Why crude oil supply projects will fuel Sunoco growth

Market Realist

Must-know: Analysis of Sunoco Logistics' first quarter earnings (Part 5 of 8)

(Continued from Part 4)

In 2013, Sunoco Logistics Partners (SXL) invested $965 million in organic growth capital projects. It invested in crude oil infrastructure by increasing pipeline capabilities through expansion capital projects in Texas and Oklahoma; refined products acquisition and marketing services projects; upgraded the service capabilities at the Eagle Point and Nederland terminals; and invested in the Mariner and Allegheny Access projects. During 2014, SXL expect to increase investment in expansion capital expenditures by more than 80% to at least $1.7 billion.

Sunoco Logistics’ crude oil pipelines segment is the largest segment of the company, accounting for 44% of SXL’s 1Q14 adjusted EBITDA. The pipeline business is pivotal to SXL because it operates at some of the most important trading hubs in the United States. It connects the largest trading hub for crude oil in the United States, located in Cushing, Oklahoma, as well as other trading hubs located in Midland, Colorado City, and Longview, Texas. The crude oil pipeline business recorded $349 million of EBITDA in 2013, which was a $74 million increase from 2012. The growth was a result of expansion projects in West Texas with the Longview Access coming online and the initial start up of the Permian Express 1 project.

Projects in pipeline

Granite Wash Pipeline extension

The Granite Wash Pipeline extension project, which is a construction of a new 200-mile long pipeline, intends to transport crude oil from existing pipelines at Ringgold, Texas to Corsicana, Texas. This will enable multiple third-party producers to reach various markets and refineries on the Gulf Coast and in the middle of the U.S. The pipeline is expected to have 70,000 barrels per day of capacity. It is supposed to be operational in the third quarter of 2014.

The Eaglebine Express project

The pipeline, the construction of which was initiated during 3Q13, would convert the company’s existing MagTex refined products pipeline into crude oil services while the flows would be reversed to capture the growing production in the Eaglebine and Woodbine crude areas in East Texas. It is expected to come online by 3Q14. It would have an estimated capacity to transport approximately 60,000 barrels of crude oil per day.

Continue reading the next article in this series for a discussion on SXL’s investment and growth potential in the Permian Basin.

Sunoco Logistics Partners L.P. (SXL) is a master limited partnership (or MLP) that operates in the midstream business. The general partnership (or GP) interest of SXL is owned by Energy Transfer Partners (ETP); while the GP interest of ETP is owned by Energy Transfer Equity L.P. (ETE). Other energy players operating in the same sector as SXL include Enterprise Products Partners L.P. (EPD), Plains All American Pipeline L.P. (PAA), and Energy Transfer Partners L.P. (ETP). All of these companies are components of the Alerian MLP ETF (AMLP). ETE is a component of Global X MLP & Energy Infrastructure ETF (MLPX).

Continue to Part 6

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