Why Bakken's crude-by-rail transportation is here to stay (Part 6 of 7)
Continental Resources (CLR) moved into the Bakken early. Currently, it has the largest leasehold position in the area, with 1.2 million net acres.
The Bakken makes up about two-thirds of Continental’s current production, with most of the other one-third coming from its South Central Oklahoma Oil Province (or SCOOP) play in Oklahoma. CLR also directs about two-thirds of its capital expenditures towards the Bakken. For 2014, CLR plans to shell out $2,175 million in capex in the Bakken.
Transporting of crude by rail
As per company reports, CLR transports 70% of its crude by rail. It’s continuing to expand its takeaway capacity in 2014.
Rail transport seems to be the company’s more favored mode of transport. In their 10-K, CLR stated that “recognition of market disparities has supported our decisions to transport crude oil via rail directly to East and West Coast markets that are currently unreachable via pipeline. This provides access to markets more closely indexed to Brent crude oil prices instead of WTI. The superior quality characteristics of Bakken crude oil make it a favorable choice for refiners, as it produces higher refined fuel yields like gasoline, diesel and kerosene compared to global benchmark grades of WTI and Brent.”
Throughout 2013, CLR focused on marketing their Bakken crude through rail. Even though rail transportation is more expensive than pipelines, CLR stated that the market prices realized in the coastal regions more than makes up for the difference.
“During 2013, we continued our efforts to shift Bakken crude oil sales to coastal markets in the United States with less dependence on currently available pipeline markets. Rail transportation costs are typically higher than pipeline transportation costs per barrel mile, but market prices realized in U.S. coastal markets continue to be competitive with currently available pipeline markets. We plan to continue pursuing this portfolio approach to balance volumes delivered to pipeline and rail market destinations in an effort to maximize net wellhead value.”
However increasing reliance of companies like CLR, Whiting Petroleum (WLL), Statoil (STO), and Oasis Petroleum (OAS), on crude-by-rail can negatively impact these producers because of the negative attention rail transportation has attracted because of rail accidents that have been happening recently. It’s important to note that most of these companies are a part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
Continue reading the next section in this series to learn about how rail transportation has its own set of disadvantages in the oil transportation industry.
Browse this series on Market Realist:
- Part 1 - Why crude-by-rail is important for Bakken’s crude production
- Part 2 - Why rail is a more cost-effective transporation option
- Part 3 - Why geopolitical reasons fuel Oasis’ crude-by-rail usage
- Sectors & Industries
- the Bakken
- rail transportation
- Continental Resources