Plains All American Pipeline has agreed to buy five crude oil rail terminals, including one in South Texas, as the nation’s oil production continues to expand faster than its pipeline capacity, the company announced Wednesday.
In a $500 million deal with Houston-based U.S. Development Group, Plains will purchase crude oil rail loading terminals in three of the nation’s most active shale plays – the Eagle Ford in South Texas, the Bakken in North Dakota, and the Niobrara in Colorado. The pipeline company also acquires an existing unloading terminal in St. James, La. and one under development in Bakersfield, Calif., according to a press release.
“These assets represent a very attractive addition to our existing North American rail activities, substantially improving our scale, scope and flexibility,” said Plains CEO Greg L. Armstrong in a written statement. “We believe that strategically located rail loading and unloading assets will continue to play an important role in the transportation of crude oil in North America.”
The three loading terminals – the Eagle Ford in Gardendale, Texas; the Van Hook in Mountrail County, N.D.; and the Niobrara in Carr, Colo. – have the capcity to load about 85,000 barrels per day, according to Plains. The St. James, La. unloading terminal has a capacity of 140,000 barrels per day.
As part of the deal, the two Houston companies will enter into a joint services agreement and U.S. Development Group will continue to handle customer service and scheduling for the terminals.
“Our technical and service expertise in scheduling, fleet management and railroad operations support complements Plains’ extensive network of assets throughout the U.S.,” said U.S. Development Group CEO Dan Borgen in a written statement.
Plains All American is involved in the transport and storage of various fossil fuels, with assets including 18,000 miles of pipelines that move crude and other liquid fuels. U.S. Development Group owns and operates a network of terminals and several large crude oil, petrochemical and ethanol rail logistic centers in the United States and Canada.
The rail acquisition will grow Plains’ crude rail portfolio to eight terminals. Five facilities will have a combined loading capacity of 250,000 barrels per day. Plains’ three unloading terminals will have a combined 335,000 barrels per day of capacity.
The company also has 18 active rail terminals for loading and unloading natural gas liquids. It plans to have about 6,700 rail cars under lease by the end of 2013.
A tanker car can hold as much as 700 barrels of oil, notes Greg Haas, manager of integrated oil and gas research for Hart Energy. He said he expects pipeline operators and producers to continue showing interest in acquiring rail terminals, particularly in areas largely isolated from hubs of the nation’s pipeline network.
He noted that the Bakersfield, Calif. unloading terminal would be especially strategic because the region is largely served by crude imports, which is bought at a higher price than domestic oil.
Rail “offers flexibility and matches the way shale plays operate,” Haas said. “As these plays develop incrementally, it makes sense to match that with more rail deliveries.”