From Houston Business Journal:
Houston-based Plains All American Pipeline LP (NYSE: PAA) has closed a deal to buy additional pipeline assets in the Permian Basin.
The company finalized the $1.2 billion deal, which brought the 100,000 barrels-per-day Alpha Crude Connector pipeline system into its own asset base, in February, according to a Plains All American presentation. Midland, Texas-based Concho Resources Inc. (NYSE: CXO) and Oklahoma-based Frontier Midstream Solutions LLC sold 100 percent of Alpha Holding Company LLC, the owner of the Alpha Crude Connector system, to Plains in two separate deals.
The acquisition was supported by long-term commitments from more than 300,000 acres in the northern part of the Delaware Basin in the Permian, with a significant dedication from Concho, according to the presentation.
The production that enters Plains’ system through the acquired pipelines is likely to make its way to the U.S. Gulf Coast, though where exactly on the coast it ends up isn’t yet evident, said Andy Lipow, the president of Houston-based consulting firm Lipow Oil Associates LLC.
“It’s a feeder into the Plains system,” Lipow said. “I think it (Alpha connector) ends up either in Longhorn or Bridgetex. It might even go to McCamey, into Cactus.”
Longhorn is a pipeline owned by Tulsa, Oklahoma-based Magellan Midstream Partners LP (NYSE: MMP), while Bridgetex is owned by Plains and Magellan. Both move crude into the Houston area. Cactus, on the other hand, is a Plains pipeline that sends crude from McCamey, Texas, south toward Corpus Christi. Plains still has more than 100,000 barrels per day of capacity left on Cactus, while Bridgetex availability is below the 100,000-barrel mark, according to the presentation.
John Mayes, the director of special studies for Dallas-based Turner, Mason and Co., is unconvinced of the likelihood that the crude makes its way to Corpus Christi, though.
“The problem is, it’s hard to understand why you’d want to take crude down to Corpus,” Mayes said. “The area already has a surplus of crude oil.”
Aside from the export options Corpus presents, it generally makes more sense to move crude to Houston, where the refining base is much larger, Mayes said. And for at least the next couple of years, Mayes said there’s capacity available to move more crude into Houston.
“At some point, if companies don’t expand lines, they’re going to start hitting some bottle necks, but right now there’s still surplus capacity out of the Permian,” he said.
Plains has been making a series of moves in the Permian basin lately. It’s expanding both the Cactus and Bridgetex pipelines, and it also formed a joint venture to buy Midland-based Advantage Pipeline LLC. And Plains isn’t the only company in the area — cautious optimism that the end of the oil downturn is near has stirred up investment in the Permian.
