Few pipelines mean few Texas oil profits

Dec. 11, 2012 at 8:12 AM

HOUSTON, Dec. 11 (UPI) -- Oil from the Permian Basin in Texas is high-quality crude but a lack of pipeline infrastructure is deflating prices, an analyst said.

The U.S. Energy Department's Energy Information Administration said production from the Permian Basin has increased 49 percent since 2007 to 1.29 million barrels per day. Production may be 2.3 million bpd by 2022, reports Bloomberg News.

The same report, however, finds that a lack of pipeline access has cut an estimated $1.2 billion from potential profits for Concho Resources and Occidental Petroleum, two of the region's biggest energy players.

Michael McMahon, director of energy investment at equity firm Pine Brook, told Bloomberg that slumping profits and prices may be a matter of delivery logistics.

"Permian oil is actually very high-quality and should be selling at a premium, if it weren't for the logistical challenges," he said.

Similar issues have surfaced for the Bakken oil play in the Northern Plains states. Some companies have turned to rail deliveries to get Bakken crude to markets because of the lack of pipelines.

The Association of American Railroads reports that November rail deliveries of petroleum and petroleum products were up 56.9 percent compared to the same time last year.

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