Magellan Midstream Partners

Magellan Midstream Partners (former ticker: MMP) was a prominent American Master Limited Partnership (MLP) that has since been acquired by ONEOK, Inc.. Before the merger in 2023, Magellan was a giant in the U.S. energy infrastructure landscape, operating like a critical toll road for the energy we use every day. Its primary business was the transportation, storage, and distribution of refined petroleum products and crude oil. The company owned the longest pipeline system for refined products in the United States, connecting refineries to major markets for gasoline, diesel fuel, and jet fuel, primarily across the central part of the country. Think of it as the circulatory system for America's fuel supply. Its extensive network of pipelines and storage terminals represented a formidable asset base that was difficult, if not impossible, to replicate, making it a favorite among income-focused investors for many years.

At its heart, Magellan's business model was beautifully simple: it owned and operated the “midstream” assets that connect energy producers (the “upstream”) with consumers (the “downstream”). Instead of betting on the volatile price of oil, Magellan focused on earning steady fees for moving and storing it. This created a predictable and resilient stream of cash flow, much like a landlord collecting rent.

Magellan's operations were primarily divided into two key areas:

• Refined Products: This was the company's crown jewel. It involved a massive network of over 9,800 miles of pipelines, 54 terminals, and storage for more than 100 million barrels of gasoline, diesel, and jet fuel. If you filled up your car in the American Midwest, there was a good chance the fuel traveled through a Magellan pipeline.
• Crude Oil: This segment included approximately 2,200 miles of crude oil pipelines and storage facilities. These assets were crucial for transporting crude oil from production basins, like those in Texas and Colorado, to refineries and export hubs along the Gulf Coast.

For years, Magellan was a compelling case study for value and income investors. Its appeal was rooted in its structure, its competitive advantages, and its shareholder-friendly approach.

As a Master Limited Partnership, Magellan enjoyed a significant structural benefit. MLPs do not pay corporate income tax; instead, they pass their earnings directly to unitholders. This structure allowed Magellan to pay out hefty, tax-advantaged quarterly payments called distributions. The trade-off? Tax complexity. Instead of receiving a simple 1099-DIV form, investors received a much more complicated K-1 tax form, which often required the help of a tax professional and could create headaches for retirement accounts. This complexity acted as a barrier for many institutional funds and individual investors.

Magellan possessed a powerful economic moat. Its vast, interconnected pipeline network was a classic infrastructure moat with extremely high barriers to entry. Building a competing pipeline system from scratch would be astronomically expensive and face immense regulatory and environmental hurdles. This meant Magellan faced very little direct competition for its core routes, giving it significant pricing power and long-term stability.

The company's revenue was largely generated from a fee-based model. Most of its income came from long-term contracts where customers paid a set tariff to move a certain volume of product. This insulated Magellan from the wild swings of commodity prices. Whether oil was $40 or $140 a barrel, Magellan collected its toll, making its earnings remarkably consistent and predictable.

In September 2023, Magellan's journey as a standalone MLP came to an end when it was acquired by ONEOK, Inc. in a cash-and-stock deal worth approximately $18.8 billion.

The strategic rationale was to create a more diversified and robust North American midstream leader.

• Diversification: ONEOK was a dominant player in natural gas liquids (NGLs) and natural gas infrastructure. Magellan was a leader in refined products and crude oil. Combining them created a powerhouse with exposure to a much wider range of energy commodities.
• Scale: The combined company boasts a network of over 50,000 miles of pipelines, creating a coast-to-coast energy transportation system with enhanced scale and operational efficiencies.

Upon the deal's closing, Magellan unitholders received a combination of cash and ONEOK stock for each unit they held. Crucially, the newly combined entity is structured as a C-Corporation, not an MLP. This move, while ending the tax-advantaged distributions Magellan was known for, simplifies the tax reporting for investors (no more K-1s) and makes the stock eligible for inclusion in major stock indices and accessible to a broader universe of investors who avoid MLPs. For investors, the story of Magellan is now part of the larger story of ONEOK.