Under Pressure - Will a New Washington State Law Hurt Bakken Crude Oil Producers?

U.S. refiners have been enjoying some very good times the past couple of years. Most important, refining margins have soared due to a tight global product supply/demand environment brought on by, among other things, the post-COVID demand recovery, refinery shutdowns, Russia/Ukraine war effects, and high natural gas prices. Traditionally, the bulk of refining margins have come from (1) robust “crack spreads” (the general yardstick for measuring overall refining sector health, simply by taking the difference between a basket of refined products and key light sweet crude markets like WTI Cushing or MEH) and (2) the lower crude-input costs that many refineries benefit from, either because of location-related advantages or their ability to process lower-cost crude like medium and heavy sours. But location discounts have narrowed in recent years due to the buildout of pipelines and, as we discuss in today’s RBN blog, the big quality discounts that complex refiners relished through much of last year and the first few months of 2023 have withered. The question is, why?

Trans Mountain Pipeline, the only pipeline that connects crude oil production areas in Alberta to Canada’s West Coast and the U.S. Pacific Northwest, has started to resume operations after a three-week shutdown. The pipeline closure — the longest in TMP’s 68-year history — began November 14 after major flooding exposed portions of the 300-Mb/d conduit, which also carries some refined products. Fortunately, Trans Mountain did not suffer any severe damage, breaks, or spills, and its operators were able to initiate a phased restart on December 5 at reduced pressures. Full service is expected to be restored soon. So what happens when a primary source of crude oil to five refineries — four in Washington state and one in British Columbia — is removed from service with little notice? In today’s RBN blog, we discuss the impacts.

Buoyed by still-elevated crude oil, natural gas and NGL prices — and discipline on capital spending and production growth — U.S. E&Ps have been generating unprecedented cash flow and using much of that bounty to reduce debt, increase dividends and buy back shares. A number of producers have also been investing some of that cash to expand their holdings, mostly to complement their existing acreage in the Permian and other plays and thereby allow for increased efficiency and, in many cases, longer laterals. Few have been doing more in this regard lately than Devon Energy, the Oklahoma City-based E&P, which completed a big bolt-on acquisition in the Bakken in late July and just followed that up with a plan for an even bigger buy in the Eagle Ford. In today’s RBN blog, we look at the company’s strategy.