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Plains Tests Project Viability

Zacks Equity Research

Plains All American Pipeline LP(PAA) in order to check the commercial viability of its proposed new crude oil pipeline from Baker to Billings has decided to conduct an open season for committed orders for the pipeline.

The proposed pipeline will start from Plains’ Baker, Montana station and will have an initial capacity to transport 50,000 barrels per day of light sweet crude oil to Billings, Montana. The strategic location of the Billings station will allow the shippers to further move the volumes using Plains’ integrated pipelines.

Pipeline construction involves intensive capital investments and an open season verifies the ground reality for the pipeline operators. This action will give the partnership a clear indication as to the long-term demand for transporting volumes via this pipeline.

Last year, such an action allowed El Paso Corporation (:EP) to decide on the pace of development of the Marcellus Ethane Pipeline System. The results of the open season were more conservative than the company’s estimate. El Paso consequently decided to slow down the pipeline project expansion.

We believe Plains too have taken a wise decision before going ahead with its proposed pipeline. The pipeline under consideration is coming up in an area where a few oil and gas companies are currently operating. Therefore, the partnership might gain the necessary long-term commitments within the two months of window provided in the open season.

Plains All American Pipeline currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The partnership competes with Enterprise Products Partners LP (EPD) and Sunoco Logistics Partners L.P. (SXL).

Houston, Texas based Plains All American Pipeline owns assets strategically located in well-established oil producing regions, catering to major U.S. refinery and distribution markets. Other than organic growth opportunities, the partnership also relies on acquisitions to spur growth.  

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