Equipment Delays - Margin Pressure in the Eagle Ford - Plains All American

Equipment delays in the Eagle Ford have slowed work on Plains All American's pipeline project, but the development is still on schedule to be fully operational in Q1 2013. The pipeline will provide 300,000 b/d of takeaway capacity into the Corpus Christi refining markets and connect to marine transport options delivering to other Gulf Coast markets. Plains All American also touched on the fact that pipeline and midstream company margins in the Eagle Ford will compress over time. At their estimates, pipeline capacity might double production expectations in the play. If that is the case, there will be downward pressure on margins. Unless production volumes continue to outpace expectations, that is a natural progression in midstream business cycle.

The company will also begin moving crude oil volumes away from trucking in favor of pipelines. Pipeline yield lower margins than many of the trucking and logistical arrangements in the play today.

We've had a little bit of equipment delays on the Eagle Ford and right of ways, and so that's caused a little bit of that to shift into the first quarter. But overall, we are on track, we think, to still bring enough pretty much at the point in time when we target to bring it online. We'll just have to work a little bit harder toward the end, but everything is proceeding right on schedule.

Will margins contract over time? - I think unless volumes significantly outperform what current expectations are, I think the answer is there will be some margin pressure with the passage of time. Clearly in today's environment, there's more volumes than there are takeaway capacity, but there's a lot of projects that are being built. I haven't done the tallies lately, John, but I think there were 7 different pipeline projects. And if you total them all up, we think it could be about double what the projected production capacity is expected to be. So this pure business 101 tells you, at some point in time, you're going to put a lot of pressure on margins. I think what we tried build into our expectations internally and what we're trying to manage externally is that clearly, we're making some great margins in certain areas. Trucks are very valuable. Truck drivers are very valuable today. And what we try to do is make sure that we use those to our advantage when we're trying to base load our pipeline project. And so we're probably making less than we could be making with certain customers. Because they're willing to support our pipeline project, we're willing to make sure their crude comes out of the market.'ll see volumes that are going to be shifting from our Supply and Logistics business over into our pipeline business. By definition, those are -- that's the cheaper form of transportation. And so the question really at that point in time is, do we -- if the business is in parity, then we'll end up parking some trucks. We're moving on to different parts of the U.S. If the answer is, by moving those barrels over to the pipeline, we free up trucks that can then reach out to grab more remote barrels in South Texas, then that's probably incremental opportunity than what we perhaps got built into our own expectations during the years. If you roll the clock out 3 or 4 years at some point in time, either volumes have to continue to go up or all these -- some of these pipeline projects have to not yet build or we're going to end up with margin compression.

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