Enterprise Products Enters JV

A leading master limited partnership (MLP), Enterprise Products Partners, L.P. (EPD - Analyst Report) has entered into a 50/50 joint venture (JV) with Plains All American Pipeline, L.P. (PAA - Analyst Report) for a crude oil pipeline in South Texas.

Per the agreement, certain portions of the previously declared pipeline projects servicing the Eagle Ford shale play between the JV parties will be consolidated in South Texas. The joint venture is expected to optimize the companies’ capital investments and is supported by a commitment of 210,000 barrels per day (BPD) from shippers.

A 140-mile crude oil and condensate line − with a capacity of 350,000 BPD − from Gardendale in LaSalle County to Three Rivers in Live Oak County will form part of the JV. This will continue up to Corpus Christi, and join a new 35-mile pipeline segment from Three Rivers to Enterprise Products’ Lyssy station in Wilson County.

Enterprise Products’ South Texas Crude Oil Pipeline will interconnect the JV pipeline at Lyssy. Parts of the system is expected to be operative by the fourth quarter of 2012 and the balance will come online in first half of 2013. The initial base tariff rate will be $1.25 per barrel from Gardendale to all destinations.

Both the parties are of the view that this venture will reduce their capital costs associated with higher returns. It will also enhance the market accessibility to shippers.

Plains All American Pipeline, L.P., headquartered in Houston, Texas is an MLP engaged in the transportation, storage, and marketing of crude oil and refined products.

Enterprise Products is engaged in providing a wide range of midstream energy services to the producers and consumers of natural gas, natural gas liquids, and crude oil.

We continue to view Enterprise Products as a core holding in an MLP portfolio, given its string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position.

Currently, Enterprise Products holds Zacks Rank of #3, which implies a short-term ‘Hold’ rating. We are also maintaining our long-term Neutral recommendation on Enterprise Products.