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Magellan Midstream Reports Third-Quarter Financial Results, Increases 2012 Distributable Cash Flow Guidance

October 31, 2012

TULSA, Okla., Oct. 31, 2012 /PRNewswire/ — Magellan Midstream Partners, L.P. (NYSE: MMP) today reported operating profit of $79.3 million for third quarter 2012 compared to $137.8 million for third quarter 2011. Both periods were significantly impacted by mark-to-market (MTM) adjustments for New York Mercantile Exchange (NYMEX) positions used to economically hedge the partnership’s commodity-related activities, with the 2011 period greatly benefitting from MTM gains and the 2012 period negatively impacted by significant MTM losses due to the increase in petroleum prices. Excluding MTM commodity-related pricing adjustments, operating profit from the partnership’s core fee-based transportation and terminals activities was $109.1 million for third quarter 2012 compared to $107.3 million for third quarter 2011, an increase of $1.8 million.

Net income was $50.5 million for third quarter 2012 compared to $110.2 million for third quarter 2011. Excluding MTM commodity-related pricing adjustments, net income increased in the current quarter by $0.6 million.

Operating profit excluding MTM commodity-related adjustments and net income excluding MTM commodity-related adjustments are non-generally accepted accounting principles (non-GAAP) financial measures.

Diluted net income per limited partner unit was 22 cents in third quarter 2012 versus 49 cents in the corresponding 2011 period. Diluted net income per unit excluding MTM commodity-related pricing adjustments, a non-GAAP financial measure, of 35 cents for third quarter 2012 was less than the 38-cent guidance provided by management in early Aug. due to timing of product sales from the partnership’s blending activities that are now expected to occur in fourth quarter 2012. All net income per unit amounts reflect the partnership’s recent two-for-one split of its limited partner units.

Distributable cash flow (DCF), a non-GAAP financial measure that represents the amount of cash generated during the period that is available to pay distributions, increased 7% to $100.7 million for third quarter 2012 from $94 million during third quarter 2011.

“During third quarter 2012, Magellan’s core fee-based transportation and terminals assets generated improved financial results due to increased demand for our pipeline and storage services, and cutting through the implications of mark-to-market accounting on our commodity hedges, the cash impact of our commodity-related activities was comparable to the year-ago period,” said Michael Mears, chief executive officer. “Magellan’s assets continue to produce solid results, and we remain on track for a record year from both an operational and financial standpoint.”

An analysis by segment comparing third quarter 2012 to third quarter 2011 is provided below based on operating margin, a non-GAAP financial measure that reflects operating profit before general and administrative (G&A) expense and depreciation and amortization:

Petroleum pipeline system. Pipeline operating margin was $97.7 million, a decrease of $51.4 million that resulted exclusively from the timing of MTM adjustments for NYMEX positions used to economically hedge the partnership’s commodity-related activities. Transportation and terminals margin for this segment increased $8.6 million between periods.

Transportation and terminals revenues increased between periods primarily due to a 19% increase in transportation volumes, driven by significantly increased crude oil and gasoline shipments. Crude volumes increased 53% resulting from deliveries to additional locations that are now connected to the partnership’s pipeline system and increased deliveries to existing customers. Gasoline shipments increased 28% primarily attributable to higher volumes on the partnership’s South Texas pipeline segments as well as higher consumer demand in the markets served by its pipeline system. The average tariff rate decreased slightly as the 8.6% rate increase implemented on July 1, 2012 was offset by more crude oil and South Texas gasoline movements, which ship at a lower rate than the partnership’s other pipeline shipments.

Operating expenses increased between periods primarily due to additional asset integrity work, higher property taxes, more losses on various asset retirements and replacements and increased environmental remediation accruals for historical releases. These items were partially offset by higher product overages (which reduce operating expenses) in the current period.

Product margin (defined as product sales revenues less product purchases) decreased $59.8 million between periods primarily due to timing of MTM adjustments for open NYMEX hedges. Significant MTM losses were recorded in the third quarter of 2012 due to an increasing commodity price environment compared to significant MTM gains in the third quarter of 2011, resulting in a $60.3 million unfavorable variance associated with the timing of MTM adjustments for NYMEX hedges and other inventory adjustments. Details of these items can be found on the Distributable Cash Flow Reconciliation to Net Income schedule that accompanies this news release. The partnership’s actual cash product margin, which reflects only transactions that settled during the quarter, increased slightly between periods as higher blending profits offset lower fractionation and linefill management profits.

Petroleum terminals. Terminals operating margin was $36.1 million, a decrease of $4.2 million. Revenues in the current period benefited primarily from recently-constructed crude oil storage in Cushing, Oklahoma and new refined products tanks and higher rates at the partnership’s marine terminals. Operating expenses increased due to more asset integrity work, higher personnel costs and an environmental accrual in the current period related to a historical acquisition. Product margin increased slightly due to the sale of additional product overages in the current period.

Ammonia pipeline system. Ammonia operating margin was $4 million, an increase of $5.7 million. Revenues increased due to more volume transported at a higher average tariff during the 2012 period, and expenses decreased because of lower asset integrity costs now that the pipeline’s hydrostatic testing is complete.

Other items. Depreciation and amortization increased due to recent expansion capital expenditures, and G&A expenses increased primarily due to enhanced payout expectations for annual bonus and equity-based incentive compensation programs due to the partnership’s better-than-expected financial results in 2012. Net interest expense also increased in the current quarter as a result of additional borrowings due to the partnership’s Aug. 2011 debt offering to fund capital spending and higher commitment fees on the partnership’s revolving credit facility. As of Sept. 30, 2012, the partnership had $2.1 billion of debt outstanding and $100 million of cash on hand.

Financial guidance for 2012

Management is raising its 2012 DCF guidance by $5 million to approximately $525 million and remains committed to its goal of increasing cash distributions by 18% for 2012 and an additional 10% for 2013. Including actual results through Sept. 30, 2012, net income per limited partner unit is estimated to be $1.93 for 2012, resulting in fourth-quarter guidance of 68 cents. Guidance excludes future NYMEX MTM adjustments on the partnership’s commodity-related activities.

Expansion capital spending expectations

Management continues to pursue expansion opportunities, including organic growth construction projects and acquisitions. Based on the progress of expansion projects already underway, the partnership currently plans to spend approximately $450 million during 2012 with an additional $280 million of spending in 2013 to complete these projects.

The partnership completed construction of 1.2 million barrels of new refined products storage at its Galena Park, Texas marine terminal during late Oct., a portion of which is jointly owned with a third party. Construction of an additional 0.6 million barrels of storage at Galena Park is expected to come online during early 2013.

Magellan’s Crane-to-Houston pipeline project remains on schedule to begin transporting crude oil at partial capacity in early 2013, increasing to its full 225,000 barrel-per-day capacity during mid-2013. The Double Eagle joint venture is also proceeding and expected to be partially operational in early 2013, with full operation expected in mid-2013.

Magellan and Occidental Petroleum remain in advanced discussions regarding the potential BridgeTex pipeline. As currently contemplated, Magellan would own 50% of the joint project, with its share of the project cost expected to be approximately $600 million. A final decision will be made on the BridgeTex pipeline pending completion of definitive agreements, and the related spending has been excluded from the partnership’s estimates at this time, accordingly.

In addition, the partnership continues to evaluate more than $500 million of other potential growth projects in earlier stages of development, which also have been excluded from its spending estimates.

Earnings call details

An analyst call with management regarding third-quarter results and outlook for the remainder of 2012 is scheduled today at 1:30 p.m. Eastern. To participate, dial (888) 329-8893 and provide code 6471308. Investors also may listen to the call via the partnership’s website at www.magellanlp.com/webcasts.aspx.

Audio replays of the conference call will be available from 4:30 p.m. Eastern today through midnight on Nov. 6. To access the replay, dial (888) 203-1112 and provide code 6471308. The replay also will be available at www.magellanlp.com.

Non-GAAP financial measures

Management believes that investors benefit from having access to the same financial measures utilized by the partnership. As a result, this news release and supporting schedules include the non-GAAP financial measures of operating margin, product margin, DCF and net income per unit excluding MTM commodity-related pricing adjustments, which are important performance measures used by management.

Operating margin reflects operating profit before G&A expense and depreciation and amortization. This measure forms the basis of the partnership’s internal financial reporting and is used by management to evaluate the economic performance of the partnership’s operations.

Product margin, which is calculated as product sales revenues less product purchases, is used by management to evaluate the profitability of the partnership’s commodity-related activities.

DCF is important in determining the amount of cash generated from the partnership’s operations that is available for distribution to its unitholders. Management uses this measure as a basis for recommending to the board of directors the amount of cash distributions to be paid each period.

Reconciliations of operating margin to operating profit and DCF to net income accompany this news release.

The partnership uses NYMEX futures contracts to hedge against price changes of petroleum products associated with its commodity-related activities. Most of these NYMEX contracts do not qualify for hedge accounting treatment. However, because these NYMEX contracts are generally effective at hedging price changes, management believes the partnership’s profitability should be evaluated excluding the MTM gains and losses associated with these NYMEX contracts. Because the third-quarter 2011 financial results were significantly impacted by MTM gains and third-quarter 2012 results were significantly impacted by MTM losses, management believes a comparison of the partnership’s operating results between periods adjusted for these MTM gains / losses is appropriate in evaluating the partnership’s financial results for the current period. A reconciliation of actual results to those excluding these adjustments is provided for comparability. Further, because the financial guidance provided by management generally excludes future MTM commodity-related pricing adjustments, a reconciliation of actual results to those excluding these adjustments is provided for comparability to previous financial guidance.

Because the non-GAAP measures presented in this news release include adjustments specific to the partnership, they may not be comparable to similarly-titled measures of other companies.

About Magellan Midstream Partners, L.P.

Magellan Midstream Partners, L.P. (NYSE: MMP) is a publicly traded partnership that primarily transports, stores and distributes petroleum products. The partnership owns the longest refined petroleum products pipeline system in the country, with access to more than 40% of the nation’s refining capacity, and can store 80 million barrels of petroleum products such as gasoline, diesel fuel and crude oil. More information is available at www.magellanlp.com.

Forward-Looking Statement Disclaimer

Portions of this document constitute forward-looking statements as defined by federal law. Although management believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. Among the key risk factors that may have a direct impact on the partnership’s results of operations and financial condition are: (1) its ability to identify growth projects or to complete identified projects on time and at expected costs; (2) price fluctuations and changes in demand for refined petroleum products, crude oil and natural gas liquids, or changes in demand for transportation or storage of those commodities through its existing or planned facilities; (3) changes in the partnership’s tariff rates imposed by the Federal Energy Regulatory Commission, the United States Surface Transportation Board or state regulatory agencies; (4) shut-downs or cutbacks at major refineries, petrochemical plants, ammonia production facilities or other businesses that use or supply the partnership’s services; (5) changes in the throughput or interruption in service on petroleum pipelines owned and operated by third parties and connected to the partnership’s petroleum terminals or petroleum pipeline system; (6) the occurrence of an operational hazard or unforeseen interruption for which the partnership is not adequately insured; (7) the treatment of the partnership as a corporation for federal or state income tax purposes or if the partnership becomes subject to significant forms of other taxation; (8) an increase in the competition the partnership’s operations encounter; (9) disruption in the debt and equity markets that negatively impacts the partnership’s ability to finance its capital spending; and (10) failure of customers to meet or continue contractual obligations to the partnership. Additional information about issues that could lead to material changes in performance is contained in the partnership’s filings with the Securities and Exchange Commission, including the partnership’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2011 and subsequent reports on Forms 8-K and 10-Q. The partnership undertakes no obligation to revise its forward-looking statements to reflect events or circumstances occurring after today’s date.

    Contact:                   Paula Farrell
                               (918) 574-7650
                               paula.farrell@magellanlp.com


                                                                       MAGELLAN MIDSTREAM PARTNERS, L.P.
                                                                       CONSOLIDATED STATEMENTS OF INCOME
                                                                    (In thousands, except per unit amounts)
                                                                                  (Unaudited)

                                               Three Months Ended                                      Nine Months Ended
                                                 September 30,                                           September 30,
                                                 -------------                                           -------------
                                        2011                 2012                2011                  2012
                                        ----                 ----                ----                  ----
    Transportation and
     terminals revenues                       $232,064                                  $255,492                          $660,664  $721,807
    Product sales revenues           203,253                       70,178                           600,492                546,476
    Affiliate management fee
     revenue                             193                          199                               578                    596
                                         ---                          ---                               ---                    ---
    Total revenues                   435,510                      325,869                         1,261,734              1,268,879
    Costs and expenses:
    Operating                         89,458                      103,272                           233,142                254,050
    Product purchases                159,550                       85,819                           489,616                478,929
    Depreciation and
     amortization                     30,234                       31,692                            90,261                 94,688
    General and administrative        20,470                       27,551                            70,341                 76,709
                                      ------                       ------                            ------                 ------
    Total costs and expenses         299,712                      248,334                           883,360                904,376
    Equity earnings                    1,955                        1,749                             4,765                  4,875
                                       -----                        -----                             -----                  -----
    Operating profit                 137,753                       79,284                           383,139                369,378
    Interest expense                  27,332                       29,113                            79,806                 87,354
    Interest income                      (11)                         (16)                              (22)                   (80)
    Interest capitalized                (665)                      (1,439)                           (2,526)                (3,331)
    Debt placement fee
     amortization expense                410                          519                             1,180                  1,556
                                         ---                          ---                             -----                  -----
    Income before provision for
     income taxes                    110,687                       51,107                           304,701                283,879
    Provision for income taxes           447                          585                             1,397                  2,012
                                         ---                          ---
    Net income                                $110,240                                   $50,522                          $303,304  $281,867
                                              ========                                   =======                          ========  ========

    Allocation of net income (loss):
    Limited partners' interest                $110,240                                   $50,522                          $303,367  $281,867
    Non-controlling owners'
     interest                              -                            -                               (63)                     -
                                         ---                          ---
    Net income                                $110,240                                   $50,522                          $303,304  $281,867
                                              ========                                   =======                          ========  ========

    Basic and diluted net
     income per limited partner
     unit                                        $0.49                                     $0.22                             $1.34     $1.25
                                                 =====                                     =====                             =====     =====

    Weighted average number of
     limited partner units
     outstanding used for basic
     and diluted net income per
     unit calculation                225,728                      226,431                           225,649                226,348
                                     =======                      =======                           =======                =======

                                                              MAGELLAN MIDSTREAM PARTNERS, L.P.
                                                                    OPERATING STATISTICS

                                        Three Months Ended                    Nine Months Ended
                                          September 30,                         September 30,
                                          -------------                         -------------
                                       2011              2012              2011              2012
                                       ----              ----              ----              ----
    Petroleum pipeline system:
    Transportation revenue
     per barrel shipped                       $1.118                              $1.088          $1.088 $1.091

    Volume shipped (million barrels):
    Refined products:
    Gasoline                           48.4                     61.8                        153.1  163.8
    Distillates                        36.5                     36.5                         99.0   99.9
    Aviation fuel                       7.5                      5.9                         20.3   16.7
    Liquefied petroleum gases           1.4                      3.2                          4.5    7.9
    Crude oil                          12.6                     19.3                         29.8   51.4
                                       ----                     ----                         ----   ----
    Total volume shipped              106.4                    126.7                        306.7  339.7

    Petroleum terminals:
    Storage terminal average
     utilization (million
     barrels per month)                33.1                     34.3                         31.4   34.6
    Inland terminal
     throughput (million
     barrels)                          29.4                     29.7                         86.3   87.7

    Ammonia pipeline system:
    Volume shipped (thousand
     tons)                              134                      210                          546    592

                                                                                          MAGELLAN MIDSTREAM PARTNERS, L.P.
                                                                                 OPERATING MARGIN RECONCILIATION TO OPERATING PROFIT
                                                                                              (Unaudited, in thousands)

                                                                Three Months Ended                                         Nine Months Ended
                                                                  September 30,                                              September 30,
                                                                  -------------                                              -------------
                                                        2011                  2012                   2011                  2012
                                                        ----                  ----                   ----                  ----
    Petroleum pipeline system:
    Transportation and terminals
     revenues                                                  $167,500                                     $185,575                                     $472,730   $513,062
    Less: Operating expenses                          61,075                           70,526                           150,522                           173,457
                                                      ------                           ------                           -------                           -------
    Transportation and terminals
     margin                                          106,425                          115,049                           322,208                           339,605

    Product sales revenues                           197,932                           63,065                           577,811                           522,362
    Less: Product purchases                          157,356                           82,335                           483,369                           468,026
                                                     -------                           ------                           -------                           -------
    Product margin                                    40,576                          (19,270)                           94,442                            54,336
    Add:  Affiliate management
     fee revenue                                         193                              199                               578                               596
    Equity earnings                                    1,954                            1,756                             4,764                             4,919
                                                       -----                            -----
    Operating margin                                           $149,148                                      $97,734                                     $421,992   $399,456
                                                               ========                                      =======                                     ========   ========

    Petroleum terminals:
    Transportation and terminals
     revenues                                                   $60,621                                      $62,961                                     $172,811   $190,194
    Less: Operating expenses                          22,780                           29,777                            71,403                            74,399
                                                      ------                           ------                            ------                            ------
    Transportation and terminals
     margin                                           37,841                           33,184                           101,408                           115,795

    Product sales revenues                             5,887                            7,114                            23,445                            24,578
    Less: Product purchases                            3,461                            4,191                             9,319                            13,486

    Product margin                                     2,426                            2,923                            14,126                            11,092
    Equity earnings                                        1                               (7)                                1                               (44)
                                                         ---                              ---
    Operating margin                                            $40,268                                      $36,100                                     $115,535   $126,843
                                                                =======                                      =======                                     ========   ========

    Ammonia pipeline system:
    Transportation and terminals
     revenues                                                    $4,644                                       $7,662                                      $17,431    $20,670
    Less: Operating expenses                           6,349                            3,667                            13,406                             8,296
                                                       -----                            -----
    Operating margin                                            $(1,705)                                      $3,995                                       $4,025    $12,374
                                                                =======                                       ======                                       ======    =======

    Segment operating margin                                   $187,711                                     $137,829                                     $541,552   $538,673
    Add: Allocated corporate
     depreciation costs                                  746                              698                             2,189                             2,102
                                                         ---                              ---                             -----                             -----
    Total operating margin                           188,457                          138,527                           543,741                           540,775
    Less:
    Depreciation and amortization
     expense                                          30,234                           31,692                            90,261                            94,688
    General and administrative
     expense                                          20,470                           27,551                            70,341                            76,709
                                                      ------                           ------
    Total operating profit                                     $137,753                                      $79,284                                     $383,139   $369,378
                                                               ========                                      =======                                     ========   ========

    Note: Amounts may not sum to figures shown on the consolidated statement of income due to intersegment eliminations and allocated corporate depreciation costs.

                                           MAGELLAN MIDSTREAM PARTNERS, L.P.
                RECONCILIATION OF OPERATING PROFIT, NET INCOME AND NET INCOME PER LIMITED PARTNER UNIT
                            EXCLUDING MARK-TO-MARKET COMMODITY-RELATED PRICING ADJUSTMENTS
                                                    TO GAAP MEASURE
                                   (Unaudited, in thousands except per unit amounts)

                                                            Three Months Ended
                                                              September 30,
                                                              -------------
                                                    2011                  2012
                                                    ----                  ----
    Operating profit, as
     reported                                              $137,753                                     $79,284
    Commodity-related adjustments:*
    Derivative losses/
     (gains) recognized in
     the period associated
     with future product
     transactions                                (24,098)                          33,562
    Derivative losses
     recognized in previous
     periods associated with
     product sales completed
     in the period                               (13,675)                             238
    Lower-of-cost-or-
     market adjustments                            2,984                           (4,106)
    Houston-to-El Paso cost
     of sales adjustments                          4,301                              106
                                                   -----                              ---
    Operating profit,
     excluding commodity-
     related adjustments                                   $107,265                                    $109,084
                                                           ========                                    ========

                                                      Three Months Ended                            Three Months Ended
                                                      September 30, 2011                            September 30, 2012
                                                      ------------------                            ------------------
                                                   Basic and         Basic and
                                                                      Diluted Net                                    Diluted Net
                                                                       Income Per                                     Income Per
                                                                        Limited                                        Limited
                                              Net Income              Partner Unit             Net Income            Partner Unit
                                              ----------             ------------              ----------           ------------
    Net income, as reported                                $110,240                                          $0.49                  $50,522  $0.22
    Commodity-related adjustments:*
    Derivative losses/
     (gains) recognized in
     the period associated
     with future product
     transactions                                (24,098)                               (0.11)                             33,562      0.15
    Derivative losses
     recognized in previous
     periods associated with
     product sales completed
     in the period                               (13,675)                               (0.06)                                238         -
    Lower-of-cost-or-
     market adjustments                            2,984                                 0.01                              (4,106)    (0.02)
    Houston-to-El Paso cost
     of sales adjustments                          4,301                                 0.02                                 106         -
                                                   -----                                 ----                                 ---       ---
    Excluding commodity-
     related adjustments                                    $79,752                                          $0.35                  $80,322  $0.35
                                                            =======                                          =====                  =======  =====

    Weighted average number
     of limited partner units
     outstanding used for
     basic and diluted net
     income per unit
     calculation                                 225,728                                                   226,431
                                                 =======                                                   =======

    *Please see Distributable Cash Flow Reconciliation to Net Income for further descriptions of the commodity-related adjustments.

                                                                                  MAGELLAN MIDSTREAM PARTNERS, L.P.
                                                                         DISTRIBUTABLE CASH FLOW RECONCILIATION TO NET INCOME
                                                                                      (Unaudited, in thousands)

                                             Three Months Ended                                    Nine Months Ended
                                               September 30,                                         September 30,                      2012
                                               -------------                                         -------------
                                      2011                 2012              2011                  2012              Guidance
                                      ----                 ----              ----                  ----              --------

    Net income                              $110,240                                 $50,522                                  $303,304                 $281,867 $437,000
    Interest expense, net           26,656                       27,658                          77,258                         83,943        110,000
    Depreciation and amortization
     (1)                            30,644                       32,211                          91,441                         96,244        130,000
    Equity-based incentive
     compensation (2)                2,719                        5,548                           4,319                           (443)         5,000
    Asset retirements and
     impairments                       423                        3,216                           7,529                         10,575         11,000
    Commodity-related adjustments:
    Derivative losses/(gains)
     recognized in the period
     associated with future
     product transactions (3)      (24,098)                      33,562                         (25,318)                        18,409
    Derivative losses recognized
     in previous periods
     associated with product sales
     completed in the period (4)   (13,675)                         238                         (15,697)                        (6,681)
    Lower-of-cost-or-market
     adjustments                     2,984                       (4,106)                          2,984                         (1,017)
    Houston-to-El Paso cost of
     sales adjustments(5)            4,301                          106                             386                          8,227
                                     -----                          ---                             ---                          -----
    Total commodity-related
     adjustments                   (30,488)                      29,800                         (37,645)                        18,938          6,000
    Other                             (651)                         (92)                         (1,390)                           437          1,000
                                      ----                          ---                          ------                            ---          -----
    Adjusted EBITDA                139,543                      148,863                         444,816                        491,561        700,000

    Interest expense, net          (26,656)                     (27,658)                        (77,258)                       (83,943)      (110,000)
    Maintenance capital            (18,915)                     (20,484)                        (38,285)                       (47,194)       (65,000)
                                   -------                      -------                                                                       -------
    Distributable cash flow                  $93,972                                $100,721                                  $329,273                 $360,424 $525,000
                                             =======                                ========                                  ========                 ======== ========

    Distributable cash flow per
     limited partner unit                      $0.42                                   $0.45                                     $1.46                    $1.59    $2.32
                                               =====                                   =====                                     =====                    =====    =====

    Weighted average number of
     limited partner units paid
     distributions                 225,474                      226,201                         225,474                        226,201        226,201
                                   =======                      =======                         =======                        =======        =======
    (1)            Depreciation and amortization
                   includes debt placement fee
                   amortization.
    (2)            Because the partnership intends to
                   satisfy vesting of units under
                   its equity-based incentive
                   compensation program with the
                   issuance of limited partner
                   units, expenses related to this
                   program generally are deemed non-
                   cash and added back for
                   distributable cash flow purposes.
                    Total equity-based incentive
                    compensation expense for the nine
                   months ended September 30, 2011
                   and 2012 was $11.7 million and
                   $12.6 million, respectively.
                   However, the figures above
                   include an adjustment for minimum
                   statutory tax withholdings paid
                   by the partnership in 2011 and
                   2012 of $7.4 million and $13.0
                   million, respectively, for
                   equity-based incentive
                   compensation units that vested on
                   the previous year end, which
                   reduce distributable cash flow.
    (3)            Certain derivatives the
                   partnership uses 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.
                   These amounts represent the gains
                   or losses from economic hedges in
                   the partnership's earnings for
                   the period associated with
                   products that had not yet been
                   physically sold as of the period
                   end date.
    (4)            When the partnership physically
                   sells products that it has
                   economically hedged (but were not
                   designated as hedges for
                   accounting purposes), it includes
                   in its distributable cash flow
                   calculations the full amount of
                   the change in fair value of the
                   associated derivative agreement.
    (5)            Cost of goods sold adjustment
                   related to commodity activities
                   for the partnership's Houston-
                   to-El Paso pipeline to more
                   closely resemble current market
                   prices for distributable cash
                   flow purposes rather than average
                   inventory costing as used to
                   determine the partnership's
                   results of operations.

SOURCE Magellan Midstream Partners, L.P.


Source: PR Newswire