Plains All American Pipeline LP (NYSE:PAA) has entered into definitive agreements to acquire a Permian Basin crude oil gathering system for approximately $1.2 billion. PAA also announced it had entered into definitive sales agreements totaling $380 million, which includes two pending transactions aggregating approximately $310 million and the completion of a third transaction in January 2017 for approximately $70 million.
Permian Basin acquisition
Concho Resources Inc. (NYSE: CXO) and Frontier Midstream Solutions LLC entered into separate agreements with Plains All American Pipeline LP to sell 100% of their respective ownership interests of Alpha Holding Company LLC, the owner of the Alpha Crude Connector system (ACC).
In 2014, Concho and Frontier formed the ACC joint venture to construct a crude oil transportation system in the northern Delaware Basin. Concho owns 50% of the joint venture with an option to purchase Frontier’s ownership interest at a predetermined multiple of invested capital. After adjusting for debt and working capital, Concho expects to receive net cash proceeds from the sale of approximately $800 million. As of December 31, 2016, Concho’s net investment in ACC was approximately $130 million.
ACC, which is the first large-scale crude oil gathering system in the northern Delaware Basin, includes a 515-mile gathering system as well as crude oil storage facilities, truck terminals and multiple receipt points. The pipeline system became operational in late 2015, and at that time, Concho commenced a ten-year crude oil acreage dedication and transportation agreement. After the closing of this transaction, the dedication and transportation agreement, which includes the tariff structure, will remain in place.
Plains intends to make investments on new interconnects and other enhancements to provide greater flow assurance and support the ongoing development of the northern Delaware Basin.
The acquisition and pending sale transactions are subject to customary closing conditions, including receipt of regulatory approvals, and are expected to close during the first half of 2017. Simmons & Company International, Energy Specialists of Piper Jaffray, served as exclusive financial advisor, and Vinson & Elkins served as legal advisor to Concho.
Asset sale, partnership
PAA also executed definitive agreements to sell two non-core assets for aggregate proceeds of approximately $310 million. Such transactions include the Bluewater gas storage facility in Michigan and a non-core pipeline segment located in the Midwestern US.
On January 18, 2017, PAA completed the sale of an undivided 40% interest in a segment of the Red River Pipeline to a subsidiary of Valero Energy Partners LP for approximately $70 million. The undivided interest conveyed represents 60,000 barrels per day on the segment of the pipeline extending from Cushing, Oklahoma to Hewitt, Oklahoma near Valero’s refinery in Ardmore, Oklahoma. PAA retained an undivided 60% interest in the Hewitt Segment and a 100% interest in the remaining portion of the pipeline that extends from Ardmore to Longview, Texas, where it connects with various pipelines, including PAA’s newly constructed Caddo pipeline that extends to refinery markets in Northern Louisiana.