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Joint Ventures Develop North Dakota Crude Transportation Infrastructure

Phillips 66 Partners and Paradigm Energy Partners have formed two joint ventures to develop midstream logistics infrastructure in North Dakota to transport crude oil in the Bakken region.

The two joint ventures — The Sacagawea Pipeline and Palermo Rail Terminal — will improve efficiency, providing cost-effective take away options, increased flow assurance, additional outbound capacity and market optionality for producers and marketers in the basin, the partners say.

The pipeline joint venture will own an 88 percent ownership interest in Sacagawea Pipeline, with the remaining 12 percent interest to be owned by Grey Wolf Midstream. Additionally, the pipeline JV will own and construct a crude oil storage terminal and central delivery point for various crude gathering systems located in Keene, North Dakota (the paradigm CDP).

The Sacagawea Pipeline project is a 76-mile pipeline being developed to deliver crude oil from various points in and around Johnson’s Corner and the Paradigm CDP, located in McKenzie County, to destinations with take away options for both rail and pipeline in Palermo and Stanley, located in Mountrail County.

In October, Paradigm recently extended an open season for the pipeline, which is expected to close on Dec. 15.

Under the terms of the pipeline JV agreement, Phillips 66 Partners and Paradigm will each own a 50 percent interest in the joint venture and will fund their proportionate share of the construction costs. Paradigm will construct the pipeline and Phillips 66 Partners will be the operator.

The rail JV will own the Palermo Rail Terminal. Located on a 710-acre site in Palermo, the crude oil rail-loading facility is designed to have an initial capacity of 100,000 barrels per day, with the flexibility to be expanded to 200,000 barrels per day. The terminal will have direct access to the Sacagawea Pipeline and provide East and West Coast rail access for third-party shippers through the BNSF railway.

Under the terms of the rail JV Agreement, Phillips 66 Partners will own between a 50 to 70 percent interest with Paradigm’s ownership percentage subject to the achievement of certain milestones associated with the pipeline JV. Final ownership interests will be determined prior to closing, and each party will fund their proportionate share of the construction costs. Phillips 66 Partners will construct and operate the rail terminal.

The transactions are expected to close in the fourth quarter of 2014 with total capital cost for the joint ventures estimated to be approximately $300 million. Both the pipeline and rail terminal are expected to commence commercial operations in the first quarter of 2016.

Railroads operating trains containing large amounts of Bakken crude oil must notify state emergency response commissions about the operation of these trains through their states, according to an emergency order issued by the US Department of Transportation in May.

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