Dakota Pipeline's 1st Anniversary: Bakken Game-Changer?

Energy Transfer Partners L.P.'s ETP mega project, Dakota Access Pipeline, recently marked its one-year anniversary. Disregarding criticism from Native American tribes and environmental groups, the pipeline has been operational for a year now and proved to be a silver bullet for North Dakota's economic potential.

Clears Many Challenges

The pipeline was supposed to become operational by the end of 2016. However, it received immense censure from a Native American tribe that delayed the commencement of its services. The Obama administration halted pipeline construction amid protests, blocking the building of the final part of the pipeline through North Dakota.

The protests drew international attention as the Standing Rock Sioux Tribe objected the project. They were of the opinion that the pipeline would desecrate their sacred burial ground as well as contaminate water supply.

However, making good on his campaign promises to rev up infrastructure spending, President Trump ignored bitter opposition from environmental activists and brushed aside former Obama's efforts of blocking the pipeline's construction. Efforts to complete the Dakota Access Pipeline were thus reinvigorated, as Trump signed an executive order to smoothly execute the pipeline's operations. The pipeline finally came online on Jun 1 last year.

Dakota Pipeline: Trump Card for North Dakota?

Though the opening of the pipeline was mired in controversy, the $3.8 billion Dakota Pipeline has proved to be quite a game changer for the producers in the Bakken shale play.

While Bakken in North Dakota has significant accumulations of profitable oil reserves, production in the area fell sharply during the oil slump. However, with rebounding crude prices, Bakken has been regaining strength, with output gradually approaching the peak levels that was achieved in 2014.

Apart from improving energy landscape, another factor that has been boosting its production prospects is the 1,172-mile-long Dakota Access pipeline. While North Dakota production volumes lag Texas and Gulf of Mexico levels, the output growth has enhanced domestic energy independence, with the pipeline already carrying around 182.5 million barrels of oil.

In March 2018, oil production hit 1,162,071 barrels per day(bpd) as against 1,025,638 bpd a year-earlier, gaining impetus from the pipeline project. North Dakota's total number of producing wells totaled 14,457, banking on improved energy landscape and midstream network.

The pipeline, with a capacity to carry about 520,000 barrels of oil per day, has successfully bridged the gap between Bakken players and producers in other U.S. oil-producing areas like the Williston and Permian basins.

The commencement of the pipeline's service has bolstered the revival of Bakken output, with large operators like Oasis Petroleum Inc. OAS counting on the Dakota Access Pipeline to send a major portion of their products to market. Oasis Petroleum currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Products from companies like Continental Resources, Inc. CLR and Hess Corp. HES were among the first to reach the international markets (China and Netherlands), with the help of the Dakota Access pipeline.

In fact, around 78% of oil shipments out of North Dakota are now being carried by pipelines, with the costly railroad share dropping from more than 24% in the early part of 2017 to little in excess of 10%.

The geographically constrained Bakken Shale's crude has now better access to the Gulf and East Coast refineries, and also reaches the international markets. As expected, the pipeline, in which energy majors like Phillips 66 PSX , Enbridge Inc. ENB and Marathon Petroleum Corp. MPC have invested, helped to improve the region's drilling economics. It helped in lowering transportation costs for operators from $8 a barrel to around $4-$5 per barrel. Reportedly, the number of operational rigs in the region totaled 60 in April, witnessing more than 50% year-over-year increase.

The pipeline project also generated huge employment opportunities in its construction, engineering, manufacturing and technology activities, creating around 40,000 jobs.

Although the pipeline has been subject to several minor leaks since its inception, it hasn't recorded any major incident. Minor spills were in fact effectively contained and cleaned up, without leading to severe loss of volumes. Reportedly, in the first six months of its operation, the pipeline transported 61.25 million barrels with a nominal loss of less than 4 barrels of oil during the same period of time.

Final Thoughts

While a years' time is certainly not enough to gauge success or failure, the pipeline has definitely been a big booster in many ways. Overall, rebounding oil prices together with the commencement of the Dakota Access Pipeline are expected to support further increase in Bakken output by providing the companies a chance to push their produce outward at a lower cost. Reportedly, a conducive oil pricing environment is likely push the state's output beyond the all-time high of 1,227,483 barrels/day sometime during the next few months.

However, with the opponents still concerned of emission levels and safety issues, they want the pipeline operator to have proper oil spill response plan in place.

Nonetheless, with surging production volumes, effective infrastructural development is the need of the hour. With pipelines being the efficient and preferred choice of transportation, prospects of Dakota Access Pipeline look encouraging.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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