Magellan Midstream Partners LP plans to reduce its capital expenditures (capex) through 2020 after determining that an oil pipeline project to connect the Permian Basin to the Texas coast was unlikely to proceed.

In an 8-K filed Monday with the U.S. Securities and Exchange Commission (SEC), the Tulsa-based partnership said it would cut its 2019 capex by about $200 million and reduce 2020 plans by about $250 million. The spend represents its stake to jointly develop the Permian Gulf Coast (PGC) pipeline with Energy Transfer Partners LP (ETP), MPLX LP and Delek US Holdings Inc.

The quartet unveiled plans for the 600-mile PGC last September. The 30-inch diameter pipeline was initially designed to transport Permian crude from several points in West Texas -- including Crane, Midland and Wink -- to ETP's Nederland terminal southeast of Houston and Magellan's East Houston terminal. At the time, the project was expected to enter service by mid-2020.

But in the 8-K filing, Magellan said that "due to recent developments, it is unlikely that the PGC pipeline project as initially announced will proceed...The partnership continues to actively develop a crude oil pipeline project in the Permian Basin, but the probability of success is unknown at this time."

In a note to clients Tuesday, analysts with Tudor Pickering Holt & Co. (TPH) said investor sentiment for the project "was notably tempered in recent weeks," citing the news in January that ExxonMobil Corp., Plains All American Pipeline LP and Lotus Midstream LLC were advancing the 36-inch diameter, 1 million b/d Wink to Webster Pipeline. TPH also cited "softened management commentary" from Magellan's equity partners on PGC.

"Given the shift in sentiment, the project's cancellation is unlikely to surprise with reduction of capital likely viewed as a positive outcome given weak return expectations," TPH said. "With PGC unlikely to proceed, Permian crude takeaway overbuild is reduced as the project would have added 1 million b/d of capacity, while production growth is expected to slow toward about 600,000 b/d by the mid-2020s as the basin approaches plateau production."

In a separate note Tuesday, TPH said Delek removed PGC from an updated presentation issued on Monday. Magellan and Delek each noted that they were still interested in a potential joint venture project, "which would be possibly pairing up with the Wink line for 2021."

TPH analysts said PGC was widely considered a "second wave" Permian pipe that trailed behind the Cactus II, Gray Oak and Epic pipelines. It also came at a time when Permian producers are "cutting budgets to focus on free cash flow. This reduced the likelihood of cost-effective upsize opportunities for the pipe." TPH also noted that Delek's 25% interest in PGC "would have been at least $500 million, a sizeable stake for a company with an average capex of $250 million the past two years."

Following the capex cuts, Magellan is expected to spend about $1.1 billion in 2019 and $150 million in 2020 to complete expansion projects already underway.

In other news, Kinder Morgan Inc. (KMI) reportedly has sold its stake in the Texas Colt deepwater oil export project to Enbridge Inc. for an undisclosed amount. Enbridge said last December it would partner with KMI and Germany's Oiltanking GmbH to build a very large crude carrier (VLCC) loading facility near Freeport, TX, to move more Lower 48 volumes overseas. The $800 million project included a 40-mile offshore pipeline to fully load up to one VLCC a day.