Bloomberg News

Niobrara Oil Seen as Potential Savior for U.S. West Refiners (3)

April 04, 2014

Companies from Noble Energy Inc. (NBL:US) to Whiting Petroleum Corp. (WLL:US) are ramping up output in the Niobrara shale oil play near the Rocky Mountains that may help save U.S. West Coast refiners from dwindling supplies in their own region.

The formation spread across parts of Colorado, Kansas, Nebraska and Wyoming is estimated to hold as much as 2 billion barrels of oil, Energy Information Administration data show. Niobrara’s oil and lease condensate output will reach a record 304,434 barrels a day this month, the agency said.

The Rocky Mountains play may be a godsend for Western refiners because its crude closely matches the characteristics of oil from the region’s largest domestic supplier, Alaska’s North Slope, where output has declined every year since 2002. A slide in Alaska and California oil production has forced West Coast refiners to increasingly rely on foreign imports and oil shipped by rail from other states.

“We’ve had a number of shipments move by rail, but I don’t think any of it has gone to the West Coast yet,” Gary Willingham, Noble’s senior vice president of U.S. onshore, said in Denver during conference on Bakken and Niobrara crudes. “It’s certainly part of our plan to have that flexibility. We want it to go where the demand is and where the best price is.”

The posted price for oil from the Denver-Julesburg Basin, where the Niobrara is located, rose $1 to $85.05 a barrel today, according to the marketing division of Plains All American Pipeline LP. (PAA:US) Alaska North Slope oil rose $1.20 to $107.39 a barrel, data compiled at 4:16 p.m. New York time show.

Match for West

Noble, the largest producer in the Niobrara, expects its output from the basin to surpass 100,000 equivalent barrels a day this year and reach 250,000 by 2018, Willingham said at Hart Energy’s 2014 DUG Bakken and Niobrara conference. Whiting has three rigs running in its Redtail prospect there and plans to add a fourth in August.

Oil from the Niobrara matches the medium crude Alaska North Slope so well that it may be “demanded by folks on the West Coast,” said Mark Smith, vice president of development, supply and logistics for Tesoro Corp. (TSO:US), the largest refiner in the West.

Niobrara crude “fills the bill” for the West Coast, Jim Volker, Whiting’s chief executive officer, said at the conference yesterday. Oil from the formation will have to compete against other Western plays such as the Uinta Basin of Utah to supply the region, he said.

Rail Projects Spreading

Tesoro is developing a terminal at the Port of Vancouver, Washington, with Savage Services Corp. that would take oil off rail cars and load it onto marine vessels for delivery.

“That Niobrara stuff could easily take up space” at the terminal, Smith said.

Wyoming, home to the Guernsey oil-pipeline hub, issued permits last year allowing projects with collectively more than 459,000 barrels a day of crude trans-loading capacity. It has approved permits for two more sites this year with as much as 146,000 barrels a day in capacity.

Musket Corp. runs an oil-by-rail terminal in Windsor, Colorado, that began loading unit-trains at the beginning of this year. The White Cliffs pipeline that carries oil from the basin to Cushing, Oklahoma, is scheduled to double capacity to 150,000 barrels a day this year.

California, home to two-thirds of the West Coast’s refining capacity, received 55,025 barrels of oil by rail from Colorado in December, the most ever for that month, and took in a record 87,951 from the state in May 2013. Colorado oil production reached a record 206,000 barrels a day in October.

While companies including Noble and Whiting are accelerating drilling in the Niobrara, Continental Resources (CLR:US) decided to allocate spending elsewhere this year, said John Kilgallon, the company’s vice president of investor relations.

“There has been some success by some operators there, but we’re not one of them,” Kilgallon said by telephone March 28.

To contact the reporter on this story: Eliot Caroom in New York at ecaroom@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Richard Stubbe, Margot Habiby


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Companies Mentioned

  • NBL
    (Noble Energy Inc)
    • $53.83 USD
    • -1.59
    • -2.95%
  • WLL
    (Whiting Petroleum Corp)
    • $53.14 USD
    • -1.85
    • -3.48%
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