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Overview: Plains All American Pipeline’s growth capital projects
Plains All American Pipeline (PAA) increased its 2014 expansion capital by approximately $100 million from $1.850 billion (see chart below) to a revised target of $1.95 billion. The company noted that this increase is not attributable to any single project.
This article discusses Plains All American Pipeline, L.P.’s (PAA) profits by segment—transportation, facilities, and supply and logistics. For the transportation segment, adjusted segment profit was $229 million—~37% higher YoY (or year-over-year)—and approximately $24 million above the midpoint of PAA’s guidance.
Plains All American Pipeline, L.P. (PAA) released its second quarter earnings on August 8. The second quarter adjusted revenue totaled $11.1 billion, beating the Wall Street analysts’ expectations of $10.6 billion. Revenues were higher ~9%, year-over-year (or YoY).
Currently, there are three major publicly traded independent storage firms, Plains All American Pipeline’s (PAA) natural gas storage subsidiary (PAA Natural Gas Storage), Niska Gas Storage Partners (NKA), and Crestwood Equity Partners (CEQP). PAA is part of the Alerian MLP (or master limited partnership) ETF (AMLP), while CEQP is part of the Global X MLP ETF (MLPA).
Plains All American Pipeline, L.P. (PAA) has a significant presence in key NGL market hubs in the U.S. and Canada. Increased drilling activity in unconventional resource plays has led to higher natural gas liquid (or NGL) production. Many of these unconventional resource plays don’t have adequate NGL infrastructure and also lack the necessary transportation, fractionation, and storage facilities for NGL products.
Plains All American Pipeline (PAA) has its largest asset footprint in the Permian Basin. According to a company presentation, the Permian Basin has over 300 billion barrels of oil in place across ~50 million acres. Fast rising production there has created a significant scope for midstream-related activities.
The product platforms that PAA conducts its business in include crude oil, natural gas liquids (or NGL), and natural gas. PAA’s assets are located throughout North America in major crude oil producing areas and liquids rich areas.
Operations in the supply and logistics segment are dependent on the transportation and facilities services from PAA’s other two segments, as well as third-party service providers under month-to-month and multiyear contracts. Supply and logistics services include crude oil and NGL purchases, crude oil and NGL sales, and crude oil and NGL exchanges.
Plains All American Pipeline, L.P. (PAA) owns approximately 74 million barrels of crude oil and refined products storage capacity and 23 million barrels of NGL (or natural gas liquids) storage capacity.
The assets under Plains All American Pipeline, L.P.’s (PAA) transportation segment include 16,900 miles of crude and NGL (or natural gas liquids) pipelines and gathering systems and 24 million barrels of active, above-ground tank capacity.
Plains All American Pipeline, L.P. (PAA) is a master limited partnership (or MLP) that operates in the midstream energy business, providing services like transportation, storage, terminaling, and marketing of crude oil and refined products.
Enterprise Products Partners (EPD) is the largest company by market capitalization and enterprise value (or EV) among its closest peers. EPD has the highest EV when scaled by EBITDA in the group. It has an EV to EBITDA of 19.5x.
Enterprise Products Partners’ (EPD) expects ~$3.8 billion in capital expenditures (or capex) in 2014—down 13% from the $4.4 billion spent in 2013. This includes ~$350 million for sustaining capital—or capex for asset maintenance.
In its 2Q14 10Q, Enterprise Products Partners (EPD) noted that it expects to spend ~$3.7 billion–$4.1 billion in capital over 2014. This includes ~$350 million for sustaining or maintaining capital expenditure—also called capex. This means that EPD has ~$3.8 billion in growth capex funding this year.
Wall Street analysts have pegged Enterprise Products Partners’ (EPD) estimated 2014 DCF at ~$4 billion. If EPD grows its distribution by ~6%—from $2.70 to ~$2.86 per unit in 2014—the company will pay out ~$2.7 billion over 2014. This is based on the amount of current outstanding units.
In 2013, liquefied petroleum gas (or LPG) production in the U.S. was ~1.8 million barrels per day (MMbpd)—a 50% increase from the ~1.2 MMbpd in 2008. Enterprise Products Partners (EPD) expects production to increase at a growth rate of ~5% to 2.8 MMbpd in 2020. This will exceed the projected domestic consumption.
U.S. crude oil export has been banned since the 1970s. However, U.S. companies can export refined fuel like gasoline and diesel. Loosening the ban will allow EPD to export its refined products more in future.
Enterprise Products Partners’ (EPD) crude oil refining customers usually purchase crude oil based on Light Louisiana Sweet (or LLS) prices. In contrast, West Texas Intermediate (or WTI) prices usually reflect the Mid-Continent crude oil market—the producers’ market. Midstream companies—like Enterprise Products Partners—benefit when the LLS trades at higher prices compared to WTI.
In 2014, Enterprise Products Partners (EPD) significantly outperformed the industry and broader market. EPD outperformed AMLP—the industry index. It also outperformed SPY—the broad market index. EPD outperformed because of its strategy to invest in high-valued projects and higher distributions.
ETE’s incentive distribution rights suggest that it could directly benefit from growth at ETP, SXL, and RGP in the coming years. All of these companies have positive distribution outlooks. This is a positive for ETE.