In Continental Resources May 3 first quarter earnings conference call, company president and COO Jeff Hume noted there had been a lot of interest in “differentials on pipe barrels delivered to Clearbrook, Minnesota and Guernsey, Wyoming markets” and how it was impacting Continental’s net wellhead price realizations.
“All of our Red River … oil is gathered at the wellhead and piped to Guernsey … where it’s marketed,” he said. “Roughly half of our Bakken oil is currently being railed to markets where it is priced against waterborne barrels, mainly Brent or Louisiana Light Sweet, which has been $17 to $23 higher than WTI during the first quarter of 2012.”
The cost of rail transport has been running much higher than pipeline, “about $20 to $22 per barrel all-in from the wellhead to the ultimate end market. But even though the rail transportation cost is higher … delivery to the coastal markets (via rail) has provided superior net pricing lately due to the recent high differentials experienced at Clearbrook and Guernsey, especially during March and April,” he said.
Because pipelines are running at full capacity, he said, Continental expects its “incremental growth over the next 18 to 24 months to be shipped by rail,” noting the company wasn’t have any problem getting railcars and capacity.
“We reported (May 2) an average oil differential for the first quarter of 2012 of $12.27 per barrel below WTI, which is considerably above our guidance range of $7 to $9 for a year as a whole. Due to the spikes in oil differentials in early 2012 and continued supply-demand volatility at Clearbrook and Guernsey, we now expect average differentials for 2012 to be in the range of $9 to $11 per barrel. That's the long-haul transportation picture,” Hume said.
When asked by Petroleum News Bakken what Continental paid for shipping oil via pipeline, he said, “The cost to deliver our oil from the well to the market via pipeline is approximately $6 per barrel.”