“It’s a big shift in growth on crude oil-related projects,” Mears said during his company’s first ever analyst conference in New York, monitored by webcast. Besides $650 million in projects already announced, Mears said the Tulsa, Oklahoma-based company has another $500 million worth of potential projects under consideration.

One of those prospective projects involves an inactive pipeline from near Cushing to southern Oklahoma. Magellan is looking at ways to get Cushing output south to the Gulf Coast. “There’s nothing to announce yet,” Mears said. “It’s something we’re actively working on.” 

Magellan bought the pipeline and other crude assets from BP for $290 million two years ago. Magellan’s acquisition included 7.8 million barrels worth of Cushing storage, to which the company added 4 million barrels with new construction. 

He said 75% of the projects under way have a crude oil focus, while the $500 million in projects under consideration have a 60% crude oil focus.In contrast, he said Magellan is now a refined products storage and transportation provider that derives 90% of it operating profits from refined products. 

“That’s a transition for our company because of the high growth opportunities in crude oil,” Mears said.
Separated from Williams Companies in 2003 and named Magellan, the company went public in 2006 and has invested $2.5 billion on acquisitions and growth projects in the last eight years.

Now it hopes to play a major role in the anticipated growth in crude oil production in Texas from the Permian Basin and the Eagle Ford Shale by connecting those boom regions to the Texas Gulf Coast, where Magellan owns storage facilities in Houston and Corpus Christi.

Citing expectations for the potential addition of 1.2 million b/d of new production from the Permian and the Eagle Ford in the next few years, Mears said it represents a “tremendous opportunity and a significant driver for infrastructure for both us and the industry.”

Updates on Projects in Pipeline

Magellan also has major storage resources at the Mid-Continent’s primary crude oil and products hub in Cushing, Oklahoma.

Whiles Mears declined to discuss specifics on the $500 million worth of additional projects under consideration, he provided updates on the $650 million in projects already under way.

That portfolio includes the company’s $375 million plan to turn its line from Crane, Texas, in the Permian area to Houston into a 225,000 b/d crude line by the middle of next year to help relieve a delivery bottleneck building in West Texas oil center of Midland.

“Midland is becoming a bottleneck for crude being produced in the Permian, so our largest project is reversal of the line from Crane to Houston,” he said of the project announced last month.

While Magellan also has considered building a $70 million pipeline from Midland to Crane, Mears said Tuesday that now appears unlikely as Magellan has confidence in additional capacity in the area to handle that connection.

Besides the Crane line project, Magellan also has $100 million allocated to the Eagle Ford region joint venture project announced in December with Copano Energy that includes a 500,000-barrel expansion of Magellan’s Corpus Christi storage facilities as well as the 100,000 b/d Double Eagle Pipeline.

While Mears said the company continues to review acquisition opportunities, he emphasized that Magellan will not pursue deals without discipline.

“It is safe to say that if you believe the Permian forecasts, more pipeline capacity is necessary,” said Mears. “We are interested in further expansion from that market down to the Gulf Coast…. We are positioned well for acquisitions, but we don’t use that as an excuse to overpay for assets.”