Plains All American Pipeline LP's $1.2 billion acquisition of Alpha Crude Connector puts the partnership in "the best of the best" region of the Delaware Basin, CEO Greg Armstrong said Jan. 25.
During Plains' conference call discussing the deal, announced a day earlier, Armstrong said the Alpha gathering system gives the partnership strong takeaway capacity in the northern portion of the Delaware part of the Permian Basin, where there is already heavy activity.
"The system is located in one of the most prolific portions of the Permian Basin and is supported by acreage commitments covering approximately 315,000 gross acres, the majority of which have 10-year terms," he said. The deal includes "a significant acreage dedication" from seller Concho Resources Inc., a co-developer of Alpha, Armstrong noted.
Armstrong said Plains would acquire 515 miles of gathering and transmission lines and five interconnects as part of the deal but intends to add three more interconnects to its northern Delaware system, raising its capacity to about 350,000 barrels per day. "This is a dynamic system with multiple delivery points."
The northern Delaware, Armstrong said, will likely see rapid drilling growth in the near future, which will serve the Alpha pipeline well. "We believe this portion of the Delaware Basin ranks among the best of the best," he said. "We estimate there are over 5,000 potential drilling locations on the acreage currently dedicated to the Alpha systems, which represents over three decades of drilling at current rig levels."
While Plains expects drilling to boom in the area, Armstrong noted that activity in the Delaware Basin has already surged in recent months.
"The Permian rig count has more than doubled, from 137 rigs to 281 rigs, which represent over 60% of the Lower 48 onshore rig additions that occurred during [the past six months]. Nearly half of the Permian rig count increases occurred in the Delaware Basin, with the vast majority of those being comprised of horizontal rigs," Armstrong said. "We have updated our Permian Basin forecast and expect production to reach plus or minus 2.5 million barrels per day by year-end 2017, an increase of approximately 400,000 barrels per day from the 2016 exit rate of 2.1 million barrels a day."