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Plains All American (PAA) and Oryx Form Permian Basin JV

Plain All American Pipeline L.P. PAA and Oryx Midstream Holdings — a unit of Stonepeak Infrastructure Partners — have entered into a definitive agreement to merge their respective assets, operations and commercial activities within the Permian Basin into a newly formed strategic joint venture (JV), Plains Oryx Permian Basin LLC.

Plains All American will be the operator of the JV with a 65% interest. This JV will have 5,500 miles of pipelines with direct downstream connections to all major intra-basin and downstream markets. The majority of its pipelines under the JV have more than seven years remaining in their contract tenure.  The strategic location of the JV assets will allow it to enjoy the benefits from any increase in Permian Basin production.

How Plains All American Will Benefit From This JV

Per the latest report from the U.S. Energy Information Administration, oil and gas production from the Permian Basin will continue to remain strong. We expect Plains All American to gain from the increasing volumes being produced in the region and make the best utilization of its JV assets to cater to the rising demand for midstream services.

The complementary assets of these firms will drive operating efficiencies, assist in reducing environmental footprint, decrease GHG emissions and cause overall reduction in cost of operations. This JV is expected to capture $50 million in operational, cost and capital synergies on a run-rate basis within 12 months and the figure is anticipated to increase to more than $100 million in the longer term via additional integration as well as optimization opportunities.

Plains All American’s Operation in Permian Basin

Plains All American is gradually expanding operations in the Permian Basin to capitalize on improving demand. The firm already has interest in some pipelines in this region. Some are already in service and a few are due to come online. All these projects, when operational, will strengthen the firm’s position in the Permian Basin.

Plains All American announced the formation of the W2W Pipeline joint venture with the subsidiaries of ExxonMobil XOM and Lotus Midstream, LLC. The W2W Pipeline is working on the construction of a pipeline to transport crude oil from multiple locations in the Permian basin to the Texas Gulf Coast. The pipeline system — which will be able to transport 1.5 million barrels of crude oil as well as condensate per day — is currently in partial service and phase 2 is expected to be completed in fourth-quarter 2021. This pipeline will have a positive impact on the partnership’s operations.

Price Performance

In the past six months, units of the firm have underperformed the industry.

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Plains All American Pipeline currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space include Magellan Midstream Partners, L.P. MMP and Shell Midstream Partners, L.P. SHLX, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Magellan Midstream Partners and Shell Midstream Partners delivered an earnings surprise of 25.3% and 8.8%, respectively, in the last reported quarter.

The Zacks Consensus Estimate for 2021 earnings per unit for Magellan Midstream Partners and Shell Midstream Partners has moved up 0.3% and 2.1%, respectively, in the past 60 days.

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