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Anadarko Arm to Test Gathering & Treating System's Viability

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Anadarko Petroleum Corporation (APC - Free Report) announced that its subsidiary, DBM Oil Services, LLC (DBMOS), is holding a binding open season to find out the viability of its high-vapor-pressure oil-gathering and treating system serving portions of Reeves, Loving, Ward and Winkler Counties in West Texas.

The new system will have a gathering capacity of 400,000 barrels of oil per day (bopd) and an initial treating capacity of 120,000 bopd by the end of 2018. Subject to increase in demand, the treating capacity to could be raised further to 180,000 bopd per day in 2019.

Open Season
The increasing Exploration & Drilling activities in the Permian Basin of West Texas no doubt create opportunity for midstream service providers. Anadarko, through its subsidiary, is planning to gain from the likely increase in demand for gathering and treating services.

The open season in a way will help to justify the company’s midstream investment to expand infrastructure in the Permian basin to support future growth. Subject to completion of the open season, the system is expected to be become operational from second-quarter 2018.

Increasing investment in the midstream activities will help Anadarko boost its midstream earnings.

Permian Basin Production to Rise

Permian Basin is rich in reserves and expected to drive the United States crude oil production in 2017. Per a recent release from the U.S. Energy Information Administration, U.S crude oil production will average 9.4 million barrels per day (MMbpd) in the second half of 2017 — 340,000 bpd more than in the first half of 2017.

Permian production is forecasted to grow to 2.6 MMbpd in the second half of 2017, a 260,000 bpd increase from the first half.

We expect production from the Permian Basin to improve further over the long run creating ample opportunity for the midstream services. So the rising possibilities in the region have already resulted in other successful open season from midstream service providers.

In April 2017, Kinder Morgan, Inc. (KMI - Free Report) and DCP Midstream, LP (DCP) announced that they have signed a letter of intent for the development of the proposed Gulf Coast Express Pipeline Project. This Kinder Morgan project will transport increased natural gas production from the Permian Basin to growing markets along the Texas Gulf Coast. The project is designed to transport up to 1,700,000 dekatherms per day (Dth/d) of natural gas through the 430 miles of 42-inch pipeline from the Waha area to Agua Dulce, TX.

In second-quarter 2017, Energy Transfer Partners, L.P. (ETP - Free Report) announced the completion of successful open season for its Permian Express 3 Pipeline. Permian Express 3 is expected to provide transportation of up to 100,000 barrels per day, with service commencing in the fourth quarter of 2017. The company will conduct another season to find prospective customers to transport another 200,000 barrels per day from this region.

Another pipeline operator Plains All American Pipeline (PAA - Free Report) announced a binding open season for committed crude oil transportation from the Permian Basin to the Corpus Christi/Ingleside area. The company plans to develop two pipelines, one extending from Wink South to McCamey, TX, and the second pipeline will extend from McCamey to the Corpus Christi/Ingleside area.

Price Movement

Anadarko has gained 10.9% in the last three months, outperforming 7.4% rally of the industry it belongs to.

Zacks Rank

Anadarko currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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