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Plain All Pipeline (PAA) to Sell Gas Storage Assets for $850M

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Plains All Pipeline L.P. (PAA - Free Report) announced that it has entered into a definite agreement to sell Pine Prairie and Southern Pines natural gas storage facilities for $850 million to a unit of Hartree Partners, LP.

The assets included in the transaction consist of nearly 70 billion cubic feet of total working gas capacity across nine caverns along with associated base gas, header pipelines and compression facilities. Subject to necessary approvals, the acquisition is expected to close in third-quarter 2021.

This deal is in sync with the firm’s 2021 plan and deleveraging program. Closure of these natural gas facilities will allow it to exceed its 2021 asset sales target of $750 million. The proceeds from the sale of non-core assets were utilized by the firm to fund investment capital projects and buybacks as well as reduce debt levels.

Strengthening Balance Sheet

The firm is targeting Free Cash Flow after Distributions of nearly $1.15 billion in 2021, out of which 75% will be utilized to repay debts and the rest for buybacks. During first-quarter 2021, the firm lowered short-term debt by $575 million and did not have any near-term debt maturities.

Its debt to capital at first quarter-end was 48.8%, better than the industry average of 60.22%. The times interest ratio was 2.5 at first quarter-end, which indicates that the firm will be able to meet debt obligations without any difficulties.

Focus on Permian Basin

Plains All American is gradually expanding its operation in the Permian Basin to capitalize on improving demand. The partnership has a 65% equity interest in Cactus II Pipeline, which was placed in service during 2019. First-quarter Permian tariff volumes were down sequentially. However, as producers have started to gradually resume idled production, volumes are expected to recover in the second half of 2021. The partnership is poised to benefit from a rise in production from the Permian region, with gradual revival in oil and natural gas demand.

Given the expected increase in production from the Permian Basin, pipeline operators are extending their services in the region. It is to be noted in this regard that Kinder Morgan, Inc.’s (KMI - Free Report) Permian Highway Pipeline (PHP) project came online on Jan 1. PHP has the capacity to transport 2.1 billion cubic feet natural gas per day from the region.

Price Performance

The units of the firm have gained 36.2% in the past six months, outperforming the industry’s 29.3% rally.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank & Key Picks

Plains All American currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same industry include Energy Transfer LP (ET - Free Report) and Summit Midstream Partners LP (SMLP - Free Report) . While Energy Transfer sports a Zacks Rank #1 (Strong Buy), Summit Midstream Partners has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Energy Transfer and Summit Midstream Partners reported an average earnings surprise of 73.5% and 1540.4%, respectively, in the trailing four quarters.

The Zacks Consensus Estimate for 2021 earnings for Energy Transfer and Summit Midstream Partners has improved 115% and 39.6%, respectively, in the past 60 days.

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