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Cactus II pipeline from Permian to Gulf to start partial service by mid-August

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Cactus II pipeline from Permian to Gulf to start partial service by mid-August

Partial commercial service on the Cactus II crude oil pipeline from West Texas to the Gulf Coast will begin by Aug. 17, Plains All American Pipeline LP CEO and director Wilfred Chiang announced Aug. 6.

"The pipeline is mechanically complete from Wink to [Ingleside, Texas] and we're currently performing commissioning and line fill activities. As of today, the line is approximately 50% filled with crude," he said during the midstream company's second-quarter earnings conference call.

Chiang added that the 585,000-barrel-per-day pipeline, a joint venture with Western Midstream Partners LP, will begin deliveries to its delivery point in Corpus Christi, Texas, in the first quarter of 2020.

The CEO acknowledged that as projects such as Cactus II come online to alleviate transportation bottlenecks out of the Permian Basin, Plains will lose the advantage that wide oil price spreads provided for its supply and logistics segment, which recorded adjusted EBITDA of $200 million compared to a $26 million loss during the second quarter of 2018.

"This year is something where the spreads have been wider, we've been able to capture opportunities there, and exactly what we said we would think will happen is happening in that as the long-haul pipes starting up in the later part of this year the arbitrage opportunities will go away," he said. "We've always said [we will see] meaningfully less [supply and logistics earnings] in 2020 and going forward."

Midstream analysts at Credit Suisse applauded the segment's "unexpected" results but wrote in an Aug. 6 note that "it's difficult to get excited about S&L beats that may go away next year."

Plains is also a partner in the joint venture Wink-to-Webster pipeline that will carry more than 1 million barrels per day of crude oil and condensate from points in Wink and Midland, Texas, to delivery points near Houston. Chiang said the pipeline, which on Aug. 5 announced the addition of Delek US Holdings Inc., Rattler Midstream LP and MPLX LP to its list of partners, expects another "undisclosed third party to announce their ownership in the project in the near future."

Plains will ultimately decrease its equity ownership of Wink-to-Webster from 20% to 16% as a result, the CEO noted, adding that the proceeds from those and other asset sales also enabled Plains to increase its 2019 capital program by $150 million.

When it comes to putting Permian barrels on the water, COO and Executive Vice President Chris Chandler said he is not concerned that the congestion that trapped crude oil in West Texas and New Mexico will materialize further downstream.

"The carriers that we're connecting to have indicated that they will be able to support the full capacity of the pipe by the end of September," he said during the call.

Some midstream sector experts are confident that existing export facilities can accommodate the additional barrels arriving in Corpus Christi, but others are skeptical that those terminals have enough storage capacity to prevent bottlenecks and a commodity price blowout.

Plains separately on Aug. 6 reported second-quarter adjusted EBITDA of $784.0 million, an increase from $506.0 million in the prior-year period. The S&P Global Market Intelligence consensus estimate of adjusted EBITDA was $610.4 million.

Implied distributable cash flow available to common unit holders was $528.0 million, up from $268.0 million in the year-earlier quarter.