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Plains All American Reveals Buyout & Sale Plans, Offers View

Plains All American Pipeline, L.P.PAA has made a string of announcements which include the acquisition of a Permian Basin crude oil gathering system, divestiture of non-core assets and issuance of an outlook.

Acquisition Details

Plains All American has inked a deal with Concho Resources Inc. CXO and Frontier Midstream Solutions, LLC to acquire their stakes in Alpha Holding Company, LLC, which indirectly owns the Alpha Crude Connector (ACC) gathering system located in the most prolific area of Northern Delaware Basin. The transaction is valued at $1.215 billion.

Per management, the buyout provides downstream synergies with the partnership's existing assets in the Permian Basin, extends and expands Plains All American's value chain and also offers capital synergies by generating attractive investment returns relative to its cost of capital.

The crude oil gathering system is anchored by acreage dedications covering nearly 315,000 gross acres, most of which have 10-year terms. The partnership anticipates aggregate crude oil production on the dedicated acreage to double over the next two to three years, and overall Permian Basin crude oil volumes to increase by 50% or more during this same time period.

Plains All American plans to make three additional interconnections to its existing Northern Delaware Basin system as well as additional enhancements intended to increase the system capacity to approximately 350,000 barrels per day, depending on the level of volume at each delivery point. These planned enhancements will provide additional flexibility and a greater range of options for area producers, including connectivity to the partnership's pipelines with access to markets in Cushing, Houston and Corpus Christi.

The transaction is expected to close in the first half of 2017 on receipt of requisite regulatory approvals.

Divestiture of Non-Core Interests

Plains All American has entered into agreements to divest the Bluewater gas storage facility in Michigan and a non-core pipeline segment in the Midwestern United States for a consideration of nearly $310 million.

The partnership has also closed the sale of an undivided 40% interest in a segment of the Red River Pipeline to a subsidiary of Valero Energy Partners LP for nearly $70 million. The undivided interest transferred represents 60,000 barrels per day on the segment of the pipeline extending from Cushing to Hewitt in Oklahoma, near Valero's refinery in Ardmore, OK.

The partnership is continuing to advance an asset sale program that currently totals slightly over $1.2 billion. This program includes the aforementioned divestiture transactions and the previously announced agreement to sell its Northern California terminals, which collectively total $670 million as well as $550 million of asset sales initiated and completed during 2016.

Outlook

Plains All American expects 2017 expansion capital program to be worth nearly $800 million, which includes capital expenditures to integrate and enhance the performance of the assets to be acquired and additional Permian Basin related expenditures. Capital expenditure on expansion plans in 2016 is expected to be nearly $1.4 billion.

Price Movement

Plains All American gained 56.2% over the last one year, outperforming the Oil & Gas-Production/Pipeline MLP industry's 35.4%.

The company continues to enjoy a favorable financial position. The partnership exited third-quarter 2016 with committed liquidity of $2.5 billion. Apart from utilizing funds in growth projects, a stable financial position allows the partnership to offer distributions at regular intervals. This is boosting investor interest in the stock and in turn its price.

Zacks Rank & Key Picks

Plains All American carries a Zacks Rank #2 (Buy). Other favorably placed stocks in the same space include Archrock Partners, L.P. APLP and Enable Midstream Partners, LP ENBL .

Archrock Partners' 2016 estimates have increased from 68 cents to 73 cents over the past 60 days. The partnership flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Enable Midstream' 2016 estimates have risen by a cent from 71 cents over the past 60 days. The partnership carries a Zacks Rank #2.

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Plains All American Pipeline, L.P. (PAA): Free Stock Analysis Report

Enable Midstream Partners, LP (ENBL): Free Stock Analysis Report

Concho Resources Inc. (CXO): Free Stock Analysis Report

Archrock Partners, L.P. (APLP): 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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