Magellan Midstream-ONEOK merger creates 'more ways to win' in energy: CEO

Petroleum distributor Magellan Midstream Partners (MMP) is pushing forward with its $18.8 billion merger of natural gas operator ONEOK (OKE). Magellan Midstream CEO Aaron Milford joins Yahoo Finance to discuss.

"It will also add natural gas liquids and natural gas to that mix," Milford says on the company's investments in diversifying its natural gas assets. "As you look forward, we feel very, very good about how powerful this company can be as an infrastructure company... And from a regulatory perspective, we have cleared the regulatory hurdles that we need to."

Milford also describes the opportunities and value that consolidation in the energy space offers amid the slow transition from traditional fossil fuel sources.

Video Transcript

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- Magellan Midstream is betting big on natural gas as it pushes its $18.8 billion merger with ONEOK. The combination would result in the fourth largest US midstream company worth about $60 billion and is up for approval on September 21st.

For more on this, we're joined by Aaron Milford, Magellan Midstream CEO. Good to have you on the show here. So talk about the timing of this. And obviously, any time you talk mergers, you have to wonder, how likely is this to catch the eye of regulators?

AARON MILFORD: Well, sure. You know, it takes a little time to put deals like this together, that's for sure. And as we had the opportunity to consider this opportunity with ONEOK, it was really about two things. It was about maximizing value for our unitholders and then also thinking about the future, what best sets up our company going forward.

So we're a refined products and crude oil business today primarily. It's a very healthy business. But when you think about the merger that we're creating, it'll be a refined products business, crude oil business. And then as you mentioned, it'll also add natural gas liquids and natural gas to that mix. So as you look forward, we feel very, very good about how powerful this company can be as an infrastructure company as we look forward.

And from a regulatory perspective, we've cleared the regulatory hurdles that we need to. And the vote that we have outstanding on the 21st is our last major hurdle.

- And so as a combined entity, how immediately do you believe that you're ready to go hit the ground running? And what type of fine-tuning from an organizational perspective do you still think needs to take place?

AARON MILFORD: Well, what's great is our business is a little different than their business. Refined products and crude oil, it's additive. They're complementary businesses. But they're different.

So from an integration standpoint, we expect it to go very, very well. We'll bring our business into the mix. They'll continue to run their business really well.

And then as we put the two companies together, we expect there to be significant synergies. So we expect about $200 to $400 million a year of value that will create from putting these two companies together that frankly, neither one of us do by ourselves. So that'll be the focus-- integrating, running our business really, really well from day 1, but then focusing on generating that additional value for all our unitholders and shareholders.

- And it's interesting because this is a relatively fragmented industry in the US. What does having this consolidation in this space do? How does it position you against the competition?

AARON MILFORD: So when you look at our space, it's been consolidating for a while. You've had a lot of smaller companies coming together to make larger companies. So as you look forward, it's all about having more ways to win. When you have a strong refined products business, a strong crude oil transportation business, and you add to that a strong natural gas liquids and natural gas business, you simply have more ways to win. So you have more ways to create growth and value for our investors moving forward.

So energy transition is uncertain. And the more ways you can adapt, the better off you're going to be as a company. And this merger allows us to do that.

- When we think about where things stand right now in terms of transitioning and the broader energy transition that is taking place, is this tie-up, is this deal in this ultimate merger a means to make sure that both of these businesses can not only complement each other, but at the end of the day, in this shift of and towards clean energy and cleaner elements of energy as well, that there's more of an opportunity for growth? And how do you kind look at tapping into that as well?

AARON MILFORD: So energy transition-- the world needs all the energy they can possibly get. From our perspective, that's energy of all forms. That's fossil fuel energy. It's renewable energy. It's all of the above. That's what the world needs to have a successful economy.

So as a fossil fuel company, we expect to have a very bright future in providing those fossil fuels the world's going to need. So as you look at that continuing demand in the world, it's all about getting those fossil fuels, natural gas, natural gas liquids, refined products, crude oil into that world market, not just our domestic market here in the US, but also the world market. And as we're able to do that, it creates opportunity because again, it comes right back down to, we believe, at the end of the day, we need all of the energy in all of its forms in order to be successful.