Plains All American Pipeline LP PAA

Plains and Oryx Midstream, which is owned by private equity firm Stonepeak Infrastructure Partners, have agreed to create a joint venture to hold the majority of Plains’ Permian assets (excluding long-haul pipes and certain intrabasin terminal assets) and all of Oryx’s assets in the region. We see the joint venture as an attractive way to expedite rationalization of assets in a basin that is currently oversupplied from a midstream perspective. Plains noted several times in the conference call that its focus was on optimization and efficiency, while growth opportunities were, in our view, a secondary consideration. We see the structure as smart as it does not involve adding debt, preserving Plains’ plans to reduce leverage. However, given the fairly minimal synergies expected, we don’t see the deal as material for our $13 fair value estimates or narrow moat ratings for the Plains entities.