Plains All American Pipeline (NYSE:PAA)
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5 Years : From Aug 2011 to Aug 2016
--Asset sale is second this week for Chesapeake
--Chesapeake just shy of original $11 billion sales target
--Energy companies trading assets amid boom in energy production
(Updates with details, analyst comment.)
By Ben Lefebvre and Ben Fox Rubin
Plains All American Pipeline L.P. (PAA) said it bought crude oil and condensate gathering assets in the Eagle Ford area of South Texas from Chesapeake Energy Corp. (CHK) for $125 million, expanding the pipeline company's stake in a growing energy region.
The deal marks the second deal Chesapeake inked this week, after the natural-gas producer agreed to sell a substantial majority of its remaining midstream assets for about $2.16 billion in cash to Access Midstream Partners L.P. (ACMP). The sales bring Chesapeake closer to its minimum target of $11.4 billion in total asset sales for 2012 and will help the debt-plagued gas and oil driller to receive financing, said Morningstar analyst Mark Hanson.
Assuming the deal closes this month, Chesapeake will finish the year with about $10.8 billion in proceeds from asset sales, with an additional $425 million worth of deals expected to close in the first quarter of 2013. The Oklahoma City company holds about $10.8 billion of debt on its balance sheet as it makes an expensive shift to oil drilling after natural-gas prices remain and at low levels.
"It does help somewhat that they got this deal done," Mr. Hanson said of Chesapeake. "If they hadn't sold this week, they still could have secured financing, just at maybe a higher price interest-wise."
Plains, Chesapeake and other U.S. energy companies are making radical changes to their assets as a technology-driven drilling boom has unleashed oil and gas supplies in disparate regions. Producers are having to deploy drills to North Dakota, south Texas and the northeast to develop new wells while pipeline companies have to mix-and-match new and existing lines to bring the bounty to market.
The assets Plains All American is acquiring included about 40 miles of crude oil/condensate gathering pipelines with a throughput capacity of about 50,000 barrels a day. The deal also includes 150,000 barrels of existing crude oil and condensate storage capacity and 300,000 barrels of storage capacity under construction, and a truck unloading terminal.
Plains said the acquired assets complement and will connect to its existing crude oil and condensate gathering systems. The company earlier this month agreed to buy five crude-oil rail terminals from U.S. Development Group for $500 million as Plains looks to expand its nationwide rail network. The deal includes three crude-oil rail loading terminals in the Eagle Ford, Bakken and Niobrara producing regions.
Plains, which transports, stores and sells oil and natural gas, receives fees for many of its services, so it is less affected by the volatility of oil and gas prices. The partnership also holds a 48% stake in PAA Natural Gas Storage L.P. (PNG), the company's gas-storage spinoff.
The company said it currently owns about 18,000 miles of liquids pipelines, 120 million barrels of liquids storage capacity and handles more than 3 million barrels of physical product on a daily basis.
Plains shares traded at $45.10, down 0.1%. Chesapeake's shares were $16.91, down 0.2%.
Write to Ben Lefebvre at firstname.lastname@example.org and Ben Fox Rubin at email@example.com
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