HOUSTON — Plains All American said Thursday it had reached a $1.1 billion deal to buy out Occidental Petroleum Corp.’s 50 percent interest the BridgeTex pipeline connecting the Permian Basin to the Gulf Coast.
The 300,000-barrels-per-day BridgeTex line is a major artery for booming crude production in the Permian and a lifeline for Occidental Petroleum’s operations the region. The line commenced service this September and is one of several projects that midstream companies have been rushing to complete in order to move oil flowing from West Texas to refining centers and markets.
BridgeTex is one of the key infrastructure pieces that producers are hoping will provide enough capacity to close the price gap between the markets in Midland, Texas and the major hubs in Louisiana and Cushing, Oklahoma. Recently, too much oil and not enough transport capacity in Midland has meant oil has been sold at a discount in West Texas.
Occidental has been one of the companies most concerned by that trend — the Houston-based producer is the anchor shipper on the BridgeTex line and pumped an average of 77,000 barrels of oil equivalent per day in the Permian. Occidental has plans to grow its Permian production to 120,000 barrels of oil equivalent per day in 2016.
On the company’s third quarter call, Occidental’s vice president of operations said that BridgeTex’s ability to get Occidental’s oil to high-price markets was providing nearly $1 million per day in value for the producer.
The pipeline is currently owned by BridgeTex Pipeline Company LLC, which is in turn owned half by Occidental Petroleum Corp. and Tulsa, Oklahoma-based Magellan Midstream Partners. Under the newly announced deal, Plains All American will buy out Occidental’s stake for $1.075 billion while Magellan will continue to own the remaining 50 percent interest and operate the pipeline.
Magellan will also buy out Occidental’s 50 percent interest in the southern leg of the BridgeTex system along the Gulf Coast. That deal is valued at $75 million and will give Magellan 100 percent ownership of a 40-mile line running from an East Houston terminal to Texas City, Texas, as well as 1.4 million barrels of crude storage. Magellan plans to sign a long-term capacity lease for those assets with BridgeTex.
In total, Occidental estimates it will see $1.115 billion from both sales.
Plains All American already has a number of assets serving the Permian region. The 250,000-barrels-per-day Sunrise Pipeline, a Plains All American project under construction and expected to be in service by December 2014, connects to the BridgeTex line at Colorado City, Texas.
“BridgeTex represents a very attractive and strategic addition to our existing West Texas pipelines,” said Greg Armstrong, CEO of Plains All American, in a written statement. “Given recent and projected increases in Permian Basin production, we believe that BridgeTex will play an important role in providing needed takeaway capacity out of the Permian Basin.”
The deal is also contingent on a secondary offering where Occidental will sell the 55,000,000 Class A shares it holds in Plains All American’s general partner Plains GP Holdings, L.P. J.P. Morgan and Citigroup will act as joint book-running managers of that offering.
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About 80 percent of the BridgeTex pipeline is committed to long-term contracts for an average of 9.5 years, Plains All American said. Occidental is one of the largest customers for the pipeline.
Under the terms of the deal, BridgeTex Pipeline Company LLC has agreed to sell to Magellan the southern leg of its pipeline system. Magellan will then enter into a long-term lease to BridgeTex’s shippers.
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