Plains All American Pipeline LP agreed to acquire a large-scale crude oil gathering system in the Permian Basin for $1.22 billion and announced separate asset divestitures worth $380 million.
Under the deal, Plains would buy the Concho Resources Inc./Frontier Midstream Solutions LLC joint venture Alpha Holding Co. LLC, which indirectly owns the Alpha Crude Connector gathering system, a newly built system in the northern Delaware Basin running from Lea and Eddy counties in New Mexico, into Loving, Winkler and Culberson counties in Texas.
The system, made up of 515 miles of gathering and transmission lines and five market interconnects, is underpinned by 315,000 gross acres of long-term acreage dedications, including a 10-year dedication from Concho, which will be retained after the deal closes.
The Alpha Crude Connector was placed in initial service in late 2015 and garnered average gathering volumes of about 70,000 barrels per day as of the fourth quarter of 2016. The system is also surrounded by an area of mutual interest agreement with Concho Resources.
The acquisition and planned development of the system are expected to provide flexibility and more options for area producers, such as connectivity to Plains' pipelines with access to Cushing, Okla., and the Houston and Corpus Christi markets, according to a Jan. 24 Plains news release.
Also in line with this plan are two recently announced pipeline expansions: the Cactus pipeline, to be completed in the third quarter of 2017, and the BridgeTex pipeline co-owned with Magellan Midstream Partners LP, expected for completion in the second quarter.
After deal closing, Plains plans to build three more interconnects to its northern Delaware system and expand its capacity to about 350,000 bbl/d, depending on volumes at each delivery point.
"The northern Delaware Basin is an area that is experiencing increased activity levels and significant industry investment. We expect aggregate crude oil production on the dedicated acreage to double over the next two to three years, and we believe that overall Permian Basin crude oil volumes have the potential to grow as much as 50% or more during this same time period," said Greg Armstrong, chairman and CEO of Plains.
The deal is expected to close in the first half of 2017. Jefferies LLC acted as the financial adviser for Plains and Norton Rose Fulbright served as the partnership's legal adviser. Simmons & Co. International, Energy Specialists of Piper Jaffray, served as financial adviser to Concho, with Vinson & Elkins as legal adviser.
In two separate transactions, Plains also agreed to sell off noncore assets for about $310 million. The assets include the Bluewater gas storage facility in Michigan and a pipeline segment in the Midwest, Plains said.
Plains also counted in the $380 million tally its recently closed divestiture of an undivided 40% stake in a segment of the Red River pipeline in Oklahoma to a Valero Energy Partners LP subsidiary for about $70 million.