BP sells strategic oil storage assets to Magellan

Magellan will pay $289 million for the British oil giant's storage terminal at Cushing, Oklahoma, the delivery point for U.S. crude futures, along with crude and refined products pipeline systems in Texas.

BP will lease back the 7.8 million barrels of tank storage space at Cushing for several years.

The sale, which has been in the works since February, is not part of BP's plan to unload $10 billion in non-core upstream assets to help pay for the cost of the Macondo cleanup, BP spokeswoman Sheila Williams said.

In recent years, companies with tank facilities at Cushing have been able to turn big profits by storing crude and committing it for sale later, taking advantage of an oil market in contango, when crude for near term delivery sells at a discount to crude for delivery further in the future.

BP has long been known as an aggressive oil trader, and industry experts say it has leveraged its space in Cushing for its trading advantage.

Oil majors, including Shell, have sold off Cushing storage capacity in recent years and much is now owned by pipeline companies such as Canada's Enbridge or, indirectly, by trading firms such as Vitol SA.

BP is the No. 3 holder of storage space at Cushing, after Enbridge and Plains LP, according to Reuters data.

After a 'multiyear' deal to lease Cushing storage space back to BP, Magellan will control all of BP's former tank assets at Cushing and can lease them to other parties, Heine said. Although the 57 tanks have shell capacity to hold 7.8 million barrels, maintenance projects and other capacity restraints mean that the tanks' current operational capacity is 5.5 million barrels, said Magellan spokesman Bruce Heine.

Tulsa, Oklahoma-based Magellan, a master limited partnership created in 2003, has separate plans to construct 2 million barrels in tankage facilities at Cushing by 2011, Heine said. That will eventually give the firm nearly 10 million barrels of Cushing storage space, or around one-fifth of total capacity at the hub.

Along with the Cushing tanks, Magellan will also acquire 100 miles of crude and oil product pipelines from BP, including 40 miles of pipelines between Houston and Texas City, the site of a 475,000 barrel per day BP refinery.

BP carried out an auction for the Cushing assets and pipelines, Heine said. One source said that there was more than one bidder.

BP's U.S.-listed shares were down 1.7 percent at $36.13 on Tuesday afternoon on the New York Stock Exchange. They have fallen by about half since BP's Macondo well blew out in April, spewing crude oil into the Gulf of Mexico. Shares of Magellan were up 1.1 percent at $48.67.

Magellan, which primarily transports and stores refined oil products, expects the acquisition to immediately add to its distributable cash flow, the company said in a release. The deal should close in 60 days, Heine said.

Magellan's top shareholder is fund management firm Kayne Anderson, Heine added.

(Reporting by Joshua Schneyer in New York, with additional reporting by Thyagaraju Adinarayan in Bangalore, Matthew Daily in New York, Eric Onstad in London and Robert Campbell in Mexico City.)