By Ernest Scheyder and Catherine Ngai
NEW YORK, July 14 (Reuters) - A $6 billion takeover to
create the biggest oil producer in the Bakken shale may also
open up new opportunities for some big traders who ship oil from
North Dakota and Montana to market.
Over the weekend, Whiting Petroleum Corp said it
would acquire Kodiak Oil & Gas Corp, creating a company
that pumped some 107,000 barrels per day (bpd) in the first
quarter, or about one in every 10 barrels of Bakken crude.
Like most producers in the Bakken, neither firm delivers its
crude directly to a refiner's front gate, relying instead on
logistics or trading companies with access to pipelines, oil
terminals or rail cars to buy the crude near the wellhead and
transport it hundreds or thousands of miles.
Whiting has preferred to sell its over 75,000 bpd of oil
production to middlemen who can then ship the crude to the
highest-priced market, with Plains Marketing LP, Shell Trading
and privately held Dallas-based Bridger Trading among its
biggest buyers, according to its filings with the U.S.
Securities and Exchange Commission.
Kodiak also sells its over 30,000 bpd of oil output at the
wellhead, but most often to refiners such as Tesoro Corp
, which owns a refinery in North Dakota and another in
Washington state, and Valero, which take it directly to
their plants, according to a person familiar with the company's
sales. Both refiners declined to comment on their suppliers.
With the deal, Kodiak's relatively small slice of Bakken may
now be able to reach a wider variety of buyers, according to the
person. That may also reduce its exposure to the volatile price
discounts that arise in the region due to a lack of adequate
access to pipelines, the cheapest form of transport.
Last year, differentials on Kodiak's oil sales varied from
$2.60 to $15.94 a barrel, according to its filing.
Whiting's larger size may give Kodiak options for crude
transportation that it does not currently have, said Whiting
spokesman Eric Hagen. Whiting will continue to rely largely on
third-party marketers, he said, but with a preference for
shifting more supplies to pipelines such as Sandpiper, a new
line being built by Canada's Enbridge Inc.
In turn, Whiting may also gain access to the Pony Express
pipeline, which is due to start up in the coming months. The
pipeline can carry up to 320,000 bpd from Wyoming and connects
into the Cushing, Oklahoma, pipeline hub. Over 85 percent of
Kodiak's output is pumped into a local gathering pipeline
system, which may ultimately flow toward the Pony Express.
PLAINS, SHELL, BRIDGER
Whiting, one of the early drillers in the Bakken, has long
relied on marketers and middlemen to get its crude to end-users.
Last year, for instance, it sold 21 percent of its oil,
natural gas liquids and natural gas output to Plains Marketing,
a unit of Plains All American, which owns two oil rail
terminals and a pipeline system in the Bakken. It sold another
14 percent to the trading arm of Royal Dutch Shell,
according to its annual SEC filing.
Another 11 percent went to Eight-Eight Oil Company, a
privately held logistics firm in Wyoming, and 8 percent to
Bridger Trading, a fast-growing midstream and marketing company
backed by private equity firm Riverstone.
Bridger, which also runs rail loading facilities including
one in North Dakota, says that its marketing team handles over
70,000 bpd of crude oil as of June, much of it by rail.
The firm aims to expand its fleet of 900 rail cars - all
built in 2013 or 2014, after tougher standards came into effect
- to 1,410 by next March, according to its website. It also owns
pipeline and storage capacity, plus a growing fleet of
crude-hauling trucks. Last month it announced a deal to buy
Occidental Petroleum's Permian basin trucking fleet.
Kodiak does not identify its customers by name, but says it
has worked to diversify its customer base. The two largest
buyers of its oil and gas output took 23 percent and 14 percent
of its production last year, according to its SEC filing. No
other company took more than 6 percent, the firm said.
In February, Kodiak's vice president of marketing Bruce
Taton told analysts that the firm was selling 65 percent of its
crude direct to refiners, and about 80 percent of it was moved
by rail. In January and February, about 40 percent of the crude
went to the East Coast and 15 percent to the West Coast.
"With the transparency in the market, we feel we're
capturing fair value for our oil without having to expend
capital on pipeline space, rail cars, or proprietary trucking,"
he said. "That being said, we're always looking at new proposals
for pipelines and other means to move oil to markets."
(Editing by Jonathan Leff and Lisa Shumaker)