TULSA — Magellan Midstream Partners doesn't own any of the fuel that moves through its pipelines, but consumers throughout the middle of the country would have a hard time keeping their cars and trucks moving without the Tulsa-based energy partnership's extensive series of pipelines, terminals and storage.
Magellan's network transports oil from the wells to refineries and moves gasoline, diesel, jet fuel and other products from the refineries to consumers.
Because the partnership does not own the fuel, but instead charges other companies for the use of its petroleum highway, Magellan is relatively unaffected by the energy industry's infamous price swings, Magellan CEO Mike Mears said.
“We have a stable, fee-based business that doesn't fluctuate with price in the market,” Mears said. “It's driven by overall demand, which is very stable. We don't have the ups and downs of other companies that produce energy or market energy because we're not exposed to the price of the commodities.”
While Magellan's refined products system supplies most of the partnership's revenue, the future lies with crude oil, Mears said.
“Crude oil is a relatively new business for our company,” he said. “If you back up two or two and a half years ago, we had very little assets deployed to crude oil. Now we're rapidly growing.”
The combination of the steady refined products business and the growing oil transportation business helped Magellan climb to No. 4 on this year's Oklahoma Inc. list.
The partnership benefitted from a 24 percent one-year total return in stocks and dividends, a 14 percent increase in revenues and a 33 percent increase in earnings per share, all measured from July 2011 through June 2012 in the Standard & Poors Capital IQ rankings.
While there are many refined products pipeline companies and many crude oil pipelines, Magellan benefits from having both lines in its inventory, Mears said.
“It allows us to be more financially flexible,” Mears said. “It allows us to finance the opportunities at a lower cost.”
Magellan owns a system of pipelines and terminals that transport crude oil, gasoline, diesel, jet fuel and ammonia throughout the country. The company owns the longest refined petroleum products pipeline in the country. The 9,600-mile line stretches from Houston to El Paso, Denver, North Dakota and Chicago and includes 50 Magellan-owned terminals.
Magellan's crude oil investments are mostly in Texas, where the partnership is working to more efficiently connect the Permian Basin in western Texas and the Eagle Ford Shale of south Texas to Gulf Coast refineries.
The two oil-rich basins provide different challenges.
In west Texas, where oil and natural gas drilling has been in place for much of the past century pipelines and other infrastructure already are in place, even if they are not adequate to meet current production demands, Mears said.
Magellan owns a pipeline system that currently directs refined products from Houston to West Texas. The partnership is working to reverse the line and fill it with crude oil instead.
“If you have existing pipeline you can convert rather than building a new line; it's a huge advantage,” he said. “It gives you a tremendous competitive edge.”
South Texas, however, poses different challenges because there is little or not existing infrastructure.
“It's a jump ball,” he said. “Everyone's on a level playing field because everyone has to build new.”
The strong demand in both basins promises to keep Magellan and other midstream companies busy for years, said Tulsa money manager Jake Dollarhide.
“The more the economy drives back, the more important that infrastructure is going to be,” said Dollarhide, CEO of Tulsa-based Longbow Asset Management Co. “The more energy is coming out of those plays, the more infrastructure is going to be needed to service that production.”