Must-know: Magellan Midstream's 1Q14 earnings analysis (Part 5 of 5)
Permian Basin integral to MMP
Magellan Midstream Partners (MMP) has made significant investments in pipelines in the Permian region. It delivers crude oil from the Permian Basin in west Texas to markets along the U.S. Gulf Coast. Most of MMP’s major assets, both current and under construction, are located in the Permian. These include the Longhorn crude oil pipeline and the BridgeTex pipeline, which is still under construction. The pipeline capacity for both of these pipelines is 275 bpd and 300 bpd (barrels per day). By 2030, MMP plans to increase the pipelines’ capacities to over 1,130 bpd, through new growth projects.
Growth in the Permian
Drilling activity in the Permian Basin in west Texas has rapidly increased over the past several years. The surge in activity has led to a huge demand in oil storage and takeaway capacity—with future demand likely given the rate of current growth. This trend is positive for midstream companies with assets in the area such as Magellan Midstream Partners (MMP), Sunoco Logistics Partners (SXL), Regency Energy (RGP), and Energy Transfer Partners (ETP). Likewise, if a slowdown occurs, it would be a negative for these companies.
Many of these companies have major projects underway in the Permian. Magellan Midstream Partners (MMP) announced a joint venture with Occidental Petroleum (OXY) to construct a crude oil pipeline from west Texas to the Houston area (BridgeTex). Another company investing in Permian infrastructure is Sunoco Logistics Partners (SXL). Sunoco noted in a recent presentation a “continued strong demand for takeaway capacity out of the Permian Basin.” It is in the process of constructing over 400,000 barrels per day of crude transportation out of the region. Additionally, Regency Energy (RGP) and Energy Transfer Partners (ETP) recently completed a natural gas liquids (or NGLs) pipeline between the Permian Basin to Mont Belvieu, Texas (a natural gas liquids hub). It is important to note that SXL, RGP, ETP, and MMP are all part of the Alerian MLP ETF (AMLP).
MMP is the fourth largest component of AMLP. To learn more about AMLP and other major components of the Alerian MLP ETF, read our Market Realist series on Must-know: An investor’s guide to the Alerian MLP ETF (AMLP).
To learn more about how major midstream names are benefiting from the Permian, read the article on Growth in Permian oil production boon for some midstream players.
Browse this series on Market Realist:
- Part 1 - Overview: Magellan Midstream Partners L.P.
- Part 2 - Must-know: Magellan Midstream’s key business segments
- Part 3 - Why Magellan Partners is on-track for its 20% distribution growth goal
- Oil, Gas, & Consumable Fuels
- Basic Materials Industry
- Permian Basin
- Energy Transfer Partners