Magellan Midstream Partners, L.P. announced that it will join forces with Explorer Pipeline to transport product from Motiva Enterprises LLC’s Port Arthur, Texas refinery to markets in East Texas. Rather than building an 80-mile pipeline between Port Arthur and Houston as initially announced in May 2008, Magellan will build a 9-mile, 20-inch diameter pipeline to connect its East Houston terminal, which serves as an origin point for Magellan’s 8,500-mile pipeline system, to Explorer’s existing 28-inch diameter pipeline that transports petroleum products from Port Arthur to Fauna, Texas, which is just east of the Houston area. Magellan will also add a pipeline connection between its East Houston terminal and Motiva’s existing Pasadena terminal. These projects are expected to be operational by 2011.
Magellan still plans to increase its capabilities to handle additional transportation volumes at its existing locations including construction of 900,000 barrels of storage and three additional truck rack lanes at its East Houston terminal and 200,000 barrels of storage at its Frost, Texas facility. These enhancements are expected to be fully operational by 2010.
These projects continue to be supported by a 15-year agreement with Motiva.
Further, the partnership has already added ethanol blending capabilities and a third truck rack lane at its West Fort Worth terminal and is expanding loading capabilities at its Odessa terminal with the addition of two truck rack lanes expected by early 2009, both consistent with the original announcement.
Magellan expects the cost of the revamped project to be $120 million, or half of the initial project cost of $240 million. Based on current projections, these growth projects are expected to generate an average annual operating profit of approximately $9 million during the first three years of full operation, including about $3 million of depreciation.
“Since we announced this project in mid 2008, we have worked to reduce the capital required to meet Motiva’s needs,” said Don Wellendorf, chief executive officer. “By utilizing existing infrastructure, the revised scope significantly lessens our execution risk while providing a slightly improved initial return. Importantly, the project continues to provide opportunity for future growth, which we are pursuing to further improve project returns.”
Based on the progress of expansion projects already underway, including this project revision, management currently expects to spend about $270 million in 2008, with additional spending of $190 million primarily in 2009 to complete these projects. In addition, the partnership continues to analyze more than $500 million of other potential growth projects in earlier stages of development, which have been excluded from these spending estimates.