Must-know: The market’s response to the Permian asset acquisition
Must-know: ONEOK Partners acquires Permian assets from Chevron (Part 2 of 5)
Chevron’s midstream assets
The West Texas LPG and Mesquite pipelines consist of ~2,600 miles of natural gas liquid (or NGL) gathering pipelines. The pipelines extend from the Permian Basin in southeastern New Mexico to east Texas and Mont Belvieu, Texas.
The acquisition is expected to significantly strengthen ONEOK Partners’ (OKS) presence on the Permian Basin. Currently, OKS has limited access to production in the Permian Basin.
The acquisition will also make OKS a strong contender for one of the largest midstream energy companies focused mainly on NGLs. “The partnership’s presence in the Permian Basin now is significantly stronger, and this acquisition establishes a new geographic region for natural gas liquids volume growth,” said Terry K. Spencer, OKS’s CEO.
The market’s response
Surprisingly, OKS investors were less excited about the transaction that their CVX counterparts. The day after the agreement was announced, OKS’s stock fell by ~3%. CVX’s stock went up by ~2%. Some recovery in the Brent crude price on October 28 also helped CVX stock advance.
The increase in crude oil price benefits upstream energy producers like CVX, Hess Corporation (HES), and ExxonMobil (XOM). These companies are part of the Energy Select Sector SPDR ETF (XLE). OKS is part of the Alerian MLP ETF (AMLP).
The Permian Basin is a significant part of the U.S. shale energy boom—crude oil in particular. In the next part of the series, we’ll discuss why the Permian Basin is important.
Browse this series on Market Realist:
