Plains All American Pipeline, L.P. (NASDAQ: PAA) announced that the company has agreed to merge its activities within the Permian Basin into a new strategic joint venture with Oryx Midstream Holdings LLC.
Significant value on the cards: The newly formed strategic JV (Joint Venture) with Oryx Midstream will include all the Oryx Permian assets. Plains’ is expected to merge all its commercial activities in the new joint venture, except Plains’ long-haul pipeline systems, which are few of its intra-basin terminal assets. The majority of the company assets located are within the Permian Basin. As per the company, the transaction is expected to offer significant value for customers through increased connectivity, access to markets, and operational flexibility. As per the agreement, Plains will hold 65% in the Joint Venture, and Oryx Midstream will hold the remaining 35%.
Cash flow accretive: As per the transaction details, the joint venture is accretive in cash flow generations for both companies in the near term. Moreover, the entity will be debt-free. As a result, it is expected the joint venture operation will be sustainable in any reasonable price movement. The joint venture is aligned with Plains’ financial and portfolio optimizations strategies and reinforces Plains’ ability to maximize cash flow for the investors and support the overall corporate credit profile.
Joint Venture Details: The joint venture entity will have ~5,500 miles of pipeline and ~6.8 MMb/d of pipeline system multi-segment capacity. It will have direct connections to all the intra-basin and downstream markets. The joint venture at current activity levels will have around 30 years of average inventory life and a majority with a projected IRR of 25% – 50%+ at ~$50/Bbl WT. Thus, it has multiple opportunities to drive operating efficiencies, reducing environmental footprint, Greenhouse gas emissions, and overall costs of operations. Moreover, there is an upside risk to overall operational activities related to Permian production growth.