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Magellan to Buy PAA Pipelines

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Pipeline operator Magellan Midstream Partners LP (MMP - Free Report) has signed a deal with Plains All American Pipeline LP (PAA - Free Report) to buy two refined petroleum products pipeline systems – spread over roughly 800 miles – for about $190 million.

The to-be-bought assets include the Rocky Mountain pipeline system, stretching over roughly 550 miles, and the New Mexico pipeline system that covers 250 miles.

The Rocky Mountain pipeline system has 4 terminals with a storage capacity of 1.7 million barrels. The system carries refined fuels in South Dakota, Colorado and Wyoming.

On the other hand, the New Mexico pipeline system transports refined products from El Paso, Texas, to Albuquerque, New Mexico. The system also carries refined products to the Mexican border by a third party.

Magellan Midstream will fund the procurement with cash and loans from its revolving credit facility, if required. The deal is expected to close in the second quarter, subject to regulatory approvals.

The Magellan Midstream management believes that this acquisition will be accretive to the partnership immediately with incremental cash flows generated in the coming years.

Tulsa, Oklahoma-based Magellan Midstream owns and operates a diversified portfolio of energy infrastructure assets. The partnership conducts its operations in three segments, namely, Petroleum Products Pipeline System, Petroleum Products Terminals and Ammonia Pipeline System.  

Magellan Midstream Partners owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest U.S. refined petroleum products pipeline system, access to more than 40% of refining capacity in the continental U.S. along with imports, and 85 petroleum terminals with more than 80 million barrels of storage.

On the flip side, results for Magellan Midstream are directly exposed to refined product demand, which are inherently volatile and subject to complex market forces. Actual demand could differ significantly from our expectations, thereby affecting the partnership’s revenues, cash flows and distributions.

Magellan Midstream currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.  

In the energy sector, Total SA (TOT - Free Report) and Range Resources Corporation (RRC - Free Report) display better fundamentals and currently sport a Zacks Rank #2 (Buy).

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