UPDATE 1-Phillips 66 signs domestic crude logistics agreements

Wed Mar 20, 2013 10:01am EDT

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NEW YORK, March 20 (Reuters) - Phillips 66 will ship up to 40,000 barrels per day of crude by rail from pipeline operator Enbridge Energy Partners' unit train terminal in North Dakota in one of several deals the large oil refiner announced on Wednesday.

The agreements will allow Phillips to ship more of what it called "cost advantaged" North American crude to its refineries around the United States in the coming years. This could help it secure cheaper supplies of oil and boost its refinery margins.

The crude-by-rail shipments from an Enbridge terminal in Berthold, North Dakota, will begin as early as May and ramp up to between 35,000 and 40,000 barrels per day by November, Phillips said.

Phillips has a stake in 15 refineries with a net crude oil processing capacity of 2.2 million barrels per day.

Crude from the Bakken field of North Dakota will be sent to Phillips' refineries on both the East and West coasts and potentially also to the southern Gulf Coast, the company said.

Crude-by-rail has emerged as a viable alternative to pipelines for getting growing production volumes out of the Bakken field to refineries in other regions, which have often had to rely on more expensive imports.

Bakken crude and other oil produced in landlocked U.S. shale regions and in Canada have been trading at substantial discounts to barrels delivered in coastal regions, including imported crudes. That provides financial incentives for oil and railroad companies to move inland crude to coastal regions, where it fetches a price premium.

In another agreement, Targa Resources Partners will unload crude shipped by rail from Canada in Washington State and barge it to a Phillips refinery in Ferndale, Washington. The deal will help Phillips run more Canadian oil supplies, which are discounted.

Houston-based Phillips also announced a deal with Magellan Midstream Partners to use the company's pipelines to transport crude near its refinery in Ponca City, Oklahoma.

The companies plan to substitute West Texas Intermediate, the benchmark grade for U.S. crude futures, with a new crude stream from the nearby Mississippian Lime shale play, Phillips said. Shipments should begin in late 2013 and ramp up to 20,000 barrels per day in early 2014, the company said.

Phillips also said it would invest in its own crude transportation assets in Oklahoma, allowing it to ship an additional 40,000 bpd of crude from the Mississippian Lime to its Ponca City plant.

The plans are part of a strategy in which Phillips is "aggressively pursuing increased access to advantaged crudes in North America," Chief Executive Officer Greg Garland said in a written statement.

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