PAA Expands Footprint in Permian Basin - Analyst Blog

Plains All American Pipeline L.P. ( PAA ) continues to expand its operations through new infrastructure addition. Recently, the partnership has announced that it will invest $0.4 - $0.5 billion in the Permian Basin. Plains All American will mainly allocate the fund to its four upcoming projects and in a couple of more projects currently under review. The four projects are expected to be operational between 2014 and early 2015.

The first project deals with two different ventures. Plains All American will introduce additional pumping capability at its existing 20-inch Basin pipeline, stretching from Jal, N.M. to Wink, Texas. After completion of the project, the pipeline's capacity will increase by 100,000 barrels per day ("bpd") to 240,000 bpd. In addition, Plains All American will build a new 40-mile, 12-inch pipeline. The pipeline will carry 100,000 bpd of crude oil from Monahans to Crane, Texas and deliver the volumes to the Longhorn pipeline and the partnership's Cactus pipeline.

In the second project, Plains All American will construct a 62-mile, 16 and 20-inch pipeline, from the South Midland Basin in Central Reagan and Central Upton counties to the Cactus pipeline at McCamey, Texas. The new pipeline has a 200,000 bpd takeaway capacity.

The partnership will also install a new 80-mile, 20-inch pipeline, having transportation capacity of 250,000 bpd. The pipeline will start from Midland and end in Colorado City, Texas.

Plains All American plans to increase the pumping capacity of its existing Cactus pipeline project to 250,000 bpd from 200,000 bpd, anticipating higher shipper demand in the future.

Permian Basin, located in West Texas and Southeastern New Mexico, is rich in crude oil. According to a Railroad Commission of Texas report, crude oil production volume at the basin increased 5.8% year over year to 312 million barrels in 2012. We expect production level to increase in the future due to steady exploration activities in the region.

Exploration and development companies are drilling actively in the Permian basin to tap its vast resources. We remind investors that the independent oil and natural gas company LINN Energy LLC ( LINE ) purchased properties in the Permian Basin in Sep 2013. QEP Energy Company, a unit of QEP Resources Inc. ( QEP ), recently entered into an agreement with an undisclosed seller to acquire Permian Basin-based oil and gas assets for approximately $0.95 billion.

So, the demand of midstream operators will gradually increase in this region. To cater to the increasing demand from upstream companies for transportation services, another pipeline operator Sunoco Logistics Partners LP ( SXL ) recently completed an open season for its Permian Express 2 pipeline.

Plains All American currently has a Zacks Rank #3 (Hold).

LINN ENERGY LLC (LINE): Free Stock Analysis Report

PLAINS ALL AMER (PAA): Free Stock Analysis Report

QEP RESOURCES (QEP): Free Stock Analysis Report

SUNOCO LOGISTIC (SXL): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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