The joint venture between midstream operators Sunoco and Energy Transfer’s crude gathering in the Permian Basin should prove mutually beneficial, analysts say. (Source: Shutterstock/ Energy Transfer)
The day after closing a $3.18 billion acquisition of WTG Midstream Holdings, Energy Transfer (ET) added another piece to its Permian Basin footprint in a joint venture agreement with Sunoco.
The agreement, unveiled by the companies on July 15, combines the companies’ Permian crude gathering assets, including ET adding its produced water assets.
The JV allows Energy Transfer to drive more products to its network while expanding Sunoco’s operational experience, Ajay Bakshani, director of analytics at East Daley Analytics, told Hart Energy via email. Sunoco is an affiliate of Energy Transfer.
“Sunoco’s (SUN) contribution to the JV is primarily via its NuStar (NS) acquisition,” Bakshani said.
In May, Sunoco closed the acquisition of NuStar for $7.3 billion. NuStar owned a gathering system with a capacity near 550,000 bbl/d in the Midland Basin, which generated about $250 million in EBITDA annually, according to East Daley.
Sunoco, which has traditionally functioned as a fuel distribution company, can lean on ET’s midstream experience in the region.
“After the NuStar acquisition was announced, many in the market were wondering if the next step would be for Sunoco to contribute some of the crude oil pipeline assets of NuStar to Energy Transfer,” CBRE analyst Hines Howard told Hart Energy. “Instead, this joint venture situation seems to effectively transfer operatorship of the assets to Energy Transfer without having Energy Transfer acquire them outright.”
Under the JV, which has an effective date of July 1, Energy Transfer holds a 67.5% interest in the partnership while Sunoco has a 32.5% interest. ET will operate the network.
Energy Transfer benefits from adding a strong gathering system from the Midland Basin to its profile, although the company may have some difficulty adding the volumes from its new gathering system onto its crude pipelines that ship out of the region.
“Although it is harder to vertically integrate and push gathering volumes onto a company’s long-haul pipelines for crude than it is for NGLs, those opportunities still exist,” Bakshani said, noting that other midstream companies have been able to do so. “We have seen Plains (PAA) [Plains All American] do this with their Oryx JV: the increased strength in Permian crude gathering has kept their Permian-TX Gulf Coast pipelines relatively full.”
In 2021, PAA and Oryx Midstream created a JV that merged most of the companies’ Permian assets.
Sunoco did not have any egress pipelines in its Permian network, and Energy Transfer did not include its long-haul systems in the JV. Bakshani said that the NuStar system delivers into the egress lines of several ET competitors.
With the Sunoco partnership, ET may drive more of the crude volumes onto its West Texas Gulf or Permian Express pipelines, thereby increasing its EBITDA.
Energy Transfer currently owns 1.3 MMbbl/d of Permian Basin crude egress capacity, about 16% of the total.
Recommended Reading
CEO: FireBird II Prowls Western Midland Basin for M&A, Deep Exploration
2024-05-23 - After selling the first FireBird Energy to Diamondback for $1.6 billion, the FireBird II team is adding leases and scaling oil production in the western Midland Basin, CEO Travis Thompson said at Hart Energy’s SUPER DUG Conference & Expo.
Occidental Explores Sale of Permian Assets Worth Over $1B, Sources Say
2024-05-03 - Occidental Petroleum is exploring a sale of assets in the Barilla Draw region of Texas, which is located within the Delaware portion of the Permian Basin.
Permian M&A: Oxy Shops Delaware Assets, Family Oil Cos. Stand Out
2024-05-10 - As operators scour the Permian Basin for M&A opportunities, they’re keeping an eye on a tepid divestiture market. Family-owned oil companies also stand out among the pack of private inventory holders remaining in the Permian, according to Enverus Intelligence Research.
Multi-basin Mayhem: Conoco, Marathon Tout Eagle Ford, Bakken Runway
2024-05-31 - ConocoPhillips and Marathon Oil—which both trace their roots to the breakup of John D. Rockefeller’s Standard Oil Trust more than a century ago—are combining in a $22.5 billion deal.
Permian Pulse: Franklin Mountain Stands Out Among Delaware M&A Targets
2024-06-04 - Franklin Mountain was a relative nobody when the company bid for Delaware Basin acreage in a 2018 BLM auction. Today, it’s one of the largest private U.S. oil producers and a major target for acquisition.