Rising production benefits midstream MLPs in the Permian Basin (Part 3 of 8)
SXL’s Permian assets
Sunoco Logistics Partners L.P. (SXL) is a master limited partnership (or MLP). Its Crude Oil Pipelines segment transport 4,900 miles of crude oil, primarily in Oklahoma and Texas, and 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.
SXL’s capex in the Permian
In 2013, Sunoco Logistics Partners (SXL) invested $965 million in organic growth capital projects. These included investment in crude oil infrastructure by increasing pipeline capabilities through expansion capital projects in Texas and Oklahoma. In 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 company’s largest segment, accounting for 44% of SXL’s 1Q14 adjusted EBITDA.
Why SXL has significant plans for the Permian
The Permian Basin is a significant oil producing area that has come up 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 to 400 miles of new crude oil pipelines, with origins in multiple locations in West Texas. The Permian 1 Express 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, the Permian Express 2 is expected to deliver to multiple refiners and markets beginning in the second quarter 2015. The pipelines have fee-based income that provides stability to the company’s earnings from the typical volatility of commodity prices.
SXL management’s views on the company’s Permian operations
Michael J. Hennigan, the president and the CEO of SXL, said in the company’s 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.”
Midstream Permian companies
The midstream energy companies that engage in the transportation and logistics of crude oil and natural gas have been very active for the past five years as a result of increasing production in the Permian Basin. The master limited partnerships in the midstream space that have benefited the most from the shale boom include Enterprise Products Partners LP (EPD), Sunoco Logistics Partners LP (SXL), Magellan Midstream Partners (MMP), and Energy Transfer Partners (ETP). These are components of the Alerian MLP ETF (AMLP).
Browse this series on Market Realist:
- Part 1 - Why oil and natural gas production in the Permian should increase
- Part 2 - Rising production is good for midstream companies in the Permian
- Part 4 - Enterprise Products Partners plans to increase Permian capacity
- Oil, Gas, & Consumable Fuels
- Investment & Company Information
- Permian Basin