Plains All American: The Eagle Ford And Permian Play

Jan. 2.14 | About: Plains All (PAA)

To increase natural gas liquids, or NGL, fractionation capacity, Plains All American Pipeline (NYSE:PAA) has decided to invest $120 million in two projects in the Eagle Ford area. The company is developing a new NGL fractionator, which will be in La Salle County, Texas. NGL will be sourced from the company's Eagle Ford-producing region and will be processed and fractionated. This project, designed to fractionate up to 15,000 barrels of NGL per day, is expected to be operational by the second quarter of 2015. Plains All has the infrastructure to transport the finished products to the market once the project is completed. This additional fractionation capacity is an increase of more than 7% to the current NGL fractionation capacity for Plains All. Assuming an NGL price of $40 per barrel, this project could result in additional revenue of $600,000 per day, or $219 million per year for Plains All.

The second project will expand the condensate stabilization facility, and the truck and rail infrastructure at Eagle Ford. This includes construction of about 80,000 barrels of storage capacity as well as the addition of a condensate stabilization train having 40,000-barrels-per-day, or bpd, capacity. This is a clear move by Plains All to benefit from the growing NGL production in the Eagle Ford region. NGL production in the region increased to 156,702 bpd in 2012, growing by 95.8% year over year. Until October this year, it further improved by more than 30,000 barrels per day over 2012. Steady exploration in the region is expected to increase production even further. NGL and dry gas production in the Eagle Ford is expected to grow 150% over the five-year period from 2010 to 2015.

Another company looking to benefit from higher NGL production is Enterprise Products Partners (NYSE:EPD). It has increased its NGL fractionation capacity recently. The company has a fractionation facility in Mont Belvieu in Texas. To address the increasing NGL production in Eagle Ford, Enterprise Products has added two new NGL fractionators at Mont Belvieu. These two fractionators -- fractionator seven and fractionator eight -- are part of a joint venture between Enterprise Products (75% interest) and Western Gas Partners (NYSE:WES) (25% interest). Fractionator eight became operational in November, adding 85,000 bpd of fractionation capacity to this facility. This unit was commissioned ahead of schedule and within budget, and adds additional fractionation capacity of 11.2% to Enterprise Products Mont Belvieu operations.

Energy Transfer Partners (NYSE:ETP) is also bullish on NGL fractionation. Recently, Lone Star NGL -- a joint venture between Energy Transfer (70% interest) and Regency Energy Partners (NYSE:RGP) (30% interest) -- has put a second NGL fractionator into service at its Mont Belvieu facility in Texas. The Lone Star Frac II has a fractionation capacity of 100,000 bpd, which doubles the overall fractionation capacity for the Mont Belvieu facility. This additional fractionation capacity responds to increasing NGL production in Eagle Ford and the Permian basin. Lone Star completed this project 10 weeks ahead of schedule, which bodes well for the company's potential to take on future NGL projects.

Bullish on the Permian

Having looked at Plains All ventures at Eagle Ford, it is important to also look at the Permian Basin. At 1.335 million bpd, the Permian Basin is the top oil producer. According to consensus estimates, oil production in this region will reach 2 million bpd in the next five years. To meet this growing oil production, Plains All is investing $400 million to $500 million in four projects in the region to increase its pipeline infrastructure. These projects are expected to be operational in 2014 and early 2015.

The first project aims to improve pumping capacity of its Basin pipeline by 100,000 to 240,000 bpd. It also includes the addition of a 100,000-bpd pipeline carrying crude oil to Longhorn and Cactus pipeline. The second project involves a 200,000-bpd pipeline running from the Midland Basin to the Cactus pipeline. The third project will install a 250,000-bpd pipeline from Midland to Colorado City. Plains All also plans to increase pumping capacity of its Cactus pipeline project from 200,000 to 250,000 bpd through a fourth project.

These four projects will help Plains All add another 700,000 bpd of crude oil handling capacity. The company handles about 3.5 million bpd of crude oil and NGLs currently. Once these four projects are operational, they could add 20% to the current crude oil and NGL handling capacity of Plains All. Thus, the company is positioning itself to take advantage of the growing oil production in the Permian basin.


Oil and gas production in the U.S. has surged in the recent years, and Eagle Ford and the Permian basin are leading the way. Plains All has made smart decisions to invest in these areas to benefit from the growth. These projects will move the needle for the company going forward. I am bullish on Plains All's growth prospects.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.