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PAA Develops Infra in Eagle Ford

Zacks Equity Research

Plains All American Pipeline L.P. (PAA) intends to invest $120 million in two projects in the Eagle Ford area, a hotbed of drilling activity now. The projects are expected to be operational in second-quarter 2015.

Per the plan, Plains All American Pipeline is developing a new natural gas liquids (“NGL”) fractionator, which will be located near the partnership’s existing assets at Gardendale in La Salle County. The facility will fractionate NGL Y-Grade as well as process and fractionate off-spec Y-Grade. These products are sourced from the partnership’s South Texas Gathering System and throughout the Eagle Ford producing region. The new asset will have the capacity to fractionate up to 15,000 barrels per day of NGL Y-Grade and off-spec Y-Grade product. Post completion, the partnership will able to transport the products to the premium markets.

In addition, Plains All American Pipeline is expanding its existing condensate stabilization facility, including Gardendale truck and rail infrastructure, in the Eagle Ford area. The partnership will also construct nearly 80,000 barrels of pressurized storage for storing Y-Grade and purity products. Further, it will add a third condensate stabilization train, with an additional condensate stabilization capacity of 40,000 barrels per day.

Mineral-rich Eagle Ford Shale is located in South Texas. According to a Railroad Commission of Texas report, total NGL production volume in the region increased 95.8% year over year to 156,702 barrels per day in 2012. Till Oct 2013, the condensate production volume was 186,719 barrels per day. We expect production level to increase in the future due to steady exploration activities in the region.

We note that exploration and development (“E&P”) companies are drilling actively in the Eagle Ford to tap its vast resources. We believe the demand for midstream operators will gradually increase in this region. Plains All American Pipeline is also in the process of installing a new infrastructure, supported by long-term third-party commitments. To cater to the increasing demand for transportation services from upstream companies, another pipeline operator Kinder Morgan Energy Partners, L.P. (KMP) announced that it will invest roughly $107 million to expand the Kinder Morgan Crude and Condensate pipeline system into the Eagle Ford Shale play in Karnes County, Texas.

It is evident from past record that Plains All American Pipeline continues to expand its asset base in Texas. On Dec 10, 2013, the partnership has announced that it will invest $0.4 - $0.5 billion in the Permian Basin, located in West Texas and Southeastern New Mexico. The timely completion of these projects will enable Plains All American Pipeline to serve more customers, thereby improving its financial performance going forward.

Plains All American currently has a Zacks Rank #3 (Hold). However, other better-ranked stocks from the same industry include Abraxas Petroleum Corp. (AXAS) and Harvest Natural Resources Inc. (HNR), each with a Zacks Rank #1 (Strong Buy).

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