Magellan Midstream in $250M Splitter Deal - Analyst Blog

On Mar 31, Tulsa, OK-based publicly traded energy pipeline partnership Magellan Midstream Partners LP MMP announced that it has entered into a fee-based, take-or-pay contract with Dutch commodity trader Trafigura AG. The contract is for the construction of a condensate splitter for Magellan Midstream's South Texas Corpus Christi terminal.

The agreement also includes construction of over 1 million barrels of storage facility, dock improvements, two truck rack bays for the terminal and pipelines to connect Magellan Midstream's terminal with a nearby facility belonging to Trafigura.

The condensate splitter and the related infrastructure are expected to be operational in the latter half of 2016 and cost around $250 million.

Trafigura AG will support this 50,000 barrels per day (bpd) splitter through long-term commitments. Magellan Midstream announced that it could add another splitter at this facility with a similar processing capacity if demand exists.

Magellan Midstream management stated that construction of this condensate splitter is a strategic initiative by the partnership to expand its service offerings.

Magellan Midstream is a master limited partnership MLP that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores, and distributes refined petroleum products and, to a lesser extent, ammonia.

Moreover, the partnership owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. Other positive attributes include its investment grade rating and strong track record for distribution growth.

Magellan Midstream currently holds a Zacks Rank #2 (Buy), which implies that it is expected to outperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider other players in the industry such as Enterprise Products Partners L.P. EPD, Kinder Morgan Management LLC KMR and Spectra Energy Partners, LP SEP. All these stocks currently carry a Zacks Rank #2.