By Liz Hampton

By Liz Hampton

HOUSTON (Reuters) - Pipeline and terminal operator Magellan Midstream Partners LP <MMP.N> said on Thursday it had started legal action against Trafigura after the commodity trader said it would terminate a contract to use Magellan's condensate splitter in Corpus Christi, Texas.

Trafigura is the only customer that uses the condensate splitter, under a contract it signed in 2014. Magellan said it is negotiating with Trafigura, but is also talking with other potential customers for use of the splitter.

Magellan said Trafigura notified it of plans to terminate the contract last week. Trafigura declined to comment.


"Magellan believes this notice is in breach of the agreement and has initiated legal action," the midstream operator said in its fourth-quarter earnings release. It did not disclose details on the legal move.

Midstream companies rushed to build condensate splitters, which break light oil into products such as naphtha and unfinished distillates, during the shale boom. Those products could be exported or sold domestically.

The United States began allowing exports of light condensate in 2014, making the splitters less necessary. A year later, the country lifted a decades-long ban on exporting crude oil.

Trafigura in 2014 signed a fee-based, take-or-pay agreement for Magellan's 50,000 barrel-per-day splitter project, which cost around $300 million.

"The worst-case scenario would be we don't run it. I think the probability of that is extremely low," Magellan Chief Executive Officer Michael Mears told analysts on a conference call to discuss quarterly earnings on Thursday. "If there is value there, we will find a way to extract it. And there is value there,.

Magellan could run the splitter for its own account by purchasing feedstock and selling resulting products, Mears said, noting that is the least-preferred option.

Mears declined to go into specific details of the lawsuit on the call.

(Editing by Andrew Hay and Matthew Lewis)

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