Magellan Midstream Partners, L.P. (MMP) builds new infrastructure pipelines to service oil crudes moving from the Permian into the Gulf Coast, tapping into the the growing production of oil and gas in North America for organic growth opportunities and helping to drive above-average distribution growth among oil and gas MLP companies, says Elvira Scotto, Director at RBC Capital Markets.
“[A] crude-levered name that we favor is Magellan Midstream Partners. Historically, this has been more of a refined products pipeline MLP, but it has increased its focus on crude. It has become the third largest holder of crude oil storage at Cushing. It’s in the process of converting and reversing a portion of one of its refined products pipelines to crude oil service, and it’s also in the process of building a new crude oil pipeline to move Permian basin crude oil to the Gulf Coast,” Scotto said.
Scotto expects the shift from refined to crude to result in double-digit distribution growth for Magellan, especially as the master limited partnership has a clean balance sheet.
“Magellan has a strong backlog of growth projects, spending close to $1 billion this year. We also like Magellan’s low cost of capital; Magellan has an investment grade balance sheet and does not have general partner incentive distribution rights. For Magellan, we’re forecasting annual distribution growth of about 10% over the next couple of years,” Scotto said.
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