Statoil Uses Rail for Bakken Crude

In the wake of capacity constraints of pipelines in the Bakken play, Norwegian operator Statoil ASA (STO - Analyst Report) announced the transport of Bakken crude from North Dakota to market by rail.

The constantly growing yield from the Bakken and Three Forks plays of North Dakota has put a lot of pressure on existing pipeline capacity. The output, which is expected to increase to 1 million barrels per day (bpd) from its current output of 600,000 bpd over the next three to five years, will further face transportation constraints.

With a target to ease these bottlenecks, Statoil proposes to commence shipments by rail starting in September. It has leased an additional 1,000 tank cars for the existing arrangement that will facilitate the access to markets on the East, West and Gulf Coasts of the US, as well as Canada.

Each train having a length of about two kilometers and having 100 cars is expected to take up a transit time of around 14-15 days round-trip, including loading and unloading. Together, all 1,000 cars are capable of offering a transport capacity equal to a North Sea shuttle tanker.

Statoil’s efforts to overcome the transport bottlenecks will also aid the company’s future growth as it plans to enhance production in the area to 100,000 bpd in the next three to five years from the current level of 26,000 to 60,000 bpd. By 2020, Statoil intends to triple its North American oil and gas output to 500,000 barrels of oil equivalent per day.

Consistent with its strategy of augmenting its position in the North American unconventional arena, Statoil acquired net acreage of over 375,000 in the Bakken and Three Forks by purchasing Brigham Exploration last year.

The move to use rail-based exports is likely to result in savings of millions of dollars for the company and also boost its profit margin, as Statoil grows its acreage in North America.

Statoil, which recently hired Schlumberger Limited (SLB - Analyst Report) for electric wireline logging services on the Norwegian Continental Shelf, holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.