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Occidental to Build Oil Pipeline

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Occidental Petroleum Corporation (OXY - Free Report) has inked a contract with Magellan Midstream Partners, L.P. (MMP - Free Report) for building a crude oil pipeline called BridgeTex Pipeline, stretching from Colorado City, Texas to the Houston Gulf Coast area. Both the organizations will jointly install this pipeline for transferring crude oil from the Permian Basin. This pipeline is expected to be online by the middle of 2014, subject to required approvals.

Per the agreement, the organizations will build few pipelines including an approximately 400 miles long 20-inch pipeline between Colorado City and Magellan Midstream Partners' terminal in East Houston and roughly 50 miles long 24-inch pipeline from East Houston to Texas City.

In addition, the organizations will construct 1.4 million barrels of crude oil storage at East Houston and approximately 1.2 million barrels of crude oil storage at Colorado City to ease the pipeline movements.

A jointly-formed project team will supervise this project. In particular, Magellan Midstream Partners will act as a construction manager and operator of the pipeline.

The BridgeTex Pipeline project will enable the organizations to transport roughly 300,000 barrels of oil per day (“Bbls/d”). Besides, the strategic location of the pipeline will facilitate it to access the Houston Ship Channel refineries, the Texas City refineries and several other refineries throughout the Gulf Coast through third-party pipelines.

It is evident from the past that most of the crude oil and natural gas companies install new pipelines or expand the existing ones after getting transportation and service contracts from the customers. In this project, the organizations have already received long-term transportation commitments and orders from the Federal Energy Regulatory Commission along with approvals related to pipeline’s tariff structure.

Currently, Occidental Petroleum’s 2012 capital expenditure is focused on active exploration and production activities. In the first nine months of 2012, the company utilized $7.7 billion under its capital investment program. A sharp rise in the company’s capital expenditure from $5.0 billion in the year-ago comparable period was primarily due to development expenses at its Oil and Gas, Chemicals and Midstream segments.

In third-quarter 2012, Occidental Petroleum produced 473 thousand barrels of oil per day (“MBbls/d”) including a production figure of 144 MBbls/d from the Permian operations. We view this deal as a positive catalyst for the company’s future growth along with strengthening and enhancing its crude oil transportation portfolio. As a result, the company will be able to provide uninterrupted services to its customers with the help of a well-equipped pipeline network provider Magellan Midstream Partners.

Los Angeles, California-based Occidental Petroleum Corporation along with its subsidiaries engages in exploration, development, production and marketing of crude oil, natural gas liquids and natural gas in the United States, Middle East, North Africa and Latin America. With a market capitalization of $61.14 billion, the company has 11,300 full time employees. Occidental Petroleum currently has short-term Zacks #3 Rank (Hold rating).

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