Magellan Midstream Partners LP MMP along with Plains All American Pipeline LP PAA has established Saddlehorn Pipeline Company. Each pipeline operator holds a 50% ownership with limited liability in the newly formed firm.
The new firm is aimed at the construction of the Saddlehorn pipeline which will likely spread over 550 miles. The pipeline is expected to carry oil of different grades from the resource plays in the DJ Basin and Rocky Mountain area to the Cushing, OK-storage facilities of the partnerships.
The total cost of the project is estimated at $800 million to $850 million. The Saddlehorn Pipeline is anticipated to start operations by mid 2016. Magellan Midstream Partners will be the operator of the pipeline.
Saddlehorn Pipeline’s open season closed on Feb 27. The partnership has already received commitments from upstream energy firms Anadarko Petroleum Corporation APC and Noble Energy Inc NBL. Moreover, an option − likely to expire in nearly two weeks from now − has been given to Anadarko Petroleum to get up to 20% interest in Saddlehorn Pipeline Company.
According to Magellan Midstream Partners, with leading producers in the oil resource plays, the entire pipeline project is supported by ship-or-pay contracts. Additionally, by transporting extra volumes of crude owing to Plains All American’s strong marketing presence in the locality, the pipeline project will be able to generate significant cash flows.
Both Magellan Midstream Partners and Plains All American currently carry a Zacks Rank #3 (Hold), implying that their respective stocks will perform in line with the broader U.S. equity market over the next one to three months.
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