(Adds detail of line fill for BridgeTex, background)
By Sabina Zawadzki
NEW YORK, April 8 (Reuters) - Magellan Midstream Partners LP , a U.S. midstream company with one of the longest refined product pipeline systems in the country, is shifting its focus to crude oil with the majority of its capital spending earmarked for crude projects.
In a presentation to investors on Tuesday, Magellan said of the $950 million it plans to spend between 2014 and 2016, 80 percent will go to crude oil projects primarily in and around Texas and its shale oil plays.
“We’re really going through a transformation in terms of where the growth is coming for Magellan,” Chief Executive Mike Mears told investors.
“If you’re look at where we’re spending our capital ... 80 percent of that is crude oil and only 20 percent is on products.”
Magellan operates 9,600 miles of pipelines carrying products such as gasoline and distillates from the Gulf Coast northwards to many Midwestern states.
But booming production from shale oil plays such as the Permian and Eagle Ford in and around Texas has convinced the company to invest and expand its far smaller 1,100-mile crude oil pipeline system.
Once it completes its BridgeTex and Longhorn pipeline projects later this year, Magellan would have contributed 575,000 barrels per day (bpd) in takeaway capacity at the Permian Basin shale oil play in Texas, out of an expected 1.285 million bpd of incremental capacity.
Some $110 million will be spent on the Longhorn pipeline, which is now ramping up flows and had its capacity expanded to 292,000 barrels per day (bpd), according to documents submitted to the pipeline regulator and posted on Magellan’s website.
Senior Vice President Jeff Selvidge said flows are expected to be at full capacity by mid-year, although he said the capacity was 275,000 bpd and made no mention of the increases as shown in the documents sent to the regulator.
He said the pipeline, which takes Permian crude oil from Crane, Texas and moves it to Houston, would have percentage rates of utilization in the lower 90s.
Magellan said previously it would expand capacity to 275,000 bpd but that it would be hard to reach such flow rates by the second quarter of this year before storage tanks are built at the origin and destination points of the line.
Magellan reversed the Longhorn line last year, enabling it to deliver crude from the Permian Basin to Houston. The project was one of a few that diverted crude from the Cushing oil hub to refineries on the Texas Gulf Coast.
A further $340 million is being spent on the 300,000 bpd BridgeTex pipeline project, which will also take crude oil from the Permian Basin to Houston, though its origin point will be at a different location than along the Longhorn pipeline.
Line fill of the pipeline will begin in late in the second quarter of this year with operations starting not long after, according to the presentation.
Mears said the company still has not decided whether it would launch another open season for the BridgeTex pipeline.
“It’s probably 50/50 whether we’re going to do that now,” he said adding that if Magellan doesn‘t, “that means we think we have much higher probability of filling it up without having an open season”.
A further $250 million will be spent to build a 50,000 bpd condensate splitter in Corpus Christi, Texas, to processes the very light crude oil extracted from shale into products that can be sold or exported.
The project complements the recently completed Double Eagle pipeline project, run jointly with Kinder Morgan Energy Partners , which transports condensates from the Eagle Ford play to Magellan’s Corpus Christi terminal. (Reporting by Sabina Zawadzki; Editing by Dan Grebler, Andrew Hay and Steve Orlofsky)