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Magellan Midstream Partners, LP (MMP) Q3 2021 Earnings Call Transcript

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MMP earnings call for the period ending September 30, 2021.

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Magellan Midstream Partners, LP (MMP -0.15%)
Q3 2021 Earnings Call
Nov 2, 2021, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and good afternoon, everyone. Welcome to the Third Quarter '21 Earnings Call. During the presentation, all participants will be in listen-only mode. Afterwards, we will have a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded today, Tuesday, November 2, 2021.

It is now my pleasure to turn the call over to Mike Mears, Chief Executive Officer. Please go ahead, sir.

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Mike Mears -- Chief Executive Officer

Well, hello and thank you for joining us today for our third quarter earnings call. Before we get started, I need to remind you that management will be making forward-looking statements as defined by the Securities and Exchange Commission. Such statements are based on our current judgments regarding the factors that could impact the future performance of Magellan, but actual outcomes could be materially different. You should review the risk factors and other information discussed in our filings with the SEC in forming your own opinions about Magellan's future performance.

Moving on to the quarter, we are pleased with our third quarter results for a few reasons. First of all, Magellan generated strong financial results that significantly exceeded our EPU guidance for the quarter. While there were a number of favorable items that contributed to the earning speed, the main benefits related to additional refined products transportation volumes, including continued strong distillate demand across our entire pipeline system, as well as lower than expected expenses, in part due to our ongoing optimization efforts. In addition, as previously announced, we also delivered on our commitment to maximize value for investors, with more than $390 million of equity repurchases during the quarter, at what we believe to be attractive valuations, as well as an increase to our quarterly cash distribution. This increase marks 20 straight years of annual distribution growth for our company, which is a notable distinction that sets Magellan apart within both the MLP and midstream space.

Our CFO, Jeff Holman, will now review a few highlights from our third quarter financial results, then I'll be back to discuss our guidance for the year before answering your questions.

Jeff Holman -- Chief Financial Officer

Thanks, Mike. First, let me mention that as usual, I'll be making references certain non-GAAP financial metrics, including operating margin, distributable cash flow or DCF, and free cash flow. And we've included exhibits to our earnings release that reconcile these metrics to their nearest GAAP measures.

Earlier this morning, we reported third quarter net income of $237 million, an increase of $25 million compared to third quarter 2020. Adjusted earnings per unit for the quarter, which excludes the impact of commodity related mark-to-market adjustments was $1.09, which, as Mike pointed out, exceeded our guidance for the quarter of $0.87. DCF for the quarter of $277 million was 7% higher than third quarter 2020, primarily due to additional contributions from our refined product segment. Free cash flow for the quarter was $252 million, resulting in free cash flow after distributions of $25 million. A detailed description of quarter-over-quarter variances is available in the earnings release we issued this morning, so I'm just going to touch on a few highlights of the quarterly results.

Starting with our refined product segment, operating margin of $272 million for the quarter was approximately 19% higher than the 2020 period. Refined products business continue to benefit from the recovery in travel, economic and drilling activity in 2021, compared to pandemic-driven reductions experienced in 2020, as well as from the continued ramp up on our Texas expansion projects. In particular, we've benefited from outside increases in diesel fuel during the quarter. Overall, refined transportation volumes were nearly 20% relative to the prior year period. The significant increases in all products versus 2020, and on an absolute basis, volumes for the new quarterly record for the second quarter in a row. Refined products revenues also benefited from the 3% overall average tariff increase, and went into effect on July 1 of this year. As a reminder, this 3% increase consisted of a 0.6% decrease to our index rates, and an average increase of more than 4% to our competitive rates.

Turning to our crude oil business, third quarter operating margin was approximately $112 million, down 18% from the third quarter of 2020, with a theme so the segment remaining generally consistent with the explanations we've given throughout the year, and with the assumptions behind our original guidance. Volumes on Longhorn continue to be lower as a result of contract expirations late in 2020, averaging about 240,000 barrels per day versus approximately 275,000 barrels per day in the prior year. While our affiliate marketing activities continued to offset much of the volume decline related to the expired contract, the margin we realized on those activities is more reflective of the prevailing differential between the Permian Basin in Houston, which is currently well below the tariff we had been earning on the previous contracts. And so our average realized rate per barrel declined.

Volumes on our Houston distribution system increased versus the prior year period, primarily due to higher year-over-year refinery utilization, driven by demand recovery. This increase in volume was offset by lower average rate, primarily due to deficiency revenue that benefited 2020 period and didn't recur in '21. So just as a reminder, although we often see volatility in our Houston distribution system volumes between quarters, those volumes move at significantly lower rates and longer haul Longhorn shipments, which means that their impact on our reported volumes and average rate is much greater than their impact on actual revenues. Similarly to last quarter, storage revenues declined primarily because the current year period didn't benefit from the strong contango market that drove storage rates in 2020.

Moving on to our joint ventures, BridgeTex volumes were just over 315,000 barrels per day in the third quarter of '21, compared to approximately 330,000 barrels per day in 2020, primarily due to a decrease in uncommitted shipments in the current quarter, which is reflective of continued unfavorable pricing differentials. While Saddlehorn volumes increased to more than 215,000 barrels per day, compared to nearly 165,000 barrels per day in 2020, primarily as a result of the expansion project completed earlier this year. So, with respect to our long haul crude oil pipelines, we continue to reap the benefits of long-term commitments from creditworthy counterparties, as our customers continue to ship in line with their contracts.

Just a few other quick notes on our year-over-year results, G&A expense increased between periods, primarily as a result of higher incentive comp costs, reflecting our strong results year-to-date, while net interest expense increased primarily due to lower capitalized interest as a result of reduced expansion capital spending, as well as higher debt outstanding.

As of September 30, the face value of our long-term debt was $5.1 billion, with a weighted average interest rate on that debt of about 4.4%. As a reminder, due to the pending sale of our independent terminals, the results of operations from those assets, which were previously included in the results of our planned products segment, are now classified as discontinued operations. There's also these assets increase between periods, primarily due to improved commodity margins, as well as just the absence of depreciation, which is no longer recorded, now that the assets are classified as held for sale. Fee-based revenues for these assets slightly declined year-over-year. As we've noted previously, a significant portion of the operating margin from these assets comes from commodity sensitive activities that can be volatile from period to period.

Moving on to capital allocations, balance sheet metrics and liquidity. First, in terms of liquidity, we continue to have our $1 billion of credit facility available to us through mid-2024, with $123 million outstanding on a commercial paper program at September 30. Additionally, our next bond maturity isn't until 2025. Our leverage ratio at the end of the quarter was approximately 3.6 times for compliance purposes, which incorporates the gain we realized from the sale as part of our interest in Pasadena earlier this year. Excluding that gain, leverage would have been approximately 3.75 times. Of course, those leverage metrics incorporate the impact of the $391 million in year repurchases we executed during the quarter, which brings us to the last time I'll touch on, which is capital allocation.

Throughout our history as a public company, we've always focused on being good stewards of capital. That has historically been reflected most strikingly, in our best-in-class returns on invested capital and our recently completed growth projects, including zero equity issuances since 2010, despite spending approximately $6 billion on growth projects during the intervening 11-years, all while delivering sector leading credit metrics and 20 straight years of uninterrupted distribution growth. That disciplined capital stewardship is currently reflected in the opportunistic execution of our equity buyback program. The $391 million of units we repurchased during the quarter, at an average unit price of $48.50 per unit brings our total repurchases for the year to $473 million and complete the initial $750 million program authorized by our board over a year before the end of that programs three year term. The cumulative units repurchased today equals 15.1 million units or about 6.7% of total units previously outstanding. The reduction in total ongoing distributions resulting from these repurchases will increase distribution coverage going forward, which was an important factor in our decision to reinstate small distribution increase this quarter.

With the completion of that initial $750 million program, and taking into account the expected proceeds from our pending independent terminal sale, and our expectation of continued free cash flow generation in coming years, our board has authorized an additional $750 million repurchases over the next three years. Of course, as we are always careful to note, the timing, price and volume of any unit repurchases will depend on a number of factors, including the expected expansion capital spending, free cash flow available, balance sheet metrics, legal and regulatory requirements, as well as market conditions and the trading price of our equity. In particular, I'll note that we remain committed to our long standing 4 times leverage limit, and also that the timing of proceeds from the independent terminal sale remain subject to the governmental review process. But, as we continue to reiterate, we remain focused on delivering long-term value for our investors through a disciplined combination, cash distributions, capital investments, and equity repurchases.

And with that, I'll turn the call back over to Mike.

Mike Mears -- Chief Executive Officer

Thanks, Jeff. Concerning guidance, we now expect to generate DCF of $1.1 billion for 2021, which is $30 million higher than our previous forecast, based primarily on our stronger than expected financial performance during the third quarter. Refined products demand overall continues to be solid and is actually trending a bit higher than we initially expected for the year. Our latest forecast expects full year refined products shipments to be 14% of 2020 levels, or 4% higher than the more normal year of 2019.

We continue to benefit from the final commitment ramp on our East Houston-to-Hearne expansion project. And we've also seen stronger distillate and aviation fuel demand as the year has progressed. Our forward guidance continues to assume that no additional pandemic-related disruptions impact demand. We've had nearly 90% of our gas liquids blending for the fourth quarter, and are now expecting average margins in the $0.40 per gallon range for the full year. As you know commodity prices are significantly higher than earlier this year, but continue to be quite volatile, especially as we look out to 2022 for this activity. Like last quarter, we still have 80% of our spring 2022 blending hedged in an average margin of $0.35.

Following our typical approach, we would expect to begin hedging fall of 2022 blending activity next spring, once the markets become more liquid for the fall season. Based on our $1.1 billion DCF estimate for 2021, we expect to generate distribution coverage OF more than 1.2 times, which translates to approximately $200 million of excess cash above our distribution payments for the year. And while we don't plan to provide guidance for future years at this point, we do continue to target annual distribution coverage of at least 1.2 times for the foreseeable future.

As a quick reminder, we continue to await regulatory approval for the pending sale of our independent terminals that we announced back in June. While, we have been responsive to the FTCs questions, exact timing for the closing is not yet clear. Considering it's already November, I think it's very reasonable to assume closing will occur in 2022, which is consistent with our guidance.

Concerning expansion capital, we now expect to spend $80 million in 2021 and $20 million in 2022, to complete our current slate of construction projects. These estimates are $10 million higher than last quarter, due to the addition of a few smaller projects including new investments to enhance our gas liquids blending capabilities, and to increase connectivity of our Cushing crude oil terminal. These projects are low risk and expected to generate returns at least in line with our 6x to 8x EBITDA multiple threshold. We are continuously working to assess new opportunities to expand our service offering in a disciplined manner, and remain optimistic that additional projects of similar size and returns will come to fruition. For instance, we plan to launch an open season in the near future for a potential small expansion of our refined products pipeline from Kansas into Colorado. The State of Colorado continues to be short refined petroleum products, and our line has been operating at full capacity on a consistent basis to help meet that need.

If warranted by sufficient customer commitments, this expansion of nearly 5,000 barrels per day could be achieved for less than $20 million. This potential project has not yet been included in our spending estimates, but gives you a feel for the type of opportunities we are considering. As always, we remain committed to Magellan's long standing capital discipline and balance sheet strength. And our capital allocation priorities continue to be growth capital investments with attractive returns, and equity repurchases.

Before I close, I'd like to briefly hit on the topic of inflation. For those watching the change in the Producer Price Index, they know it has increased by more than 7.5% year-to-date through September. As you recall, a portion of our refined products tariffs follow the FERC indexation methodology that is linked to the change in PPI. We have historically changed the rates in these less competitive markets, consistent with the index, and most likely will do so again on July 1 of next year. Concerning our market base rates that comprise around 60% of our shipments in the past, we have generally been increasing those rates in the 3% to 4% annual range over the last few years, which has been higher than the corresponding index change over the same timeframe. By definition, those markets are subject to competitive pressures, so we need to ensure our rates remain competitive. We'll be preparing a detailed analysis over the coming months to determine the appropriate changes to our rates in the upcoming year.

Of course, the next question is how is the current inflationary environment impacting our actual costs? As a reminder, approximately 70% of our operating costs are related to people, power and integrity spending. To-date, we have not seen pricing pressure on our cost structure at nearly the same level as the PPI increase. The component of our cost that is most likely to be impacted going forward is power, which represents about 10% of our total cost. Most of the power cost increases this year have been mitigated by our ongoing optimization effort. But it is likely that we'll see marginally higher power costs as we move into 2022, and that will be incorporated into our 2022 guidance, we will announce next year.

Operator, that concludes our prepared remarks. I will now open the call to questions.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] And our first question comes from Theresa Chen with Barclays. Please go ahead.

Theresa Chen -- Barclays -- Analyst

Hi, thanks for taking my questions. First, I'd like to touch on the distillate strength you're seeing across your system. Mike, is this in part related to temporary effects, such as the pull forward of harvest season? Or, do you expect this to continue going forward?

Mike Mears -- Chief Executive Officer

Well, I think we've seen strength in our distillate demand across all the sectors. I mean, it's been strong in the agricultural markets. It's been strong in the transportation markets, and it's been strong in West Texas in particular, with regards to the growing markets. I wouldn't say that what we've seen in the third quarter is unusually high due to agricultural demand. I think, it's just a representation of strength across the entire spectrum demand points for diesel fuel.

Theresa Chen -- Barclays -- Analyst

Got it. And in terms of your unique perspective on Cushing, given your exposure there as well as your crew tie-ins in refined product system in mid-con, just in terms of what we're seeing as far as the backwardation in the market and the level of draws and understand that your contracts are typically on multiyear terms and immune to near-term volatility. But how should we think about recontracting as far as the swath of storage goes? And what are your expectations for inventories from here?

Mike Mears -- Chief Executive Officer

Well, we have really tried to focus the customers in our Cushing facility, as those customers who need storage for operational purposes. That doesn't mean we don't have some in there that are really just taking storage for trading purposes, but the majority of our contracts are there for operational purposes, so it's less impacted. Let me rephrase that, their need for the storage is less impacted by the structure of the curve. And we're looking at opportunities in Cushing, actually, that will even emphasize that more and strengthen our profile in Cushing. So that's been our strategy all along, it's played out fairly well. It doesn't mean that when you come to contract renewals that you are still somewhat price sensitive versus what the market is offering. But at this point in time, given the tenure of our contracts, we're expecting our Cushing revenue to be relatively stable. As far as what a short-term projection is worth, actual physical inventories go. I don't know that I have a view on that, in particular, that can change dramatically as the price moves and the structure of the curve moves. I don't think it's very surprising at this point in time that you have low inventories in Cushing, low physical inventories in Cushing with a backward dated market. And the fact that there's some pipelines that are being filled, right now, so there's some demand for crude for landfills. But we view our Cushing position as being relatively stable with potential upside, with relation to some of the things we're working on.

Theresa Chen -- Barclays -- Analyst

Thank you.

Operator

Our next question is from Spiro Dounis, Credit Suisse. Please go ahead.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, Mike. Hey, Jeff. I wanted to ask you guys about any potential slack you guys might still have in the system that really hasn't fully rebounded yet from the pandemic, or really any other related fallout from that. Just trying to get a sense for what areas of the business could actually outperform here over the next few years. Obviously, jet fuel kind of seems like an obvious one that isn't back to normal. So I'm just curious, when you look at MMP as a whole and the asset base in place, how do you think about the earnings power there, as sort of all these other areas sort of get back to normal as well?

Mike Mears -- Chief Executive Officer

Well, I think, the first thing that comes to mind with regards to the refined products business, is that diesel fuel and jet fuel have rebounded very well as we've recovered from the pandemic. But our gasoline volumes are still lagging 2019 volumes. And, the drivers behind that are still primarily in the metropolitan areas, we're not seeing our metropolitan areas rebounding as fast. They're rebounding, but they're just not getting there as fast, and again, I think that's still mainly attributed to the fact that all the businesses aren't back in the office yet. Now, I don't know if that's permanent or not. But I think there's still room to recover on the gasoline side. We've been through a cycle here where the Delta variant spiked. So it's probably slowed that return to work recovery process down in the third quarter. But hopefully, we're past that and so we still think that there's potential upside, just to get back to 2019 levels on our gasoline demand. If you look at our crude oil business, of course, we're hampered by the fact that we have a crude system that's over built, particularly out of the Permian. So, recovery there, there's upside. That's going to be dependent upon increased production in the Permian, or it's going to be dependent on repurposing pipes in the Permian. We think that a combination of those things are likely to happen. And when I say that, I don't necessarily mean in the next year or 18-months, but over time, our expectation is that's going to happen, and that will have some improvement or upside potential in the crude oil business. But the timing of that is probably a little less predictable.

Spiro Dounis -- Credit Suisse -- Analyst

Got it.

Mike Mears -- Chief Executive Officer

Those are the first thing, I got on my mind.

Spiro Dounis -- Credit Suisse -- Analyst

Yes, that's helpful. Thanks for that, Mike. Second question, just thinking about growth projects for next year. You lifted the amount by little bit. I know, I think you said you're optimistic about some discussions you're having with your customers. And so just curious, do you have any sense from the customers in terms of timing on when they'd be ready to kind of move forward with the project and kind of what's holding them up. I know, we're going through budget season now for a lot of them. And so, is it safe to say that as you sort of come out and provide guidance next year, you'll be in a lot better position to sort of guide around capex? Is any of the uncertainty in Washington preventing decisions to be made just curious what some of the gating items are?

Mike Mears -- Chief Executive Officer

Well, first of all, I'd say I think the uncertainty in Washington isn't really impacting the types of projects we're looking at. I mean, they're really fundamentally demand and/or in some cases, supply driven. The things that are happening in Washington, we continue to have a view are going to have an impact in demand over a very long period of time. And so, we're mindful of that when we're making these investments that we're looking for strong returns, and not projects that have 20-year payouts to make sense. So what's happening in Washington really isn't impacting it. The majority of what we're looking at is just negotiations, to make sure we can find projects that are mutually acceptable to shippers, and to us to meet their needs and meet our return thresholds. And we're optimistic on a number of projects that we're going to get there. I think we'll probably have more clarity on what 2022 will be in January, but I wouldn't say that we'll have it 100% clear. Because these negotiations are always ongoing, and new projects come up, and potential projects drop off. And that's just the nature of project development. I will say, it's kind of a rule of thumb, we've been saying this for quite some time that our expectation is for the foreseeable future, we're going to be in the $100 million a year range on expansion capital. I would say that that's probably true for 2022, even though we haven't obviously, signed projects to commit to that yet, but just looking at the development pipeline, so to speak, I think that that's a reasonable number. But we'll have more clarity on that in January.

Spiro Dounis -- Credit Suisse -- Analyst

Great. Thanks for all the time, Mike. Appreciate it.

Mike Mears -- Chief Executive Officer

Sure.

Operator

And the next question is from Keith Stanley with Wolfe Research. Please go ahead.

Keith Stanley -- Wolfe Research -- Analyst

Hi, good afternoon. I wanted to start on buybacks. And so the $391 million for the third quarter and it looks like that was all in August and September, due to earnings blackout, I presume. Just any commentary you have on why buyback at a much faster pace in Q3 than earlier in the year. Was it tied to having the Pasadena proceeds, market conditions or anything else? And then, how should we think about buybacks looking forward, particularly when you have the Southeast terminal sale proceeds coming in the door, hopefully, pretty soon?

Jeff Holman -- Chief Financial Officer

Sure. The part of the reason for the change in pace is going to -- we list out all the factors or a lot of factors that can influence that, and different ones come into play at different times. So we've, for example, disclosed, we were tied up with lots of non-public information, different parts of first six months of the year. And that affected our ability to do buybacks at all time. So that was a factor, for example. But there are different factors in different times, valuation matters as well. Outlook for leveraging liquidity matters as well. So things lined up in this quarter for us to be opportunistic, and move quickly without any constraints on really any front; so that's what you saw. We're going to continue to be opportunistic as we go forward. And it will depend on all those same kinds of factors. So the pace before the independent terminal proceeds commence could depend on same kinds of things. We'll be keeping an eye on leverage. We'll be keeping an eye on when those proceeds come in. But we don't necessarily have to wait for them to come in to execute on some of the new authorization. So it's just going to depend on all those factors, the same as it has before.

Keith Stanley -- Wolfe Research -- Analyst

Great, thanks. And sorry, another capital allocation one. Just curious more the thought process around the 1% distribution increase. So I mean, on the one hand, with how much stock you've bought back, which is becoming really significant. The dollar amount of distributions being paid out is still declining, even with that distribution increase. But on the other hand, you kind of talk to how you're back above your coverage target, and just how you think about, I guess, distribution increases moving forward. Is it an annual process? And how you think about coverage? And how the relationship changes with buybacks?

Mike Mears -- Chief Executive Officer

Well, there's a lot of moving parts there. And, I'd like to say there's a formula we just stick all the numbers in and make a decision, but that's obviously not the way it works. Our primary plan is to use excess cash to buy back equity. But for all the reasons that Jeff mentioned, that can be lumpy. It could be slow. It's, we can't say with certainty how much we're going to buy back in every quarter. That being said, if you look at what's happened over the course of the last year, maybe year and a half, we bought back a significant amount of equity, obviously, we've increased our coverage ratio. And we feel good about the business going forward. And we believe we have some investors that value the distribution, they value growth in the distribution. So, we took somewhat of a balanced approach there this quarter, even though I'd say it wasn't really balanced, it was much more heavily weighted toward equity repurchases. But we did allocate some amount to a distribution growth. I don't think you should take that as that's what's going to happen every quarter. We're going to make those decisions on a quarterly basis. But I think it's reasonable to assume that if we execute on our equity buyback plan efficiently, that we're going to continue to increase coverage, and that some portion of that coverage will be allocated to distribution growth over time. But again, that's always going to be a quarter by quarter analysis by us.

Keith Stanley -- Wolfe Research -- Analyst

That's helpful. Thank you.

Operator

And the next question is from Shneur Gershuni, UBS. Please go ahead.

Shneur Gershuni -- UBS -- Analyst

Good afternoon, everyone. I was wondering if I can revisit a few questions, one from Spiro, one from Keith. Just starting with Spiro's question about recovery in the system and so forth. If I can ask it a little differently, assuming gasoline volumes are back to 2019 levels, what kind of operating leverage do you see in your business, excluding the pipelines, because we know the challenges there or crude pipelines rather? But what you see within the refined product system? Is there upside potential from where you were in 2019 levels? And, if so, can you help characterize it for us?

Mike Mears -- Chief Executive Officer

Well, yes. I would characterize as significant upside opportunities that are available to us. So if you look at our product system, in general, it's not at capacity. We have some exceptions. For example, as I mentioned earlier to the Denver market, we are at capacity. But we're looking at some things there to improve that. And we're also looking at some other logistics things around the front range that they can provide upsides for us. But if you look at the rest of our system, in particular, in Texas, if there is demand growth in Texas, which happens to be especially the Dallas Fort Worth area, one of the fastest-growing areas in the country, we have plenty of capacity to accommodate that without -- well speaking about Dallas, without really any capital investment. And when you think about West Texas and access to Mexico and Arizona, markets are further west. We have opportunities there to expand capacity also. So there are upsides around our system. The other thing I mentioned, I've mentioned this before that as we go through an energy transition cycle over the next five or 10-years, it's reasonable to assume that you have more refinery rationalization. And typically speaking for a pipeline company that is a net positive, because it creates incremental transportation opportunities basically to fill the hole that if a refinery closure is creating. And we have a system that's ideally situated for that since we're connected to half the refining capacity in the country. And so, we're not supply constrained in any way. So if we have A refinery close in a certain market, we've got plenty of sufficient supply. And in most cases, sufficient capacity to fill that hole with barrels removed over a longer haul, which is typically a higher tariff. So, I think we do have operating leverage going forward around our refined product system.

Shneur Gershuni -- UBS -- Analyst

Really appreciate the color there, very thorough. And maybe to follow-up on the prior question with respect to the buybacks. I appreciated your response about how it improves. The coverage ratio or payout ratio, I think it's a good strategy. You also mentioned that, it can be lumpy at times just due to blackout periods and different things that occur. With that being said, and the fact that your EBITDA is now kind of inflected and rising so your leverage ratios should roll forward and improved. Would you be willing to be in the market buying stock if you felt it was an appropriate price ahead of the proceeds from the upcoming asset sale just kind of getting ahead of it? Or, do you feel that you need to wait until the cash is actually in the door, just given that your leverage ratio is trending the right way?

Jeff Holman -- Chief Financial Officer

No, we don't have to wait for the proceeds to come in. We can't go as far as we could go with the proceeds, obviously. But no, there's a little bit of room as EBITDA allows and our 4 times leverage when that allows. And we've already demonstrated that to some extent we bought back 750 million of units, and we haven't had 750 million of unit sales, I mean of asset sales. So we've already done buybacks with and that without excess cash flow during that same period. So for example, in 2020, we bought back more than we had an asset sales or excess cash flow. So, oh free cash flow, excuse me. So, we're not limited by that. The leverage will be a limit. And we'll be keeping an eye on that because we have a 4 times limit that we've discussed, and we're going to be careful that we continue to manage that careful, conservatively, consistently with what we've done in the past.

Shneur Gershuni -- UBS -- Analyst

All right, perfect. Thank you very much. Really appreciate the color today. Thank you.

Operator

[Operator Instructions] Our next question is from Michael Lapides, Goldman Sachs. Please go ahead.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys, thanks for taking my question. Just real quick, Mike, you touched a little bit about carefree sets and updates that'll happen in the middle of next year. Can you give a little more color on some of your comments about those that are on market or competitive rates, please?

Mike Mears -- Chief Executive Officer

Well, I think, I mean, again, the fact that they're not indexed means that they're competitive. And I would argue all of our markets are competitive. But these markets have been deemed to be competitive. We have in most cases, multiple competing pipelines in these markets. So we need to be aware of that, when we're increasing prices, just like any competitive market would be. We have been raising the tariffs in those markets by higher than the index for the last few years. So on average, they're already higher than index markets. We just need to be very deliberate about how we address that. And what that means in practice, is that we are going to evaluate every market and what's our competitive position. Of course, what we don't know is how much is our competitor is going to raise their tariffs. And we won't know that until they actually do it. But, we can make some reasonable guesses. And what will likely wind up is we'll have a range, we'll have some markets where we may not raise it very much. And we'll have some markets, we may raise it closer to what the actual PPI is. But what the average of those will be, I don't know yet. We're not going to know that till we get through the process.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Okay. But are you kind of hinting a little bit that maybe next year, you won't be at the 3% to 4% growth rate year-over-year on the competitive customers?

Mike Mears -- Chief Executive Officer

No, I'm not indicating that at all. I can tell you that we will be, but I'm more certain I'm not sitting here today, knowing we won't be. It's going to be the product of the evaluation. And 3% or 4%, maybe a reasonable number, but I can't tell you that until we go through the process.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, Mike. Much appreciated.

Mike Mears -- Chief Executive Officer

Sure.

Operator

And gentlemen, those are all the questions we have. I'll turn it back to you for closing remarks.

Mike Mears -- Chief Executive Officer

All right. Well, thank you for everyone's time today, and we appreciate your interest in Magellan. We'll talk to you next time.

Operator

[Operator Closing Remarks]

Duration: 40 minutes

Call participants:

Mike Mears -- Chief Executive Officer

Jeff Holman -- Chief Financial Officer

Theresa Chen -- Barclays -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Shneur Gershuni -- UBS -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

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