Energy Transfer (ET) and Sunoco LP (SUN) announced a joint venture combining their Permian crude and water gathering assets, with ET holding a majority 67.5% interest. SUN’s contribution to the JV is primarily via its NuStar (NS) acquisition. At the time of the deal, East Daley Analytics noted the NS Permian system would fit well with ET’s existing crude assets in the basin.
NS Permian is in the core of the Midland and averages volumes of ~520 Mb/d. The system has strong counterparties including ExxonMobil (XOM), Pioneer, Diamondback (FANG), Endeavor, ConocoPhillips (COP) and CrownRock. Those relationships precede the recent M&A frenzy in the Permian that has seen mergers between XOM/Pioneer, FANG/Endeavor and COP/CrownRock. The NS Permian assets generate ~$230MM in annual EBITDA.
Sunoco historically did not operate crude gathering assets, so handing the reins over to Energy Transfer will likely allow for some more cost reductions. ET, meanwhile, can leverage its existing Permian business and relationships to further expand the system and potentially integrate those volumes into its long-haul Permian Express and West TX Gulf pipelines.
Based on Texas state data, East Daley estimates the NS Permian crude system already sends ~28% of its volumes to ET’s terminals and long-haul pipes in the region (see figure). For every 50 Mb/d ET can funnel through its long-haul pipes, we estimate the company can earn an additional $25MM in annual EBITDA. This estimate does not include additional uplift for ET from storage, export, and marketing operations, as broken out in the company Financial Blueprint.
Although crude systems are harder to vertically integrate than NGLs (by pushing gathering volumes onto long-haul pipelines), those opportunities still exist. ET has noted significant commercial synergies from its acquisition of Lotus Midstream, a deal that included the Centurion pipeline and gathering system (which is now part of this JV), and we expect the company can find similar opportunities with the NS Permian system. The ET/SUN JV also echoes that of Plains All American’s (PPA) JV with Oryx from 2021, creating another Permian crude super-system. — Ajay Bakshani, CFA Tickers: COP, ET, FANG, OXY, PAA, SUN, XOM.
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