At the Wellhead: “Local” pipelines an opportunity as oil output grows in North Dakota

There’s been so much focus on getting crude out of North Dakota that another opportunity hasn’t gotten as much attention: gathering and other midstream systems. Bridget Hunsucker looks at the landscape for those investment opportunities in this week’s Oilgram News column, At the Wellhead.

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As Bakken Shale crude moves freely around the US on an abundance of outbound rail capacity, midstream companies are shifting their attention to filling the growing short-haul pipeline demand in North Dakota.

The gathering market in North Dakota is “wide open” for developers, Caliber Midstream Chief Operating Officer David Scobel said, noting that there is a plethora of opportunities to transport not only crude and associated natural gas, but also dispose of more than 300,000 b/d of wastewater used in the fracking process.

Caliber Midstream has 45 miles of in-service gathering lines in the play and are in the process of constructing 200 miles of various hydrocarbon and water pipelines, Scobel said.

The state’s 18,000 miles of gathering lines are expected to increase in the next several years to about 30,000 miles, the amount needed to support the full development of the play to move oil, natural gas, saltwater and freshwater.

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“I think most of the opportunities for infrastructure right now are in gathering because the long-haul is built out,” Bentek Energy analyst Erika Coombs said this week. “We are not transportation constrained anymore.”

Several years ago, production in the play began to rapidly increase and outpaced available pipeline capacity. So-called crude-by-rail loading terminals were quickly developed to move the light sweet crude to market. About 69% of Bakken Shale production is now moving on US railways.

With plenty of available outbound capacity, the growing Bakken production is now being sent to refiners on all three US coasts.

North Dakota produced a record 941,637 b/d of crude in October, up 8,675 b/d from September, according to the latest data released by the North Dakota Department of Mineral Resources. The number of producing wells rose to an all-time high of 9,900 in October, up 199 from September, the data showed.

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Bentek expects Bakken production to end 2014 at about 1.175 million b/d and grow to about 1.627 million b/d by 2020.

“There is a tremendous amount of opportunity in the gathering industry right now,” North Dakota spokeswoman Alison Ritter said. “The Bakken, is a young, expansive oil play roughly the size of the state of West Virginia at 15,000-plus square miles. We lack the infrastructure like established plays.”

And as Bakken Shale producers shift wells into the development phase from the exploration phase, gathering lines are increasingly in demand as an alternative to trucking, sources said.

“On the crude oil side, you will see continued action from [companies]…it can’t all go on truck, and pipeline is much more cost-effective,” Hiland Partners Chief Financial Officer Derek Gipson said.

Since 2010, Hiland Partners has constructed 2,000 miles of natural gas and crude oil gathering lines, and are expanding capacity. Their portfolio of customers includes Continental Resources, which is a leading Bakken producer.

“For the industry up there, there is more opportunity to expand crude oil gathering systems to eat into what is currently being trucked,” Gipson said.

One such plan, formulated by the company Bakken Oil Express, is expected to eliminate 825 tanker trucks per day off of a stretch of highway between Killdeer and Dickinson.

The North Dakota Public Service Commission earlier this month issued a siting permit for the 165,000 b/d pipeline, which will transport crude to an existing Bakken Oil Express rail facility.

As trucks are put to rest, trucking companies are moving into the pipeline business, Scobel said. “Trucking companies are saying we need to get into the pipe business or we will be done,” he said.

Other so-called “non-traditional” players are looking to capitalize from gathering the popular crude, including a slew of natural gas gatherers, sources have said.

For example, Enable Midstream Partners, a natural gas gatherer, is also considering ways to expand into the business of crude gathering. Two of Enable’s parent companies are OGE Energy and CenterPoint Energy, which last year announced a plan to enter the crude business by building a 19,500 b/d pipeline as part of a planned crude oil gathering system in the Bakken. That pipeline went into service in December 2013, CenterPoint spokeswoman Alicia Dixon said.

Hiland Partners was also a gas-gathering company before moving into the realm of crude service, Gipson said.

“That is our background…we were a gas-gathering company and saw a need and opportunity for oil,” he said. “Obviously there is more development and its harder and harder to get in from an organic standpoint, but people are able to get in and carve a niche. There are a lot of hydrocarbons out there, and they are able to get some.”

–Bridget Hunsucker in Houston


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