Apache Corporation (NYSE:APA) recently agreed to participate in the EPIC Crude Oil Pipeline, run by EPIC Midstream Holdings, LP. The strategic alliance also includes Noble Energy, Inc. (NYSE:NBL) . The pipeline will connect southeastern New Mexico to Corpus Christi, TX and transport crude from the Permian Basin and Eagle Ford Shale. The under-construction pipeline will help to clear the infrastructure bottleneck caused by excessive production in the Permian, resulting in lower prices.
The Strategic Alliance
Being one of the largest acreage holders in the prolific Permian Basin, Houston, TX-based Apache's commitment of 75 thousand barrels per day (MBbl/d) in the pipeline is expected to secure the project’s future. Noble Energy, headquartered in the same area, also secured 100 MBbl/d in the pipeline. Per the agreement, Apache and Noble Energy hold an option of acquiring as far as 15% and 30% stake in the pipeline, respectively. These options can be exercised by the first three months of 2019.
Oil producers in the Permian Basin have recently seen their product price decline due to the increase in production, which overwhelmed the infrastructure that ships crudes to ports. The situation is alarming for the producers in the area, as their profit margin is threatened by the discounted crude prices. The strategic alliance thus gives Apache, as well as Noble Energy a chance to improve margins.
About the Pipeline
The pipeline is expected to have an initial oil transport capacity of 590 thousand MBbl/d. Around 74.6% of the total capacity will come from the Permian Basin while the rest from the Eagle Ford. The pipeline will have an option of upsizing to a 30-inch line that will further increase the shipping capacity from the Permian Basin to 675 MBbl/d.
Incorporating Apache and Noble Energy’s committed acreages, more than 500,000 acres were devoted to the pipeline and at least 10% of its total capacity is planned to be kept for uncommitted shippers.
The 730-mile crude pipeline will run beside EPIC's natural gas liquids pipeline. Construction of the pipeline is anticipated to start in the October-December period of 2018 and it will come online in 2019's second half. The EPIC Crude Oil Pipeline has the capital commitment support from funds managed by Ares Management, L.P.'s (NYSE:ARES) Private Equity Group.
Price Performance of Apache
The upstream oil major has lost 18.8% in the past year against the 5.3% gain of its industry.
Zacks Rank and Stock to Consider
Apache has a Zacks Rank #3 (Hold).
Investors interested in the Energy sector can opt for a better-ranked stock in the same space, namely Nine Energy Service, Inc. (NYSE:NINE) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Houston, TX-based Nine Energy Service is an onshore service provider. For 2018, the bottom line is likely to be up 33.4%. In the last reported quarter, the company delivered a positive earnings surprise of 6.3%.
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Ares Management L.P. (ARES): Free Stock Analysis Report
Apache Corporation (APA): Free Stock Analysis Report
Noble Energy Inc. (NBL): Free Stock Analysis Report
Nine Energy Service, Inc. (NINE): Free Stock Analysis Report
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