Exhibit 99

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors of Magellan GP, LLC

We have audited the accompanying consolidated balance sheets of Magellan GP, LLC as of December 31, 2006 and 2005. These balance sheets are the responsibility of Magellan GP, LLC’s management. Our responsibility is to express an opinion on these balance sheets based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated balance sheets are free of material misstatement. We were not engaged to perform an audit of Magellan GP, LLC’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Magellan GP, LLC’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheets, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the balance sheets referred to above present fairly, in all material respects, the consolidated financial position of Magellan GP, LLC at December 31, 2006 and 2005, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 8 to the consolidated balance sheets, effective December 31, 2006, Magellan GP, LLC adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans”.

/s/ Ernst & Young LLP

Tulsa, Oklahoma

February 26, 2007

MAGELLAN GP, LLC

CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31,
	2005			2006
ASSETS
Current assets:
Cash and cash equivalents	$	36,489		$	6,390
Restricted cash		5,537			5,283
Accounts receivable (less allowance for doubtful accounts of $133 and $51 at December 31, 2005 and 2006, respectively)		49,373			51,730
Other accounts receivable		24,946			47,203
Affiliate accounts receivable		—			269
Inventory		78,155			91,550
Other current assets		5,034			8,294
Total current assets		199,534			210,719
Property, plant and equipment		2,283,515			2,427,979
Less: accumulated depreciation		315,675			382,266
Net property, plant and equipment		1,967,840			2,045,713
Equity investments		24,888			24,087
Long-term receivables		39,516			7,239
Goodwill		12,387			11,902
Other intangibles (less accumulated amortization of $3,607 and $5,196 at December 31, 2005 and 2006, respectively)		10,221			8,633
Debt placement costs (less accumulated amortization of $4,989 and $6,914 at December 31, 2005 and 2006, respectively)		6,738			5,239
Other noncurrent assets		3,685			3,478
Total assets	$	2,264,809		$	2,317,010
LIABILITIES AND OWNER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	25,508		$	55,549
Affiliate accounts payable		145			—
Affiliate payroll and benefits		17,028			18,676
Accrued taxes other than income		17,808			17,460
Accrued interest payable		9,628			9,266
Environmental liabilities		30,840			34,952
Deferred revenue		17,522			22,901
Accrued product purchases		34,772			63,098
Current portion of long-term debt		14,345			272,678
Other current liabilities		18,975			25,647
Total current liabilities		186,571			520,227
Long-term debt		787,194			518,609
Long-term affiliate pension and benefits		18,015			29,278
Other deferred liabilities		66,087			59,311
Environmental liabilities		26,438			22,260
Minority interest in subsidiary		1,395,578			1,114,843
Commitments and contingencies
Owner’s equity (deficit)		(213,501	)		62,569
Accumulated other comprehensive loss		(1,573	)		(10,087	)
Total liabilities and owner’s equity (deficit)	$	2,264,809		$	2,317,010

See accompanying notes.

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NOTES TO CONSOLIDATED BALANCE SHEETS

1. Organization, Description of Business and Basis of Presentation

Unless indicated otherwise, the terms “our,” “we,” “us” and similar language refer to Magellan GP, LLC, a Delaware limited liability company. We were formed in August 2000 to serve as the general partner for Magellan Midstream Partners, L.P. (“MMP”) and manage its operations. We currently own an approximate 2% general partner interest in MMP and its incentive distribution rights. In June 2003, Madison Dearborn Capital Partners IV, L.P. and Carlyle/Riverstone Global Energy and Power Fund II, L.P. formed Magellan Midstream Holdings, L.P. (“MGG”). On June 17, 2003, MGG acquired all of our membership interests and certain limited partner ownership interests in MMP. MGG subsequently sold its limited partner units in MMP.

MMP is a publicly-traded Delaware limited partnership and was formed in August 2000, to own, operate and acquire a diversified portfolio of complementary energy assets. Because we control MMP it is included in our consolidated balance sheets (See Note 2—Summary of Significant Accounting Policies – Basis of Presentation). We have no operating assets other than through our general partner ownership interest and incentive distribution rights in MMP; therefore, the Description of Business discussion below relates to MMP.

Description of Business

MMP owns a petroleum products pipeline system, petroleum products terminals and an ammonia pipeline system.

Petroleum Products Pipeline System. MMP’s petroleum products pipeline system includes 8,500 miles of pipeline and 45 terminals that provide transportation, storage and distribution services. MMP’s petroleum products pipeline system covers a 13-state area extending from Texas through the Midwest to Colorado, North Dakota, Minnesota, Wisconsin and Illinois. The products transported on MMP’s pipeline system are primarily gasoline, diesel fuels, LPGs and aviation fuels. Product originates on the system from direct connections to refineries and interconnects with other interstate pipelines for transportation and ultimate distribution to retail gasoline stations, truck stops, railroads, airlines and other end-users. As part of a pipeline system acquisition completed during October 2004, MMP assumed an agreement to supply petroleum products to a customer in the west Texas markets. The purchase, transportation and resale of petroleum products associated with this supply agreement are included in the petroleum products pipeline segment. MMP acquired an ownership interest in Osage Pipe Line Company, LLC (“Osage Pipeline”) during 2004. This system includes the 135-mile Osage pipeline, which transports crude oil from Cushing, Oklahoma to El Dorado, Kansas and has connections to National Cooperative Refining Association’s (“NCRA”) refinery in McPherson, Kansas and the Frontier refinery in El Dorado, Kansas. MMP’s petroleum products blending operation is also included in the petroleum products pipeline system segment.

Petroleum Products Terminals. Most of MMP’s petroleum products terminals are strategically located along or near third-party pipelines or petroleum refineries. The petroleum products terminals provide a variety of services such as distribution, storage, blending, inventory management and additive injection to a diverse customer group including governmental customers and end-users in the downstream refining, retail, commercial trading, industrial and petrochemical industries. Products stored in and distributed through the petroleum products terminal network include refined petroleum products, blendstocks and heavy oils and feedstocks. The terminal network consists of marine terminals and inland terminals. In September 2005, MMP acquired a refined petroleum products terminal in Wilmington, Delaware (see Note 3—Acquisitions), increasing the number of marine terminals MMP operates to seven. Five of MMP’s marine terminal facilities are located along the Gulf Coast and two marine terminal facilities are located on the East Coast. As of December 31, 2006, MMP owns 29 inland terminals located primarily in the southeastern United States.

Ammonia Pipeline System. The ammonia pipeline system consists of an ammonia pipeline and six company-owned terminals. Shipments on the pipeline primarily originate from ammonia production plants located in Borger, Texas and Enid and Verdigris, Oklahoma for transport to terminals throughout the Midwest. The ammonia transported through the system is used primarily as nitrogen fertilizer.

2. Summary of Significant Accounting Policies

Basis of Presentation. At December 31, 2005 and 2006, our general partner ownership interest in MMP was 2.0%. In January 2007 our general partner interest changed to 1.995% (see Note 18—Subsequent Events). Our ownership of MMP is derived solely through our general partner ownership interest in MMP.

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Our general partner ownership interest in MMP gives us control of MMP as: (i) the limited partner interests in MMP do not have the substantive ability to dissolve MMP, (ii) the limited partners can remove us as MMP’s general partner only with a supermajority vote of the limited partner units and the limited partner units which can be voted in such an election are restricted, and (iii) the limited partners do not possess substantive participating rights in MMP’s operations. As such, our consolidated balance sheets include the assets and liabilities of MMP. All intercompany transactions have been eliminated.

Use of Estimates. The preparation of our consolidated balance sheets in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities that exist at the date of our consolidated balance sheets. Actual results could differ from those estimates.

Regulatory Reporting. MMP’s petroleum products pipelines are subject to regulation by the Federal Energy Regulatory Commission (“FERC”), which prescribes certain accounting principles and practices for the annual Form 6 report filed with the FERC that differ from those used in these balance sheets. Such differences relate primarily to capitalization of interest, accounting for gains and losses on disposal of property, plant and equipment and other adjustments. We follow generally accepted accounting principles (“GAAP”) where such differences of accounting principles exist.

Cash Equivalents. Cash and cash equivalents include demand and time deposits and other highly marketable securities with original maturities of three months or less when acquired.

Restricted Cash. Restricted cash includes cash held by MMP pursuant to the terms of the Magellan Pipeline Company, L.P. (“Magellan Pipeline”) notes (see Note 10—Debt).

Inventory Valuation. Inventory is comprised primarily of refined petroleum products, natural gas liquids, transmix and additives, which are stated at the lower of average cost or market.

Trade Receivables and Allowance for Doubtful Accounts. Trade receivables represent valid claims against non-affiliated customers and are recognized when products are sold or services are rendered. MMP extends credit terms to certain customers based on historical dealings and to other customers after a review of various credit indicators, including the customers’ credit rating. An allowance for doubtful accounts is established for all or any portion of an account where collections are considered to be at risk and reserves are evaluated no less than quarterly to determine their adequacy. Judgments relative to at-risk accounts include the customers’ current financial condition, the customers’ historical relationship with MMP and current and projected economic conditions. Trade receivables are written off when the account is deemed uncollectible.

Property, Plant and Equipment. Property, plant and equipment consist primarily of pipeline, pipeline-related equipment, storage tanks and terminal facility equipment. Property, plant and equipment are stated at cost except for impaired assets and assets recorded in transactions designated as the acquisition of a business. Impaired assets are recorded at fair value on the last impairment evaluation date for which an adjustment was required. Assets recorded in transactions designated as the acquisition of a business are recorded at the fair value of the assets acquired. At the time of MGG’s acquisition of its interests in MMP and us on June 17, 2003, we recorded MMP’s property, plant and equipment at 54.6% of fair values and at 46.4% of historical carrying values.

Assets are depreciated individually on a straight-line basis over their useful lives. MMP assigns these lives based on reasonable estimates when the asset is placed into service. Subsequent events could cause MMP to change its estimates, which would impact the future calculation of depreciation expense. The depreciation rates for most of MMP’s pipeline assets are approved and regulated by the FERC. Assets with the same useful lives and similar characteristics are depreciated using the same rate. The individual components of certain assets, such as tanks, are grouped together into a composite asset. Those assets are depreciated using a composite rate. The range of depreciable lives by asset category is detailed in Note 5—Property, Plant and Equipment.

The carrying value of property, plant and equipment sold or retired and the related accumulated depreciation is removed from the accounts and any associated gains or losses are recorded in the income statement in the period of sale or disposition.

Expenditures to replace existing assets are capitalized and the replaced assets are retired. Expenditures associated with existing assets are capitalized when they improve the productivity or increase the useful life of the asset. Direct costs such as

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

labor and materials are capitalized as incurred. Indirect project costs, such as overhead, are capitalized based on a percentage of direct labor charged to the respective capital project. MMP capitalizes interest for capital projects with expenditures over $0.5 million that require three months or longer to complete. Expenditures for maintenance, repairs and minor replacements are charged to operating expense in the period incurred.

Asset Retirement Obligation. MMP has adopted Statement of Financial Accounting Standard (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires the fair value of a liability related to the retirement of long-lived assets be recorded at the time a legal obligation is incurred, if the liability can be reasonably estimated. When the liability is initially recorded, the carrying amount of the related asset is increased by the amount of the liability. Over time, the liability is accreted to its future value, with the accretion recorded to expense. In March 2005, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations (as amended).” FIN No. 47 clarified that where there is an obligation to perform an asset retirement activity, even though uncertainties exist about the timing or method of settlement, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be determined.

MMP’s operating assets generally consist of underground refined products pipelines and related facilities along rights-of-way and above-ground storage tanks and related facilities. MMP’s rights-of-way agreements typically do not require the dismantling, removal and reclamation of the rights-of-way upon permanent removal of the pipelines and related facilities from service. Additionally, management is unable to predict when, or if, MMP’s pipelines, storage tanks and related facilities would become completely obsolete and require decommissioning. Accordingly, except for a $1.4 million liability associated with anticipated tank liner replacements, MMP has recorded no liability or corresponding asset in conjunction with SFAS No. 143 and FIN No. 47 because both the amounts and future dates of when such costs might be incurred are indeterminable.

Equity Investments. MMP accounts for investments greater than 20% in affiliates which it does not control by the equity method of accounting. Under this method, an investment is recorded at MMP’s acquisition cost, plus its equity in undistributed earnings or losses since acquisition, less distributions received and less amortization of excess net investment. Excess net investment is the amount by which MMP’s initial investment exceeds its proportionate share of the book value of the net assets of the investment. MMP evaluates equity method investments for impairment annually or whenever events or circumstances indicate that there is an other-than-temporary loss in value of the investment. In the event that MMP determines that the loss in value of an investment is other-than-temporary, it would record a charge to earnings to adjust the carrying value to fair value. MMP recorded no equity investment impairments during 2005 or 2006.

Goodwill and Other Intangible Assets. We have adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” In accordance with this Statement, goodwill, which represents the excess of cost over fair value of assets of businesses acquired, is no longer amortized but is evaluated periodically for impairment. Goodwill at December 31, 2005 and 2006 was $12.4 million and $11.9 million, respectively.

The determination of whether goodwill is impaired is based on management’s estimate of the fair value of MMP’s reporting units as compared to their carrying values. Critical assumptions used in MMP’s estimates included: (i) time horizon of 20 years, (ii) revenue growth of 2.5% per year and expense growth of 2.5% per year, except general and administrative (“G&A”) costs, with an assumed growth of 3.0% per year, (iii) weighted-average cost of capital of 10.25% based on assumed cost of debt of 6.5%, assumed cost of equity of 14.0% and a 50%/50% debt-to-equity ratio, (iv) capital spending growth of 2.5%, and (v) 8 times earnings before interest, taxes and depreciation and amortization multiple for terminal value. MMP selected October 1 as its impairment measurement test date and has determined that its goodwill was not impaired as of October 1, 2005 or 2006. If impairment were to occur, the amount of the impairment recognized would be determined by subtracting the implied fair value of the reporting unit goodwill from the carrying amount of the goodwill.

All of MMP’s other intangible assets are being amortized over their useful lives. The useful lives are adjusted if events or circumstances indicate there has been a change in the remaining useful lives. MMP’s other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the recoverability of the carrying amount of the intangible asset should be assessed. MMP recognized no impairments for other intangible assets in 2005 or 2006. Other intangible assets are amortized on a straight-line basis over their estimated useful lives of 5 years up to 25 years. The weighted-average asset lives of MMP’s other intangible assets at December 31, 2006 was approximately 10 years.

Judgments and assumptions are inherent in management’s estimates used to determine the fair value of MMP’s operating segments. The use of alternate judgments and assumptions could result in the recognition of different levels of impairment charges and the reported balances of property, plant and equipment on our consolidated balance sheets.

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

Impairment of Long-Lived Assets. MMP has adopted SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In accordance with this Statement, MMP evaluates its long-lived assets of identifiable business activities, other than those held for sale, for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. The determination of whether impairment has occurred is based on management’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. The amount of the impairment recognized is calculated as the excess of the carrying amount of the asset over the fair value of the assets, as determined either through reference to similar asset sales or by estimating the fair value using a discounted cash flow approach.

Long-lived assets to be disposed of through sales of assets that meet specific criteria are classified as “held for sale” and are recorded at the lower of their carrying value or the estimated fair value less the cost to sell. Until the assets are disposed of, an estimate of the fair value is re-determined when related events or circumstances change.

Judgments and assumptions are inherent in management’s estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset’s fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and assumptions could result in the recognition of different levels of impairment charges and the reported balances of property, plant and equipment on our consolidated balance sheets. MMP recorded no impairments relative to its long-lived assets during 2005. In 2006, MMP recorded a $3.0 million charge against the earnings of its petroleum products pipeline system segment associated with an impairment of its Menard, Illinois terminal, which MMP may close in 2007. The carrying value of the Menard, Illinois, terminal prior to the impairment was $3.6 million. The fair value of the terminal was determined using probability-weighted discounted cash flow techniques.

Lease Financings. Direct financing leases are accounted for such that the minimum lease payments plus the unguaranteed residual value accruing to the benefit of the lessor is recorded as the gross investment in the lease. The net investment in the lease is the difference between the total minimum lease payment receivable and the associated unearned income.

Debt Placement Costs. Costs incurred for debt borrowings are capitalized as paid and amortized over the life of the associated debt instrument using the effective interest method. When debt is retired before its scheduled maturity date, any remaining placement costs associated with that debt are written off.

Capitalization of Interest. Interest on borrowed funds is capitalized on projects during construction based on the approximate average interest rate of MMP’s debt. MMP capitalizes interest on all construction projects requiring three months or longer to complete with total costs exceeding $0.5 million.

Pension and Postretirement Medical and Life Benefit Obligations. Prior to December 2005, MGG maintained defined benefit plans and a defined contribution plan, which provided retirement benefits to substantially all of its employees. In December 2005, the employees of MGG were transferred to Magellan Midstream Holdings GP, LLC (“MGG GP”), which is MGG’s general partner. Accordingly, the defined benefit plans and defined contribution plan were also transferred to MGG GP (see Note 8—Employee Benefit Plans). At December 31, 2005, the affiliate pension and postretirement medical and life liabilities reported on our consolidated balance sheets represent the funded status of the present value of benefit obligations net of unrecognized prior service costs/credits and unrecognized actuarial gains/losses of the aforementioned plans. In 2006, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” and, as of December 31, 2006, the pension and postretirement benefit obligations on our consolidated balance sheet represent the funded status of the present value of benefit obligations of the aforementioned plans.

Paid-Time Off Benefits. Affiliate liabilities for paid-time off benefits are recognized for all employees performing services for MMP when earned by those employees. MMP recognized affiliate paid-time off liabilities of $6.8 million and $8.0 million at December 31, 2005 and 2006, respectively. These balances represent the remaining vested paid-time off benefits of employees who support MMP. Affiliate liabilities for paid-time off are reflected in the accrued affiliate payroll and benefits balances of the consolidated balance sheets.

Derivative Financial Instruments. We account for hedging activities in accordance with SFAS 133, “Accounting for Financial Instruments and Hedging Activities,” as amended, which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet at fair value as either assets or liabilities.

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

For those instruments that qualify for hedge accounting, the accounting treatment depends on each instrument’s intended use and how it is designated. Derivative financial instruments qualifying for hedge accounting treatment can generally be divided into two categories: (1) cash flow hedges and (2) fair value hedges. Cash flow hedges are executed to hedge the variability in cash flows related to a forecasted transaction. Fair value hedges are executed to hedge the value of a recognized asset or liability. At inception of a hedged transaction, MMP documents the relationship between the hedging instrument and the hedged item, the risk management objectives and the methods used for assessing and testing correlation and hedge effectiveness. MMP also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows or fair value of the hedge item. Furthermore, MMP assesses the creditworthiness of the counterparties to manage against the risk of default. If MMP determines that a derivative, originally designed as a cash flow or fair value hedge, is no longer highly effective as a hedge, MMP discontinues hedge accounting prospectively by including changes in the fair value of the derivative in current earnings.

Derivatives that qualify for and are designated as normal purchases and sales are accounted for using traditional accrual accounting. As of December 31, 2006, MMP had commitments under future contracts for product purchases that will be accounted for as normal purchases totaling approximately $1.7 million. Additionally, MMP had commitments under future contracts for product sales that will be accounted for as normal sales totaling approximately $36.1 million.

MMP generally reports gains, losses and any ineffectiveness from interest rate derivatives in other income in its results of operations. MMP recognizes the effective portion of hedges against changes in interest rates as adjustments to other comprehensive income. MMP records the non-current portion of unrealized gains or losses associated with fair value hedges on long-term debt as adjustments to long-term debt on the balance sheet with the current portion recorded as adjustments to interest expense.

Unit-Based Incentive Compensation Awards. The compensation committee of our board of directors has issued incentive awards of phantom units, without distribution equivalent rights, representing limited partner interests in MMP to our directors and certain employees of MGG GP who support MMP. These awards were accounted for as prescribed in SFAS No. 123(R), which required MMP to account for all of its equity-based incentive award grants prior to January 1, 2006 using the fair value method as defined in SFAS No. 123 instead of its previous methodology of using the intrinsic value method as defined in Accounting Principles Board (“APB”) No. 25. The unit-based awards granted during 2006 have been accounted for under the provisions of SFAS No. 123(R).

Under SFAS No. 123(R) MMP classifies unit award grants as either equity or liabilities. Fair value for award grants classified as equity is determined on the grant date of the award and this value is recognized as compensation expense ratably over the requisite service period of unit award grants, which generally is the vesting period remaining on the grant date. Fair value for equity awards is calculated as the closing price of MMP’s common units representing limited partner interests in MMP (“limited partner units”) on the grant date reduced by the present value of expected per-unit distributions to be paid during the requisite service period of the unit award grants. Unit award grants classified as liabilities are re-measured at fair value on the close of business at each reporting period end until settlement date.

Certain unit award grants include performance and other provisions, which can result in payouts to the recipients from zero up to double the amount of the award. Additionally, certain unit award grants are also subject to personal and other performance components which could increase or decrease the number of units to be paid out by as much as 20%. Judgments and assumptions of the final award payouts are inherent in the accruals MMP records for unit-based incentive compensation costs. The use of alternate judgments and assumptions could result in the recognition of different levels of unit-based incentive compensation liabilities in our consolidated balance sheets.

Environmental. Environmental expenditures that relate to current or future revenues are expensed or capitalized based upon the nature of the expenditures. Expenditures that relate to an existing condition caused by past operations that do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmental costs are probable and can be reasonably estimated. Environmental liabilities are recorded independently of any potential claim for recovery. Accruals related to environmental matters are generally determined based on site-specific plans for remediation, taking into account currently available facts, existing technologies and presently enacted laws and regulations. Accruals for environmental matters reflect prior remediation experience and include an estimate for costs such as fees paid to contractors and outside engineering, consulting and law firms. Furthermore, costs include compensation and benefit expense of internal employees directly involved in remediation efforts. MMP maintains selective insurance coverage, which may cover all or

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

portions of certain environmental expenditures. Receivables are recognized in cases where the realization of reimbursements of remediation costs is considered probable.

MMP has determined that certain costs would have been covered by indemnifications from our former owner, which it has settled (see Note 14—Commitments and Contingencies). MMP makes judgments on what would have been covered by these indemnifications and specifically allocates these costs to us.

The determination of the accrual amounts recorded for environmental liabilities include significant judgments and assumptions made by management. The use of alternate judgments and assumptions could result in the recognition of different levels of environmental remediation costs in our consolidated balance sheets.

Minority Interests. The minority interests of subsidiary on our consolidated balance sheets reflect the outside ownership interest of MMP which was 98.0% at both December 31, 2005 and 2006. MMP’s net income is allocated to us and its limited partners based on each of our proportionate share of contractually-determined cash distributions for the period, with adjustments made for certain charges which are specifically allocated to us. For periods in which MMP’s net income exceeds its distributions, any undistributed earnings are allocated based on equity ownership (excluding incentive distribution rights).

From the time of its acquisition of us and MMP in June 2003 through 2005, MGG sold all of its MMP common and subordinated units (see Note 17—Owners’ Equity). All amounts MGG received from the sale of MMP’s limited partner units were recorded as increases to the minority interest in subsidiary.

Income Taxes. We and MMP are partnerships for income tax purposes and therefore have not been subject to federal income taxes or state income taxes. The tax on MMP’s net income is borne by the individual partners through the allocation of taxable income. Net income for financial statement purposes may differ significantly from taxable income of unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under MMP’s partnership agreement. The aggregate difference in the basis of our net assets for financial and tax reporting purposes cannot be readily determined because information regarding each partner’s tax attributes in us is not available to us.

During 2006, the state of Texas passed a law that will impose a partnership-level tax on MMP, beginning in 2007, based on the financial results of MMP’s assets apportioned to the state of Texas. MMP estimates that its tax obligation under this law will be approximately $3.0 million for the 2007 fiscal year.

Segment Disclosures. Total assets and goodwill for MMP’s operating segments at December 31, 2006 and 2005 is provided below:

	Petroleum Products Pipeline System		Petroleum Products Terminals		Ammonia System		Total
December 31, 2006
Segment assets	$	1,600,297	$	623,803	$	30,519	$	2,254,619
Corporate assets								62,391
Total assets							$	2,317,010
Goodwill	$	—	$	11,902	$	—	$	11,902
December 31, 2005
Segment assets	$	1,556,365	$	561,071	$	38,219	$	2,155,655
Corporate assets								109,154
Total assets							$	2,264,809
Goodwill	$	—	$	12,837	$	—	$	12,387

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

Recent Accounting Standards. In October 2006, the FASB adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and recognize changes in the funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 was required to be adopted for financial statements issued after December 15, 2006. We adopted SFAS No. 158 in December 2006 and, as a result, recorded an increase in our pension and postretirement liabilities of $9.3 million, with an offsetting increase to accumulated other comprehensive loss of $9.3 million.

In October 2006, the FASB adopted Financial Staff Position (“FSP”) No. FAS 123(R)-5, “Amendment of FASB Staff Position FAS 123(R)-1.” This FSP addresses whether a modification of an instrument in connection with an equity restructuring should be considered a modification for purposes of applying FSP FAS 123(R)-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R).” This FSP clarified that awards issued to an employee in exchange for past or future employee services that is subject to Statement 123(R) will continue to be subject to the recognition and measurement provisions of Statement 123(R) throughout the life of the instrument, unless its terms are modified when the holder is no longer an employee. However, only for purposes of this FSP, a modification does not include a change to the terms of the award if that change is made solely to reflect an equity restructuring that occurs when the holder is no longer an employee. The provisions in this FSP were required to be applied in the first reporting period beginning after October 10, 2006. We adopted this FSP on January 1, 2007, and its adoption did not have a material impact on our financial position.

In October 2006, the FASB adopted FSP No. FAS 123(R)-6, “Technical Corrections of FASB Statement No. 123(R).” This FSP clarifies that on the date any equity-based incentive awards are determined to be no longer probable of vesting, any previously recognized compensation cost should be reversed. Further, the FSP clarifies that an offer, made for a limited time period, to repurchase an equity-based incentive award should be excluded from the definition of a short-term inducement and should not be accounted for as a modification pursuant to paragraph 52 of Statement 123(R). The provisions in this FSP are required to be applied in the first reporting period beginning after October 20, 2006. We adopted this FSP on January 1, 2007, and its adoption did not have a material impact on our financial position.

In September 2006, the FASB adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. While SFAS No. 157 will not have an impact on our valuation methods, it will expand our disclosures of assets and liabilities which are recorded at fair value. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. We are considering adopting this standard for 2007 but have not yet made a final decision. The adoption of this standard will not have a material impact on our financial position.

In September 2006, the FASB issued FSP No. AUG AIR-a, “Accounting for Planned Major Maintenance Projects.” This FSP prohibits the accrual of any estimated planned major maintenance costs because the accrued liabilities do not meet the definition of a liability under Statement of Financial Accounting Concepts No. 6, “Elements of Financial Statements.” The FSP also requires disclosure of an entity’s accounting policies relative to major maintenance. The guidance provided in FSP is required to be applied to the first fiscal year following December 31, 2006. We adopted this FSP on January 1, 2007, and its adoption did not have a material impact on our financial position. Our accounting policy regarding maintenance projects, which states that expenditures for maintenance, repairs and minor replacements are charged to operating expense in the period incurred, is included in our significant accounting policy statements under Property, Plant and Equipment above.

In February 2006, the FASB issued FSP No. FAS 123(R)-4, “Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement Upon the Occurrence of a Contingent Event”. This FSP provides that long-term equity incentive awards can still qualify for equity treatment if they contain a clause that allows for the payment of cash to award recipients under certain circumstances, such as a change in control of the general partner of a limited partnership. We adopted this FSP in February 2006 and its adoption did not have a material impact on our financial position.

In November 2005, the FASB issued FSP No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires

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certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” FASB Statement No. 124, “Accounting for Certain Investments Held by Not-for-Profit Organizations,” and APB No. 18, “The Equity Method of Accounting for Investments in Common Stock.” The guidance in this FSP is to be applied to reporting periods beginning after December 15, 2005. We adopted this FSP on January 1, 2006, and its adoption did not have a material impact on our financial position.

In October 2005, the FASB issued FSP No. 13-1, “Accounting for Rental Costs Incurred During a Construction Period.” This FSP requires entities who incur rental costs associated with operating leases to expense such costs as a continuing operating expense. This FSP is required to be implemented beginning January 1, 2006, with early adoption permitted. We adopted the FSP on January 1, 2006, and its adoption did not have a material impact on our financial position.

In September 2005, the FASB issued Emerging Issue Task Force (“EITF”) issue No. 04-13, “Accounting for Purchases and Sales of Inventory With the Same Counterparty.” In EITF No. 04-13, the FASB reached a tentative conclusion that inventory purchases and sales transactions with the same counterparty that are entered into in contemplation of one another should be combined for purposes of applying APB No. 29, “Accounting for Nonmonetary Transactions.” The tentative conclusions reached by the FASB are required to be applied to transactions completed in reporting periods beginning after March 15, 2006. We adopted this EITF on March 16, 2006 and its adoption did not have a material impact on our financial position.

In June 2005, the FASB issued EITF issue No. 04-5. In EITF 04-5, the Task Force reached a consensus that the general partner in a limited partnership is presumed to control that limited partnership regardless of the extent of the general partner’s ownership in the limited partnership. The assessment of whether the rights of the limited partners should overcome the presumption of control by the general partner depends on whether the limited partners have either (a) the substantive ability to dissolve the limited partnership or otherwise remove the general partner without cause or (b) substantive participating rights. We adopted this EITF in June 2005 and its adoption did not have a material impact on our financial position.

In May 2005, the FASB published SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 requires retrospective application to prior periods’ financial statements of every voluntary change in accounting principle unless it is impracticable to do so. SFAS No. 154 also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in nondiscretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. We adopted SFAS No. 154 on January 1, 2006, and its adoption did not have a material impact on our financial position.

In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations (as amended).” FIN No. 47 clarified that the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Thus, the timing and (or) method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred—generally upon acquisition, construction, or development and (or) through the normal operation of the asset. Uncertainty about the timing and (or) method of settlement of a conditional asset retirement obligation should be factored into the measurement of the liability when sufficient information exists. SFAS No. 143 acknowledges that in some cases, sufficient information may not be available to reasonably estimate the fair value of an asset retirement obligation. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN No. 47 was required to be adopted no later than the end of fiscal years ending after December 15, 2005, with retrospective application for interim financial information permitted. We adopted FIN No. 47 in March 2005, and its adoption did not have a material impact on our financial position.

In December 2004, the FASB issued a revision to SFAS No. 123, “Share-Based Payment,” as amended, referred to as “SFAS No. 123(R).” This Statement and subsequent amendments establishes accounting standards for transactions in which an entity exchanges its equity instruments for goods or services. This SFAS requires that all equity-based compensation

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awards to employees be recognized in the income statement based on their fair values, eliminating the alternative to use APB No. 25’s intrinsic value method. SFAS No. 123(R) was effective as of the beginning of the first interim period that began after December 31, 2005. SFAS No. 123(R) applies to all awards granted after the required effective date but was not to be applied to awards granted in periods before the required effective date except to the extent that awards from prior periods were modified, repurchased or cancelled after the required effective date. We adopted SFAS No. 123(R) on January 1, 2006, using the modified prospective application method. Under the modified prospective method, we were required to account for all of our equity-based incentive awards granted prior to January 1, 2006 using the fair value method as defined in SFAS No. 123 instead of our current methodology of using the intrinsic value method as defined in APB No. 25. Due to the structure of the awards granted to employees supporting MMP, MMP recognized compensation expense under APB No. 25 in much the same manner as that required under SFAS No. 123. Consequently, for the awards granted prior to January 1, 2006, the initial adoption and application of SFAS No. 123(R) did not have a material impact on our financial position.

3. Acquisitions

The following acquisition was accounted for as an acquisition of a business. This acquisition was accounted for under the purchase method and the assets acquired and liabilities assumed were recorded at their estimated fair market values as of the acquisition date.

Petroleum Products Terminals. On September 1, 2005, MMP acquired a refined petroleum products terminal near Wilmington, Delaware from privately-owned Delaware Terminal Company. This marine terminal has 1.8 million barrels of usable storage capacity. Management believes this facility is strategic to MMP’s efforts to grow and provide expanded services for its customers’ needs in the Mid-Atlantic markets. The operating results of this facility have been included with MMP’s petroleum products terminals segment results beginning on September 1, 2005. The land on which the facility sits was purchased in a separate transaction from a local non-profit agency. The allocation of the purchase price was as follows (in thousands):

Purchase price:
Cash paid, including transaction costs	$	55,295
Environmental liabilities assumed		250
Total purchase price	$	55,545
Allocation of purchase price:
Property, plant and equipment	$	51,236
Goodwill		2,809
Other intangibles		1,500
Total	$	55,545

The following acquisitions were accounted for as acquisition of assets:

Petroleum Products Pipeline Terminals. In fourth-quarter 2005, MMP acquired two terminals that are connected to its 8,500-mile petroleum products pipeline system. The terminals include 0.4 million barrels of combined usable storage capacity and are located in Wichita, Kansas and Aledo, Texas. These terminals were acquired from privately-held companies for cash of approximately $10.9 million, all of which was recorded to property, plant and equipment. The operating results of the Wichita, Kansas and Aledo, Texas terminals have been included in MMP’s petroleum products pipeline system segment since their respective acquisition dates.

In conjunction with the acquisition of the Aledo, Texas terminal, MMP negotiated a partial settlement of the third-party supply agreement it assumed as part of its pipeline system acquisition in October 2004. As a result, MMP recorded a reduction in the supply agreement liability of $7.6 million.

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4. Inventory

Inventories at December 31, 2005 and 2006 were as follows (in thousands):

	December 31,
	2005		2006
Refined petroleum products	$	56,680	$	45,839
Natural gas liquids		9,693		28,848
Transmix		9,589		14,449
Additives		1,805		2,026
Other		388		388
Total inventories	$	78,155	$	91,550

The increase in the natural gas liquids inventory at December 31, 2006 compared to December 31, 2005 is the result of purchasing significantly higher volumes of natural gas liquids used in MMP’s petroleum products blending operation during the fourth quarter of 2006 due to favorable product prices.

5. Property, Plant and Equipment

Property, plant and equipment consist of the following (in thousands):

	December 31,				Estimated Depreciable Lives
	2005		2006
Construction work-in-progress	$	28,657	$	67,330
Land and rights-of-way		55,254		57,178
Carrier property		1,501,374		1,530,907	24 –50 years
Buildings		13,217		13,670	20 –53 years
Storage tanks		302,033		323,115	20 –40 years
Pipeline and station equipment		114,658		128,558	4 – 59 years
Processing equipment		221,823		255,865	3 – 53 years
Other		46,499		51,356	3 – 48 years
Total	$	2,283,515	$	2,427,979

Carrier property is defined as pipeline assets regulated by the FERC. Other includes capitalized interest at December 31, 2005 and 2006 of $19.2 million and $19.3 million, respectively.

6. Equity Investments

Effective march 2, 2004, MMP acquired a 50% ownership in Osage Pipeline for $25.0 million. The remaining 50% interest is owned by National Cooperative Refinery Association in McPherson, Kansas (“NCRA”). The 135-mile Osage pipeline transports crude oil from Cushing, Oklahoma to El Dorado, Kansas and has connections to the NCRA refinery in McPherson, Kansas and the Frontier refinery in El Dorado, Kansas. MMP’s agreement with NCRA calls for equal sharing of Osage Pipeline’s net income. Income from MMP’s equity investment in Osage is included with its petroleum products pipeline system segment.

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MMP uses the equity method of accounting for this investment. Summarized financial information for Osage Pipeline is presented below (in thousands):

	Year Ended December 31,
	2005		2006
Revenue	$	12,573	$	14,446
Net income	$	7,537	$	7,976

The condensed balance sheet for Osage Pipeline as of December 31, 2005 and 2006 is presented below (in thousands):

	December 31,
	2005		2006
Current assets	$	4,767	$	5,015
Noncurrent assets	$	4,535	$	4,278
Current liabilities	$	431	$	697
Members’ equity	$	8,871	$	8,596

A summary of MMP’s equity investment in Osage Pipeline is as follows (in thousands):

	December 31,
	2005			2006
Investment at beginning of period	$	25,084		$	24,888
Earnings in equity investment:
Proportionate share of earnings		3,768			3,988
Amortization of excess investment		(664	)		(664	)
Net earnings in equity investment		3,104			3,324
Cash distributions		(3,300	)		(4,125	)
Equity investment at end of period	$	24,888		$	24,087

MMP’s investment in Osage Pipeline included an excess net investment amount of $21.7 million. Excess investment is the amount by which MMP’s initial investment exceeded its proportionate share of the book value of the net assets of the investment. The unamortized excess net investment amount at December 31, 2005 and 2006 was $20.5 million and $19.8 million, respectively, and represents additional value of the underlying identifiable assets.

7. Concentration of Credit Risk

MMP transports refined petroleum products for refiners and marketers in the petroleum industry. The major concentration of MMP’s petroleum products pipeline system’s revenues is derived from activities conducted in the central United States. Sales to customers are generally unsecured and the financial condition and creditworthiness of customers are periodically evaluated. MMP has the ability with many of its pipeline and terminals contracts to sell stored customer products to recover unpaid receivable balances, if necessary. MMP also requires additional security as it considers necessary.

Since December 24, 2005, the employees assigned to conduct MMP’s operations were employees of MGG GP. Prior to December 24, 2005, the employees assigned to conduct MMP’s operations were employees of MGG. On December 24, 2005, MGG transferred all of its employees to its general partner, MGG GP. As of December 31, 2006, MGG GP employed approximately 1,064 employees. MMP considers its employee relations to be good.

At December 31, 2006, the labor force of 569 employees assigned to MMP’s petroleum products pipeline system was concentrated in the central United States. Approximately 38% of these employees were represented by the United Steel Workers Union and covered by collective bargaining agreements that extend through January 31, 2009. The labor force of 236 employees assigned to MMP’s petroleum products terminals operations at December 31, 2006 was primarily concentrated in the southeastern and Gulf Coast regions of the United States. On August 10, 2006, the 27 non-supervisory employees at MMP’s New Haven, Connecticut terminal elected the International Union of Operating Engineers as their

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bargaining agent and MMP is currently in the process of negotiating an agreement with these employees. MMP’s ammonia pipeline is operated by a third-party contractor and no employees are specifically assigned to those operations.

8. Employee Benefit Plans

On January 1, 2004, MGG assumed sponsorship of a union pension plan for certain hourly employees. Additionally, MGG began sponsorship of a pension plan for certain non-union employees, a postretirement benefit plan for selected employees and a defined contribution plan effective January 1, 2004. The sponsorship of these plans was transferred from MGG to MGG GP on December 24, 2005. MMP is required to reimburse the plan sponsor for its obligations associated with the pension plans, postretirement benefits plan and defined contribution plan for qualifying individuals assigned to MMP’s operations.

In December 2006, we adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” Upon adoption of SFAS No. 158, we recognized the funded status of the present value of the benefit obligation of MGG GP’s pension plans and its postretirement medical and life benefit plan. The effect of adopting SFAS No. 158 on amounts reported in our consolidated balance sheets is described later in this note. SFAS No. 158 prohibited retroactive application of this accounting standard.

The annual measurement date for the aforementioned plans is December 31. The following table presents the changes in affiliate benefit obligations and plan assets for pension benefits and other postretirement benefits for the year ended December 31, 2005 and 2006. The table also presents a reconciliation of the funded status of these benefits to the amount recorded in the consolidated balance sheet at December 31, 2005 (in thousands):

	Pension Benefits						Other Postretirement Benefits
	2005			2006			2005			2006
Change in affiliate benefit obligation:
Affiliate benefit obligation at beginning of year	$	33,897		$	39,122		$	12,999		$	19,280
Service cost		4,215			5,587			530			469
Interest cost		1,866			2,206			994			834
Plan participants’ contributions		—			—			39			55
Actuarial loss		1,199			332			4,834			720
Plan amendment(a)		—			—			—			(6,159	)
Benefits paid		(2,055	)		(3,398	)		(116	)		(195	)
Affiliate benefit obligation at end of year		39,122			43,849			19,280			15,004
Change in plan assets:
Fair value of plan assets at beginning of year		22,146			25,465			—			—
Employer contributions		4,813			5,259			77			140
Plan participants’ contributions		—			—			39			55
Actual return on plan assets		561			2,090			—			—
Benefits paid		(2,055	)		(3,398	)		(116	)		(195	)
Fair value of plan assets at end of year		25,465			29,416			—			—
Funded status at end of year		(13,657	)	$	(14,433	)		(19,280	)	$	(15,004	)
Unrecognized net actuarial loss(b)		6,780			N/A			5,366			N/A
Unrecognized prior service cost(b)		2,491			N/A			628			N/A
Accrued benefit cost	$	(4,386	)		N/A		$	(13,286	)		N/A
Accumulated affiliate benefit obligation	$	28,629		$	32,042			N/A			N/A

(a) During 2006 MGG GP increased the deductibles and premiums of the plan participants, which resulted in a decrease in MMP’s obligation to MGG GP for the postretirement medical and life benefit plan.

(b) Prior to the adoption in 2006 of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, these amounts were not recognized as liabilities in our consolidated balance sheets as prescribed under SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”.

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The amounts included in the pension benefits in the above table combine the union pension plan with the non-union pension plan. At December 31, 2005, the accumulated benefit obligations of both plans exceeded the fair value of their respective plan assets. At December 31, 2006, the union pension plan had an accumulated benefit obligation of $23.2 million, which exceeded the fair value of plan assets of $20.4 million. Amounts recognized in the consolidated balance sheets were as follows (in thousands):

	Pension Benefits						Other Postretirement Benefits
	2005			2006			2005			2006
Amounts recognized in consolidated balance sheet:
Current accrued benefit cost	$	—		$	—		$	—		$	(159	)
Long-term accrued benefit cost		(4,729	)		(14,433	)		(13,286	)		(14,845	)
		(4,729	)		(14,433	)		(13,286	)		(15,004	)
Accumulated other comprehensive income:
Net loss		343			6,390			N/A			5,411
Prior service cost (credit)		—			2,184			N/A			(4,680	)
Net amount recognized in consolidated balance sheet	$	(4,386	)	$	(5,859	)	$	(13,286	)	$	(14,273	)

The effect of SFAS No. 158 on amounts reported in our consolidated balance sheet as of December 31, 2006 was as follows (in thousands):

	Before Application of SFAS No. 158			SFAS No. 158 Adjustments			As Reported
Affiliate payroll and benefits	$	18,517		$	159		$	18,676
Total current liabilities		520,386			159			520,227
Long-term affiliate pension and benefits		20,132			9,146			29,278
Accumulated other comprehensive loss		(782	)		(9,305	)		(10,087	)
Owner’s equity (deficit)		71,874			(9,305	)		62,569

The weighted-average rate assumptions used to determine benefit obligations as of December 31, 2005 and 2006 were as follows:

	Pension Benefits				Other Postretirement Benefits
	2005		2006		2005		2006
Discount rate	5.50	%	5.75	%	5.50	%	6.00	%
Rate of compensation increase – non-union plan	5.00	%	5.00	%	N/A		N/A
Rate of compensation increase – union plan	5.00	%	4.50	%	N/A		N/A

The non-pension postretirement benefit plans provide for retiree contributions and contain other cost-sharing features such as deductibles and coinsurance. The accounting for these plans anticipates future cost sharing that is consistent with MGG GP’s expressed intent to increase the retiree contribution rate generally in line with health care cost increases.

The annual assumed rate of increase in the health care cost trend rate for 2007 is 12.7% and systematically decreases to 5.7% by 2013 for pre-65 year-old participants and 6.4% systematically decreasing to 5.3% by 2010 for post-65 year-old participants. The health care cost trend rate assumption has a significant effect on the amounts reported. As of December 31, 2006, a 1.0% change in assumed health care cost trend rates would have the following effect (in thousands):

	Point Increase		Point Decrease
Change in postretirement benefit obligation	$	2,214	$	2,066

The expected long-term rate of return on plan assets was determined by combining a review of projected returns, historical returns of portfolios with assets similar to the current portfolios of the union and non-union pension plans and target weightings of each asset classification. MGG GP’s investment objectives for the assets within the pension plans are to obtain a balance between long-term growth of capital and generation of income to meet withdrawal requirements, while

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avoiding excessive risk. Defined diversification goals are set in order to reduce the risk of wide swings in the market value from year to year, or of incurring large losses that may result from concentrated positions. MGG GP evaluates risk based on the potential impact on the predictability of contribution requirements, probability of under- funding, expected risk-adjusted returns and investment return volatility. Funds are invested with multiple investment managers. The target allocation percentages and the actual weighted-average asset allocation at December 31, 2005 and 2006 were as follows:

	2005				2006
	Actual		Target		Actual		Target
Equity securities	65	%	65	%	65	%	67	%
Debt securities	31	%	34	%	31	%	32	%
Other	4	%	1	%	4	%	1	%

As of December 31, 2006, benefit amounts expected to be paid through December 31, 2016 were as follows (in thousands):

	Pension Benefits		Other Postretirement Benefits
2007	$	1,596	$	159
2008		1,600		247
2009		2,012		363
2010		2,173		472
2011		2,277		581
2012 through 2016		14,493		4,101

Contributions estimated to be paid in 2007 are $5.5 million and $0.2 million for the pension and other postretirement benefit plans, respectively.

9. Related Party Transactions

MGG had a services agreement with MMP pursuant to which MGG agreed to provide the employees necessary to conduct MMP’s operations. MMP reimbursed MGG for all payroll and benefit costs MGG incurred until December 24, 2005. On December 24, 2005, the employees necessary to conduct MMP’s operations were transferred to MGG GP, the services agreement with MMP was terminated and a new services agreement between MMP and MGG GP was executed. Consequently, MMP now reimburses MGG GP for the costs of employees necessary to conduct MMP’s operations. Additionally, MGG has an agreement with MMP and us whereby MGG agreed to reimburse MMP for G&A expenses (excluding equity-based compensation) in excess of a G&A cap as defined in the omnibus agreement. This agreement expires December 31, 2010. The amount of G&A costs that MGG was required to reimburse to MMP was $3.3 million and $1.7 million in 2005 and 2006, respectively. MMP settles its affiliate payroll, payroll-related expenses and non-pension postretirement benefit costs with MGG GP on a monthly basis. MMP settles its long-term affiliate pension liabilities through contributions to MGG when MGG makes contributions to MGG GP’s pension funds.

In March 2004, MMP acquired a 50% ownership interest in Osage pipeline and began operating the pipeline, for which MMP is paid a fee. During both 2005 and 2006, MMP received operating fees from Osage Pipeline of $0.7 million.

MGG is partially owned by an affiliate of the Carlyle/Riverstone Global Energy and Power Fund II, L.P. (“CRF”). As of December 31, 2006, one of the members of our eight-member board of directors was a representative of CRF. We have adopted procedures internally to assure that MMP’s proprietary and confidential information is protected from disclosure to competing companies in which CRF owns an interest. As part of these procedures, CRF agreed that none of its representatives would serve on our board of directors and on the boards of directors of competing companies in which CRF owns an interest. Effective January 30, 2007, all of the representatives of CRF have resigned from our board of directors. See Note 18—Subsequent Events for further discussion of this matter.

On January 25, 2005, CRF, through affiliates, acquired general and limited partner interests of SemGroup, L.P. (“SemGroup”). At December 31, 2006, CRF’s total combined general and limited partner interest in SemGroup was approximately 30%. One of the members of the seven-member board of directors of SemGroup’s general partner is a representative of CRF, with three votes on that board. MMP, through its subsidiaries and affiliates, is a party to a number of

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transactions with SemGroup and its affiliates. A summary of these transactions is provided in the following table (in millions):

	January 21, 2005 Through December 31, 2005		Year Ended December 31, 2006
Product sales revenues	$	144.8	$	177.1
Product purchases		90.0		63.2
Terminalling and other services revenues		5.9		4.4
Storage tank lease revenues		2.8		3.4
Storage tank lease expense		1.0		1.0

In addition to the above, MMP provides common carrier transportation services to SemGroup. As of December 31, 2005 and 2006, respectively, MMP had recognized a receivable of $6.2 million and $4.0 millionfrom, and a payable of $6.1 million and $18.8 million to SemGroup and its affiliates. The receivable is included with the trade accounts receivable amounts and the payable is included with the accounts payable amounts on our consolidated balance sheets.

In February 2006, MMP signed an agreement with an affiliate of SemGroup under which MMP agreed to construct two 200,000 barrel tanks on its property at El Dorado, Kansas, to sell these tanks to SemGroup’s affiliate and to lease these tanks back under a 10-year operating lease. During 2006, MMP received $6.1 million associated with this transaction from SemGroup’s affiliate. During 2006, MMP incurred construction costs of $6.1 million for these tanks and estimates it will incur additional costs of approximately $1.0 million in 2007. The loss on the sale of these tanks will be deferred and amortized over the 10-year life of the lease. MMP and SemGroup’s affiliate have further agreed that in exchange for its lease to MMP of these tanks, MMP will provide 400,000 barrels of storage on its pipeline system. In addition, MMP and SemGroup’s affiliate have entered into a separate storage tank maintenance agreement which specifies that MMP will, at its own cost, provide routine maintenance for the tanks over the initial 10-year term of the lease. The fair value of this maintenance agreement was estimated at $0.1 million, which was recorded as a deferred cost and will be recognized over the 10-year life of the lease. In return for these agreements, SemGroup agreed to a three-year throughput agreement on MMP’s pipeline.

CRF also has an ownership interest in the general partner of Buckeye Partners, L.P. (“Buckeye”). In 2005, MMP incurred $0.3 million of operating expenses with Norco Pipe Line Company, LLC, which is a subsidiary of Buckeye. MMP has incurred no operating expenses with Buckeye or its subsidiaries during 2006.

During May 2005, our board of directors appointed John P. DesBarres as an independent board member. Mr. DesBarres currently serves as a board member for American Electric Power Company, Inc., of Columbus, Ohio. For the period May 1, 2005 through December 31, 2005, and the year ended December 31, 2006, MMP’s operating expenses included $1.7 million and $2.9 million, respectively, of principally power costs that we incurred with Public Service Company of Oklahoma, which is a subsidiary of American Electric Power Company, Inc. MMP had no amounts payable to or receivable from Public Service Company of Oklahoma or American Electric Power Company Inc. at either December 31, 2005 or December 31, 2006.

Because MMP’s distributions have exceeded target levels as specified in its partnership agreement, we receive 50% of any incremental cash distributed per limited partner unit. As of December 31, 2006, our executive officers collectively owned approximately 5% of MGG Midstream Holdings, L.P., which owns 65% of MGG, therefore, our executive officers also benefit from these distributions. In 2005 and 2006, distributions we received from MMP, based on our general partner interest and incentive distribution rights, totaled $30.1 million and $56.3 million, respectively. In addition, during 2005, MGG received distributions totaling $5.0 million related to the MMP common and subordinated limited partner units it owned at the time.

During February 2006, MGG sold 35% of its common units in an initial public offering. We did not receive any of the proceeds from MGG’s initial public offering and do not expect our ownership structure or MMP’s operations will be materially impacted by this transaction. In connection with the closing of this offering, MMP’s partnership agreement was amended to remove the requirement for us to maintain our 2% interest in any future offering of MMP limited partner units. See Note 18—Subsequent Events for a discussion of changes in our ownership interest in MMP after December 31, 2006. In addition, MMP’s partnership agreement was amended to restore the incentive distribution rights to the same level as before an amendment made in connection with MMP’s October 2004 pipeline system acquisition, which reduced the incentive

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distributions paid to us by $1.3 million for 2004, $5.0 million for 2005 and $3.0 million for 2006. In return, MGG made a capital contribution to MMP on February 9, 2006 equal to the present value of the remaining reductions in incentive distributions, or $4.2 million.

The Williams Companies, Inc. (“Williams”) had indemnified MMP against certain environmental costs. The environmental indemnifications MMP had with Williams were settled during 2004 (see Note 14—Commitments and Contingencies for information relative to this settlement). Receivables from Williams at December 31, 2005 and 2006 were $51.2 million and $33.9 million, respectively. These amounts were included with other accounts receivable and long-term receivable amounts presented in our consolidated balance sheets.

10. Debt

Consolidated debt at December 31, 2005 and 2006 was as follows (in thousands):

	December 31,
	2005		2006
Magellan Pipeline Notes:
Current portion	$	14,345	$	272,678
Long-term portion		274,629		—
Total Magellan Pipeline Notes		288,974		272,678
Revolving credit facility		13,000		20,500
6.45% Notes due 2014		249,546		249,589
5.65% Notes due 2016		250,019		248,520
Total Debt	$	801,539	$	791,287

The face value of MMP’s debt outstanding as of December 31, 2006 was $793.1 million. The difference between the face value and our carrying value of MMP’s debt outstanding was amounts recorded for discounts incurred on debt issuances, market value adjustments to long-term debt associated with qualifying hedges and the unamortized step-up in basis of MMP’s debt. At December 31, 2006, maturities of MMP’s debt were as follows: $272.6 million in 2007; $0 in 2008; $0 million in 2009; $0 million in 2010; $20.5 million in 2011; and $500.0 million thereafter. MMP’s debt and the debt of its consolidated subsidiaries is non-recourse to us.

Magellan Pipeline Notes. During October 2002, Magellan Pipeline entered into a private placement debt agreement with a group of financial institutions for $302.0 million of fixed-rate senior notes, comprised of $178.0 million of Series A notes and $302.0 million of Series B notes. The maturity date of the senior notes is October 7, 2007, however, MMP made scheduled payments on these notes of $15.1 million on October 7, 2005 and $14.3 million on October 7, 2006. The outstanding principal amount of these senior notes at December 31, 2005 and 2006 was $286.9 million and $272.7 million, respectively; however, the outstanding principal amount of the notes at December 31, 2005 and 2006 was decreased by $2.5 million and $1.8 million, respectively, for the change in the fair value of the associated hedge (see Note 11–Derivative Financial Instruments). The remaining difference between the face value and the reported value of these notes was the unamortized step-up in value of $4.6 million at December 31, 2005 and $1.9 million at December 31, 2006. The notes were stepped-up to fair value for MGG’s then-ownership-interest in MMP of 55%, which it acquired in June 2003. The carrying amount of these notes was included in the current portion of long-term debt on our December 31, 2006 consolidated balance sheet. The interest rate of the notes is fixed at 7.7%. However, including the impact of the associated fair value hedges, which effectively swaps $250.0 million of the fixed-rate notes to floating-rate debt and the effect of the amortization of the fair value adjustment on long-term debt, the weighted-average interest rate for the senior notes was 7.2% and 7.7% at December 31, 2005 and 2006, respectively.

MMP makes deposits in an escrow account in anticipation of semi-annual interest payments on these notes and the cash deposits are secured; however, the notes themselves are unsecured. These deposits of $5.5 million at December 31, 2005 and $5.3 million at December 31, 2006, were reflected as restricted cash on our consolidated balance sheet.

The note purchase agreement, as amended in connection with MMP’s May 2004 refinancing, requires Magellan Pipeline to maintain specified ratios of: (i) consolidated debt to EBITDA of no greater than 3.50 to 1.00, and (ii) consolidated EBITDA to interest expense of at least 3.25 to 1.00. It also requires MMP to maintain specified ratios of: (i) consolidated

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debt to EBITDA of no greater than 4.50 to 1.00, and (ii) consolidated EBITDA to interest expense of at least 2.50 to 1.00. In addition, the note purchase agreement contains additional covenants that limit Magellan Pipeline’s ability to incur additional indebtedness, encumber its assets, make debt or equity investments, make loans or advances, engage in certain transactions with affiliates, merge, consolidate, liquidate or dissolve, sell or lease a material portion of its assets, engage in sale and leaseback transactions and change the nature of its business. MMP and its affiliates are in compliance with these covenants.

Revolving Credit Facility. In May 2006, MMP amended and restated its unsecured revolving credit facility to increase the borrowing capacity from $175.0 million to $400.0 million. In addition, the maturity date of the revolving credit facility was extended from May 25, 2009 to May 25, 2011, and the interest rate was reduced from LIBOR plus a spread ranging from 0.6% to 1.5% based on MMP’s credit ratings to LIBOR plus a spread ranging from 0.3% to 0.8% based on MMP’s credit ratings and amounts outstanding under the facility. MMP incurred $0.4 million of legal and other costs associated with this amendment. Borrowings under this revolving credit facility remain unsecured. The facility provides for both borrowings and letters of credit. Borrowings under this facility are used primarily for general corporate purposes, including capital expenditures. MMP’s net borrowings under the revolver during 2006 were $7.5 million. As of December 31, 2006, $20.5 million was outstanding under this facility, and $1.1 million of the facility was obligated for letters of credit. Amounts obligated for letters of credit are not reflected as debt on our consolidated balance sheets. The weighted-average interest rate on the revolver at December 31, 2005 and 2006 was 5.1% and 5.8%, respectively. Additionally, a commitment fee is assessed at a rate from 0.05% to 0.125%, depending on MMP’s credit rating.

The amended and restated revolving credit facility requires MMP to maintain a specified ratio of consolidated debt to EBITDA of no greater than 4.75 to 1.00. In addition, the revolving credit facility contains covenants that limit MMP’s ability to, among other things, incur additional indebtedness or modify its other debt instruments, encumber its assets, make certain investments, engage in certain transactions with affiliates, engage in sale and leaseback transactions, merge, consolidate, liquidate or dissolve, sell or lease all or substantially all of its assets and change the nature of its business. MMP is in compliance with these covenants.

6.45% Notes due 2014. On May 25, 2004, MMP sold $250.0 million aggregate principal of 6.45% notes due June 1, 2014 in an underwritten public offering. The notes were issued for the discounted price of 99.8%, or $249.5 million and the discount is being accreted over the life of the notes. Including the impact of the amortization of the realized gains on the interest hedges associated with these notes (see Note 11–Derivative Financial Instruments), the effective interest rate of these notes is 6.3%. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning December 1, 2004.

5.65% Notes due 2016. On October 15, 2004, MMP issued $250.0 million of senior notes due 2016. The notes were issued for the discounted price of 99.9%, or $249.7 million and the discount is being accreted over the life of the notes. Including the impact of hedges associated with these notes (see Note 11–Derivative Financial Instruments), the weighted-average interest rate of these notes at December 31, 2005 and 2006 was 5.6% and 6.0%, respectively. Interest is payable semi-annually in arrears on April 15 and October 15 of each year, beginning April 15, 2005. The outstanding principal amount of the notes at December 31, 2005 and 2006 was increased $0.3 million and decreased $1.2 million, respectively, for the change in the fair value of the associated hedge.

The indenture under which the 6.45% and 5.65% notes discussed above were issued does not limit MMP’s ability to incur additional unsecured debt. The indenture contains covenants limiting, among other things, MMP’s ability to incur indebtedness secured by certain liens, engage in certain sale-leaseback transactions, and consolidate, merge or dispose of all or substantially all of its assets. MMP is in compliance with these covenants.

11. Derivative Financial Instruments

MMP uses interest rate derivatives to help manage its interest rate risk. The following table summarizes hedges MMP has settled associated with various debt offerings (dollars in millions):

Hedge	Date	Gain/(Loss)			Amortization Period
Interest rate hedge	October 2002	$	(1.0	)	5-year life of Magellan Pipeline notes
Interest rate swaps and treasury lock	May 2004		5.1		10-year life of 6.45% notes
Interest rate swaps	October 2004		(6.3	)	12-year life of 5.65% notes

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In addition to the above, MMP has entered into the following interest rate swap agreements:

• During May 2004, MMP entered into certain interest rate swap agreements to hedge against changes in the fair value of a portion of the Magellan Pipeline notes. MMP has accounted for these interest rate hedges as fair value hedges. The notional amounts of the interest rate swap agreements total $250.0 million. Under the terms of the interest rate swap agreements, MMP receives 7.7% (the weighted-average interest rate of the outstanding Magellan Pipeline senior notes) and pays LIBOR plus 3.4%. These hedges effectively convert $250.0 million of MMP’s fixed-rate debt to floating-rate debt. The interest rate swap agreements began on May 25, 2004 and expire on October 7, 2007, the maturity date of the Magellan Pipeline senior notes. Payments settle in April and October each year with LIBOR set in arrears. During each settlement period MMP records the impact of this swap based on its best estimate of LIBOR. Any differences between actual LIBOR determined on the settlement date and MMP’s estimate of LIBOR result in an adjustment to interest expense. A 0.25% change in LIBOR would result in an annual adjustment to interest expense associated with this hedge of $0.6 million. The fair value of the instruments associated with this hedge at December 31, 2005 was $(2.5) million, which was recorded to other deferred liabilities and long-term debt. The fair value of these instruments at December 31, 2006 was $(1.8) million, which was recorded to other current liabilities and current portion of long-term debt.

• In October 2004, MMP entered into an interest rate swap agreement to hedge against changes in the fair value of a portion of the $250.0 million of senior notes due 2016 which were issued in October 2004. MMP has accounted for this agreement as a fair value hedge. The notional amount of this agreement is $100.0 million and effectively converts $100.0 million of MMP’s 5.65% fixed-rate senior notes issued in October 2004 to floating-rate debt. Under the terms of the agreement, MMP receives the 5.65% fixed rate of the notes and pays LIBOR plus 0.6%. The agreement began on October 15, 2004 and terminates on October 15, 2016, which is the maturity date of these senior notes. Payments settle in April and October each year with LIBOR set in arrears. During each settlement period MMP records the impact of this swap based on its best estimate of LIBOR. Any differences between actual LIBOR determined on the settlement date and MMP’s estimate of LIBOR will result in an adjustment to its interest expense. A 0.25% change in LIBOR would result in an annual adjustment to MMP’s interest expense of $0.3 million associated with this hedge. The fair value of this hedge at December 31, 2005 and December 31, 2006, was $0.3 million and $(1.2) million, respectively, which was recorded to other noncurrent assets and long-term debt at December 31, 2005 and deferred liabilities and long-term debt at December 31, 2006.

• In September and November 2006, MMP entered into a total of $250.0 million of forward starting interest rate swap agreements to hedge against the variability of future interest payments on a portion of the debt MMP anticipates issuing no later than October 2007. Proceeds of the anticipated debt issuance will be used to refinance the Magellan Pipeline notes, which mature in October 2007. The interest rate swap agreements have a 30-year term, which matches the expected tenor of the anticipated debt. The effective date of the agreements is October 9, 2007, at which time the agreements require a mandatory cash settlement. Under the terms of the agreements, MMP will receive a variable rate equal to three-month LIBOR and pay a fixed rate of 5.3%. Assuming no changes in swap spreads between the date MMP entered these agreements and the date it settles these agreements, these agreements will effectively fix the rate on the treasury component of MMP’s anticipated debt issuance at approximately 4.8%. MMP has accounted for these agreements as cash flow hedges. The fair value of these agreements at December 31, 2006 was $0.2 million, which was recorded to other current assets and other comprehensive income. These agreements had no impact on our cash flows for the year ended December 31, 2006.

Derivatives that qualify for and are designated as normal purchases and sales are accounted for using traditional accrual accounting. As of December 31, 2006, MMP had commitments under future contracts for product purchases that will be accounted for as normal purchases totaling approximately $1.7 million. Additionally, MMP had commitments under future contracts for product sales that will be accounted for as normal sales totaling approximately $36.1 million.

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12. Leases

Leases—Lessee

MMP leases land, office buildings, tanks and terminal equipment at various locations to conduct its business operations. Several of the agreements provide for negotiated renewal options and cancellation penalties, some of which include the requirement to remove MMP’s pipeline from the property for non-performance. Future minimum annual rentals under non-cancelable operating leases as of December 31, 2006, were as follows (in thousands):

2007	$	3,011
2008		2,068
2009		1,460
2010		1,454
2011		1,405
Thereafter		9,450
Total	$	18,848

Leases—Lessor

MMP has entered into capacity and storage leases with remaining terms from one to 10 years that it accounts for as operating-type leases. All of the agreements provide for negotiated extensions. Future minimum lease payments receivable under operating-type leasing arrangements as of December 31, 2006, were as follows (in thousands):

2007	$	73,058
2008		60,049
2009		47,761
2010		37,500
2011		27,215
Thereafter		26,555
Total	$	272,138

On December 31, 2001, MMP purchased an 8.5-mile, 8-inch natural gas liquids pipeline in northeastern Illinois from Aux Sable Liquid Products L.P. (“Aux Sable”) for $8.9 million. MMP then entered into a long-term lease arrangement under which Aux Sable is the sole lessee of these assets. MMP has accounted for this transaction as a direct financing lease. The lease expires in December 2016 and has a purchase option after the first year. Aux Sable has the right to re-acquire the pipeline at the end of the lease for a de minimis amount. Future minimum lease payments receivable under this direct-financing-type leasing arrangement as of December 31, 2006 were $1.4 million in 2007 and $1.3 million each year in 2008, 2009, 2010 and 2011 and $6.2 million cumulatively for all periods after 2011. The net investment under direct financing leasing arrangements as of December 31, 2005 and 2006 was as follows (in thousands):

	December 31,
	2005		2006
Total minimum lease payments receivable	$	13,965	$	12,793
Less: Unearned income		5,937		5,681
Recorded net investment in direct financing leases	$	8,028	$	7,112

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The net investment in direct financing leases was classified in our consolidated balance sheets as follows (in thousands):

	December 31,
	2005		2006
Classification of direct financing leases:
Current accounts receivable	$	358	$	511
Noncurrent accounts receivable		7,670		6,601
Total	$	8,028	$	7,112

13. Long-Term Incentive Plan

MMP has a long-term incentive plan for certain employees who perform services for MMP and our independent directors. The long-term incentive plan primarily consists of phantom units. The long-term incentive plan permits the grant of unit award grants covering an aggregate of 1.4 million common units. The compensation committee of our board of directors (the “Compensation Committee”) administers the long-term incentive plan.

We and MMP adopted SFAS No. 123(R) on January 1, 2006 using the modified prospective application method, which requires all unvested equity-based incentive awards granted prior to January 1, 2006 to be accounted for using the fair value method as defined in SFAS No. 123 instead of its previous methodology of using the intrinsic value method as defined in APB No. 25. Due to the structure of MMP’s award grants prior to January 1, 2006, MMP recognized compensation expense under APB No. 25 in much the same manner as that required under SFAS No. 123; therefore, the impact of the change from accounting for the award grants under APB No. 25 to SFAS No. 123 was insignificant to our financial position.

The MMP long-term incentive awards, discussed below, that have been granted by the MMP Compensation Committee are subject to forfeiture if employment is terminated for any reason other than for retirement, death or disability prior to the vesting date. If an award recipient retires, dies or becomes disabled prior to the end of the vesting period, the recipient’s award grant will be prorated based upon the completed months of employment during the vesting period and the award will be paid at the end of the vesting period. The award grants do not have an early vesting feature except when there is a change in our control.

In February 2003, the MMP Compensation Committee approved approximately 106,000 unit award grants pursuant to the MMP long-term incentive plan. These units vested on December 31, 2005 and because MMP exceeded certain performance metrics, the actual number of units awarded with this grant totaled approximately 181,000. The value of these units on December 31, 2005, was $5.8 million. In January 2006, MMP settled certain of these award grants by purchasing 43,208 common limited partner units on the open market for $1.4 million and distributing those units to participants. The remaining awards were settled by issuing net cash payments to the participants and payments for tax withholdings totaling $4.4 million. MMP also made cash payments for related employer taxes of $0.3 million.

Following a change in control of us in June 2003, the MMP Compensation Committee approved the following award grants to certain employees who became dedicated to providing services to MMP:

• In October 2003, approximately 21,000 unit award grants. Of these unit award grants, approximately 20,000 vested during 2003 and 2004. The remaining award grants vested on July 31, 2005.

• In January 2004, approximately 22,000 unit award grants. Of these award grants, approximately 11,000 vested in 2004 and approximately 11,000 vested on July 31, 2005.

In January 2004, MMP settled the portion of the above-noted award grants vesting in 2003 by issuing net cash payments to the participants and payments for tax withholdings and employer taxes totaling $0.3 million. MMP settled additional award grants in 2004 by purchasing 7,540 limited partner units for $0.2 million and distributing those units to the participants and paying associated tax withholdings and employer taxes of $0.1 million. The remaining award grants were settled in 2005 by purchasing 13,785 limited partner units for $0.4 million and distributing those units to the participants and paying associated tax withholdings and employer taxes of $0.3 million.

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In February 2004, the MMP Compensation Committee approved approximately 159,000 unit award grants pursuant to the long-term incentive plan. These units vested on December 31, 2006, and because MMP exceeded certain performance metrics, the actual number of limited partner units awarded with this grant totaled approximately 285,000. The value of these units on December 31, 2006, was $11.0 million. There was no impact on our cash flows associated with these award grants for the periods presented in this report. We settled these award grants in January 2007 by issuing 184,905 common limited partner units and distributing those units to the participants (See Note 18 – Subsequent events). The difference between the units issued to the participants and the total units accrued for represented the minimum tax withholdings associated with this award settlement. MMP paid the associated tax withholdings and employer taxes totaling $4.4 million in January 2007. MMP intends to finance this amount with funds from its next equity offering.

In February 2005, the MMP Compensation Committee approved approximately 161,000 unit award grants pursuant to the long-term incentive plan. The actual number of units that will be awarded under this grant is based on the attainment of long-term performance metrics. The number of units that could ultimately be issued under this award ranges from zero units up to a total of 296,000 as adjusted for estimated forfeitures and retirements; however, the awards are also subject to personal and other performance components which could increase or decrease the number of units to be paid out by as much as 20%. The units will vest at the end of 2007. As of December 31, 2006, approximately 11,000 award grants have been forfeited and MMP estimates an additional 2,000 will be forfeited prior to the vesting date. MMP has estimated the number of units that will be awarded under this grant to be approximately 281,000, the value of which on December 31, 2006 was $10.8 million. Unrecognized estimated compensation expense associated with these award grants as of December 31, 2006 was $3.6 million. There was no impact on our cash flows associated with these award grants for the periods presented in this report.

During the year ended December 31, 2006, the MMP Compensation Committee approved approximately 178,000 unit award grants pursuant to the long-term incentive plan. There was no impact on our cash flows associated with these award grants for the periods presented in this report. These award grants are being accounted for as follows:

• Approximately 139,000 are based on the attainment of long-term performance metrics. These units vest on December 31, 2008. The number of units that could ultimately vest under this component of the award ranges from zero to approximately 263,000 as adjusted for expected forfeitures and retirements. Upon vesting, these award grants must be paid out in units; therefore, MMP has accounted for these award grants using the equity method. The weighted-average fair value of the awards on the grant date was $24.67 per unit, which was based on MMP’s unit price on the grant date less the present value of the per-unit estimated cash distributions during the vesting period. As of December 31, 2006, approximately 7,000 award grants have been forfeited and MMP expects an additional 1,000 will be forfeited prior to the vesting date. During 2006, MMP increased its estimate of the number of payout units under this grant to approximately 236,000 because management believes MMP will achieve above-standard results compared to the established performance metrics. The value of these award grants on December 31, 2006 was $5.8 million, and the unrecognized compensation cost on that date was $4.1 million, which will be recognized over the next 24 months.

• Approximately 35,000 are based on personal performance at the discretion of the MMP Compensation Committee. These units vest December 31, 2008. The number of units that could ultimately vest under this component of the award ranges from zero to approximately 66,000 as adjusted for expected forfeitures and retirements. Because vesting criteria for these award grants are partially based on conditions other than service, performance or market conditions, MMP has accounted for these award grants using the liability method; consequently, the compensation expense MMP recognizes is based on the fair value of MMP’s units and the percentage of the service period completed at each period end. As of December 31, 2006, approximately 1,800 award grants have been forfeited and MMP expects an additional 300 will be forfeited prior to the vesting date. During 2006, MMP increased its estimate of the number of payout units under this grant to approximately 59,000 because management believes the MMP Compensation Committee will approve above-standard discretionary payouts as they have historically done when above-standard financial results are achieved. The value of these award grants on December 31, 2006 was $2.3 million, and the unrecognized estimated compensation cost on that date was $1.6 million, which will be recognized over the next 24 months.

• An additional 4,000 award grants have been approved with various vesting dates. MMP uses the equity method to account for most of these award grants. The value of these award grants on December 31, 2006, was $0.1

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million, and the unrecognized estimated compensation cost on that date was $0.1 million, which will be recognized over the next 24 months.

14. Commitments and Contingencies

Environmental Liabilities. Estimated environmental liabilities were $57.3 million and $57.2 million at December 31, 2005 and December 31, 2006, respectively. Environmental liabilities have been classified as current or noncurrent based on scheduled payments for certain of MMP’s environmental liabilities and management’s estimates regarding the timing of actual payments for all other environmental liabilities. Management estimates that expenditures associated with these environmental remediation liabilities will be paid over the next ten years.

During the third quarter of 2006, MMP entered into an agreement with a contractor pursuant to which the contractor assumed the responsibility for the remediation of certain of MMP’s environmental sites in exchange for $14.0 million to be paid over the next 10 years. Further, the agreement required the contractor to purchase a cost cap insurance policy, under which MMP is an additional named insured party. The cost of this policy was $2.2 million, which MMP was required to pay. At the time MMP entered into this agreement, MMP adjusted its environmental liabilities associated with these sites to $11.9 million, which represented the discounted amount of the cash payments to be made to this contractor. That adjustment resulted in MMP recognizing expense of $2.9 million, which, when combined with the $2.2 million of expense associated with the cost cap insurance policy, resulted in MMP recognizing $5.1 million of environmental expenses in the third quarter of 2006. MMP discounted this liability as the amount and timing of cash payments to be made are reliably determinable. The discount rate used was 7.0%. MMP incurred $0.4 million of expenditures associated with this agreement during 2006 and expects to pay $6.6 million in 2007, $1.9 million in 2008, $1.6 million in 2009, $1.0 million in 2010, $0.9 million in 2011 and $1.6 million thereafter. The liability estimates for all of MMP’s other environmental sites are provided on an undiscounted basis.

MMP’s environmental liabilities include, among other items, accruals associated with the Environmental Protection Agency (“EPA”) Issue, Kansas City, Kansas Release and Independence, Kansas Release, which are discussed below.

EPA Issue. In July 2001, the EPA, pursuant to Section 308 of the Clean Water Act (the “Act”) served an information request to a former affiliate of MMP with regard to petroleum discharges from its pipeline operations. That inquiry primarily focused on Magellan Pipeline, which MMP subsequently acquired. The response to the EPA’s information request was submitted during November 2001. In March 2004, MMP received an additional information request from the EPA and notice from the U.S. Department of Justice (“DOJ”) that the EPA had requested the DOJ to initiate a lawsuit alleging violations of Section 311(b) of the Act in regards to 32 releases. The DOJ stated that the maximum statutory penalty for the releases was in excess of $22.0 million, which assumes that all releases are violations of the Act and that the EPA would impose the maximum penalty. The EPA further indicated that some of those releases may have also violated the Spill Prevention Control and Countermeasure requirements of Section 311(j) of the Act and that additional penalties may be assessed. In addition, MMP may incur additional costs associated with these releases if the EPA were to successfully seek and obtain injunctive relief. MMP responded to the March 2004 information request in a timely manner and has entered into an agreement that provides both parties an opportunity to negotiate a settlement prior to initiating litigation. This matter was included in the indemnification settlement discussion (see Indemnification Settlement discussion below). MMP has accrued an amount for this matter based on its best estimates that is less than $22.0 million. Most of the amounts MMP has accrued for this matter were included as part of the environmental indemnification settlement MMP reached with its former affiliate. Due to the uncertainties described above, it is reasonably possible that the amounts MMP has recorded for this environmental liability could change in the near term. Management is ongoing negotiations with the EPA; however, MMP is unable to determine what its ultimate liability could be for this matter. We do not believe that any required adjustments from amounts MMP currently has recorded to the final settlement amounts reached with the EPA would be material to our financial position.

Kansas City, Kansas Release. During the second quarter of 2005, MMP experienced a line break and release of approximately 2,900 barrels of product on its petroleum products pipeline near its Kansas City, Kansas terminal. As of December 31, 2006, MMP has estimated remediation costs associated with this release of approximately $2.8 million. Through December 31, 2006, MMP has spent $1.9 million on remediation associated with this release and, as of December 31, 2006, has recorded associated environmental liabilities of $0.9 million. MMP recognized a receivable of $1.2 million from its insurance carrier for this matter. We will include this release with the 32 other releases discussed in EPA Issue above in negotiating any penalties or other injunctive relief that might be assessed.

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NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

Independence, Kansas Release. During the first quarter of 2006, MMP experienced a line break and release of approximately 3,200 barrels of product on its petroleum products pipeline near Independence, Kansas. As of December 31, 2006, MMP has estimated remediation costs associated with this release of approximately $5.0 million. Through December 31, 2006, MMP has spent $3.0 million on remediation associated with this release and, as of December 31, 2006, has recorded associated environmental liabilities of $2.0 million and a receivable of $3.5 million from its insurance carrier. We will include this release with the 32 other releases discussed in EPA Issue above in negotiating any penalties or other injunctive relief that might be assessed.

Blair, Nebraska and Kingman, Kansas Ammonia Releases. In February 2007, MMP received notice from the DOJ that the EPA had requested the DOJ to initiate a lawsuit alleging violations of Sections 301 and 311 of the Act with respect to two releases of anhydrous ammonia from the ammonia pipeline owned by MMP and operated by a third party. The DOJ stated that the maximum statutory penalty for alleged violations of the Act for both releases combined was approximately $13.2 million. The DOJ also alleged that the third party operator was liable for penalties pursuant to Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) for failing to timely report the releases and that the statutory maximum for those penalties could be as high as $4.2 million. MMP is evaluating whether or not it has an indemnity obligation to the third party operator for all or a portion of the CERCLA penalties. Additionally, the DOJ stated in its notice to us that it does not expect MMP or the third party operator to pay the penalties at the statutory maximum and that it may seek injunctive relief if the parties cannot agree on any necessary corrective actions. MMP is currently in discussions with the EPA and DOJ regarding these two releases; however, MMP does not believe that the ultimate resolution of this matter will have a material impact on its financial position.

Polychlorinated Biphenyls (“PCB”) Impacts. MMP has identified PCB impacts at one of its petroleum products terminals that it is in the process of delineating. It is possible that in the near term after MMP’s delineation process is complete, the PCB contamination levels could require corrective actions. Management is unable at this time to determine what these corrective actions and associated costs might be. We currently do not believe these costs will be material to our financial position.

Indemnification Settlement. Prior to May 2004, Williams had agreed to indemnify MMP against certain environmental losses, among other things, associated with assets that were contributed to MMP at the time of its initial public offering or which MMP subsequently acquired from Williams. In May 2004, MMP and Magellan GP, LLC entered into an agreement with Williams under which Williams agreed to pay MMP $117.5 million to release it from these indemnifications. MMP received $35.0 million, $27.5 million and $20.0 million pursuant to this agreement on July 1, 2004, 2005 and 2006, respectively, and expects to receive a final payment of $35.0 million on July 1, 2007. While the settlement agreement releases Williams from its environmental and certain indemnifications, other indemnifications remain in effect. These remaining indemnifications cover issues involving employee benefits matters, rights-of-way, easements and real property, including asset titles, and unlimited losses and damages related to tax liabilities.

In conjunction with this settlement:

• MMP received $2.1 million from Williams during June 2004 in settlement of certain amounts previously billed by MMP to Williams for environmental matters. Following this payment, MMP’s receivable balance with Williams for environmental matters was $45.1 million;

• We recorded $61.8 million as a receivable from Williams with an offsetting reduction of the June 2003 purchase price of MMP. The $61.8 million amount represented the difference between the discounted value of the future cash proceeds to be received as of June 2003 from Williams ($106.9 million) less the amount of previously recognized environmental receivables from Williams ($45.1 million); and

• The difference between the undiscounted amounts to be received from Williams and the discounted value of those future cash payments is $10.6 million. We are recognizing this $10.6 million as interest income and an increase to our receivable with Williams over the period from May 25, 2004 and the final payment date of July 1, 2007.

Our receivable balance with Williams at December 31, 2005 and December 31, 2006 was $51.2 million and $33.9 million, respectively. We contribute to MMP all amounts received pursuant to the environmental indemnification settlement.

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MAGELLAN GP, LLC

NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

As of December 31, 2005 and December 31, 2006, known liabilities that would have been covered by previous indemnity agreements were $43.1 million and $45.7 million, respectively. Through December 31, 2006, MMP has spent $31.7 million of the $117.5 million indemnification settlement amount for indemnified matters, including $13.4 million of capital costs. The cash MMP has received from the indemnity settlement is not reserved and has been used by MMP for its various other cash needs, including expansion capital spending.

MGG Indemnification Obligation. Concurrent with MGG’s acquisition of limited and general partner interests in MMP, MGG agreed to assume obligations for $21.9 million of MMP’s environmental liabilities. As of December 31, 2006, MGG had incurred $21.9 million of costs pursuant to this agreement and its obligations to MMP have been paid in full. At December 31, 2005, MMP had liabilities recorded associated with this indemnification of $5.5 million.

Environmental Receivables. Concurrent with MGG’s assumption of environmental obligations to MMP, as discussed in MGG Indemnification Obligation above, MMP recorded a receivable from MGG of $21.9 million. MMP’s receivable balance with MGG at December 31, 2005 and 2006 was $6.7 million and $0, respectively. Receivables from insurance carriers related to environmental matters were $2.1 million and $5.9 million at December 31, 2005 and December 31, 2006, respectively.

Unrecognized product gains. MMP’s operations generate product overages and shortages. When MMP experiences net product shortages, it recognizes expense for those losses in the periods in which they occur. When MMP experiences net product overages, it has product on hand for which it has no cost basis. Therefore, these net overages are not recognized in our or MMP’s financial statements until the associated barrels are either sold or are used to offset product losses. The combined net unrecognized product overages for MMP’s operations had a market value of approximately $8.7 million as of December 31, 2006. However, the actual amounts MMP will recognize in future periods will depend on product prices at the time the associated barrels are either sold or used to offset future product losses.

Other. MMP is a party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our financial position.

15. Fair Value of Financial Instruments

We used the following methods and assumptions in estimating our fair value disclosure for financial instruments:

Cash and cash equivalents and restricted cash. The carrying amounts reported in the balance sheet approximate fair value due to the short-term maturity or variable rates of these instruments.

Accounts receivable—indemnification receivable. This asset represents amounts due from Williams related to MMP’s indemnification settlement (see Note 14–Commitments and Contingencies). Fair value was determined by discounting future cash flows at MMP’s incremental borrowing rate.

Long-term receivables. Fair value is determined by discounting estimated future cash flows by the rates inherent in the long-term instruments plus/minus the change in the risk-free rate since inception of the instrument.

Environmental remediation agreement. This liability represents amounts MMP has agreed to pay to a third-party contractor to remediate certain of MMP’s environmental sites. Because this liability is recorded at a discounted value, its carrying amount value approximates fair value.

Debt. The fair value of MMP’s traded notes was based on the prices of those notes at December 31, 2005 and 2006. The fair value of MMP’s other fixed-rate debt was determined by discounting estimated future cash flows using its incremental borrowing rate. The carrying amount of floating-rate borrowings at December 31, 2006 approximates fair value due to the variable rates of those instruments.

Interest rate swaps. Fair value was determined based on forward market prices and approximates the net gains and losses that would have been realized if the contracts had been settled at year-end.

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MAGELLAN GP, LLC

NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

Other deferred liabilities – deposit. This liability represents a long-term deposit MMP holds associated with our third-party supply agreement. Fair value was determined by discounting the deposit amount by MMP’s incremental borrowing rate.

Other deferred liabilities- consent decree agreement. This liability represents consent decree spending amounts MMP assumed as part of the acquisition of pipeline assets in October 2004 (see Note 3 – Acquisitions). Fair value was determined by discounting estimated cash flows at the incremental borrowing rate.

The following table reflects the carrying amounts and fair values of our consolidated financial instruments as of December 31, 2005 and 2006 (in thousands):

	December 31, 2005						December 31, 2006
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Cash and cash equivalents	$	36,489		$	36,489		$	6,390		$	6,390
Restricted cash		5,537			5,537			5,283			5,283
Accounts receivable – indemnification receivable		31,846			31,842			33,915			33,718
Long-term receivables		7,670			6,711			7,239			6,525
Environmental remediation agreement		—			—			11,880			11,880
Debt		803,722			815,400			794,222			779,885
Interest rate swaps		(2,183	)		(2,183	)		(2,935	)		(2,935	)
Other deferred liabilities – deposits		12,500			6,854			13,500			7,042
Other deferred liabilities – consent decree agreement		5,608			4,799			2,587			1,746

16. Distributions

Distributions paid by MMP, including amounts paid to us during 2005 and 2006 were as follows (in thousands, except per unit amounts):

Date Cash Distribution Paid	Per Unit Cash Distribution Amount		Common Units		Subordinated Units		General Partner (a)		Total Cash Distribution
02/14/05	$	0.4563	$	26,390	$	3,887	$	5,201	$	35,478
05/13/05		0.4800		29,127		2,726		6,778		38,631
08/12/05		0.4975		30,189		2,825		7,939		40,953
11/14/05		0.5312		32,236		3,018		10,178		45,432
Total	$	1.9650	$	117,942	$	12,456	$	30,096	$	160,494
02/14/06	$	0.5525	$	33,526	$	3,138	$	12,839	$	49,503
05/15/06		0.5650		37,494		—		13,668		51,162
08/14/06		0.5775		38,323		—		14,498		52,821
11/14/06		0.5900		39,153		—		15,327		54,480
Total	$	2.2850	$	148,496	$	3,138	$	56,332	$	207,966

(a) Includes amounts we were paid for our incentive distribution rights.

In 2005, total distributions we received from MMP were $30,096 for our general partner interest and incentive distribution rights. In 2006, total distributions we received from MMP were $56,332.

In February 2006, MMP’s partnership agreement was amended to restore the incentive distribution rights to the same level as before an amendment made in connection with MMP’s October 2004 pipeline system acquisition, which reduced the incentive distributions paid to us by $1.3 million for 2004, $5.0 million for 2005 and $3.0 million for 2006. In return, MGG made a capital contribution to MMP on February 9, 2006 equal to the present value of the remaining reductions in incentive distributions, or $4.2 million.

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MAGELLAN GP, LLC

NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

On February 14, 2007, MMP paid cash distributions of $0.6025 per unit on its outstanding common units to unitholders of record at the close of business on February 5, 2007. Because MMP issued 185,673 common limited partner units in January 2007 and we did not make an equity contribution to MMP, our ownership interest in MMP changed from 2.000% to 1.995% (see Note 18—Subsequent Events). However, we still own all of MMP’s incentive distribution rights. The total distributions paid on February 14, 2007 by MMP were $56.3 million, of which we received $1.1 million on our 1.995% general partner interest and $15.1 million on our incentive distribution rights.

17. Owners’ Equity

At December 31, 2004, MMP had 57,841,082 common units outstanding, of which 52,370,000 were held by the public, with the remaining 5,471,082 units held by its affiliates. All of MMP’s 8,519,542 subordinated units outstanding at December 31, 2004 were held by its affiliates. Transactions involving MMP’s common and subordinated units and its affiliates’ ownership interest in MMP during 2005 were as follows:

• 2,839,846 of MMP’s subordinated units owned by its affiliates converted to common units; and

• MMP’s affiliates sold 8,310,928 MMP common units and 5,679,696 MMP subordinated units to the public.

At December 31, 2005, MMP had 60,680,928 common units and 5,679,696 subordinated units outstanding, of which all were held by the public. MMP’s subordination period ended on December 31, 2005, when MMP met the final tests provided in its partnership agreement. Following the termination of MMP’s subordination period, we reclassified $277.4 million from minority interest to owner’s equity. This reclassification recognized the gain on sale of MMP’s limited partner units in 2004 and 2005. As a result of the termination, on January 31, 2006, all of the remaining MMP subordinated units converted to common units.

The limited partners holding MMP common units have the following rights, among others:

• right to receive distributions of MMP’s available cash within 45 days after the end of each quarter;

• right to elect our board members;

• right to remove us as MMP’s general partner upon a 66.7% majority vote of outstanding unitholders;

• right to transfer MMP common unit ownership to substitute limited partners;

• right to receive an annual report, containing audited financial statements of MMP and a report on those financial statements by MMP’s independent public accountants within 120 days after the close of the fiscal year end;

• right to receive information reasonably required for tax reporting purposes within 90 days after the close of the calendar year;

• right to vote according to the limited partners’ percentage interest in MMP on any meeting that we may call; and

• right to inspect MMP’s books and records at the unitholders’ own expense.

For purposes of determining capital balances, MMP allocates net income to its general partner and limited partners based on their contractually-determined cash distributions declared and paid following the close of each quarter with adjustments for amounts directly charged to us for specific costs that we have assumed and for which the limited partners are not responsible.

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MAGELLAN GP, LLC

NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

Until January 26, 2007, cash distributions paid by MMP were made based on the following table:

		Distributions to Us as a Percentage of Total Distributions
MMP Quarterly Distribution Per Unit	Distributions to MMP’s Limited Partners	General Partner Interest	Incentive Distribution Rights
up to $0.288750	98%	2%	0%
above $0.288750 up to $0.328125	85%	2%	13%
above $0.328125 up to $0.393750	75%	2%	23%
above $0.393750	50%	2%	48%

See Note 18–Subsequent Events for a discussion of the changes in the percentage of distributions to the limited and general partner interests that occurred after December 31, 2006.

In the event of liquidation, all property and cash in excess of that required to discharge all liabilities will be distributed to the partners in proportion to the positive balances in their respective capital accounts. The limited partners’ liability is generally limited to their investment.

Magellan GP, LLC Owner’s Equity (Deficit). The change in our owner’s equity (deficit) and other comprehensive income during 2005 and 2006 is as follows (in thousands):

	Other Comprehensive Loss			Owner’s Equity (Deficit)			Total
Balance, January 1, 2005	$	(1,922	)	$	186,157		$	184,235
Comprehensive income:
Net income		—			28,717			28,717
Amortization of loss on cash flow hedges		210			—			210
Additional minimum pension liability		(343	)		—			(343	)
Other		482			—			482
Total comprehensive income		349			28,717			29,066
Distributions		—			(35,130	)		(35,130	)
Sale of MMP units		—			(400,167	)		(400,167	)
Capital contributions		—			7,458			7,458
Other		—			(536	)		(536	)
Balance, December 31, 2005		(1,573	)		(213,501	)		(215,074	)
Comprehensive income:
Net income		—			40,389			40,389
Amortization of loss on cash flow hedges		212			—			212
Net gain on cash flow hedges		236			—			236
Additional minimum pension liability		343			—			343
Total comprehensive income		791			40,389			41,180
Adjustment to accumulated other comprehensive loss to recognize the funded status of the postretirement benefit plans		(9,305	)		—			(9,305	)
Adjustment to reflect gain on sale of MMP units following the termination of MMP’s subordination period		—			277,392			277,392
Distributions		—			(56,332	)		(56,332	)
Capital contributions		—			12,453			12,453
Equity-based incentive compensation expense		—			1,770			1,770
Other		—			398			398
Balance, December 31, 2006	$	(10,087	)	$	62,569		$	52,482

29

MAGELLAN GP, LLC

NOTES TO CONSOLIDATED BALANCE SHEETS—(Continued)

18. Subsequent Events

On January 26, 2007, MMP issued 185,673 of its common limited partner units primarily to settle the 2004 unit award grants to certain employees. We did not make an equity contribution to MMP associated with this equity issuance and as a result our general partner ownership interest in MMP changed from 2.000% interest to 1.995%. Our incentive distribution rights were not affected by this transaction. As a result, cash distributions paid by MMP after January 26, 2007, will be made based on the following table:

	Percentage of Distributions
			Paid to Us
Quarterly Distribution Amount per Unit	Limited Partners		General Partner Interest		Incentive Distribution Rights
Up to $0.289	98.005	%	1.995	%	0.000	%
Above $0.289 up to $0.328	85.005	%	1.995	%	13.000	%
Above $0.328 up to $0.394	75.005	%	1.995	%	23.000	%
Above $0.394	50.005	%	1.995	%	48.000	%

On January 29, 2007, the compensation committee of MMP’s general partner approved approximately 148,000 unit award grants pursuant to the long-term incentive plan. These award grants have a three-year vesting period which will end on December 31, 2009; however, the grants are broken into three specific tranches. Payouts under the first tranch, which consists of 33% of award grants, will be based on performance metrics set for the 2007 fiscal year. Payouts under the second and third tranches, which comprise 33% and 34%, respectively, of the award grants, will be based on performance metrics that will be established in the first quarter of each respective year.

CRF is part of an investment group that has agreed to purchase Kinder Morgan, Inc. To alleviate competitive concerns the Federal Trade Commission ("FTC") raised regarding the transaction, CRF agreed with the FTC to remove their representatives from our board of directors. This agreement was announced on January 25, 2007. One of CRF’s representatives, Jim H. Derryberry, had previously resigned from our board of directors effective October 24, 2006 and its other representative, N. John Lancaster, Jr., resigned effective January 30, 2007. On January 29, 2007, our board of directors elected Thomas T. Macejko, Jr., a Vice President of Madison Dearborn Partners, LLC, to fill one of the vacancies created by these resignations. The other vacancy has not yet been filled.

On February 14, 2007, MMP paid cash distributions of $0.6025 per unit on its outstanding common limited partner units to unitholders of record at the close of business on February 5, 2007. The total distributions paid were $56.3 million, of which $1.1 million was paid to us on our 1.995% general partner interest and $15.1 million on our incentive distribution rights.

30