Deeper Look At RBN Energy's Post On The Permian's Alpha Crude Connector Pipeline -- Bakken Thoughts -- January 25, 2017

From RBN Energy: an analysis of Plains All American's Alpha Crude Connector (ACC) deal. 

Plains All American Pipeline

• to acquire Alpha Crude Connector (ACC)
• ACC
• extensive, FERC-regulated crude oil gathering system in the Permian's Delaware Basin
• $1.215 billion
• RBN Energy: right-place / right-time; addresses a fast-growing need for pipeline capacity across an under-served area
• when you read that line, think Bakken, Keystone XL, and DAPL
• ACC  has multiple connections: flexibility -- Midland, the Gulf Coast, Cushing

Background: a review of the Permian Basin production trends

• elsewhere, lower crude oil prices have resulted in lower production
• not so in the Permian: rising production
• particularly good: the Permian's 10,000-square-mile Delaware Basin sub-region, and particularly the northern Delaware
• improving technology wringing remarkable volumes of crude from Bone Springs, Avalon, Leonard, and Wolfcamp
• break-even costs have dropped from $60/bbl in 2013 to $30/bbl
• Permian is now the best return on investment anywhere in the US
• will continue, but assume takeaway capacity keeps up

Enter ACC

• RBN Energy map at the link
• runs through the heart of the northern Delaware in southeastern New Mexico and West Texas
• vast majority of the pipeline is in Lea and Eddy counties (southeastern corner of New Mexico
• also in northern Culberson (no typo) County, TX
• a mainline from southwestern Lea County through northeastern Loving County (TX) to the Wink area in central Winkler County (TX)
• various elements of of ACC came on-line between late 2015 and late 2016 (really, really recent)
• promoters/developers: Frontier Energy Services (Energy Spectrum), 50%; Concho Resources , 50%
• Concho's net investment: $130 million; total investment estimated to be $260 million

Valuation of ACC (from $260 million to $1.215 billion)

• huge amount of time and scrutiny by federal government
• much of the pathway is through BLM land
• this was a huge, huge deal; think how Keystone XL and DAPL played out in comparison

Storage rates

• Frontier got creative with its storage rates; 
• ACC installed 320 Mbbls of storage; received FERC approval to sell storage service to shippers at market-based rates; normally FERC services have pre-defined fixed rates, so this market-based crude storage is a relatively unusually approach amongst ACC's peers

Gravity bank (gravity refers to API rating of oil)

• Frontier also implemented the first "gravity bank" that RBN Energy is aware of in the Permian
• like most crude basins, crude quality in the Delaware Basin varies from one zone to another and from one field to another
• generally, refineries and crude pipelines seeks crude that has an API gravity of less than 45 degrees
• generally, refineries impose penalties for lower-quality crude oil, but do not reward for high- -quality crude oil; WTI is 39 degrees; 
• Frontier changes all that: penalties/rewards directly to the shippers; no profit to the pipeline
• as far as RBN Energy knows, ACC is the only pipeline in the Permian that uses a gravity bank

Optionality for shippers

• ACC notable for being able to offer shippers optionality (as you read that, think the Bakken: CBR, Hiland, DAPL, Keystone
• right now, too much takeaway capacity in the Permian
• ACC makes up for that excess capacity by being able to ship almost anywhere:
• Plains' 450 Mb/d Basin Pipeline from Wink, TX
• Sunoco Logistics Partners' 150 Mb/d pipeline from Lea County, NM
• Enterprise Products Partners' 100 Mb/d pipeline from Hobbs, NM
• from Midland, there are pipelines to Cushing, OK; Houston, and Nederland, TX
• also offers two major refineries int he region: HollyFrontier's 120 Mb/d refinery in Eddy County, NM and Western Refining's 200 Mb/d refinery in El Paso, TX 
• also to Genesis Energy's Wink rail terminal