Some of the biggest pipeline operators in the United States have supercharged earnings this year by buying deeply discounted shale in West Texas oilfields and selling it at a premium at Gulf Coast ports.
These companies are taking advantage of extraordinary markdowns in West Texas where surging production and a lack of pipeline space sent the regional price for oil in late August $23 per barrel below the coastal price in Houston.
Record profits illustrate the divide between the haves - those with guaranteed pipeline space - and the have nots, producers that must sell oil at the wellhead. Production in the Permian Basin of West Texas and New Mexico is projected to hit 3.55 million barrels per day (bpd), up from 2.04 million bpd two years ago.
The biggest beneficiary: Occidental Petroleum Corp, which last quarter earned $796 million from its marketing and logistics arm, excluding asset sales, compared with $4 million in the same period last year. That profit was nearly four times what the Houston-based company made last quarter pumping oil in the United States.
Plains All American Pipeline also got a boost from buying cheap at the wellhead and collecting the U.S. Gulf Coast price. Its business that buys and resells oil earned $75 million last quarter compared with a loss of $56 million a year ago.
"We were able to catch additional crude differentials, primarily around the Permian," Chief Executive Willie Chiang told investors this week. He expects the discount to continue through next year when its and others' new Gulf Coast pipelines begin full operation.
Energy Transfer, operator of the Permian Express pipeline, credited "more favorable market price differentials between the West Texas and Gulf Coast markets" last quarter for lifting its profit by $108 million over a year earlier.
The difference also is filling crude pipelines at companies that only transport and store oil for a fee. Magellan Midstream Partners LP credited strong volumes from the Permian Basin of West Texas for record crude oil earnings last quarter.
The Houston firm collected $4 per barrel on increased spot shipments, twice that of its contract volumes, as shippers reacted to the wide spread between crude prices in the Permian Basin and Houston, spokesman Bruce Heine said on Friday.
The Midland-to-Houston crude differential has narrowed to around $10 this week as Plains began transporting additional crude from its expanded Sunrise pipeline from the Permian to Cushing, Oklahoma.
(Reuters, Reporting by Collin Eaton Editing by Susan Thomas)
