Magellan Midstream Boosts 2015 Growth Capex, Sees Drop in Quarterly Profit

Researched by Industrial Info Resources (Sugar Land, Texas)--Magellan Midstream Partners LP (NYSE:MMP) (Tulsa, Oklahoma) reported it now expects to spend $800 million this year on capital expansion projects, up from its earlier estimate of $650 million, as plans were finalized during first-quarter 2015 for the proposed Saddlehorn pipeline to move oil from Colorado to Oklahoma.

The Saddlehorn would transport 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. Construction kick-off would take place in third-quarter 2015, with completion in second-quarter 2016. Industrial Info is tracking $800 million in projects related to the pipeline, which would start with a capacity of 200,000 BBL/d.

Industrial Info is tracking 41 active Magellan Midstream projects worth $1.35 billion. This includes seven projects, worth $1.03 billion, which are in the planning phases, where a variety of factors could alter their timing or outcome. Also, 33 projects, valued at $223 million, are under construction, and one project, valued at $100 million, is in the engineering phase.

Magellan will own 40% of Saddlehorn Pipeline Company, with Plains All American Pipeline LP (NYSE:PAA) (Houston, Texas) and a subsidiary of Anadarko Petroleum Corporation (NYSE:APC) (Houston) owning 40% and 20%, respectively.

Magellan also reported construction was under way on its 50,000-BBL/d condensate splitter and associated tankage in Corpus Christi, Texas. The splitter, which recently received the required air permits, is expected to be operational during the second half of 2016, Magellan reported.

The partnership's new capital expenditures (capex) estimate also includes capacity expansion and interconnection of its Rocky Mountain refined products pipeline system to its Kansas-to-Denver pipeline system, and construction of 1.4 million barrels of new leasable crude oil storage at East Houston. The May 1 acquisition of a refined products terminal for the Atlanta, Georgia, market also is part of the spending estimate.

For 2016, Magellan said it plans to spend an additional $400 million on capital expansions.

On top of the capex plans for 2015 and 2016, Magellan is evaluating more than $500 million in other potential growth projects, said Chief Executive Officer Michael Mears during the company's earnings conference call. Potential expenditures include extending the Saddlehorn pipeline in Colorado from Platteville to Carr; adding a second condensate splitter at Corpus Christi, Texas; and expanding the capacity of the new BridgeTex pipeline in Texas.

The BridgeTex oil pipeline, which runs from Colorado City to Texas City, began operations last year. During the first quarter of this year, it delivered an average of 175,000 BBL/d, Mears said, and is expected to increase delivery to an average of 200,000 BBL/d for all of 2015. Magellan is looking at the possibility of expanding the pipeline to 375,000 BBL/d.

For the first quarter ended March 31, Magellan reported net income of $183.6 million, a 24% drop from $242.6 million in the same quarter of 2014. The partnership said lower commodities prices and margins drove down profits.

Total revenue for the quarter was $522 million, compared with nearly $619 million in the same quarter a year earlier.

Magellan said its refined products operating margin was $183.4 million, a drop of $71.6 million from a year earlier. Its crude oil operating margin was $84.7 million, an increase of $21.4 million. Marine storage operating margin was $27.9 million, a decrease of about $500,000.

For related information, see February 9, 2015, article - Magellan Midstream Plans $650 Million Expansion Capex for 2015, Still in Talks on Saddlehorn Pipeline, and June 11, 2014, article - U.S. Crude Oil Pipeline Startups to Total 1.5 Million Barrels per Day in Third-Quarter 2014.

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