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Phillips 66 Creates 2 JVs for Liberty & Red Oak Pipelines

Zacks Equity Research

Phillips 66 PSX recently announced that it has formed separate joint ventures (JVs) with Bridger Pipeline LLC and Plains All American Pipeline, L.P. PAA to create two pipelines in key shale plays.

Liberty Pipeline

Phillips 66 formed a 50-50 JV with Bridger Pipeline LLC, namely Liberty Pipeline LLC, which will build the 24-inch Liberty Pipeline. The pipeline is designed to provide crude oil shipping services from shale production sites in the Rockies and Bakken regions to Cushing, OK. The Liberty Pipeline, which is backed by long-term volume commitments, is expected to help producers or clients to reach several Gulf Coast markets in Corpus Christi, Ingleside and Houston, TX. The pipeline is expected to come online in first-quarter 2021.

The $1.6-billion Liberty Pipeline project will be constructed and operated by Phillips 66. It will be part of the company’s integrated infrastructure network, thereby allowing producers to use the existing pipelines and utility corridors. Notably, in the future, the JV is anticipated to hold a supplemental binding open season for additional shipping commitments.

Red Oak Pipeline

The midstream giant also created a 50-50 JV with Plains All American, namely Red Oak Pipeline LLC, to build the Red Oak Pipeline system. This pipeline will connect producers in Cushing and the Permian Basin with the markets in Corpus Christi, Ingleside, Houston, and Beaumont of Texas. Given dearth of takeaway capacity haunting producers in the Permian Basin for the last few quarters, the Red Oak Pipeline system is expected to serve as an oasis.

Notably, the $2.5-billion Red Oak Pipeline project is backed by long-term volume commitments and expected to start operation in the March quarter of 2021. The JV is expected to lease capacity in Plains All American’s Sunrise Pipeline system. It will build a 30-inch new pipeline from Cushing to Wichita Falls and Sealy, TX. From Sealy, it will create another 30-inch pipeline segment connecting Corpus Christi and Ingleside, as well as a 20-inch pipeline segment to Beaumont and Houston.

While the project will be constructed by Plains All American, it will be operated by Phillips 66. The JV is expected to hold a supplemental binding open season for additional shipping commitments.

The creation of these two JVs is in line with the company’s long-term strategy of growing the midstream business via projects that will generate stable fee-based revenues. Notably, the Midstream Segment of the company generated adjusted quarterly earnings of $316 million in first-quarter 2019, up from $280 million in the year-ago period on increased contributions from pipeline transportation businesses.

Price Performance

Phillips 66 has lost 0.3% year to date compared with 14.3% collective decline of the industry it belongs to.

Zacks Rank & Stocks to Consider

Currently, Phillips 66 carries a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are TOTAL S.A. TOT and Chevron Corporation CVX, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

TOTAL’s earnings growth is projected at 6.9% through 2019.

Chevron’s second-quarter 2019 earnings growth is projected at 14.6%.

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Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report
 
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