Plains All American is Buying US Dev Group's Eagle Ford Crude Terminal

Gardendale Rail Map
Gardendale Rail Map

Plains All American Pipeline (PAA) has reached a $500 million deal to buy four rail facilities from U.S. Development Group. One of those facilities is part of the Gardendale Rail System near Cotulla, TX.

The four facilities are rail terminals:

The three crude terminals have daily loading capacity of 85,000 b/d and the rail terminal at St. James has unloading capacity of 140,000 b/d. An unloading facility is also planned for Bakersfield California.

“Plains has proven to be a great terminal and pipeline partner for USD, and we believe that this transaction will provide for the most efficient optimization of the assets involved.”
— Dan Borgen, U.S. Dev. Group CEO

The Eagle Ford Crude Terminal receives oil by truck near Cotulla, TX, in the community of Gardendale. It's just off I-35 80 miles south of San Antonio. The facility has capacity for 200 loaded rail cars, and can move as much as 40,000 b/d. The terminal is serviced by Union Pacific Railroad and the Gardendale Railroad. Crude moving from the terminal ends up in St. James, LA, where the facility can handle 300 loaded railcars at one time or 130,000 b/d. The St. James Rail Terminal also ties into several pipelines, including one owned by PAA.

"These assets represent a very attractive addition to our existing North American rail activities...." said Greg L. Armstrong, Chairman and CEO of PAA. "Given recent and projected increases in North American crude oil production and volumetric and quality imbalances expected to occur in certain regions over the next several years, we believe that strategically located rail loading and unloading assets will continue to play an important role in the transportation of crude oil in North America."

Crude oil pricing is as dynamic as ever across the U.S. Growing production in the Bakken and West Texas have put downward pressure on WTI (priced at Cushing, OK). On December 10, 2012, WTI was trading at ~ $86.50 / bbl and Brent crude was trading a little over $108 / bbl. That's a wide spread that creates attractive crude by rail economics. Plains also has an extensive NGL rail network and expects to have as many as 6,700 rail cars under lease by year-end 2013.

Plains All American Pipeline's company wide crude oil loading capacity is now 250,000 b/d and unloading capacity is 335,000 b/d on the East Coast, Gulf Coast, and West Coast.

Read the full press release at paalp.com

Plains All American - Enterprise Products Eagle Ford Crude Oil Pipeline Joint Venture

Plains All American Eagle Ford Assets
Plains All American Eagle Ford Assets

Plains All American and Enterprise Products announced an Eagle Ford crude oil pipeline joint venture this past weekend. The deal provides that the two companies will consolidate portions of previously announced projects. Between the two companies, they have long-term commitments of 210,000 barrels per day.

The joint venture will include 140 miles of crude oil and condensate pipeline that will extend from Gardendale in La Salle County to Three Rivers in Live Oak County, then continuing on to Corpus Christi and an Enterperise Station in Wilson County. The pipeline is planned for potential capacity of 350,000 b/d.

In Corpus Christi, the pipeline will tie into a marine terminal with storage capacity of 1.8 million barrels. In Wilson County, the pipeline will tie into Enterprise's Eagle Ford crude oil system that continues on to Sealy, TX.

Read more from the Plains' press release at paalp.com

Plains All American Pipeline Buys Velocity Midstream's Eagle Ford Assets

Plains All American Pipeline (PAA) announced plans to acquire Volocity Midstream's - Velocity South Texas Gathering assets.  The pipeline and midstream deal includes over 120 miles of crude oil and condensate pipe with capacity of 150,000 barrels per day through parts of Dimmit, La Salle, and Webb counties. The pipeline system is underpinned by volume commitments from major producers in the area. If warranted, the system can be expanded to handle 185,000 barrels per day. The system also has storage capacity at Catarina and Gardendale. The Gardendale facility ties directly into Plains All American's existing Eagle Ford pipeline.

The deal was part of a larger announcement by PAA that included assets on the East Coast, in the Permian Basin, and in Canada for a total of $620 million. Much of the midstream activity in South Texas to date has been new projects, but we expect more consolidation in the coming months as midstream companies look to gain a true foothold in the area. Infrastructure has been one of the few restricting factors in the play, but major projects are on pace to remedy current concerns over the next couple of years.

The Partnership recently closed the acquisition of 100 percent of the member interests in Velocity South Texas Gathering, LLC ("Velocity") from Velocity Midstream Partners, LLC. The deal includes approximately 120 miles of crude oil and condensate gathering and transportation pipelines currently in advanced stages of construction in the area of South Texas.

The Gardendale storage hub will have access to PAA's Eagle Ford pipeline as well as other transportation alternatives, including third party pipelines, truck and rail. Over the next 18 to 24 months, PAA expects to complete current construction, extend the system to access additional condensate barrels and other crude oil-oriented portions of the major resource play, and increase terminal capacity at Gardendale from 150,000 barrels to 250,000 barrels.

Read the entire news release at paalp.com

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. ..............you'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.

Read a transcript of the call at seekingalpha.com