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Plains All American Expects 10% Increase in the Permian Oilfield Activity09/01/2022
On August 3 the pipeline operator Plains All American LP raised its 2022 profit forecast for the second time this year, as it expects a huge demand on its pipelines transporting U.S. shale oil to the Gulf Coast.
The company increased full-year adjusted earnings guidance by $100 million to approximately $2.38 billion, since it anticipates higher crude and natural gas liquids volumes.
U.S. crude oil has been in high demand in international markets with WTI crude trading at a discount to internationally-traded Brent crude, making acquisitions appealing to foreign buyers.
European buyers have snapped up the U.S. light sweet crude, the largest part of which is delivered in the Permian Basin of West Texas and New Mexico, as they depend on replacing Russian barrels.
The marginal demand today is the international market as Plains is convinced that is why prices at the Corpus Christi, Texas, export hub are selling at a premium to Houston and other export ports. The company considers that Corpus Christi is the best place with low inventories and high prices.
Plains has two crucial long-haul pipelines, Cactus and Cactus II, which deliver oil from the Permian basin to Corpus Christi. Plains CEO Willie Chiang anticipates achieving more volumes to get to its long-haul pipelines as capacity in the Permian basin increases.
Average daily crude oil volumes in the second quarter grew 30% on its Permian Basin pipelines with oilfield activity trending about 10% exceeding its initial expectations. Its shares increased 3.6% in after-hours trading on August 3 to $11.19.
Moreover, the larger pipeline rival Magellan Midstream Partners LP gave a similar view last week, saying Permian volumes on its Longhorn and BridgeTex pipelines to Houston decreased as shippers likely transported barrels to the international market. Plains’ adjusted second-quarter net income allotted to common unitholders increased 29% to $210 million.
Plains All American’s transportation assets primarily generate revenue through a combination of tariffs, pipeline capacity agreements, and other transportation fees. Its facilities assets generate revenue through a combination of month-to-month and multi-year agreements and arrangements which include storage, throughput, and loading/unloading fees at its crude oil facilities, and fees from condensate processing services. Also, it generates revenue through the commercial and merchant activities that supply volumes to the transportation and storage assets, although such activities are generally low margin.
Plains employed a variety of owned or, to a much lesser extent, leased long-term physical transportation and facilities assets throughout the United States and Canada in this segment, including approximately: 18,300 miles of active crude oil pipelines and gathering systems; 74 million barrels of commercial crude oil storage capacity at the terminalling and storage locations; 38 million barrels of active, above-ground tank capacity used to facilitate pipeline throughput and help maintain product quality segregation.
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According to a midstream oil and natural gas company release on August 2, MPLXLP has increased total pipeline throughputs by 6% in the second quarter of 2022 and terminal throughput by 4%, versus year-ago levels. In an earnings statement of MPLX, the total pipeline throughputs were 5.9 million bbl/d, with terminal throughput of 3.1 million bbl/d for the second quarter. The company reported a net income of $875 million and adjusted earnings of $1.457 million in the second quarter, both higher than in the same period of 2021. Gathered volumes grew up by 11% from year-ago levels to an average of 5.6 Bcf/d. In the Marcellusregion, gathered volumes fell 1% compared to year-ago levels to an average of 1.3 Bcf/d. MPLX is expanding several projects, including in the Permian Basin where the Whistler pipeline is increasing from 2 Bcf/d to 2.5 Bcf/d, in addition to lateral pipelines into the Midland Basin and Corpus Christi domestic and export markets. Moreover, the construction is also maintained on the 200 MMcf/d Tornado ll processing plant, which MPLX anticipates coming online in the second half of 2022. Additionally, 68,000 bbl/d Smithburg de-ethanizer project in the Marcellus is expected to come online in the third quarter.
Export Opportunities For Permian’s and Takeaway Problem
It is important to notice that the number of drillings trended in June and fell in August 2022 and gradually decrease over the last 6 weeks.
On August 31 Ring Energy Inc. purchased privately-held Stronghold Energy, adding operations that are mainly situated in Crane County, Texas, in the Permian Basin’s Central Basin Platform. According to a September 1 Ring Energy release, this transaction fully complements the conventional-focused Central Basin Platform and Northwest Shelf asset positions in the Permian Basin. The majority owned by Warburg Pincus LLC, Stronghold’s operations are concentrated on the development of about 37,000 net acres situated mainly in Crane County. In July Ring Energy entered into an agreement to buy Stronghold Energy II Operating LLC and Stronghold Energy II Royalties LP for $200 million in cash at closing and $230 million in Ring equity based on a 20-day volume weighted average price. Consideration also involved a $15 million deferred cash payment due six months after closing and $20 million of existing Stronghold hedge liability increasing the total transaction value to $465 million. Stronghold’s asset base is almost 99% operated, 99% working interest, and 99% HBP. In July, Ring announced the current net production of Stronghold’s asset base was approximately 9,100 boe/d (54% oil, 75% liquids).
Shareholder’s payout target was increased by 50% after the largest U.S. independent oil producer surpassed Wall Street’s earnings estimates on growing energy prices, said Houston-based Conoco Phillips Co. on Aug. 4. Due to Western sanctions on major producer Russia throttling energy supply amid a rebound in demand from pandemic lows, oil and gas #prices have soared. Crude has been trading more than 25% higher since the start of the year and results also benefited from high natural gas prices. Meanwhile, shares were down a fraction, to $91.03, in early trading but are up about 26% year to date. Conoco Phillips stated, that the average price obtained for a barrel of oil and gas accelerated 77% from a year earlier to $88.57. The company acknowledges that it has not hedged any of its oil and gas sales to make the most of higher market prices. The capacity of 1.69 million boe/d was in line with Wall Street estimates, however, the company expected the current quarter’s output would be between 1.71 million and 1.76 million boe/d.