Phillips 66 Commits to Take 50,000 b/d of Bakken Crude

Crude Oil Transport Routes
Crude Oil Transport Routes

Phillips 66 has signed a five year take or pay contract with Global Partners for 91 million barrels of oil (50,000 b/d). Global will use its transportation system to deliver crude from North Dakota to Phillips 66 Bayway refinery in New Jersey. Moving crude this distance will likely cost the company somewhere between $10-15 per barrel over the life of the contract.

The transportation differential can be made up easily when you consider physical prices for Williston Sweet were trading below $80/bbl on the day the deal was announced. WTI was trading near $93/bbl and Brent Crude was trading over $110/bbl the same day.

"Global has established a 'virtual pipeline' for the reliable transportation of Bakken crude," said Tim Taylor, Executive Vice President, Commercial, Marketing, Transportation & Business Development of Phillips 66. "Our five-year agreement with Global assures us long-term access to advantaged crude for our Bayway refinery through what we believe is a cost competitive origin-to-destination supply system to the East Coast."

Phillips 66 has expanded facilities in the past few years to accept more crude from truck, rail, and barge across its refinery assets. The expansions will allow the company to deal for and source more crude from price advantaged areas in the US.

I believe this is the first firm commitment of this size to take Bakken crude to the East Coast. As highlighted in the slide above, Phillips 66 expects both the Bakken, Canada, and the Gulf Coast regions to provide sources of price advantaged crude.

Have You Seen the Bakken from Space?

Bakken Space Photo - NASA
Bakken Space Photo - NASA

The Bakken development is big enough to see from space. New photos from NASA show just how big the North Dakota oil boom really is. The play rivals metropolitan areas when it comes to visibility from space.

The photos were taken by the Suomi NPP Satellite in April of 2012. You can watch a video showing city lights around the world at nasa.gov

At the time the photos were taken, there were more than 210 rigs running in North Dakota and approximately 20 running in Eastern Montana.

Continental Resources - Samson Bakken Deal Agreed for $649 Million

Continental Resources Bakken Shale Map
Continental Resources Bakken Shale Map

Continental Resources (CLR) has reached an agreement to pay $649 million for almost 120,000 acres, primarily in Williams and Divide counties, from Samson Resources. The deal expands Continental's dominant Bakken position to more than 1.1 million acres!

The deal includes 6,500 boe/d of production (82% oil) and was announced in conjunction with the sale of assets in the company's Eastern Region. The sale included 1,100 boe/d of production and raised $125 million.

“Continental believes the entire acquisition area.....has potential for deeper Three Forks development, based on three strategically placed cores taken in 2011. ”

The Bakken acquisition includes over 45,000 net acres where Samson and Continental were already partners. CLR's interest in the assets increased to 71% from 46%. Almost 35,000 net acres are already held by production from existing wells. Continental has a lower working interest (34%) in the rest of the acreage acquired, but will operate the bulk of the wells in the area. Of the remaining ~74,000 acres, almost 30,o00 is held by production from existing wells.

Size Adds Value in the Bakken

It is becoming more apparent that Continental believes economy of scale is going to add value to their bottom line. Bigger operators have more negotiating power in everything in the supply chain all the way to the midstream and downstream markets. Plans to expand ECO-Pad drilling across the basin also adds motive to consolidate fragmented interest across the basin. If invested all the capital, research and technical expertise in drilling multiple wells on location at one time, you'd want to benefit from operational success as much as possible. There's no sense in doing the dirty work for passive partners when they are willing sellers.

"This is a classic bolt-on acquisition, from a number of perspectives - strategic, tactical and financial," said Rick Bott, President and Chief Operating Officer. "It fits nicely into our deeper bench Three Forks de-risking plan, and we expect it to add immediate value. Within the next 30 days we plan to spud the first of 10 wells in the northern region, targeting the deeper benches to confirm commercial production and appraise our down-spacing concept, so we can quickly leverage operational efficiencies with pad drilling."

Read the full press release at contres.com

ConocoPhillips' Capital Budget Favors the Bakken and Eagle Ford

ConocoPhillips Bakken Acreage Map
ConocoPhillips Bakken Acreage Map

ConocoPhillips released plans to spend $15.8 billion in 2013. Of that, more $4 billion will be spent across the company's U.S. assets in the Bakken, Barnett, Eagle Ford, Niobrara, and Permian Basin areas. Targets in all of those areas are liquids-rich.

If 2012 is a good indication of what to expect in 2013, Conoco will likely spend 15-20% of the $4 billion allocated for the U.S. in the Bakken. In 2012, the company spent approximately $600 million developing the play.

Conoco's believes its 600,000 + acres in the Bakken will yield:

  • 1,300 gross proved and probably drilling locations
  • 400 million barrels of resources from just 40% of its acreage
  • Production of almost 40,000 boe/d in 2016

Read the full press release at conocophillips.com