Magellan in JV with Copano

Pipeline operator Magellan Midstream Partners L.P. ( MMP - Analyst Report ) has co-partnered with natural gas service provider Copano Energy L.L.C. ( ) to form a 50:50 joint venture, named Double Eagle Pipeline LLC. Copano will act as the operator of the venture.

The joint venture will set up a 140 miles long pipeline, connecting the existing 50-mile pipeline segment owned by Copano. The network will extend to Live Oak, McMullen and LaSalle Counties of Texas. Double Eagle will also build a new truck unloading unit along the pipeline near Three Rivers.

The set of pipelines, with an initial capacity of 100,000 barrels of oil per day, will be engaged in transporting condensate from the resource-rich Eagle Ford Shale to Magellan’s terminal in Corpus Christi, Texas. Magellan will upgrade the terminal with 500,000 barrels of new dedicated condensate storage and a new dedicated dock delivery pipeline.

The estimated expenditure of the project is approximately $150 million that will be equally shared by Magellan and Copano. The joint venture has received long-term customer commitments from two major companies having strong acreage in Eagle Ford Shale – Talisman Energy Inc. ( TLM - Analyst Report ) and Statoil Marketing and Trading (US) Inc, an affiliate of Statoil ASA ( STO - Analyst Report ) .

The joint venture will start providing limited services by the end of 2012 and full service is expected to begin in the first quarter of 2013.

Tulsa, Oklahoma-based Magellan Midstream is a master limited partnership (MLP) that owns and operates a portfolio of diverse energy infrastructure assets. The partnership primarily transports, stores and distributes refined petroleum products and, to a lesser extent, ammonia. The oil distributor conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.

Magellan management remains upbeat about this collaboration that is expected to generate high strategic value for the company and its customers. The company also aims to expand its operations in the Eagle Ford Shale play and looks for more attractive opportunities in the region.

Magellan units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.