Bakken Crude Production

Brian Hicks

Written By Brian Hicks

Posted April 30, 2013

CenterPoint Energy Bakken Crude Services, LLC has just reached an agreement with XTO Energy Inc., under the terms of which CenterPoint will send XTO’s Bakken crude production through a new crude gathering and transport pipeline system.

Bakken Oil RIgThis is the first such agreement in CenterPoint’s so-called open season that began February 19, as the press release states. CenterPoint is an indirect but wholly-owned subsidiary of CenterPoint Energy, Inc. (NYSE:CNP), and Exxon Mobil Corp. (NYSE:XOM) owns XTO Energy.

CenterPoint’s gathering system is projected to have a capacity of around 19,500 barrels per day.

From the press release:

“We are extremely pleased to provide long-term crude oil gathering services for such an outstanding producer, and we appreciate the confidence they have placed in our current and expanding capabilities,” said C. Gregory Harper, senior vice president and group president of CenterPoint Energy’s Midstream business. “Our excellent track record of developing gathering systems on time and on budget continues to provide us with opportunities, and positions us to execute our strategy of expanding into liquids-rich basins.”

CenterPoint Energy covers electric transmission and distribution, natural gas distribution, sales and services, interstate pipelines, and field operations. The company operates in Arkansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Texas.

Bakken Pipelines

This is the latest pipeline development in the Bakken. Earlier this year, Targa Resources Partners LP (NYSE:NGLS) bought out Saddle Butte Pipeline LLC’s Williston basin pipeline and terminal system. That deal included nearly 155 miles of Bakken pipeline.

It’s a good thing that pipeline and general infrastructure development in the Bakken region appears to be picking up. Even as production soars in that region, existing pipelines have not kept up the pace, creating major bottlenecks.

In fact, the situation is so bad right now that producers need to ship out their crude via rail, and these bottlenecks and difficulties have led to price discounts for Bakken crude.

The Bakken Shale Bounty

The Bakken, which is one of the nation’s oldest and most prominent oil fields, broke records last year, producing more than 750,000 barrels of oil per day. The Bakken actually produces more oil than the nation of Ecuador, which is part of OPEC.

And production from the Bakken just never seems to level off. Early estimates projected 92 billion barrels (1982), 132 billion barrels (1983), and then, in 1999, estimates reached 271-503 billion barrels.

Partly, the reason why the Bakken is so bountiful is because of its peculiar geological makeup and the fact that it is likely the biggest continuous hydrocarbon accumulation in the world. Pressure is very high, meaning wells tend to show a high production rate. Over the past four years, Bakken oil production has increased more than 400 percent, and the increases keep coming.

Of course, to deal with all this newfound oil, existing pipelines need quick and radical restructuring. Much of the oil is transported over to refineries located along the U.S. Gulf Coast. Major projects like TransCanada’s (NYSE:TRP) Keystone XL can help out, but—also like the Keystone XL—they can get stalled by various means.

Right now, what’s necessary is heavy investments into the pipeline network that can distribute the rich produce of the Bakken Shale across the nation and deliver it where it’s needed.

That’s why the CenterPoint and Targa deals are very good news. It means companies are becoming increasingly aware of the extensive bottlenecks that plague the Bakken area and are beginning to take serious steps to remedy the situation. We should expect more and more companies to come up with solitary or joint ventures that will develop and expand the Bakken pipeline network.

And, since the Bakken’s production levels continue to remain high, it’s likely to have a ripple effect nationwide. The U.S. is expected to become net energy independent in a few years and to exceed Saudi Arabia for oil production in another few years.

An extensive pipeline network in place can go far in ensuring that we’re not only able to ship the crude where it can be refined, but also attend to lucrative export opportunities.

Right now, for example, companies are petitioning the U.S. government for approvals of natural gas export terminals so American companies can ship natural gas to Asia, where demand is growing rapidly. It’s not unlikely that we might see similar arrangements for all the oil that’s pouring out of the U.S. shale zones.


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