The Interview: A Midstream Family

By the time he was 12 years old, Ruben Martin III was working in the family’s propane delivery business. So when he graduated from college at the University of Arkansas, it wasn’t hard for him to decide what was next—it was back to the fields of East Texas. He spent the next decades working alongside his father, R.S. Martin, the man who founded what is now known as Martin Resource Management Corp. in Kilgore, Texas, in 1951 with his wife, starting essentially with a dream at their kitchen table.

Now with some 3,000 employees and a market capitalization of more than $1.1 billion, the company has grown in ways his father likely never imagined. But Martin suspects his namesake, who died in 1999, would be pleased, especially with the way the company has grown to become a lifeline of sorts for its employees and its community.

Martin took some time out of a Denver vacation recently where, with grandchildren happily frolicking in the background, he reflected with Midstream Business on his evolving company and the industry that sustains it.

MIDSTREAM: Please give us some history on Martin Midstream.

MARTIN: Let me explain how we got started. My father worked in the oil business in Arkansas. He and my mother moved to Kilgore, Texas, in 1948. In 1951, they formed their legacy business delivering propane and sundries to drilling rigs and eventually to dealers and wholesalers. It was just the two of them in the beginning—my mother keeping the records and taking orders, and my father making the deliveries. Shortly thereafter, their business grew, and my father began picking up molten sulfur from East Texas production areas and trucking the by-product to the Houston market.

MIDSTREAM: So you grew up in the business?

MARTIN: Yes, I did. As a 12-year-old boy, I often worked closely with my father. By age 14 or 15, I was driving a truck. [laughs] I can assure you, it scares me to think about it now. I was delivering propane to drilling rigs and driving bobtail trucks, and then hauling sulfur to Houston in 18-wheelers, and I’m not sure my feet reached the pedals.

Martin Midstream’s specialty terminal operations in Beaumont, Texas. Source: Martin Midstream

MIDSTREAM: How did you grow in the business to become CEO?

MARTIN: As I look back, I realize my father was grooming me to run the company. I have held many of the jobs and positions that still exist today. In the early 1970s, after graduating college, he sent me to Mississippi to help run our trucking company. That was my first exposure to managing people and managing a business. I moved back to East Texas in 1975 and continued to work with my father to grow the business from a managerial perspective. Watching him through the years taught me the value of hard work and dedication and what it means to appreciate those who work with you every day. I have been fortunate to be the CEO. Every day, I seek to fulfill my father’s ambitions and try to enrich the livelihoods of our employee owners.

MIDSTREAM: How did you make the decision to transition from a corporation into an MLP?

MARTIN: That decision was driven by the need for capital to continue growing our company. For a long time we were primarily dependent on small banks as our only source of capital. That proved to be inconsistent. I felt like we needed access to the capital markets to find larger, more consistent capital to fund our growth.

MIDSTREAM: What have been the challenges in building the company?

MARTIN: Every day is different. We have to continue to grow and evolve as our customers’ needs change. Growth can be challenging. I think it must be strategic and incremental to our platform. Acquisitions have gotten very expensive. And, looking at organic growth projects—those take more time. Our charge is to strike a balance that results in consistent growth.

MIDSTREAM: What are the projects that give you the most optimism?

MARTIN: We have multiple projects within our Terminalling and Storage business that will facilitate moving our customers’ liquids from the shale production plays to water-borne transportation through our asset system. Interestingly, many of the products we’re handling today are fundamentally different than those we’ve handled in the past. We all have to rapidly adapt and that’s what’s so exciting. Massive amounts of new infrastructure are needed.

We are also seeing opportunities in our Natural Gas Services segment. We’ve quickly grown our natural gas liquids businesses and there’s more to come. Again, there is more infrastructure needed. Additionally, we just announced further investment into natural gas storage. In our view, there are multiple macro natural gas demand drivers developing—all good for storage. Further, the surge of gas demand we saw last winter demonstrated to us there’s a true base value in gas storage.

Martin Midstream also can meet the needs of some downstream customers. This vacuum tower forms a part of its Smackover, Ark., lube oil plant. Source: Martin Midstream

MIDSTREAM: This summer, Martin upsized its revolving credit facility from about $637 million to $900 million.What are your plans for those funds?

MARTIN: For one, we wanted to opportunistically capture the current strong lender market. We know the bank market ebbs and flows, but we wanted to have as much financial flexibility as possible while we’re in growth mode. A larger credit facility should help us move rapidly to close a deal. Additionally, it can alleviate committed financing conditions a selling party may have. I think that when people look at a smaller company like ours, they need to be assured we are capable of transacting. As a smaller MLP, we have additional hurdles we must overcome in the M&A [mergers and acquisitions] market. Having more liquidity removes one of those obstacles.

MIDSTREAM: Why did you choose the public markets instead of taking a private equity route?

MARTIN: Well, we actually did both. We have a private equity partner at the GP [general partner] level. And, don’t forget, above the GP level our employees own a private company, Martin Resource Management Corp. (MRMC) that has multiple operating companies. These entities provide transportation and distribution and marketing services of hydrocarbon and related by-products often utilizing MMLP's [Martin Midstream Partners LP] physical assets. We made the decision to go public in 2002 by dropping those assets into an MLP that created stable cash flow. We thought it best to house the commodity and working capital volatility outside of MMLP. This also provided better access to growth capital.

Fast forward to last year—MRMC was sold to the employees through an employee stock buy-out. MRMC is also the largest unitholder of MMLP and owns the controlling 51% interest in the GP of MMLP. Being ESOP-[employee stock ownership plan] owned creates a level of efficacy you don’t typically see in “normal” corporate culture. We have over 2,700 employees that share common ownership and an aligned incentive to grow our company. That’s powerful. In addition, MRMC is now an S-corp, which effectively eliminates federal income tax, enhancing the earnings potential of our employee owners.

MIDSTREAM: With the overall energy sector facing a shortage of talent, does employee ownership give you a competitive advantage with retaining workers?

MARTIN: It absolutely helps. Several of our employees have been at the company longer than I have. Having a job for life can be an enduring element. It shows the dedication and commitment our employees have to our company. It’s quite humbling. It helps attracting new talent as well. At MRMC, one of our largest labor pools is our truck drivers. The surface transportation industry is facing driver shortages. I believe that employee ownership is one of the greatest incentives we have to attract drivers currently and retain other employees longer-term.

I have to say, employee ownership has been part of MRMC’s DNA for a long time (since the 1980s). As I said, my father respected his employees and wanted their contributions to not go unnoticed. I feel the same way. I think it is very unusual for the controlling owner of a general partner of an MLP to be owned by its employees. I’m not aware of any other MLP with this ownership structure. Management, our employees, and most importantly, our unitholders are 100% aligned.

Storage tanks at the Corpus Christi Crude Terminal at the Port of Corpus Christi, Texas. Source: Martin Midstream

MIDSTREAM: What are the most promising opportunities in the next 12 to 18 months?

MARTIN: We have promising opportunities in all four of our business segments. We certainly don’t discriminate while targeting growth. That’s truly one of Martin’s strategic advantages—having multiple platforms from which we can grow and add value. Also, being a smaller company, I think we have to be a little more creative in terms of our internal growth platforms. We need to think strategically and provide value-added solutions to our customers’ needs. That is how we compete in this crowded marketplace.

MIDSTREAM: Where are your operations focused?

MARTIN: Nearly all of our operations are located on the Gulf Coast close to our customer base. For us, it’s tried and true. I don’t think we’re going to deviate from this region because there are plenty of opportunities without having to expand our geographical presence. We recently added the West Texas region though our natural gas liquids pipeline investment. This Y-grade line delivers to the Gulf Coast from the Permian Basin. So that, too, feels like our footprint. There’s plenty for us to do, right here.

MIDSTREAM: What else can you tell us about potential acquisitions?

MARTIN: Well, not much. [laughs] And, you know, that’s always the toughest one to predict. There are so many facets to successfully completing a deal. Getting to the finish line is never easy. Furthermore, as I said, deals generally have gotten more expensive making them less accretive. Of course, the trick is not to overpay. That’s easier said than done. There is so much capital flooding into the sector. When you think of all the strategic bidders and the growing number of sponsor-back management teams out there all chasing the same prize, it’s tough to win. We’re committed to not over paying for assets. I think we can develop infrastructure on our own organically much more cost effectively, but that takes longer.