Also Comments on Financial Guidance, Capital Program and Financial Position
Conference Call Scheduled for Wednesday, January 25, at 8:00 a.m. ET (7:00 a.m. CT)
HOUSTON–(BUSINESS WIRE)–Plains All American Pipeline, L.P. (NYSE:PAA) today announced it had entered into definitive agreements to acquire a Permian Basin crude oil gathering system for approximately $1.2 billion. PAA also announced it had entered into definitive sales agreements totaling $380 million, which includes two pending transactions aggregating approximately $310 million and the completion of a third transaction in January 2017 for approximately $70 million. The acquisition and pending sale transactions are subject to customary closing conditions, including receipt of regulatory approvals, and are expected to close during the first half of 2017.
The crude oil gathering system is located in the northern portion of the Delaware Basin and is supported by substantial acreage dedications from several producers active in this portion of the Delaware Basin.
“The Permian Basin is a world class resource play and we are pleased to announce this strategic acquisition, which complements our existing assets that provide transportation and related services throughout the Permian Basin,” said Greg Armstrong, Chairman and CEO of PAA. “The Northern Delaware Basin is an area that is experiencing increased activity levels and significant industry investment. We expect aggregate crude oil production on the dedicated acreage to double over the next two to three years, and we believe that overall Permian Basin crude oil volumes have the potential to grow as much as 50% or more during this same time period. Additionally, we expect to realize meaningful synergies with our existing assets and generate attractive investment returns relative to our cost of capital.”
Armstrong also stated that this system and planned enhancements will provide additional flexibility and a greater range of options for area producers, including connectivity to PAA’s pipelines with access to markets in Cushing, Houston and Corpus Christi. PAA recently announced it was expanding the capacity on its Cactus pipeline from McCamey to Gardendale, Texas to approximately 390,000 barrels per day. This expansion is anticipated to be completed in the third quarter of 2017 and will allow PAA to move increasing production volumes from the Permian Basin to Corpus Christi and other delivery points along the system. Additionally, BridgeTex Pipeline Company, LLC, in which PAA owns a 50% interest, yesterday announced it was expanding the capacity on the BridgeTex pipeline from Colorado City to Houston, Texas to approximately 400,000 barrels per day. This expansion is anticipated to be completed in the second quarter of 2017 and will also move increasing production volumes from the Permian Basin to the Houston Gulf Coast area.
Financial Related Updates:
In November 2016, PAA furnished preliminary guidance for 2017 Adjusted EBITDA of +/- $2.3 billion and estimated that its 2017 expansion capital program would be in the $500 million to $700 million range. In connection with the release of 2016 full year and fourth quarter financial results in February, management currently expects to furnish updated 2017 Adjusted EBITDA guidance in-line with or slightly above the preliminary guidance, which outlook will incorporate the impact of completed and pending asset sales as well as the pending acquisition.
Additionally, PAA currently expects its 2017 expansion capital program will be approximately $800 million, which incorporates capital expenditures to integrate and enhance the performance of the assets to be acquired and additional Permian Basin related expenditures consistent with its stronger short-term production outlook.
PAA also stated it expects to report 2016 fourth quarter Adjusted EBITDA near the midpoint of the $569 million to $619 million guidance range furnished during its third quarter 2016 earnings conference call. Expansion capital expenditures for 2016 are expected to be approximately $1.4 billion.
PAA reiterated its commitment to investment grade credit metrics, noting it is continuing to advance an asset sale program that currently totals slightly more than $1.2 billion. Such program includes the transactions announced today and the previously announced agreement to sell its Northern California terminals, which collectively total $670 million as well as $550 million of asset sales initiated and completed during 2016.
PAA ended 2016 with long-term debt of approximately $10.125 billion, which represents a decrease of $250 million from the balance at December 31, 2015, despite assuming $642 million of debt in connection with the elimination of PAA’s incentive distribution rights in late 2016. At December 31, 2016, PAA had $2.4 billion of available liquidity.
PAA stated that since September 30, 2016, it had raised $706 million pursuant to PAA and PAGP’s continuous equity offering programs, bringing the total equity proceeds raised since August 2016 to $995 million. PAA plans to fund the Permian Basin acquisition and its 2017 expansion capital program with the proceeds from 2017 asset sales and additional common equity issuances as well as retained cash flow. As a result, PAA intends to end 2017 with a long-term debt balance at or below the year-end 2016 level and to enter 2018 with an Adjusted EBITDA run rate above PAA’s 2017 level. PAA’s outlook takes into consideration the completion of certain of PAA’s fee-based expansion projects, increases in minimum volume commitments under existing contracts and anticipated volume increases across its Permian Basin assets.
Additional information with respect to acquisition and sales agreements:
Permian Basin Crude Oil Gathering System – PAA has executed definitive agreements to acquire 100% of the equity interests of Alpha Holding Company, LLC, which indirectly owns the Alpha Crude Connector (ACC) gathering system located in the Northern Delaware Basin. In exchange for their equity interests, ACC’s owners (Concho Resources Inc. (NYSE:CXO) and Frontier Midstream Solutions, LLC) will receive total consideration of $1.215 billion, subject to customary closing adjustments. The ACC gathering system is a newly constructed system located in Lea and Eddy counties, New Mexico that also extends into Loving, Winkler and Culberson counties, Texas. The system is located in the most prolific portions of the Northern Delaware Basin and is supported by acreage dedications covering approximately 315,000 gross acres, the majority of which have 10-year terms, and include a significant acreage dedication from Concho Resources, one of the largest Permian Basin producers. In addition, a large area of mutual interest agreement with Concho Resources spans the area immediately around the gathering system.
The ACC system is comprised of 515 miles of gathering and transmission lines and five market interconnects, including PAA’s Basin Pipeline system at Wink. Following closing, PAA intends to make three additional interconnects to PAA’s existing Northern Delaware Basin system as well as additional enhancements intended to increase the system capacity to approximately 350,000 barrels per day, depending on the level of volume at each delivery point. Such enhancements are designed to provide additional flexibility for producers and accommodate anticipated volume growth from current and future acreage dedications.
The ACC system was placed in initial service in late 2015 with multiple new well connections made throughout 2016. Fourth quarter 2016 gathering volumes averaged approximately 70,000 barrels per day and shipper nominations for January 2017 totaled approximately 85,000 barrels per day.
In connection with the ACC acquisition, Jefferies LLC acted as PAA’s financial advisor, and Norton Rose Fulbright served as PAA’s legal advisor.
Non-Core Asset Sale Transactions – PAA executed definitive agreements to sell two non-core assets for aggregate proceeds of approximately $310 million. Such transactions include the Bluewater gas storage facility in Michigan and a non-core pipeline segment located in the Midwestern United States.
Strategic Partnership – On January 18, 2017, PAA completed the sale of an undivided 40% interest in a segment of the Red River Pipeline to a subsidiary of Valero Energy Partners LP for approximately $70 million. The undivided interest conveyed represents 60,000 barrels per day on the segment of the pipeline extending from Cushing, Oklahoma to Hewitt, Oklahoma near Valero’s refinery in Ardmore, Oklahoma (the “Hewitt Segment”). PAA retained an undivided 60% interest in the Hewitt Segment and a 100% interest in the remaining portion of the pipeline that extends from Ardmore to Longview, Texas, where it connects with various pipelines, including PAA’s newly constructed Caddo pipeline that extends to refinery markets in Northern Louisiana.
Supplemental Slide Presentation
A slide presentation supplementing this press release is posted on our website at www.plainsallamerican.com under the “Investor Relations” sections of the website (Navigate to: Investor Relations/ either “PAA” or “PAGP”/ News & Events/ Conference Calls).