Magellan Midstream Partners and Plains All American Pipeline have established a new company to build, own and operate the Saddlehorn pipeline in the US, which is expected to cost between $800m and $850m.

Saddlehorn Pipeline Company will construct the 550-mile pipeline to transport several grades of crude oil from the DJ Basin, and the Rocky Mountain area resource plays, to storage facilities in Cushing, Oklahoma, owned by both the companies.

"The project is underpinned by ship-or-pay contracts with major producers in the area that protect our investment."

The companies are also considering an extension to Carr, Colorado, for connection to existing crude oil facilities owned by Plains.

Magellan will be the construction manager and pipeline operator. The pipeline is expected to start operations in mid-2016.

Noble Energy and a subsidiary of Anadarko Petroleum have signed binding commitments for the pipeline.

Anadarko has an option to participate in equity ownership up to 20% in Saddlehorn Pipeline Company.

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Plains All American chairman and CEO Greg Armstrong said: "The project is underpinned by ship-or-pay contracts with major producers in the area that protect our investment.

"Moreover, this arrangement provides us the opportunity to realise meaningful upside to base level returns by shipping additional volumes associated with PAA’s marketing activities in the region."

Magellan holds the largest refined petroleum products pipeline system in the US, with access to about 50% of the country’s refining capacity.

Plains owns a network of pipeline transportation, terminalling, storage and gathering assets in important crude oil and NGL producing basins and transportation corridors and at major market hubs in the US and Canada.