Must-know: Magellan Midstream's 1Q14 earnings analysis (Part 4 of 5)
Magellan Midstream’s growth expansion plans in 2014
In 2013, MMP spent ~$773 million on growth projects, acquisitions, and investments in non-controlled entities. The recent Permian Basin projects, the Longhorn and BridgeTex pipelines, are expected to be completed in mid-2014 and will be a significant source of growth for Magellan. Based on the expansion projects currently under construction, MMP expects to spend $700 million during 2014, with an additional $325 million spent in 2015 and $75 million in 2016 to complete the projects currently in progress.
The Longhorn pipeline, which began operation is April 2013, continues to drive the crude oil volumes higher—averaging 2,000 barrels per day during the first quarter of 2014. Also, MMP received a regulatory approval to increase Longhorn’s capacity to 275,000 barrels per day. It expects to average about 240,000 barrels per day during the second quarter and 250,000 barrels per day during the second half of the year.
MMP is also slated to begin operation on the BridgeTex pipeline in the second quarter of 2014. BridgeTex is MMP’s joint venture with Occidental Petroleum (OXY) to deliver crude oil from the Permian Basin to the Houston Gulf refinery region. It is important to note that OXY is a part of the Energy Select Sector SPDR Fund (XLE).
In regards to additional expansion, MMP recently announced two additional large-scale expansion projects. The first one entails building a 50,000-barrel-a-day condensate splitter at the Corpus Christi terminal. MMP stated that Corpus Christi is an ideal location for a condensate splitter because it is close to the condensate-rich Eagle Ford shale. It is also the termination point of MMP’s Double Eagle joint venture pipeline. MMP owns a 50% interest in the Double Eagle pipeline—a joint venture with Kinder Morgan Energy Partners L.P. (KMP) that transports condensate from the Eagle Ford shale formation in South Texas via a 195-mile pipeline to MMP’s Corpus Christi terminal. MMP added that the splitter is fully supported by a long-term take-or-pay commitment, which is expected to generate an average EBITDA multiple of 6x. Expected capex on this project is $250 million. MMP hopes to begin construction in early 2015 once it receives relevant permits.
The second large-scale project relates to MMP’s Little Rock refined products pipeline. MMP has already entered into an agreement with Spectra Energy Partners (SEP) to utilize an existing 160-mile pipeline for a portion of the route. However, Magellan plans to construct two new sections of the pipeline. The first section will be from MMP’s Fort Smith terminal to connect to the existing pipe at the origin end. The second section will be from the existing pipe into the Little Rock area on the destination end.
MMP expects to spend $150 million on this project, which also includes enhancements to the existing refined products pipeline system to accommodate the increased volumes. Subject to regulatory and other approvals, MMP expects the Little Rock pipeline to be operational in early 2016. It is expected to generate an 8x EBITDA multiple, based on committed volume.
It is important to note that MMP, SEP, and KMP are all a part of the Alerian MLP ETF (AMLP).
Most of these growth projects are expected to add an incremental pipeline capacity of approximately 1,072 thousand barrels per day in the Permian Basin—a key source of organic growth for the firm.
To learn why the Permian Basin is integral to MMP, continue reading the next part of this series.
Browse this series on Market Realist: