Crude Oil Acquisition and Marketing

Operating income for the third quarter 2012 increased compared to the prior year period due primarily to expanded crude oil margins which were the result of expansion in our crude oil trucking fleet, market related opportunities in West Texas and improved margins from the assets acquired from Texon L.P. in the third quarter of 2011.

Terminal Facilities

Operating income for the third quarter 2012 increased compared to the prior year period due primarily to increased operating results from the Partnership’s refined products acquisition and marketing activities and contributions from the 2011 acquisitions of the Eagle Point tank farm and a refined products terminal in East Boston, Massachusetts, partially offset by reduced volumes from the idling of Sunoco’s Marcus Hook refinery in the fourth quarter 2011.

Refined Products Pipelines

Operating income for the third quarter 2012 was consistent with the prior year period. The Partnership realized increased equity income for the quarter related to the Partnership’s joint venture interest in Explorer Pipeline Company due to a non-recurring gain associated with an asset sale. This increase was largely offset by lower pipeline revenues due primarily to the idling of Sunoco’s Marcus Hook refinery in the fourth quarter 2011.

Financing Update

Net interest expense decreased compared to the prior year period due to the repayment of $250 million of Senior Notes in February 2012 and the $100 million promissory note to Sunoco in the fourth quarter of 2011 and higher capitalized interest associated with the Partnership’s expansion capital program. At September 30, 2012, the Partnership’s total debt balance was $1.63 billion, with $179 million in borrowings under its revolving credit facilities including $9 million outstanding under West Texas Gulf’s revolving credit facility.

CAPITAL EXPENDITURES
 
Nine Months Ended
September 30,
2012   2011
(in millions)
 
Maintenance capital expenditures $ 29 $ 20
Expansion capital expenditures 206 102
Major acquisitions   -   494
Total $ 235 $ 616
 

The Partnership’s expansion capital spending for the nine months ended September 30, 2012 included projects to expand upon the Partnership’s refined products acquisition and marketing services, upgrade the service capabilities at the Eagle Point terminal, invest in the Partnership’s crude oil infrastructure by increasing its pipeline capabilities through previously announced organic growth projects in West Texas and expanding its trucking fleet, increase service capabilities at the Partnership’s Nederland terminal and convert certain refined products pipelines as part of the Mariner West project. The Partnership expects to invest approximately $350 million in expansion capital during 2012, and $700 million in expansion capital during 2013, excluding major acquisitions. In addition, the Partnership continues to estimate its maintenance capital spending to be approximately $50 million in 2012.

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