Plains All American & Valero to Develop Byhalia Connection

Per a media release, Plains All American Pipeline L.P. PAA has entered into an agreement with Valero Energy VLO to develop Byhalia Connection, a crude oil pipeline that is likely to run 45 miles from Memphis to Marshall County, MS. This will connect the Diamond Pipeline and the Capline Pipeline.

The reason behind joining the two pipelines is to increase the efficiency of both. Also, it will enable the pipelines to cater to rising demand for transporting crude oil by producers in the region. Construction of this proposed pipeline is likely to start from the second half of 2020, after receiving necessary approvals, and commercial operation will commence from mid-2021.

Rising Oil Production

Oil production has been increasing steadily in the United States. Since pipelines are the most convenient method of transporting crude oil in the United States, increase in U.S. crude oil production in recent years has prompted the construction of pipelines and reconfiguration of the existing pipelines, including conversion of natural gas pipelines to crude oil pipelines.

WPX Energy WPX is a perfect example in this regard. This company has gradually transformed itself from a natural gas-focused company to an oil-focused one. This depicts its increasing focus on crude oil production. With many oil and gas operators in the United States trying to produce more crude oil from their existing assets, demand for oil pipelines are on the rise.

Per the U.S. Energy Information Administration, more than 100 crude oil pipeline projects were completed between March 2011 and September 2019. The vast majority of the projects were for transporting crude oil within their respective regions.

Plains All American Continues to Expand

The firm has a number of projects lined up in the United States to capitalize on rising production. Permian Basin is expected to be the largest contributor to this growth and 2020 production from the basin is expected to be much higher than 2019 levels.

To capitalize and benefit from the rising production, the firm has decided to start several projects that will further strengthen its position in the Permian Basin. JVs such as Wink to Webster, Diamond/Capline, Saddlehorn, Red River and Red Oak are expected to come online in the 2020-2021 time period. These new JV projects will further increase the firm’s capability to transport more crude oil from the Permian region to the Texas Gulf Coast.

Zacks Rank & Key Pick

Plains All American currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Delek Logistics Partners, L.P. DKL, holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Delek Logistics’ long-term (three to five years) earnings growth is projected at 2%. Its 2019 Zacks Consensus Estimate has moved up 5.9% in the past 60 days to $2.88 per share.

Price Performance

In the past month, the firm has gained 0.4% compared with its industry’s growth of 3%.

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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.

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