Major midstream transactions may have been grabbing headlines during the last couple of months, but a recent announcement of a further expansion from the owners of the Saddlehorn Pipeline proves that opportunities for organic growth can still emerge for savvy operators. Magellan Midstream Partners LP, one of three owners of joint venture Saddlehorn Pipeline Co. LP, said in a statement that the 16-inch extension will traverse an additional 50 miles from Platteville, Colo., to Carr, Colo. The extension will likely add between $80 million and $100 million to the overall proj- ect cost, which is now expected to reach between $880 million and $950 million.
The 20-inch, 600-mile Saddlehorn Pipeline is also owned by Plains All American Pipeline LP and Anadarko Petroleum Corp. It will transport various grades of crude oil from the Denver- Julesburg Basin, and possibly the larger Rocky Mountain and Bakken resource plays, to storage facilities owned by Magellan and Plains in Cushing, Okla. When completed, the pipeline will have an initial transport capacity of about 200,000 barrels per day (bbl/d) and is expected to have a final capacity of up to 400,000 bbl/d.
In a recent Raymond James “Energy Daily Update,” analysts Darren Horowitz and Cory Garcia said the move was expected, as committed volumes for the pipeline are currently well below 50% of the initial 200,000 bbl/d capacity. Magellan leadership has been “very vocal” about its plans to consider expansion opportunities for the pipeline in the hope of securing incremental shipper interest, the note said. The expansion fits nicely into this strategy, as Carr is the endpoint of both a Magellan pipeline from Guernsey, Wyo., and a Plains gathering system.
Before the expansion was announced, Saddlehorn was expected to net a multiple of 10X to 11X annual EBITDA with less than 50% of the initial capacity committed, the note said. How- ever, “the expansion to Carr should help drive the multiple lower (possibly into single digit territory), ultimately greatly improving the economics of the project,” it concluded.
The Saddlehorn Pipeline is expected to be operational during mid-2016, while the extension to Carr will likely enter service by the end of 2016

Comments