Permian Basin Midstream Players to Watch
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The Association of Oil Pipe Lines, an industry group representing owners and operators of liquids pipelines, estimates that 500 miles of new pipelines will be needed annually to handle the growing development of various onshore resource plays across North America. The Permian Basin in Texas is expected to receive a significant share of this midstream investment as operators continue to allocate more capital here over the next few years.
Crude Oil Production Growth
Texas has seen an increase in crude oil production over the last two years as operators rush into the Permian Basin, Eagle Ford Shale and other areas of the state. The Energy Information Administration reported that Texas crude oil production average 1.9 million barrels per day in June 2012, the highest level since the early 1990’s. These crude oil plays also produce a prodigious amount of natural gas liquids that need to be processed and transported.
Sunoco Logistics Partners L.P. (NYSE: SXL) owns and operates a network of pipelines across the United States and also has storage and terminal facilities used for crude oil and refined products. The company is building phase one of the Permian Express pipeline, designed to bring crude oil from the Permian Basin in Texas to markets in the Gulf Coast area. The pipeline will have initial capacity to transport 90,000 barrels of oil per day and can be expanded to handle 150,000 barrels of oil per day if needed.
Sunoco Logistics Partners L.P is also planning phase two of the Permian Express, which will increase capacity and expand the pipeline system farther west in the Permian Basin. The first phase of the pipeline project is expected to start up in early 2013.
Plains All American Pipeline
Plains All American Pipeline LP (NYSE: PAA) is involved with several pipeline projects to handle expanded production in the Permian Basin and expects these to come on line in stages before the end of 2012.
Plains All American Pipeline LP said that these projects will cost $135 million and provide 200,000 barrels per day of additional transport capacity in this region. The extra production is expected to come from increased development of the Bone Spring, Spraberry and Wolfberry plays.
Sand Hills Pipeline
DCP Midstream Partners (NYSE: DPM) is also involved with several projects to serve the Permian Basin, including the Sand Hills Pipeline. This natural gas liquids pipeline will start in West Texas and run approximately 720 miles across the state, ending at a natural gas processing plant in Mt. Belvieu in the eastern part of Texas.
The Sand Hills Pipeline will also serve the Eagle Ford Shale and have initial capacity to handle 200,000 barrels per day of production, expandable to 350,000 barrels per day if necessary. DCP Midstream Partners estimates that the Sand Hills Pipeline will be operational in the Permian Basin in the second half of 2013.
Magellan Midstream Partners (NYSE: MMP) is evaluating a joint venture with Occidental Petroleum (NYSE: OXY) to build the BridgeTex Pipeline, which will run 400 miles from the Permian Basin to Houston. The pipeline will have capacity of 278,000 barrels per day and if Magellan Midstream Partners decides to go forward will be operational by mid-2014.
The Permian Basin has been rejuvenated by the increased development of its oil and gas resources and is one of the areas that will need rapid investment to process this production and bring it to market. Several public companies have recognized this increased demand and are planning to make these investments in the Permian Basin.
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