NuStar Logistics, a wholly owned operating subsidiary of NuStar Energy L.P (NS), has signed a pipeline connection and capacity lease agreement with the privately held company Koch Pipeline Company, L.P. The financial terms of the deal were not disclosed.
Under the terms of the deal, NuStar will reactivate and operate the once idle Pettus South Pipeline. This 60 miles long pipeline, extending from Texas to Corpus Christi will then be leased to Koch Pipeline.
Koch Pipeline plans to combine the leased pipeline with its existing gathering systems to transport crude oil production from South Texas Eagle Ford Shale fields to Corpus Christi refineries and terminals.
Management of Koch Pipeline expects to join the Pettus South Pipeline to its system in the coming six to eight months, with a minimum capacity of 30,000 barrels per day. With a growth in production from Eagle Ford, the capacity of the line can be increased to about 50,000 barrels per day.
As per the company spokesperson, Koch Pipeline is highly upbeat about this project, which spreads out pipeline facilities in South Texas. The company also has its hands full with proposals targeted toward the development of Corpus Christi refining center and Ingleside waterborne terminal.
The project is expected to be completed and put into operation in the second quarter of 2011.
Texas-based NuStar owns a high quality, large and diversified asset portfolio with operations in eight different countries. A cluster of development projects along with strong infrastructural facilities in South Texas, paves the path for NuStar to explore other organic growth opportunities in the Eagle Ford Shale region.
However, operational delays and cost overruns associated with the projects will likely result in reduced returns for the company.
We are maintaining our long-term Neutral recommendation on the stock. NuStar currently retains a Zacks #3 Rank (short-term Hold rating).
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