Shares Of Bakken Oil Producers Plunge After US Warning

NEW YORK, Jan 2 (Reuters) - Shares of Whiting Petroleum Corp , Continental Resources Inc and other top crude oil producers in the Bakken shale formation plunged on Thursday after the U.S. government said oil produced there may be extra flammable.

The warning came three days after a BNSF train carrying crude oil collided in eastern North Dakota with another train carrying grain. The resulting explosion led to the temporary evacuation of a nearby town and added to the growing concern about the safety of oil-by-rail shipments.

Last July a runaway oil train, which originated in North Dakota, derailed and exploded in a small Quebec town, killing 47 people.

Oil extracted from the Bakken, a vast rock formation underneath North Dakota and Montana, "may be more flammable than traditional heavy crude oil," the Pipeline and Hazardous Materials Safety Administration, part of the U.S. Department of Transportation, said on Thursday.

Whiting & Continental, the largest Bakken producers, saw their shares fall more than 3.5 percent after the announcement. Shares of Oasis Petroleum Inc, Kodiak Oil & Gas Corp and Northern Oil & Gas Inc saw similar drops.

Crude oil prices also fell, contributing to the decline.

The U.S. government's warning should come as no surprise considering refineries and other oil buyers value the high energy content of Bakken crude oil, said Ron Ness, the head of the North Dakota Petroleum Council, a trade group for oil producers.

"I don't think there's any surprise that Bakken crude oil is the highest quality crude oil available and it has more of those high-end components that you're looking for in a top-shelf crude oil," Ness said.

Ness said Whiting and other producers he represents follow current federal standards for oil-by-rail shipment. He said the U.S. government should consider updating transportation regulations that currently put crude oil in the same category as ammonia and other chemicals for safety standards.

Oil producers are not responsible for their product once it is loaded onto railcars, a process that typically comes as sale of the oil is finalized. Logistics companies often buy oil from producers and arrange to have it shipped via rail or other means, before selling it to the end user.

The oil involved in the Monday crash was loaded onto the train in Fryburg, North Dakota, and was headed nearly 1,300 miles (2,092 km) to Hayti, Missouri.

Sources familiar with the loading operations told Reuters on Tuesday that Houston-based logistics company Great Northern Midstream loaded the crude at Fryburg, and it was to be unloaded at Marquis Energy's storage terminal and barge loading facility at Hayti, along the Mississippi River.

"When the train leaves the station, (the oil) is in someone else's hands," Ness said.

The American Association of Railroads (AAR), an industry trade group for BNSF and others, said it has worked with federal regulators to try and increase railcar design standards and other regulations. Railways do not inspect material they ship, and simply transport it from one location to another.

A member of the National Transportation Safety Board said on Tuesday that railcars involved in the crash were all older types that do not meet the latest industry safety standards.


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Mohammed Alobaidi  |  January 03, 2014
Too flammable oil. Where do these agencies come with this stuff? You cant transport them via pipelines. Its too dangerous to transport them with rails. How are they supposed to transport oil?
Marlon Cox  |  January 02, 2014
As a nuclear power plant inspector, our main focus is to protect the safety of the public by following strict codes, NRC, INPO and ASME rules, guidelines and regulations and upholding the highest standards of safety in the utility power industry. In order to continue that proud tradition, we must also maintain the highest standards of security, quality materials, nuclear grade components, failure protection and scheduled maintenance in order to insure the safety of the public, period. Failure is not an option. I began my career in the oil refineries of the west coast in California. Although we held to the same high standards that we do today, our safety record could have been better. Its my opinion that following and applying these higher standards with the premise of insuring the safety of the public, especially in the transportation of hazardous and dangerous materials, should not even be a discussion. It should be a mandate period. Not one person should have to die because of a failure to regulate the transportation and safety of hazardous materials anywhere near the public domain. This includes any and all modes of transportation and necessary equipment upgrades!