The Daley Note: September 7, 2023
ONEOK (OKE) is joining a wider push by industry to expand NGL pipelines. On its 2Q23 earnings call, OKE announced plans to expand its Elk Creek Pipeline out of the Bakken and loop its West Texas NGL pipeline. East Daley Analytics previously reviewed the West Texas NGL expansion and found it compelling, based on our NGL Network Model. The Elk Creek project is a different story.
Management noted the Elk Creek expansion can be built at limited cost and expects it to be a “very high-return, low-multiple” project, consistent with a pump station expansion. The Tulsa-based company previously planned to expand Elk Creek in 2020, and at the time cited a cost of $305MM to add the 10 pump stations needed to reach 400 Mb/d of capacity.
Due to pandemic-related production declines, OKE reduced the scope of that project from 160 Mb/d to 60 Mb/d (bringing total Elk Creek capacity to 300 Mb/d). The more modest expansion cost ~$100MM. Using the old project estimate and the reported spend on the smaller expansion, EDA estimates the latest expansion could cost $205-225MM after accounting for inflation.
ONEOK did not provide a timeline for the Elk Creek expansion but claimed it would not let the Williston Basin fall short of capacity. However, EDA does not expect producers in the Bakken shale to hit NGL constraints, whether or not the expansion is built.
According to the latest Energy Information Administration data, the Williston hit 460 Mb/d of NGL production in May 2023, and East Daley expects output to stay flat going forward. Elk Creek and OKE’s Bakken Pipeline are the main pipeline options out of the basin, and both have available capacity (see figure).
According to EDA’s NGL Network Model, flows on the Bakken Pipeline have only averaged ~77 Mb/d, well below the system’s capacity of 140 Mb/d. The pipeline delivers ~43 Mb/d of those volumes to Overland Pass (OKE owns 50% with operator Williams (WMB)) and ~34 Mb/d to Elk Creek’s Wyoming interconnect for eventual delivery to Conway and Bushton, KS. Elk Creek has only averaged ~230 Mb/d from its Bakken interconnect in Montana, according to the NGL Network Model. The pipeline fills up the remainder of its 300 Mb/d of capacity with Bakken barrels that travel on the Bakken Pipeline and NGL production from the Powder River Basin (PRB).
It's possible that ONEOK only expanded the PRB-Kansas leg of Elk Creek when it reduced the scope of the 2020 project, which would mean there is only ~65 Mb/d of unutilized capacity between OKE’s two pipes. Alternatively, there could have been contracts on Bakken Pipeline and Overland Pass that limited the full utilization of the Bakken-PRB leg of Elk Creek. Either way, there is plenty of egress capacity on those pipes already. – Ajay Bakshani, CFA Tickers: OKE, WMB.
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