Enbridge's Sandpiper Project Will Expand its North Dakota System

Sandpiper Project Map - Enbridge

Enbridge is planning a new 600-mile, 24-inch pipeline, the Sandpiper Project, from Beaver Lodge, ND, to Superior, WI. The Sandpiper Project has a planned cost of $2.5 billion and will move 225,000 b/d of Bakken crude The pipeline is part of a larger program in which Enbridge will invest $6.2 billion to increase accessibility to North Dakota and Western Canada's light crude. In total, the system expansions will move 400,000 b/d of light oil. The pipeline has shipper support and is expected to be completed in early 2016. FERC approval is required before construction begins.

The Sandpiper Project is likely a determining factor in Oneok Canceling the Bakken Crude Express. If Enbridge's estimates prove true, you could see the Bakken Crude Express or a similar project come back to life. Current production is near 700,000 b/d and Enbridge expects it could grow to 1,200,000 b/d in the next five years.

"This $6.2 billion investment rounds out our suite of major crude oil new market access initiatives for North American markets," said Al Monaco, President and Chief Executive Officer, Enbridge Inc. "..... These market access initiatives reflect changing North American supply and demand fundamentals and will create significant value for our customers....."

It must be a promising investment. Enbridge has a total of $26 billion in projects planned between 2012 and 2016. That's impressive considering the company (ENB) has a market cap of ~$35 billion. Add Enbridge Energy Partner's market cap and it's closer to $43 billion - still no small feat. The $2.5 billion Sandpiper Project will be funded by EEP.

Plains All American - U.S. Development Corp Reach $500 Million Rail Deal

Van Hook Terminal - New Town, ND

Plains All American Pipeline (PAA) has reached a $500 million deal to buy four rail facilities from U.S. Development Group. The four facilities are rail terminals:

• Van Hook Crude Terminal - New Town, ND (servicing the Bakken)
• Niobrara Crude Terminal - Carr, CO
• Eagle Ford Crude Terminal - Cotulla, TX
• St. James Rail Terminal - St. James, LA

The three crude terminals have daily loading capacity of 85,000 b/d and the rail terminal at St. James has unloading capacity of 140,000 b/d. An unloading facility is also planned for Bakersfield California.

The Van Hook Crude Terminal received oil by truck in New Town, ND, has capacity for 208 rail cars, and can move as much as 65,000 b/d. There is also 12,000 bbls of storage onsite. The terminal is serviced by Canadian Pacific Railroad. Most of the crude moving from the terminal ends up in St. James, LA, where the facility can handle 300 loaded railcars at one time or 130,000 b/d. The St. James Rail Terminal also ties into several pipelines, including one owned by PAA.

"These assets represent a very attractive addition to our existing North American rail activities...." said Greg L. Armstrong, Chairman and CEO of PAA. "Given recent and projected increases in North American crude oil production and volumetric and quality imbalances expected to occur in certain regions over the next several years, we believe that strategically located rail loading and unloading assets will continue to play an important role in the transportation of crude oil in North America."

Crude oil pricing is as dynamic as ever across the U.S. Growing production in the Bakken and West Texas have put downward pressure on WTI (priced at Cushing, OK). On December 7, 2012, WTI was trading at a little less than $87 / bbl and Brent crude was trading a little over $107 / bbl. Crude oil in Colorado and North Dakota was trading between $70-$80 / bbl. Those are big differentials that midstream companies will look to capitalize on. Rail is the easiest, but pipeline developments will follow. Plains also has an extensive NGL rail network and expects to have as many as 6,700 rail cars under lease by year-end 2013.

Plains All American Pipeline's company wide crude oil loading capacity is now 250,000 b/d and unloading capacity is 335,000 b/d on the East Coast, Gulf Coast, and West Coast.

Read the full press release at paalp.com

Continentals First Well the Three Fork's Third Bench Impresses

Bakken Petroleum System - CLR

Continental Resources announced results from its first well test in the third bench of the Three Forks formation. The Charlotte 3-22H flowed 953 boe/d at 1,700 PSI on a 28/64th choke. The well was drilled to a total depth of 21,324 ft in McKenzie County, ND. A 9,701 ft later was drilled and completed with Continental's standard 30 stages. This unit is the first in the Bakken to have three wells producing from three separate producing horizons.

Continental first began drilling the Three Forks (TF1) commercially in 2008 and began drilling the second bench (TF2) in 2011. This marks a successful test of the third bench (TF3) and the company plans to test a fourth bench (TF4) in 2013. A total of 14 wells are planned by the end of 2013 that will test the TF2, TF3, and TF4 formations. If all four benches prove successful, we'll see the company test a 14 well unit not long afterward.

The company has trumpeted the ultimate potential of the field and this discover isn't going to slow them down. Prior ultimate recovery estimates were based on an original oil in place number of 577 billion barrels. Recent wells in formation not accounted for have now boosted the company's estimate to 903 billion barrels of OOIP.

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."