Magellan Buys Bankrupt Longhorn’s Assets


Magellan Midstream Partners L.P., Tulsa, Okla., has been approved to purchase almost all assets of Longhorn Partners Pipeline L.P. by the bankruptcy court. The closing date was set for yesterday, July 29.


Longhorn Partners Pipeline is a 700-mile common carrier pipeline system that transports refined petroleum products from Houston to El Paso, Texas. A terminal in El Paso, comprised of a five-bay truck loading rack and more than 900,000 barrels of storage, is included in the purchase. This terminal serves local petroleum products demand and distributes product to connecting third-party pipelines for ultimate delivery to markets in Arizona, New Mexico and, in the future, northern Mexico.


Magellan plans to finance the acquisition with debt as it purchases the pipeline system for $250 million plus the fair market value of line fill, which is currently estimated at about $100 million.


“The Longhorn system is an excellent fit with our existing asset portfolio and our stated intent to grow our presence in the Texas market,” said Don Wellendorf, CEO for Magellan, in a press release. “Magellan is quite knowledgeable of this system because we have served as its operator for the past several years. We feel confident that our business model as an independent pipeline company will attract customers interested in transporting petroleum products to the Southwestern area of the country and are already in discussions with a number of potential customers.”


Once the acquisition is complete, Magellan has plans to connect this pipeline system to the partnership’s existing terminal at East Houston to provide additional supply options for current and potential customers to transport petroleum products to Southwestern markets. In addition, Magellan plans to complete construction on an additional 400,000 barrels of storage currently being developed at the El Paso terminal. Both projects should be complete by mid-2010 at an estimated cost of $25 million.


Because this acquisition had minimal commercial activity once the former owner filed for bankruptcy last year, Magellan anticipates that operations will greatly increase during the first one to two years as it builds a customer base for the pipeline system. Following this growth period, Magellan expects this acquisition to generate financial results in line with its typical targeted return for expansion capital projects of six to eight times EBITDA (earnings before interest, taxes and depreciation).


The partnership plans to discuss more specifics about the acquisition, including its expected financial impact to 2009 results, as part of its second-quarter earnings release on Mon., Aug. 3.






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