Where does Bakken oil go? Increasingly, producers and end-users are working to send it to the U.S. Northeast to refiners that have been marginalized—some even shuttered—by Brent-priced waterborne crude that costs $25 or more than U.S. onshore sourced feedstock.
“We are talking to rail companies at this time about that potential in the future,” says Eric Le Dain , senior vice president, strategic planning, reserves and marketing, for Enerplus Corp. The Calgary-based E&P is making some 12,500 gross barrels of oil equivalent per day from its Bakken acreage in North Dakota with a projection to exit 2012 at 15,000 per day. It makes another 6,000 per day from the Bakken in Montana.
Sam Margolin , vice president and refining analyst for Dahlman Rose & Co. , anticipates more Bakken oil, which is currently being consumed in the U.S. Midwest and on the Gulf Coast, will find its way to the East Coast as well as the West Coast.
“Bakken production is expected to grow much more, so off-take outside of the Midwest refining market is necessary,” Margolin says. “The Midwest has pretty much reached its maximum capacity of utilizing that crude.”
While EOG Resources Inc. and other producers are aggressively railing it to the Gulf Coast, new oil supply from nearer sources—the Eagle Ford, Permian Basin and Oklahoma—plus new Canadian oil-sands crude may make some Bakken oil less competitive due to transportation costs.
Neal Walters , partner, Americas, in consulting firm A.T. Kearney ’s energy practice, says, “Once the pipeline infrastructure resolves the glut issue at Cushing and allows some of the Midcontinent and Canadian crudes to get to more markets, that West Texas Intermediate (WTI)/Brent differential will head closer to historical levels.”
The Bakken story began in 2004, when Continental Resources Inc. drilled the first successful horizontal in the formation. Today, the play is making some 700,000 barrels a day, elevating North Dakota recently to the No. 2 oil-producing state in the nation behind Texas and ahead of Alaska and California.
Continental alone was making 74,000 barrels per day in the second quarter of 2012. Stephen Bradley , Continental’s vice president, oil marketing, told Bentek Energy symposium attendees in Houston this spring, “We will see North Dakota production continue unabated unless the price collapses.” Differentials to WTI that Continental had seen in the first half of 2012 ranged from -$4 in January to -$30 in February to about