In This Article:
Units of Plains All American Pipeline LP PAA have rallied 7.8% in the past six months compared with the Zacks Oil and Gas – Production Pipeline - MLB industry’s growth of 3.4%. PAA’s units have also outperformed the S&P 500 and the Zacks Oil-Energy sector in the same time frame.
Another operator in the same space, Energy Transfer ET, also outperformed the industry, sector, and S&P 500 in the same time frame.
The firm, after completing its multi-year expansion plan, maintains disciplined capital spending and is now focused on developing high-return assets. The firm's cost-saving initiatives, JV and asset divestitures are expected to boost operations. Its expansion of existing pipelines and development of new pipeline projects in key production regions of the United States should drive its operations.
Price Performance (Six months)
Image Source: Zacks Investment Research
Should you consider adding PAA to your portfolio only based on positive price movements? Let’s delve deeper and find out the factors that can help investors decide whether it is a good entry point to add PAA stock to their portfolio.
Factors Acting as Tailwinds for PAA Stock
Plains All American Pipeline focuses on a disciplined capital investment strategy to drive growth through organic initiatives and complements this with strategic acquisitions to broaden its footprint across the United States. The firm is anticipating full-year 2025 investment and maintenance capital of $400 million and $240 million, respectively.
Plains All American Pipeline further expanded its operation in the Permian region as a subsidiary of Plains Oryx Permian Basin LLC acquired Medallion’s Delaware crude oil gathering business. This deal enhances PAA’s upstream customer offering and expands access to more downstream outlets.
Permian’s crude production is expected to rise by nearly 6.7 million barrels per day by the end of 2025. This increase in volume positions the Basin for a strong long-haul market in the coming years, enabling PAA to fully utilize its efficient operating capacity in the region.
PAA’s crude oil tariff volume from total operation is expected to improve by nearly 8% year over year in 2025. The improvement in volumes can be attributed to tariff escalation and contributions from bolt-on acquisitions.
Headwinds for PAA Stock
Upstream companies have moved into the midstream sector by establishing MLPs and enhancing their infrastructure. If this trend continues, traditional midstream firms could face intensified competition, as their revenues largely depend on providing transportation services to exploration and production companies.
Hydraulic fracturing is a widely used method for extracting hydrocarbons from unconventional formations in the United States, but it faces growing scrutiny over potential risks to drinking water. As a result, new legislation or regulations could restrict its use, potentially reducing domestic oil and gas production and, consequently, decreasing demand for the midstream services offered by the partnership.
