Zacks_Analysts' Blog : Magellan to Buy Longhorn Pipeline - Analyst Blog

The purchase price of these assets is $250 million plus another $100 million for the fair market value of line fill. Line fill is the requisite amount of oil or gas that should fill a new line before deliveries can be made at the other end.

Having served as its operator for the last few years, Magellan said that the Longhorn pipeline suits it well. After the acquisition, Magellan plans to connect the pipeline to its existing terminal at East Houston. The partnership will also build 400,000 barrels of storage at the El Paso terminal, which is currently under construction.

Tulsa, Oklahoma-based Magellan anticipates the ramp-up of operations in the first one or two years as a customer base has already been built for the pipeline. Following this, the company expects a return of 6 to 8 times EBITDA from this pipeline.

Magellan has been quite active on the acquisition front. The proposed MGG transaction (expected to close in the third quarter) is the most recent in this respect. Last March, Magellan proposed an all-equity takeover of its publicly traded general partner, Magellan Midstream Holdings (MGG). We expect acquisitions to remain a key component of the partnership's growth strategy.

Magellan owns an attractive portfolio of energy infrastructure assets that generates stable and recurring revenues based on both fee and tariff. While the partnership is likely to maintain distribution at current levels, the operating outlook is expected to remain fairly challenging. Our Hold recommendation remains unchanged.