To Cut Pipeline Costs, Magellan Hooks Up With Explorer

TULSA, Okla. -- Magellan Midstream Partners LP (MMP) said Monday it won't build an 80-mile pipeline from Port Arthur to Houston as planned, but will instead link its terminal to an existing Explorer pipeline in a move to save about $120 million.

The petroleum distributor is joining forces with Explorer Pipeline to transport petroleum from Motiva Enterprises LLC's Port Arthur, Texas refinery to markets in East Texas. Magellan will now build a 9-mile pipeline to connect its East Houston terminal to Explorer's pipeline that transports petroleum products from Port Arthur to Fauna, Texas, just east of Houston.

Magellan also will connect its East Houston terminal and Motiva's existing Pasadena terminal. The company expects these projects to be up and running by 2011 and cost half of the original $240 million project.

"By utilizing existing infrastructure, the revised scope significantly lessens our execution risk while providing a slightly improved initial return," said Chief Executive Don Wellendorf in a statement. As the price of oil and natural gas has plunged from record highs this summer, energy companies have trimmed capital spending plans.

Magellan said it still will build more storage, boost loading capabilities and add truck rack lanes at its terminals and facilities. The company estimates the projects to generate an average annual operating profit of about $9 million during the first three years of full operation.

Based on these expansion projects and the pipeline revision, management expects to spend about $270 million in 2008 and $190 million in 2009. More than $500 million worth of additional expansion plans also are being evaluated, the company said.

Shares of Magellan Midstream Partners rose 17 cents, or 0.60 percent, to $28.59 in afternoon trading.

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