Oneok Plans $1.8 Billion Oil Pipeline to Cushing Hub

Oneok Partners LP (OKS) plans to build a $1.8 billion pipeline that will bring 200,000 barrels of crude a day from North Dakota’s Bakken Shale field to an oil-trading hub in Cushing, Oklahoma.

Construction of the 1,300-mile (2,100-kilometer) Bakken Crude Express pipeline will start as soon as 2013 and the system may be operating in early 2015, the Tulsa, Oklahoma-based partnership said in a statement today. The project would be Oneok Partners’ first oil pipeline and is estimated to cost $1.5 billion to $1.8 billion.

“As producers continue to aggressively develop crude oil from wells in the Bakken Shale, more crude-oil pipeline takeaway capacity will be required,” Terry K. Spencer, Oneok Partners president, said in the statement.

The Bakken Shale formation, which stretches from Canada into North Dakota and Montana, holds an estimated 3.6 billion barrels of crude, according to the U.S. Energy Department. A lack of pipelines to bring the oil to refineries has caused crude prices in North Dakota, which had record output in January, to trade for as much as 30 percent less than West Texas Intermediate, the U.S. benchmark.

The proposed pipeline will run alongside existing Oneok Partners’ projects for more than 80 percent of the route and will be “well-positioned” to move crude from the Niobrara Shale in Colorado and Wyoming, according to the statement.

Transporting Oil

Production from the U.S. portion of the Williston Basin, which includes the Bakken, is projected to hit 1 million barrels a day in five years, which would increase the need for transportation, said Justin Kringstad, director of the North Dakota Pipeline Authority.

“It’s going to be very interesting to see how industry shakes this out in the next several months,” Kringstad said in an interview.

Oneok joins at least three other companies that are building or considering pipelines to transport Bakken oil.

TransCanada Corp. (TRP)’s Keystone XL pipeline, which has been delayed because of environmental concerns in Nebraska, includes a link to the Bakken that would transport 100,000 barrels a day from the formation.

Pipeline Expansion

Enbridge Inc. (ENB) is reversing and expanding a pipeline in North Dakota that will allow it to transport 120,000 barrels a day by 2012, according to its website. Separately, the company is expanding its Flanagan pipeline from Chicago to Cushing, and is working with Enterprise Partners LP to reverse and expand the Seaway pipeline between Cushing and the Gulf Coast. The system will be able to move 850,000 barrels a day to the coast when completed in 2015.

Kinder Morgan Energy Partners LP (KMP) is considering converting its Pony Express pipeline to carry 210,000 barrels of oil a day from Wyoming to Cushing, according to the company’s website.

Oneok Partners is investing as much as $2 billion in Bakken Shale gas projects through 2014, including a gathering system and processing facilities and a pipeline for gas liquids.

Oneok Inc. (OKE), which sold the partnership its gas pipelines, storage and processing business in 2006, holds a 43 percent stake in Oneok Partners and owns the general partner that controls it.

Oneok Partners fell 1.6 percent to $54.06 at the close in New York. Oneok Inc. dropped 0.5 percent to $80.68.

To contact the reporter on this story: Mike Lee in Dallas at mlee326@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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