Heavily utilized pipelines carrying crude oil from the Permian Basin to Corpus Christi are about to get some additional capacity.
Plains All American announced plans for a 75,000-barrel-per-day expansion of the Cactus III pipeline during its second-quarter earnings call. Company officials also reported plans for gathering projects across the Delaware and Midland basins as it increased growth capital from $350 million to a range of $400 million to $450 million.
The expansion of Cactus III will increase capacity from 650,000 to 725,000 barrels per day, according to East Daley Analytics.
The expansion comes as the pipelines that make up the Corpus Christi corridor — Cactus I, Cactus II, Cactus III and Gray Oak — have been highly utilized, according to East Daley Analytics. Strong Permian production and demand in the Corpus Christi export market have kept these assets running near capacity. Corpus Christi offers shippers access to deep-water export terminals, competitive waterborne pricing and a broad base of international buyers.
Over the past 12 months for which data is available, East Daley estimates utilization has averaged 90% of capacity on Cactus I, 100% on Cactus II, 91% on Cactus III and 89% on Gray Oak. For the most recent three months, utilization of these pipelines increased to 96%, 101%, 101% and 96%, respectively, underscoring the limited spare capacity available in the corridor, according to East Daley.
The Cactus III expansion also carries acquisition-related economics that could influence the pace of future capacity additions. When Plains acquired EPIC Pipeline, which was subsequently renamed Cactus III, the transaction included potential earnout payments tied to future expansions. Plains agreed to pay the Ares-affiliated seller up to $157 million for potentially 300,000 barrels per day of new capacity through the end of 2028.
With the initial 75,000-barrel-per-day expansion moving forward, Plains disclosed a $40 million earnout payment associated with the project. While management did not explicitly identify the recipient on the earnings call, the payment is consistent with the capacity-based incentive structure established as part of the EPIC acquisition.
The 75,000-barrel-per-day project highlights both tightening Permian takeaway capacity into Corpus Christi and the low-cost expansion optionality that Cactus III brings to Plains, East Daley said.