This is the first sale of that sale plan. There are more BP terminals around the country, including some on the West Coast, still up for grabs.
OPIS reported exclusively in November 2009 that BP would shed a huge portion of its terminals and pipelines after a thorough review of logistics.
The company has essentially determined that it doesn’t need to own and maintain quite a bit of “midstreams” hardware, and can simply negotiate long-term throughputs and other arrangements with third-party operators.
In various webinars and conference calls, the major told marketers that the asset sales — which do not have a timetable attached — should have no impact on the company’s refining or marketing footprints. BP, for example, already
moves some 60% of its East Coast products through third-party terminals and says that strategy has been an effective and competitive means of conducting business. Great pains were also taken in discussions with jobbers to stress
that the midstream sales would not crimp BP’s commitment to making sure that it keeps pushing the proprietary Invigorate fuel additive in branded markets.
Besides BP, other majors including as Chevron, ConocoPhillips and ExxonMobil are expected to exit the midstream and downstream sectors, and reinvesting the capital in the more lucrative upstream segment.
“This acquisition leverages Magellan’s expertise in transporting and storing petroleum products by greatly expanding our crude oil logistics infrastructure and our energy footprint in the attractive Cushing, Oklahoma and Houston, Texas
markets,” said Don Wellendorf, chief executive officer.
“These assets will facilitate our strategy to develop our existing East Houston terminal into a key distribution point for crude oil to Gulf Coast refineries by improving Magellan’s connectivity within the Houston market and extending our reach to the Texas City refining region.”
Earlier this year, Magellan said that it planned to deliver crude from Crane, Texas, to Houston via the Magellan South line or previously known as Longhorn pipeline.
Also, Magellan will continue to deliver products to El Paso from Crane, with supplies coming from Houston via Magellan North line. The North products line typically serves the Fort Worth and Dallas markets. This project will take 18 months to complete, putting the completion date in 2012.
For crude oil storage, Magellan will acquire 7.8 million barrels of crude oil storage in Cushing, Okla., supported by a multi-year utilization agreement from the seller.
Combined with the 2 million barrels of crude oil storage the partnership currently has under construction at Cushing, Magellan will be one of the largest owners of crude oil storage in the Cushing crude oil hub following the
acquisition.
For the crude oil pipeline system, the acquisition includes nearly 40 miles of crude oil pipelines running between Houston and Texas City, Texas, that vary in size from 24 to 26 inches in diameter.
This common carrier pipeline system is or can be connected to every major refinery within Houston and Texas City.
In refined petroleum products, Magellan also will acquire two 35-mile common carrier pipelines that transport products from the Texas City refining region to the Houston area, including connections to third-party pipelines for delivery to other end-use markets. An 18-inch pipeline transports gasoline and a 12-inch pipeline transports distillates, such as diesel fuel.
The acquisition is expected to close within 60 days subject to regulatory approval. Upon closing of the transaction, the partnership also will acquire certain crude oil tank working inventory at fair market value, which is currently estimated to be approximately $50 million.
The acquisition’s $289 million purchase price is 9 to 10 times the annual EBITDA, or earnings before interest, taxes and depreciation, expected initially to be generated by the assets at their current performance level.
Management expects the acquisition to be immediately accretive to the partnership’s distributable cash flow per unit, with the potential for additional growth in cash flow from the assets over time.