Oneok Cancels Bakken Crude Express Plans

Oneok's Bakken Crude Express Pipeline Map

Oneok announced it is canceling plans to build the Bakken Crude Express pipeline after a binding open season ended without enough long-term volume commitments. The 1,300 mile pipeline would have delivered light-sweet Bakken crude to Cushing, OK. The pipeline had a proposed capacity of 200,000 bbls. Typically, midstream companies like to get firm commitments for at least 60% of a pipeline's capacity. That would suggest Oneok had commitments of less than 120,000 b/d.

"Despite the robust outlook for crude-oil supply growth in the Williston Basin in the Bakken Shale, we did not receive sufficient long-term commitments under the terms we needed to construct the Bakken Crude Express Pipeline," said Terry K. Spencer, ONEOK's president.

The cancellation comes as a surprise to some. The Bakken is setting new production records each month and some analysts expect production will ultimately reach 1.5-2 million barrels a day. For reference, the Bakken produced more than 660,000 bbls/d in September. That's a record, so why was there little interest in Oneok's pipeline? It probably has more to do with timing. The pipeline was set to deliver crude in Cushing, Oklahoma. Cushing is where WTI is priced.

If you follow the crude market, you've seen how depressed WTI oil prices are. As of Friday November 30th, WTI was trading at almost $89/bbl, while Brent, a comparable crude traded internationally, was trading at more than $111/bbl. That's a $22 difference for the same barrel of oil. Today, many Bakken operators are bypassing Cushing to realize better prices. Trains are flexible and railcars can reach areas where better prices are paid (i.e. Louisiana or the East Coast).

I suspect the Bakken Crude Express was the victim of bad timing. If there were ample pipeline capacity out of Cushing, there wouldn't be any worry about oversupply in the area. As projects come online in the next year, we'll see much of the pressure on WTI alleviated. When that happens, the Bakken Crude Express might be reborn.

Enbridge Plans Philadelphia Rail Facility for Bakken Crude

Crude Oil Rail Car

Enbridge Rail has entered an agreement to partner in a unit-train facility and pipelines near Philadelphia. The partnership will be called the Eddystone Rail Company. Planned facilities will be used to bring Bakken crude to Pennsylvania refineries. The project is expected to handle 80,000 b/d by the third quarter 2013 and can be expanded to 160,000 b/d if needed. Current plans call for building track to accommodate 120 rail cars. The facility will include a 200,000 bbl storage tank and barge loading capability.

Enbridge will own 75% of the venture and Canopy Prospecting will own the remaining 25% interest. The companies are expected to spend $68 million constructing the facility. Enbridge will oversee the construction and day to day operation of the facility.

The latest announcement simply further expands Enbridge's footprint in the Bakken Shale.

"In early 2013, Enbridge's Bakken Expansion Program will add 200,000 bpd of increased export pipeline capacity from the Bakken - 80,000 bpd into Berthold and 120,000 bpd into Cromer, Manitoba - taking Enbridge's total capacity from North Dakota to 475,000 bpd.

"Rail is the fastest way to provide increased export capacity out of the Bakken, creating a near-term solution to transportation bottlenecks and the resulting crude oil pricing differentials," said Stephen J. Wuori, President, Liquids Pipelines, Enbridge Inc. "Eddystone is an important step in our longer-term strategy to accommodate the anticipated growth of light crude oil supply and to provide Bakken producers and PADD I refiners cost-effective capacity to premium markets on the eastern side of North America."

Targa Resources - Saddle Butte Pipeline Agree to $950 Million Deal

Saddle Butte Pipeline System Map - Bakken Shale

Targa Resources and Saddle Butte Pipeline have agreed to a $950 million deal that includes the Williston Basin crude oil pipeline & terminal, as well as its natural gas gathering and processing operations.

The deal centers around 155 miles of crude oil pipelines in Dunn, McKenzie, and Mountrail counties in North Dakota. The related terminals have a planned 70,000 barrels of storage capacity. The Johnsons Corner Terminal is being expanded from 20,000 to 40,000 barrels and the Alexander Terminal has capacity of 30,000 barrels. In terms of gas assets, the deal includes 95-miles of gathering lines and a 20 mmcfd processing plant that is being expanded to 40 mmcfd.

"This acquisition of a major, strategic midstream business complements our extensive portfolio of midstream assets, extends our footprint to the very attractive Bakken Shale play, further diversifies our business with the addition of crude oil gathering, and adds significant long-term growth in fee-based revenues," said Joe Bob Perkins, CEO. "We are very excited to expand our geographic footprint into one of the most important oil producing basins in the country. The visible, long-term growth potential of this business complements our attractive portfolio of ongoing and future organic growth projects and enhances the Partnership's longer term distribution growth."

Targa Resources also expects to spend $250 million to complete current expansions and to grow to meet industry needs in 2013. The company plans to fund the deal with 50% equity and 50% debt.

Oasis Petroleum's Bakken Production Set to Grow 100%+ in 2012

Oasis Petroleum West Williston Basin Map

Oasis Petroleum announce results from the third quarter of 2012 along with production guidance that is tracking even higher than planned. The company grew production 19% during the quarter. That's almost 20% growth over a 90 day period. Oasis is on track to reach growth of 115% to 120% by year-end 2012. That's a pretty amazing growth trajectory.

The company has also been able to drive operated well costs down from $10.5 million in the first half of the year to $9 million in the quarter. Significant savings was realized from utilizing company owned services - Oasis Well Services. The company is targeting well costs of $8.8 million by year-end 2012.

"The momentum of our operational success continued into the third quarter, as we again exceeded our production guidance and drove down our capital cost per well," said Thomas B. Nusz, CEO.

Price realizations improved during the quarter. The company realized a discount of 9% to WTI prices in Q3. The discount was 12% in Q2. Prices across the basin have been improving in recent months as rail facilities are providing necessary outlets in areas of higher demand (e.g. East Coast).

Oasis Well Services is Exceeding Expectations

Oasis Well Services completed its first well in March 2012 and has completed 100 well stages per month since. The company has saved $13 million in capital expenses to date and expects to save $500,000 per well in locations OWS can be utilized (40-50% of operated wells). Oasis invested $24 million in Oasis Well Services and expects a full payout in year one of operations.

Continental Acquiring Bakken Acreage for $650 million - Sets Production Record

Continental Resources Bakken Shale Map

Continental Resources is acquiring 120,000 acres for $650 million primarily located in Divide and Williams counties. The deal will add 6,500 boe/d of production and is expected to close by year-end. If the deal closes as expected, Continental's Bakken acreage position will swell to 1.1 million acres.

Harold Hamm commented: "Continental operates a large portion of the acreage that we are acquiring, and more than half of it is held by production."

The deal was announced in conjunction with the company's third quarter earnings release. Continental Resources reported record production of almost 103,00 boe/d, with 70% attributable to oil. The Bakken accounted for over 60% of the the total, 62,000 boe/d. Continental participated in 137 gross (46 net) wells during the quarter. The company completed 46 (34 net) operated wells during the quarter, with 24 of those producing more than 1,000 boe/d at a peak 24- hour period. Operated wells had average IPs of 1,076 boe/d in ND and 886 boe/d in MT.

Continental's ECO-Pad Results in Mckenzie County

The company also completed a ECO-Pad in McKenzie County during the quarter:

"Consisting of the Antelope 3-23H and 4-23H and the Bohmbach 3-35H and 4-35H wells. The four wells tested at an aggregate initial rate of 6,240 Boepd in total, for an average of 1,560 Boepd per well, with average flowing tubing pressure of 3,800 psi."

Continental is the largest leaseholder in the Bakken Shale and has 19 operated drilling rigs (15 in ND, 5 in MT) running in the play.