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Plains All American Pipeline, L.P. (PAA - Analyst Report) is expanding its existing Mississippian Lime Pipeline, stretching from Coldwater in Comanche County, Kansas to Byron in Alfalfa County, Oklahoma. This project is expected to be online in the fourth quarter of 2013.

This 55-mile pipeline project will enable Plains All American to transport roughly 75,000 barrels of oil per day (Bbls/d). The partnership is installing this pipeline to transfer crude oil from the Mississippian Lime pipeline to its terminal in Cushing, Oklahoma.

In Feb 2012, Plains All American had started the construction of its 170-mile Mississippian Lime Pipeline. This pipeline, in combination with earlier announced Medford-to-Cushing pipeline renovation, is expected to supply approximately 175,000 Bbls/d of crude oil to Cushing. This project is expected to be brought into service in the middle of 2013.

High resource potential in the Mississippian oil play has attracted big oil and gas operators. Plains All American was also lured. This factor along with growing production propels the partnership to deploy additional $150 million in 2013 for the expansion of its Mississippian Lime Pipeline. Other operators including Devon Energy Corporation (DVN - Analyst Report) and Chesapeake Energy Corporation (CHK - Analyst Report) have strong acreage in this region.

Fourth-quarter 2012 Earnings Recap

Plains All American announced its fourth-quarter and full-year 2012 results on Feb 6. The partnership posted fourth-quarter 2012 pro forma earnings of $1.01 per unit, beating the Zacks Consensus Estimate by 32 cents. Quarterly earnings were 23.2% higher than the year-ago figure. Its full-year 2012 earnings were $3.35 per unit, surpassing the Zacks Consensus Estimate by 39.6%. The full-year result was 27.9% higher than last year’s earnings.

Our Take

We believe the strong cash position of the partnership enables it to carry out strategic acquisitions and invest in its organic projects. In 2012, Plains All American had acquired natural gas liquids assets from a subsidiary of BP plc (BP - Analyst Report). The partnership has already experienced positive effects out of this acquisition in its fourth-quarter 2012 results. The partnership intends to invest $1.1 billion under its full-year 2013 capital spending program.

According to an U.S. Energy Information Administration's report, oil consumption in the U.S. will increase by 3.6% to 19.9 million barrels per day in 2035. As demand for crude oil is increasing in the region, we expect this pipeline expansion project to also act as a positive catalyst for the partnership’s future performance.

Houston, Texas-based Plains All American Pipeline, L.P. owns assets strategically located in well-established oil producing regions, catering to the major U.S. refinery and distribution markets. The partnership currently has a Zacks Rank #3 (Hold).

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