UPDATE 1-Vitol-led Blueknight to operate West Texas pipeline

Mon Feb 4, 2013 6:43pm EST

Related Topics

* Blueknight to operate pipeline from Pecos to Crane, TX

* Line will allow more shipping of W Texas oil to coast

* To connect with Magellan-operated Longhorn toward Houston

* Blueknight to take 30 pct ownership stake in pipeline

Feb 4, NEW YORK (Reuters) - Blueknight Energy Partners LP , a midstream oil company controlled by global oil trader Vitol SA, will operate a new 150,000 barrel-per-day oil pipeline in West Texas to send more local crude toward the Gulf Coast, the company said on Monday.

Blueknight will buy a 30 percent stake in the Pecos River Pipeline, a 70-mile (110-km) line connecting Pecos to Crane, Texas, the company said. There, it can feed into a larger pipeline - Magellan's Longhorn - toward the Houston area and the U.S. refining hub along the Gulf Coast.

Blueknight said it signed a deal with Advantage Pipeline LLC, another midstream oil company and shareholder in the line. The new Pecos line should begin operating in May and Blueknight will run it, the firm said.

Financial terms of the deal were not released.

The 16-inch diameter pipeline will "open new markets for crude oil producers in this part of the growing Permian Basin," Blueknight Chief Executive Mark Hurley said in a statement.

Crane is near the oil-rich Midland area in West Texas, where production from shale oil plays has been surging.

By delivering crude to Longhorn, a former fuel pipeline that is being reversed to carry crude to the Gulf Coast, the Pecos River line could send more West Texas crude toward Houston instead of landlocked Cushing, Oklahoma, a delivery hub where oil can be discounted by more than $20 a barrel because of a glut.

Longhorn, in its new configuration from Crane to Houston, is scheduled to begin pumping crude later this quarter or early in the second quarter. It will at first pump 75,000 bpd and ramp up to 225,000 bpd in the middle of this year, Magellan said last month.

Blueknight has in recent years expanded its foothold in U.S. energy markets with storage and energy transportation assets, including around 1,300 miles of pipeline. Blueknight also owns a combined 15 million barrels of crude and oil product storage facilities across 22 different states.

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