Must-know: Analysis of Plains All American's first quarter earnings

Part 6
Must-know: Analysis of Plains All American's first quarter earnings (Part 6 of 8)

Must-know: Asset footprint at shale boom and NGL production rise draw long-term PAA growth

Plains All American Pipeline (PAA) is well positioned to benefit from dynamic crude markets and service high-growth liquids resource plays. PAA has generally benefited from its strategically located, geographically diverse, and operationally flexible assets. PAA has presence in the major resource plays of Western Canada, Williston Basin (Bakken), Rockies, Mid‐Continent, Permian Basin, Eagle Ford, and Gulf of Mexico.

Crude Oil Production growthEnlarge Graph

Over the past five years, North American crude oil production has increased substantially as a result of advances in horizontal drilling and fracturing technology. This trend is expected to continue over the next few years and into the future. The Rockies, the Permian Basin in west Texas, and the Mid-Continent region, which have matured reserves of oil and gas, have witnessed fast growth during the boom. Additionally, the less mature, but rapidly growing areas such as the Eagle Ford Shale in south Texas and the Bakken Shale in North Dakota have also been part of the reversal in the history of oil production in the United States. According to the U.S. Energy Information Administration (or EIA), by the end of 2017, crude oil production in the United States and Canada is expected to have increased by an average of approximately 2.2 million barrels per day from the 2013 level of 7.4 million barrels per day, due mainly to higher production in the Eagle Ford Shale, the Permian Basin, and the Bakken Shale.

Annual Crude Oil ThroughputEnlarge Graph

These higher volumes of production have strained or are expected to strain existing transportation, terminalling, and downstream infrastructure. The overall change in crude oil flows has resulted in an increased demand for storage and terminalling services at Cushing, Oklahoma and Patoka, Illinois. Another notable change has been the significant alterations to historical patterns of crude oil movements among regions of the U.S. For example, the quantity of crude oil transported from the Gulf Coast area into the Midwest has declined due to change in demand pattern.

In the natural gas storage business, the company has faced challenging condition for the past few years. The difficulties encountered by PAA included new storage capacity build-up and reduction or exit in storage positions by the customers; reduction in overall market demand due to various companies exiting the gas marketing business; and lower basis differentials due to expansion and improved connectivity of natural gas transportation infrastructure over the last five years. In addition, the recent extremely cold weather in the United States has added short-term volatility to the market. Such adverse market conditions will negatively impact the hub services activities and will weigh on lease rates paid by the customers for PAA’s existing storage capacities and the new capacities under construction.

Plains All American Pipeline (PAA) is a master limited partnership operating in the midstream energy space. The general partner of PAA is owned by Plains GP Holdings L.P. (PAGP). PAA is a component of the Alerian MLP ETF (AMLP), the Global X MLP ETF (MLPA), and the Global X MLP & Energy Infrastructure ETF (MLPX).

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