Magellan Midstream Plans $650 Million Expansion Capex for 2015, Still in Talks on Saddlehorn Pipeline

Researched by Industrial Info Resources (Sugar Land, Texas)--Magellan Midstream Partners LP (NYSE:MMP) (Tulsa, Oklahoma) plans to spend $650 million this year on expansion capital projects, and an additional $100 million in 2016, according to executives with the crude oil and refined products pipeline and terminals company. But the fate of a proposed $1 billion pipeline to move crude from the Niobrara Shale in Colorado to Oklahoma is still under discussion. Magellan executives say they are in talks with a potential equity partner to spread out the cost of the project.

Chief Executive Officer Michael Mears gave an update on Magellan's capital expenditures (capex) during the company's fourth-quarter earnings conference call on February 5. Capex for 2014 was a record $703 million.

Industrial Info is tracking 31 Magellan-related projects worth $1.35 billion. This includes nine projects, worth more than $1.1 billion, that are in the planning stages, where factors could increase, decrease or totally eliminate the expected spending.

Magellan is holding an open season until February 27 for binding customer commitments for the proposed Saddlehorn project. The 600-mile pipeline would move up to 400,000 barrels per day (BBL/d) of Denver Julesburg Basin/Wattenburg crude oil from Platteville, Colorado, to Magellan's crude oil terminal in Cushing, Oklahoma.

Mears said Magellan has received commitments from Anadarko Petroleum Corporation (NYSE:APC) (Houston, Texas) and Noble Energy Incorporated (NYSE:NBL) (Houston), and is now in talks with a potential equity partner to make the project more cost-competitive. He said Magellan would be willing to hold a little as 40% equity in the project, but would still serve as construction manager and pipeline operator.

Projects that will take up the bulk of Magellan's 2015 expansion capex include the refined products pipeline in Little Rock, Arkansas ,and the condensate splitter in Corpus Christi, Texas. With a total estimated value of $200 million, the 160-mile refined products pipeline will move 75,000 BBL/d of gasoline, diesel and jet fuel from Magellan's Fort Smith terminal in Arkansas to Little Rock. The pipeline is expected to be operational in early 2016, according to Magellan.

The 50,000-BBL/d Corpus Christi condensate splitter would turn natural gas condensate from the Eagle Ford Shale into naphtha, diesel, jet fuel and gasoline. With completion set for third-quarter 2016, the project has a total estimated value of $100 million, according to Industrial Info. If warranted, Magellan said in 2014 it may build a second 50,000-BBL/d splitter at the site.

In addition to the capex plans for 2016 and 2017, Mears said Magellan continues to evaluate more than $500 million in potential growth projects, excluding the Saddlehorn pipeline. Despite the current pricing environment for oil, "We haven't seen a significant change in projects we are looking at," he said, but added the timeline may be pushed out for some of the projects.

Magellan reported $839.5 million in net income for 2014, compared with $582.2 million in 2013, primarily as a result of increased shipments on the Longhorn pipeline, which moves crude oil from West Texas to Houston. Revenue for the year totaled $22.3 billion, compared with $18.9 billion in 2013.

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