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Plains All American, Oryx Midstream to Merge Permian Basin Assets
08/10/2021
Plains All American Pipeline LP has decided to unite its Permian Basin assets with Oryx Midstream Holdings LLC, a privately held company. The Plains Oryx Permian Basin JV will comprise a crude pipeline with a capacity of 6.8 million bbl/d. This pipeline spans 5,500 miles, with an average remaining contract term of approximately seven years on the JV's 4.1 million committed acres.
Plains All American Pipeline LP owns the bulk of Permian Basin assets. Oryx Midstream, on the other hand, has significant holdings in the Permian Basin. Plains Oryx Permian Basin LLC will operate in the Permian Basin as a joint venture. Plains will hold 65% of the JV, and Oryx will control 35%, with the precise cash split set by a 10-year tiered modified distribution sharing agreement.
Moreover, without synergies, the JV is projected to produce $800 million in EBITDA and $625 million in free cash flow in 2021. The merger agreement's transactions are anticipated to complete in the fourth quarter of 2021.
JV's Journey In Merging Permian Basin Assets
Oryx Midstream and Plains working together is a natural evolution growth story. Plains' assets include about 5,500 pipeline kilometers and a multi-segment pipeline system capacity of 6.8 million barrels per day. Oryx has about 1,600 miles of pipeline and operational storage capacity in the Permian Basin, as well as 1.3 million acres of long-term acreage dedication and marketing agreements.
Midstream operators realize the advantages of scale and the ability to run their systems effectively. In addition, with the recent increase of takeaway capacity from the Permian Basin and a decrease in production levels as operators curtailed operations during the pandemic, the pipeline capacity is sufficient.
When the joint venture officially launches, the emphasis will be on integrating the two systems. With the JV's merged asset base, there will be more possibilities for optimization and operational leverage within the enlarged and integrated system. Plains Oryx Permian Basin JV is a beneficial deal for consumers, providing greater connection, better dependability, and increased efficiency.
This acquisition is a huge step forward in terms of enhancing the capabilities for the benefit of their customers and investors.
Plains Oryx Permian Basin will continue to develop and provide consumers with the best choices available. They are also enthusiastic about the deal and the joint venture's prospects, and what they can offer their consumers.
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Crude oil pipelines in North America: a current perspective
Being the main means of transferring crude oil around the world, pipelines rapidly route oil and its derivative products (gasoline, jet fuel, diesel fuel, heating oil, and heavier fuel oils) to refineries and empower other businesses. The U.S. and Canada solely make North America a major oil hub for more than 90,000 miles of crude oil and petroleum product pipelines, which are connected to more than 140 refineries daily processing about 20 million barrels of oil. Compared to 2010, U.S. crude oil production has increased more than twice: from 5.4 to 11.5 million barrels a day. Therefore, newly produced oil obliged energy companies to expand their pipeline networks, but it has only increased by 56%. According to the latest data, Plains manages the largest pipeline network across the U.S. and Canada (its diameter is at least 10 inches) which is the 14,919-mile network that spans from the northwestern tip of Alberta down to the southern coasts of Texas and Louisiana. The place where all these various spreading pipeline networks carry crude oil is refineries, where it is transformed into different petroleum products. Gulf Coast (PADD 3) possesses several refineries with the largest throughput in North America that process more than 500,000 barrels per day. Not only does the development of new pipelines give a plethora of opportunities for economic growth but also it remains a contentious issue in Canada and the U.S., with the cancellation of the KeystoneXL pipeline emblematic of growing anti-pipeline sentiment. In 2021, only 14 petroleum liquids pipeline construction plans were completed in the U.S., which is considered the lowest amount of new pipelines and expansions ever since 2013. Anti-pipeline sentiment did not come out unexpectedly as leaks and spills in just the last decade have resulted in billions of dollars of damages. From 2010 to 2020, the Pipelineand Hazardous Materials Safety Administration reported 983 incidents that resulted in 149,000 spilled and unrecovered barrels of oil, even five fatalities, 27 injuries, and more than $2.5B in damages.
Enterprise acquires Navitas Midstream for $3.25 billion in cash
Enterprise decided to go in on the Permian Basin. With the surprise purchase of Navitas Midstream for $3.25 billion in cash, the company gained a foothold in the Midland Basin, as it previously lacked #naturalgas or NGL infrastructure apart from downstream pipelines in the region. Enterprise estimates that distributable cash flow accretion will be in the range of $0.18 to $0.22 per unit in 2023, while simultaneously supporting additional capital returns to their limited partners through distribution growth and buybacks of common units.
Kinetik Holdings recently announced a series of transactions in the energy sector. They struck a deal to buy Durango Permian infrastructure for $765 million. At the same time, they're selling their 16% share in the Gulf Coast Express Pipeline to ArcLight Capital Partners for $540 million. The total purchase cost includes $510 million in cash paid immediately and an additional $30 million that will be paid later, depending on whether they decide to expand further.
Recently, the Permian has seen significant acquisitions: Exxon Mobil purchased Pioneer Natural Resources for about $60 billion. Diamondback Energy's $26 billion deal to acquire Endeavor Energy Resources is currently on hold due to requests from the U.S. Federal Trade Commission. Occidental’s acquisition of CrownRock for $12 billion in the Midland.
EOG Resources is pushing boundaries in Ohio's Utica oil play and now drilling on the Sable pad, also located in Noble County. This site features the 3.7-mile lateral currently under construction. The company's first multi-well pads in the area Timberwolf and Xavier have each produced over 200,000 barrels of oil since their inception—Timberwolf in August and Xavier in October. A third site, the four-well White Rhino pad in Noble County, is also showing promising early results, according to Keith Trasko, EOG’s Senior Vice President of Exploration and Production, who noted the wells are performing as expected in their initial weeks.