Plains All American is Buying US Dev Group's Eagle Ford Crude Terminal

Gardendale Rail Map

Plains All American Pipeline (PAA) has reached a $500 million deal to buy four rail facilities from U.S. Development Group. One of those facilities is part of the Gardendale Rail System near Cotulla, TX.

The four facilities are rail terminals:

• Van Hook Crude Terminal - New Town, ND (servicing the Bakken)
• Niobrara Crude Terminal - Carr, CO
• Eagle Ford Crude Terminal - Cotulla, TX
• St. James Rail Terminal - St. James, LA

The three crude terminals have daily loading capacity of 85,000 b/d and the rail terminal at St. James has unloading capacity of 140,000 b/d. An unloading facility is also planned for Bakersfield California.

“Plains has proven to be a great terminal and pipeline partner for USD, and we believe that this transaction will provide for the most efficient optimization of the assets involved.”

— Dan Borgen, U.S. Dev. Group CEO

The Eagle Ford Crude Terminal receives oil by truck near Cotulla, TX, in the community of Gardendale. It's just off I-35 80 miles south of San Antonio. The facility has capacity for 200 loaded rail cars, and can move as much as 40,000 b/d. The terminal is serviced by Union Pacific Railroad and the Gardendale Railroad. Crude moving from the terminal ends up in St. James, LA, where the facility can handle 300 loaded railcars at one time or 130,000 b/d. The St. James Rail Terminal also ties into several pipelines, including one owned by PAA.

"These assets represent a very attractive addition to our existing North American rail activities...." said Greg L. Armstrong, Chairman and CEO of PAA. "Given recent and projected increases in North American crude oil production and volumetric and quality imbalances expected to occur in certain regions over the next several years, we believe that strategically located rail loading and unloading assets will continue to play an important role in the transportation of crude oil in North America."

Crude oil pricing is as dynamic as ever across the U.S. Growing production in the Bakken and West Texas have put downward pressure on WTI (priced at Cushing, OK). On December 10, 2012, WTI was trading at ~ $86.50 / bbl and Brent crude was trading a little over $108 / bbl. That's a wide spread that creates attractive crude by rail economics. Plains also has an extensive NGL rail network and expects to have as many as 6,700 rail cars under lease by year-end 2013.

Plains All American Pipeline's company wide crude oil loading capacity is now 250,000 b/d and unloading capacity is 335,000 b/d on the East Coast, Gulf Coast, and West Coast.

Read the full press release at paalp.com

Eagle Ford Oil Prices Trade at a Premium to WTI - Condensate Weaker

Oil Drum

Eagle Ford oil prices realize a nice premium to WTI and higher API condensates trade at a discount. One of the great advantages the Eagle Ford has over other shale plays is location, location, location. A short commute to the nation's petrochemical backbone means operators realize better oil prices than most areas of the U.S.

Eagle Ford Shale Oil Price Premium

Eagle Ford oil prices trade at a premium to WTI or a discount to LLS depending on who you talk to. Over the past two months, posted Eagle Ford prices have traded at a ~$6-8 premium to WTI and a ~$6 discount to LLS posted prices. That's after spending part of April and May at >$10 premium to WTI and almost parity with LLS.

Eagle Ford Condensate Prices Trade at a Discount to Crude Oil

In 2011, over 36% of reported liquids production from the Eagle Ford was considered condensate and as much as 50% of production today is estimated to be condensate. That's a significant portion of production, so it's important to understand its pricing. A recent article by RBN Energy provides more details in regards to condensate pricing.

....there are 3 principal markets for condensate: (a) sale as crude oil, (b) sale as diluent for heavy crude blending, and (c) processing in a splitter and sold as component products. Refiners find condensate less attractive as a crude oil blend because it produces less of the valuable middle distillate blends. The diluent market is attractive but requires shipment to Canada. Some of the Eagle Ford condensate is being shipped south to Corpus Christi by pipeline and then by barge up the Gulf Coast to St James LA and on up the Capline pipeline to Canada. Midstream players in the Eagle Ford are also developing condensate processing facilities. At the moment, however, we can see from Plains All American posted prices that refiners are paying less for Eagle Ford condensate than they do for crude and then applying a gravity adjustment factor to reduce the price they pay for condensate even further.

Using Plains All American posted crude oil and condensate prices, the RBN articles compares 60.1 API Eagle Ford condensate to crude with a 40-44.9 API:

The average posted condensate to crude discount this year was close to $17/Bbl.

You can read the full write up on crude and condensate prices at RBNEnergy.com

The discount for condensate from crude is ~$12/bbl now, but it has stretched over $20 at times in the first two quarters of the year. Putting both the crude and condensate price pieces together we have a better picture of what operators are being paid in South Texas. Crude oil is more marketable and can easily displace imports at refineries. Add optimal location and it receives a premium to WTI. Condensate with an API of 60+ has more limited use and is trading at a discount to crude and WTI. Overall, with an assumed 50/50 split of crude and condensate production in South Texas, operators are still realizing prices better than WTI. Consider the major operators who can negotiate crude prices pegged to LLS and South Texas liquids are fetching an even better premium to WTI.

Share your experience or thoughts in the comment section below.

Important Notes:

Condensate has an API gravity of 50+ and falls between natural gas liquids and crude oil on the hydrocarbon spectrum. Condensate is largely produced at the wellhead, but some volumes are captured in gathering systems. 

WTI prices are currently trading at a discount to comparable international benchmarks (Brent). That is the opposite of the historical norm. Cushing, Oklahoma, is lacking adequate infrastructure need to move oil to the Gulf Coast and other demand centers. When that problem is alleviated, we'll likely see a shift in WTI prices, which will change the discussed relationship of WTI and Eagle Ford crude.

Eagle Ford Crude is Pushing Out African Imports

Eagle Ford crude production is pushing out African imports. The Gulf Coast region alone is importing 400,000 barrels per day less than it did at this time in 2010. Domestic oil production is on the rise and foreign crude will continue to be displaced by locally sourced Bakken, Eagle Ford, and Permian crudes. Don't expect that trend to slow as the Bakken and Eagle Ford are on pace to produce 1 mmboe/d each in less than five years.

Don't underestimate the advantages of domestic crude. There are a lot more jobs on the upstream side of the business. It takes multiples more to drill and produce than it does to refine oil. The oil patch is a bright spot in what has been a rather dim jobs market over the past couple of years. As long as oil prices support development, this trend isn't going to change any time soon.

"Crude from Eagle Ford in Texas is coming through, and a rail terminal has opened, taking about 70,000 barrels of crude from North Dakota down to Louisiana," Jordan said.

Eagle Ford Formation

Marathon Petroleum Corp. is moving oil from the Eagle Ford shale-rock formation to its refinery at Texas City, according to the company. Daily production of crude and condensates at Eagle Ford has almost doubled this year from 2010, according to data from the Railroad Commission of Texas.

Refining margins in the U.S. Gulf have sunk to a loss of $0.42 a barrel Nov. 11 from a profit of $16.67 on May 10, the highest in more than 2 1/2 years, Bloomberg data show. The margin is calculated based on the return for turning three barrels of Light Louisiana Sweet crude into two barrels of gasoline and one of diesel. It has averaged $5.73 a barrel this year.

The U.S. imported an average 4.4 million barrels of crude a day to the Gulf Coast in the week ended Nov. 4, compared with 4.8 million in the same week last year, according to the Energy Department. Imports averaged 5 million barrels a day this year. Inventories in the U.S. Midwest are at the highest level for the time of the year in at least a decade, at 92.2 million barrels.

Crude Oil - Condensate - NGLs Are Top Eagle Ford Well Targets

The following Eagle Ford well map (source EIA) gives a good visual representation of the density of drilling across the region. Wells have largely targeted the condensate, oil, and wet-gas portions of the play. The greatest density of wells is visible in the Karnes - DeWitt area and down into northern Webb County.

Eagle Ford Well Map 2010 - EIA

Watch a four year animation of the map at eia.gov

Eagle Ford Barges Taking Crude to Houston - New Orleans - Port Arthur

Barges are being utilized to move Eagle Ford crude oil to refining markets in Houston, New Orleans, and Port Arthur. Kirby Corp, a company that operates inland barges, said yesterday that as many as 140 barges across the U.S. are being used for crude oil. (That's in all areas and not just the Eagle Ford). The 140 represents a ten-fold increase from a decade ago. Moving oil on barges had become an almost non-existant business until plays like the Eagle Ford began producing oil in areas without spare pipeline capacity. Without pipelines, you begin looking for the next best thing. Utilization rates for trucks, tanks, and barges are at modern day highs.

Some of the Eagle Ford movements will be ultimately be kind of medium term" said Pyne, adding that pipelines under construction will eventually replace some of the barges as a means to carry crude from the Eagle Ford.

"But I do think that the the volume coming out of the Eagle Ford and Canadian crude that is being exported to Baton Rouge is sustainable."

Shale oil from the Eagle Ford deposit in southeast Texas has come on strong this year, rising to 272,000 barrels per day (bpd) in June from 70,000 bpd in April, according to energy consultancy Bentek. Some experts say it could top 400,000 bpd by 2013.

Read the full news release at reuters.com