No stopping Texas shale boom as Permian fever spreads to pipes

The Texas flag flies at Endeavor Energy Resources's Big Dog Drilling Rig 22 in the Permian basin outside of Midland in 2014. The Permian and Bakken basins are among U.S. oil regions aided by a drilling renaissance in shale rock. CREDIT: Bloombergy photo by Brittany Sowacke)

The Permian Basin land rush is spreading to oil and gas pipelines.

Plains All American Pipeline said it will expand its crude oil gathering system in America’s hottest shale play through a $1.2 billion purchase from Concho Resources Inc. and Frontier Midstream Solutions. The Alpha Crude Connector System is located in the oil-rich northern portion of the Permian’s Delaware Basin and will serve to expand the volume that the company is able to move from West Texas to Corpus Christi and other delivery points, Plains said Tuesday.

The deal is the latest of many in the Permian, the largest and most prolific oil field in the U.S., as its crude-soaked layers of rock have delivered good returns for producers even during the market crash. On Monday, Targa Resources Corp. agreed to buy a set of pipelines in the region from Outrigger Energy for as much as $1.5 billion. The Permian’s oil production has almost doubled since 2012, while the natural gas that comes along with the crude has also turned it into the second-richest gas play in the country.

“We expect aggregate crude oil production on the dedicated acreage to double over the next two to three years,” Greg Armstrong, chairman and chief executive officer of Plains, said in the statement. “We believe overall Permian Basin crude oil volumes have the potential to grow as much as 50 percent or more during this same time period.”

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The deal is expected to close during the first half of 2017. Plains also announced the sale of unrelated assets, including a gas storage facility in Michigan and a pipeline segment in the Midwest, for $380 million.

BridgeTex Pipeline Company, in which Plains owns a 50 percent interest, said Monday it will expand its line from Colorado City, Texas, to Houston to help transport approximately 400,000 barrels a day.

Concho Resources sees net cash proceeds of about $800 million from the sale. The driller plans to use the proceeds to “redeploy capital into our drilling program, fund future acquisitions and reduce long-term debt,” Tim Leach, Concho’s chairman, CEO and president, said in a statement.

Moody’s placed Plains All American’s Baa3 rating under review for downgrade after the deal was announced. The $1.2 billion acquisition will be significantly funded by debt initially, resulting in continued high leverage, according to Moody’s. Fitch Ratings views the acquisition as neutral, maintaining a BBB rating with a negative outlook.

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Jefferies Group and Norton Rose Fulbright advised Plains All American on the deal. Simmons & Co., a division of Piper Jaffray Cos, and Vinson & Elkins advised the sellers.

Plains fell 16 cents or 0.5 percent percent to $31.99 at 10:32 a.m. in New York. Concho Resources rose as much as 4 percent to its highest since Dec. 12.