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Seaway Pipeline Reversal May Face Delay, ConocoPhillips Says

Reversing the direction of the Seaway oil pipeline running from Oklahoma to the Gulf Coast may take longer than the new ownership team expects.

“It could take longer than what they have thought but it’s up to them to determine how quickly they feel it can be done,” Jim Mulva, chief executive officer of ConocoPhillips (COP), said today in an interview in Doha, Qatar.

The owners, Calgary-based Enbridge Inc. (ENB) and Houston-based Enterprise Products Partners LP (EPD), said their timeline for reversing the line in the second quarter next year is unchanged.

ConocoPhillips, based in Houston, sold its 50 percent share in Seaway to Enbridge last month for $1.15 billion. Enbridge and Enterprise, which owns the other half, said they will reverse the flow on the line from Cushing to the Texas coast, which may help ease a bottleneck at the storage hub that has caused U.S. benchmark West Texas Intermediate crude to trade at a discount to imports.

The deal is expected to close “shortly” and has cleared regulatory hurdles from the Federal Trade Commission, Enterprise Chief Executive Officer Michael A. Creel said at an investor conference today.

The 500-mile (800-kilometer) Seaway line may begin transporting 150,000 barrels a day from Cushing to Houston-area refineries “early” in the second quarter of 2012, Jennifer Varey, an Enbridge spokeswoman, said in an e-mail today.

Timeline Unchanged

“There are no developments that would cause Enbridge and Enterprise to change our estimates with respect to the reversal,” Varey said.

Enterprise’s plan for the reversal is on schedule and the only remaining regulatory action needed is approval of the pipeline’s proposed shipping rate from the Federal Energy Regulatory Commission, Rick Rainey, a spokesman for Enterprise, said in a telephone interview today.

The companies’ timeline is feasible, said Richard Kuprewicz, president of Accufacts Inc., a Redmond, Washington- based pipeline consultant.

“That’s very doable if they’ve got their ducks lined up,” he said in a telephone interview today. “I don’t see a dealbreaker here.”

The challenge will be buying the necessary equipment and properly updating pumping stations, Kuprewicz said. Another factor is whether they would have to make crude flow uphill, an unlikely scenario given the relatively flat terrain in Oklahoma and Texas, he said.

WTI Discount

WTI’s discount to North Sea Brent futures narrowed to the smallest margin in eight months after the Seaway reversal announcement. The European benchmark contract was at a $9.06 premium to WTI today. The premium reached a record $27.88 on Oct. 14. Brent last closed at a discount to the New York-traded crude in August 2010.

“The oil market reacted pretty quickly because they did not expect we would be selling our interest in the pipeline,” Mulva said. “So that was maybe something of a surprise to them.”

The company, which used the Seaway pipeline to transport crude to its refinery in Ponca City, Oklahoma, found other ways to supply the plant, Mulva said, without elaborating.

“We felt that we sold the interest in the pipeline for a good value, a good price,” he said. “We also see that more of this production is being evacuated, irrespective of pipeline capacity, by rail and by truck. We also have our own views about how quickly that pipeline can be reversed.”

To contact the reporters on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net; Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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