UPDATE 2-Magellan Midstream scales back pipeline project
(Recasts; updates share movement)
Dec 29 (Reuters) - Refined petroleum products distributor Magellan Midstream Partners LP (MMP.N) scaled back its plan to build an 80-mile pipeline from Port Arthur to Houston and said it would revamp the project, halving the cost.
Magellan said it would now build a nine-mile pipeline from its East Houston terminal to the existing pipeline of Explorer Pipeline Co that transports petroleum products from Port Arthur to Fauna, Texas.
Magellan said it was working with Explorer Pipeline to transport product from Motiva Enterprises LLC's Port Arthur refinery to markets in East Texas.
Magellan will also build a pipeline between its East Houston terminal and Motiva's Pasadena terminal.
Both the projects are expected to be operational by 2011. The revamped project will cost $120 million, compared with $240 million estimated for the prior 80-mile pipeline project.
Motiva is a refining and marketing joint venture co-owned by Shell (RDSa.N) (RDSb.N) and Saudi Refining Inc.
"Based on current projections, these growth projects are expected to generate an average annual operating profit of approximately $9 million during the first three years of full operation, including about $3 million of depreciation," Magellan said in a statement.
Shares of Magellan were trading at $28.43 Monday afternoon on the New York Stock Exchange. (Reporting by Arup Roychoudhury in Bangalore; Editing by Ratul Ray Chaudhuri, Himani Sarkar)
If the revamped projects cost $120M and generate only $9M including $3M in depreciation then MMP is losing money on this project. THat is a 7.5% return on investment. Capital costs are more than that. Hopefully somewhere there are some better numbers.
I'm sure that MMP is engaged in a "just do the basics" action here until the economy improves. Anchoring this project in the beginning was a long term contract with Motiva that has to be honored if MMP wants a long term future with Shell/Saudi Arabia. In a couple of years,hopefully, we'll see the fullscope project reinstated.