Phillips 66 Partners to Slash Gray Oak Tariff Rates in Texas

Zacks Equity Research

Phillips 66 Partners LP PSXP recently filed for tariff cuts at the Gray Oak crude oil pipeline with state regulators in Texas, per Reuters. Committed and spot rates’ tariff drop from $4.75 a barrel set last October to $3.90 will likely take place within points in Texas.  

Notably, the new rates are expected to take effect on Dec 1, 2019. The recent filing incorporated a new origin point at Santa Rita of Reagan County. The pipeline, with 900,000 barrel a day crude shipping capacity, is expected to commence full service in first-quarter 2020.

The Gray Oak pipeline is expected to provide impetus to the prolific Permian Basin, which was suffering from takeaway capacity constraints. Moreover, it will increase crude flow from the Eagle Ford Shale to refineries and terminals located in the Gulf Coast area. The effects of the pipeline include narrowing of differentials between WTI Midland and the U.S. Gulf Coast benchmark priced out of Magellan East Houston terminal (MEH), a price assessment developed by Platts.

Phillips 66 Partners, which generates stable fee-based revenues under long-term contracts from diverse midstream energy assets, is expected to register massive gains from the Gray Oak pipeline. With a 42.25% stake, Phillips 66 Partners is the operator in the project. It has Marathon Petroleum Corporation MPC and Enbridge Inc. ENB as partners.

In addition to Gray Oak pipeline, Phillips 66 Partners — an affiliate of Phillips 66 PSX — plans to bring online three more organic projects, comprising Sweeny to Pasadena products expansion, South Texas Gateway Terminal and Clemens Caverns expansion, in 2020. These projects are expected to boost its bottom line in the coming years as energy exports are anticipated to rise gradually.

Price Performance & Zacks Rank

Phillips 66 Partners has gained 29.4% year to date compared with 7.5% growth of the industry it belongs to. It currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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