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Saddlehorn, Grand Mesa combine DJ basin pipeline project

Saddlehorn and Grand Mesa to combine projects through undivided joint interest in DJ basin crude oil pipeline.
Saddlehorn, Grand Mesa combine DJ basin pipeline project

Saddlehorn Pipeline Co. announced that it is combining projects with Grand Mesa Pipeline for the construction of a 20-inch undivided joint interest pipeline which begins approximately 20 mi north of Saddlehorn's Platteville, Colorado origin at a junction near Grand Mesa's Lucerne, Colorado origin. The joint interest pipeline will deliver various grades of crude oil from the DJ Basin to storage facilities in Cushing, Oklahoma.

As part of the undivided joint interest, Saddlehorn and Grand Mesa will share in the costs for the pipeline that is currently under construction. The initial capacity of the joint interest pipeline is expected to be 340,000 b/d, with Saddlehorn owning 190,000 b/d of capacity and Grand Mesa owning 150,000 b/d. Saddlehorn and Grand Mesa will be responsible for their own commercial activities, including customer relationships, contract terms and tariff structure, with respect to their interest in the pipeline. Saddlehorn has the option to expand the maximum capacity of the pipeline to more than 450,000 b/d in the future at its sole discretion and cost. Saddlehorn would own all of the incremental capacity from any expansion. Grand Mesa will retain ownership of its previously acquired pipeline easements from Lucerne to Cushing for the potential future development of transportation projects involving petroleum commodities other than crude oil and condensate. With the consent and participation of Saddlehorn, the parties may consider future opportunities using these easements for projects involving the transportation of crude oil and condensate.

Saddlehorn will own origin points at Platteville, including one million barrels of storage, and Carr, Colorado as well as the pipeline segment from Carr to the Lucerne junction. Grand Mesa will own origin points both at Lucerne and Riverside, Colorado as well as the pipeline segment between Lucerne and Riverside.

Saddlehorn is owned 40% by Magellan Midstream Partners, 40% by Plains All American Pipeline, and 20% by Anadarko Petroleum Corp.. Grand Mesa is owned 100% by NGL Energy Partners. 

Magellan is serving as construction manager and operator of the pipeline system. Saddlehorn expects to spend approximately US$650 million for its share of the undivided joint interest pipeline and the additional assets it will own, compared to previous spending estimates of up to $950 million for a comparable project scope. When the pipeline is placed into service, operating costs will be allocated to Saddlehorn and Grand Mesa based on their proportionate ownership interest and throughput.

"Combining projects makes strong economic sense by reducing overall construction and operating costs and better aligning pipeline capacity with current DJ Basin production while allowing for future growth when market conditions improve," said Michael Mears, Magellan's chief executive officer, on behalf of Saddlehorn.

Pipeline installation began in early October for the Platteville-to-Cushing segment of the pipeline, which is expected to be operational during mid-2016. Right-of-way acquisition is currently in progress for the Carr-to-Platteville segment, which is expected to be operational in the Q4 of 2016.

Image from iStock.

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