Plains All American Pipeline, L.P. PAA announced that it will jointly expand the existing capacity of the Saddlehorn Pipeline. The pipeline is jointly owned by Plains All American, Magellan Midstream Partners, L.P. MMP and Western Midstream Partners, LP WES.
Post a successful open season in July, it was decided that the Saddlehorn pipeline’s capacity will be expanded by 100,000 barrels per day (bpd) to 290,000 bpd. The increased volume commitments have made another midstream operator interested in this pipeline. Noble Midstream Partners LP NBLX, through its affiliate Black Diamond Gathering LLC, has an option to buy up to a 20% ownership interest in the Saddlehorn Pipeline, with Magellan Midstream and Plains All American selling 10% interest each.
Rising Demand for Pipelines
The ongoing increase in crude and natural gas production is driving demand for new pipelines in the United States. Per U.S. Energy Information Administration (“EIA”), rising domestic crude oil production has led to several changes in Gulf Coast crude oil supply and demand patterns, creating a need for more pipeline capacity.
Per EIA, 2020 crude output in the United States will rise by 930,000 bpd to 13.38 million bpd, which will create demand for new pipelines and expand the capacity of the existing ones.
Open Season & Investments
Pipeline construction involves huge capital investments, which are allocated for the installation of new pipelines, and expansion and maintenance of existing operations. An open season offers better visibility of demand for new pipelines for long-term transportation.
Plains All American maintains a systematic capital investment strategy to expand operations through organic growth initiatives. After spending nearly $1.9 billion on capital expansion in 2018, the partnership now anticipates 2019 capital budget to amount to $1.5 billion, indicating an increase of 11.1% from prior expectation of $1.35 billion. A major portion of the planned capital expenditure will be allocated to new pipeline projects and for expansion of the existing pipeline projects.
Plains All American’s Wink to Webster JV, Diamond/Capline JV, Red River JV and Red Oak JV 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.
Price Movement
Year to date, Plains All American’s units have returned 6.9% compared with the industry’s rally of 10%.
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Zacks Rank
Plains All American currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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