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'Too early' to commit to Permian crude oil pipeline, Magellan CEO says

Magellan Midstream Partners LP will not commit to building an oil pipeline from the Permian Basin to U.S. Gulf Coast refineries as long as commodity prices remain low and the rush on midstream infrastructure continues.

"It's still too early to provide any clarity on the likelihood, timing or economics of this potential project given the current dynamics of the crude oil markets and the number of competitors pursuing the same opportunity," CEO Michael Mears said Aug. 2 during a conference call. "The sense we have at this point is that there's probably at least a few more months before anything material moves and it may even be longer than that, but the way these things work, I'd kind of characterize this as the pump is primed … and once somebody decides to make a commitment, it'll happen very quick."

Magellan in May announced that it was considering the project and having "active discussions" with customers but declined to speculate on a cost or capacity for the new line to Corpus Christi, Texas.

Mears did note, however, that Magellan is evaluating potential Permian Basin acquisitions "associated with complementing our existing asset base."

The master limited partnership and joint venture partner Plains All American Pipeline LP have also seen some success with an open season to gauge shipper interest in expanded capacity and a new origin point in Midland, Texas, for their BridgeTex Pipeline Company LLC system. If there is sufficient demand, Magellan and Plains plan to expand the BridgeTex pipeline's capacity up to about 440,000 barrels per day after the open season closes on Aug. 4.

"We have already received committed volumes within the open season process and are optimistic that additional commitments will be secured before the open season closes," Mears said.

Magellan on Aug. 2 separately reported second-quarter net income of $210.4 million, or 92 cents per unit, up from $187.9 million, or 82 cents per unit, in the second quarter of 2016. The S&P Capital IQ consensus normalized EPS estimate for the second quarter was 90 cents.

Second-quarter adjusted EBITDA grew to $323.9 million from $292.5 million in the year-ago quarter. Distributable cash flow also increased, to $250.4 million from $221.0 million. Magellan raised its 2017 DCF guidance by $20 million, to $1.02 billion, and expects to increase annual cash distributions by 8% in 2017 and 2018.