PAA View of the U.S. Oil & Gas Sector

[dan_s]

I am working on the Plains All American Pipeline LP (PAA) profile today and I thought you would find their view of the market conditions interesting. Note that their focus is on the midstream business opportunities. We should publish the updated profile on PAA late today. - Dan

• First, the underlying supply & demand imbalance is self-correcting and for a variety of reasons, PAA thinks it will see a recovery in oil prices and an associated pick-up in drilling activity within the next 12 to 24 months.
• Second, the large North American resource base remains intact and will be developed. At reduced activity levels the overall production curve will shirt to the right, peak production levels will be reduced and the time period required to produce the resource base will be extended.
• Third, as a result of recent developments, barriers to entry for a number of midstream activities have increased – capital is less widely available and certainly more expensive.
• Fourth, operating and commercial expertise and synergies will be more relevant and fundamentally and financially sound business builders should benefit in the resulting environment – at least for a while.

In summary, although challenging in the near term, PAA believes this environment is a healthy one for the Company over the long-term. PAA has a strong balance sheet and liquidity position and an integrated business model and asset base. It is worth noting that PAA is building pipeline and terminal assets at strategic locations that interconnect with its existing asset base and that have very long, useful lives, in many cases as much as 70 years or more. Accordingly, as long as the Company’s ultimate assessment of the resource base and the commodity price environment required to develop these resources is directionally on point, PAA can afford to be wide of the mark regarding production volumes for the first 12, 18 or even 24 months without materially impacting PAA’s long-term business or its overall economic returns on such capital investments. As a result, PAA is well positioned to continue developing its business platform via organic growth projects and to pursue complementary acquisitions.

BTW PAA expects to increase their distributions to unitholders by 7% this year.