1246263--3/15/2006--MAGELLAN_MIDSTREAM_HOLDINGS

related topics

{gas, price, oil}

{debt, indebtedness, cash}

{cost, regulation, environmental}

{tax, income, asset}

{stock, price, operating}

{operation, natural, condition}

{acquisition, growth, future}

{interest, director, officer}

{investment, property, distribution}

Our only cash-generating asset is our ownership interest in MMP s general partner, which owns the general partner interest and 100% of the incentive distribution rights in MMP, and our cash flow is therefore completely dependent upon the ability of MMP to make cash distributions to its partners. We may not have sufficient cash to pay our estimated initial quarterly distribution or to increase distributions. MMP s practice of distributing all of its available cash may limit its ability to grow, which could impact distributions to us and the available cash that we have to meet our financial obligations and pay cash distributions. MMP s general partner, with our consent, may limit or modify the incentive distributions we are entitled to receive in order to facilitate MMP s growth strategy. Our general partner s board of directors can give this consent without a vote MMP s financial results depend on the demand for the petroleum products that it transports, stores and distributes. MMP s business involves many hazards and operational risks, some of which may not be covered by insurance. Fluctuations in market prices of refined petroleum products and natural gas liquids could materially affect MMP s earnings. Rate regulation or a successful challenge to the rates MMP charges on its petroleum products pipeline system may reduce the amount of cash it generates. BP West Coast Products, LLC v. FERC Competition could lead to lower levels of profits and reduce the amount of cash MMP generates. When prices for the future delivery of petroleum products that MMP stores in its marine terminals fall below current prices, customers may be less likely to store these products, thereby reducing MMP s storage revenues. MMP s business is subject to federal, state and local laws and regulations that govern the environmental and operational safety aspects of its operations. MMP depends on refineries and petroleum products pipelines owned and operated by others to supply its pipeline and terminals. The closure of mid-continent refineries that supply MMP s petroleum products pipeline system could result in disruptions or reductions in the volumes it transports and the amount of cash it generates. Mergers among MMP s customers and competitors could result in lower volumes being shipped on MMP s pipelines or products stored in or distributed through its terminals, thereby reducing the amount of cash MMP generates. The pipeline and terminal assets MMP acquired in October 2004 are subject to a consent decree with the EPA, and MMP could incur substantial costs and liabilities to comply with this decree that are not covered by the seller s indemnification. Potential future acquisitions and expansions, if any, may affect MMP s business by substantially increasing the level of its indebtedness and liabilities and increasing its risk of being unable to effectively integrate these new operations. MMP s business is subject to federal, state and local laws and regulations that govern the product quality specifications of the petroleum products that it stores and transports. MMP s business is subject to federal EPA requirements that will lower the level of sulfur in diesel fuels beginning in June 2006. Terrorist attacks aimed at MMP s facilities could adversely affect its business. MMP s ammonia pipeline system is dependent on three customers. High natural gas prices can increase ammonia production costs and reduce the amount of ammonia transported through MMP s ammonia pipeline system. Rising short-term interest rates could increase MMP s financing costs and reduce the amount of cash it generates. The terms of MMP s indemnification settlement agreement require Williams to make payments to MMP over the next two years, exposing it to credit risk. Restrictions contained in MMP s debt instruments and the debt instruments of Magellan Pipeline may limit MMP s financial flexibility. A reduction in MMP s distributions will disproportionately affect the amount of cash distributions to which we are currently entitled. Cost reimbursements due our general partner may be substantial and will reduce our cash available for distribution to holders of our common units. The control of our general partner may be transferred to a third party without unitholder consent. If MMP s general partner is not fully reimbursed or indemnified for obligations and liabilities it incurs in managing the business and affairs of MMP, it may not be able to satisfy its obligations and its cash flows will be reduced. A change in control of us, our general partner or MMP s general partner could increase MMP s G A expenses, which in turn could reduce MMP s distribution to us. If in the future we cease to manage and control MMP through our ownership of MMP s general partner interest, we may be deemed to be an investment company under the Investment Company Act of 1940. Although we control and manage MMP through our ownership of its general partner, MMP s general partner owes fiduciary duties to MMP and MMP s unitholders, which may conflict with our interests. The fiduciary duties of our general partner s officers and directors may conflict with those of Magellan GP, LLC, MMP s general partner. Potential conflicts of interest may arise among our general partner, its affiliates and us. Our general partner and its affiliates have limited fiduciary duties to us and our unitholders, which may permit them to favor their own interests to the detriment of us and our unitholders. Our general partner s affiliates may compete with us. The term loan of MGG Midstream Holdings, L.P. restricts our ability to incur debt. In addition, our ability to obtain debt financing could be affected by MMP s and MGG Midstream Holdings, L.P. s credit ratings. All of our executive officers face conflicts in the allocation of their time to our business. If we or MMP were treated as a corporation for federal income tax or state tax purposes, then our cash available for distribution to our unitholders would be substantially reduced. The sale or exchange of 50% or more of our capital and profit interests will result in the termination of our partnership for federal income tax purposes.

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1246263--3/15/2006--MAGELLAN_MIDSTREAM_HOLDINGS_LP