Plains All American Pipeline’s Strategic Bolt-On Acquisitions
Plains All American Pipeline, last week, announced two bolt-on acquisitions: the full ownership of the Cheyenne Pipeline and a small crude oil gathering system in the Permian Basin. While these deals are not transformative for Plains’ earnings, they offer valuable insights into Plains’ capital allocation strategy and the evolving dynamics of regional oil flows. This post analyzes the Cheyenne Pipeline acquisition in detail, briefly discusses the Permian acquisition, and evaluates the potential strategic rationale behind these moves.
Cheyenne Pipeline: A Strategic Buyout
The Cheyenne Pipeline, previously a 50/50 joint venture between Plains and HF Sinclair, transports crude oil from the Fort Laramie and Guernsey areas in Wyoming. Historically, its primary role was to supply HF Sinclair’s Cheyenne refinery, which was converted to a renewable diesel facility in 2020 after shutting down during the COVID-19 pandemic. Since then, the pipeline’s operations have diversified, connecting to DJ Basin egress pipelines like Saddlehorn through Plains’ Cowboy Pipeline and joint tariffs, enabling oil transport to key markets.
Acquisition Details
Plains acquired HF Sinclair’s 50% stake in the Cheyenne Pipeline, gaining full ownership. In exchange, the companies agreed to “termination of certain obligations.” Neither company provided specifics on the terminated obligations, but our analysis suggests that the terminated obligation is HF Sinclair’s minimum volume commitment (MVC) of 45,000 barrels per day on the pipeline. The MVC generates approximately $13 million in annual EBITDA (unadjusted for FERC inflation escalation) through 2029. The pipeline’s total EBITDA averaged $22 million annually in 2023–2024, with the partners previously receiving half ($11 million) as joint 50% owners.
Our analysis below assumes that the MVC on Cheyenne was the only material obligation cancelled. This assessment may differ if additional HF Sinclair contracts were included as part of the buyout.
Economic Analysis
No-Buyout Scenario: Assuming stable volumes and the MVC in place, Plains would capture ~$11 million in EBITDA (~$22 million full pipeline) until October 2029, after which the loss of the $13 million MVC would reduce Plains’ EBITDA to ~$5 million (~$9 million full pipeline).
Buyout Scenario: Plains now owns 100% of the pipeline but loses the $13 million MVC, reducing EBITDA to $9 million immediately. This results in a short-term $2 million/year EBITDA hit. However, full ownership ensures that Plains captures all future cash flows, which will provide higher cash flows from 2030 onward.
Cash Flow Analysis
Cash flow analysis indicates a break-even point around 2031. This analysis, combined with Plains’ 1Q 2025 financials, which reported a significant gain on the acquisition, indicates that the deal is accretive.
Strategic Rationale
For Plains, the acquisition enhances control over a key asset and leverages its extensive marketing network to increase throughput on the pipeline. The Powder River Basin, where the pipeline sources crude, remains robust, with production near record highs. Bridger Pipeline’s potential to replace volumes lost from the Double H pipeline being converted to NGLs may further support the pipeline’s long-term viability. Additionally, Enbridge’s Express Pipeline is expanding, which will likely add additional supply to the area.
HF Sinclair’s decision to exit is less clear. By canceling the MVC, HF Sinclair avoids $13 million in annual payments through 2029 but forgoes ~$10 million in annual partnership distributions (based on 2023–2024 figures), netting minimal savings. Potential reasons include a bearish outlook on Powder River production at $50–60 oil, area supply reduction from the conversion of Double H, competition from pipelines like Pony Express, or anticipated maintenance costs. However, based on disclosures from both companies, our economic analysis suggests that Plains secured the better deal.
Permian Gathering System: A Smaller Play
Plains also acquired a Midland Basin gathering system from Black Knight for $55 million. The system delivers crude to two Plains Oryx delivery points: Mustang Springs and Patricia Plow, both in Martin County north of Midland. Limited public data exists on the system, though it may involve a legacy QEP pipeline feeding into Mustang Springs. Given its size, the acquisition will not significantly impact Plains’ earnings but strengthens its Permian infrastructure by integrating with existing assets.
Plains’ Capital Allocation Strategy
The Cheyenne Pipeline acquisition, while modest in scale, reflects a disciplined approach to bolt-on acquisitions. The buyout is one data point that highlights Plains’ ability to secure strategic assets at favorable valuations, enhancing long-term cash flows. The Permian acquisition, though less documented, aligns with Plains’ focus on expanding its regional footprint.
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