Must-know: Why MLPs benefit from the crude oil shale boom (Part 8 of 8)
Sunoco Logistics Partners
Sunoco Logistics Partners L.P. (SXL) is a master limited partnership (or MLP). Its Crude Oil Pipelines segment transports 4,900 miles of crude oil primarily in Oklahoma and Texas. It consists of approximately 500 miles of crude oil gathering lines that supply the trunk pipelines. SXL expects to include a joint venture interest in a crude oil pipeline company in Texas, which is expected to be operational in 2015.
In 2013, Sunoco Logistics Partners (SXL) invested $965 million in organic growth capital projects. This included investing in the crude oil infrastructure by increasing pipeline capabilities through expansion capital projects in Texas and Oklahoma. During 2014, SXL expects 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 Permian Basin is a significant oil producing area that has developed during the recent surge of oil production in the U.S. In recent years, U.S. oil production has been increasing rapidly, in part due to growth in the Permian Basin, located in western Texas and eastern New Mexico. The company now estimates over 200,000 barrels per day of annual production growth to come from the Permian region.
The Permian Express 1 and 2 projects involve the construction of approximately 300–400 miles of new crude oil pipelines, with origins in multiple locations in west Texas. The Permian Express 1 is scheduled to have a capacity of pipeline throughput of 150,000 barrels per day by end of 2Q14. With an expected initial capacity of approximately 200,000 barrels per day, Permian Express 2 is expected to deliver to multiple refiners and markets beginning in the 2Q15. The pipelines have fee-based income which provides stability to the company’s earnings from typical volatility of commodity prices.
Michael J. Hennigan, the president and chief executive officer (or CEO) of SXL, said in the conference call of 1Q14 “we’re very pleased to announce the successful open season for our Permian Express 2 project, which will increase the takeaway capacity out of the Permian Basin by approximately 200,000 barrels per day, providing access to multiple markets and is expected to be operational in the second quarter of 2015. With the success of this open season and some capital spend timing updates on our previously announced projects, we’re increasing our capital guidance for 2014 by $400 million to $1.7 billion.”
The midstream oil companies that engage in the transport and logistics of crude oil have been very active for the past five years, as a result of increasing production in the U.S. The master limited partnerships in the midstream space that have benefited the most from the shale oil boom are Enterprise Products Partners L.P. (EPD), Genesis Energy L.P. (GEL), Targa Resources Partners (NGLS), and Plains All American Partners (PAA). These are components of the Alerian MLP ETF (AMLP) and the Global X MLP ETF (MLPA).
Browse this series on Market Realist:
- Part 1 - Why crude production has been increasing in the U.S.
- Part 2 - Why rising crude oil prices help production
- Part 3 - Must-know: Which has the most potential—Permian, Williston, or Eagle Ford?
- Investment & Company Information
- Permian Basin