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8-K - FORM 8-K - MARTIN MIDSTREAM PARTNERS L.P. | d69999e8vk.htm |
Exhibit 99.1
Martin Midstream Partners L.P.
Q3 2009 Earnings Conference Call
November 5, 2009
8:00 a.m., Central Time
Q3 2009 Earnings Conference Call
November 5, 2009
8:00 a.m., Central Time
MANAGEMENT DISCUSSION SECTION
Operator: Good day, and welcome to the Martin Midstream Partners Third Quarter 2009 Investors
Conference Call. This conference is being recorded. At this time, I would like to turn the
conference over to Bob Bondurant, Chief Financial Officer. Please go ahead, sir.
Robert D. Bondurant, Executive Vice President and Chief Financial Officer
Thank you, Anthony. I apologize for my raspy voice. Im fighting a bit of a head cold, but Ill let
everyone know whos on the call today. We have Ruben Martin, Chief Executive Officer and Chairman
of the Board; Wes Martin, Vice President of Business Development; and Joe McCreery, Vice President
of Finance and Head of Investor Relations.
Before we get started with the financial and operational results for the third quarter, I need to
make this disclaimer. Certain statements made during this conference call may be forward-looking
statements relating to financial forecasts, future performance and our ability to make
distributions to unit holders. The words anticipate, estimate, expect and similar expressions are
intended to be among the statements that identify forward-looking statements made during the call.
We report our financial results in accordance with generally accepted accounting principles and use
certain non-GAAP financial measures within the meanings of the SEC Regulation G, such as
distributable cash flow, or DCF, and earnings before interest, taxes, depreciation and
amortization, or EBITDA. We can use these measures because we believe it provides users of our
financial information with meaningful comparisons between current results and prior reported
results, and it can be a meaningful measure of the Partnerships cash available to pay
distributions. Distributable cash flow should not be considered an alternative to cash flow from
operating activities. Furthermore, distributable cash flow is not a measure of financial
performance or liquidity under GAAP, and should not be considered in isolation as an indicator of
our performance. We also included in our press release and Form 10-Q issued yesterday, a
reconciliation of distributable cash flow to the most comparable GAAP financial measures. Both our
earnings press release and our third quarter 10-Q are available at our website at
www.martinmidstream.com.
Now with that out of the way, I would like discuss our third quarter performance. For the third
quarter we had net income of $4.5 million, or $0.26 per limited partner unit. In the third quarter,
because of certain commodity and interest rate hedges that did not qualify for hedge accounting,
our net earnings were positively impacted by approximately $500,000, or $0.04 per limited partner
unit. So disregarding this net non-cash impact to our financials, our earnings would have
approximated $4 million, or $0.22 per limited partner unit.
As with other MLPs, we believe the most important measure of our performance is distributable cash
flow. Our distributable cash flow for the third quarter was $12.4 million, a distribution
coverage of 1.05 times, and for the first nine months of 2009 our distribution coverage was 1.04
times. Based upon our current $0.75 quarterly distribution and yesterdays close price of $27.09,
our LP units are currently yielding 11.1%.
Now Id like to discuss our third quarter performance by segment, comparing that performance to the
second quarter. In our Terminalling segment, our cash flow, which is defined as operating income
plus depreciation and amortization, but excluding any again on sale of assets, was $5 million in
the third quarter compared to $6 million in the second quarter. The decrease in cash flow was the
result of a decline in revenue at our specialty terminals in the third quarter when compared to the
second quarter. This revenue decrease was a result of reduced sulfuric acid revenue and reduced
asphalt volumes that were throughput in the third quarter as compared to the second quarter.
Looking forward, we anticipate an increase in our sulfuric acid throughput revenue in the fourth
quarter compared to the third quarter. However, asphalt throughput volume should be at a minimum
levels as the fourth quarter is the slowest time of the year for asphalt demand.
At September 30, we have a receivable from our insurance carrier for $2.5 million for terminal
property losses we have paid that were experienced during Hurricane Ike. We anticipate receiving
this payment in the fourth quarter. Additionally, we will receive an increasing cash flow from the
Dropdown of our general partners cross lube oil processing facility. This Dropdown should add
approximately $10 to $12 million of annual EBITDA to the Terminalling segment. So looking forward
to the fourth quarter, we estimate our Terminalling cash flow will exceed the third quarter cash
flow by the amount of cash flow generated by the lube oil processing facility. Of course, the
amount of the increase will be dependent on the actual close date, which should be sometime this
month and Wes will elaborate further momentarily.
In our natural gas services segment, we had operating income of $1.7 million in the third quarter
compared to 300,000 in the second quarter. In the third quarter, we had an approximate $200,000
non-cash commodity hedging mark-to-market gain compared to $1.9 million non-cash mark-to-market
loss in the second quarter. So excluding non-cash mark-to-market adjustments we had operating
income of $1.5 million in the third quarter compared to $2.2 million in the second quarter.
Complementing our natural gas services is our cash flow from our unconsolidated entities which is
primarily our 50% owned Waskom Gas Processing plant. For the third quarter, our cash flow generated
from these unconsolidated entities was $3.1 million compared to $1.6 million in the second quarter.
So excluding the impact of non-cash mark-to-market adjustments, and including our distributions
from unconsolidated entities and adding back depreciation and amortization, our natural gas
services cash flow for the third quarter was $5.8 million compared to $4.9 million in the second
quarter, an increase of $900,000.
During the third quarter, our Waskom plant was operating for the entire period and as a result our
average processing volume was 255 million cubic feet per day compared to 227 million cubic feet per
day in the second quarter. We processed reduced volumes in the second quarter as we
took a portion of the Waskom plant down for 40 days in order to expand our processing capacity to
285 million cubic feet per day, and expand our fractionators to 14,500 barrels per day.
Waskoms current processing contract mix is 45% percent of liquids, 36% fee based, 19% percent of
proceeds and less than 1% keep-whole. We currently have 56% of remaining 2009 volumes hedged and
27% of 2010 volumes hedged. When factoring in our hedge volumes, a $1 change in natural gas pricing
affects our cash flow $50,000 per month, and a $10 change in oil pricing changes our cash flow
$50,000 per month.
Also, regarding our competitive position in the East Texas gas processing market, with the Waskom
facility, we continue to operate the only gas plant in our market area that has full fractionation
capability, giving us a competitive advantage to other gas plants in the area.
Looking forward to the fourth quarter, we anticipate our cash flow from this segment will slightly
increase when compared to the third quarter as our wholesale propane marketing business should
improve as a result of entering the winter heating season in the fourth quarter.
In our marine transportation segment, we had cash flow of $6.1 million in the third quarter,
compared to $2.4 million in the second quarter. Our offshore cash flow increased approximately $3.2
million and our inland cash flow increased approximately $500,000 between the two quarters.
The increase in the offshore side of the business was a result of increased utilization of our two
tows that have traditionally operated in the spot market. These two tows accounted for $2.2 million
of the $3.2 million in offshore cash flow. The balance of the increase was the result of one of our
offshore tows, which operates under a long-term contract coming out of the shipyard in the second
quarter and being fully utilized in the third quarter.
We also had increased utilization of the inland fleet, which accounted for its increased cash flow.
The increased inland utilization was a result of vessels coming out of the shipyard and being
available for work in the third quarter. Generally, the marine transportation market has
experienced downward pressure on rates since December 2008. We believe rates are at or near the
bottom. However, we have been somewhat insulated from these rate changes as approximately 80% of
our inland fleet is operating under term contracts.
We also have significant revenue diversity in our fleet. We have geographic diversity as we
currently operate from Chicago to New Orleans, the Upper East Coast, the Intracoastal Waterway, and
Florida, and Central and South America. We also are diverse from a business sector perspective as
we operate inland vessels, offshore vessels, and harbor service vessels. Finally, we have diversity
through the specialty products we haul, including molten sulfur, NGLs, finished lubricants, sweet
coastal crude, and asphalts. We believe this very diversity positively differentiates us from other
marine transportation companies.
In our sulfur services segment, our cash flow was $2.4 million in the third quarter, compared to $6
million in the second quarter. We experienced a $3.9 million decrease in cash flow on the
fertilizer side of the business, slightly offset by a $300,000 increase on the pure sulfur side of
the
business. The decrease in cash flow relating to the fertilizer side of the business was anticipated
as a result of the normal seasonal decrease in demand for our sulfur base fertilizer products in
the third quarter. Our fertilizer volumes fell 31% and our margins fell 75% as a result of this
seasonal demand decrease. Again this demand decline was anticipated and is normal for this
business. We anticipate a stronger fourth quarter for our sulfur services business as we believe a
sulfur price increase is coming, which should benefit us in our pre-held sulfur business.
Now I would like to discuss our liquidity and capital resources. At September 30, 2009, we had $300
million drawn against our 325 million credit facility. We also borrowed $6.3 million under a
capital lease to finance two brand new double-skin inland barges which currently are hauling
back-in gas-oils for a major integrated oil company. Our debt to total capitalization at the end of
September was 58%, and our bank facilities rolling 12-months leverage ratio, defined as total
debt-to-EBITDA, was 3.55 to 1. Currently we are borrowing at LIBOR plus 200.
Currently, regarding our total debt outstanding, we have fixed $235 million of our bank facility
through interest rate hedges at an average interest of 4.2%. When added to the applicable margin of
200 basis points, our current hedge rate is 6.2%. The balance of our debt is borrowed under 1-month
LIBOR plus 200 basis points, making its average rate approximately 2.25%. At September 30, 2009 the
Partnership was in compliance with all covenants of its credit facilities.
Our maintenance capital expenditures for the third quarter were $1.8 million. And looking for the
remainder of the year, we still anticipate total maintenance capital expenditures for 2009 to be $9
million.
Now I would like to turn the call over to Wes to discuss the Dropdown transaction of our general
partners lube oil processing facility.
Wesley M. Skelton, Executive Vice President, Controller and Chief Administrative Officer
Thank you, Bob. As disclosed yesterday in our third quarter filing and press release, the
Partnership announced that it has signed a definitive agreement to acquire certain specialty
lubricants processing assets from Cross Oil Refining & Marketing Inc., a wholly owned subsidiary of
MRMC, the owner of our general partner, for total consideration of $45 million. In consideration
for the Dropdown of the Cross Assets, the Partnership will issue approximately 800,000 common units
and approximately 900,000 delayed cash pay subordinated units to MRMC.
The common units will be entitled to receive distributions as declared beginning in February of
2010 while the subordinated units will have no distribution rights until the second anniversary of
closing of the Dropdown. At the end of such second anniversary the subordinated units will convert
to common units having the same distribution rights as existing common units. In connection with
the Dropdown, our general partner, Martin Midstream GP LLC will make a capital contribution to MMLP
of approximately $900,000 in order to maintain its 2% general partner interest.
The Cross Assets consist primarily of a 7500 barrel per day naphthenic lubricant refinery located
in Smackover, Arkansas with over 475,000 barrels of related crude oil, intermediate and finished
product storage capacity. The Cross refinery produces approximately 65% naphthenic lubricants, 20%
distillates and 15% asphalt and other intermediate products. Naphthenic lubricants are specialty
lubricants typically used in niche applications that require high quality customized lubricants.
Compared to paraffinic base lubricants, naphthenic lubricants generally have lower port points,
higher solvency properties and less wax content which make these lube oils ideally suited and
technically superior for using specialty markets such as rubber oils, transformer oils, ink oils
and in some greases.
In addition, naphthenic lubricants can also be used as base oils for more general, industrial,
automotive and agricultural purposes. The North American naphthenic lube market is a significantly
smaller, more niche based market compared to the paraffinic lube market. Total North American
naphthenic lube capacity is estimated at approximately 40 to 50,000 barrels per day while
paraffinic lube capacity is estimated to be greater than 220,000 barrels per day.
Given that Cross produces up to approximately 5,000 barrels per day of naphthenic lubricants these
Cross Assets represent 10 to 12% of the total estimated North American naphthenic production
capability.
Under the terms of the transaction, MRMC will continue to own all other Cross assets and working
capital associated with the retained Cross business, including all crude oil, raw material,
in-process and finished product inventories. In connection with the closing of the Dropdown, MRMC
and MMLP have agreed to enter into a long-term, 12 year fee-for-services-based Tolling Agreement,
whereby MRMC agrees to pay the Partnership for the processing of its crude oil into finished
products.
Under the Tolling Agreement, MRMC has agreed to a minimum throughput of 6,500 barrels per day at a
price of $4 per barrel. Any additional barrels above 6,500 barrels per day will be refined at a
price of $4.28 per barrel. In addition, MRMC has agreed to pay a monthly capacity reservation fee,
as well as a periodic fuel surcharge fee based on certain parameters as specified in the Tolling
Agreement. MRMC will continue to market and distribute all finished products under the Cross brand
name. In addition, MRMC will continue to own and operate the Cross packaging business. Upon closing
of the Dropdown, the Cross Assets will be included in the specialty terminals portion of our
Terminalling & Storage segment. As such, we believe that this Dropdown positions our Terminalling &
Storage segment to be the largest and most stable cash flow contributor of the Partnership on a
going forward basis.
Based on the current operating and anticipated performance of the Cross Assets, the Partnership
expects to generate approximately $10 to $12 million annually of EBITDA with expected maintenance
capital expenditures of $1 to $2 million annually. The closing of the Dropdown is subject to
standard closing conditions, including the approval of the lenders under MRMCs credit facility and
the approval of the assignment of various regulatory licenses and permits. Closing of the Dropdown
is anticipated prior to the end of November 2009.
Also announced yesterday in our filing was a definitive agreement whereby MRMC will invest $20
million in cash into the Partnership in exchange for approximately 715,000 newly-issued common
units. In connection with this additional equity investment, our general partner will make a
capital contribution to MMLP of $400,000 in order to maintain its 2% general partner interest in
MMLP.
Closing of the equity investment is anticipated prior to the end of November 2009 and is subject to
standard closing conditions, including the approval of the lenders under MRMCs credit facility.
Total proceeds from the investment and the combined general partner capital contributions is
estimated at $21.3 million, and will be used by the Partnership to repay a portion of existing
indebtedness under its credit facility. Both the Dropdown and the equity investment have been
approved by the conflicts committee, consisting of three independent Directors of Martin Midstream
GP LLC, our general partner.
After giving effect to both transactions we have discussed this morning, MRMC will increase its
interest in the Partnership to 7.6 million limited partner units, consisting of approximately 6.7
million common units and 900,000 subordinated delayed cash paying units. This represents an
approximate 43.9% limited partner interest in MMLP.
Now with that, I would like to hand the call over to Joe McCreery for further discussion about our
refinancing efforts.
Joe McCreery Vice President Finance and Head of Investor Relations
Thank you, Wes. As mentioned today, were pleased to announce multiple transactions involving our
Partnership. I would now like to layout the planned finance associated with those transactions as
it pertains specifically to Martin Midstream Partners and our credit facility.
As youve heard today, our Dropdown asset contribution from MRMC is subject to the approval of
majority lenders in the MRMC credit facility. We are currently in market with that amendment
request, and have given lenders a deadline of tomorrow in which to respond. As of this call,
several institutions have responded favorably.
The MRMC amendment is the first step necessary to execute our intended transactions announced
yesterday and our overall plan of finance. That amendment among other things allows, one, the
release of negative pledge held by the lenders to facilitate the Cross Dropdown. And two, an
increased allowance for MRMCs direct investment into the Partnership. This is required to
facilitate the $20 million equity injection, the proceeds of which will be used to repay existing
indebtedness, as Wes mentioned.
The combination of the Dropdown and the MRMC equity investment are crucial transactions to ensure
full compliance with all financial covenants prior to the Partnership refinancing its credit
facility, which Ill explain further in a minute.
First, let me provide some general background on MRMC, the private company that owns our general
partner, and its financial position. MRMC is an independent provider of marketing and logistics for
hydrocarbon byproducts, namely sulfur and its derivatives, fuel and fuel oil
distribution, asphalt, paper mill liquids, and other bulk tank liquids. MRMC also currently owns
the naphthenic lube processing assets, Cross Oil, which is the asset contemplated in the Dropdown.
In addition to these operating entities, MRMC also currently owns approximately 5.2 million Martin
Midstream LP units, representing its largest asset.
Im pleased to report that MRMC is currently enjoying record profitability year-to-date in 2009.
MRMC has seen significantly stronger than anticipated margins in both our Asphalt segment and at
Cross. This solid performance and modest leverage provide ample liquidity at MRMC. Accordingly,
MRMC is in a position to assist and augment the capital structure of its limited Partnership. As we
have conveyed to the market, MRMC remains fully supportive to the Partnership and its growth.
Now to the refinancing, as you may be aware, the Partnerships $325 million credit facility matures
in November of 2010. This credit facility is our primary source of capital and liquidity. It is
therefore imperative that we secure an extension amendment or secure a replacement credit facility.
We believe the impact resulting from the Dropdown and the equity injection into the Partnership
paves the way to a successful refinancing of our credit facilities by strengthening our balance
sheet and our liquidity position. As such, we anticipate that the syndication process related to
the extension or new facility will commence on or about November 12, at which time we anticipate
having the MRMC amendment fully executed. Allowing for adequate response time from the lenders and
allowing time for documentation, we envision having the extension amendment or new credit facility
executed and in place on or about December 15.
One condition precedent to the closing of the extension of the new credit facility will be the
consummation of both the Cross Dropdown contribution and the equity investment, which as youve
heard, is anticipated before the end of November.
As disclosed earlier, we have engaged Wells Fargo and our existing administrative agent, The Royal
Bank of Canada, to act as our lead arranging agents for the purpose of assisting us in securing
this extension. In preparation of our deal launch on or about November 12, we have at this time a
fully negotiated summary of terms and conditions with the lead banks in preparation for the
refinancing.
Finally, Id like to put my investor relations hat on, and remind all investors current and
prospective to join us in Kilgore, Texas headquarters on November 12 at 11 A.M. Central Time or
live via webcast link at martinmidstream.com for our Martin Midstream Partners Investor Day. That
day, we will have Senior and Executive Management of the Partnership give a presentation and be
available for question and answers.
Anthony, this concludes our prepared remarks. We would now like to entertain any questions from
those on the phone.
QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] Our first question comes from Darren Horowitz with
Raymond James.
Darren Horowitz with Raymond James
Hey, guys. Good morning and congratulations on the Dropdown and the equity infusion. Just a couple
quick questions. First on Waskom, whats the processing run rate now? And obviously with the upward
bias to the frac spread trend, where do you expect fractionation volumes to ramp into the end of
the year?
Ruben Martin Martin Midstream Partners CEO
Its Ruben, right now, were at about 255 a day, I believe. We were running at a rate a little bit
higher than that. Were seeing some reduction in that, but it is still good, stable, high liquids
content gas that were running over there. So we have seen a decrease in volume, but not a decrease
in our gross margins at the processing plant.
Darren Horowitz with Raymond James
Okay. Ruben, what would it take you to hedge more?
Ruben Martin Martin Midstream Partners CEO
Good question. Hedging in the situation where we are right now, when you look at some of the
pricing that weve seen out into the future, we have to be very careful as to our competitive
nature of the plant. And right now, the plant of course is a situation that we have the best
mousetrap in East Texas. We believe we have the best mousetrap and weve been able to keep the
plant relatively full due to that. But if you get into a hedging situation that makes us
noncompetitive in that area and so forth, we could lose volumes to some of the other less efficient
plants.
But were continually evaluating it. Its something thats discussed at our Board of Directors
meetings every time we have a meeting and with management. So I believe when the time, we feel like
the time is right, then we will put back on some hedges that weve taken them off at profitable
levels here in the past year.
Darren Horowitz with Raymond James
Okay. Shifting gears over to the marine side of the business, you mentioned about 80% of the inland
fleet thats under term contracts. Can you give us a sense for how many of the barges come up for
contract renewal, say over the next six months? And where current negotiations are when youre
trying to balance day rate with term on these contract rollovers?
Robert Bondurant Martin Midstream Partners CFO
Yeah, Dan, this is Bob. I think we just have one thats up rolled over, if I believe Im right, in
October. And I think we have one more tow in early spring. So in the next six months, we really
only have one tow rolling over. We did a good job I thought, I think our management did, last year
when pricing was really strong, to trade some of that pricing and take lower rates for
extended terms, and thats why it allowed us to be in a good position. And our position is we dont
have that much rolling over in the near term.
Darren Horowitz with Raymond James
Okay. And then just one big picture question. Now with Cross in the fold, organically, how do you
plan to grow that business, given its existing footprint over the next couple years, lets just
say?
Ruben Martin Martin Midstream Partners CEO
When you say that business, you mean the Cross business?
Darren Horowitz with Raymond James
Yes, specifically Cross.
Ruben Martin Martin Midstream Partners CEO
Yes, I think specifically Cross, there are some things that we can do to increase the efficiencies
of the processing plant that would increase our levels of lube production. Theres a lot of good
consumption thats coming on in the tire business, where theyre that will utilize a lot of our
naphthenic hydro-treated products. Were looking at increasing the crucial hydro-treating capacity
of the plant at some point in the future, when the market is available, that would allow us to get
more specialty products and more niche-type products into the markets. Its not a capacity thing
with a plant like that, its more of niche-type specialty product market, and thats what we plan
on working on. Were also looking at additional ways to get crude at cheaper rates to the refinery.
Were looking at additional product distribution levels at certain levels. So a lot theres a
lot of good things that can happen at that plant.
Robert Bondurant Martin Midstream Partners CFO
Ill just add one thing to what Ruben said, the biggest low hanging fruit, if I can use that term,
is the ability to make a capital investment to namely a new vacuum tower that would take half of
our asphalt cut and put it into lubes. And so thats a $30 to $40 a barrel upgrade in the price of
the product. Thats probably the biggest low hanging fruit we have.
Darren Horowitz with Raymond James
Okay. When you guys, when you look at deploying more capital to ramp that initiative, how do you
foresee the working capital requirement to grow that business?
Ruben Martin Martin Midstream Partners CEO
The working capital requirement to grow that business of course is at the private company at MRMC,
and we would have to handle that situation up here with additional credit lines.
Darren Horowitz with Raymond James
Okay. So MMLP is not going to be dealing with having to store any raw input and crude oil or
anything else thats being used at the refinery. So youre not going to see any ebbs and flows on
that facility, correct?
Ruben Martin Martin Midstream Partners CEO
Thats correct.
Darren Horowitz with Raymond James
Okay. Thanks guys. I appreciate it.
Robert Bondurant Martin Midstream Partners CFO
You bet.
Operator
[Operator Instructions]. Our next question comes from Ron Londe with Wells Fargo.
Ronald Londe with Wells Fargo
Hi, yes. You mentioned that you expected improvement in the sulfur side of the business. Can you
give us more insight into that?
Ruben Martin Martin Midstream Partners CEO
Yeah, Ron, we believe that some of the pricing on the sulfur business has floored out, it should
come back up slightly here in the next few months. I think a lot of it is due to several different
factors concerning supply and concerning consumption. So we expect the sulfur business and the
volume, and were seeing still some pretty good growth in that business from the standpoint of
expanding our sulfur processing facilities that turn the sulfur from a molted sulfur into a prill
for export. So were seeing that export market continue to increase and we fully expect this type
of fee based prilling capacity to increase with very minimal capital expenditures now that we have
a system set up that is really just an add-on system for that situation.
Robert Bondurant Martin Midstream Partners CFO
Ill add a little bit to that Ron. Because pricing on the Gulf Coast at the refinery on the Gulf
Coast has really been negative for a while, we have a certain amount of inventory on prilled
inventory sitting on the pile, Martin Midstream Partners does. Were basically carrying at zero.
Theres no cost in it, if you will, because we were paid to take it away. And as the price
increases and moves north, well be able to sell that at market prices that are rising.
Ronald Londe with Wells Fargo
Do you expect that to positively affect the fourth quarter, or is that more of a [inaudible]?
Robert Bondurant Martin Midstream Partners CFO
I think there could be some in the fourth quarter, but -
Ruben Martin Martin Midstream Partners CEO
It could be pushed into the first quarter.
Robert Bondurant Martin Midstream Partners CFO
Correct.
Ruben Martin Martin Midstream Partners CEO
Well just see.
Ronald Londe with Wells Fargo
Okay.
Robert Bondurant Martin Midstream Partners CFO
Its all about timing and reading, if you will, the tea leaves of the market and where its going
to go in the first quarter, which we still think is increasing pricing.
Ronald Londe with Wells Fargo
Okay. On the terminaling side of the business, after you add the Cross operation, can you give us
an idea of the percentage thats going to be allocated to sulfur and asphalt in Cross, from the
standpoint of how the revenue is going to fall out?
Ruben Martin Martin Midstream Partners CEO
I would say, from a terminalling and storage standpoint, to make sure I understand your question
correctly, Ron, we expect it to be north of 40% of the overall operating cash flows of MMLP.
Robert Bondurant Martin Midstream Partners CFO
But Ill add, just so you know, the terminaling revenue should increase about $30 million a year
and the operating expenses about $20 million a year.
Ronald Londe with Wells Fargo
All right. Okay. Thank you.
Operator
And it appears we have no further questions at this time. I would like to turn the conference back
over to our speakers for any additional closing remarks.
Ruben S. Martin, President and Chief Executive Officer
All right, we thank you. This is Ruben. Again, we see the benefits of our diverse nature of our
operating model. And as we expect in the fourth quarter, we expect pricing improvement in at least
two of our segments. So were excited to announce the Cross Dropdown transaction, which will add
our $10 to $12 million of cash flow, and continue to push the Partnership forward towards a
fee-based type model, which we believe benefits our unit holders and our ability to make
distributions.
We thank everybody for their time, and we appreciate your interest in Martin Midstream Partners.
Thank you.
Operator
Operator: That does conclude todays conference. Thank you for your participation.