Why new pipeline infrastructure is critical for Bakken production (Part 6 of 8)
Existing crude pipelines—Summit Midstream Partners’ project in Bakken
On June 10, 2014, Summit Midstream Partners (SMLP) announced a number of projects to increase its pipeline and gathering system capacity in the Bakken. Total capex for the growth projects is expected to be $300 million. Tioga Midstream, a wholly owned subsidiary of SMLP would develop new crude oil, water, and associated natural gas gathering infrastructure serving its acreage located in Williams County, North Dakota. Tioga Midstream will construct over 240 miles of new pipeline. It’s expected to have total system capacity of 20,000 barrels per day of crude oil. SMLP also disclosed that it received a ten-year, fee based gathering agreement for the project.
Meadowlark Midstream Company, another operating subsidiary of SMLP, executed a long-term crude oil transportation agreement with Samson Resources Company during 1Q14 to provide crude oil transportation in North Dakota. The company expects to start operation by 3Q14.
In another project with Kodiak Oil & Gas Corporation, Meadowlark Midstream would expand the Polar System located in Williams County, North Dakota. Meadowlark will connect over 60 possible pad sites that Kodiak Oil & Gas Corp. expects to develop in its Polar Field over the next several years.
Plains All American’s Bakken north pipeline
The Bakken area system is a 953-mile pipeline. As of December 31, 2013, average daily crude oil transportation was 131 thousand barrels per day. PAA acquired this system in 2010 from Nexen Holdings for a purchase price of $229 million.
According to North Dakota Pipeline Authority (or NDPA), the PPA Bakken north pipeline system will be in place by 2014. It will have a capacity of 40,000 barrels per day of pipeline throughput.
The Butte Pipeline, an operating unit of True Companies, is a 16 inch crude oil pipeline system from Baker, Montana to Ft. Laramie and Guernsey, Wyoming. The system gathers crude from the Cedar Creek Anticline area near Baker and transports (through other incoming pipelines) crude from the Williston Basin, eastern Montana, and Canada. Deliveries of several different crude grades on the system are made to connecting carriers at Ft. Laramie and Guernsey, Wyoming. Butte Pipeline is operated by Bridger Pipeline LLC. PAA had 22% interest in Butte Pipeline by the end of 2013.
According to the NDPA, the Butte Pipeline will add a Butte Loop system by 3Q14 that will have a capacity of 110,000 barrels per day.
Higher production at the Bakken Shale of the Williston Basin is encouraging for the midstream pipeline operators. Increased transportation requirements will be positive for crude oil pipeline suppliers in the Bakken including Enbridge Energy Partners (EEP), Summit Midstream Partners (SMLP), and Plains All American (PAA). Some of these are master limited partnerships (or MLPs). They’re components of the Alerian MLP ETF (AMLP). SMLP is a component of the Junior MLP ETF (MLPJ). Increased transportation capacity would also benefit oil producers like Oasis Petroleum (or OAS), Whiting Petroleum (or WLL), and Continental Resources (or CLR) through higher price realization. All of these are components of the SPDR S&P Oil & Gas Exploration & Production (or XOP).
Browse this series on Market Realist:
- Part 1 - Why pipeline capacity enhancement is important in the Bakken
- Part 2 - Why the Bakken needs new oil pipeline infrastructure
- Part 3 - Must-know: New pipeline projects in the Bakken
- Basic Materials Industry
- Oil, Gas, & Consumable Fuels