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Magellan (MMP) to Build Pipeline with Expandable Capacity

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Energy infrastructure provider Magellan Midstream Partners, L.P. (MMP - Free Report) recently launched an open season to gauge the demand for a new pipeline it is planning to build. The pipeline will carry Permian and Eagle Ford Basin crude and condensate to various market locations in Corpus Christi and Houston, TX. The pipeline, which will also connect the partnership's existing crude oil terminals in the Texas markets, will give potential customers an opportunity to come out with binding commitments by Feb 1, 2018. 

The pipeline, with a diameter of 24-inch and around 375 miles long, will run from Crane to Three Rivers, TX.  Its initial shipping capacity is expected to be around 350,000 barrels per day (bpd). Per the partnership, the capacity can be expanded up to 600,000 bpd. The new pipeline is expected to come online by 2019-end.

Although the partnership expects the cost of construction to exceed $1 billion, financial details related to the same have not been disclosed.

The new pipeline shows that the partnership is optimistic on the potential output from the Permian Basin in the long run. It will also help the basin’s shippers to access various markets in the Houston and Corpus Christi areas and some export terminals.

The news of the new pipeline followed the supplemental season’s announcement for the BridgeTex pipeline, owned by Magellan Midstreamand Plains All American Pipeline, L.P. (PAA - Free Report) .

About the Partnership

Tulsa, OK-based Magellan Midstream is a master limited partnership that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores, and distributes refined petroleum products and, to a lesser extent, ammonia. Magellan conducts its operations in three segments: Refined Products, Crude Oil, and Marine Storage.

We like the partnership for its attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. Other positive attributes include its sound liquidity position and distribution history. However, Magellan Midstream's debt-to-equity ratio of around 2 is almost double when compared to the industry average.

Price Performance

Units of the partnership have lost 10% year to date compared with 20.4% decline of the industry it belongs to.

Zacks Rank & Stock to Consider

Magellan Midstream carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include ConocoPhillips (COP - Free Report) and Northern Oil and Gas, Inc. (NOG - Free Report) . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Minnetonka, MN -based Northern Oil and Gas is an independent energy company. The company’s sales for the fourth quarter of 2017 are expected to increase 51.9% year over year. The company delivered an average positive earnings surprise of 175% in the last four quarters.

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