Plan B For ONEOK; The Vanishing DIscount For CLR

Both of these stories are old news:

• ONEOK did not go forward with its Bakken crude oil pipeline
• ONEOK announces yet another natural gas gathering and processing plant in the Bakken

Motley Fool has a nice footnote to the story, from CLR's last earnings release:

We've recently seen a significant improvement in Bakken oil price differentials, reflecting higher volumes being shipped by rail to the coasts and the anticipation of increased pipeline capacity ... We now have excess transportation capacity in both pipe and rail, and, with additional infrastructure projects in the planning and construction stages, capacity should remain ahead of Bakken production growth.

The "we" is interesting. CLR often speaks for the entire Bakken boom, but it's possible, in this case, it is referring only to itself when it reported: "we now have excess transportation capacity in both pipe and rail."

Excess capacity.

In both pipe and rail.

Interesting.

The WTI/Bakken spread (at least at Clearbrook, MN) seems to confirm that. At the link, the October 29, 2012, spread was $10. Today, it is moving toward $3,00. For all intents and purposes, at least at Clearbrook, WTI and Bakken are at parity. Interesting. So, for Bakken producers:

a) increased output -- i) more wells; ii) more takeaway capacity (opening the spigots on more wells)
b) price of oil trending upward
c) discount to WTI vanishing

After failing to sign up enough subscribers to justify another crude oil pipeline, ONEOK took another look at the Bakken boom and another look at what ONEOK does best. It didn't take them long to go for Plan B: another natural gas gathering and processing plant. With the legislature looking at tax benefits for the natural gas industry in North Dakota, and faux environmentalists wringing their hands over flared natural gas, ONEOK looks to be in a great position.