Magellan Midstream Partners LP

Proposal of Acquisition by Royal Dutch Shell Plc TARGET

MMP US
November 26, 2018 Magellan
Midstream
“Today’s power market designs are not always up to the task of coping with rapid Partners LP
changes in the generation mix. Revenue from wholesale markets is often insufficient Currency USD
to trigger new investment in firm generation capacity; this could compromise the LTM Rev $ 2,634
reliability of supply if not adequately addressed.” LTM Date 9/30/2018
IEA World Energy Outlook 2018 2 Year Revenue $ 2,714
2 Year Date 12/31/2019
LTM Gross Profit $ 1,490
Magellan Midstream Partners (the “Target”, U.S.: NYSE MMP) is an owner-operator of oil,
LTM EBITDA $ 1,342
gas, and ammonia pipelines primarily in the Mid-Continent oil province. Additional refined LTM EBIT $ 998
products and marine storage terminals are located intermittently across the Southeastern LTM OCF $ 1,178
United States. Royal Dutch Shell (the “Acquirer”, U.S.: NYSE RDS-A) is a fully integrated LFY Disp $ 1,109
British-Dutch energy and petrochemical firm presently headquartered in The Hague, LFY Acq $ (559)
Netherlands. LFY FCF $ 550
Rev Forecast Mo. 15
Acquirer Primary Motives Rev Forecast Yrs. 1.25
▪ Acquisition of Magellan Midstream fits Royal Dutch Shell’s stated intent to invest in
Value Drivers MMP US
select existing and emerging opportunities such as Mid-Continent shale plays.
Exp. Rev. Growth 2.4%
▪ The Acquirer gains exposure to Mid-Continent oil & gas plays including the Permian Gross Profit Margin 56.6%
Basin, Delaware Basin, and Bakken Formation. EBITDA Margin 51.0%
▪ Bolsters the Acquirer’s ability to compete with U.S. counterparts ExxonMobil and EBIT Margin 37.9%
Chevron, and U.K counterpart BP. OCF Margin 44.7%
▪ Synergizes with the Acquirer’s presence in the Gulf of Mexico and Port of Louisiana FCF Margin 20.9%
& Houston. Comparison of Computed Valuation to
Market Value
As of 11/13/2018, in USD
Target Primary Motives MMP Equity Price
High (52 Week) 75.82
▪ Industry competition, tax code changes, and commodity price volatility have slashed Low (52 Week) 54.82
valuations across the industry with smaller firms impacted the greatest. Average (52 Week) 67.38

▪ The Target owns and operates high capacity crude oil and natural gas terminals in the EBITDA Exit Multiple
Gordon Growth Model
62.32
74.30
Permian Basin, Delaware Basin, and Bakken formations, and additionally strategically Adj. EBITDA Exit Multiple 65.04
located marine storage terminals. Adj. Gordon Growth Model 71.18

▪ The Target’s operations are significantly less risky than typical upstream E&P P/FCF Expected Value
P/E Expected Value
47.76
66.94
projects where total loss of investment is common. Average Computed Value 64.59
Current Market Value 61.13

Valuation Conclusion
Given that Magellan Midstream has meandered around
its 52 Week Low over the last four months, we believe
an initial tender offer of $72.50 will appease
investors. The 52 Week High of $74.30 was achieved
during a bull run in crude oil and recent developments in
the industry lead us to believe that the 52-Week High is
at least 6-9 months away, conditional upon WTI crude oil
rebounding and stabilizing in the $60-70 range. The IEA
forecasts the U.S. will account for more than half of
global oil & gas production growth in 2025. Supply in the
Permian Basin is significantly bottlenecked until at least
late 2019 and is undersupplied through at least mid-late
2021. Midstream MLPs including Magellan Midstream
Partners will be among the primary beneficiaries of the
large production growth in the United States.
Analyst: Kevin Heymann, ASK Research 1 of 21
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Analyst: Kevin Heymann, ASK Research 2 of 21

 TABLE OF CONTENTS

I. COMPANY DESCRIPTION ------------------------------------------------------------------------ 4

II. RECENT COMPANY NEWS ---------------------------------------------------------------------- 6
III. MOTIVES FOR POTENTIAL ACQUISITION ---------------------------------------------- 7
IV. COMPARABLES ANALYSIS & VALUATION ----------------------------------------------- 8
V. DISCOUNTED CASH FLOW ANALYSIS & VALUATION ------------------------------10
VI. ADJUSTED DISCOUNTED CASH FLOW ANALYSIS & VALUATION ------------12
VII. DISCUSSION OF PROPOSED ACQUISITION -------------------------------------------15
VIII. SELECTED FINANCIAL DATA OF THE ACQUIRER -------------------------------16
IX. SELECTED FINANCIAL DATA OF THE TARGET -------------------------------------17

Analyst: Kevin Heymann, ASK Research 3 of 21

COMPANY DESCRIPTION
Royal Dutch Shell (the “Acquirer”)
Royal Dutch Shell (the “Acquirer”) is a fully integrated British-Dutch energy and petrochemical firm presently headquartered
in The Hague, Netherlands. Royal Dutch Shell is a leading global energy firm, the six largest of whom are colloquially termed
‘oil majors.’ The Acquirer is the largest firm in the FTSE 100 Index by market cap, outsizing the second largest firm by almost
70%. Currently, the Acquirer, led by CEO Ben van Beurden, employs approximately 86,000 people, who enable Royal Dutch
Shell to operate in over 70 countries globally.

The industry has grown rapidly since the first oil well was drilled 1846, at the Baku oilfields in present day Azerbaijan. Europe
and Asia presently meet ~30% of their energy needs using oil, while the Middle East uses oil to meet more than 50% of their
energy requirements. Last year, the United States consumed 19.96 million barrels of petroleum products per day, 20.5% of
total daily world consumption. According to the Energy Information Administration, transportation accounts for around 71%
of petroleum consumption, followed by industrial accounting for 21-24% of petroleum consumption. Commercial, residential,
and electrical applications draw on less than 5% of daily petroleum product consumption in the United States.

Royal Dutch Shell is composed of four fully integrated and incorporated commercial enterprises: Upstream, Integrated Gas &
New Engines, Downstream, and Projects & Technology.
▪ Upstream refers to the discovery of new reserves and the operation of
associated infrastructure. More specifically, it covers the exploration,
development, and production of oil and/or natural gas. Royal Dutch
Shell has significant interests, although the Company has divested of
several interests recently, in North Sea, Northern Africa, and the Gulf
of Mexico exploration.
▪ Integrated Gas & New Energies encompasses liquefied natural gas
(LNG), low or zero carbon emission fuel resources, and renewable
energy sources. Midstream activities are defined as the gathering
process, pipeline management, and processing of unrefined products
including previously listed sources. In February 2016, Royal Dutch Offshore drilling in the Groningen Gas Field in Norway.
The Dutch government is phasing out production by 2030.
Shell closed on the acquisition of BG Group. Subsequently, Royal
Dutch replaced Exxon as the leading LNG producer.
▪ Downstream operations involve the manufacturing, distribution, and
marketing of oil and related chemicals. Marketing counts usage by
commercial, residential, and industrial consumers in its scope. Royal
Dutch Shell operates in 70 countries worldwide, transporting and
producing oil and chemical products across the world non-stop.
▪ Projects & Technology is Royal Dutch Shell’s research and
development arm. The business line manages, acquires, and develops
technology that will be utilized in the Upstream and Downstream
operations.

Royal Dutch Shell is a textbook example of a vertically integrated oil company, Shell acquired BG Group in 2016 at a 54% premium for
nearly $70bn. The acquisition has been highly successful to date.
overseeing the entire value chain of the oil, gas, and diversified energy sector.
Given the nature of Royal Dutch Shell’s business model, there are significant
economies of scale and barriers to entry associated with the operation of business in the oil and diversified energy sector.
However, the company’s management attempts to see each of the four business lines turn a profit so that a more profitable
line will not be required to prop up a losing division. Royal Dutch Shell has not achieved this lofty goal in recent years.

It is imperative for Royal Dutch Shell to solidify upstream operations. Historically, upstream operations have acted as a profit
center for downstream operations. While downstream operations account for more than 80% of Royal Dutch Shell’s revenue,
downstream operations generate razor thin EBITDA margins. Moreover, upstream operations generated more than 50% of
profits in 2017 on a mere 20% of the Acquirer’s revenue. Thus, the concept of kaizen dictates Royal Dutch Shell maintain a
strong footing in the upstream business, while continuing to allocate capital efficiently and prudently to generate shareholder
returns.

Analyst: Kevin Heymann, ASK Research 4 of 21

COMPANY DESCRIPTION
Magellan Midstream Partners (the “Target”)
Magellan Midstream Partners (the “Target”) is an owner-operator of oil, gas, and ammonia pipelines primarily in the Mid-
Continent oil province. Additional refined products and marine storage terminals are located intermittently across the
Southeastern United States. The Target occupies the midstream space in the industry value chain. Magellan generates revenue
through fee-based contracts upon performance of the transportation, storage, and distribution of refined petroleum products.
The Target is comprised of three business segments: Crude Oil, Refined Products, and Marine Storage.
▪ Crude Oil comprises the transport of crude oil along approximately 2,200 miles of pipeline and the storage of crude
oil. Storage capacity currently sits near 26m barrels. 16m barrels of capacity are designated for leased storage.
▪ Refined Products consists of the transport of refined products and ammonia across 9,700 miles and 1,100 miles of
pipeline, respectively.
Aggregate storage capacity is
roughly 42m barrels.
Additionally, 53 terminals are
connected to pipelines, and
27 terminals are independent.
▪ Marine Storage revolves
around the distribution of
petroleum products (gasoline,
diesel, crude, and jet fuel)
along the U.S. coast. The
target owns five marine
storage terminals with a total Magellan Midstream Partners Distribution Map as of H1 2018. (Source: Magellan Midstream Partners 2018 Summary Flyer)
storage capacity of 26m
barrels.

Magellan Midstream’s corporate headquarters is in Tulsa, Oklahoma,

United States. Top domestic competitors of the Target include
Enterprise Products Partners, Enable Midstream Partners, Plains All
American Pipeline, Shell Midstream Partners, and Summit Midstream
Partners. Magellan Midstream falls into the category of terminal and
liquid pipeline MLPs, along with Plains All American. Enterprise
Product Partners is an example of a natural gas pipeline MLP. The
Target went public in 2001 and has generated a total return in excess of
3,000%. Comparatively, the S&P has returned approximately 200% over
the same period.
Midstream Operations Overview. (Source: Enterprise Products Partners)
Magellan Midstream is structured as an MLP rather than a C-
Corp, a configuration that provides valuable tax benefits. An
MLP is a publicly traded LP that pays no corporate tax if it
qualifies as defined in 26 U.S. Code § 7704 of the Internal
Revenue Code. Comparable in many ways to a REIT, publicly
traded MLPs pay out most if not all available cash flow to
investors. Investors then receive a K-1 and pay tax at the Differences: MLP vs. C-Corporation. (Source: Market Realist)
individual rate on the income that passed through the MLP.
Thus, MLPs offer high yields and attractive dividends. The majority of publicly traded, U.S. based midstream owner-operators
take advantage of this tax benefit.

Production of petroleum products and its derivatives is poised to skyrocket in the U.S. This trend was first theorized after the
2014-2015 oil crisis. The Permian Basin is particularly undersupplied today and this trend will continue into the foreseeable
future. Providers and facilitators of the various midstream operations like Magellan Midstream Partners will continue to take
advantage of the supply imbalance in the U.S. market.

Magellan Midstream is notably smaller than industry peers like Enterprise Products Partners. However, the Target is more
agile than larger firms and has enhanced ability to take advantage of high growth, low capital projects other companies would
pass on.

Analyst: Kevin Heymann, ASK Research 5 of 21

RECENT COMPANY NEWS
Royal Dutch Shell
▪ Royal Dutch Shell announced Q3 2018 earnings attributable to shareholders of $5.6bn, up 50.6% YoY. Cash flow
from operations jumped 59.5% in the same period. Growth in earnings were primarily resultant of increased oil, gas,
and LNG prices. Margins softened in downstream operations, deferred tax charges increased in upstream operations,
and currency fluctuations decreased potential earnings. Production output of crude oil and natural-gas byproducts
dropped 2% YoY. Natural-gas production fell 1% while overall production on an oil-equivalent basis was down 2%.

▪ Royal Dutch Shell continued with its $25bn share buyback program, launching a second tranche with maximum
aggregate consideration of $2.5bn in the period up to and including January 28, 2019.

▪ Royal Dutch Shell finalized an investment in a Canadian LNG project in early October 2018. The site is expected to
transport VLCC (Very Large Crude Carriers) tankers of supercooled natural gas to Asian importers by the mid-2020s.

▪ Royal Dutch Shell and Chevron were granted a 35-year-production sharing contract for the Saturno pre-salt block in
the Santos Basin in offshore Brazilian waters. Additionally, production began at the Lula Extreme South deep-water
development in the Santos Basin (25% pre-unitization interest).

▪ Royal Dutch Shell has divested of $30bn of assets since the 2014 oil price crash to reduce its debt gearing ratio to
20%. The Company’s debt gearing ratio declined to 23.1% from 23.6% in Q2 2018.

Magellan Midstream Partners

▪ Magellan Midstream Partners reported distributable cash flow of $281.8m in
Q3 2018 from $235.2m YoY, a 19.8% increase. Net income was 199.5% higher
YoY at $594.5m due to the sale of a 20% interest in the BridgeTex pipeline.

▪ Magellan Midstream announced, recorded, and paid a dividend of $0.9775 per

share in Q3 2018. On a trailing twelve-month basis, Magellan Midstream
distributed a dividend of $3.91 per share for an annualized dividend yield of
6.43%.

▪ Magellan Midstream has $2.5bn of new high growth projects in the pipeline.
One of these projects is the Permian Gulf Coast pipeline, announced in
September 2018. PGC pipeline is a joint venture with Energy Transfer, MPLX,
and Delek. It will deliver crude oil from the Permian Basin to Magellan’s East Map of Existing Permian Basin Pipelines.
Houston terminal. (Source: Dallas Morning News)

▪ Magellan Midstream leased crude oil capacity and throughput services from Seabrook Logistics in Q3 2018. These
services are then offered to the market and generate storage revenue and ancillary service fees.

▪ Average interest rate for Magellan Midstream is roughly 4.60% and gearing ratio was lower to come in around 2.30
times debt to EBITDA over the past quarter. Part of the reduction in the gearing ratio is resultant of the BridgeTex
sale, however Magellan Midstream has historically maintained a conservative balance sheet.

▪ Magellan Midstream shares are down 13% YTD, from the YTD high of $75.82. Shares fell dramatically to a reach a
nadir at $54.82 in late March 2018.

▪ OPEC is meeting in early December Earnings Drivers & Key Performance Indicators
Current as of 11/13/2018, Spot Prices in USD (Dollar/Barrel or Dollar/Million BTU) or Production Million Barrels Per Day
2018 and is widely expected to trim Brent Average WTI Average Imported Average Refiner Average AC Henry Hub Average Oil Production Gas Production
output. This should staunch the 2017 Actual
2018 Actual
54.15
73.12
50.79
66.79
48.98
62.88
50.68
65.87
2.99
3.01
9.35
10.90
3.78
4.37
dramatic drop in crude oil prices 2020 Estimate 71.92 64.85 61.30 63.88 2.98 12.06 4.86

starting in October 2018.

▪ It should be noted that Magellan Midstream equity does not have statistically significant correlation with commodity
prices. The primary reason for this is resultant of Magellan Midstream’s contracted fee-based revenue generation.
However, global commodity prices have significant impact the firm’s business operations in the long run.
Analyst: Kevin Heymann, ASK Research 6 of 21
MOTIVES FOR POTENTIAL ACQUISITION
Royal Dutch Shell
▪ Expansion of power supply business such as
investments in EV charging networks and supply
infrastructure.
▪ Streamlining of portfolio to enhance efficiency
through reduction of costs.
▪ Continued investment in selective growth
opportunities for cash engines including
conventional oil and gas in upstream.
▪ Acquisition of Magellan Midstream fits Royal
Dutch Shell’s stated intent to invest in select Royal Dutch Shell Capital Expenditure Plan. Large Portion of Capital Expenditure Earmarked
existing and emerging opportunities such as Mid- for Investment in Conventional Oil & Gas and Shales. (Source: Acquirer Annual Report 2017)
Continent shale plays.
▪ The Acquirer gains exposure to Mid-Continent oil & gas plays including the booming Permian Basin, Delaware Basin,
and Bakken Formation.
▪ Enhances the Acquirer’s ability to compete with U.S. counterparts ExxonMobil and Chevron.
▪ Synergizes with the Acquirer’s presence in the Gulf of Mexico and Port of Louisiana & Houston.

Magellan Midstream Partners

▪ Industry competition, tax code changes, and
commodity price volatility have slashed valuations
across the industry with smaller firms impacted the
greatest.
▪ The Target owns and operates pipeline
infrastructure in critical regions including the
Permian Basin, Delaware Basin, and the Bakken
Formation. Pipeline is less risky as assets have
already been constructed and have a long useful life.
▪ The Target owns and operates high capacity crude
oil, natural gas terminals, and strategically located
marine storage terminals.
Magellan Midstream Partners Business Segment Breakdown. (Source: Magellan Midstream
▪ The Target’s operations are significantly less risky Partners Investor Presentation)
than typical upstream E&P projects where total loss of investment is common.

Risk Mitigation
▪ The Acquirer obtains the human capital and U.S. domestic
midstream presence of the Target. U.S. Midstream MLPs are a
way to obtain exposure to the once again booming U.S. shale
market while eliminating E&P total loss risk.
▪ The Acquirer operates in over 70 countries globally; the U.S.
legal system is strong and therefore the Acquirer does not run
the risk of asset expropriation.
▪ Additionally, revenue earned internationally is a notable risk
factor for the Acquirer. Acquisition of the Target would reduce
Initial Construction of Marine Terminal along the Houston Ship Channel.
the risk of significant foreign currency fluctuations as revenue is Expected Delivery of Asset in Q1 2019.
generated in a liquid, globally desirable currency.
▪ Pipelines and terminals to and on the Gulf of Mexico coastline will likely reduce operating expenses for existing
Acquirer E&P assets in the Gulf of Mexico, primarily through the reduction of transport and refining costs.
▪ Acquisition of the Target will allow the Acquirer to have a much greater presence in the Mid-Continent oil province.

Analyst: Kevin Heymann, ASK Research 7 of 21

COMPARABLES ANALYSIS & VALUATION
Finding Comparables & Sorting Methodology
Magellan Midstream Partners operates in the midstream sector of the oil, gas, & diversified energy business. Firm comparables
were compiled from the Bloomberg Terminal. Financial data from firms operating in the midstream oil, gas, & diversified
energy industry was gathered and sorted based on financial comparability. Next, 15 of the most comparable firms were chosen
based on financial and operating comparability. After various financial statements and metrics were sourced from the
Bloomberg Terminal, TTM value drivers and analyst revenue estimates were incorporated into a single spreadsheet. Full
financial data for all 15 firms can be found in the Selected Financial Data of The Target section on page 17. The breadth of
financial data for all 15 companies was analyzed and distilled into six categories of value drivers:
▪ Expected Revenue Growth
▪ Gross Profit Margin
▪ EBITDA Margin
▪ EBIT Margin
▪ OCF Margin
▪ FCF Margin
Selected Value TARGET I II III IV V VI VII VIII IX X XI XII XIII XIV XV
Drivers Compared by Magellan Midstream Enterprise Products Kinder Spectra Energy Shell Midstream CNX Midstream Cheniere Energy DCP Enbridge Energy Enable Midstream Energy Transfer NGL Energy NuStar Plains All American Summit Midstream TC Pipelines
Firm Matrix Partners LP Partners LP Morgan Inc Partners LP Partners LP Partners LP Partners LP Midstream LP Partners LP Partners LP Operating LP Partners LP Energy LP Pipeline LP Partners LP LP
Value Drivers MMP US EPD US KMI US SEP US SHLX US CNXM US CQP US DCP US EEP US ENBL US ET US NGL US NS US PAA US SMLP US TCP US
Exp. Rev. Growth 2.4% 7.5% 3.4% 34.4% 6.3% 31.2% 3.5% 24.0% 2.2% 3.3% 10.8% -11.2% 0.2% 13.7% 2.9% 4.9%
Gross Profit Margin 56.6% 12.8% 30.6% 72.5% 55.5% 71.8% 34.5% 5.7% 67.5% 42.3% 21.5% 2.9% 50.3% 6% 64% 53%
EBITDA Margin 51.0% 9.1% 15.1% 85.8% 48.0% 72.4% 40.9% 7.1% 77.1% 29.2% 15.1% -0.2% 43.6% 5% 40% 113%
EBIT Margin 37.9% 4.5% 8.3% 50.2% 49.0% 44.5% 20.6% 2.0% 17.0% 13.5% 5.2% -2.2% -16.2% 6% 19% 63%
OCF Margin 44.7% 17.1% 33.4% 82.0% 89.1% 69.5% 28.6% 7.8% 45.6% 27.9% 12.8% 0.4% 24.1% 6% 46% 90%
FCF Margin 20.9% 4.2% 10.1% -13.2% 62.3% 43.3% -5.2% 5.4% -4.6% 12.7% -7.7% -0.1% 1.2% 4% 23% 79%

Next, the raw financial data of the six value drivers was placed on a separate spreadsheet. The six value drivers for each of the
15 firms were broken into separate rows and sorted smallest to largest. Constraints on the upper and lower bounds were
placed on the six value drivers to discover firms most comparable to Magellan Midstream Partners.
Constraint Matrix
Value Drivers NGL US NS US EEP US MMP US SMLP US ENBL US KMI US CQP US TCP US SHLX US EPD US ETP US PAA US DCP US CNXM US SEP US Value Driver Upper Bound 12%
Exp. Rev. Growth -11.2% 0.2% 2.2% 2.4% 2.9% 3.3% 3.4% 3.5% 4.9% 6.3% 7.5% 10.8% 13.7% 24.0% 31.2% 34.4% Exp. Rev. Growth Lower Bound 0%

Constraint Matrix
Value Drivers NGL US DCP US PAA US EPD US ETP US KMI US CQP US ENBL US NS US TCP US SHLX US MMP US SMLP US EEP US CNXM US SEP US Value Driver Upper Bound 70%
Gross Profit Margin 2.9% 5.7% 6.2% 12.8% 21.5% 30.6% 34.5% 42.3% 50.3% 53.2% 55.5% 56.6% 64.1% 67.5% 71.8% 72.5% Gross Profit Margin Lower Bound 20%

Constraint Matrix
Value Drivers NGL US PAA US DCP US EPD US KMI US ETP US ENBL US SMLP US CQP US NS US SHLX US MMP US CNXM US EEP US SEP US TCP US Value Driver Upper Bound 90%
EBITDA Margin -0.2% 5.4% 7.1% 9.1% 15.1% 15.1% 29.2% 40.0% 40.9% 43.6% 48.0% 51.0% 72.4% 77.1% 85.8% 112.6% EBITDA Margin Lower Bound 10%

Constraint Matrix
Value Drivers NS US NGL US DCP US EPD US ETP US PAA US KMI US ENBL US EEP US SMLP US CQP US MMP US CNXM US SHLX US SEP US TCP US Value Driver Upper Bound 50%
EBIT Margin -16.2% -2.2% 2.0% 4.5% 5.2% 5.8% 8.3% 13.5% 17.0% 19.3% 20.6% 37.9% 44.5% 49.0% 50.2% 63.2% EBIT Margin Lower Bound 5%

Constraint Matrix
Value Drivers NGL US PAA US DCP US ETP US EPD US NS US ENBL US CQP US KMI US MMP US EEP US SMLP US CNXM US SEP US SHLX US TCP US Value Driver Upper Bound 90%
OCF Margin 0.4% 5.7% 7.8% 12.8% 17.1% 24.1% 27.9% 28.6% 33.4% 44.7% 45.6% 45.8% 69.5% 82.0% 89.1% 90.0% OCF Margin Lower Bound 15%

Constraint Matrix
Value Drivers SEP US ETP US CQP US EEP US NGL US NS US EPD US PAA US DCP US KMI US ENBL US MMP US SMLP US CNXM US SHLX US TCP US Value Driver Upper Bound 50%
FCF Margin -13.2% -7.7% -5.2% -4.6% -0.1% 1.2% 4.2% 4.5% 5.4% 10.1% 12.7% 20.9% 22.8% 43.3% 62.3% 79.2% FCF Margin Lower Bound -5%

Prime comparables are firms ranked in the top eight. Prime comparables used for the final comparable analysis typically fell
within the constraints on at least 5 out of 6 value drives. Therefore, we define the top eight most comparable firms to
Magellan Midstream Partners:
▪ Summit Midstream Partners (U.S.: NYSE SMLP)
▪ Enable Midstream Partners (U.S.: NYSE ENBL)
▪ Enbridge Energy Partners (U.S.: NYSE EEP)
▪ Kinder Morgan (U.S.: NYSE KMI)
▪ Shell Midstream Partners (U.S.: NYSE SHLX)
▪ Cheniere Energy Partners (U.S.: AMEX CQP)
▪ NuStar Energy (U.S.: NYSE NS)
▪ Energy Transfer Partners (U.S.: NYSE ETP)
Value Drivers MMP US EPD US KMI US SEP US SHLX US CNXM US CQP US DCP US EEP US ENBL US ETP US NGL US NS US PAA US SMLP TCP US
Exp. Rev. Growth - 1 1 0 1 0 1 0 1 1 1 0 1 0 1 1
Gross Profit Margin - 0 1 0 1 0 1 0 1 1 1 0 1 0 1 1
EBITDA Margin - 0 1 1 1 1 1 0 1 1 1 0 1 0 1 0
EBIT Margin - 0 1 0 1 1 1 0 1 1 1 0 0 1 1 0
OCF Margin - 1 1 1 1 1 1 0 1 1 0 0 1 0 1 1
FCF Margin - 1 1 0 0 1 0 1 1 1 0 1 1 1 1 0
Total - 3 6 2 5 4 5 1 6 6 4 1 5 2 6 3

Company MMP US SMLP US ENBL US EEP US KMI US SHLX US CQP US NS US ETP US CNXM US EPD US PAA US TCP US SEP US DCP US NGL US
Ranking - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Analyst: Kevin Heymann, ASK Research 8 of 21

COMPARABLES ANALYSIS & VALUATION
Direct Valuation
Five fundamental price multiples for the eight prime comparables were gathered and placed into the table shown below.
Statistical means, medians, and differences were then calculated for each of the five price multiple rows. Companies with a "-"
in a cell have a negative denominator i.e. the value driver is negative.
Direct Valuation: Comparable Company Multiples
Trailing Twelve Months, as of 11/13/2018
MMP US SMLP US ENBL US EEP US KMI US SHLX US CQP US NS US ETP US MEAN MEDIAN DIFFERENCE
P/E 14.31 11.30 14.29 11.83 20.71 14.02 12.17 - 9.03 13.34 12.17 9.58%
P/BV 5.59 1.16 0.88 2.89 1.22 - 16.20 1.35 0.89 3.51 1.22 187.94%
P/TBV 5.83 1.70 0.94 2.91 5.55 - 16.20 5.01 1.22 4.79 2.91 64.60%
P/OCF 12.10 7.20 7.09 4.39 8.28 7.56 8.86 5.16 4.00 6.57 7.15 -8.08%
P/FCF 21.50 18.81 33.33 11.74 26.01 8.49 14.12 - - 18.75 16.47 13.88%

For this analysis, P/FCF is the preferred multiple to use for valuation as it is Direct Valuation Estimate
shown to have the lowest difference between the mean and median. P/OCF
is a more comparable multiple than P/FCF because companies in the sector Trailing Twleve Months, as of 11/13/18
take on significant capital expenditures for new projects at different times. P/FCF P/E
However, MMP trades has substantially larger P/OCF than any other Median of Comps 16.47 12.17
comparable and thus is an outlier. Therefore, the P/FCF multiple allows for MMP Value Driver 2.90 5.50
a more comparable valuation across the eight prime comparables.
Additionally, the P/E ratio was used as it is the most widely quoted and used Estimated Value $ 47.76 $ 66.94
price multiple.

Indirect Valuation
The indirect valuation method using the same five firms was also performed. Three enterprise value multiples, EV/S,
EV/EBITDA, and EV/EBIT were collected and placed into the table below. EV/EBITDA is the preferred multiple among
valuation experts using the market approach to value firms in the oil, gas, & diversified energy industry. Summit Midstream
and Shell Midstream have EV/EBITDA multiples that are outliers. This has the effect of significantly distorting the difference
between the mean and median in our data set.
Indirect Valuation: Comparable Company Multiples
Trailing Twelve Months, as of 11/13/2018
MMP US SMLP US ENBL US EEP US KMI US SHLX US CQP US NS US ETP US MEAN MEDIAN DIFFERENCE
EV/S 6.95 5.16 3.19 7.17 5.45 10.44 5.44 3.77 1.81 5.30 5.30 0.07%
EV/EBITDA 13.70 39.20 10.98 11.35 13.09 25.52 13.63 11.35 10.70 16.98 12.22 38.93%
EV/EBIT 16.28 25.83 18.58 16.34 21.48 26.48 16.48 20.62 17.93 20.47 19.60 4.43%

Another comparison of multiples was performed after removing Summit Midstream and Shell Midstream. Below, we see that
the difference between the mean and median is much lower now. Taking the geometric average of the eight-company median
EV/EBITDA and the six-company mean EV/EBITDA yields us an expected exit multiple of roughly 12.00x. This
EV/EBITDA estimation is used as in exit multiple in the equity valuation step of our DCF forecasts.
Indirect Valuation: Comparable Company Multiples
Trailing Twelve Months, as of 11/13/2018
MMP US ENBL US EEP US KMI US CQP US NS US ETP US MEAN MEDIAN DIFFERENCE
EV/S 6.95 3.19 7.17 5.45 5.44 3.77 1.81 4.47 4.61 -2.90%
EV/EBITDA 13.70 10.98 11.35 13.09 13.63 11.35 10.70 11.85 11.35 4.41%
EV/EBIT 16.28 18.58 16.34 21.48 16.48 20.62 17.93 18.57 18.26 1.73%

EV/EBITDAX is the industry standard multiple; the "X" denotes Exploration & Production (E&P) costs. Midstream MLPs
such as Magellan Midstream include any incurred E&P costs in Depreciation & Depletion. Thus, EV/EBITDA is the multiple
we used. Firms in the sector typically have very large D&A and various tax structures, which is why valuation experts prefer to
use EBITDA(X) multiples for valuation. Other common valuation metrics industry experts employ include EV/Production or
EV/Proved Reserve Quantities. These valuation metrics are not applicable to the Target as Magellan Midstream solely
facilitates the gathering, transportation, and processing of petroleum products and their derivatives.

Analyst: Kevin Heymann, ASK Research 9 of 21

 Magellan Midstream Partners LP 2018 2019 2020 2021 2022 2023 Revenue: Growth in the industry has historically been cyclical. The 2014-2015 oil
crisis forced companies across the oil, gas, & diversified energy value chain to pare
5 Year Discounted Cash Flow Forecast FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 back excessive capital expenditure and divest non-performing assets to focus on
2643.6 2713.0 2902.9 3106.1 3323.5 3489.7 core assets. This particularly notable in Magellan Midstream's ∆ in capital
Revenue[1]
expenditures over the last seven years. The global rebound of commodity and the
% Revenue Growth 5.4% 2.6% 7.0% 7.0% 7.0% 5.0% pruning of non-core assets has fueled some growth in the midstream sector.
EBITDA 1402.3 1383.6 1480.5 1584.1 1695.0 1779.8 Revenue growth primarily is organic and is fueled by enhancement of pipeline
EBITDA Margin 53.0% 51.0% 51.0% 51.0% 51.0% 51.0% distribution capacity and new projects. The Target recently divested of its interest
in the BridgeTex asset to redeploy that capital in a new, larger project called the
Depreciation & Amortization 239.2 217.0 232.2 279.6 299.1 314.1 Permian Gulf Coast pipeline. Magellan has $2.5bn of other projects in the pipeline,
D&A/Sales 9.0% 8.0% 8.0% 9.0% 9.0% 9.0% ranging from crude oil transport pipelines to more versatile natural gas pipelines.
Analyst revenue growth has declined primarily stemming from uncertainty

Analyst: Kevin Heymann, ASK Research

EBIT 1163.1 1166.6 1248.3 1304.6 1395.9 1465.7 surrounding the lowered C-Corp tax rate and increased competitiveness in the
space.
EBIT Margin 44.0% 43.0% 43.0% 42.0% 42.0% 42.0%
Historical 3-Yr CAGR revenue growth comes in at 7.0%, while 7-Yr growth hits
Taxes[2] 5.0 5.8 6.2 6.5 7.0 7.3
6.3%. We believe, given the undersupply in the Midwestern oil space and the large
Effective Tax Rate 0.4% 0.5% 0.5% 0.5% 0.5% 0.5% project pipeline, that Magellan will be able to fuel 7.0% growth in 2020-2022.
Revenue, which although less sensitive than other firms in the industry, is
EBIAT 1158.1 1153.0 1233.7 1289.0 1379.3 1448.2 historically subject to the ebbs and flows of the commodity market. 5.0% growth
EBIAT Margin 43.8% 42.5% 42.5% 41.5% 41.5% 41.5% in 2023 is a solid step-down figure that gives us flexibility in our forecast and a
solid transition to its projected long-term growth rate.
Depreciation & Amortization 239.2 217.0 232.2 279.6 299.1 314.1
D&A/Sales 9.0% 8.0% 8.0% 9.0% 9.0% 9.0% EBITDA: Target EBITDA margins have averaged 51.0% and 46.6% over the past
3 and 7 years, respectively. Magellan historically has among the most conservative
Capital Expenditures 64.8 (379.8) (522.5) (683.3) (598.2) (488.6) balance sheets in the midstream MLP space, and the pruning of debt to focus on
core investments is noticeable over the last seven years. We believe EBITDA
CapEx/Sales 2.5% -14.0% -18.0% -22.0% -18.0% -14.0% margins will flatten and in line with the 3-Yr average of 51.0%.
Less: Inc (Dec) in Net Working Capital (28.4) 27.1 29.0 31.1 33.2 34.9 Depreciation & Amortization: As Magellan has already pared back excessive
NWC/Sales -1.1% 1.0% 1.0% 1.0% 1.0% 1.0% capital expenditures, we expect D&A to stay flat as we have seen so far TTM in
2018. Company D&A/Sales has averaged 7.9% and 7.5% over the past 3 and 7
Unlevered Free Cash Flow to the Firm 1433.7 1017.4 972.5 916.3 1113.4 1308.6 years, respectively. D&A is expected to stay in line with historical levels of
Unlevered FCF to Firm/Sales 54.2% 37.5% 33.5% 29.5% 33.5% 37.5% approximately 8.0% until 2021, when it jumps to 9.0%. The jump is resultant of
expected pipeline projects coming online and thus incurring depreciation expenses.
Present Value of Unlevered FCF to the Firm[3] 977.6 862.9 750.7 842.3 914.1
Weighted Average Cost of Capital 8.3% 8.3% 8.3% 8.3% 8.3% EBIT: Forecasted margins are expected to fall in line with the historical 3-Yr
average EBIT Margins of roughly 42-43%. The margin is lowered slightly in 2021
[1] 2018 and 2019 revenue assumptions come from aggregate analyst estimates. and forward due to increased D&A.
[2] Magellan Midstream Partners is an MLP, therefore it is not taxed at the partnership level. Rather, individual investors receive a K-1 and are
taxed at the personal level.
Taxes: See note [2]. Almost all cash distributable to investors is passed through
[3] Present value calculation assumes the mid-year convention.
assuming the MLP stays in compliance with Section 7704 of the IRS Code.
Investors receive a K-1 and are taxed at the partnership rate. This advantage has
Exit Multiple: EV/EBITDAX is the industry standard multiple, the "X" denoting Exploration & Production (E&P) costs. been significantly lessened due to the lowering of U.S. C-Corp taxes rates from
Midstream MLPs such as Magellan Midstream include any incurred E&P costs in Depreciation & Depletion. Thus, 35% to 21% in 2017.
EV/EBITDA is the multiple we used. Further, EV/EBITDA had a high difference between the mean and median before
adjustment. After adjustment this difference was low. Taking the median of the pre-adjusted EV/EBITDA of comps, and the
DISCOUNTED CASH FLOW ANALYSIS & VALUATION

Capital Expenditures: Magellan has historically maintained prudent capital

mean of the adjusted EV/EBITDA of comps gives us an expected exit multiple of 12.00x. Sensitivity analysis based on this
multiple follow.
Gordon Growth Model: Magellan Midstream has grown revenue respectably since 2016 considering the wild swings of 24.4%
growth in 2014 and -7.3% growth in 2015. We believe management is on the correct strategic track and the Company will
continue to generate robust revenue growth. Given the revenue volatility seen in the industry due to fluctuations in commodity
prices, increasing competitiveness in the sector, and Magellan's comparatively low WACC, we see 3% long term growth as a
strong forecast.
budgeting and a low EBITDA/Debt ratio. Capital Expenditures flipped positive
due in part to the divestment of the BridgeTex interest. We expect Capital
Expenditures to grow into 2021, due to the $2.5bn project pipeline, before falling
back to slightly under the 7-Yr average of 17.8%.
Net Working Capital: Averaging the 3-Yr and 7-Yr historical averages yields us a
Net Working Capital average of 0.2%. Net Working Capital has decreased over the
past three years due to asset divestitures. We forecast Net Working Capital will
increase 1.0% a year going forward as Magellan Midstream pushes through the
$2.5bn of projects in the pipeline.

10 of 21
DISCOUNTED CASH FLOW ANALYSIS & VALUATION
Comparison of Terminal Value and Price Per Share: Exit Multiple vs. Gordon Growth

Terminal Value: Exit Multiple Terminal Value: Gordon Growth

Forecasted 2023 EBITDA $ 1,780 Terminal Free Cash Flow $ 1,309
Approx. Median EV/EBITDA of Comps 12.00 Terminal WACC 8.30%
Estimated Terminal Enterprise Value $ 21,357 Long Term Growth Rate 3.00%
Estimated Terminal Enterprise Value $ 25,432
Present Value of Terminal Enterprise Value $ 14,335
Present Value of Unlevered FCF to the Firm 4,348 Present Value of Terminal Value $ 17,070
Estimated Present Enterprise Value $ 18,683 Present Value of Unlevered FCF to the Firm 4,348
Estimated Present Enterprise Value $ 21,418

Implied Equity Value: Exit Multiple Implied Equity Value: Gordon Growth
Estimated Present Enterprise Value $ 18,683 Estimated Present Enterprise Value $ 21,418
Plus: Cash and Cash Equivalents 217 Plus: Cash and Cash Equivalents 217
Less: Short Term Debt (251) Less: Short Term Debt (251)
Less: Long Term Debt (4,274) Less: Long Term Debt (4,274)
Less: Pension Liabilities (111) Less: Pension Liabilities (111)
Less: Other Long Term Liabilities (43) Less: Other Long Term Liabilities (43)
Less: Preferred Stock - Less: Preferred Stock -
Less: Non-Controlling Interest - Less: Non-Controlling Interest -
Implied Equity Value (Market Cap) $ 14,221 Implied Equity Value (Market Cap) $ 16,956
Fully Diluted Shares Outstanding 228.2 Fully Diluted Shares Outstanding 228.2
Implied Price Per Share $ 62.32 Implied Price Per Share $ 74.30

Comparison of Computed Valuation to Comparison of Computed Valuation to

Market Value Market Value
As of 11/13/2018 As of 11/13/2018
MMP Equity Price MMP Equity Price
High (52 Week) 75.82 High (52 Week) 75.82
Low (52 Week) 54.82 Low (52 Week) 54.82
Average (52 Week) 67.38 Average (52 Week) 67.38
EBITDA Exit Multiple 62.32 EBITDA Exit Multiple 62.32
Gordon Growth Model 74.30 Gordon Growth Model 74.30

Items to Note
▪ As of 11/13/2018 Magellan Midstream Partner’s equity market value is $61.13.
▪ The industry standard EV/EBITDA multiple valuation method yields an intrinsic share price of $62.32.
▪ The Gordon Growth valuation method, even with a relatively conservative long-term growth rate, yields a higher
valuation of $74.30 per share. Magellan Midstream went public in 2001 and is a stable company. Thus, we do not
believe the H-Model to be as accurate a predictor of value as the Gordon Growth valuation method.
▪ Our EV/EBITDA valuation represents a 1.95% premium to the recently traded price. Reasons for the deviation
include normal market fluctuations, the recent downturn in global commodity prices, and an exit EV/EBITDA
multiple that is 1.70x lower than what shares recently traded for.
▪ Our Gordon Growth valuation represents a 21.54% premium to the recently traded price. Reasons for the deviation
include normal market fluctuations, the Target’s low WACC, and higher revenue growth expectations after 2019 than
analysts likely estimate.
Analyst: Kevin Heymann, ASK Research 11 of 21
ADJUSTED DISCOUNTED CASH FLOW ANALYSIS & VALUATION
Magellan Midstream Partners LP 2018 2019 2020 2021 2022 2023
Adjusted 5 Year Discounted Cash Flow Forecast FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31
Revenue[1] 2643.6 2713.0 2902.9 3106.1 3323.5 3489.7
% Revenue Growth 5.4% 2.6% 7.0% 7.0% 7.0% 5.0%

EBITDA 1402.3 1465.0 1567.6 1739.4 1861.2 1954.2

EBITDA Margin 53.0% 54.0% 54.0% 56.0% 56.0% 56.0%

Depreciation & Amortization 239.2 217.0 232.2 279.6 299.1 314.1

D&A/Sales 9.0% 8.0% 8.0% 9.0% 9.0% 9.0%

EBIT 1163.1 1248.0 1335.3 1459.9 1562.1 1640.2

EBIT Margin 44.0% 46.0% 46.0% 47.0% 47.0% 47.0%

Taxes[2] 5.0 6.2 6.7 7.3 7.8 8.2

Effective Tax Rate 0.4% 0.5% 0.5% 0.5% 0.5% 0.5%

EBIAT 1158.1 1234.4 1320.8 1444.3 1545.4 1622.7

EBIAT Margin 43.8% 45.5% 45.5% 46.5% 46.5% 46.5%

Depreciation & Amortization 239.2 217.0 232.2 279.6 299.1 314.1

D&A/Sales 9.0% 8.0% 8.0% 9.0% 9.0% 9.0%

Capital Expenditures 64.8 (325.6) (464.5) (559.1) (531.8) (418.8)

CapEx/Sales 2.5% -12.0% -16.0% -18.0% -16.0% -12.0%

Less: Inc (Dec) in Net Working Capital (28.4) (27.1) (29.0) (31.1) (33.2) (34.9)
NWC/Sales -1.1% -1.0% -1.0% -1.0% -1.0% -1.0%

Unlevered Free Cash Flow to the Firm 1433.7 1098.8 1059.6 1133.7 1279.6 1483.1
Unlevered FCF to Firm/Sales 54.2% 40.5% 36.5% 36.5% 38.5% 42.5%

Present Value of Unlevered FCF to the Firm[3] 1047.6 918.4 893.4 916.6 965.9
Weighted Average Cost of Capital 10.0% 10.0% 10.0% 10.0% 10.0%
[1] 2018 and 2019 revenue assumptions come from aggregate analyst estimates.
[2] Magellan Midstream Partners is an MLP, therefore it is not taxed at the partnership level. Rather, individual investors receive a K-1 and are
taxed at the personal level.
[3] Present value calculation assumes the mid-year convention.

Items to Note
▪ Adjustments were made to include the Acquirer’s WACC at 10.0%, up from the Target’s 8.3% WACC. This had the
effect of lowering the sum of the line titled Present Value of Unlevered FCF to the Firm. Further, Gordon Growth
valuation was affected negatively.
▪ As a result of enhanced operating synergies, thereby lowering operating costs, EBITDA margin is expected to be 3%
higher in 2019 and 2020. The value of this synergy increases to 5% after 2020 due to the competed integration of
Magellan Midstream into the Royal Dutch Shell portfolio.
▪ Further, the long-term growth rate used in the Gordon Growth valuation was increased to 4% from 3% for two
reasons.
▪ First, the addition of Royal Dutch Shell’s higher WACC increased the value of the denominator, having the
effect of reducing equity valuation.
▪ Second, expected revenue synergies stemming from Royal Dutch Shell ownership are greater than previously
forecasted over the long-term. However, we do not expect to see a significant deviance from our original
forecasted revenue growth in the short-medium term.

Analyst: Kevin Heymann, ASK Research 12 of 21

ADJUSTED DISCOUNTED CASH FLOW ANALYSIS & VALUATION
Comparison of Adjusted Terminal Value and Price Per Share: Exit Multiple vs. Gordon Growth
Adjusted Terminal Value: Exit Multiple Adjusted Terminal Value: Gordon Growth
Forecasted 2023 EBITDA $ 1,954 Terminal Free Cash Flow $ 1,483
Approx. Median EV/EBITDA of Comps 12.00 Terminal WACC 10.00%
Estimated Terminal Enterprise Value $ 23,451 Long Term Growth Rate 4.00%
Estimated Terminal Enterprise Value $ 25,708
Present Value of Terminal Enterprise Value $ 14,561
Present Value of Unlevered FCF to the Firm 4,742 Present Value of Terminal Enterprise Value $ 15,962
Estimated Present Enterprise Value $ 19,303 Present Value of Unlevered FCF to the Firm 4,742
Estimated Present Enterprise Value $ 20,704

Adjusted Implied Equity Value: Exit Multiple Adjusted Implied Equity Value: Gordon Growth
Estimated Present Enterprise Value $ 19,303 Estimated Present Enterprise Value $ 20,704
Plus: Cash and Cash Equivalents 217 Plus: Cash and Cash Equivalents 217
Less: Short Term Debt (251) Less: Short Term Debt (251)
Less: Long Term Debt (4,274) Less: Long Term Debt (4,274)
Less: Pension Liabilities (111) Less: Pension Liabilities (111)
Less: Other Long Term Liabilities (43) Less: Other Long Term Liabilities (43)
Less: Preferred Stock - Less: Preferred Stock -
Less: Non-Controlling Interest - Less: Non-Controlling Interest -
Implied Equity Value (Market Cap) $ 14,841 Implied Equity Value (Market Cap) $ 16,242
Fully Diluted Shares Outstanding 228.2 Fully Diluted Shares Outstanding 228.2
Implied Price Per Share $ 65.04 Implied Price Per Share $ 71.18

Comparison of Adjusted Computed Comparison of Adjusted Computed

Valuation to Market Value Valuation to Market Value
As of 11/13/2018 As of 11/13/2018
MMP Equity Price MMP Equity Price
High (52 Week) 75.82 High (52 Week) 75.82
Low (52 Week) 54.82 Low (52 Week) 54.82
Average (52 Week) 67.38 Average (52 Week) 67.38
Adj. EBITDA Exit Multiple 65.04 Adj. EBITDA Exit Multiple 65.04
Adj. Gordon Growth Model 71.18 Adj. Gordon Growth Model 71.18

Items to Note
▪ As of 11/13/2018 Magellan Midstream Partner’s equity market value is $61.13.
▪ The industry standard EV/EBITDA multiple valuation method yields an intrinsic share price of $65.04.
▪ The Gordon Growth valuation method, even with a more aggressive long-term growth rate, yields lower valuation of
$71.18 per share. Magellan Midstream went public in 2001 and is a stable company. Thus, we do not believe the H-
Model to be as accurate a predictor of value as the Gordon Growth valuation method.
▪ Our EV/EBITDA valuation represents a 6.40% premium to the recently traded price. Reasons for the deviation
include normal market fluctuations, the recent downturn in global commodity prices, and an exit EV/EBITDA
multiple that is 1.70x lower than what shares recently traded for.
▪ Our Gordon Growth valuation represents a 16.44% premium to the recently traded price. Reasons for the deviation
include normal market fluctuations, the Target’s low WACC, and higher revenue growth expectations after 2019 than
analysts likely estimate.

Analyst: Kevin Heymann, ASK Research 13 of 21

ADJUSTED DISCOUNTED CASH FLOW ANALYSIS & VALUATION
Sensitivity Analysis of Adjusted Terminal Value: Exit Multiple vs. Gordon Growth

Sensitivity Analysis of Adjusted Terminal Value: Exit Multiple

EV/EBITDA Exit Multiple
$ 65.04 9.00 9.50 10.00 10.50 11.00 11.50 12.00 12.50 13.00 13.50 14.00 14.50 15.00
7.50% 55.37 58.36 61.34 64.32 67.31 70.29 73.27 76.25 79.24 82.22 85.20 88.18 91.17
8.00% 54.05 56.96 59.87 62.79 65.70 68.62 71.53 74.45 77.36 80.27 83.19 86.10 89.02
8.50% 52.75 55.60 58.45 61.30 64.15 66.99 69.84 72.69 75.54 78.38 81.23 84.08 86.93
9.00% 51.50 54.28 57.06 59.85 62.63 65.41 68.19 70.98 73.76 76.54 79.33 82.11 84.89
9.50% 50.27 52.99 55.71 58.43 61.15 63.87 66.59 69.31 72.03 74.75 77.47 80.19 82.91
10.00% 49.08 51.74 54.40 57.06 59.72 62.38 65.04 67.69 70.35 73.01 75.67 78.33 80.99
WACC

10.50% 47.93 50.52 53.12 55.72 58.32 60.92 63.52 66.12 68.72 71.32 73.92 76.52 79.11
11.00% 46.80 49.34 51.88 54.42 56.96 59.50 62.04 64.59 67.13 69.67 72.21 74.75 77.29
11.50% 45.70 48.18 50.67 53.15 55.64 58.12 60.61 63.09 65.58 68.06 70.55 73.03 75.52
12.00% 44.63 47.06 49.49 51.92 54.35 56.78 59.21 61.64 64.07 66.50 68.93 71.36 73.79
12.50% 43.59 45.97 48.34 50.72 53.10 55.47 57.85 60.22 62.60 64.98 67.35 69.73 72.10
13.00% 42.58 44.90 47.23 49.55 51.87 54.20 56.52 58.85 61.17 63.49 65.82 68.14 70.47
13.50% 41.59 43.86 46.14 48.41 50.68 52.96 55.23 57.50 59.78 62.05 64.32 66.60 68.87
14.00% 40.63 42.85 45.08 47.30 49.52 51.75 53.97 56.20 58.42 60.64 62.87 65.09 67.31

Sensitivty Analysis of Adjusted Terminal Value: Gordon Growth

Long Term Growth Rate
$ 71.18 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00%
7.50% 46.50 49.12 52.03 55.29 58.95 63.10 67.84 73.31 79.70 87.24 96.30 107.36 121.20
8.00% 45.46 48.02 50.87 54.05 57.62 61.68 66.31 71.66 77.90 85.27 94.12 104.93 118.44
8.50% 44.45 46.95 49.73 52.84 56.34 60.30 64.83 70.05 76.15 83.35 92.00 102.56 115.77
9.00% 43.47 45.91 48.63 51.67 55.08 58.96 63.38 68.49 74.44 81.48 89.93 100.26 113.17
9.50% 42.51 44.90 47.56 50.53 53.87 57.65 61.98 66.97 72.79 79.67 87.93 98.02 110.63
10.00% 41.58 43.92 46.51 49.42 52.68 56.38 60.61 65.49 71.18 77.90 85.97 95.84 108.17
WACC

10.50% 40.68 42.96 45.50 48.34 51.53 55.14 59.28 64.04 69.61 76.18 84.07 93.72 105.77
11.00% 39.80 42.03 44.51 47.28 50.40 53.94 57.98 62.64 68.08 74.51 82.22 91.65 103.44
11.50% 38.94 41.12 43.55 46.26 49.31 52.77 56.72 61.28 66.60 72.88 80.42 89.64 101.17
12.00% 38.11 40.24 42.61 45.26 48.25 51.63 55.49 59.95 65.15 71.30 78.67 87.69 98.96
12.50% 37.29 39.38 41.70 44.29 47.21 50.52 54.30 58.66 63.74 69.75 76.97 85.78 96.80
13.00% 36.50 38.54 40.81 43.35 46.20 49.44 53.13 57.40 62.37 68.25 75.31 83.93 94.71
13.50% 35.73 37.73 39.95 42.43 45.22 48.38 52.00 56.17 61.04 66.79 73.69 82.12 92.67
14.00% 34.98 36.94 39.11 41.53 44.27 47.36 50.90 54.98 59.74 65.36 72.11 80.36 90.68

Items to Note
▪ The computed valuation share price for EV/EBITDA and Gordon Growth are circled based on the forecasted exit
multiple or long-term growth rate.
▪ For EV/EBITDA, the most positive scenario yields a share price of $91.17 at a WACC of 7.50% and an
EV/EBITDA exit multiple of 15.00x. The most negative scenario sees a share price of $40.63 at a WACC of 14.00%
and an EV/EBITDA exit multiple of 9.00x.
▪ On the flipside, the Gordon Growth sensitivity analysis yields a share price of $121.20 in the most favorable instance.
WACC would have to be 7.50% and the long-term growth rate would have to be a lofty 6.00%. The most unfavorable
instance sees a share price of $34.98 at a WACC of 14.00% and a long-term growth rate of 0.00%.
▪ The two variables in the above sensitivity analysis of our Gordon Growth valuation, WACC and long-term growth
rate, are shown with more latitude to increase due to various economic developments.
▪ Various economic developments include rising U.S. and global GDP, increasing inflation in the U.S., and the dual
headwinds of tapering of global quantitative easing and rising interbank interest rates. We expect firm WACC’s across
all U.S. business to increase resultant of rising interest rates and the reduced value of the interest tax shield.

Analyst: Kevin Heymann, ASK Research 14 of 21

DISCUSSION OF PROPOSED ACQUISITION
Acquisition Thesis
Magellan Midstream Partners presents a unique opportunity for Royal Comparison of Computed Valuation to
Dutch Shell as an M&A play. Shares of U.S. midstream MLPs are
currently depressed due to the lowering of the U.S. C-Corp tax rate Market Value
from 35% to 21%, a downturn in global commodity prices, and As of 11/13/2018, in USD
increased competition for projects. The Acquirer can take advantage of MMP Equity Price
increased competition thanks to its tremendous size and robust
High (52 Week) 75.82
negotiating power, which will help the Target compete for a wider array
of projects. Potential synergies and risk mitigation strategies necessary Low (52 Week) 54.82
for due diligence prior to acquisition have been discussed in detail. The Average (52 Week) 67.38
potential synergies and exposure to several booming markets is a grand
EBITDA Exit Multiple 62.32
opportunity and one obtainable at a discount.
Gordon Growth Model 74.30
The average computed value of the six valuations come out to $3.46 Adj. EBITDA Exit Multiple 65.04
higher than current market value. Our conservative valuation leads us
to believe the true intrinsic value of a share is between $65.00 and Adj. Gordon Growth Model 71.18
$75.00, considering current commodity prices and other headwinds. P/FCF Expected Value 47.76
P/E Expected Value 66.94
Given that Magellan Midstream has meandered around its 52 Week
Low over the last couple months, we believe an initial tender offer of Average Computed Value 64.59
$72.50 will appease investors. The 52 Week High of $74.30 was Current Market Value 61.13
achieved during a bull run in crude oil and recent developments in the
industry lead us to believe that the 52-Week High is at least 6-9 months away, conditional upon WTI crude oil rebounding and
stabilizing in the $60-70 range.

The Acquirer has built up enough Cash, Cash Equivalents, & Short-Term Investments to fund the acquisition entirely through
equity. The Acquirer’s Cash Account is in the Selected Financial Data of the Acquirer section on page 16. One advantage of
this is keeping the Acquirer’s debt gearing ratio on track to reach its stated 20% target. A disadvantage of this strategy is the
deal structure would draw down on a liquid asset. The Acquirer would be wise to fund the purchase with at least 40% debt to
reduce the blow to the Cash Account and lower the effective opportunity cost of the acquisition. It is imperative the Acquirer
ensures the Target stays in compliance with all appropriate regulations that allow the Target to continue operations as an MLP.

Additional Strategy for Acquisition Team to Consider

An additional strategy we have devised for the Royal Dutch Shell acquisition team to consider is to build multiple equity stakes
of greater than 20% in several US midstream MLPs. Royal Dutch Shell spun off its predominantly U.S. based midstream
operations in 2014 into Shell Midstream Partners (U.S.: NYSE SHLX). The Acquirer may not find buying back into U.S.
midstream MLP space attractive at this time, despite clear-cut cash flow enhancement opportunities and cost synergies.

Advantages of this strategy include:

▪ Cheaper than buying Magellan Midstream Partners outright.
▪ Significantly less regulatory scrutiny from applicable U.S. and EU regulatory bodies.
▪ Acquirer obtains more exposure to Mid-Continent shale plays in a more liquid and diversified manner.

Disadvantages of this strategy include:

▪ Challenge in building large equity stakes without drawing industry and media attention. Additionally, foreign
investors must meet esoteric, stringent criteria to invest in U.S. MLPs.
▪ Smaller investment would not create the same magnitude of synergies and enhancements with the Acquirer’s
existing Gulf of Mexico assets as a full acquisition would.
▪ The Acquirer is an integrated oil and petrochemical firm and not a hedge fund masquerading as an oil & gas
company.

Midstream MLPs that offer attractive dividend yields and exposure to the various shale rich regions in the Mid-Continent oil
province include Energy Transfer Partners LP (U.S.: NYSE ETP), Enbridge Energy Partners LP (U.S.: NYSE EEP), and
Summit Midstream Partners LP (U.S.: NYSE SMLP). Magellan Midstream Partners is the most attractive of the previous
three for reasons described herein, however the company is not the only attractive option in a field of competitive players.
Analyst: Kevin Heymann, ASK Research 15 of 21
SELECTED FINANCIAL DATA OF THE ACQUIRER
Royal Dutch Shell Plc 2011 2012 2013 2014 2015 2016 2017 2018
Historical Operating Statement FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 TTM 9/30 Historical CAGR[2] Historical Average[2]
Revenue 470171 467153 451235 421105 264960 233591 305179 371573 7 Year 3 Year 7 Year 3 Year
Revenue Growth (%) - -0.6% -3.4% -6.7% -37.1% -11.8% 30.6% 29.0% -3.4% 13.1% 0.0% 2.7%

EBITDA 50635 55012 47981 40392 22912 28116 46606 50491

EBITDA Margin 10.8% 11.8% 10.6% 9.6% 8.6% 12.0% 15.3% 13.6% 0.0% 33.3% 11.5% 12.4%

Depreciation & Amortization 9898 12005 11865 14535 22082 23395 26223 15707
D&A/Sales 2.1% 2.6% 2.6% 3.5% 8.3% 10.0% 8.6% 4.2% 7.1% -11.7% 5.2% 7.8%

EBIT 40737 43007 36116 25857 830 4721 20383 34784

EBIT Margin 8.7% 9.2% 8.0% 6.1% 0.3% 2.0% 6.7% 9.4% -2.3% 288.9% 6.3% 4.6%
[1]
Taxes 24475 23552 17066 13584 -153 829 4695 12069
Effective Tax Rate 60.1% 54.8% 47.3% 52.5% -18.4% 17.6% 23.0% 34.7% -9.9% 288.9% 33.9% 14.2%

EBIAT 16262 19455 19050 12273 983 3892 15688 22715

EBIAT Margin 3.5% 4.2% 4.2% 2.9% 0.4% 1.7% 5.1% 6.1% 5.1% 213.2% 3.5% 3.3%

Depreciation & Amortization 9898 12005 11865 14535 22082 23395 26223 15707
D&A/Sales 2.1% 2.6% 2.6% 3.5% 8.3% 10.0% 8.6% 4.2% 7.1% -11.7% 5.2% 7.8%

Capital Expenditures (19311) (26230) (38933) (21891) (21411) (20044) (12037) (16459)
CapEx/Sales -4.1% -5.6% -8.6% -5.2% -8.1% -8.6% -3.9% -4.4% -2.3% -9.1% -6.1% -6.3%

Less: Inc (Dec) in Net Working Capital (6471) 3391 2988 6405 5521 (6289) (3158) (6780)
NWC/Sales -1.4% 0.7% 0.7% 1.5% 2.1% -2.7% -1.0% -1.8% -0.7% 7.8% -0.2% -0.9%

Unlevered Free Cash Flow to the Firm 378 8621 -5030 11322 7175 954 26716 15183
Unlevered FCF to Firm/Sales 0.1% 1.8% -1.1% 2.7% 2.7% 0.4% 8.8% 4.1% 72.8% 31.3% 2.4% 4.0%
[1] Royal Dutch Shell operates internationally and is subject to varying degrees of taxation. After the 2014-2015 oil crisis firms in the industry were able to utilize NOL carryforwards,
distorting the average effective tax rate.
[2] 7 Year is defined as the period from 2011 to 2018. 3 Year is defined as the period from 2015 to 2018.

Royal Dutch Shell PLC (RDSA LN) - Standardized

In Millions of USD except Per Share FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 FY 2011
12 Months Ending 12/31/2017 12/31/2016 12/31/2015 12/31/2014 12/31/2013 12/31/2012 12/31/2011
Total Assets
Cash, Cash Equivalents & STI 20,312.0 19,130.0 31,752.0 21,607.0 9,696.0 18,550.0 11,292.0
Cash & Cash Equivalents 20,312.0 19,130.0 31,752.0 21,607.0 9,696.0 18,550.0 11,292.0
ST Investments 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Accounts & Notes Receiv 30,721.0 25,766.0 20,607.0 28,393.0 39,094.0 40,210.0 48,307.0
Accounts Receivable, Net 30,721.0 25,766.0 20,607.0 28,393.0 39,094.0 40,210.0 48,307.0
Notes Receivable, Net 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Inventories 25,223.0 21,775.0 15,822.0 19,701.0 30,009.0 30,781.0 28,976.0
Raw Materials 2,261.0 2,122.0 1,745.0 1,859.0 1,797.0 1,564.0 1,633.0
Work In Process 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Finished Goods 22,962.0 19,653.0 14,077.0 17,842.0 28,212.0 29,217.0 27,343.0
Other Inventory 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other ST Assets 19,148.0 19,898.0 25,177.0 30,077.0 24,544.0 25,193.0 31,202.0
Prepaid Expenses 3,940.0 4,210.0 3,262.0 — — — —
Derivative & Hedging Assets 5,304.0 5,957.0 13,114.0 14,037.0 6,445.0 9,191.0 16,394.0
Misc ST Assets 9,904.0 9,731.0 8,801.0 16,040.0 18,099.0 16,002.0 14,808.0
Total Current Assets 95,404.0 86,569.0 93,358.0 99,778.0 103,343.0 114,734.0 119,777.0
Property, Plant & Equip, Net 226,380.0 236,098.0 182,838.0 192,472.0 191,897.0 172,293.0 152,081.0
Property, Plant & Equip 424,069.0 425,257.0 361,923.0 364,199.0 371,115.0 325,753.0 295,557.0
Accumulated Depreciation 197,689.0 189,159.0 179,085.0 171,727.0 179,218.0 153,460.0 143,476.0
LT Investments & Receivables 7,222.0 5,952.0 3,416.0 4,115.0 4,715.0 4,867.0 5,492.0
LT Investments 7,222.0 5,952.0 3,416.0 4,115.0 4,715.0 4,867.0 5,492.0
Other LT Assets 78,091.0 82,656.0 60,545.0 56,751.0 57,557.0 58,400.0 67,907.0
Total Intangible Assets 24,180.0 23,967.0 6,283.0 7,076.0 4,394.0 4,470.0 4,521.0
Goodwill 13,662.0 12,987.0 2,010.0 2,396.0 2,563.0 2,615.0 2,620.0
Other Intangible Assets 10,518.0 10,980.0 4,273.0 4,680.0 1,831.0 1,855.0 1,901.0
Prepaid Expense 1,623.0 1,407.0 1,695.0 1,651.0 1,803.0 1,937.0 1,686.0
Deferred Tax Assets 13,791.0 14,425.0 11,033.0 8,131.0 5,785.0 4,288.0 4,732.0
Derivative & Hedging Assets 919.0 405.0 744.0 703.0 1,772.0 1,882.0 1,615.0
Prepaid Pension Costs 2,799.0 1,456.0 4,362.0 1,682.0 3,574.0 2,301.0 11,408.0
Investments in Affiliates 29,254.0 35,765.0 32,410.0 33,770.0 37,197.0 40,980.0 40,570.0
Misc LT Assets 5,525.0 5,231.0 4,018.0 3,738.0 3,032.0 2,542.0 3,375.0
Total Noncurrent Assets 311,693.0 324,706.0 246,799.0 253,338.0 254,169.0 235,560.0 225,480.0
Total Assets 407,097.0 411,275.0 340,157.0 353,116.0 357,512.0 350,294.0 345,257.0

Analyst: Kevin Heymann, ASK Research 16 of 21

SELECTED FINANCIAL DATA OF THE TARGET
Magellan Midstream Partners LP 2011 2012 2013 2014 2015 2016 2017 2018
Historical Operating Statement FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 FY 12/31 TTM 9/30 Historical CAGR[2] Historical Average[2]
Revenue 1748.7 1772.1 1897.6 2360.4 2188.5 2205.4 2507.7 2634.2 7 Year 3 Year 7 Year 3 Year
Revenue Growth (%) - 1.3% 7.1% 24.4% -7.3% 0.8% 13.7% 6.7% 6.3% 7.0% 6.7% 3.5%

EBITDA 646.9 680.1 849.1 1143.2 1138.3 1132.1 1249.3 1342.3

EBITDA Margin 37.0% 38.4% 44.7% 48.4% 52.0% 51.3% 49.8% 51.0% 11.4% 6.2% 46.6% 51.0%

Depreciation & Amortization 121.2 128.0 142.3 161.7 166.8 178.1 196.6 212.2
D&A/Sales 6.9% 7.2% 7.5% 6.9% 7.6% 8.1% 7.8% 8.1% 8.7% 9.1% 7.5% 7.9%

EBIT 525.7 552.1 706.8 981.5 971.5 954.0 1052.7 1130.1

EBIT Margin 30.1% 31.2% 37.2% 41.6% 44.4% 43.3% 42.0% 42.9% 12.0% 5.7% 39.1% 43.1%
[1]
Taxes 1.9 2.6 4.6 4.6 2.3 3.2 3.8 4.8
Effective Tax Rate 0.4% 0.5% 0.7% 0.5% 0.2% 0.3% 0.4% 0.4% 14.7% 5.7% 0.4% 0.3%

EBIAT 523.8 549.5 702.2 976.9 969.2 950.8 1048.9 1125.3

EBIAT Margin 30.0% 31.0% 37.0% 41.4% 44.3% 43.1% 41.8% 42.7% 12.0% 5.6% 38.9% 43.0%

Depreciation & Amortization 121.2 128.0 142.3 161.7 166.8 178.1 196.6 212.2
D&A/Sales 6.9% 7.2% 7.5% 6.9% 7.6% 8.1% 7.8% 8.1% 8.7% 9.1% 7.5% 7.9%

Capital Expenditures (193.4) (353.1) (380.1) (352.5) (617.8) (666.6) (514.3) 64.8
CapEx/Sales -11.1% -19.9% -20.0% -14.9% -28.2% -30.2% -20.5% 2.5% 15.0% 56.0% -17.8% -19.1%

Less: Inc (Dec) in Net Working Capital 14.5 42.7 (0.7) 77.7 37.9 (41.8) (0.2) (28.4)
NWC/Sales 0.8% 2.4% 0.0% 3.3% 1.7% -1.9% 0.0% -1.1% -10.5% -10.0% 0.7% -0.3%

Unlevered Free Cash Flow to the Firm 466.1 367.1 463.7 863.8 556.1 420.5 731.0 1373.9
Unlevered FCF to Firm/Sales 26.7% 20.7% 24.4% 36.6% 25.4% 19.1% 29.2% 52.2% 17.4% 38.9% 29.3% 31.4%
[1] Magellan Midstream Partners is an MLP, therefore it is not taxed at the partnership level. Rather, individual investors receive a K-1 and are taxed at the personal level.
[2] 7 Year is defined as the period from 2011 to 2018. 3 Year is defined as the period from 2015 to 2018.

TARGET FIRM I II III IV V

MMP US EPD US KMI US SEP US SHLX US CNXM US
Magellan Midstream Enterprise Products Kinder Spectra Energy Shell Midstream CNX Midstream
Partners LP Partners LP Morgan Inc Partners LP Partners LP Partners LP
Currency USD USD USD USD USD USD
LTM Rev $ 2,634 $ 35,779 $ 13,995 $ 2,104 $ 601 $ 248
LTM Date 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018
2 Year Revenue $ 2,714 $ 39,179 $ 14,587 $ 3,044 $ 649 $ 348
2 Year Date 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019
LTM Gross Profit $ 1,490 $ 4,588 $ 4,276 $ 1,526 $ 334 $ 178
LTM EBITDA $ 1,342 $ 6,730 $ 6,311 $ 1,805 $ 288 $ 179
LTM EBIT $ 998 $ 3,991 $ 1,874 $ 1,056 $ 294 $ 110
LTM OCF $ 1,178 $ 6,122 $ 4,669 $ 1,726 $ 535 $ 172
LFY Disp $ 1,109 $ 4,666 $ 4,601 $ 1,610 $ 432 $ 156
LFY Acq $ (559) $ (3,148) $ (3,192) $ (1,888) $ (58) $ (48)
LFY FCF $ 550 $ 1,518 $ 1,409 $ (278) $ 374 $ 107
Rev Forecast Mo. 15 15 15 15 15 15
Rev Forecast Yrs. 1.25 1.25 1.25 1.25 1.25 1.25
Selected Value TARGET I II III IV V
Drivers Compared by Magellan Midstream Enterprise Products Kinder Spectra Energy Shell Midstream CNX Midstream
Firm Matrix Partners LP Partners LP Morgan Inc Partners LP Partners LP Partners LP
Value Drivers MMP US EPD US KMI US SEP US SHLX US CNXM US
Exp. Rev. Growth 2.4% 7.5% 3.4% 34.4% 6.3% 31.2%
Gross Profit Margin 56.6% 12.8% 30.6% 72.5% 55.5% 71.8%
EBITDA Margin 51.0% 9.1% 15.1% 85.8% 48.0% 72.4%
EBIT Margin 37.9% 4.5% 8.3% 50.2% 49.0% 44.5%
OCF Margin 44.7% 17.1% 33.4% 82.0% 89.1% 69.5%
FCF Margin 20.9% 4.2% 10.1% -13.2% 62.3% 43.3%

Analyst: Kevin Heymann, ASK Research 17 of 21

SELECTED FINANCIAL DATA OF THE TARGET
TARGET FIRM VI VII VIII IX X
MMP US CQP US DCP US EEP US ENBL US ET US
Magellan Midstream Cheniere Energy DCP Enbridge Energy Enable Midstream Energy Transfer
Partners LP Partners LP Midstream LP Partners LP Partners LP Operating LP
Currency USD USD USD USD USD USD
LTM Rev $ 2,634 $ 6,047 $ 9,594 $ 2,299 $ 3,287 $ 51,966
LTM Date 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018
2 Year Revenue $ 2,714 $ 6,311 $ 12,554 $ 2,362 $ 3,425 $ 59,043
2 Year Date 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019
LTM Gross Profit $ 1,490 $ 2,088 $ 547 $ 1,552 $ 1,391 $ 11,177
LTM EBITDA $ 1,342 $ 2,474 $ 679 $ 1,772 $ 960 $ 7,860
LTM EBIT $ 998 $ 1,245 $ 193 $ 392 $ 444 $ 2,724
LTM OCF $ 1,178 $ 1,728 $ 753 $ 1,049 $ 916 $ 6,666
LFY Disp $ 1,109 $ 977 $ 896 $ 500 $ 834 $ 4,429
LFY Acq $ (559) $ (1,290) $ (375) $ (606) $ (416) $ (8,444)
LFY FCF $ 550 $ (313) $ 521 $ (106) $ 418 $ (4,015)
Rev Forecast Mo. 15 15 15 15 15 15
Rev Forecast Yrs. 1.25 1.25 1.25 1.25 1.25 1.25
Selected Value TARGET VI VII VIII IX X
Drivers Compared by Magellan Midstream Cheniere Energy DCP Enbridge Energy Enable Midstream Energy Transfer
Firm Matrix Partners LP Partners LP Midstream LP Partners LP Partners LP Operating LP
Value Drivers MMP US CQP US DCP US EEP US ENBL US ET US
Exp. Rev. Growth 2.4% 3.5% 24.0% 2.2% 3.3% 10.8%
Gross Profit Margin 56.6% 34.5% 5.7% 67.5% 42.3% 21.5%
EBITDA Margin 51.0% 40.9% 7.1% 77.1% 29.2% 15.1%
EBIT Margin 37.9% 20.6% 2.0% 17.0% 13.5% 5.2%
OCF Margin 44.7% 28.6% 7.8% 45.6% 27.9% 12.8%
FCF Margin 20.9% -5.2% 5.4% -4.6% 12.7% -7.7%

Analyst: Kevin Heymann, ASK Research 18 of 21

SELECTED FINANCIAL DATA OF THE TARGET
TARGET FIRM XI XII XIII XIV XV
MMP US NGL US NS US PAA US SMLP US TCP US
Magellan Midstream NGL Energy NuStar Plains All American Summit Midstream TC Pipelines
Partners LP Partners LP Energy LP Pipeline LP Partners LP LP
Currency USD USD USD USD USD USD
LTM Rev $ 2,634 $ 22,077 $ 1,903 $ 32,875 $ 499 $ 438
LTM Date 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018 9/30/2018
2 Year Revenue $ 2,714 $ 19,036 $ 1,908 $ 38,585 $ 518 $ 465
2 Year Date 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019 12/31/2019
LTM Gross Profit $ 1,490 $ 643 $ 957 $ 2,054 $ 320 $ 233
LTM EBITDA $ 1,342 $ (37) $ 829 $ 1,780 $ 200 $ 493
LTM EBIT $ 998 $ (482) $ (308) $ 1,893 $ 97 $ 277
LTM OCF $ 1,178 $ 86 $ 459 $ 1,875 $ 229 $ 394
LFY Disp $ 1,109 $ 138 $ 407 $ 2,499 $ 238 $ 376
LFY Acq $ (559) $ (156) $ (385) $ (1,024) $ (124) $ (29)
LFY FCF $ 550 $ (19) $ 22 $ 1,475 $ 114 $ 347
Rev Forecast Mo. 15 15 15 15 15 15
Rev Forecast Yrs. 1.25 1.25 1.25 1.25 1.25 1.25
Selected Value TARGET XI XII XIII XIV XV
Drivers Compared by Magellan Midstream NGL Energy NuStar Plains All American Summit Midstream TC Pipelines
Firm Matrix Partners LP Partners LP Energy LP Pipeline LP Partners LP LP
Value Drivers MMP US NGL US NS US PAA US SMLP US TCP US
Exp. Rev. Growth 2.4% -11.2% 0.2% 13.7% 2.9% 4.9%
Gross Profit Margin 56.6% 2.9% 50.3% 6% 64% 53%
EBITDA Margin 51.0% -0.2% 43.6% 5% 40% 113%
EBIT Margin 37.9% -2.2% -16.2% 6% 19% 63%
OCF Margin 44.7% 0.4% 24.1% 6% 46% 90%
FCF Margin 20.9% -0.1% 1.2% 4% 23% 79%

Analyst: Kevin Heymann, ASK Research 19 of 21

SELECTED FINANCIAL DATA OF THE TARGET

Analyst: Kevin Heymann, ASK Research 20 of 21

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Analyst: Kevin Heymann, ASK Research 21 of 21