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Permian: Oil Pipeline Takeaway. Too Much or Just Fit?
10/17/2017
Midstream key regional players continue to plot new pipelines to take all the petroleum from West Texas to refineries, export hubs and petrochemical plants.
However, even with production from the Permian Basin being up 24% since the year began, the capacities being built may not find their customers.
Almost a two-fold increase in takeaway will mean lower margins. Production will ot keep up with such growth soon enough.
No operator abandons exisitng projects. Yet, a hunt for partners has begun.
Among the players involved are Kinder Morgan Inc. (NYSE: KMI), DCP Midstream LP (NYSE: DPM), and also Targa Resources Corp. (NYSE: TRGP) not to mentione others.
Some analysts say output can accommodate many of the new transportation lines. Permian production should rise through 2026 but it may peak sooner.
The competition for deals to fill the pipelines is so fierce that margins for operating the lines are likely to be thin without consolidation.
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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.