Global Partners LP

Edward J. Faneuil - Executive Vice President of Global GP LLC, Secretary of Global GP LLC and General Counsel of Global GP LLC Eric Slifka - Chief Executive Officer of Global GP LLC, President of Global GP LLC and Director of Global GP LLC Thomas J.

Hollister - Chief Operating Officer of Global GP LLC- General Partner, Chief Financial Officer of Global GP LLC- General Partner and Director of Global GP Llc- General Partner Charles A. Rudinsky - Chief Accounting Officer of Global Gp Llc - General Partner, Executive Vice President of Global Gp Llc - General Partner, Treasurer of Global Gp Llc - General Partner and Co-Director of Mergers & Acquisitions

Brian J. Zarahn - Barclays Capital, Research Division Paul Jacob Kathleen Morris

Good morning, everyone. Thank you for joining us.

Let me remind everyone that during today’s call, we will make forward-looking statements within the meaning of federal securities laws. These statements may include, but are not limited to, projections, beliefs, goals and estimates concerning the future financial and operational performance of Global Partners.

Estimates for Global Partners' future EBITDA are based on a number of assumptions regarding market conditions, including demand for petroleum and renewable fuels, weather, the level of market competition and the forward product pricing curve. Therefore, Global Partners can give no assurance that our future EBITDA will be as estimated.

The actual performance for Global Partners may differ materially from those expressed or implied by any such forward-looking statements. In addition, such performance is subject to risk factors including, but not limited to, those described in Global Partners' filings with the Securities and Exchange Commission.

Global Partners undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statement that may be made during today’s conference call. With Regulation FD in effect, it is our policy that any material comments concerning future results of operations will be communicated through press releases, publicly announced conference calls or other means that will constitute public disclosure for purposes of Regulation FD.

Now please let me turn the call over to our President and Chief Executive Officer, Mr. Eric Slifka.

Thank you, Edward, and good morning, everyone. Global Partners delivered record results across its key financial metrics in 2012, achieving new highs for EBITDA and distributable cash flow and the highest net income in the partnership's history adjusting for a one-time gain from the sale of NYMEX seats in 2007.

This performance reflects in part the contribution of the March 2012 acquisition of Alliance Energy, a gasoline distributor and operator of retail gas stations and convenience stores, as well as our growing crude logistics activity. Let me touch on a few financial highlights.

For the year, net income more than doubled to $46.7 million, EBITDA was up 58% to $135.8 million, and distributable cash flow increased 73% to $80.8 million. Thanks in part to robust margins in our Gasoline and Station Operations segment, we enjoyed a particularly strong fourth quarter.

Net income and distributable cash flow approximately doubled to $22.7 million and $32.1 million, respectively. EBITDA increased 76% to $47.1 million.

U.S. oil production grew at its fastest rate in history in 2012, and 2013 could be even stronger.

For example, the Department of Energy has reported that domestic oil production for the week ended March 8 was 7.2 million barrels a day, the highest level in over 20 years. This surge requires significant infrastructure to move crude oil and associated products from wellhead to market.

Our rail logistics expertise and unique origin to destination assets position us at the forefront of this opportunity. We have 2 additional significant advantages.

Our system is capital-efficient and rapidly scalable. Also, there is a lack of infrastructure alternatives in the U.S.

to the east and west coasts. The lack of pipeline infrastructure is only one reason that railroads are playing a key role in the transportation of energy products.

Products can be delivered via rail on a controlled ratable basis. Compared to pipelines, rails require lower upfront capital costs, fewer permit requirements and shorter-term commitments.

Railroads are cost-efficient and offer a level optionality that pipelines just cannot match. While pipelines move product from point A to point B, railroads afford tremendous flexibility to maximize efficiency and enhance margins by having the capacity to move barrels to the highest priced markets.

This becomes important as new fields are brought into production, displacing decades-old logistical patterns and pricing relationships. Our market-leading origin to destination rail logistics for crude oil begin with our recently acquired majority interest in Basin Transload.

Located in North Dakota's Bakken region, Basin operates transloading facilities in Columbus and Beulah, North Dakota with a combined rail-loading capacity of 160,000 barrels per day. Columbus is a site of our 100,000 barrel tank-and-truck offloading facility.

We have a direct single-line haul service on Canadian Pacific from Columbus to our terminal in Albany, New York. The Beulah terminal is about 200 miles from Columbus and sits along the BNSF Railway with long-haul service to the west coast, including to our crude and ethanol facility in Clatskanie.

We're developing 140,000 barrel tank-and-truck offloading rack at Beulah. Turning to our destination assets.

We have strategic locations on the East and West Coasts, where pipelines are limited. On the East Coast, our Albany, New York terminal, we believe, is the most efficient model to move products East.

Global Albany has the capacity to receive by rail and distribute 160,000 barrels per day, and is currently offloading over 110,000 barrels per day. From there, it's an efficient barge trip to refineries along the East Coast.

Shipments from the mid-continent to our Albany terminal continue to accelerate. Just to put the East Coast market opportunity in perspective, the current refining capacity on the East Coast is about 1.2 million barrels a day according to the U.S.

EIA. Over time, we could see the entire capacity supply by North American and Canadian crudes.

Nearly 3,000 miles from Albany is our crude oil and ethanol facility in Clatskanie. This prime West Coast location includes a rail transloading facility service by the BNSF through the Genesee & Wyoming short line, 200,000 barrels of storage capacity, a deepwater marine terminal, a leased 1,200-foot dock and the largest ethanol plant on the West Coast.

Situated along the Columbia River, the facility is located on land leased under a long-term agreement from the Port of St. Helens.

In November 2012, the facility began transloading unit trains of crude oil. Direct haul capability from our Beulah facility extends our virtual pipeline to the West.

This Oregon facility also creates a link between the Western Canadian sedimentary basin and Pacific refiners. The West Coast refining opportunity is even larger than the East Coast.

PADD 5 refining capacity is estimated to be north of 3 million barrels today. The international market is obviously much larger.

In January 2013, we entered into a long-term take-or-pay throughput agreement, under which crude is delivered from the Bakken to Phillips 66 Bayway, New Jersey refinery, using our rail transloading logistics and transportation system. P66 is throughputting approximately 91 barrels of crude over the 5-year contract term.

P66 and its predecessor has been a strategic business partner with Global in the refined products market for more than 15 years. Phillips 66 more recently has been an important customer for Global as we have expanded our crude oil logistics services.

This contract grows our mix of stable fee-based contract income and also assures P66 with long-term access to crude from the mid-continent region. We continue to expand our logistics expertise to propane and other products as evidenced by the construction of our new rail-fed propane storage facility in Albany.

This facility will initially be capable of storing more than 540,000 gallons of propane, and will be ready in the second quarter of this year. Separately, we have permits to double that storage capacity at the site.

As we build out our strategic logistics network, we continue to look for additional organic and acquisition opportunities across the U.S., including the Gulf Coast and possibly Canada. With respect to our Gasoline Distribution and Station Operations in the fourth quarter, we signed a long-term lease agreement with Getty Realty.

Under this agreement, we are the long-term site tenant supplying gasoline to a network of operators at approximately 90 of Getty's gas station sites in the metropolitan New York area, including New York City and Long Island. The initial lease term for the locations is 15 years and includes multiple 5-year renewal options.

Most of the stations under the long-term lease arrangement had been part of an interim fuel supply and services arrangement, and approximately 100 sites still operate under that agreement. With the addition of Alliance for the majority of the year, Gasoline Distribution and Station Operations accounted for about 56% of our combined net product margin in 2012 compared with 38% in the prior year.

Although we expect this percentage to decrease in the next year or so, as our other businesses expand, we continue to explore opportunities to grow this segment. Our recently announced entry into the compressed natural gas business is an example of how Global leverages its logistic and marketing expertise.

Global and OsComp Systems are teaming up to supply compressed natural gas via truck to commercial, industrial and municipal customers in New England. The offering is designed to bring natural gas to business customers that are not connected to the transmission and distribution grid.

We bring leadership and expertise in gathering storage transportation and strong marketing relationships to this line of business. Global's development of rail logistics and gas station assets has strengthened and diversified our cash flows and income streams.

EBITDA has climbed from $72 million in 2010 to $86 million in 2011 and $136 million in 2012. As we previously announced, our EBITDA guidance for 2013, exclusive of Cascade Kelly acquisition, is between $175 million and $190 million.

This demonstrates our successful initiative to further diversify our company. Given this backdrop, the board has increased our quarterly cash distribution to $0.57 per unit, up $0.15 or 7% on an annualized basis from $2.13 to $2.28 per unit.

The board will continue to review the distribution on a quarter-by-quarter basis. Now let me turn the call over to Tom for his financial review.

Thank you, Eric. Good morning, everyone.

Let me begin by talking about the results from each of our segments. In our Wholesale segment, we had record volume for both the fourth quarter and the full year of 2012.

The volume increases for the year were due to our expanding crude oil activity, and the fourth quarter also enjoyed higher distillet [ph] volume due to a comparatively colder year-over-year fourth quarter. For the year, the Wholesale net product margin was up $21 million or 17% to $145 million.

In the case of our Gasoline Distribution and Station Operations segment, 2012 also enjoyed record volume of 954 million gallons and a record net product margin of 206 million, reflecting the 10-month impact of our acquisition of Alliance Energy. The fourth quarter results for this segment, as Eric mentioned, were unusually strong.

As we have discussed previously, this segment generally produces consistent cash flows on an annual basis. The quarterly margins will move up or down depending on price movements.

NYMEX gasoline prices dropped $0.53 during the fourth quarter, which caused margins to increase as street prices and prices throughout the gasoline distribution supply chain tended to lag. When prices increase, of course, the opposite happens.

I should note that in the first 2 months of 2013, according to the AAA, the national average price of gasoline increased $0.49 per gallon, marking the sharpest price increase during that period on record. Commercial volumes for the year increased 4% from 338 million gallons to 352 million gallons, but the net product margin declined approximately $3 million, from $22 million to $19 million, due in part to a warm first quarter, which negatively impacted the sale of our heating-related products.

Total operating expenses increased year-over-year by approximately $90 million, reflecting the costs associated with the Alliance operation, including the supply and servicing agreement with the Getty assets, as well as investments in growing rail logistics. Interest expense was up $31 million -- from $31 million a year ago to $36 million in 2012, primarily associated with the borrowings connected with the Alliance acquisition.

Maintenance capital expenditures for 2012 were $13 million. Going forward with our recent acquisitions, we expect maintenance capital expenditures for the partnership to be in the $12 million to $14 million range.

Expansion capital expenditures totaled $32 million for 2012 and were primarily associated with the expansion of rail, tank and offloading equipment at our Albany terminal to increase its capacity, the new tank in Columbus, North Dakota at the Basin facility, the new propane terminal in Albany, as well as other select investments in our Gasoline Distribution and Station Operations segment. Our year-end balance sheet reflects our strong performance during the year, as well as the acquisition of Alliance.

Total assets increased from $1.9 billion to $2.3 billion, due primarily to an increase in long-term assets associated with the acquisition of Alliance, which was funded by a combination of $184 million of borrowings under our revolving credit facility and the issuance of $130 million of equity to the sellers. Working capital related to borrowing -- or related borrowings under our working capital facility declined $164 million year-over-year, and liquidity remained strong with unused borrowing capacity of over $200 million at year-end under our $1.5 billion credit facility.

We continue to receive strong support from our 25-member bank group. In November, for example, an amendment extending our credit facility by 1 year to May 2015 and lowering the pricing by 50 basis points was substantially oversubscribed.

In February 2013, we closed on the acquisition of Cascade Kelly Holdings, a crude and ethanol facility outside of Portland, Oregon. A leading West Coast refiner is currently moving crude through this location under a short-term fee-based contract.

We are discussing future crude offloading use of the facility with that refiner, as well as other refiners. We expect to grow volume on a spot basis initially, but similar to what we have done with Phillips 66 on the East Coast, we will consider longer-term arrangements.

Likely interested parties certainly include several of the West Coast refiners, although the export of Canadian crude is also a possibility. The ethanol plant on the site presents an important upside.

To finance our Cascade Kelly and Basin Transload acquisitions, we increased our bank facility by $115 million and issued a senior unsecured 5-year note of $70 million to funds managed by GSO Capital Partners, the credit arm of The Blackstone Group. As previously announced, for full year 2013, we expect EBITDA in the range of $175 million to $190 million.

For the moment, we are not changing that guidance, although I should note that it was provided prior to our announced and recently closed acquisition of Cascade Kelly Holdings. We expect that acquisition to be accretive to unitholders in its first full year of operation based on current and anticipated future performance, as well as economic and market conditions.

Our overall outlook is based on assumptions regarding current market conditions, including demand for crude oil, petroleum products and renewable fuels, weather, credit markets and forward product pricing curves, which will influence quarterly results. Now let me turn the call back to Eric to conclude our prepared remarks.

Thank you, Tom. In summary, Global delivered record 2012 financial results.

The strategic steps we have taken to strengthen and diversify our cash flows position us to better expand our rail logistics and marketing activities. As we have said in the past, rent from our gasoline station dealers and convenience store margins in our company-operated sites are relatively consistent and predictable.

These flows combined with the increasing throughput fees expected from our 2 Basin transloading facilities as well as throughput fees at our Albany terminal and our new Oregon facility, together combine to produce fee-like cash flows. With that, Tom and I will be happy to take your questions.

Operator?

On the Oregon terminal, can you talk a little bit about the markets you're seeking to serve? Is it going to be more Washington or California?

And then, can you talk a little bit about the potential for exporting Canadian crude?

So first of all, I think the natural movement is the movement that is the closest, right? But obviously, we'll look at the entire market, right?

So first is the closest and because that's got cheapest movement to get to the refining facility. And then after that, you'll spend a little more in barging to get there, right?

So that yields what I would say, is maybe a little bit of a lower netback. In terms of internationally, you're going to try and do what you can to sell those barrels at the highest value or to the highest priced customer, so...

For the Canadian barrels, would those be railed directly from Canada or would they be railed from the U.S.?

Well, they would have to be Canadian barrels so they'd have to be sourced out of Canada and separate and distinct and unique and tracked.

Okay. But it'd be probably railed directly from Canada, not piped into the U.S.

and then railed?

I'd say, likely. Yes, I mean where we've sort of focused is really on the rail side of that.

Okay. And then on given the higher gasoline prices first quarter, are you seeing any impact on volumes or margins so far?

I think, Brian, we just want to factually point out that they've risen in the first couple of months. If history's a guide, that tends to squeeze margins a bit.

Okay. And then on, last question for me, maybe a little esoteric, but on the renewable fuel credits, we're seeing some refiners get hit by that.

Is there any impact from your side of things in terms of also volumes or more on the margin side, I guess?

Yes. I mean, I think it's just a shift in the market and ends up getting essentially passed through.

But it's a hot topic right at this moment.

So obviously, there's a lot of interest in creating positions on the Gulf Coast in terms of crude by rail. When you think about your positions on the East and West Coast for rail, can you talk about the opportunity to expand to the Gulf Coast?

And any potential across fertilization benefits that you see if you were to create an incremental position there?

Yes. I mean, I think for us what we're trying to do is create a national network that provides logistic solutions for our customers throughout North America, right?

So the goal for us is really put ourselves in a position where we can be the best provider of services to refiners and takers of crude products, right?

And along those lines, would you consider a possible joint venture opportunity, if that were to present itself? Are you guys looking at more of buying your own facility and kind of working from there like you did on the West Coast?

We're looking at all options, right? So I mean, at the end of the day, if somebody came to me and said, "Hey Eric, I've got a joint venture and I want to do this, that or the..."

I'm going to look at it and we'll consider it. And we'll consider our alternatives and we'll go forward with what business we think provides us with the highest returns.

Okay. And then just to make sure that I heard you clearly earlier, is it -- so the EBITDA guidance that you outlined, that $175 million to $190 million range, nothing from the Oregon assets is factored in there?

Correct.

Is that correct?

Correct.

Okay. And then the ethanol plant at that Oregon facility, recognizing that that's not fully online right now, what's the timeline for bringing that back on?

I mean, it's really about an economic opportunity, right? So at the end of the day, we think there's going to be an opportunity to run that facility at some point in time, it's not just yet.

And really, we're getting our arms around that entire facility. I mean, there's a lot to do there, and that's one of the items on our checklist, right?

So -- but I think it's about pricing, and we're economic. So at the end of the day, if we can make money there, we're going to look to start up and run it.

Okay. And then last question for me.

Can you talk about any investments that you plan on making given the recent OsComp deal? And what are the terms of that venture?

And how does that leverage your position on the East Coast?

Essentially, I'm not going to give out the details of the OsComp deal. But we think it's a nice niche market.

You're building out these facilities that service the market. Obviously, the consumers can't get alternative fuels in there, so they're buying higher-priced oil.

And you're trying to figure out how to cut their energy bills, and this is one way to do it.

Can you talk a little bit about how many gallons per day you guys go for your gas station business?

How many -- what's the total sales?

Take us a minute, do a calculation on it. Let's come back in a moment on that.

Okay. And does the Getty -- do the Getty stations, are they treated just like the other stations in terms of how they go through your P&L, it's gallons going through with the margin on the gallons?

Yes, that's a supply business. As you may have read, we converted a temporary arrangement in the case of 90 sites to permanent leases.

So we are the, in effect, we work with dealers on those sites and supply them gasoline. Very similar to the rest of the Distribution business.

Got you, okay. And then how many cars per unit train did you guys do in the quarter?

Let's -- for this quarter, hold one 1 second, let's get that detail. I know we have that somewhere here.

Number of total cars in Albany?

For the quarter, just total. Yes, total -- I get -- you want cars or unit trains?

So I think you said you guys figured you got 87 unit trains. So I'm just trying -- wondering what kind of -- what the average car per train was?

It is about right, 87.

About 87. The cars are around 30,000 gallons each, right?

And the unit train size is probably an average of about 100. So I'd say that's a good estimate to use.

Got you. And you're still trying to -- that's still going to go up over time?

I think at some point you guys said you are going to -- you should...

Yes, the goal is to be able to run it at capacity. And I'd say, we're not quite there yet.

We're probably today around 110,000 barrels a day, and we want to try and get it to its maximum capacity. So we'll keep pushing.

It takes time and work, but we're getting there.

And the max is 160, is that right?

Correct. So regarding it, that's, so Chuck, what do you have there?

The run rate for 2012 was 2.7 million gallons a day at the stations. You have to remember that we had Alliance for only 10 months, so you would expect the current run rate to be a little higher.

A little bit higher. Okay, thanks.

Okay. And then -- so you don't have it on a like an average per station, anything like that?

Just because obviously the number of stations changed so much over the -- throughout the year?

Right, we don't have that for you.

Okay. And then in the quarter, how many barrels or unit trains did you guys do at Phillips just in the quarter?

We don't break that out. I think the key is, is for you, look at the total number, that's really the important number.

And that's what's getting throughput through the facility.

A quick question on gasoline margins. Was there any positive impact from Sandy?

Or was the robust margin much all driven by Alliance and the lower commodity prices during the quarter?

If you're looking at our Wholesale business line, the strength year-over-year had to do with expanding sites. We're in 25, 30 new locations around the country, wholesale in gasoline.

And we also, by the way, as we have discussed, restructured our -- how we supply our gasoline business to be much more effective in backward markets. But I think your question had more to do with the Gasoline Distribution business.

And obviously, that results was way up year-over-year due to Alliance, as well as we mentioned, the strong margins in the fourth quarter.

Looking at a per-unit margin, is that a good run rate per quarter?

I think we would suggest that annualizing the Gas Station Distribution and Station Operations margin is the right way to look at the business. You'll see quarterly ups and downs.

The fourth quarter, as we mentioned, was very robust from a margin standpoint.

First, I just want to clarify, for your Albany crude terminal, did you just mention like 110 is like the current completion [ph] level?

Yes.

So there's how many trains a day, it's like 1, like...

That's probably -- see, if we can make that calculations for you. It's more than what, Tom?

Train a day.

It's more than a train a day, right? Yes, I mean, okay, so if you said a train is -- carries between depending on the size of the train, 75,000 to 80,000 barrels, I mean and you're doing 110,000 a day, that's the breakout, right?

Okay, okay. And also, Hess has announced that they're going to sell their retail gas station in United States.

So have you guys think about this -- any potential opportunity for Global?

We would look at any transaction that's out there, right, so...

So do you think there's like synergy for Global's current business?

Yes. I mean, there could be.

There could be. Clearly, they're in the retail business and they're in the marketplace.

So I mean, and they're our competitors, so sure.

And also given your current leverage level, do you guys think that you need to go to the public equity market this year?

Lin, [ph] at this time, we have no need to do so. We obviously continuously consider the right capital structure for the partnership, but we have no need, so no.

Everyone, thank you for joining us today. We look forward to keeping you updated on our progress.

Thank you very much.