Invest in Plains all American Pipeline

Plains All American Pipeline keeps America happy. The company is a publicly traded partnership that deals with the transportation, storage and terminalling of crude oil, refined products and liquefied petroleum gas. The assets of the company and partnership play an important part in the movement of energy supplies across North America and Canada. They handle around 3 million barrels of crude oil and refined products each day, through their producing basins and pipeline system. (Plains All American Pipeline Website)

Plains All American Pipeline’s (PAA) competition extends across the country. Buckeye partners L.P (BPL) serves the Buckeye State, and its pipeline extends around 2,700 miles from Massachusetts to Illinois. The partnership consists of a number of other pipelines such as the Laurel Pipeline that runs through Pennsylvania and Everglades Pipeline, running through Florida. Enbridge Incorporated (ENB) is another leading player, moving over 2 million barrels of crude oil a day in North America and with 1,500 mile pipeline stretching its way from British Columbia to Chicago.

Since the fourth quarter of 2011, Plains All American Pipeline has been involved in four acquisitions, two of which have already been completed. The company has also signed into the remaining two acquisitions, and expects that they will be completed shortly. The aggregate consideration of these acquisitions is thought to be sitting at around $620million. (Plains All American Pipeline Financial Statement)

While they have already completed acquisitions for both a South Texas crude oil gathering system and a Canadian trucking system, they have also signed agreements with Western Refining (WNR) for a storage facility located in Yorktown and a pipeline in the Permian Basin. By including these assets into the company’s operations, the next 24 months has been predicted to require a further investment of about $100 million to $150 million.

The company’s earnings from the coming fourth quarter, before interest, taxes, depreciation and amortization are expected not to be significantly impacted by the said acquisitions, but the chairman of PAA, Greg Armstrong has predicted that earnings will exceed the midpoint of its guidance throughout the quarter by roughly 15%.  The expected performance will be down to good market conditions, strong fundamentals and effective execution in all company segments. The guidance midpoint for the fourth quarter has been predicted at around $410 million.

The company’s conference call, made on the 1st December 2011, states certain details outlining the assets that PAA hopes to acquire following the acquisitions, how they will integrate the acquired assets into company operations, long term financing plans, and expected cash flow following all transactions. (Plains All American Pipeline Conference Call)

The call gave details concerning the acquisition of the Gardendale Gathering System from Velocity. The agreement has been made, and the transaction is now closed. The Gardendale system includes approximately 120 miles of pipeline, which has an initial capacity to move 150,000 barrels a day. The system is expected to be fully operational within a few months. PAA will have the capacity to move crude oil into a number of rail facilities or connecting pipeline carriers belonging to PAA, including Three Rivers and Corpus Christi. It is expected to benefit the company in that it will connect to their pipeline at the origin station, placing the company in the position of pursuing a number of expansion projects throughout the area.

Details were also discussed, concerning the company’s recent agreements with Western Refining (WNR), involving the acquisition of 6.6 million barrels of storage space located in Yorktown. After enhancing the connectivity of the terminal, it will have a number of transportation alternatives, like the Colonial pipeline. This terminal will offer terminalling and a great deal of storage – from crude oil, to biodiesel fuels, complementing PAA’s operations on the East Coast. The second acquisition made with Western Refining is an 82 mile segment of pipeline running through New Mexico. Originating in Chaves County, this pipeline will eventually connect with the company’s Basin Pipeline system. This addition will allow for a further 100,000 barrels of crude oil a day to be transported. (Plains All American Pipeline Conference Call)