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Chesapeake Energy Corporation (CHK), Magellan Midstream Partners, L.P. (MMP): Maybe the Mississippi Lime Isn’t So Bad After All

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When Chesapeake Energy Corporation (NYSE:CHK) sold part of its stake in the Mississippi Lime for well below what it was believed to be worth, it was taken as a sign to the market that maybe the play wasn’t panning out. That’s what happens when you previously tell investors the land was worth three times the amount you ended up getting in the joint venture sale. Given the latest news out of the Mississippi Lime it would appear that Chesapeake Energy Corporation (NYSE:CHK) is wrong about the play, again.

Chesapeake Energy (CHK)

As part of a broad strategy to secure domestically produced crude oil, Phillips 66 (NYSE:PSX) signed an agreement with Magellan Midstream Partners, L.P. (NYSE:MMP) to access the oil coming out of the Mississippi Lime. While a bulk of the company’s recent deals involved crude oil being shipped by rail, this deal will feature crude oil being shipped by pipeline. Once the Magellan Midstream Partners, L.P. (NYSE:MMP) pipeline project is complete early next year, 20,000 barrels of oil per day will be sent to Phillips 66 Ponca City refinery in Oklahoma.

In addition to the oil from Magellan Midstream Partners, L.P. (NYSE:MMP)’s pipeline, Phillips 66 is investing in its own transportation infrastructure to secure an another 40,000 barrels of Mississippian oil per day for the same refinery. As you can see in the map, Ponca City is located very close to the Mississippi Lime, which is ideal for keeping transportation costs down.

Source: Phillips 66 Investor Presentation

While securing cheaper crude is great for the bottom line at Phillips 66, it’s also great news for SandRidge Energy Inc. (NYSE:SD) . Investors have punished the company’s shares over the past few years as it’s made several debt-fueled bets that went bad. Its latest foray is an all-in investment on its Mississippi Lime acreage, so a Phillips 66 stamp of approval on the play is nice to see.

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