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Plains Sells Red River System's 33% Stake to Delek Logistics

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Plains All American Pipeline (PAA - Free Report) announced a joint venture with Delek Logistics Partners, LP (DKL - Free Report) for the Red River Pipeline system. Delek Logistics has purchased  33% ownership interest from Plains All American in a new Red River Pipeline Company LLC joint venture for $128 million. The partnership will continue to operate the system and retain 67% ownership of the pipeline.

In addition, Plains All American announced expansion of the current Red River Pipeline system capacity from nearly 150,000 barrels per day to around 235,000 barrels per day. The expansion will be achieved through the addition of pumping capacity, which is expected to be completed during the first half of 2020.

Plains All American might utilize the proceeds to lower existing debt levels or fund ongoing capital programs. After spending nearly $1.9 billion on capital expansion in 2018, the partnership anticipates 2019 expansion capital at $1.35 billion, up from previous expectation of $1.1 billion.

New Agreement for Expansion Capacity

The partnership has already signed an agreement with Delek US (DK - Free Report) that has agreed to increase long-term throughput and deficiency (T&D) agreement on the Red River system from the current 35,000 barrels per day to 100,000 barrels per day.

The new agreement will cover 65,000 barrels per day from the 85,000 barrels per day capacity expansion in the River pipeline system that extends from Cushing, OK to Longview, TX. Given the rising production of liquids in the resource rich region, we expect the partnership to sign an agreement for the remaining capacity that becomes available from first half of 2020.

Long-Term Plans
 

Increasing fossil fuel production from the shale properties has increased the demand for midstream systems in the United States. Permian is one the major basins, where production is expanding rapidly. Plains All American Pipeline is expanding operations in the Permian Basin to capitalize on improving demand. The partnership is progressing with its plan to construct Cactus II pipeline systems and expect this to be partially in operation by late 2019 and fully online by April 2020. The new additions will increase the capacity beyond 700,000 barrels per day in the region by end of 2019.

The partnership announced the formation of W2W Pipeline joint venture with the subsidiaries of ExxonMobil (XOM - Free Report) and Lotus Midstream, LLC. Its equity stake will be less than 20% in the joint venture. W2W Pipeline is working on the construction of a pipeline to transport crude oil from multiple locations in the Permian basin to the Texas Gulf Coast. The pipeline system is expected to transport more than 1 million barrels of crude oil and condensate per day. This pipeline, which is expected to begin operation from the first half of 2021, will make a positive impact on the partnership’s operations.

Zacks Rank

Plains All American currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Performance

Units of Plains All American have gained against the industry's decline in the past 12 months.



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