Place your bets: Making long-term investments in the Bakken

The decline in oil prices and dropping rig count have caused hushed whispers and speculations of an impending ‘bust,’ but despite these factors, major players are continuing to put their chips on the table, betting with confidence on the future of the Bakken.

The Williston Herald reports that many companies are now looking to long-term investments. Among the deals that indicate the long-term viability of the Bakken formation is the recent $3 billion deal in whichKinder Morgan bought out the pipeline and logistics company Hiland Partners, founded by the oil giant Continental Resources. The deal secured Kinder Morgan’s position in the Bakken, a region in which the company had no assets in previously.

The deal, which closed February of this year, gave Kinder Morgan ownership of 1,225 miles of gathering pipelines which provide services for approximately 1.8 million acres of Bakken oil production. The system includes the recently completed Double H pipeline, which moves Bakken crude from North Dakota to the Pony Express pipeline in Wyoming and has a daily capacity of 84,000 barrels of oil. From there, the oil is shipped to the storage hub in Cushing, Oklahoma.

Renée Jean from the Williston Herald reports that the deal was enticing due to the quality of reserves associated with the assets. As reported by the Herald, Kinder Morgan Communications Manager Melissa Ruiz said, “We believe that the quality of the reserves attached to our assets, which are among the best in the Bakken, are such that producing those reserves is economic for producers even in the current commodity price environment.”

Kinder Morgan took on $1 billion in debt with the purchase, but Ruiz explained, “The value of those reserves, combined with the quality of the long-term commercial agreements attached to the assets, which are mostly fee-based and long-term in nature, and the strength of our customers, make these assets valuable even in the current environment.”

Another project announced in February is the Pembina Pipeline. The project will include an $85 million expansion to the $850 million Vantage pipeline system that the company acquired last September. The pipeline stretches for 430 miles and transports ethane produced in the Bakken region to petrochemical facilities in Canada. Projected to be in service by 2016, the expansion will increase the line’s capacity from 40,000 barrels per day to 68,000.

Additional infrastructure projects include the proposed $2.6 billion Sandpiper pipeline. The line would run from the Bakken oilfields in North Dakota to Wisconsin. Another project slated for construction includes the Dakota Access pipeline. This $3.7 billion transfer line would run from Stanley, North Dakota, to connect with existing lines in Patoka, Illinois. 

Jeff LunnenComment