Tulsa-Based Megellan Grows
Tulsa, OK – Magellan Midstream Partners to Purchase Longhorn Pipeline
TULSA, Okla., July 27 /PRNewswire-FirstCall/ -- Magellan Midstream Partners, L.P. (NYSE:MMP) announced today that its purchase of substantially all of the assets of Longhorn Partners Pipeline, L.P. has been approved by the bankruptcy court. Closing is set for July 29, with no additional approvals required.
The 700-mile common carrier pipeline system transports refined petroleum products from Houston to El Paso, Texas. A terminal in El Paso, comprised of a 5-bay truck loading rack and over 900,000 barrels of storage, is included in the purchase. This terminal serves local petroleum products demand and distributes product to connecting third-party pipelines for ultimate delivery to markets in Arizona, New Mexico and, in the future, Northern Mexico.
The purchase price for the pipeline system is $250 million plus the fair market value of line fill, which is currently estimated at approximately $100 million. Management intends to finance the acquisition with debt.
"The Longhorn system is an excellent fit with our existing asset portfolio and our stated intent to grow our presence in the Texas market," said Don Wellendorf, chief executive officer. "Magellan is quite knowledgeable of this system because we have served as its operator for the past several years. We feel confident that our business model as an independent pipeline company will attract customers interested in transporting petroleum products to the Southwestern area of the country and are already in discussions with a number of potential customers."
Following closing of the acquisition, Magellan intends to connect this pipeline system to the partnership's existing terminal at East Houston to provide additional supply options for current and potential customers to transport petroleum products to Southwestern markets. Further, Magellan will complete construction of an additional 400,000 barrels of storage that is currently underway at the El Paso terminal. Both projects should be complete by mid-2010 at an estimated cost of $25 million.
Because this asset had minimal commercial activity following the former owner's bankruptcy filing last year, Magellan anticipates a ramp-up of operations during the first one to two years of ownership as a customer base is built for this pipeline system. Following this ramp-up period, the partnership expects this acquisition to generate financial results in line with its typical targeted return for expansion capital projects of 6 to 8 times EBITDA, or earnings before interest, taxes and depreciation.