<article><p><i>Adds executive comments, details starting in third paragraph.</i></p><p class="lead">US gas pipeline and processing operator Oneok has agreed to buy oil and refined products-focused Magellan Midstream for $18.8bn, in a bid to create one of the largest midstream companies in North America.</p><p>Oneok, a major player in the natural gas liquids (NGL) sector with gathering, processing, fractionation and storage, would gain considerable exposure to oil and products by acquiring fellow Tulsa, Oklahoma-based midstream operator Magellan.</p><p>The combined company would have a 50,000-mile pipeline network in the central US, with about half of the pipelines focused on liquids. Magellan has a 9,800-mile refined products network with 54 terminals spanning from North Dakota to the US Gulf coast. Its crude business is comprised of 2,200 miles of pipeline, including a significant terminal in Houston, Texas, as well as a condensate splitter and 39mn bls of crude oil storage capacity. </p><p>"Scale does matter," Oneok chief executive Pierce Norton said today on an investor call. </p><p>Cost savings from the combination are expected to reach at least $200mn/yr, Oneok said. Overhead costs represent at least one-eighth of the expected savings, but the bulk would emerge from new commercial strategies between the combined assets, Norton said.</p><p>"We could bundle NGL and crude services, working with a single customer, say in the Permian or the midcontinent or the DJ Basin," Norton said. "It's more of a one-stop shop."</p><p>Oneok would gain water access via Magellan's assets on the Houston Ship Channel, and Norton said exporting NGLs through the terminal would be considered.</p><p>Magellan's assets represent a "demand pull" for NGL products already on Oneok's network, specifically relating to blending opportunities between commodities, he said.</p><p>The deal includes the Magellan East Houston (MEH) terminal, home to the most-used secondary benchmark for light sweet crude on the US Gulf coast. The vast majority of spot trades at MEH go into the <i>Argu</i>s WTI Houston assessment, with that physical assessment underpinning financial contracts listed on the CME and ICE exchanges.</p><p>Oneok has agreed to pay Magellan nearly $14bn, including $8.8bn of Oneok stock and $5.1bn cash, and it would assume Magellan's $5bn of outstanding debt. Significant to the deal is Oneok's ability to defer $3bn in taxes after deducting Magellan's $15bn enterprise value. </p><p>The deal is expected to close in the third quarter, pending approval from shareholders and regulators.</p><p class="bylines">By Brett Holmes</p></article>
