This Little Energy Stock Just Got Bigger
By Aimee Duffy
Typically when the Permian Basin makes it into the news, the focus is on one of the fields in West Texas -- but not today. Today New Mexico is in the spotlight, as growing production in the Permian across the border has allowed midstream MLP Holly Energy Partners (NYSE: HEP ) to expand its crude oil capacity by 100,000 barrels per day.
The deal
Earlier this month, Holly Energy announced its plan to convert a refined products pipeline to crude oil service, and construct several new pipelines segments. It will also expand an existing pipeline and build truck unloading stations and crude storage capacity. Capital expenditures are expected to reach $35 million-$40 million, and the line should be in service no later than 2014.
Beyond higher volumes, there is significant upside here. The deal expands Holly Energy's customer base outside of its general partner, HollyFrontier (NYSE: HFC ) . The refiner currently contracts 100% of Holly Energy's capacity through fee-based agreements. The fact that outside shippers have already committed enough volumes to get this project off the ground is important because it diversifies Holly Energy's income.
The familial bond remains intact, of course, not only because HollyFrontier owns a 44% stake in the MLP, but because there is a good chance that some of the oil will end up at its Navajo refinery in Artesia, N.M. The capacity of that refinery is 100,000 barrels per day, so it would be virtually impossible for HFC to take absorb it all.
