In its ongoing effort to move oil out of the booming Bakken field of North Dakota, Oklahoma City-based Continental Resources has entered into a five-year contract with a pipeline company owned by Continental CEO Harold Hamm, the company said Monday.
The proposed 500-mile pipeline could eventually transport up to 100,000 barrels of oil per day.
The line is proposed by Hiland Crude, a subsidiary of Enid-based Hiland Resources, which is owned by Continental CEO Harold Hamm and his family.
Hamm also owns 68 percent of Continental, and a trust controlled by his adult children owns another 8 percent of Continental shares.
The pipeline deal was competitively bid and does not represent a conflict of interest, said Jeff Hume, Continental's vice chairman of strategic growth initiatives.
“It has to be competitively bid or it won't be recommended by me and it won't be approved by our independent audit committee and eventually by our board,” Hume said. “Anytime we're going to enter into a long-term contract to market any of our products that's a material contract, we have to demonstrate to management and then to the board that we are getting the best terms available.”
Hume said the company often considers deals with Hamm-owned businesses.
“If they're not the best options, we don't use them,” he said.
Continental agreed to send at least 10,000 barrels per day through the Hiland line for five years, Hume said.
The $300 million line is expected to move up to 50,000 barrels per day when it opens in August 2014, but the capacity could be doubled, Hiland Crude Vice President Jim Suttle said last month in a meeting with Wyoming's Converse County Commission, according to the Casper Star-Tribune.
The 500-mile line is designed to move oil from the northern part of the Bakken to Guernsey, Wyo., where it will connect to the Pony Express pipeline, which will deliver the oil to Cushing.
The fastest-growing oil field in the world for the past three years, North Dakota's Bakken Field has attracted many proposed projects in recent years. Calgary-based Enbridge Inc. is working on a line from the eastern part of the field, and Calgary-based Transcanada's controversial Keystone XL pipeline also is planned to transport Bakken crude.
Continental also has developed rail terminals to transport oil to markets to the east and west.
“We try to support all forms of infrastructure ... to the degree that it is competitive,” Hume said.
Tulsa-based ONEOK Partners in November said it canceled plans for a pipeline that would transport oil from North Dakota to Cushing. The Tulsa-company cited a lack of support.
Hume said Continental had planned to use that line as well.
“We want to support any pipeline that's out of there,” Hume said. “So at the time it had an open season, we were supporters of the line. It didn't get enough support, but it might in the future. The design still stands. It's going to be on hold until the volume in the basin grows to get enough support for those lines.”
The Hiland and Keystone XL lines both are planned to deliver oil to Cushing, which in recent years has experienced a bottleneck as more oil has flowed into the terminal than there was pipeline capacity to move the crude to the Gulf Coast refineries.
The Seaway Crude Pipeline Co. in January completed a project to flow oil from Cushing to the Houston area, and a second line is under construction. Several other pipeline projects to delver oil from Cushing or to bypass the Oklahoma hub are under construction.
“There will be adequate takeaway by the time the Pony Express is completed,” Hume said. “Cushing should not be a bottleneck by that time.”