivable		Other Accounts Receivable		Other Accounts Payable
BridgeTex	$	0.5	$	—	$	—
Double Eagle	$	0.4	$	—	$	—
HoustonLink	$	—	$	0.2	$	—
MVP	$	—	$	0.6	$	—

Saddlehorn	$	—	$	0.2	$	—
Seabrook	$	—	$	—	$	0.9

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~Our consolidated balance sheets reflected the following balances related to our investments in non-controlled entities (in millions):~~

December 31, 2016 September 30, 2017
Trade Accounts Receivable Other Accounts Receivable Trade Accounts Receivable Other Accounts Receivable
Double Eagle $ 0.3
$ —
$ 0.5
$ —
MVP $ —
$ —
$ —
$ 0.5
Saddlehorn $ —
$ 0.1
$ —
$ 0.1

~~In addition to the transactions noted above, we incurred charges~~We made purchases of ~~$9.0~~transmix from MVP totaling $4.6 million ~~and $12.9 million for transportation of crude oil at published spot tariff rates on the BridgeTex pipeline~~ during the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2023 and $5.1 million and $7.1 million during the six months ended June 30, 2022 and 2023, respectively. We recorded these charges as cost of product sales in our consolidated statements of income. We also purchased inventory from BridgeTex valued at $2.8 million in September 2017. We recognized an affiliate payable to BridgeTex on our consolidated balance sheets as of September 30, 2017 in the amount of $5.6 million in connection with this activity.

In January 2017, we entered into an agreement to guarantee our 50% pro rata share, up to $50.0 million, of obligations under Powder Springs’ credit facility. As of September 30, 2017, our consolidated balance sheet reflected a $0.8 million other current liability and a corresponding increase in our investment in non-controlled entities on our consolidated balance sheet to reflect the fair value of this guarantee.

In February 2016, we transferred a 50% membership interest in Osage Pipe Line Company, LLC (“Osage”) to an affiliate of HollyFrontier Corporation. In conjunction with this transaction, we entered into several commercial agreements with affiliates of HollyFrontier Corporation, which we recorded at that time as a $43.7 million intangible asset and an $8.3 million other receivable on our consolidated balance sheets. The intangible asset will be amortized over the 20-year life of the contracts received. We recognized a $28.1 million non-cash gain in 2016 in relation to this transaction.

The financial results from MVP, Powder Springs and Texas Frontera are included in our ~~marine storage~~refined products segment and the financial results from BridgeTex, Double Eagle, HoustonLink, ~~Osage,~~ Saddlehorn and Seabrook are included in our crude oil segment, ~~and the financial results from Powder Springs are included in our refined products segment,~~ each as earnings of non-controlled entities.

A summary of our investments in non-controlled entities (representing only our proportionate interest) follows (in millions):



Investments at December 31, 2022	$	894.0



Earnings of non-controlled entities:
Proportionate share of earnings	42.9

Amortization of excess investment and capitalized interest	(0.8)
Earnings of non-controlled entities	42.1
Less:

Distributions from operations of non-controlled entities	76.8

Investments at June 30, 2023	$	859.3

6.Inventories

Inventories at December 31, 2022 and June 30, 2023 were as follows (in millions):


	December 31, 2022		June 30, 2023
Refined products	$	150.2	$	117.2
Transmix	91.1		99.3
LPGs	66.7		46.9
Crude oil	42.5		61.0
Additives	5.7		5.7
Total inventories	$	356.2	$	330.1

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.Debt

~~A summary of our investments in non-controlled entities follows (in thousands):~~

Investments at December 31, 2016 $ 931,255
Additional investment⁽¹⁾
207,941
Earnings of non-controlled entities:
Proportionate share of earnings 79,949
Amortization of excess investment and capitalized interest (1,776 )
Earnings of non-controlled entities 78,173
Less:
Distributions of earnings from investments in non-controlled entities 78,562
Distributions in excess of earnings of non-controlled entities⁽²⁾
71,867
Investments at September 30, 2017 $ 1,066,940

~~(1) Includes our $93.1 million contribution of PP&E to MVP.~~

(2) Includes the $46.5 million distribution to us from MVP as reimbursement for the PP&E we contributed, as well as an additional distribution of $6.2 million not related to the ongoing operations of non-controlled entities.


5.	~~Inventory~~

~~Inventory at~~ ~~December 31, 2016~~ ~~and September 30, 2017 was as follows (in thousands):~~

December 31, 2016 September 30,
2017
Refined products $ 54,285
$ 51,667
Transmix 28,319
45,160
Liquefied petroleum gases 24,868
51,540
Crude oil 20,839
13,884
Additives 6,067
6,511
Total inventory $ 134,378
$ 168,762


6.	~~Employee Benefit Plans~~

We sponsor a defined contribution plan in which we match our employees' qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were $2.4 million and $2.0 million for the three months ended September 30, 2016 and 2017, respectively, and $7.8 million and $7.4 million for the ~~nine~~ ~~months ended September 30, 2016 and 2017, respectively.~~

Additionally, we sponsor two union pension plans that cover certain union employees and a pension plan for all non-union employees, and a postretirement benefit plan for selected employees. Net periodic benefit expense for the three and nine months ended September 30, 2016 and 2017 was as follows (in thousands):

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

Three Months Ended Three Months Ended
September 30, 2016 September 30, 2017

Pension
Benefits

Other Postretirement
Benefits

Pension
Benefits

Other Postretirement
Benefits
Components of net periodic benefit costs:
Service cost $ 4,555
$ 53
$ 5,125
$ 51
Interest cost⁽¹⁾
1,992
148
2,466
111
Expected return on plan assets⁽¹⁾
(2,235 ) —
(2,566 ) —
Amortization of prior service credit⁽¹⁾
(45 ) (928 ) (45 ) —
Amortization of actuarial loss⁽¹⁾
1,161
291
1,406
162
Settlement cost⁽¹⁾
202
—
289
—
Net periodic benefit cost (credit) $ 5,630
$ (436 ) $ 6,675
$ 324

Nine Months Ended Nine Months Ended
September 30, 2016 September 30, 2017

Pension
Benefits

Other Postretirement
Benefits

Pension
Benefits

Other Postretirement
Benefits
Components of net periodic benefit costs:
Service cost $ 13,648
$ 176
$ 15,373
$ 182
Interest cost⁽¹⁾
5,970
368
7,398
356
Expected return on plan assets⁽¹⁾
(6,694 ) —
(7,699 ) —
Amortization of prior service credit⁽¹⁾
(135 ) (2,785 ) (136 ) —
Amortization of actuarial loss⁽¹⁾
3,485
660
4,217
562
Settlement cost⁽¹⁾
202
—
2,015
—
Net periodic benefit cost (credit) $ 16,476
$ (1,581 ) $ 21,168
$ 1,100

⁽¹⁾~~Upon adoption of ASU 2017-07,~~ ~~Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, these components of net periodic benefit cost (credit) are reported on the consolidated statements of income as other expense (income). See Note 1 –~~ ~~Organization, Description of Business and Basis of Presentation - New Accounting Pronouncements~~ ~~for further details about this accounting change.~~

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~The changes in AOCL related to employee benefit plan assets and benefit obligations for the three and nine months ended September 30, 2016 and 2017 were as follows (in thousands):~~

Three Months Ended Three Months Ended
September 30, 2016 September 30, 2017
Gains (Losses) Included in AOCL Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
Beginning balance $ (60,045 ) $ (5,433 ) $ (54,138 ) $ (7,481 )
Amortization of prior service credit (45 ) (928 ) (45 ) —
Amortization of actuarial loss 1,161
291
1,406
162
Settlement cost 202
—
289
—
Ending balance $ (58,727 ) $ (6,070 ) $ (52,488 ) $ (7,319 )

Nine Months Ended Nine Months Ended
September 30, 2016 September 30, 2017
Gains (Losses) Included in AOCL Pension Benefits Other Postretirement Benefits Pension Benefits Other Postretirement Benefits
Beginning balance $ (62,279 ) $ (3,945 ) $ (58,584 ) $ (7,881 )
Amortization of prior service credit (135 ) (2,785 ) (136 ) —
Amortization of actuarial loss 3,485
660
4,217
562
Settlement cost 202
—
2,015
—
Ending balance $ (58,727 ) $ (6,070 ) $ (52,488 ) $ (7,319 )

~~Contributions estimated to be paid into the plans in 2017 are $26.5 million and $0.4 million for the pension and other postretirement benefit plans, respectively.~~

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


7.	~~Debt~~

Long-term debt at December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017~~2023 was as follows (in ~~thousands)~~millions):


	December 31, 2016			September 30, 2017				December 31, 2022		June 30, 2023
Commercial paper	$	50,000		$	269,000		Commercial paper	$	32.0	$	—
6.40% Notes due 2018	250,000			250,000
6.55% Notes due 2019	550,000			550,000
4.25% Notes due 2021	550,000			550,000

3.20% Notes due 2025	250,000			250,000			3.20% Notes due 2025	250.0		250.0
5.00% Notes due 2026	650,000			650,000			5.00% Notes due 2026	650.0		650.0
3.25% Notes due 2030							3.25% Notes due 2030	500.0		500.0
6.40% Notes due 2037	250,000			250,000			6.40% Notes due 2037	250.0		250.0
4.20% Notes due 2042	250,000			250,000			4.20% Notes due 2042	250.0		250.0
5.15% Notes due 2043	550,000			550,000			5.15% Notes due 2043	550.0		550.0
4.20% Notes due 2045	250,000			250,000			4.20% Notes due 2045	250.0		250.0
4.25% Notes due 2046	500,000			500,000			4.25% Notes due 2046	500.0		500.0
4.20% Notes due 2047							4.20% Notes due 2047	500.0		500.0
4.85% Notes due 2049							4.85% Notes due 2049	500.0		500.0
3.95% Notes due 2050							3.95% Notes due 2050	800.0		800.0
Face value of long-term debt	4,100,000			4,319,000			Face value of long-term debt	5,032.0		5,000.0
Unamortized debt issuance costs⁽¹⁾	(26,948		)	(25,106		)	Unamortized debt issuance costs(1)	(35.3)		(34.1)
Net unamortized debt premium⁽¹⁾	6,530			4,241			Net unamortized debt premium(1)	18.3		18.2
Net unamortized amount of gains from historical fair value hedges⁽¹⁾	7,610			4,715
Long-term debt, net, including current portion	4,087,192			4,302,850
Less: Current portion of long-term debt, net	—			251,439

Long-term debt, net	$	4,087,192		$	4,051,411		Long-term debt, net	$	5,015.0	$	4,984.1

(1) Debt issuance costs and note discounts and premiums ~~and realized gains and losses of historical fair value hedges~~ are being amortized or accreted to the applicable notes over the respective lives of those notes.

All of the instruments detailed in the table above are senior indebtedness.

~~2017 Debt Offering~~

~~See Note 14 –~~ ~~Subsequent Events~~ ~~for information about our October 2017 debt issuance.~~

Other Debt

Revolving Credit ~~Facilities.~~ Facility. At ~~September~~June 30, ~~2017,~~2023, the total borrowing capacity under our revolving credit facility ~~with a maturity date of October 27, 2020~~ was $1.0 ~~billion.~~billion, of which $88.1 million matures in May 2024 and the remaining $911.9 million matures in November 2027. Any borrowings outstanding under this facility are classified as long-term debt onin our consolidated balance ~~sheets.~~sheets to the extent they do not exceed the borrowing capacity maturing in 2027. Borrowings under ~~this~~the facility are unsecured and bear interest at ~~LIBOR~~Term SOFR and a credit spread adjustment of 0.10% plus a spread ranging from ~~1.000%~~0.875% to ~~1.625%~~1.500% based on our credit ratings. Additionally, an unused commitment fee is assessed at a rate between ~~0.100%~~0.075% and ~~0.275%~~0.200% depending on our credit ratings. The unused commitment fee was 0.125% at ~~September~~June 30, ~~2017.~~2023. Borrowings under this facility may be used for general ~~partnership~~ purposes, including capital expenditures. As of ~~both~~ December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017,~~2023, there were no borrowings outstanding under this facility ~~with $6.3~~and $3.5 million was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt onin our consolidated balance sheets, but decrease our borrowing capacity under this facility. ~~In October 2017, we extended the maturity date of this facility (see Note 14 –~~ ~~Subsequent Events, for further information).~~

~~At September 30, 2017, the total borrowing capacity under our 364-day~~Our revolving credit facility ~~was $250.0 million,~~requires us to maintain a specified ratio of consolidated debt to EBITDA (as defined in the credit agreement) of no greater than 5.0 to 1.0. In addition, the revolving credit facility and the ~~unused commitment fee was 0.1%. As~~indentures under which our senior notes were issued contain covenants that limit our ability to, among other things, incur indebtedness secured by certain liens or encumber our assets, engage in certain sale-leaseback transactions and consolidate, merge or dispose of ~~both December 31, 2016~~all or substantially all of our assets. We were in compliance with these covenants as of and ~~September~~during the six months ended June 30, ~~2017, there were no~~2023. If the Merger with ONEOK is successfully completed, the credit facility will be terminated, but the indentures will remain outstanding.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~borrowings outstanding under this facility. This credit facility matured on October 19, 2017 and was not renewed.~~

Commercial Paper Program. We have a commercial paper program under which we may issue commercial paper notes in an amount up to the available capacity under our $1.0 billion revolving credit facility. The maturities of the commercial paper notes vary, but may not exceed 397 days from the date of issuance. Because the commercial paper we can issue is limited to amounts available under our revolving credit facility, amounts outstanding under the program are classified as long-term debt. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. There were no borrowings outstanding at June 30, 2023. The ~~weighted-average~~weighted average interest rate for commercial paper borrowings based on the number of days outstanding was ~~0.8%~~4.8% for the ~~year ended December 31, 2016 and 1.3% for the nine~~six months ended ~~September~~June 30, ~~2017.~~2023.

8.Leases


8.	~~Derivative Financial Instruments~~

~~Interest Rate Derivatives~~The following tables provide information about our operating leases (in millions):

~~We periodically enter into interest rate derivatives to hedge the fair value of debt or hedge against variability in interest rates,~~


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2023
	Third-Party Leases		Seabrook Lease		All Leases		Third-Party Leases		Seabrook Lease		All Leases
Total lease expense	$	6.3	$	4.5	$	10.8	$	6.5	$	2.1	$	8.6

	Six Months Ended June 30, 2022						Six Months Ended June 30, 2023
	Third-Party Leases		Seabrook Lease		All Leases		Third-Party Leases		Seabrook Lease		All Leases
Total lease expense	$	12.5	$	8.7	$	21.2	$	12.9	$	7.1	$	20.0


	December 31, 2022						June 30, 2023
	Third-Party Leases		Seabrook Lease		All Leases		Third-Party Leases		Seabrook Lease		All Leases
Current lease liability	$	21.2	$	9.8	$	31.0	$	21.3	$	—	$	21.3
Long-term lease liability	$	82.1	$	34.8	$	116.9	$	76.7	$	—	$	76.7
Right-of-use asset	$	104.9	$	44.5	$	149.4	$	95.4	$	—	$	95.4

In May 2023, our terminalling and ~~we have historically designated these derivatives as fair value or cash flow hedges for accounting purposes. Adjustments resulting from discontinued hedges continue to be recognized in accordance~~storage contract with ~~their historic hedging relationships.~~

We have entered into $100.0 million of forward-starting interest rate swap agreements to hedge against the risk of variability of future interest payments on a portion of debt we anticipate issuing in 2018. The fair values of these contracts at September 30, 2017 were recorded onSeabrook was amended, which terminated our ~~balance sheets as other current assets of $12.4 million, with the offset recorded to other comprehensive income. We account for these agreements as cash flow hedges.~~

~~Commodity Derivatives~~

~~Hedging Strategies~~

Our butane blending activities produce gasoline, and we can reasonably estimate the timing and quantities of sales of these products. We use a combination of exchange-based commodities futures contracts and forward purchase and sale contracts to help manage commodity price changes and mitigate the risk of decline in the product margin realized from our butane blending activities. Further, certain of our other commercial operations generate petroleum products, and we also use futures contracts to hedge against price changes for some of these commodities.

~~Forward physical purchase and sale contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting.~~

related party operating lease.

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.Employee Benefit Plans

We sponsor a defined contribution plan in which we match our employees’ qualifying contributions, resulting in additional expense to us. Expenses related to the defined contribution plan were $2.5 million and $3.0 million for the three months ended June 30, 2022 and 2023, respectively, and $6.6 million and $7.2 million for the six months ended June 30, 2022 and 2023, respectively.

In addition, we sponsor two pension plans, including one for non-union employees and one that covers union employees, and a postretirement benefit plan for certain employees. Net periodic benefit expense for the three and six months ended June 30, 2022 and 2023 were as follows (in millions):


	Three Months Ended				Three Months Ended
	June 30, 2022				June 30, 2023
	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Components of net periodic benefit costs:
Service cost	$	6.6	$	—	$	5.0	$	—
Interest cost	2.6		0.1		3.2		0.2
Expected return on plan assets	(3.1)		—		(3.1)		—
Amortization of prior service credit	(0.1)		—		(0.1)		—
Amortization of actuarial loss	1.1		0.1		0.4		0.1



Net periodic benefit cost	$	7.1	$	0.2	$	5.4	$	0.3


	Six Months Ended				Six Months Ended
	June 30, 2022				June 30, 2023
	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Components of net periodic benefit costs:
Service cost	$	13.7	$	0.1	$	9.5	$	0.1
Interest cost	5.3		0.2		6.5		0.3
Expected return on plan assets	(6.5)		—		(6.2)		—
Amortization of prior service credit	(0.1)		—		(0.1)		—
Amortization of actuarial loss	2.2		0.2		0.8		0.1


Net periodic benefit cost	$	14.6	$	0.5	$	10.5	$	0.5

The ~~futures contracts that we enter into fall into one~~service component of ~~three hedge categories:~~

our net periodic benefit costs is presented in operating expenses and G&A expenses, and the non-service components are presented in other (income) expense in our consolidated statements of income.

~~Hedge Category~~

~~Hedge Purpose~~

~~Accounting Treatment~~

~~Qualifies For Hedge Accounting Treatment~~

~~Cash Flow Hedge~~

~~To hedge the variability in cash flows related to a forecasted transaction.~~

The effective portion of changes in the fair value of the hedge is recorded to accumulated other comprehensive income/loss and reclassified to earnings when the forecasted transaction occurs. Any ineffectiveness is recognized currently in earnings.

~~Fair Value Hedge~~

~~To hedge against changes in the fair value of a recognized asset or liability.~~

The effective portion of changes in the fair value of the hedge is recorded as adjustments to the asset or liability being hedged. Any ineffectiveness and amounts excluded from the assessment of hedge effectiveness are recognized currently in earnings.

~~Does Not Qualify For Hedge Accounting Treatment~~

~~Economic Hedge~~

To effectively serve as either a fair value or a cash flow hedge; however, the derivative agreement does not qualify for hedge accounting treatment under Accounting Standards Codification (“ASC”) 815, ~~Derivatives and Hedging~~.

~~Changes in the fair value of these agreements are recognized currently in earnings.~~

~~During the nine months ended September 30, 2016 and 2017, none of the commodity hedging contracts we entered into qualified for or were designated as cash flow hedges.~~

We use futures contracts designated as economic hedges for accounting purposes to hedge against changes in the price of petroleum products that we expect to sell in the future. Period changes in the fair value of these agreements are recognized currently in earnings as adjustments to product sales revenue.

We also use futures contracts designated as economic hedges for accounting purposes to hedge against changes in the price of butane and natural gasoline we expect to purchase in the future. Period changes in the fair value of these agreements are recognized currently in earnings as adjustments to cost of product sales.

Additionally, we held certain crude oil tank bottoms which we classified as noncurrent assets and included with other noncurrent assets on our consolidated balance sheets. We used futures contracts to hedge against changes in the fair value of these assets. We recorded the effective portion of the gains or losses for those contracts that qualify as fair value hedges as adjustments to the asset being hedged and the ineffective portions as well as amounts excluded from the assessment of hedge effectiveness as adjustments to other income or expense. During September 2017, as a result of contract renegotiation, we sold a portion of the tank bottoms, settled the related hedges and transferred the remaining tank bottoms from noncurrent assets to PP&E.

~~As outlined in the table below, our open futures contracts at September 30, 2017 were as follows:~~

~~Type of Contract/Accounting Methodology~~

~~Product Represented by the Contract and Associated Barrels~~

~~Maturity Dates~~

~~Futures - Economic Hedges~~

~~5.5 million barrels of refined products and crude oil~~

~~Between October 2017 and April 2018~~

~~Futures - Economic Hedges~~

~~2.1 million barrels of butane and natural gasoline~~

~~Between October 2017 and April 2018~~

1925

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The changes in accumulated other comprehensive loss (“AOCL”) related to employee benefit plan assets and benefit obligations for the three and six months ended June 30, 2022 and 2023 were as follows (in millions):

~~Energy~~


	Three Months Ended				Three Months Ended
	June 30, 2022				June 30, 2023
Gains (Losses) Included in AOCL	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Beginning balance	$	(91.7)	$	(10.6)	$	(41.8)	$	(3.7)
Net actuarial gain (loss)	(1.3)		2.4		(0.9)		(1.7)

Recognition of prior service credit amortization in income	(0.1)		—		(0.1)		—
Recognition of actuarial loss amortization in income	1.1		0.1		0.4		0.1

Ending balance	$	(92.0)	$	(8.1)	$	(42.4)	$	(5.3)


	Six Months Ended				Six Months Ended
	June 30, 2022				June 30, 2023
Gains (Losses) Included in AOCL	Pension Benefits		Other Postretirement Benefits		Pension Benefits		Other Postretirement Benefits
Beginning balance	$	(92.8)	$	(10.7)	$	(42.2)	$	(3.7)
Net actuarial gain (loss)	(1.3)		2.4		(0.9)		(1.7)

Recognition of prior service credit amortization in income	(0.1)		—		(0.1)		—
Recognition of actuarial loss amortization in income	2.2		0.2		0.8		0.1

Ending balance	$	(92.0)	$	(8.1)	$	(42.4)	$	(5.3)

Contributions estimated to be paid into the plans in 2023 are $23.4 million and $0.8 million for the pension plans and other postretirement benefit plan, respectively.

10.Long-Term Incentive Plan

The compensation committee of our board administers our long-term incentive plan (“LTIP”) covering certain of our employees and the independent directors of our board. The LTIP primarily consists of phantom units and permits the grant of awards covering an aggregate payout of 13.7 million of our common units. The estimated units remaining available under the LTIP at June 30, 2023 totaled approximately 1.3 million.

Equity-based incentive compensation expense for the three and six months ended June 30, 2022 and 2023, primarily recorded as G&A expense on our consolidated statements of income, was as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Performance-based awards	$	4.6	$	5.2	$	12.6	$	9.9
Time-based awards	3.9		2.6		10.3		4.3
Total	$	8.5	$	7.8	$	22.9	$	14.2

On February 8, 2023, 487,369 unit awards were granted pursuant to our LTIP. These awards included both performance-based and time-based awards and have a three-year vesting period that will end on December 31, 2025.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Basic and Diluted Net Income Per Common Unit

The difference between our actual common units outstanding and our weighted average number of common units outstanding used to calculate net income per common unit is due to the impact of: (i) the phantom units issued to our independent directors, (ii) unit awards granted to retirees or employees of retirement age and (iii) the weighted average effect of units actually issued or repurchased during a period. The difference between the weighted average number of common units outstanding used for basic and diluted net income per unit calculations on our consolidated statements of income is primarily the dilutive effect of phantom unit awards granted pursuant to our LTIP, which have not yet vested in periods where contingent performance metrics have been met.

11.Derivative Financial Instruments

Commodity Derivatives

Our open futures contracts at June 30, 2023 were as follows:

Type of Contract/Accounting Methodology

Product Represented by the Contract and Associated Barrels

Maturity Dates

Commodity derivatives contract - Economic hedges

4.7 million barrels of refined products and crude oil

Between July 2023 and April 2024

Commodity derivatives contract - Economic hedges

1.3 million barrels of gas liquids

Between July 2023 and April 2024

Commodity Derivatives Contracts and Deposits Offsets

At December 31, ~~2016,~~2022 and June 30, 2023, we had made margin deposits of ~~$49.9~~$14.8 million and $16.2 million, respectively, for our ~~future~~commodity derivatives contracts with our counterparties, which were recorded as current assets under ~~energy~~ commodity derivatives deposits on our consolidated balance sheets. At September 30, 2017, we had made margin deposits of $31.7 million for our future contracts with our counterparties, which were recorded as current assets under energy commodity derivatives deposits onin our consolidated balance sheets. We have the right to offset the combined fair values of our open ~~futures~~derivatives contracts against our margin deposits under a master netting arrangement for each counterparty; however, we have elected to present the combined fair values of our open ~~futures~~derivatives contracts separately from the related margin deposits onin our consolidated balance sheets. Additionally, we have the right to offset the fair values of our ~~futures~~derivatives contracts together for each counterparty, which we have elected to do, and we report the combined net balances on our consolidated balance sheets. A schedule of the derivative amounts we have offset and the deposit amounts we could offset under a master netting ~~arrangement~~arrangements are provided below as of December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017~~2023 (in ~~thousands)~~millions):


Description	Gross Amounts of Recognized Liabilities		Gross Amounts of Assets Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets		Net Asset Amount(1)
As of December 31, 2022	$	(18.2)	$	9.3	$	(8.9)	$	14.8	$	5.9
As of June 30, 2023	$	(16.1)	$	9.0	$	(7.1)	$	16.2	$	9.1

December 31, 2016
Description Gross Amounts of Recognized Liabilities Gross Amounts of Assets Offset in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets
Net Asset Amount⁽¹⁾
Energy commodity derivatives $ (36,798 ) $ 6,060
$ (30,738 ) $ 49,899
$ 19,161

(1) Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.

September 30, 2017
Description Gross Amounts of Recognized Liabilities Gross Amounts of Assets Offset in the Consolidated Balance Sheets Net Amounts of Liabilities Presented in the Consolidated Balance Sheets Margin Deposit Amounts Not Offset in the Consolidated Balance Sheets
Net Asset Amount⁽¹⁾
Energy commodity derivatives $ (32,685 ) $ 18,976
$ (13,709 ) $ 31,735
$ 18,026


~~(1)~~	~~Amount represents the maximum loss we would incur if all of our counterparties failed to perform on their derivative contracts.~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Impact of Derivatives on Our Financial Statements

Comprehensive Income

The changes in derivative activity included in AOCL for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017~~2023 were as follows (in ~~thousands)~~millions):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
Derivative Losses Included in AOCL	2022		2023		2022		2023
Beginning balance	$	(50.6)	$	(47.1)	$	(51.5)	$	(48.0)

Reclassification of net loss on cash flow hedges to income	0.9		0.9		1.8		1.8
Ending balance	$	(49.7)	$	(46.2)	$	(49.7)	$	(46.2)

Three Months Ended Nine Months Ended
September 30, September 30,
Derivative Losses Included in AOCL 2016 2017 2016 2017
Beginning balance $ (50,459 ) $ (34,804 ) $ (30,126 ) $ (34,776 )
Net gain (loss) on cash flow hedges (3,169 ) (228 ) (24,278 ) (1,735 )
Reclassification of net loss on cash flow hedges to income 512
740
1,288
2,219
Ending balance $ (53,116 ) $ (34,292 ) $ (53,116 ) $ (34,292 )

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Income Statements~~

The following ~~tables provide~~is a summary of the effect on our consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017~~2023 of derivatives ~~accounted for under ASC 815-30,~~ ~~Derivatives and Hedging—Cash Flow Hedges~~, that were designated as ~~hedging instruments~~cash flow hedges (in ~~thousands)~~millions):

Interest Rate Contracts

Location of Loss Reclassified from AOCL into Income

Amount of Loss Reclassified from AOCL into Income

Three Months Ended June 30, 2022 and 2023

Interest expense

(0.9)

Six Months Ended June 30, 2022 and 2023

Interest expense

(1.8)

Interest Rate Contracts
Amount of Loss Recognized in AOCL on Derivative Location of Loss Reclassified from AOCL into Income Amount of Loss Reclassified from AOCL into Income
Effective Portion Ineffective Portion
Three Months Ended September 30, 2016 $ (3,169 ) Interest expense $ (512 ) $ —

~~Three Months Ended September 30, 2017 $ (228 ) Interest expense $ (740 ) $ —~~

~~Nine Months Ended September 30, 2016 $ (24,278 ) Interest expense $ (1,288 ) $ —~~

~~Nine Months Ended September 30, 2017 $ (1,735 ) Interest expense $ (2,219 ) $ —~~

As of ~~September~~June 30, ~~2017,~~2023, the net loss estimated to be classified to interest expense over the next twelve months from AOCL is approximately ~~$3.0~~$3.5 million.

~~Until September 2017, we had used futures~~ This amount relates to the amortization of losses on interest rate contracts ~~designated as fair value hedges under ASC 815-25,~~ ~~Derivatives and Hedging–Fair Value Hedges, to hedge against changes in~~over the ~~fair value of crude oil that was contractually reserved as tank bottoms and included with other noncurrent assets on our consolidated balance sheets. The effective portions~~life of the fair value gains or losses on these futures contracts were offset by fair value gains or losses on the tank bottoms. There was no ineffectiveness recognized on these hedges. The cash flows from settled contracts were recorded in operating activities in our consolidated statements of cash flows. The gains (losses) on these futures contracts and the underlying tank bottoms were as follows (in millions):related debt instruments.

Three Months Ended September 30, Nine Months Ended September 30,
2016 2017 2016 2017
Gain (loss) recognized in other income/expense on derivatives (futures contracts) 0.4
(1.7 ) (5.8 ) 5.1
Loss (gain) recognized in other income/expense on hedged item (tank bottoms) (0.4 ) 1.7
5.8
(5.1 )

The differential between the current spot price and forward price was excluded from the assessment of hedge effectiveness for these fair value hedges. For the three months ended September 30, 2016 and 2017, we recognized a gain of $0.3 million and $0.7 million, respectively, and for the nine months ended September 30, 2016 and 2017, we recognized a gain of $4.5 million and $2.4 million, respectively, for the amounts we excluded from the assessment of effectiveness of these fair value hedges, which we reported as other (income) expense on our consolidated statements of income.

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

The following table provides a summary of the effect on our consolidated statements of income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017~~2023 of derivatives ~~accounted for under ASC 815,~~ ~~Derivatives and Hedging~~, that were not designated as hedging instruments (in ~~thousands)~~millions):

Amount of Gain (Loss) Recognized on Derivatives
Three Months Ended Nine Months Ended

Location of Gain (Loss)
Recognized on Derivatives
September 30, September 30,
Derivative Instrument 2016 2017 2016 2017
Futures contracts Product sales revenue $ (12,650 ) $ (47,336 ) $ (8,438 ) $ (4,442 )
Futures contracts Operating expenses 4,212
663
(1,192 ) 663
Futures contracts Cost of product sales 831
19,660
3,643
19,713
Total $ (7,607 ) $ (27,013 ) $ (5,987 ) $ 15,934


		Amount of Gain (Loss) Recognized on Derivatives
		Three Months Ended				Six Months Ended
	Location of Gain (Loss) Recognized on Derivatives	June 30,				June 30,
Derivative Instrument		2022		2023		2022		2023
Commodity derivatives contracts	Product sales revenue	$	(89.0)	$	11.7	$	(205.4)	$	18.1

Commodity derivatives contracts	Cost of product sales	(7.4)		(10.6)		1.2		(9.8)
Basis derivative agreement	Other operating income (expense)	—		—		(2.1)		—
	Total	$	(96.4)	$	1.1	$	(206.3)	$	8.3

The impact of the derivatives in the above table was reflected as cash from operations on our consolidated statements of cash flows.

~~Balance Sheets~~

~~The following tables provide a summary of the fair value of derivatives accounted for under ASC 815,~~ ~~Derivatives and Hedging,~~ ~~which are presented on a net basis in our consolidated balance sheets, that were designated as hedging instruments as of December 31, 2016 and September 30, 2017 (in thousands):~~

December 31, 2016
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ —
Energy commodity derivatives contracts, net $ 3,079
Interest rate contracts Other noncurrent assets 14,114
Other noncurrent liabilities —
Total $ 14,114
Total $ 3,079

September 30, 2017
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ 18
Energy commodity derivatives contracts, net $ —
Interest rate contracts Other current assets 12,379
Other current liabilities —
Total $ 12,397
Total $ —

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Balance Sheets

The following tables provide a summary of the fair value of derivatives ~~accounted for under ASC 815,~~ ~~Derivatives and Hedging,~~, which are presented on a net basis in our consolidated balance sheets, that were not designated as hedging instruments as of December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017~~2023 (in ~~thousands)~~millions):

December 31, 2022

Asset Derivatives

Liability Derivatives

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Commodity derivatives contracts

Commodity derivatives contracts, net

9.3

Commodity derivatives contracts, net

18.2

June 30, 2023

Asset Derivatives

Liability Derivatives

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Commodity derivatives contracts

Commodity derivatives contracts, net

9.0

Commodity derivatives contracts, net

16.1

12.Fair Value

December 31, 2016
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ 6,060
Energy commodity derivatives contracts, net $ 33,719

September 30, 2017
Asset Derivatives Liability Derivatives
Derivative Instrument Balance Sheet Location Fair Value Balance Sheet Location Fair Value
Futures contracts Energy commodity derivatives contracts, net $ 18,958
Energy commodity derivatives contracts, net $ 32,685


9.	~~Commitments and Contingencies~~

~~Environmental Liabilities~~

~~Liabilities recognized for estimated environmental costs were~~ ~~$24.0 million~~ ~~and~~ ~~$20.7 million~~ at ~~December 31, 2016~~ and September 30, 2017, respectively. We have classified environmental liabilities as current or noncurrent based on management’s estimates regarding the timing of actual payments. Environmental expenses recognized as a result of changes in our environmental liabilities are generally included in operating expenses on our consolidated statements of income. Environmental expenses were $0.3 million and $3.0 million for the three months ended September 30, 2016 and 2017, respectively, and $4.6 million and $7.5 million for the nine months ended September 30, 2016 and 2017, respectively.

~~Environmental Receivables~~

~~Receivables from insurance carriers and other third parties related to environmental matters were~~ ~~$4.1 million~~ ~~at December 31, 2016, of which~~ ~~$0.6 million~~ ~~and~~ ~~$3.5 million~~ were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets. Receivables from insurance carriers and other third parties related to environmental matters were ~~$6.3 million~~ ~~at September 30, 2017, of which~~ ~~$0.7 million~~ ~~and~~ ~~$5.6 million~~ ~~were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheets.~~

~~Other~~

~~See Note 4 –~~ ~~Investments in Non-Controlled Entities~~ ~~for detail of our guarantee on behalf of Powder Springs.~~

We are a party to various other claims, legal actions and complaints arising in the ordinary course of business. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our results of operations, financial position or cash flows.

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


~~10.~~	~~Long-Term Incentive Plan~~

We have a long-term incentive plan (“LTIP”) for certain of our employees and directors of our general partner. The LTIP primarily consists of phantom units and permits the grant of awards covering an aggregate payout of 11.9 million of our limited partner units. The compensation committee of our general partner’s board of directors administers our LTIP. The estimated units remaining available under the LTIP at September 30, 2017 total 2.6 million.

~~Our equity-based incentive compensation expense was as follows (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2016 2017 2016 2017
Performance-based awards:
2014 awards $ 1,780
$ —
$ 6,168
$ 28
2015 awards 1,208
164
3,679
3,388
2016 awards 1,097
1,266
3,240
4,907
2017 awards —
1,298
—
3,796
Time-based awards 593
738
1,650
2,064
Total $ 4,678
$ 3,466
$ 14,737
$ 14,183

Allocation of LTIP expense on our consolidated statements of income:
G&A expense $ 4,637
$ 3,430
$ 14,623
$ 14,062
Operating expense 41
36
114
121
Total $ 4,678
$ 3,466
$ 14,737
$ 14,183

On February 2, 2017, 207,445 phantom unit awards were issued pursuant to our LTIP. These grants included both performance-based and time-based phantom unit awards and have a three-year vesting period that will end on December 31, 2019.

~~Basic and Diluted Net Income Per Limited Partner Unit~~

The difference between our actual limited partner units outstanding and our weighted-average number of limited partner units outstanding used to calculate basic net income per unit is due to the impact of: (i) the phantom units issued to non-employee directors and (ii) the weighted average effect of units actually issued during a period. The difference between the weighted-average number of limited partner units outstanding used for basic and diluted net income per unit calculations on our consolidated statements of income is primarily the dilutive effect of phantom unit grants associated with our LTIP that have not yet vested.

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


~~11.~~	~~Partners’ Capital and Distributions~~

~~Partners’ Capital~~

In May 2017, we filed a prospectus supplement to the shelf registration statement for our continuous equity offering program (which we refer to as an at-the-market program, or “ATM”) pursuant to which we may issue up to $750.0 million of common units in amounts, at prices and on terms to be determined by market conditions at the time. The net proceeds from any sales under the ATM, after deducting the sales agents’ commissions and our offering expenses, will be used for general partnership purposes, including repayment of indebtedness or capital expenditures. No units were issued pursuant to this program during the current period.

~~The following table details the changes in the number of our limited partner units outstanding from January 1, 2017 through September 30, 2017:~~



~~Limited partner units outstanding on January 1, 2017~~		~~227,783,916~~
~~January 2017–Settlement of 2014 awards~~^(a)		~~216,679~~
~~During 2017–Other~~^(b)		~~23,961~~
~~Limited partner units outstanding on September 30, 2017~~		~~228,024,556~~

~~(a) Limited partner units issued to settle long-term incentive plan awards to certain employees that vested on December 31, 2016.~~

(b) Limited partner units issued to settle the equity-based retainers paid to certain independent directors of our general partner and the final payment of deferred director compensation to a former director.

~~Distributions~~

~~Distributions we paid during 2016 and 2017 were as follows (in thousands, except per unit amounts):~~

Payment Date
Per Unit Cash
Distribution
Amount
Total Cash Distribution to Limited Partners
02/12/2016 $ 0.7850
$ 178,808

05/13/2016 0.8025
182,797

08/12/2016 0.8200
186,783

Through 09/30/2016 2.4075
548,388

11/14/2016 0.8375
190,769

Total $ 3.2450
$ 739,157

02/14/2017 $ 0.8550
$ 194,961

05/15/2017 0.8725
198,951

08/14/2017 0.8900
202,942

Through 09/30/2017 2.6175
596,854

11/14/2017⁽¹⁾
0.9050
206,362

Total $ 3.5225
$ 803,216

~~(a) Our general partner’s board of directors declared this cash distribution in October 2017 to be paid on November 14, 2017 to unitholders of record at the close of business on November 2, 2017.~~

~~Table of Contents~~

~~MAGELLAN MIDSTREAM PARTNERS, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~


~~12.~~	~~Fair Value~~

Fair Value Methods and Assumptions - Financial Assets and ~~Liabilities.~~Liabilities

We used the following methods and assumptions in estimating the fair value of our financial assets and liabilities:

~~Energy commodity~~•Commodity derivatives contracts. These include exchange-traded ~~futures~~and over-the-counter derivative contracts related to petroleum products. These contracts are carried at fair value onin our consolidated balance ~~sheets and~~sheets. The exchange-traded contracts are valued based on quoted prices in active ~~markets.~~markets, while the over-the-counter contracts are valued based on observable market data inputs including published commodity pricing data. See Note 811 – Derivative Financial Instruments for further disclosures regarding these contracts.

~~Interest rate contracts.~~ These include forward-starting interest rate swap agreements to hedge against the risk of variability of interest payments on future debt. These contracts are carried at fair value on our consolidated balance sheets and are valued based on an assumed exchange, at the end of each period, in an orderly transaction with a market participant in the market in which the financial instrument is traded. The exchange value was calculated using present value techniques on estimated future cash flows based on forward interest rate curves. See Note 8 – ~~Derivative Financial Instruments~~ ~~for further disclosures regarding these contracts.~~

•Long-term receivables. These ~~primarily~~ include payments receivable under a ~~direct-financing~~sales-type leasing arrangement and cost reimbursement ~~payments receivable.~~agreements. These receivables were recorded at fair value onin our consolidated balance sheets, using then-current market rates to estimate the present value of future cash flows.

•Investment in Double Eagle. In December 2022, as a result of the non-renewal on existing terms of customer commitments that expire in 2023 and reduced demand for transportation of condensate from the Eagle Ford basin, we evaluated our investment in Double Eagle for an other-than-temporary impairment. The fair value was measured using an income approach and discounted cash flow analysis, which resulted in us recording a $58.4 million charge to earnings in 2022 to adjust the carrying value of our investment to fair value.

•Contractual obligations. These primarily included a long-term contractual obligation we entered into in connection with the 2020 sale of three marine terminals to a subsidiary of Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at the New Haven, Connecticut terminal. This contractual obligation was recorded at fair value in our consolidated balance sheets upon initial recognition and was calculated using our best estimate of

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

potential outcome scenarios to determine our liability for the remediation costs required in this agreement.

•Debt. The fair value of our publicly traded notes was based on the prices of those notes at December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017;~~2023; however, where recent observable market trades were not available, prices were determined using adjustments to the last traded value for that debt issuance or by adjustments to the prices of similar debt instruments of peer entities that are actively traded. The carrying amount of borrowings, if any, under our revolving credit facility and our commercial paper program approximates fair value due to the frequent repricing of these obligations.

Fair Value Measurements - Financial Assets and Liabilities

The following tables summarize the carrying amounts, fair values and fair value measurements recorded or disclosed as of December 31, ~~2016~~2022 and ~~September~~June 30, ~~2017~~2023 based on the three levels established by ASC 820, Fair Value Measurements and Disclosures (in ~~thousands)~~millions):


Assets (Liabilities)					Fair Value Measurements as of December 31, 2022 using:
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Commodity derivatives contracts	$	(8.9)	$	(8.9)	$	1.4	$	(10.3)	$	—


Long-term receivables	$	8.3	$	8.3	$	—	$	—	$	8.3
Contractual obligations	$	(9.6)	$	(9.6)	$	—	$	—	$	(9.6)
Investment in Double Eagle	$	11.8	$	11.8	$	—	$	—	$	11.8
Debt	$	(5,015.0)	$	(4,232.5)	$	—	$	(4,232.5)	$	—


Assets (Liabilities)					Fair Value Measurements as of June 30, 2023 using:
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Commodity derivatives contracts	$	(7.1)	$	(7.1)	$	3.1	$	(10.2)	$	—




Long-term receivables	$	8.1	$	8.1	$	—	$	—	$	8.1
Contractual obligations	$	(9.4)	$	(9.4)	$	—	$	—	$	(9.4)
Debt	$	(4,984.1)	$	(4,106.5)	$	—	$	(4,106.5)	$	—

December 31, 2016
Assets (Liabilities) Fair Value Measurements using:
Carrying Amount Fair Value
Quoted Prices in Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Energy commodity derivatives contracts $ (30,738 ) $ (30,738 ) $ (30,738 ) $ —
$ —
Interest rate contracts $ 14,114
$ 14,114
$ —
$ 14,114
$ —
Long-term receivables $ 23,870
$ 23,870
$ —
$ —
$ 23,870
Debt $ (4,087,192 ) $ (4,262,321 ) $ —
$ (4,262,321 ) $ —

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.Commitments and Contingencies

Butane Blending Patent Infringement Proceeding

September 30, 2017
Assets (Liabilities) Fair Value Measurements using:
Carrying Amount Fair Value
Quoted Prices in Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Energy commodity derivatives contracts $ (13,709 ) $ (13,709 ) $ (13,709 ) $ —
$ —
Interest rate contracts $ 12,379
$ 12,379
$ —
$ 12,379
$ —
Long-term receivables $ 27,166
$ 27,166
$ —
$ —
$ 27,166
Debt $ (4,302,850 ) $ (4,562,570 ) $ —
$ (4,562,570 ) $ —

On October 4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan and Powder Springs Logistics, LLC (“Powder Springs”) were infringing patents relating to butane blending. A trial concluded on December 6, 2021, at which the jury found Magellan and Powder Springs willfully infringed those patents. Based on the jury’s award and post-trial proceedings, the total amount awarded to Sunoco is approximately $23.0 million, plus post-judgment interest that continues to accrue. Sunoco and defendants, Magellan and Powder Springs, have appealed the final judgment of the trial court. The amounts we have accrued in relation to the claims represent our best estimate of probable damages, and although it is not possible to predict the ultimate outcome, we do not expect the final resolution of this matter to have a material adverse effect on our business.


~~13.~~	~~Related Party Transactions~~

Corpus Christi Terminal Personal Injury Proceeding

~~Stacy P. Methvin is~~

Ismael Garcia, Andrew Ramirez, and Jesus Juarez Quintero, et al.brought personal injury cases against Magellan and co-defendants Triton Industrial Services, LLC, Tidal Tank, Inc. and Cleveland Integrity Services, Inc. in Nueces County Court in Texas. The claims were originally brought in three different actions but were consolidated into a single case on March 2, 2021. Claims were asserted by or on behalf of seven individuals and certain beneficiaries. The seven individuals were employed by a contractor of Magellan and were injured, one fatally, as a result of a fire that occurred on December 5, 2020 while they were cleaning a tank at our Corpus Christi terminal. The plaintiffs are seeking damages of an ~~independent member~~undetermined amount. While the outcome cannot be predicted, we do not expect the final resolution of this matter to have a material adverse effect on our ~~general partner’s board~~business.

Environmental Liabilities

Liabilities recognized for estimated environmental costs were $10.2 million at December 31, 2022 and $9.0 million at June 30, 2023. We have classified environmental liabilities as current or noncurrent based on management’s estimates regarding the timing of ~~directors and is also~~actual payments. Environmental expenses recognized as a ~~director~~result of ~~one~~changes in our environmental liabilities are included as operating expenses in our consolidated statements of ~~our customers. We received tariff revenue from this customer of $4.3~~income. Environmental expenses were $0.6 million and ~~$4.1~~$0.2 million for the three months ended ~~September~~June 30, ~~2016~~2022 and ~~2017,~~2023, respectively and ~~$12.0~~$1.5 million and ~~$12.5~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017,~~2023, respectively. ~~We recorded receivables~~

Other

In 2020, we entered into a long-term contractual obligation in connection with the sale of ~~$1.4 million from this customer~~three marine terminals to Buckeye. This obligation requires us to perform certain environmental remediation work on Buckeye’s behalf at ~~both~~the New Haven, Connecticut terminal. At December 31, ~~2016~~2022, our balance sheet included a current liability of $0.6 million and ~~September~~a noncurrent liability of $8.2 million, and as of June 30, ~~2017. The tariff revenue we recognized from~~2023, our balance sheet included a current liability of $0.6 million and a noncurrent liability of $8.0 million reflecting the fair values of these obligations, respectively.

We have entered into an agreement to guarantee our 50% pro rata share, up to $50.0 million, of contractual obligations under the Powder Springs’ credit facility. As of December 31, 2022 and June 30, 2023, our consolidated balance sheets reflected a $0.8 million other current liability and a corresponding increase in our investment in non-controlled entities on our consolidated balance sheets to reflect the fair value of this ~~customer was in the normal course of business, with rates determined in accordance with published tariffs.~~ guarantee.

~~See Note 4 –~~ ~~Investments in Non-Controlled Entities~~ ~~for a discussion of transactions with our joint ventures.~~

~~Table of Contents~~

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our business.

14.Related Party Transactions

Stacy P. Methvin is an independent member of our board and also serves as a director of one of our customers. We received tariff, terminalling and other ancillary revenue from this customer of $14.9 million and $20.9 million for the three months ended June 30, 2022 and 2023, respectively, and $30.0 million and $42.2 million for the six months ended June 30, 2022 and 2023, respectively. We recorded receivables of $6.8 million and $7.2 million from this customer at December 31, 2022 and June 30, 2023, respectively.

See Note 5 – Investments in Non-Controlled Entities and Note 8 –Leases for details of related party transactions with our joint ventures.

15.Partners’ Capital and Distributions

Partners’ Capital

Our board authorized the repurchase of up to $1.5 billion of our common units through 2024. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending needs, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The repurchase program does not obligate us to acquire any particular amount of common units and may be suspended or discontinued at any time. The terms of the Merger Agreement prohibit us from repurchasing units during the pendency of the Merger.

The following table details the changes in the number of our common units outstanding from December 31, 2022 through June 30, 2023:


~~14.~~Common units outstanding on December 31, 2022	~~Subsequent Events~~	203,033,837
Units repurchased during 2023		(1,198,222)
January 2023—Settlement of employee LTIP awards		223,168
During 2023—Other(1)		36,817
Common units outstanding on June 30, 2023		202,095,600

(1) Common units issued to settle the equity-based retainers paid to independent directors of our board.

MAGELLAN MIDSTREAM PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Distributions

Distributions we paid during 2022 and 2023 were as follows (in millions, except per unit amounts):


Payment Date	Per Unit Distribution Amount			Total Distribution
2/14/2022		$	1.0375		$	220.6
5/13/2022		1.0375			219.5
Through 6/30/2022		2.0750			440.1
8/12/2022		1.0375			215.2

11/14/2022		1.0475			214.7
Total		$	4.1600		$	870.0

2/14/2023		$	1.0475		$	213.0
5/15/2023		1.0475			211.7
Through 6/30/2023		2.0950			424.7
8/14/2023(1)		1.0475			211.7


Total		$	3.1425		$	636.4

(1) Our board declared this distribution in July 2023 to be paid on August 14, 2023 to unitholders of record at the close of business on August 7, 2023. The estimated total distribution is based upon the number of common units currently outstanding.

16.Subsequent Events

Recognizable events

No recognizable events occurred subsequent to ~~September~~June 30, ~~2017.~~2023.

Non-recognizable events

~~Cash~~ Distribution. In ~~October 2017,~~July 2023, our ~~general partner’s~~ board ~~of directors~~ declared a quarterly distribution of ~~$0.905~~$1.0475 per unit for the period of ~~July~~April 1, ~~2017~~2023 through ~~September~~June 30, ~~2017.~~2023. This quarterly ~~cash~~ distribution will be paid on ~~November~~August 14, ~~2017~~2023 to unitholders of record on ~~November 2, 2017. The total cash distributions expected to be paid under this declaration are approximately $206.4 million.~~August 7, 2023.

~~Debt Offering.~~ On October 3, 2017, we issued $500.0 million of 4.20% notes due 2047 in an underwritten public offering. The notes were issued at 99.341% of par. Net proceeds from this offering were approximately $491.6 million, after underwriting discounts and offering expenses of $5.1 million. The net proceeds from this offering were used to repay borrowings outstanding under our commercial paper program. The remaining proceeds may be used for general partnership purposes, including capital expenditures.

~~Credit Facility Extension.On October 26, 2017, we extended the maturity date of our revolving credit facility with a total borrowing capacity of $1.0 billion to October 26, 2022. All other terms remain the same.~~

~~Table of Contents~~


~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

We are a publicly traded limited partnership principally engaged in the transportation, storage and distribution of refined petroleum products and crude oil. As of ~~September~~June 30, ~~2017,~~2023, our asset portfolio ~~including the assets of our joint ventures,~~ consisted of:

~~our marine storage segment, consisting~~ 31 million barrels of ~~five marine terminals located along coastal waterways with an aggregate~~this storage capacity ~~of approximately 26~~(including 25 million ~~barrels.~~barrels used for contract storage) are wholly-owned, with the remainder owned through joint ventures.

The following discussion provides an analysis of the results for each of our operating segments, an overview of our liquidity and capital resources and other items related to our partnership. The following discussion and analysis should be read in conjunction with (i) our accompanying interim consolidated financial statements and related notes and (ii) our consolidated financial statements, related notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2022.

Recent Developments

~~Cash Distribution.~~ ~~In October 2017,~~Proposed Merger. On May 14, 2023, Magellan and ONEOK, Inc. (“ONEOK”) entered into a definitive merger agreement under which ONEOK will acquire all outstanding units of Magellan in a cash-and-stock transaction. The consideration will consist of $25.00 in cash and 0.667 shares of ONEOK common stock for each outstanding Magellan common unit.

The transaction is expected to close in the ~~board~~third quarter of 2023 and was unanimously approved by the boards of directors of both companies. The closing of this transaction is subject to the approvals of both ONEOK shareholders and Magellan unitholders. Magellan unitholders of record at the close of business on July 24, 2023 will be entitled to vote at the virtual special meeting occurring on September 21, 2023 at 10:00 a.m. Central. Until the approval by our ~~general partner~~unitholders and ONEOK’s shareholders, we must continue to operate as an independent company.

Distribution. In July 2023, our board declared a quarterly ~~cash~~ distribution of ~~$0.905~~$1.0475 per unit for the period of ~~July~~April 1, ~~2017~~2023 through ~~September~~June 30, ~~2017.~~2023. This quarterly ~~cash~~ distribution will be paid on ~~November~~August 14, ~~2017~~2023 to unitholders of record on ~~November 2, 2017. Total distributions expected to be paid under this declaration are approximately $206.4 million.~~August 7, 2023.

~~Credit Facility Extension.~~ ~~On October 26, 2017, we extended the maturity date of our revolving credit facility with a total borrowing capacity of $1.0 billion to October 26, 2022. All other terms remain the same.~~

~~Table of Contents~~

~~Results of Operations~~

We believe that investors benefit from having access to the same financial measures utilized by management. Operating margin, which is presented in the following tables, is an important measure used by management to evaluate the economic performance of our core operations. Operating margin is not a generally accepted accounting principles (“GAAP”) measure, but the components of operating margin are computed using amounts that are determined in accordance with GAAP. A reconciliation of operating margin to operating profit, which is its nearest comparable GAAP financial measure, is included in the following tables. Operating profit includes expense items, such as depreciation and amortization expense and general and administrative (“G&A”) expense, which management does not focus on when evaluating the core profitability of our separate operating segments. Additionally, product margin, which management primarily uses to evaluate the profitability of our commodity-related activities, is provided in these tables. Product margin is a non-GAAP measure; however, its components of product sales revenue and cost of product sales are determined in accordance with GAAP. Our butane blending, fractionation and other commodity-related activities generate significant revenue. However, we believe the product margin from these activities, which takes into account the related cost of product sales, better represents its importance to our results of operations.

~~Table of Contents~~

Three Months Ended ~~September~~June 30, ~~2016~~2022 compared to Three Months Ended ~~September~~June 30, ~~2017~~2023 – Results of Operations


	Three Months Ended June 30,				Variance Favorable (Unfavorable)
	2022		2023		$ Change		% Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products	$	349.2	$	389.9	$	40.7	12
Crude oil	121.4		115.3		(6.1)		(5)
Intersegment eliminations	(1.3)		(2.0)		(0.7)		(54)
Total transportation and terminals revenue	469.3		503.2		33.9		7
Affiliate management fee revenue	5.6		5.3		(0.3)		(5)
Operating expenses:
Refined products	136.3		129.1		7.2		5
Crude oil	46.6		44.5		2.1		5
Intersegment eliminations	(2.8)		(3.5)		0.7		25
Total operating expenses	180.1		170.1		10.0		6
Product margin:
Product sales revenue	313.7		368.7		55.0		18
Cost of product sales	282.3		296.4		(14.1)		(5)
Product margin(1)	31.4		72.3		40.9		130
Other operating income (expense)	3.0		(0.5)		(3.5)		n/a
Earnings of non-controlled entities	26.5		15.9		(10.6)		(40)

Less:
Depreciation, amortization and impairment expense	58.8		56.6		2.2		4
G&A expense	56.9		74.5		(17.6)		(31)
Operating profit	240.0		295.0		55.0		23
Interest expense (net of interest income and interest capitalized)	57.3		54.8		2.5		4
Gain on disposition of assets	—		(1.1)		1.1		n/a
Other (income) expense	0.6		1.0		(0.4)		(67)
Income from continuing operations before provision for income taxes	182.1		240.3		58.2		32
Provision for income taxes	0.3		1.6		(1.3)		(433)
Income from continuing operations	181.8		238.7		56.9		31
Income from discontinued operations (including gain on disposition of assets of $162.4 million in June 2022)	172.1		—		(172.1)		(100)
Net income	$	353.9	$	238.7	$	(115.2)	(33)

(1) Product margin is calculated as product sales revenue less cost of product sales, and is synonymous with the GAAP measure gross margin.

Operating Statistics
Refined products:
Transportation revenue per barrel shipped	$	1.726	$	2.028
Volume shipped (million barrels):
Gasoline	83.1		78.2
Distillates	51.7		55.1
Aviation fuel	8.1		8.1

Total volume shipped	142.9		141.4
Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped(2)	$	0.658	$	0.605
Volume shipped (million barrels)(2)	61.5		70.0
Terminal average utilization (million barrels per month)	23.6		22.9
Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)(3)	19.6		8.0
Saddlehorn - volume shipped (million barrels)(3)	20.0		24.2

Three Months Ended September 30,
Variance
Favorable (Unfavorable)
2016 2017 $ Change % Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products $ 267.3
$ 289.0
$ 21.7
8
Crude oil 100.1
116.3
16.2
16
Marine storage 46.2
42.5
(3.7 ) (8)
Intersegment eliminations (0.1 ) (0.8 ) (0.7 ) n/a
Total transportation and terminals revenue 413.5
447.0
33.5
8
Affiliate management fee revenue 5.0
4.9
(0.1 ) (2)
Operating expenses:
Refined products 95.6
118.7
(23.1 ) (24)
Crude oil 24.6
31.2
(6.6 ) (27)
Marine storage 16.3
17.8
(1.5 ) (9)
Intersegment eliminations (1.6 ) (2.3 ) 0.7
44
Total operating expenses 134.9
165.4
(30.5 ) (23)
Product margin:
Product sales revenue 133.3
121.0
(12.3 ) (9)
Cost of product sales 118.2
121.9
(3.7 ) (3)
Product margin 15.1
(0.9 ) (16.0 ) (106)
Earnings of non-controlled entities 18.5
31.2
12.7
69
Operating margin 317.2
316.8
(0.4 ) —
Depreciation and amortization expense 47.0
49.9
(2.9 ) (6)
G&A expense 35.6
37.2
(1.6 ) (4)
Operating profit 234.6
229.7
(4.9 ) (2)
Interest expense (net of interest income and interest capitalized) 42.0
48.3
(6.3 ) (15)
Gain on sale of asset —
(18.5 ) 18.5
n/a
Other expense (income) (2.7 ) 0.5
(3.2 ) n/a
Income before provision for income taxes 195.3
199.4
4.1
2
Provision for income taxes 0.7
0.9
(0.2 ) (29)
Net income $ 194.6
$ 198.5
$ 3.9
2
Operating Statistics:
Refined products:
Transportation revenue per barrel shipped $ 1.503
$ 1.521

Volume shipped (million barrels):
Gasoline 72.7
75.8

Distillates 37.3
41.0

Aviation fuel 7.2
6.7

Liquefied petroleum gases 4.1
3.9

Total volume shipped 121.3
127.4

Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped $ 1.189
$ 1.332

Volume shipped (million barrels) 50.7
48.4

Crude oil terminal average utilization (million barrels per month) 14.8
14.9

Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)⁽¹⁾
20.6
25.7

Saddlehorn - volume shipped (million barrels)⁽²⁾
1.2
4.4

Marine storage:
Marine terminal average utilization (million barrels per month) 24.3
22.5

(2) Includes shipments related to our crude oil marketing activities.

~~(1)~~(3) These volumes reflect the total shipments for ~~the BridgeTex pipeline,~~these joint venture pipelines, which isare owned ~~50%~~30% by us.

~~(2) These volumes reflect the total shipments for the Saddlehorn pipeline, which began operations in September 2016 and is owned 40% by us.~~

~~Table of Contents~~

Transportation and terminals revenue increased ~~$33.5~~$33.9 million primarily resulting from:

•an increase in refined products revenue of ~~$21.7 million. Shipments increased~~$40.7 million primarily due to higher average tariff rates. The higher rates were largely the result of our 6% average mid-year 2022 tariff increase as well as a higher proportion of long-haul shipments, which move at higher rates, as customers continued to take advantage of the extensive connectivity of our pipeline system to overcome various supply disruptions in the Midcontinent and West Texas regions of the U.S. in the current ~~period~~period. Transportation volumes decreased slightly primarily ~~due to stronger demand for refined products~~as a result of lower shipments on our South Texas pipeline segment, which move at lower rates, in ~~large~~ part due to ~~higher distillate demand~~third-party supply disruptions in ~~crude oil production regions and increased volumes from our Little Rock pipeline extension, which commenced commercial operations in July 2016. Additionally,~~ the current ~~period benefited from~~ period; and

•a ~~one-time customer payment associated with a contract dispute settlement and higher storage and other ancillary service fees along our pipeline system due to increased customer activity;~~

~~an increase~~decrease in crude oil revenue of ~~$16.2~~$6.1 million primarily due to ~~contributions~~less revenues from our ~~new~~ condensate splitter ~~at Corpus Christi that began commercial operations~~ in ~~June 2017. We also benefited from higher volumes on our Longhorn pipeline~~part due to new lower rates as ~~shippers utilized historical credits~~well as lower storage revenues in the ~~prior year~~current period ~~(earned by shipping in excess of their minimum commitments in the past) that were set~~compared to ~~expire in the third~~second quarter ~~of 2016; and~~

~~a decrease in marine storage~~2022. Otherwise, transportation revenue ~~of $3.7 million primarily~~increased slightly due to the impact of Hurricane Harvey, which resulted in lower ancillary fees reflecting decreased customer activities and lower storage fees due to delayed project work and some tank damage in third quarter 2017. Otherwise, higher storage rates partially offset lower utilization during the current period.additional volume moved.

Operating expenses ~~increased by $30.5~~decreased $10.0 million primarily resulting from:

~~an increase~~•a decrease in refined products expenses of ~~$23.1~~$7.2 million primarily due to less favorable product overages (which reduce operating expenses), higher asset integrity spending related to the timing of maintenance work and higher environmental accruals for historical remediation sites;

an increase in crude oil expenses of $6.6 million primarily due to costs associated with our new condensate splitter that began commercial operations in June 2017 and higher power costs for pipeline movements; and

~~an increase in marine storage expenses of $1.5 million primarily due to higher environmental remediation accruals and clean-up work related to Hurricane Harvey, partially offset by~~ more ~~favorable product overages.~~

Product sales revenue resulted primarily from our butane blending activities, transmix fractionation, crude oil marketing activities and the sale of tender deductions and product gains from our operations. We utilize futures contracts to hedge against changes in the price of petroleum products we expect to sell in future periods, as well as to hedge against changes in the price of butane we expect to purchase. See Note 8 – ~~Derivative Financial Instruments~~ ~~in Item 1 of Part I for a discussion of our hedging strategies and how our use of futures contracts impacts our product margin, and~~ ~~Other Items – Commodity Derivative Agreements – Impact of Commodity Derivatives on Results of Operations~~ ~~below for more information about our futures contracts. Product margin decreased $16.0 million primarily due to higher butane costs, resulting in lower butane blending~~

margins, as well as lower margins from crude oil marketing activities due primarily to transportation charges we paid to BridgeTex Pipeline Company, LLC (“BridgeTex”), which we record as cost of product sales.

Earnings of non-controlled entities increased $12.7 million primarily due to increased earnings from BridgeTex mainly attributable to incremental spot shipments (including spot shipments by us; see Note 4 – ~~Investments in Non-Controlled Entities~~ for information about spot shipments that we made on the BridgeTex pipeline in third quarter 2017), as well as additional shipments from BridgeTex’s new Eaglebine origin, and higher earnings from Saddlehorn Pipeline Company, LLC (“Saddlehorn”), which began operating during September 2016.

~~Depreciation and amortization expense increased $2.9 million primarily due to commencement of depreciation of expansion capital projects recently placed into service.~~

~~G&A expense increased $1.6 million primarily due to higher prospecting costs for potential expansion projects.~~

~~Table of Contents~~

Interest expense, net of interest income and interest capitalized, increased $6.3 million in third quarter 2017, primarily due to lower capitalized interest and higher outstanding debt in the current period. Our average outstanding debt increased from $4.0 billion in third quarter 2016 to $4.3 billion in third quarter 2017 primarily due to borrowings for expansion capital expenditures. Our weighted-average interest rate of 4.7% in third quarter 2017 was lower than the 4.9% rate incurred in third quarter 2016.

~~In third quarter 2017, we recognized an $18.5 million gain in connection with the sale of an inactive terminal in Chicago, Illinois.~~

~~Other expense (income) was $3.2 million unfavorable primarily due to the 2016 period benefiting from a break-up fee related to a potential acquisition.~~

~~Table of Contents~~

~~Nine Months Ended September 30, 2016 compared to Nine Months Ended September 30, 2017~~

Nine Months Ended September 30,
Variance
Favorable (Unfavorable)
2016 2017 $ Change % Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products $ 739.9
$ 808.8
$ 68.9
9
Crude oil 303.2
329.8
26.6
9
Marine storage 132.8
136.7
3.9
3
Intersegment eliminations (0.1 ) (2.4 ) (2.3 ) n/a
Total transportation and terminals revenue 1,175.8
1,272.9
97.1
8
Affiliate management fee revenue 11.1
12.9
1.8
16
Operating expenses:
Refined products 279.9
312.9
(33.0 ) (12)
Crude oil 66.2
90.0
(23.8 ) (36)
Marine storage 49.8
45.8
4.0
8
Intersegment eliminations (3.9 ) (6.4 ) 2.5
64
Total operating expenses 392.0
442.3
(50.3 ) (13)
Product margin:
Product sales revenue 403.6
548.6
145.0
36
Cost of product sales 327.5
440.7
(113.2 ) (35)
Product margin 76.1
107.9
31.8
42
Earnings of non-controlled entities 51.5
78.2
26.7
52
Operating margin 922.5
1,029.6
107.1
12
Depreciation and amortization expense 134.1
146.1
(12.0 ) (9)
G&A expense 110.8
120.9
(10.1 ) (9)
Operating profit 677.6
762.6
85.0
13
Interest expense (net of interest income and interest capitalized) 120.4
143.1
(22.7 ) (19)
Gain on sale of asset —
(18.5 ) 18.5
n/a
Gain on exchange of interest in non-controlled entity (28.1 ) —
(28.1 ) (100)
Other expense (income) (6.5 ) 3.7
(10.2 ) n/a
Income before provision for income taxes 591.8
634.3
42.5
7
Provision for income taxes 2.3
2.7
(0.4 ) (17)
Net income $ 589.5
$ 631.6
$ 42.1
7
Operating Statistics:
Refined products:
Transportation revenue per barrel shipped $ 1.451
$ 1.489

Volume shipped (million barrels):
Gasoline 204.9
218.7

Distillates 110.0
119.6

Aviation fuel 19.6
20.2

Liquefied petroleum gases 9.9
9.6

Total volume shipped 344.4
368.1

Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped $ 1.325
$ 1.412

Volume shipped (million barrels) 139.5
137.0

Crude oil terminal average utilization (million barrels per month) 14.7
15.5

Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)⁽¹⁾
58.7
66.4

Saddlehorn - volume shipped (million barrels)⁽²⁾
1.2
12.1

Marine storage:
Marine terminal average utilization (million barrels per month) 23.6
23.4

~~(1) These volumes reflect the total shipments for the BridgeTex pipeline, which is owned 50% by us.~~

~~(2) These volumes reflect the total shipments for the Saddlehorn pipeline, which began operations in September 2016 and is owned 40% by us.~~

~~Table of Contents~~

~~Transportation and terminals revenue increased $97.1 million resulting from:~~

an increase in refined products revenue of $68.9 million. Shipments increased in the current period primarily due to increased volumes from our Little Rock pipeline extension, which commenced commercial operations in July 2016, and stronger demand for refined products. The average rate per barrel in the current period was favorably impacted by the mid-year 2016 and 2017 tariff adjustments. Additionally, the current period benefited from a one-time customer payment associated with a contract dispute settlement and higher storage and other ancillary service fees along our pipeline system due to increased customer activity;

an increase in crude oil revenue of $26.6 million primarily due to contributions from our new condensate splitter at Corpus Christi that began commercial operations in June 2017, higher deficiency revenue for volume committed but not moved on our Houston distribution system and higher volumes on our Longhorn pipeline; and

an increase in marine storage revenue of $3.9 million primarily due to higher storage rates and additional ancillary fees reflecting increased customer activities at our marine facilities, partially offset by slightly lower utilization mainly due to timing of maintenance work.

~~Operating expenses increased by $50.3 million primarily resulting from:~~

an increase in refined products expenses of $33.0 million primarily due to higher asset integrity spending related to the timing of maintenance work, rental costs for a pipeline segment we began leasing in third quarter 2016 in connection with our Little Rock pipeline, higher compensation costs and less favorable product overages (which reduce operating expenses), partially offset by ~~favorable property taxes;~~higher integrity costs related to the timing of maintenance work in the current period.


~~��~~	an increase in crude oil expenses of $23.8 million primarily due to less favorable product overages, higher compensation and other costs associated with our new condensate splitter that began commercial operations in June 2017 and more asset integrity spending during the current year; and

•a decrease in ~~marine storage~~crude oil expenses of ~~$4.0~~$2.1 million primarily due to ~~favorable product overages.~~lower integrity costs related to the timing of maintenance work and lower fees paid to Seabrook as a result of our recent contract amendment. This amount was partially offset by higher power costs driven by higher transportation volumes in the current period.

Product margin increased ~~$31.8~~$40.9 million primarily due to ~~recognition of gains~~improved margins on our blending activities and lower losses on futures contracts in the current ~~year compared to losses in the prior year,~~period, partially offset by lower ~~margins on product sales. See~~ of cost or net realizable value adjustments in the current period.

Other ~~Items—Commodity Derivative Agreements—Impact~~operating income (expense) was $3.5 million unfavorable primarily due to the absence of ~~Commodity Derivatives on Results~~favorable impacts from the sale of ~~Operations~~ ~~below for more information about our futures contracts.~~air emission credits in 2022.

Earnings of non-controlled entities ~~increased $26.7~~decreased $10.6 million primarily due to ~~earnings from Saddlehorn, which began operating during third quarter 2016. Additionally, earnings~~decreased contributions from BridgeTex ~~were~~resulting from lower shipments and less deficiency revenue recognized in the current period. This amount was partially offset by higher ~~mainly attributable~~Double Eagle earnings due to ~~incremental spot shipments (including spot shipments by us; see Note 4 -~~ ~~Investments~~increased volumes and deficiency revenue recognized in ~~Non-Controlled Entities~~ ~~for information about spot shipments that we made~~the current period and higher Powder Springs earnings due to recognition of lower losses on futures contracts in the ~~BridgeTex pipeline), as well as additional shipments from BridgeTex’s new Eaglebine origin.~~current period.

Depreciation, amortization and ~~amortization~~impairment expense ~~increased $12.0~~decreased $2.2 million primarily due to ~~commencement~~the timing of ~~depreciation of expansion capital projects recently placed into service.~~asset retirements.

G&A expense increased ~~$10.1~~$17.6 million primarily due to merger transaction-related costs, higher compensation costs ~~resulting from an increase~~ in ~~employee headcount mainly~~part as a result of ~~expansion projects, as well as higher prospecting costs.~~overall improved financial results and increased technology costs in the second quarter of 2023.

Interest expense, net of interest income and interest capitalized, decreased $2.5 million. Our weighted average debt outstanding was $5.0 billion in the current period compared to $5.3 billion in second quarter 2022. The weighted average interest rate was 4.5% in the current period compared to 4.3% in second quarter 2022.

Income from discontinued operations decreased by $172.1 million primarily due to the $162.4 million gain recognized on the sale of our independent terminals network in second quarter 2022.

Six Months Ended June 30, 2022 compared to Six Months Ended June 30, 2023 – Results of Operations


	Six Months Ended June 30,				Variance Favorable (Unfavorable)
	2022		2023		$ Change		% Change
Financial Highlights ($ in millions, except operating statistics)
Transportation and terminals revenue:
Refined products	$	658.7	$	721.9	$	63.2	10
Crude oil	236.1		239.6		3.5		1
Intersegment eliminations	(2.6)		(4.2)		(1.6)		(62)
Total transportation and terminals revenue	892.2		957.3		65.1		7
Affiliate management fee revenue	11.3		10.8		(0.5)		(4)
Operating expenses:
Refined products	224.5		224.7		(0.2)		—
Crude oil	85.4		86.6		(1.2)		(1)
Intersegment eliminations	(5.6)		(7.3)		1.7		30
Total operating expenses	304.3		304.0		0.3		—
Product margin:
Product sales revenue	559.8		778.8		219.0		39
Cost of product sales	525.7		616.5		(90.8)		(17)
Product margin (1)	34.1		162.3		128.2		376
Other operating income (expense)	1.0		5.3		4.3		430
Earnings of non-controlled entities	61.9		42.1		(19.8)		(32)

Less:
Depreciation, amortization and impairment expense	116.5		112.4		4.1		4
G&A expense	119.7		134.9		(15.2)		(13)
Operating profit	460.0		626.5		166.5		36
Interest expense (net of interest income and interest capitalized)	114.1		110.9		3.2		3
Gain on disposition of assets	(0.2)		(1.1)		0.9		450
Other (income) expense	1.2		1.6		(0.4)		(33)
Income from continuing operations before provision for income taxes	344.9		515.1		170.2		49
Provision for income taxes	1.1		2.5		(1.4)		(127)
Income from continuing operations	343.8		512.6		168.8		49
Income from discontinued operations (including gain on disposition of assets of $162.4 million in June 2022)	175.6		—		(175.6)		(100)
Net income	$	519.4	$	512.6	$	(6.8)	(1)

(1) Product margin is calculated as product sales revenue less cost of product sales, and is synonymous with the GAAP measure gross margin.

Operating Statistics:
Refined products:
Transportation revenue per barrel shipped	$	1.683	$	1.951
Volume shipped (million barrels):
Gasoline	158.7		146.7
Distillates	99.3		102.0
Aviation fuel	15.5		16.9
LPGs	0.6		—
Total volume shipped	274.1		265.6
Crude oil:
Magellan 100%-owned assets:
Transportation revenue per barrel shipped(2)	$	0.733	$	0.604
Volume shipped (million barrels)(2)	103.4		134.1
Terminal average utilization (million barrels per month)	24.4		23.2
Select joint venture pipelines:
BridgeTex - volume shipped (million barrels)(3)	45.1		20.8
Saddlehorn - volume shipped (million barrels)(3)	40.0		46.0

(2) Includes shipments related to our crude oil marketing activities.

(3) These volumes reflect the total shipments for these joint venture pipelines, which are owned 30% by us.

Transportation and terminals revenue increased ~~$22.7~~$65.1 million resulting from:

•an increase in ~~2017,~~refined products revenue of $63.2 million primarily due to higher ~~outstanding debt~~average tariff rates resulting from our 6% average mid-year 2022 tariff increase as well as a higher proportion of long-haul shipments, which move at higher rates, as customers continued to take advantage of the extensive connectivity of our pipeline system to overcome various supply disruptions in the Midcontinent and ~~lower capitalized interest~~West Texas regions of the U.S. in the current period. ~~Our average outstanding debt increased~~Decreased transportation volumes mainly resulted from ~~$3.8 billion~~lower shipments on our South Texas pipeline segment, which move at lower rates, in ~~2016~~part due to ~~$4.2 billion~~third-party supply disruptions in ~~2017~~the current period; and

•an increase in crude oil revenue of $3.5 million primarily due to ~~borrowings for expansion capital expenditures. Our weighted-average interest~~higher transportation volumes, in part related to more Houston distribution system shipments that move at a lower average rate, and an increase in dock fee revenues related to higher throughput in the current period, partially offset by less revenue from our condensate splitter in part due to new lower rates as well as lower storage revenue.

Operating expenses (excluding intercompany eliminations) increased by $1.4 million primarily resulting from:

•an increase in refined products expenses of ~~4.7% in 2017 was lower than the 4.9% rate incurred in 2016.~~

~~In 2017, we recognized an $18.5~~$0.2 million ~~gain in connection with the sale of an inactive terminal in Chicago, Illinois.~~

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~~In 2016, we recognized a $28.1 million non-cash gain~~as higher integrity costs related to the ~~transfer~~timing of ~~our 50% membership interest~~maintenance work and higher compensation in ~~Osage. See Note 4 –~~ ~~Investments~~the current period were mostly offset by lower property taxes and more favorable product overages; and

•an increase in ~~Non-Controlled Entities~~crude oil expenses of ~~the consolidated financial statements included in Item 1 of this report for more details regarding this transaction.~~

~~Other expense (income) was $10.2~~$1.2 million ~~unfavorable~~primarily due to higher ~~pension~~power costs driven by more transportation volumes and higher rental costs for incremental capacity necessary to access more volume; partially offset by lower integrity costs related to the timing of maintenance work and lower fees paid to Seabrook as a result of our recent contract amendment.

Product margin increased $128.2 million primarily due to improved margins on our blending activities and

lower losses on futures contracts in the current period, partially offset by lower of cost or net realizable value

adjustments in the current period.

Other operating income was $4.3 million favorable primarily due to higher sales of air emission credits in 2023.

Earnings of non-controlled entities decreased $19.8 million primarily due to decreased contributions from BridgeTex resulting from lower shipments and less deficiency revenue recognized in the current period. This amount was partially offset by higher Powder Springs earnings due to incremental blending margins and higher sales volumes as well as recognition of lower losses on futures contracts in the current period.

Depreciation, amortization and impairment expense decreased $4.1 million primarily due to the timing of asset retirements.

G&A expense increased $15.2 million primarily due to merger transaction-related costs, higher compensation costs in part as a result of overall improved financial results and increased technology costs in the current ~~period, including higher pension settlements,~~period; partially offset by lower expenses related to the 2022 retirement agreement for our former chief executive officer.

Interest expense, net of interest income and ~~a less favorable non-cash adjustment in 2017 for the change~~interest capitalized, decreased $3.2 million. Our weighted average debt outstanding was $5.1 billion in the ~~differential between~~current period compared to $5.3 billion in 2022. The weighted average interest rate was 4.4% compared to 4.3% in 2022.

Income from discontinued operations decreased by $175.6 million primarily due to the ~~current spot price and forward price~~$162.4 million gain recognized on ~~fair value hedges associated with~~the June 2022 sale of our ~~crude oil tank bottoms. Additionally, the 2016 period benefited from a break-up fee related to a potential acquisition.~~

independent terminals network.

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Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow

~~We calculate~~In the ~~non-GAAP~~following tables, we present the financial measures of adjusted EBITDA, distributable cash flow (“DCF”) and free cash flow (“FCF”), which are non-GAAP measures. For the prior periods impacted, these measures include the results of our discontinued operations.

Adjusted EBITDA is an important measure utilized by management and the investment community to assess the financial results of a company. A reconciliation of adjusted EBITDA to net income, the nearest comparable GAAP measure, is included in the table below. ~~Management uses~~

Our partnership agreement requires that all of our available cash, less amounts reserved by our board, be distributed to our unitholders. DCF is used by management to determine the amount of cash that our operations generated, after maintenance capital spending, that is available for distribution to our unitholders, as well as a basis for recommending to our ~~general partner’s~~ board the amount of ~~directors~~distributions to be paid each period. We also use DCF as the basis for calculating our performance-based equity long-term incentive compensation. A reconciliation of DCF to net income, the nearest comparable GAAP measure, is included in the table below.

FCF is a financial metric used by many investors and others in the financial community to measure the amount of cash generated by a company during a period after accounting for all investing activities, including both maintenance and expansion capital spending, as well as proceeds from divestitures. We believe FCF is important to the financial community as it reflects the amount of cash available for distributions, additional expansion capital opportunities, equity repurchases, debt reduction or other partnership uses. A reconciliation of FCF to net cash provided by operating activities, which is the nearest comparable GAAP measure, is included in the subsequent table below.

Since the non-GAAP measures presented here include adjustments specific to us, they may not be ~~paid~~comparable to ~~our limited partners~~similarly-titled measures of other companies.

Adjusted EBITDA, DCF and FCF are non-GAAP measures. A reconciliation of each ~~period. Management also uses DCF as a basis for determining the payouts~~of these measures to net income for the ~~performance-based~~six months ended June 30, 2022 and 2023 is as follows (in millions):


	Six Months Ended June 30,
	2022		2023
Net income	$	519.4	$	512.6
Interest expense, net	114.1		110.9
Depreciation, amortization and impairment(1)	116.5		113.6
Equity-based incentive compensation(2)	14.0		4.3

Gain on disposition of assets(3)	(156.3)		(1.1)

Commodity-related adjustments:
Derivative (gains) losses recognized in the period associated with future transactions(4)	40.9		4.0
Derivative gains (losses) recognized in previous periods associated with transactions completed in the period(4)	(18.7)		(12.0)
Inventory valuation adjustments(5)	(2.0)		0.9
Total commodity-related adjustments	20.2		(7.1)
Distributions from operations of non-controlled entities in excess of earnings	17.0		34.7

Adjusted EBITDA	644.9		767.9
Interest expense, net, excluding debt issuance cost amortization	(112.6)		(109.1)
Maintenance capital(6)	(38.9)		(34.3)
Distributable cash flow	$	493.4	$	624.5
Expansion capital(7)	(45.8)		(74.0)
Proceeds from disposition of assets(3)	440.8		1.1
Free cash flow	$	888.4	$	551.6
Distributions paid(8)	(440.1)		(424.7)
Free cash flow after distributions	$	448.3	$	126.9

(1) Depreciation, amortization and impairment expense is excluded from DCF to the extent it represents a non-cash expense.

(2) Because we intend to satisfy vesting of unit awards ~~issued~~ under our equity-based long-term incentive compensation ~~plan. Adjusted EBITDA is an important measure that we~~plan with the issuance of common units, expenses related to this plan generally are deemed non-cash and excluded for DCF purposes. The amounts above have been reduced by cash payments associated with the plan, which are primarily related to tax withholdings.

(3) Gains on disposition of assets are excluded from DCF to the extent they are not related to our ongoing operations, while proceeds from disposition of assets exclude the related gains to the extent they are already included in our calculation of DCF.

(4) Certain derivatives have not been designated as hedges for accounting purposes and the ~~investment community use~~mark-to-market changes of these derivatives are recognized currently in net income. We exclude the net impact of these derivatives from our determination of DCF until the transactions are settled and, where applicable, the related products are sold.

(5) We adjust DCF for lower of average cost or net realizable value adjustments related to ~~assess~~inventory and firm purchase commitments as well as market valuation of short positions recognized each period as these are non-cash items. In subsequent periods when we sell or purchase the ~~financial results~~related products, we recognize these valuation adjustments in DCF.

(6) Maintenance capital expenditures maintain our existing assets and do not generate incremental DCF (i.e. incremental returns to our unitholders). For this reason, we deduct maintenance capital expenditures to determine DCF.

(7) Includes additions to property, plant and equipment (excluding maintenance capital and capital-related changes in current liabilities), acquisitions and investments in non-controlled entities, net of ~~an entity.~~distributions from returns of investments in non-controlled entities and deposits from undivided joint interest third parties.

(8) We ~~believe that investors benefit from having access to~~paid cash distributions of $1.0375 and $1.0475 per unit each quarter during the ~~same financial measures utilized by management for these evaluations.~~ six months ended June 2022 and 2023, respectively. Distributions paid declined between years because of lower units outstanding as a result of our equity repurchase program.

A reconciliation of ~~DCF and adjusted EBITDA~~FCF to net cash provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2022 and ~~2017 to net income, which~~2023 is ~~its nearest comparable GAAP financial measure,~~as follows (in millions):


	Six Months Ended June 30,
	2022		2023
Net cash provided by operating activities	$	397.3	$	756.0
Changes in operating assets and liabilities	128.5		(81.2)
Net cash used by investing activities	361.6		(94.2)
Payments associated with settlement of equity-based incentive compensation	(8.9)		(9.9)
Settlement cost, amortization of prior service credit and actuarial loss	(2.3)		(0.8)
Changes in accrued capital items	0.8		(13.0)
Commodity-related adjustments(1)	20.2		(7.1)
Other	(8.8)		1.8
Free cash flow	$	888.4	$	551.6
Distributions paid	(440.1)		(424.7)
Free cash flow after distributions	$	448.3	$	126.9

Nine Months Ended September 30, Increase (Decrease)
2016 2017
Net income $ 589.5
$ 631.6
$ 42.1
Interest expense, net 120.4
143.1
22.7
Depreciation and amortization 134.1
146.1
12.0
Equity-based incentive compensation⁽¹⁾
0.4
0.3
(0.1 )
Loss on sale and retirement of assets 5.4
7.6
2.2
Gain on sale of asset⁽²⁾
—
(18.5 ) (18.5 )
Gain on exchange of interest in non-controlled entity⁽³⁾
(28.1 ) —
28.1
Commodity-related adjustments:
Derivative (gains) losses recognized in the period associated with future product transactions⁽⁵⁾
10.1
13.5
3.4
Derivative gains (losses) recognized in previous periods associated with product sales completed in the period⁽⁵⁾
38.6
(25.5 ) (64.1 )
Inventory valuation adjustments⁽⁶⁾
(2.8 ) 4.0
6.8
Total commodity-related adjustments 45.9
(8.0 ) (53.9 )
Cash distributions received from non-controlled entities in excess of earnings⁽⁷⁾
3.0
19.5
16.5
Other⁽⁴⁾
3.9
3.8
(0.1 )
Adjusted EBITDA 874.5
925.5
51.0
Interest expense, net, excluding debt issuance cost amortization (118.1 ) (140.6 ) (22.5 )
Maintenance capital⁽⁸⁾
(86.1 ) (71.8 ) 14.3
DCF $ 670.3
$ 713.1
$ 42.8

~~(1)~~

Because we intend to satisfy vesting of unit awards under our equity-based incentive compensation plan with the issuance of limited partner units, expenses related to this plan generally are deemed non-cash and added back for DCF purposes. Total equity-based incentive compensation expense for the nine months ended September 30, 2016 and 2017 was $14.7 million and $14.2 million, respectively. However, the figures above include adjustments of $14.4 million and $13.9 million, respectively, for cash payments associated with our equity-based incentive compensation plan, which primarily include tax withholdings.


~~(2)~~	In September 2017, we recognized an $18.5 million gain in connection with the sale of an inactive terminal in Chicago, Illinois, which has been deducted from the calculation of DCF because it is not related to our ongoing operations.

~~(3)~~

In February 2016, we transferred our 50% membership interest in Osage to an affiliate of HollyFrontier Corporation (“HFC”). In conjunction with this transaction, we entered into several commercial agreements with affiliates of HFC, which were recorded as intangible assets and other receivables on our consolidated balance sheets. We recorded a $28.1 million non-cash gain in relation to this transaction.

(1) Please refer to the preceding table for a description of these commodity-related adjustments.

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~~(4)~~	In conjunction with the February 2016 Osage transaction, HFC agreed to make certain payments to us until HFC completes a connection to our El Paso terminal. These payments replace distributions we would have received had the Osage transaction not occurred and are, therefore, included in our calculation of DCF.

~~(5)~~

Certain derivatives we use as economic hedges have not been designated as hedges for accounting purposes and the mark-to-market changes of these derivatives are recognized currently in earnings. In addition, we have designated certain derivatives we use to hedge our crude oil tank bottoms as fair value hedges and the change in the differential between the current spot price and forward price on these hedges is recognized currently in earnings. We exclude the net impact of both of these adjustments from our determination of DCF until the hedged products are physically sold. In the period in which these hedged products are physically sold, the net impact of the associated hedges is included in our determination of DCF.


~~(6)~~	We adjust the amount of lower-of-cost-or-market adjustments related to inventory and firm purchase commitments and valuations of short positions recognized each period as these are non-cash items. In subsequent periods when we physically sell or purchase the related products, we adjust DCF for the valuation adjustments previously recognized.


~~(7)~~	~~The cash distributions received from non-controlled entities in excess of earnings only includes cash flows from ongoing operations of those entities. See Note 4 –~~ ~~Investments in Non-Controlled Entities~~ ~~in Item 1 of Part I of this report for more detailed information.~~


~~(8)~~	Maintenance capital expenditures maintain our existing assets and do not generate incremental DCF (i.e. incremental returns to our unitholders). For this reason, we deduct maintenance capital expenditures to determine DCF.

Liquidity and Capital Resources

Cash Flows and Capital Expenditures

Operating Activities. ~~Operating cash flows consist of net income adjusted for certain non-cash items and changes in certain assets and liabilities.~~

Net cash provided by operating activities was ~~$639.0~~$397.3 million and ~~$794.6~~$756.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~ 2022 and ~~2017,~~2023, respectively. The ~~$155.6~~$358.7 million increase in ~~2017~~2023 was due to ~~changes in our working capital,~~ higher ~~net~~ income from continuing operations as previously described and ~~adjustments~~changes in our operating assets and liabilities (as described below).

The changes in operating assets and liabilities decreased cash from operating activities by $128.5 million for ~~non-cash items.~~the six months ended June 30, 2022 and increased cash from operating activities by $81.2 million for the six months ended June 30, 2023. This change is due primarily to changes in inventories, primarily due to higher commodity prices in 2022 and lower volumes and commodity prices in 2023; changes in accounts receivable, which vary from period to period with changes in commodity prices and the timing of product sales; and changes in commodity derivatives deposits resulting from higher commodity prices during the 2022 period.

Investing Activities. ~~Investing~~ Net cash ~~flows consist primarily of capital expenditures~~provided by investing activities for the six months ended June 30, 2022 was $361.6 million and ~~investments in non-controlled entities.~~

~~Net~~net cash used by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016 and 2017~~2023 was ~~$682.1~~$94.2 million, including $86.1 million and ~~$416.1~~$95.3 million ~~respectively. During 2017, we incurred $443.4 million~~used for capital expenditures ~~which included $71.8 million~~ for ~~maintenance capital~~those same periods in 2022 and ~~$371.6 million for expansion capital.~~2023, respectively. Also, during ~~the 2017 period,~~2022, we ~~contributed capital~~sold our independent terminals network for cash proceeds of $114.1 million in conjunction with our joint venture capital projects, which we account for as investments in non-controlled entities. During 2016, we incurred $514.2 million for capital expenditures, which included $86.1 million for maintenance capital and $428.1 million for expansion capital. Also during the 2016 period, we contributed capital of $174.9 million in conjunction with our joint venture capital projects.$446.9 million.

Financing Activities. ~~Financing cash flows consist primarily of distributions to our unitholders and borrowings and repayments under long-term notes and our commercial paper program.~~

Net ~~cash provided by financing activities for the nine months ended September 30, 2016 was $305.5 million, and net~~ cash used by financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and 2023 was ~~$391.7 million.~~$757.0 million and $540.3 million, respectively. During ~~2017,~~the 2023 period, we ~~have~~ paid ~~cash~~ distributions of ~~$596.9~~$424.7 million to our ~~unitholders.~~unitholders and repurchased common units for $73.7 million. Additionally, we made net commercial paper ~~borrowings during the 2017 period were $219.0 million. Also, in January 2017, the cumulative amounts~~payments of the 2014 equity-based incentive compensation awards were settled by issuing 216,679 limited partner units and distributing those units to the long-term incentive plan (“LTIP”) participants, resulting in payments primarily associated with tax withholdings of $13.9$32.0 million. During ~~2016,~~the 2022 period, we paid ~~cash~~ distributions of ~~$548.4~~$440.1 million to our ~~unitholders.~~unitholders and repurchased common units for $219.0 million. Additionally, we ~~received~~made net ~~proceeds of $1.1 billion from borrowings under long-term notes, which were used in part to repay borrowings outstanding under our~~ commercial paper program and for general partnership purposes, including expansion capital. Net commercial paper repayments during 2016 totaled $245.0 million. In connection with certain of the borrowings under long-term notes, we paid $19.3 million in settlement of associated interest rate swap agreements. Also, in February 2016, the cumulative amounts of the 2013 equity-based incentive compensation

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~~awards were settled by issuing 350,552 limited partner units and distributing those units to the LTIP participants, resulting in~~ payments of ~~associated tax withholdings of $14.4~~$89.0 million.

The quarterly distribution amount related to ~~our third~~second quarter ~~2017 financial results~~2023 earnings is $1.0475 per unit (to be paid in ~~fourth~~third quarter ~~2017) is $0.905 per unit.~~2023). If we ~~are able~~were to ~~meet management’s targeted distribution growth of 8% for 2017 and~~continue paying distributions at this level on the number of common units currently outstanding, ~~limited partner units remains at 228.0 million,~~ total ~~cash~~ distributions of approximately ~~$818~~$847.0 million ~~will~~would be paid to our unitholders related to ~~2017~~2023 earnings. Management believes we will have sufficient DCF to fund these distributions.

Capital Requirements

~~Our businesses require continual investments to maintain, upgrade or enhance existing operations and to ensure compliance with safety and environmental regulations.~~ Capital spending for our business consists primarily of:

•Maintenance capital expenditures. These expenditures include costs required to maintain equipment reliability and safety and to address environmental orand other regulatory requirements rather than to generate incremental DCF; and

•Expansion capital expenditures. These expenditures are undertaken primarily to generate incremental DCF and include costs to acquire additional assets to grow our business and to expand or upgrade our existing facilities and to construct new assets, which we refer to collectively as organic growth projects. Organic growth projects include, for example, capital expenditures that increase storage or throughput volumes or develop pipeline connections to new supply sources.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~ 2023, our maintenance capital spending was ~~$71.8 million~~.$34.3 million. For ~~2017,~~all of 2023, we expect to spend approximately ~~$95~~ $85.0��million on maintenance capital.

During the first ~~nine~~six months of ~~2017,~~2023, we spent ~~$371.6~~$74.0 million for ~~organic growth~~our expansion capital ~~and contributed $114.1 million for capital projects in conjunction with our joint ventures.~~projects. Based on the progress of ~~expansion~~ projects already ~~underway,~~committed, we expect to spend a total of approximately ~~$600 million for expansion capital during 2017, with an additional $800~~$120.0 million in ~~2018~~2023 and ~~$350~~$40.0 million in ~~2019~~2024 to complete our current ~~projects, including~~slate of expansion capital projects.

In addition, we may repurchase our ~~recently-announced projects~~common units through our unit repurchase program (see ~~Other Items, below)~~Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds of Part II of this report for additional details). We may also repurchase portions of our existing long-term debt from time-to-time through open market transactions, tender offers or privately-negotiated transactions. However, the terms of the Merger Agreement prohibit us from repurchasing units and limits our ability to issue new debt during the pendency of the Merger.

Liquidity

Cash generated from operations is ~~our primary~~a key source of liquidity for funding debt service, maintenance capital expenditures, ~~and~~ quarterly distributions ~~to our unitholders.~~and repurchases of common units. Additional liquidity for purposes other than quarterly distributions, such as expansion capital expenditures, ~~and debt repayments,~~ is available through borrowings under our commercial paper program and revolving credit facility, as well as from other borrowings or issuances of debt or ~~limited partner~~common units (see Note 7 – Debtand Note 1115 – Partners’ Capital and Distributions ~~of the consolidated financial statements included~~ in Item 1I of Part Iof this report for detail of our borrowings and changes in partners’ capital). If capital markets do not permit us to issue additional debt and equity securities, our business may be adversely affected, and we may not be able to acquire additional assets and businesses, fund organic growth projects or continue paying cash distributions at the current level.

Off-Balance Sheet Arrangements

None.

Other Items

Proposed Regulations. Agencies within the federal government continue to introduce new rules and regulations that are designed to increase the costs of or reduce demand for our goods and services. For example, the U.S. Environmental

~~Our operations~~ Protection Agency (“EPA”) and the US National Highway Traffic Safety Administration (“NHTSA”) have proposed new rules designed to accelerate the conversion from internal combustion vehicles to electric vehicles. The proposed rules would require a reduction in fleet average carbon dioxide emissions by roughly half along with an increase in the average miles per gallon. The EPA projects this would lead to 67% of light-duty vehicles sold in 2032 to be electric only. NHTSA said its plan focuses on gas-powered models and would encourage something closer to a 50-50 split between internal combustion vehicles and EVs. Both proposed rules are subject to ~~federal, state~~public comment, agency amendments and local environmental laws and regulations. We have accrued liabilities for estimated costs at our facilities and properties. We record liabilities when environmental costs are probable and can be reasonably estimated. The determination of amounts recorded for environmental liabilities involves significant judgments and assumptions by management. Due to the inherent uncertainties involved in determining environmental liabilities, it is reasonably possible that the actual amounts required to extinguish these liabilities could be materially different from those we have recognized.

potential litigation.

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~~Other Items~~

~~Pasadena Marine Terminal Joint Venture.~~ ~~MVP Terminalling, LLC (“MVP”) was formed in September 2017 to construct and develop a refined products marine storage facility along the Houston Ship Channel in Pasadena, Texas.~~ Pipeline Tariff Changes. The ~~facility will initially include five million barrels~~tariff rates on approximately 30% of storage, truck loading facilities and two proprietary ship docks. We own a 50% equity interest in MVP, with an affiliate of Valero Energy Corporation (“Valero”) owning the other 50% interest. We serve as construction manager and operator of the MVP facility. A portion of this facility is expected to be operational in early 2019, with the remainder expected to be operational in early 2020. The project is estimated to cost approximately $820 million, which will be funded equally by capital contributions from us and Valero.

~~East Houston to Hearne, TX Pipeline.~~ ~~In September 2017, we announced plans to expand~~ our refined products ~~pipeline system to handle incremental demand for transportation~~shipments are regulated by the FERC primarily through an annual inflation-based index methodology, and nearly all of ~~gasoline, diesel fuel and jet fuel to central and north Texas markets. Supported~~the remaining rates are adjustable at our discretion based on market factors. We increased our rates by ~~long-term customer commitments, we plan to build an~~ approximately ~~135-mile pipeline from our terminal in East Houston to Hearne, Texas. We and Valero will each own an undivided joint interest~~13% in the ~~pipeline, and~~30% of our refined products markets that are subject to the FERC’s index methodology on July 1, 2023. In the 70% of our remaining refined products markets, we ~~will be the construction manager and operator. In addition, we are making related enhancements to~~increased our ~~existing pipeline and terminal infrastructure to handle the incremental volume. Our share~~rates by an average of 11%, resulting in an overall refined products mid-year tariff increase of approximately 11.5%. Most of the ~~project is estimated to cost approximately $375 million, with the new pipeline capacity expected to be operational in mid-2019.~~

~~Delaware Basin Crude Oil and Condensate Pipeline.~~ ~~Also in September 2017, we announced plans to begin construction of a new Delaware Basin pipeline originating in Wink, Texas to handle delivery of~~tariffs on our long-haul crude oil ~~and condensate to Crane, Texas. The new Wink pipeline will be approximately 60 miles and will have an initial capacity of 250,000 barrels per day,~~pipelines are established at negotiated rates that generally provide for annual adjustments in line with ~~the ability to expand to more than 600,000 barrels per day if warranted by industry demand. We expect this project to cost approximately $150 million and to be operational in mid-2019.~~

~~Impact of Hurricane Harvey. During the third quarter of 2017, Hurricane Harvey hit the Texas Gulf Coast, disrupting our operations located~~changes in the ~~Houston~~FERC index, subject to certain modifications. As a result, we increased the rates on our long-haul crude oil pipelines between 2% and ~~Corpus Christi areas for a limited time. No significant asset damage occurred,~~5% in July 2023.

Leadership Changes. James R. Hoskin was elected by our board as Senior Vice President of Operations in February 2023. Mr. Hoskin served as Vice President of Operations since 2021 and ~~the impacted facilities are now operational. We currently estimate the total negative DCF impact~~various positions of Hurricane Harvey to be approximately $20 million, net of expected insurance reimbursements. Of the total, approximately $10 million reduced third-quarter DCF ($8 million of which negatively impacted third-quarter net income) with the remainder associated with clean-upincreasing responsibilities in operations and ~~repair activities to be completed~~engineering and construction since joining us in ~~future periods.~~2007.

Commodity Derivative Agreements. Certain of ~~the~~our business activities ~~in which we engage~~ result in our owning various commodities, which exposes us to commodity price risk. We use forward physical commodity contracts and exchange-based futures contracts to help manage this commodity price risk. We use forward physical contracts to purchase butane and sell refined products. We account for these forward physical contracts as normal purchase and sale contracts, using traditional accrual accounting. We use futures contractsderivative instruments to hedge against changes in prices of ~~refined products and crude oil~~commodities that we expect to sell ~~and of butane that we expect to~~or purchase in future periods. ~~We use~~

See Item 3. Quantitative and ~~account~~ Qualitative Disclosures about Market Risk for those futures contracts that qualify for hedge accounting treatment as either cash flow or fair value hedges, and we use and account for those futures contracts that do not qualify for hedge accounting treatment as economic hedges.

As of September 30, 2017, our open derivative contracts and the impact of the derivatives we settled during the period were comprised of futures contracts used to hedge sales and purchases of refined products, crude oil and butane related to our tender deductions, product overages, butane blending, fractionation and certain crude oil inventory activities. These contracts were accounted for as economic hedges, with the change in fair value of contracts that hedge future sales recorded to product sales, and the change in fair value of contracts that hedge future purchases recorded to cost of product sales.

~~For~~ further information regarding the quantities of refined products and crude oil hedged at ~~September~~June 30, ~~2017~~2023 and the fair value of open hedge contracts at that ~~date, please see~~ ~~Item 3. Quantitative and Qualitative Disclosures about Market Risk~~.date.

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The following tables provide a summary of the impacts of the mark-to-market gains and losses associated with these futures contracts on our results of operations for the respective periods presented (in millions):

Nine Months Ended September 30, 2016
Product Sales Revenue Cost of Product Sales Operating Expense Other Income Net Impact on Net Income
Gains (losses) recorded on open futures contracts during the period $ (20.6 ) $ 3.5
$ (2.0 ) $ 4.5
$ (14.6 )
Gains (losses) recognized on settled futures contracts during the period 12.2
0.1
0.8
—
13.1
Net impact of futures contracts $ (8.4 ) $ 3.6
$ (1.2 ) $ 4.5
$ (1.5 )

Nine Months Ended September 30, 2017
Product Sales Revenue Cost of Product Sales Operating Expense Other Income Net Impact on Net Income
Gains (losses) recorded on open futures contracts during the period $ (31.6 ) $ 17.2
$ 0.7
$ 2.4
$ (11.3 )
Gains recognized on settled futures contracts during the period 27.2
2.5
—
—
29.7
Net impact of futures contracts $ (4.4 ) $ 19.7
$ 0.7
$ 2.4
$ 18.4

Related Party Transactions. See Note 1314 – Related Party Transactions in Item 1 of Part I of this report for detail of our related party transactions.


~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We may be exposed to market risk through changes in commodity prices and interest rates and have established policies to monitor and ~~control~~mitigate these market risks. We use derivative agreements to help manage our exposure to commodity price and interest rate risks.

Commodity Price Risk

Our commodity price risk primarily arises from our ~~butane~~gas liquids blending, fractionation and ~~fractionation~~petroleum products marketing activities, ~~and~~as well as from managing product overages and shortages associated with our refined products and crude oil ~~pipelines.~~pipelines and terminals. We use ~~derivatives such as~~ forward physical contracts and ~~exchange-traded futures contracts~~derivative instruments to help us manage commodity price risk.

Forward physical contracts that qualify for and are elected as normal purchases and sales are accounted for using traditional accrual accounting. As of ~~September~~June 30, ~~2017,~~2023, we had commitments under forward purchase and sale contracts as follows (in millions):


	Total		2023		2024-2027		Beyond 2027
Forward purchase contracts – notional value	$	379.3	$	155.7	$	135.7	$	87.9
Forward purchase contracts – barrels	9.7		3.1		3.9		2.7
Forward sales contracts – notional value	$	105.2	$	105.2	$	—	$	—
Forward sales contracts – barrels	1.4		1.4		—		—

Total < 1 Year 1 - 4 Years
Forward purchase contracts – notional value $ 195.9
$ 107.9
$ 88.0
Forward purchase contracts – barrels 4.4
2.2
2.2
Forward sales contracts – notional value $ 69.5
$ 49.0
$ 20.5
Forward sales contracts – barrels 1.1
0.8
0.3

We ~~also~~generally use derivative instruments including exchange-traded futures contracts and over-the-counter forward contracts to hedge against changes in the price of petroleum products we expect to sell or purchase. At September 30, 2017, the fair value of our open futures contracts, representing 5.5 million barrels of petroleum products we expect to sell and 2.1 million barrels of butane we expect to purchase, was a net liability of $13.7 million. These contractsWe did not ~~qualify for~~elect hedge accounting treatment under ~~ASC~~Accounting Standards Codification 815, Derivatives and Hedging,for our open contracts and as a result we accounted for these contracts as economic hedges, with changes in fair value recognized currently in earnings. The fair value of these open contracts, representing 4.7 million barrels of petroleum products we expect to sell and 1.3 million barrels of gas liquids we expect to purchase, was a net liability of $7.1 million as of June 30, 2023. With respect to these contracts, a $10.00 per barrel increase (decrease) in the prices of petroleum products we expect to sell would result in a ~~$55.0~~$47.0 million decrease (increase) in our operating profit, while a $10.00 per barrel increase (decrease) in the price of ~~butane~~gas liquids we expect to purchase would result in ~~$21.0~~a $13.0 million increase (decrease) in our operating profit. These increases or decreases in operating profit would be substantially offset by higher or lower product sales revenue or cost of product sales when the physical sale or purchase of those products ~~occurs.~~occurs, respectively. These contracts may be for the purchase or sale of products in markets different from those in which we are attempting to hedge our exposure, and the ~~resulting~~related hedges may not eliminate all price risks.

Interest Rate Risk

Our use of variable rate debt and any ~~forecasted~~future issuances of fixed rate debt expose us to interest rate risk. As of June 30, 2023, we had no variable rate commercial paper outstanding.

We entered into $100.0 million of forward-starting interest rate swap agreements during 2016 to hedge against the risk of variability of future interest payments on a portion of debt we anticipate issuing in 2018. The fair value of these contracts at September 30, 2017 was a net asset of $12.4 million. We account for these agreements as cash flow hedges. A 0.125% decrease in interest rates would result in a decrease in the fair value of this asset of approximately $2.1 million. A 0.125% increase in interest rates would result in an increase in the fair value of approximately $2.0 million.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4.CONTROLS AND PROCEDURES

We performed an evaluation of the effectiveness of the design and operation of our ~~disclosure~~“disclosure controls and ~~procedures~~procedures” (as defined in ~~rule 13a-14(c) of~~Rules 13a-15(e) and 15d-15(e) under the Securities Exchange ~~Act)~~Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by ~~the date of~~ this report. We performed this evaluation under the supervision and with the participation of our management, including our ~~general partner’s~~ Chief Executive Officer (“CEO”) and Chief Financial ~~Officer.~~Officer (“CFO”). Based upon that evaluation, our ~~general partner’s Chief Executive Officer~~CEO and ~~Chief Financial Officer~~CFO concluded that, ~~these~~as of the end of the period covered by this report, our disclosure controls and ~~practices are~~procedures were effective ~~in providing~~to provide reasonable assurance ~~that all required disclosures are included in the current report. Additionally, these disclosure controls and practices are effective in ensuring~~ that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to ~~our Chief Executive Officer~~management, including the CEO and ~~Chief Financial Officer~~the CFO, as appropriate, to allow timely decisions regarding required ~~disclosures.~~disclosure. There has been no change in our internal control over financial reporting ~~(as defined in Rule 13a-15(f) of the Securities Exchange Act)~~that occurred during the quarter ended ~~September~~June 30, ~~2017~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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~~Forward-Looking Statements~~

Certain matters discussed in this Quarterly Report on Form 10-Q include forward-looking statements within the meaning of the federal securities laws that discuss our expected future results based on current and pending business operations. Forward-looking statements can be identified by words such as “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “forecasts,” “goal,” “guidance,” “intends,” “may,” “might,” “plans,” “potential,” “projected,” “scheduled,” “should,” “will” and other similar expressions. Although we believe our forward-looking statements are based on reasonable assumptions, statements made regarding future results are not guarantees of future performance and are subject to numerous assumptions, uncertainties and risks that are difficult to predict. Therefore, actual outcomes and results may be materially different from the results stated or implied in such forward-looking statements included in this report.

~~The following are among the important factors that could cause future results to differ materially from any projected, forecasted, estimated or budgeted amounts we have discussed in this report:~~

~~overall demand for refined products, crude oil, liquefied petroleum gases and ammonia in the U.S.;~~

~~price fluctuations for refined products, crude oil, liquefied petroleum gases and ammonia and expectations about future prices for these products;~~

~~changes in the production of crude oil in the basins served by our pipelines;~~

~~changes in general economic conditions, interest rates and price levels;~~

~~changes in the financial condition of our customers, vendors, derivatives counterparties, lenders or joint venture co-owners;~~

our ability to secure financing in the credit and capital markets in amounts and on terms that will allow us to execute our growth strategy, refinance our existing obligations when due and maintain adequate liquidity;

development of alternative energy sources, including but not limited to natural gas, solar power, wind power, electric and battery-powered engines and geothermal energy, increased use of biofuels such as ethanol and biodiesel, increased conservation or fuel efficiency, increased use of electric vehicles, as well as regulatory developments or other trends that could affect demand for our services;

~~changes in the throughput or interruption in service of refined products or crude oil pipelines owned and operated by third parties and connected to our assets;~~

~~changes in demand for storage in our refined products, crude oil or marine terminals;~~

changes in supply and demand patterns for our facilities due to geopolitical events, the activities of the Organization of the Petroleum Exporting Countries, changes in U.S. trade policies or in laws governing the importing and exporting of petroleum products, technological developments or other factors;

~~our ability to manage interest rate and commodity price exposures;~~

~~changes in our tariff rates or other terms of service implemented by the Federal Energy Regulatory Commission, the U.S. Surface Transportation Board or state regulatory agencies;~~

~~shut-downs or cutbacks at refineries, oil wells, petrochemical plants, ammonia production facilities or other customers or businesses that use or supply our services;~~

~~the effect of weather patterns and other natural phenomena, including climate change, on our operations and demand for our services;~~

~~an increase in the competition our operations encounter;~~

~~the occurrence of natural disasters, terrorism, protests or political activism, operational hazards, equipment failures, system failures or unforeseen interruptions;~~

~~our ability to obtain adequate levels of insurance at a reasonable cost, and the potential for losses to exceed the insurance coverage we do obtain;~~

the treatment of us as a corporation for federal or state income tax purposes or if we become subject to significant forms of other taxation or more aggressive enforcement or increased assessments under existing forms of taxation;

~~our ability to identify expansion projects or to complete identified expansion projects on time and at projected costs;~~

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~~our ability to make and integrate accretive acquisitions and joint ventures and successfully execute our business strategy;~~

~~uncertainty of estimates, including accruals and costs of environmental remediation;~~

~~our ability to cooperate with and rely on our joint venture co-owners;~~

~~actions by rating agencies concerning our credit ratings;~~

~~our ability to timely obtain and maintain all necessary approvals, consents and permits required to operate our existing assets and to construct, acquire and operate any new or modified assets;~~

our ability to promptly obtain all necessary services, materials, labor, supplies and rights-of-way required for construction of our growth projects, and to complete construction without significant delays, disputes or cost overruns;

~~risks inherent in the use and security of information systems in our business and implementation of new software and hardware;~~

changes in laws and regulations that govern product quality specifications or renewable fuel obligations that could impact our ability to produce gasoline volumes through our butane blending activities or that could require significant capital outlays for compliance;

changes in laws and regulations to which we or our customers are or could become subject, including tax withholding requirements, safety, security, employment, hydraulic fracturing, derivatives transactions, trade and environmental laws and regulations, including laws and regulations designed to address climate change;

~~the cost and effects of legal and administrative claims and proceedings against us or our subsidiaries;~~

the amount of our indebtedness, which could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences;

~~the effect of changes in accounting policies;~~

~~the potential that our internal controls may not be adequate, weaknesses may be discovered or remediation of any identified weaknesses may not be successful;~~

~~the ability and intent of our customers, vendors, lenders, joint venture co-owners or other third parties to perform on their contractual obligations to us;~~

~~petroleum product supply disruptions;~~

~~global and domestic repercussions from terrorist activities, including cyber attacks, and the government’s response thereto; and~~

other factors and uncertainties inherent in the transportation, storage and distribution of petroleum products and ammonia, and the operation, acquisition and construction of assets related to such activities.

This list of important factors is not exclusive. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changes in assumptions or otherwise.

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PART II

OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1.LEGAL PROCEEDINGS

~~Anhydrous Ammonia Event~~.

Butane Blending Patent Infringement Proceeding. On October ~~17, 2016,~~4, 2017, Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) brought an action for patent infringement in the U.S. District Court for the District of Delaware alleging Magellan and Powder Springs Logistics, LLC (“Powder Springs”) were infringing patents relating to butane blending. A trial concluded on December 6, 2021, at which the jury found Magellan and Powder Springs willfully infringed those patents. Based on the jury’s award and post-trial proceedings, the total amount awarded to Sunoco is approximately $23.0 million, plus post-judgment interest that continues to accrue. Sunoco and defendants, Magellan and Powder Springs, have appealed the final judgment of the trial court. The amounts we ~~experienced a release~~have accrued in relation to the claims represent our best estimate of ~~anhydrous ammonia on our ammonia pipeline system near Tekamah, Nebraska. The release resulted in a fatality~~probable damages, and other possible injuries. The National Transportation Safety Board is investigating the event. We are currently unable to estimate the full impact of this event. However, we believe the impact on our financial position and results of operationsalthough it is not ~~likely~~possible to ~~be material as defined by~~predict the ~~SEC.~~

~~U.S. Oil Recovery, EPA ID No.: TXN000607093 Superfund Site. We have liability at~~ultimate outcome, we do not expect the U.S. Oil Recovery Superfund Site in Pasadena, Texas as a potential responsible party (“PRP”) under Section 107(a) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”). As a result of the EPA’s Administrative Settlement Agreement and Order on Consent for Removal Action, filed August 25, 2011, EPA Region 6, CERCLA Docket No. 06-10-11, we voluntarily entered into the PRP group responsible for the site investigation, stabilization and subsequent site cleanup. We have paid $15,000 associated with the assessment phase. Until this assessment phase has been completed, we cannot reasonably estimate our proportionate share of the remediation costs associated with this site. While the results cannot be reasonably estimated, we believe the ultimatefinal resolution of this matter ~~will not~~to have a material ~~impact~~adverse effect on our ~~results~~business.

Corpus Christi Terminal Personal Injury Proceeding. Ismael Garcia, Andrew Ramirez, and Jesus Juarez Quintero, et al.brought personal injury cases against Magellan and co-defendants Triton Industrial Services, LLC, Tidal Tank, Inc. and Cleveland Integrity Services, Inc. in Nueces County Court in Texas. The claims were originally brought in three different actions but were consolidated into a single case on March 2, 2021. Claims were asserted by or on behalf of ~~operations, financial position or cash flows.~~

~~Lake Calumet Cluster Site, EPA ID No.: ILD000716852 Superfund Site. We have liability at the Lake Calumet Cluster Superfund Site in Chicago, Illinois~~seven individuals and certain beneficiaries. The seven individuals were employed by a contractor of Magellan and were injured, one fatally, as ~~a PRP under Sections 107(a) and 113(f)(1) of CERCLA. As~~ a result of the EPA’s Administrative Settlement Agreement and Order for Remedial Investigation/Feasibility Study of June 2013, we voluntarily entered into the PRP group responsible for the investigation, cleanup and installationa fire that occurred on December 5, 2020 while they were cleaning a tank at our Corpus Christi terminal. The plaintiffs are seeking damages of an appropriate clay cap over the site. We have paid $8,000 associated with the Remedial Investigation/Feasibility Study and cleanup costs to date. Our projected portion of the estimated cap installation is $55,000.undetermined amount. While the ~~results~~outcome cannot be predicted, we do not expect the final resolution of this matter to have a material adverse effect on our business.

Commerce City Enforcement Proceeding. In May 2023, we received a Notice of Probable Violation letter from the Pipeline and Hazardous Material Safety Administration alleging three violations related to a diesel fuel release in Commerce City, Colorado. While the outcome cannot be predicted with certainty, we believe the ultimate resolution of this matter will not have a material ~~impact~~adverse effect on our ~~results of operations, financial position or cash flows.~~business.

We and the non-controlled entities in which we own an interest are a party to various other claims, legal actions and ~~complaints arising in the ordinary course of business.~~complaints. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our ~~future results of operations, financial position or cash flows.~~business.

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~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A.RISK FACTORS

In addition to the information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, which could materially affect our business, financial condition or future results. The risks described in this report and our Annual Report on Form 10-K are not our only risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business, financial condition or operating results.

We have added the following risk factors related to our Merger Agreement with ONEOK, which could have a material adverse effect on our business.

Because the market price of ONEOK common stock will fluctuate prior to the consummation of the Merger, Magellan unitholders cannot be sure of the market value of ONEOK common stock that they will receive in the merger.

At the time the Merger is completed, Magellan unitholders will receive, for each Magellan unit they own as of immediately prior to the merger, a combination of 0.667 shares of ONEOK common stock (the “Exchange Ratio”) and $25.00 in cash (together, the “Merger Consideration”). The Exchange Ratio is fixed (subject to adjustments in accordance with the terms of the Merger Agreement), which means that it will not change between now and the closing date, regardless of whether the market price of either ONEOK common stock or Magellan units changes. Therefore, the value of the equity consideration will depend on the market price of ONEOK common stock at the effective time. The respective market prices of both ONEOK common stock and Magellan units have fluctuated since the date of the announcement of the parties’ entry into the Merger Agreement and will continue to fluctuate. The market price of ONEOK common stock, when received by Magellan unitholders after the Merger is completed, could be greater than, less than or the same as the market price of ONEOK common stock on the date of this quarterly report or at the time of the Magellan Special Meeting.

The Merger is subject to various closing conditions, and any delay in completing the merger may reduce or

eliminate the benefits expected and delay the payment of the Merger Consideration to Magellan’s unitholders.

The Merger is subject to the satisfaction of a number of conditions beyond the parties’ control that may prevent, delay or otherwise materially adversely affect the completion of the Merger. These conditions include, among other things, Magellan unitholder approval of the Merger Agreement and ONEOK shareholder approval of the issuance of ONEOK Common Stock in connection with the Merger. ONEOK and Magellan cannot predict with certainty whether or when any of these conditions will be satisfied. Any delay in completing the Merger could cause the combined company not to realize, or delay the realization, of some or all of the benefits that the companies expect to achieve from the merger. In such context, when or if Magellan’s unitholders will receive the Merger Consideration is also uncertain.

The Merger Agreement limits our ability to pursue alternatives to the Merger, which may discourage other companies from making a favorable alternative transaction proposal and, in specified circumstances, could require Magellan to pay ONEOK a termination fee.

The Merger Agreement contains certain provisions that restrict our ability to directly or indirectly solicit competing acquisition proposals or to enter into discussions concerning, or provide confidential information in connection with, any proposal or offer that constitutes, or would reasonably be expected to lead to, an acquisition proposal, and we have agreed to certain terms and conditions relating to our ability to engage in, continue or otherwise participate in any discussions with respect to, provide a third party confidential information with respect to or enter into any acquisition agreement with respect to certain unsolicited proposals that constitute or are reasonably likely to lead to a competing proposal. Further, even if our board changes, withdraws, modifies or qualifies its recommendation with respect to the Merger, unless the Merger Agreement has been terminated in accordance with its terms, we will still be required to submit the Merger proposal to a vote at our special meeting. The Merger Agreement further provides that, under specified circumstances, including in the event that we terminate the Merger Agreement in response to an acquisition proposal from a third party that our board determines constitutes a superior offer, we may be required to pay ONEOK a breakup fee of $275.0 million less any ONEOK expenses paid or up to $125.0 million of ONEOK’s expenses.

These provisions could discourage a potential third-party acquirer that might have an interest in us from considering or pursuing an alternative transaction with us or proposing such a transaction, even if it were prepared to pay consideration with a higher per share value than the total value proposed to be paid or received in the merger. These provisions might also result in a potential third-party acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

The market price for ONEOK common stock following the closing may be affected by factors different from those that historically have affected or currently affect ONEOK common stock and Magellan units.

Upon completion of the Merger, Magellan unitholders who receive ONEOK common stock will become shareholders of ONEOK. ONEOK’s financial position may differ from its financial position before the completion of the Merger, and the results of operations of the combined company may be affected by some factors that are different from those currently affecting the results of operations of ONEOK and those currently affecting the results of operations of Magellan. Accordingly, the market price and performance of ONEOK common stock is likely to be different from the performance of Magellan units or ONEOK common stock in the absence of the Merger.

Current Magellan unitholders will have reduced ownership and voting interest in the combined company and will exercise less influence over the combined company’s management.

As of the date of this report, based on the Exchange Ratio, the number of outstanding Magellan units and the number of outstanding shares of ONEOK common stock, it is expected that immediately following the Merger, current Magellan unitholders would own approximately 23% of the issued and outstanding shares of the combined company on a fully diluted basis. As a result, Magellan’s current unitholders will have less influence on the policies of the combined company than they currently have on the policies of Magellan.

We are expected to incur significant transaction costs in connection with the Merger, which may be in excess of those anticipated by us.

We have incurred and are expected to continue to incur a number of non-recurring costs associated with negotiating and completing the Merger, combining the operations of the two companies and achieving desired synergies. These costs have been, and will continue to be, substantial and, in many cases, will be borne by us whether or not the Merger is completed. A substantial majority of non-recurring expenses will consist of transaction costs and include, among others, fees paid to financial, legal, accounting and other advisors, employee retention, severance and benefit costs, and filing fees. We will continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in connection with the Merger and the integration of the two companies’ businesses. While we have assumed that a certain level of expenses would be incurred, there are many factors beyond our control that could affect the total amount or the timing of the expenses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset integration-related costs and achieve a net benefit in the near term, or at all.

If the Merger Agreement is terminated, under certain circumstances, we may be obligated to reimburse ONEOK for costs incurred related to the merger or pay a breakup fee.

Upon termination of the Merger Agreement under certain circumstances, Magellan may be required to reimburse ONEOK’s expenses up to $125.0 million or pay ONEOK a termination fee equal to $275.0 million, less any expenses previously paid. If the Merger Agreement is terminated, the breakup fee required to be paid, if any, by us under the Merger Agreement may require us to seek loans to enable us to pay these amounts to ONEOK.

The failure to successfully combine the businesses of ONEOK and Magellan in the expected time frame may adversely affect ONEOK’s future results, which may adversely affect the value of the ONEOK common stock that Magellan unitholders would receive in the Merger.

The success of the Merger will depend, in part, on the ability of ONEOK to realize the anticipated benefits from combining the businesses of ONEOK and Magellan. To realize these anticipated benefits, ONEOK’s and Magellan’s businesses must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the merger.

ONEOK and Magellan, including their respective subsidiaries, have operated and, until the completion of the Merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company’s ongoing businesses or inconsistencies in their standards, controls, procedures and policies. Any or all of those occurrences could adversely affect the combined company’s ability to maintain relationships with customers and employees after the Merger or to achieve the anticipated benefits of the Merger. Integration efforts between the two companies will also divert management attention and resources.

The Merger Agreement subjects us to restrictions on our business activities prior to the closing.

The Merger Agreement subjects us to restrictions on our business activities prior to the closing. The Merger Agreement obligates Magellan to generally conduct our businesses in the ordinary course until the closing and to use our commercially reasonable efforts to (i) preserve substantially intact our present business organization, goodwill and assets, (ii) keep available the services of our current officers and employees and (iii) preserve our existing relationships with governmental entities and our significant customers and suppliers. These restrictions could prevent Magellan from pursuing certain business opportunities that arise prior to the closing and are outside the ordinary course of business.

Uncertainties associated with the Merger may cause a loss of management personnel and other key employees of ONEOK and Magellan, which could adversely affect the future business and operations of the combined company following the merger.

ONEOK and Magellan are dependent on the experience and industry knowledge of their respective officers and other key employees to execute their business plans. The combined company’s success after the Merger will depend in part upon its ability to retain key management personnel and other key employees of both ONEOK and Magellan. Current and prospective employees of ONEOK and Magellan may experience uncertainty about their roles within the combined company following the Merger or other concerns regarding the timing and completion of the Merger or the operations of the combined company following the Merger, any of which may have an adverse effect on the ability of ONEOK and Magellan to retain or attract key management and other key personnel. If ONEOK and Magellan are unable to retain personnel, including key management, who are critical to the future operations of the companies, ONEOK and Magellan could face disruptions in their operations, loss of existing customers, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Merger.

The Merger may not be completed, and the Merger Agreement may be terminated in accordance with its terms, and failure to complete the merger could negatively impact Magellan’s unit price and have other adverse effects.

ONEOK or Magellan may elect to terminate the Merger Agreement in accordance with its terms in certain circumstances. If the Merger is not completed for any reason, including if the ONEOK shareholders or Magellan unitholders fail to approve the applicable proposals, the ongoing businesses of Magellan may be materially adversely affected and, without realizing any of the benefits of having completed the Merger, we would be subject to a number of risks, including the following:

•Magellan may experience negative reactions from the financial markets, including negative impacts on our unit price;

•Magellan and our subsidiaries may experience negative reactions from our respective customers, suppliers, vendors, landlords, joint venture co-members and other business relationships;

•We will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisor and printing fees;

•We may be required to pay a termination fee as required by the Merger Agreement;

•The Merger Agreement places certain restrictions on the conduct of the business pursuant to the terms of the Merger Agreement, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, may have been pursued;

•Matters relating to the Merger (including integration planning) require substantial commitments of time and resources by our management, which may have resulted in the distraction of our management from ongoing business operations and pursuing other opportunities that could have been beneficial to us; and

•Litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against Magellan to perform our obligations pursuant to the Merger Agreement.

Our GP directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of the Magellan unitholders generally.

In considering the recommendation of our board that Magellan unitholders vote in favor of the Merger Proposal and the Non-Binding Advisory Compensation Proposal, Magellan unitholders should be aware of and consider the fact that, aside from their interests as Magellan unitholders, certain Magellan GP directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of Magellan unitholders generally. These interests include, among others, rights to continuing indemnification and directors’ and officers’ liability insurance. Our board was aware of and considered these potential interests, among other matters, in evaluating and negotiating the Merger Agreement and the transactions contemplated therein, in approving the merger and in recommending that Magellan unitholders approve the Merger Proposal and the Non-Binding Advisory Compensation Proposal.

Litigation relating to the Merger could result in an injunction preventing completion of the Merger, substantial costs to ONEOK and Magellan and may adversely affect the combined company’s business, financial condition or results of operations following the merger.

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, merger or other business combination agreements. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on ONEOK’s and Magellan’s respective liquidity and financial condition.

Lawsuits that may be brought against ONEOK, Magellan and their respective directors and could seek, among other things, injunctive relief or other equitable relief, including a request to rescind parts of the Merger Agreement already implemented and to otherwise enjoin the parties from consummating the Merger. One of the conditions

to the closing of the Merger is that no injunction by any court or other tribunal of competent jurisdiction has been entered and continues to be in effect and no law has been adopted or is effective, in either case that prohibits

or makes illegal the closing of the Merger. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, that injunction may delay or prevent the Merger from being completed within the expected timeframe or at all.

Magellan unitholders will not be entitled to appraisal rights in the Merger.

Under Delaware law, our unitholders do not have appraisal rights in connection with the Merger.


~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~

Our board authorized the repurchase of up to $1.5 billion of our common units through the end of 2024. We intend to purchase our common units from time-to-time through a variety of methods, including open market purchases and negotiated transactions, all in compliance with Securities Exchange Act Rules 10b-18, 10b5-1 or both and other applicable legal requirements. The timing, price and actual number of common units repurchased will depend on a number of factors including our expected expansion capital spending, excess cash available, balance sheet metrics, legal and regulatory requirements, market conditions and the trading price of our common units. The program does not obligate us to acquire any particular amount of common units and may be suspended or discontinued at any time. The terms of the Merger Agreement prohibit us from repurchasing units during the pendency of the Merger.

The table below reflects our common units repurchased during 2023.


Period	Total Number of Common Units Purchased	Average Price Paid Per Unit		Total Number of Units Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Units That May Yet Be Purchased under the Program (in millions)(1)



January 1-31, 2023	—	$	—	—	$	227.7
February 1-28, 2023	—	$	—	—	$	227.7
March 1-31, 2023	1,198,222	$	53.65	1,198,222	$	163.4
First Quarter 2023	1,198,222	$	53.65	1,198,222
April 1-30, 2023	—	$	—	—	$	163.4
May 1-31, 2023	—	$	—	—	$	163.4
June 1-30, 2023	—	$	—	—	$	163.4
Second Quarter 2023	—	$	—	—




Year-to-Date 2023	1,198,222	$	53.65	1,198,222

(1) Our program has $1.5 billion authorized for unit repurchases, which includes $750 million approved in 2020 and an additional $750 million approved in October 2021. Our program will expire on December 31, 2024.


~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	~~OTHER INFORMATION~~

ITEM 5.OTHER INFORMATION

None.


~~ITEM 6.~~	~~EXHIBITS~~

ITEM 6.EXHIBITS

The exhibits listed below on the Index to Exhibits are filed or incorporated by reference as part of this report.

~~Table of Contents~~

INDEX TO EXHIBITS

Exhibit Number

Description

Exhibit 122.1*

—

Agreement and Plan of Merger, dated as of May 14, 2023, by and among ONEOK, Inc., Otter Merger Sub, LLC and Magellan Midstream Partners, L.P. (filed as Exhibit 2.1 to Form 8-K filed May 15, 2023)

—

~~Ratio of earnings to fixed charges.~~

~~Exhibit 31.1~~

—

~~Certification of Michael N. Mears, principal executive officer.~~

Exhibit ~~31.2~~31.1

—

Certification of Aaron L. Milford, principal ~~financial~~executive officer.

Exhibit ~~32.1~~31.2

—

~~Section 1350~~

Certification of ~~Michael N. Mears, Chief Executive Officer.~~Jeff L. Holman, principal financial officer.

Exhibit ~~32.2~~32.1

—

Section 1350 Certification of Aaron L. Milford, Chief ~~Financial~~Executive Officer.

Exhibit 32.2

—

Section 1350 Certification of Jeff L. Holman, Chief Financial Officer.

Exhibit 101.INS

—

XBRL Instance ~~Document.~~Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101.SCH

—

XBRL Taxonomy Extension ~~Schema.~~Schema Document.

Exhibit 101.CAL

—

XBRL Taxonomy Extension Calculation ~~Linkbase.~~Linkbase Document.

Exhibit 101.DEF

—

XBRL Taxonomy Extension Definition ~~Linkbase.~~Linkbase Document.

Exhibit 101.LAB

—

XBRL Taxonomy Extension Label ~~Linkbase.~~Linkbase Document.

Exhibit 101.PRE

—

XBRL Taxonomy Extension Presentation ~~Linkbase.~~Linkbase Document.

*Such exhibit has heretofore been filed with the Securities and Exchange Commission as part of the filing indicated and is incorporated herein by reference.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities ~~and~~ Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly ~~authorized in Tulsa, Oklahoma on November 2, 2017.~~authorized.



~~MAGELLAN MIDSTREAM PARTNERS,~~ MAGELLAN MIDSTREAM PARTNERS, L.P. (Registrant)

By:		~~Magellan~~ MAGELLAN GP, LLC,
	its general partner

By:		/s/ ~~Aaron L. Milford~~ JEFF L. HOLMAN
~~Aaron~~		Jeff L. ~~Milford~~
Holman Executive Vice President, Chief Financial Officer
~~(Principal Accounting~~ and ~~Financial Officer)~~Treasurer

Date: August 3, 2023



Delaware						73-1599053
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



£☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


ITEM 1.				ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS
					CONSOLIDATED STATEMENTS OF INCOME		4
					CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		5
ITEM 1.		CONSOLIDATED FINANCIAL STATEMENTS
					CONSOLIDATED BALANCE SHEETS		6
	CONSOLIDATED STATEMENTS OF INCOME		2		CONSOLIDATED STATEMENTS OF CASH FLOWS		7
	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME		3		CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL		8
	CONSOLIDATED BALANCE SHEETS		4		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	CONSOLIDATED STATEMENTS OF CASH FLOWS		5		1.	Organization, Description of Business and Basis of Presentation	10
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:				2.	Discontinued Operations	13
	1.	Organization, Description of Business and Basis of Presentation	6		3.	Segment Disclosures	13
	2.	Product Sales Revenue	8		4.	Revenue	17
	3.	Segment Disclosures	9		5.	Investments in Non-Controlled Entities	20
	4.	Investments in Non-Controlled Entities	12		6.	Inventories	22
	5.	Inventory	14		7.	Debt	23
	6.	Employee Benefit Plans	14		8.	Leases	24
	7.	Debt	17		9.	Employee Benefit Plans	25
	8.	Derivative Financial Instruments	18		10.	Long-Term Incentive Plan	26
	9.	Commitments and Contingencies	23		11.	Derivative Financial Instruments	27
	10.	Long-Term Incentive Plan	24		12.	Fair Value	29
	11.	Partners’ Capital and Distributions	25		13.	Commitments and Contingencies	31
	12.	Fair Value	26		14.	Related Party Transactions	32
	13.	Related Party Transactions	27		15.	Partners’ Capital and Distributions	32
	14.	Subsequent Events	28		16.	Subsequent Events	33
ITEM 2.	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Introduction		29		Introduction		34
	Recent Developments		29		Recent Developments		34
	Results of Operations		30		Results of Operations		34
	Distributable Cash Flow		37		Adjusted EBITDA, Distributable Cash Flow and Free Cash Flow		39
	Liquidity and Capital Resources		38		Liquidity and Capital Resources		41
	Off-Balance Sheet Arrangements		39		Off-Balance Sheet Arrangements		43
	Environmental		39		Other Items		42
	Other Items		40
ITEM 3.	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	41	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	44
ITEM 4.	ITEM 4.	CONTROLS AND PROCEDURES	41	ITEM 4.		CONTROLS AND PROCEDURES	45
Forward-Looking Statements			42
PART II OTHER INFORMATION	PART II OTHER INFORMATION			PART II OTHER INFORMATION
ITEM 1.	ITEM 1.	LEGAL PROCEEDINGS	44	ITEM 1.		LEGAL PROCEEDINGS	46
ITEM 1A.	ITEM 1A.	RISK FACTORS	45	ITEM 1A.		RISK FACTORS	46
ITEM 2.	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	45	ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3.	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	45	ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4.	ITEM 4.	MINE SAFETY DISCLOSURES	45	ITEM 4.		MINE SAFETY DISCLOSURES	51
ITEM 5.	ITEM 5.	OTHER INFORMATION	45	ITEM 5.		OTHER INFORMATION	51
ITEM 6.	ITEM 6.	EXHIBITS	45	ITEM 6.		EXHIBITS	51
Index to Exhibits			46
Signatures			47
INDEX TO EXHIBITS				INDEX TO EXHIBITS			52
SIGNATURES				SIGNATURES			53



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2017			2016			2017
Transportation and terminals revenue	$	413,433		$	446,935		$	1,175,748		$	1,272,845
Product sales revenue	133,356			121,010			403,607			548,634
Affiliate management fee revenue	4,993			4,903			11,140			12,883
Total revenue	551,782			572,848			1,590,495			1,834,362
Costs and expenses:
Operating	134,915			165,368			392,011			442,254
Cost of product sales	118,242			121,819			327,530			440,670
Depreciation and amortization	47,081			49,909			134,137			146,103
General and administrative	35,584			37,202			110,814			120,876
Total costs and expenses	335,822			374,298			964,492			1,149,903
Earnings of non-controlled entities	18,576			31,151			51,543			78,173
Operating profit	234,536			229,701			677,546			762,632
Interest expense	50,163			51,895			142,573			154,653
Interest income	(302		)	(240		)	(1,067		)	(788		)
Interest capitalized	(7,877		)	(3,424		)	(21,143		)	(10,804		)
Gain on sale of asset	—			(18,505		)	—			(18,505		)
Gain on exchange of interest in non-controlled entity	—			—			(28,144		)	—
Other expense (income)	(2,737		)	549			(6,447		)	3,762
Income before provision for income taxes	195,289			199,426			591,774			634,314
Provision for income taxes	738			926			2,294			2,678
Net income	$	194,551		$	198,500		$	589,480		$	631,636
Basic net income per limited partner unit	$	0.85		$	0.87		$	2.59		$	2.77
Diluted net income per limited partner unit	$	0.85		$	0.87		$	2.59		$	2.77
Weighted average number of limited partner units outstanding used for basic net income per unit calculation⁽¹⁾	227,960			228,199			227,913			228,167
Weighted average number of limited partner units outstanding used for diluted net income per unit calculation⁽¹⁾	227,999			228,260			227,947			228,222



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2017			2016			2017
Net income	$	194,551		$	198,500		$	589,480		$	631,636
Other comprehensive income:
Derivative activity:
Net gain (loss) on cash flow hedges⁽¹⁾	(3,169		)	(228		)	(24,278		)	(1,735		)
Reclassification of net (gain) loss on cash flow hedges to income⁽¹⁾	512			740			1,288			2,219
Changes in employee benefit plan assets and benefit obligations recognized in other comprehensive income:
Amortization of prior service credit⁽²⁾	(973		)	(45		)	(2,920		)	(136		)
Amortization of actuarial loss⁽²⁾	1,452			1,568			4,145			4,779
Settlement cost⁽²⁾	202			289			202			2,015
Total other comprehensive income (loss)	(1,976		)	2,324			(21,563		)	7,142
Comprehensive income	$	192,575		$	200,824		$	567,917		$	638,778



	Three Months Ended September 30, 2016
	(in thousands)
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	267,339	$	100,113		$	46,182		$	(201	)	$	413,433
Product sales revenue	105,834		24,750			2,772			—			133,356
Affiliate management fee revenue	218		4,416			359			—			4,993
Total revenue	373,391		129,279			49,313			(201		)	551,782
Operating expenses	95,535		24,547			16,325			(1,492		)	134,915
Cost of product sales	93,761		24,108			373			—			118,242
(Earnings) losses of non-controlled entities	272		(18,180		)	(668		)	—			(18,576		)
Operating margin	183,823		98,804			33,283			1,291			317,201
Depreciation and amortization expense	28,432		9,333			8,025			1,291			47,081
G&A expense	22,853		8,445			4,286			—			35,584
Operating profit	$	132,538	$	81,026		$	20,972		$	—		$	234,536



	Three Months Ended September 30, 2017
	(in thousands)
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	289,030	$	116,305		$	42,501		$	(901	)	$	446,935
Product sales revenue	107,175		12,370			1,465			—			121,010
Affiliate management fee revenue	353		3,703			847			—			4,903
Total revenue	396,558		132,378			44,813			(901		)	572,848
Operating expenses	118,665		31,163			17,723			(2,183		)	165,368
Cost of product sales	103,391		16,630			1,798			—			121,819
(Earnings) losses of non-controlled entities	700		(31,244		)	(607		)	—			(31,151		)
Operating margin	173,802		115,829			25,899			1,282			316,812
Depreciation and amortization expense	27,469		12,584			8,574			1,282			49,909
G&A expense	23,808		9,266			4,128			—			37,202
Operating profit	$	122,525	$	93,979		$	13,197		$	—		$	229,701



	Nine Months Ended September 30, 2016
	(in thousands)
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	739,931	$	303,181		$	132,837		$	(201	)	$	1,175,748
Product sales revenue	372,061		26,465			5,081			—			403,607
Affiliate management fee revenue	422		9,686			1,032			—			11,140
Total revenue	1,112,414		339,332			138,950			(201		)	1,590,495
Operating expenses	279,822		66,228			49,808			(3,847		)	392,011
Cost of product sales	300,009		26,469			1,052			—			327,530
(Earnings) losses of non-controlled entities	352		(49,870		)	(2,025		)	—			(51,543		)
Operating margin	532,231		296,505			90,115			3,646			922,497
Depreciation and amortization expense	78,523		28,264			23,704			3,646			134,137
G&A expense	68,589		27,333			14,892			—			110,814
Operating profit	$	385,119	$	240,908		$	51,519		$	—		$	677,546



	Nine Months Ended September 30, 2017
	(in thousands)
	Refined Products		Crude Oil			Marine Storage			Intersegment Eliminations			Total
Transportation and terminals revenue	$	808,818	$	329,813		$	136,702		$	(2,488	)	$	1,272,845
Product sales revenue	509,068		34,876			4,690			—			548,634
Affiliate management fee revenue	1,035		10,311			1,537			—			12,883
Total revenue	1,318,921		375,000			142,929			(2,488		)	1,834,362
Operating expenses	312,911		89,991			45,753			(6,401		)	442,254
Cost of product sales	396,292		37,814			6,564			—			440,670
(Earnings) losses of non-controlled entities	167		(76,388		)	(1,952		)	—			(78,173		)
Operating margin	609,551		323,583			92,564			3,913			1,029,611
Depreciation and amortization expense	81,440		35,947			24,803			3,913			146,103
G&A expense	75,429		30,376			15,071			—			120,876
Operating profit	$	452,682	$	257,260		$	52,690		$	—		$	762,632



	December 31, 2016				September 30, 2017
	Trade Accounts Receivable		Other Accounts Receivable		Trade Accounts Receivable		Other Accounts Receivable
Double Eagle	$	0.3	$	—	$	0.5	$	—
MVP	$	—	$	—	$	—	$	0.5
Saddlehorn	$	—	$	0.1	$	—	$	0.1




Investments at December 31, 2016	$	931,255
Additional investment⁽¹⁾	207,941
Earnings of non-controlled entities:
Proportionate share of earnings	79,949
Amortization of excess investment and capitalized interest	(1,776		)
Earnings of non-controlled entities	78,173
Less:
Distributions of earnings from investments in non-controlled entities	78,562
Distributions in excess of earnings of non-controlled entities⁽²⁾	71,867
Investments at September 30, 2017	$	1,066,940



	Three Months Ended						Three Months Ended
	September 30, 2016						September 30, 2017
	Pension Benefits			Other Postretirement Benefits			Pension Benefits			Other Postretirement Benefits
Components of net periodic benefit costs:
Service cost	$	4,555		$	53		$	5,125		$	51
Interest cost⁽¹⁾	1,992			148			2,466			111
Expected return on plan assets⁽¹⁾	(2,235		)	—			(2,566		)	—
Amortization of prior service credit⁽¹⁾	(45		)	(928		)	(45		)	—
Amortization of actuarial loss⁽¹⁾	1,161			291			1,406			162
Settlement cost⁽¹⁾	202			—			289			—
Net periodic benefit cost (credit)	$	5,630		$	(436	)	$	6,675		$	324



	Interest Rate Contracts
	Amount of Loss Recognized in AOCL on Derivative			Location of Loss Reclassified from AOCL into Income	Amount of Loss Reclassified from AOCL into Income
	Amount of Loss Recognized in AOCL on Derivative			Location of Loss Reclassified from AOCL into Income	Effective Portion			Ineffective Portion
Three Months Ended September 30, 2016	$	(3,169	)	Interest expense	$	(512	)	$	—



Payment Date	Per Unit Cash Distribution Amount			Total Cash Distribution to Limited Partners
02/12/2016		$	0.7850		$	178,808
05/13/2016		0.8025			182,797
08/12/2016		0.8200			186,783
Through 09/30/2016		2.4075			548,388
11/14/2016		0.8375			190,769
Total		$	3.2450		$	739,157

02/14/2017		$	0.8550		$	194,961
05/15/2017		0.8725			198,951
08/14/2017		0.8900			202,942
Through 09/30/2017		2.6175			596,854
11/14/2017⁽¹⁾		0.9050			206,362
Total		$	3.5225		$	803,216



	December 31, 2016
Assets (Liabilities)							Fair Value Measurements using:
Assets (Liabilities)	Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Energy commodity derivatives contracts	$	(30,738	)	$	(30,738	)	$	(30,738	)	$	—		$	—
Interest rate contracts	$	14,114		$	14,114		$	—		$	14,114		$	—
Long-term receivables	$	23,870		$	23,870		$	—		$	—		$	23,870
Debt	$	(4,087,192	)	$	(4,262,321	)	$	—		$	(4,262,321	)	$	—



	Nine Months Ended September 30,						Increase (Decrease)
	2016			2017			Increase (Decrease)
Net income	$	589.5		$	631.6		$	42.1
Interest expense, net	120.4			143.1			22.7
Depreciation and amortization	134.1			146.1			12.0
Equity-based incentive compensation⁽¹⁾	0.4			0.3			(0.1		)
Loss on sale and retirement of assets	5.4			7.6			2.2
Gain on sale of asset⁽²⁾	—			(18.5		)	(18.5		)
Gain on exchange of interest in non-controlled entity⁽³⁾	(28.1		)	—			28.1
Commodity-related adjustments:
Derivative (gains) losses recognized in the period associated with future product transactions⁽⁵⁾	10.1			13.5			3.4
Derivative gains (losses) recognized in previous periods associated with product sales completed in the period⁽⁵⁾	38.6			(25.5		)	(64.1		)
Inventory valuation adjustments⁽⁶⁾	(2.8		)	4.0			6.8
Total commodity-related adjustments	45.9			(8.0		)	(53.9		)
Cash distributions received from non-controlled entities in excess of earnings⁽⁷⁾	3.0			19.5			16.5
Other⁽⁴⁾	3.9			3.8			(0.1		)
Adjusted EBITDA	874.5			925.5			51.0
Interest expense, net, excluding debt issuance cost amortization	(118.1		)	(140.6		)	(22.5		)
Maintenance capital⁽⁸⁾	(86.1		)	(71.8		)	14.3
DCF	$	670.3		$	713.1		$	42.8



	Total		< 1 Year		1 - 4 Years
Forward purchase contracts – notional value	$	195.9	$	107.9	$	88.0
Forward purchase contracts – barrels	4.4		2.2		2.2
Forward sales contracts – notional value	$	69.5	$	49.0	$	20.5
Forward sales contracts – barrels	1.1		0.8		0.3