GO
Loading...

UPDATE 1-Magellan shifts focus to crude oil pipelines

(Writes through, adds quotes, project details, background)

NEW YORK, April 8 (Reuters) - Magellan Midstream Partners , the U.S. Midstream company with one of the longest pipeline systems in the country, is shifting its focus to crude oil with the majority of its capital spending earmarked for crude line projects.

In a presentation made to investors on Tuesday, Magellan said of the $950 million it plans to spend between 2014 and 2016, 80 percent will go to crude oil projects primarily in and around Texas and its shale oil plays.

"We're really going through a transformation in terms of where the growth is coming for Magellan," Chief Executive Officer Mike Mears told investors.

"If you're look at where we're spending our capital ... 80 percent of that is crude oil and only 20 percent is on products."

Once its completes its BridgeTex and Longhorn pipeline projects later this year, Magellan would have contributed 575,000 barrels per day (bpd) in takeaway capacity at the Permian Basin shale oil play out of 1.285 bpd in incremental capacity, according to its estimates.

Some $110 million will be spent on the Longhorn pipeline which is now ramping up flows and had its capacity expanded to 292,000 barrels per day (bpd), according to documents submitted to the pipeline regular and posted on Magellan's website.

Senior Vice President Jeff Selvidge said flows are expected to be at full capacity by "mid-year", although he named the capacity as 275,000 bpd and made no mention of the increases as shown in the documents sent to the regular.

He said the pipeline, which takes Permian crude oil from a point in Crane, Texas and moves it to Houston, would have utilization rates in the lower 90s percent.

Magellan had said previously it would expand capacity to 275,000 bpd but that it would be hard to reach such flow rates by the second quarter of this year before storage tanks are built at the origin and destination points of the line.

Magellan reversed the Longhorn line last year, enabling it to deliver crude from the Permian Basin to Houston. The project was one of a few that diverted crude from the Cushing oil hub to refineries on the Texas Gulf Coast.

A further $350 million is being spent on the BridgeTex pipeline project, which will also take crude oil from the Permian Basin to Houston, though its origin point will be at a different location than along the Longhorn pipeline.

Mears said the company still has not decided whether it would launch another open season for the BridgeTex pipeline.

"It's probably 50/50 whether we're going to do that now," he said adding that if Magellan doesn't, "that means we think we have much higher probability of filling it up without having an open season".

(Reporting by Sabina Zawadzki; Editing by Dan Grebler and Andrew Hay)