EOG Resources plans to rail Bakken oil to market
HOUSTON, May 12 (Reuters) - EOG Resources Inc (EOG.N) plans to ship North Dakota Bakken Shale oil to market by rail due to limited pipeline availability, a spokeswoman said on Tuesday.
EOG Chairman and CEO Mark Papa discussed the plan in a May 5 quarterly earnings conference call with analysts.
A "strategic transportation arrangement" is in place with BNSF Railway (BNI.N)to begin unit-train operations by February 2010 to Cushing, Oklahoma, and other markets, Papa said.
Papa declined to discuss details, saying negotiations continue toward a final deal.
A BNSF spokesman declined comment on dealings with any specific shipper but said unit trains in general carry bulk commodities, such as coal, long distances from point to point.
EOG turned to rail because the only pipeline available, Enbridge Inc's (ENB.TO) North Dakota System, has no room for EOG's planned increase in Bakken production, Papa said.
The company has trucked Bakken oil to markets such as Salt Lake City and Cushing, but that option costs up to $25 a barrel and is uneconomical, Papa told analysts.
EOG has restricted Bakken oil production because of weak demand and low prices.
"Recently, WTI prices have increased and differentials have shrunk, so we plan to bring back our Bakken production in June and be at full production in July," Papa said.
Enbridge can carry 10,000 barrels per day (bpd) of EOG Bakken production, but EOG plans to boost output enough to put 20,000 additional bpd on trains, Papa said.
Enbridge is expanding the North Dakota System's capacity to 161,000 bpd from 110,000 bpd and continues talking to shippers to try to meet demand, spokesman Larry Springer said.
"Right now, I don't have anything on the table to talk about," Springer said.
"In general, on a per barrel per mile rate, pipelines are a more economical way to move crude oil. That's why we do it," Springer said.
BNSF spokesman Pat Hiatte declined to comment on the general outlook for shipping crude oil by rail. "We'll take it as it comes, try to be opportunistic," Hiatte said.
Papa told analysts that EOG's rail plans could develop beyond just hauling EOG's own oil.
"Once this thing gets up and running, it would be a pretty effective third-party business for us in terms of other people coming to us and wanting to access," Papa said.
Trains have hauled crude oil before but rail shipment of crude was more common when there were fewer pipelines, sources familiar with the industry said. (Reporting by Bruce Nichols; Editing by Marguerita Choy)
