Stanton Dodson, CEO of Great Dakota Energy, reports on new developments in North Dakota’s Bakken oil basin.
While big oil companies spud oil wells left and right hoping to strike it big through fracking, there’s another big player in the oil business that’s earning billions in the background: pipeline owners. Companies that build and maintain the pipelines that transport oil out of the oil fields and into the market are now taking bigger and bigger earnings from the hundreds of oil companies in the major oil fields within and outside the Williston / Bakken Basin.
The Oil Industry’s Transport Network
Oil is crucial to transportation, manufacturing, and other industries that fuel the economy. It is, however, difficult to transport. Oil wells have been known to stop operations in the absence of a safe pipeline that would receive their oil and bring it to the market.
At present, the United States has a total of 450,000 miles of oil transport pipelines that traverse the country’s major oil fields. The government, through the Federal Energy Regulatory Commission, sets the transmission rates for these oil pipelines. With the recent oil boom in the Bakken Basin, pipelines will continue to get built to make sure oil goes out of the wells and into the waiting market.
Fracking Pumps More Oil into Pipelines
The billion-dollar pipeline business is already earning solid profit. With the development of hydraulic fracturing techniques, however, the pipeline business is in for even bigger takings.
Hydraulic Fracturing, also known as fracking, is an oil& gas retrieval technique that is used to extract oil trapped below layers of shale underground. Fracking was first used in 1947 in a well in Grant County, Kansas in an attempt to improve the production of a natural gas well completed in a limestone formation. The Bakken Basin oil boom is perhaps the best example of how much fracking has increased North American production.
With an estimated 4.3 billion barrels of recoverable oil in the Bakken Basin, the volume of oil being produced per day rose in North Dakota alone to an average of 445,000 barrels per day in August 2011, up from an average of 344,000 barrels per day at the end of 2010. North Dakota is now the Nation’s fourth largest oil-producing State—trailing only Texas, Alaska, and California—due mainly to Bakken production gain. As of January 2011, North Dakota state officials declared that in their state alone, there are 11 billion barrels of recoverable oil. Some estimates being made are much higher, in the range of 15 to 20 billion recoverable barrels.
The advancement of fracking technology has allowed several oil companies operating in and around the Bakken Basin to tap the multitude of barrels of oil in the area. This created a sudden and huge demand not only for skilled workforce in the oil industry but also for serviceable pipelines that would transport the goods.
To illustrate just how big the pipeline business is, let’s take a look at one of the big players in the oil transport pipeline business: Kinder Morgan.
Big Bucks in Pipeline Business
While major oil companies earned a 3.5 percent compound annual return for their investors from 2007 to 2010, Kinder Morgan – a pipeline partnership – has generated a whopping 17.7 percent returns for its investors.
Kinder Morgan is far from reaching its peak. In December 2011, the Kinder Morgan made known its bid to buy its biggest competitor in the pipeline business, the El Paso Corporation, for $21 billion. This would make the company the largest in the country, with 80,000 miles owned across 35 states, from Texas to Pennsylvania, and from the Gulf of Mexico to Canada.
The pipeline business also enjoys federal tax break that is not offered to other energy industries, allowing them to get capital at a lower cost (compared to their counterparts) and offer higher after-tax returns to their investors.