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We have upgraded our recommendation on Plains All American Pipeline L.P. (PAA - Analyst Report) to Outperform from Neutral, driven by its strong crude oil pipelines and storage asset-portfolio in prospective oil producing areas. In addition, the partnership intends to deploy over $1 billion in its numerous organic growth projects through 2013, which subsequently will enable Plains All American Pipeline to strengthen and expand its existing operations.  

The partnership’s collection of crude oil pipelines and storage assets are located in well-established oil producing regions, which provide services to major U.S. refineries and covers important distribution markets. We know that its crude oil gathering and transportation activities will generate fee-based revenue, resulting in steady and low-risk earnings.

On the flip side, we know that Plains All American Pipeline’s cash inflow primarily depends on transportation of hydrocarbon. A decline in hydrocarbon volumes due to lesser demand, stringent regulations related to hydrocarbon transportation, and natural calamity may cause a decline in the partnership’s future cash flows. Secondly, as Plains All American Pipeline generates a key part of its revenue from low-risk fee-based activities; it may be exposed to commodity risks, which are involved in the purchase of crude oil through the third-party tankers.

On a positive note, Plains All American Pipeline continues to increase its internal operational efficiencies along with steady investments in infrastructural development activities. In the first nine months of 2012, the partnership’s capital expenditure was $2.2 billion for several projects, including building a new condensate stabilization facility, increasing its gathering system and lots more.

Plains All American Pipeline’s peer Enterprise Products Partners L.P. (EPD - Analyst Report) recently completed another natural gas liquids fractionator at its Mont Belvieu, Texas complex. We believe stable infrastructure development activities will enable these types of entities to ensure a steady stream of future cash generation.

Houston, Texas-based Plains All American Pipeline, L.P. owns assets strategically located in well-established oil producing regions, catering to major U.S. refinery and distribution markets. With a market capitalization of $15.48 billion, the partnership has 3,800 full-time employees and currently has a short-term Zacks #3 Rank (Hold rating).

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