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Plains All American (PAA) Deepens Focus on Permian Basin

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Plains All American Pipeline L.P. (PAA - Free Report) has decided to make additional investments in the Permian Basin region to further strengthen and expand its existing assets in the region. The primary reason to invest and strengthen its midstream assets is backed by expected higher production by the producers in the Permian Basin.

Per the new development, Plains All American’s management has decided to invest more than 80% of its planned capital expenditure for 2018/19 in the Permian Basin. Plains All American will spend nearly $1B in 2019, up from the previous expenditure target of $650 million.

Importance of Permian Basin

Per the recent U.S. Energy Information Administration release, Permian Basin production is expected to average 3.3 million barrels per day (BPD) in 2018 and further increase to 3.9 million BPD in 2019. These will create room for higher takeaway volumes from the region.

The Drilled but Uncompleted Wells (DUCs) in the Permian Basin are gradually rising over the past few months. The improving DUCs support the visibility of continued production growth. In addition, production from multi-well pad drilling and pipeline constraints create the need for the addition of more midstream assets in the region, and Plains All American is exactly doing the same.

The partnership’s Sunrise Expansion and Cactus II pipeline, on becoming fully operational, will add nearly 1.17 million barrels of transportation capacity.

Plains All American and ExxonMobil (XOM - Free Report) entered into a joint venture for the construction of a crude oil transportation pipeline to deliver crude from multiple locations in the Permian basin to the Texas Gulf Coast. The partnership expects to transport more than 1 million barrels of crude oil and condensate per day.

Looking Ahead

The partnership is poised to benefit from its fee-based earnings and the ongoing decline in debt level, further boosting the performance of the company.

In addition, divestiture of the non-core assets and focus on strengthening its core operations are going to have a positive impact on Plains All American’s operations.

Price Movement

Plains All American’s units have gained 11.7% in the past 12 months against its industry’s decline of 5.3%.

 



Zacks Rank & Key Picks

Plains All American currently has a Zacks Rank #3 (Hold). Some better-ranked stocks from the same industry are Enterprise Products Partners L.P. (EPD - Free Report) and TC PipeLines, LP , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enterprise Products Partners and TC PipeLines reported positive earnings surprise of 10.87% and 9.72%, respectively, in the last reported quarter.

The Zacks Consensus Estimate for 2018 earnings for Enterprise Products Partners and TC PipeLines has moved up 13.2% and 5.8%, respectively, in the past 60 days.

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