Despite the flatlining of oil prices, pipelines remain in favor and Anadarko Petroleum Corp. (NYSE: APC) is taking advantage.
The Woodlands, Texas, company exercised its option to buy a 20% equity interest in the Saddlehorn Pipeline Co., a joint venture (JV) with Magellan Midstream Partners (NYSE: MMP) and Plains All American Pipeline LP (NYSE: PAA), a March 18 release said.
The Rockies crude line project is supported by ship-or-pay contracts with major producers, including an affiliate of Anadarko.
According to the JV agreement, Saddlehorn, a 550-mile pipeline, will be constructed to transport various grades of crude oil from the Denver-Julesburg (D-J) Basin and Rocky Mountain area resource plays to storage facilities in Cushing, Okla., that are owned by Magellan and Plains.
The project is currently estimated to cost between $800 million and $850 million, the release said.
Simmons & Co. director in research, Mark Reichman, expects the JV agreement to enhance the “commercial viability of the project.”
The agreement shares cost and risk that, with “additional volumes associated with PAA marketing activities, could enhance the project's return on capital investment," Reichman said in a March report.
The 20-inch pipeline will have an ultimate capacity to transport up to 400,000 barrels per day (bbl/d). Initially, capacity is expected to be about 200,000 bbl/d.
An extension to Carr, Colo., is also under consideration for connection to existing crude oil assets Plains owns in that region. The lateral is being designed to provide additional shippers with flexible options and streamlined access into the Saddlehorn system.
As a result of the exercised option announced March 18, the equity ownership in Saddlehorn will be 40% Magellan, 40% Plains and 20% Anadarko.
Magellan will serve as construction manager and pipeline operator of the Saddlehorn system. Subject to permits and regulatory approvals, the Saddlehorn pipeline is expected to be operational by mid-2016.
"Magellan and Plains are pleased to have Anadarko as a partner in the Saddlehorn pipeline," said Michael Mears, Magellan's CEO, and Greg L. Armstrong, chairman and CEO of Plains. "Anadarko is a committed shipper and has a significant production presence in this region, adding further value to the pipeline project to deliver crude oil to the Cushing hub.”
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