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Plains all American's Buyouts & Divestments to Drive Growth

Along with providing an updated divestiture program for 2016, Plains All American Pipeline, LP PAA announced that its indirect subsidiary, Plains Midstream Canada ULC (“PMC”), has inked an agreement with Westcoast Energy Inc., a unit of Spectra Energy SE, to acquire its Canadian NGL business for a consideration of nearly $150 million (C$200 million).

Houston, TX-based Plains All American is engaged in the transportation, storage and marketing of crude oil, refined products and liquefied petroleum gas and other natural gas-related petroleum products across North America.

Notably, the company has been pursuing divestments in order to generate proceeds that will allow it to focus better on its core areas. In 2015, the company divested non-core assets worth nearly $325 million in a transaction which is expected to close by the first quarter of 2016. In Jan 2016, the partnership announced its plans to sell $200–$400 million in non-core assets throughout the year.

In Mar 2016, the partnership completed two divestment transactions for nearly $250 million and revised its divestment target for 2016. Plains all American currently expects total 2016 asset sales between $500 million and $600 million. The company also faces substantial challenges due to volatility in commodity prices. Thus a systematic divestment strategy and a favorable liquidity position should ease the pressure to a considerable extent.

Plains All American continues to focus on expanding its midstream infrastructure which will enable the partnership to increase its scale of operations, thereby serving more customers. It plans to invest in the range of $1.4–$1.6 billion in expansion this year. The Westcoast Energy transaction covers a wide range of assets including the Empress NGL extraction and fractionation facility, the PTC transmission pipeline, 7 NGL terminals and 2 NGL storage facilities in Western Canada. These include 2.4 billion cubic feet per day and 63,000 barrels per day of fractionation capacity at Empress as well as 4.7 million barrels of NGL storage capacity.

This acquisition will not only boost PMC’s operating efficiency, but is also expected to be a strategic fit with the company’s existing core Canadian NGL midstream operations, thereby ensuring long-term profitability.

The transaction is expected to close in the second quarter of the year, subject to regulatory approvals.

Zacks Rank & Key Picks

Plains All American currently carries a Zacks Rank #3 (Hold).

A couple of better-ranked stocks in the same space include PBF Logistics LP PBFX and Summit Midstream Partners, LP SMLP, both carrying a Zacks Rank #2 (Buy).

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PLAINS ALL AMER (PAA): Free Stock Analysis Report
PBF LOGISTICS (PBFX): Free Stock Analysis Report
SPECTRA ENERGY (SE): Free Stock Analysis Report
SUMMIT MIDSTRM (SMLP): Free Stock Analysis Report
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