Phillips 66 Builds Permian Footprint in $550 Million Deal

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Researched by Industrial Info Resources (Sugar Land, Texas)--Phillips 66 (NYSE:PSX) (Houston, Texas) said it would offer $550 million in cash to take a stronger position in the natural gas available in the Permian Basin through the acquisition of Pinnacle Midland Parent LLC (Houston).

Pinnacle counts the Dos Picos natural gas processing and gathering system in its portfolio. The system, located in West Texas, includes 80 miles of pipeline and a processing facility with a design capacity of 220 million cubic feet per day.

The Permian is considered a focus basin for Phillips 66. Mark Lashier, the chairman and chief executive officer (CEO) at the company, said Pinnacle is a bolt-on asset for his company and its strategic priorities.

"Further, this transaction aligns with our long-term objectives to build out our natural gas liquids value chain, be disciplined with our capital allocation and create sustainable value for our shareholders," he added.

Pinnacle last year unveiled plans to double the capacity at Dos Picos, adding it would expand its footprint across the counties of West Texas in order to accommodate the additional volumes.

The company said its infrastructure was backed by long-term commitments with Permian operators, adding Dos Picos was designed with expansions in mind.

"Pinnacle has established itself as one of the premier midstream providers in the Midland Basin, with a top-notch talented team, first-class operations and infrastructure, and world-class customers," said J. Greg Sargent, the CEO of Pinnacle.

Dos Picos is located in Midland County, considered something of a seat for Permian production. Operations began in 2021 and the company said it expected the expansion could go into service before the end of this year.

The Permian is the largest inland crude oil and second-largest natural gas producer among the seven primary shale basins in the United States. Gas production, however, is slowing as companies exercise patience while commodity prices and demand are low.

Of the seven primary shale basins, only two--the Permian and the Bakken in North Dakota--can expect gas production gains by June. Gas production in the Permian is expected to increase by about 1 million cubic feet per day to reach 25.4 billion cubic feet per day (Bcf/d).

Phillips said earlier this year it planned to spend around $2.2 billion, including some $985 million for midstream operations. The company, nevertheless, took a hit during the first quarter, with adjusted earnings of $822 million nearly a half-million dollars below fourth-quarter levels. The company blamed the downturn on refinery maintenance, which limited its ability to make higher-value products. The startup of a renewable diesel refinery in California, however, established it as something of a leader in cleaner fuels.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).