BP Plc (BP) plans to sell some storage and pipeline assets to Magellan Midstream Partners LP (MMP) for $339 million, including $50 million of BP’s existing inventory. The agreement allows BP to lease back the storage space of 7.8 million barrels of crude oil at Cushing, Oklahoma, for several years.
 
As part of the transaction, BP will also sell more than 100 miles of active petroleum pipelines that connect refineries in southern Texas, including BP’s plant in Texas City, which has a capacity to process 475,000 barrels of oil a day. The deal, which is subject to regulatory approval, is scheduled to close within 60 days.
 
BP commented that the asset sale to Magellan is not a part of its strategy to offload $10 billion in non-core upstream assets with the intention to fund for the oil-spill damage clean up. The company has been in talks with Magellan to sell the pipelines and storage since February 2010.
 
BP has been consistently working to divest some of its assets to raise cash for paying the costs related to the deepwater horizon incident. The company has already exhausted more than $3.5 billion on cleanup and damages so far, and has agreed to set aside another $20 billion for future damage claims.
 
From Magellan’s point of view, acquiring 7.8 million barrels of storage capacity at a key U.S. oil hub at Cushing, Oklahoma, will be a step forward in its strategy to develop the existing East Houston terminal and turn it into a key distribution point for crude oil to Gulf Coast refineries, and will also allow Magellan to rent tanks to several interested parties.
 
The Cushing deal will assist Magellan, which is focused largely on refined products logistics, to enhance its crude business. The partnership is also seeking several opportunities to increase Canadian oil production and plans to build another 2 million barrels of storage at Cushing by 2011. In a separate release, Magellan also announced that it will publicly offer 5 million new common units, to repay borrowings and pay for its BP acquisition.
 
Since the explosion, BP has lost half of its share value, leaving investors undecided over the stock. Hence, we currently maintain our Neutral recommendation for BP with Zacks #3 Rank (Hold).
Read the full analyst report on “BP”
Read the full analyst report on “MMP”
Zacks Investment Research