Magellan Closes $289M Acquisition – Analyst Blog

Magellan Midstream Partners L.P. (MMP) announced the completion of the acquisition of petroleum storage and pipelines from BP Pipelines (North America), a subsidiary of BP plc (BP). The partnership acquired 7.8 million barrels of crude oil storage and more than 100 miles of active petroleum pipelines for a total cost of $289 million.

 

Magellan is also expected to take over certain crude oil tank working inventory, valued at approximately $50 million. The announcement of the deal was made in mid-July 2010.

 

The acquired crude oil storage facility is in Cushing, Oklahoma, where Magellan plans to build an incremental 2.25 million barrels of crude oil storage along with a private investor group. Conjoining a previously announced 2 million barrels of crude oil storage capacity, the partnership’s construction project currently stands at 4.25 million barrels of storage.

 

Following the acquisition, Magellan will own one of the largest crude oil storages in the Cushing crude oil region. The first phase of the storage facility will be operational in mid-2011, while the final tanks will be ready for operation by the end of 2011.

 

Magellan’s pipeline acquisition comprises 40 miles of crude oil pipelines running between Houston and Texas City, two 35-mile common carrier pipelines that transport refined petroleum products from the Texas City refining region to the Houston area, 18-inch pipeline transporting gasoline and a 12-inch pipeline used in the transportation of distillates.

 

Considering the expansion of the project scale, Magellan increased its 2011 expansion spending estimates by $25 million. The partnership estimates expansion spending to be approximately $565 million in 2010, accounting for all the acquisition till date. The expenditure will likely go up by another $125 million during 2011.

 

Management looks forward to strengthen its foothold in the crude oil storage and distribution business with the aid of this acquisition and will continue to exploit opportunities necessary for improving the utilization of these assets.

 

Magellan currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock, reflecting the partnership’s high-quality and diverse portfolio of midstream assets and sound liquidity position, offset by the commodity-price weakness as well as a low demand for refined products.