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Enterprise Bakken-to-Cushing Project Facing Cheap Oil Headwinds

Lower prices for crude oil aren't doing any favors for Enterprise Products Partners LP's proposed crude pipeline from North Dakota to the Cushing, OK, hub, executives admitted Thursday. But U.S. producers have staying power even at lower oil prices because the country "...is in the middle of a production revolution," they said.

Enterprise recently extended the open season for the proposed crude pipeline to Nov. 14. COO Jim Teague was asked about the project during the company's third quarter earnings conference call. Apparently, lower oil prices make the long ride from North Dakota to Cushing that much longer in producers' eyes.

"Frankly...crude prices aren't going to help that project," Teague said. "At $100 I'd be a lot more confident than I am at $80 [of a successful open season]. We have a high-quality producer that's made a sizeable commitment. We have a threshold, that if we reach that threshold, we'll build, and at this point we haven't reached that threshold, but we do have one sizeable producer that's made a pretty sizeable commitment."

And as an alternative to shipping crude by rail, the Enterprise offering is attractive, Teague said. "If this thing is successful, that's going to be a major part of its success. People are recognizing that rail's going to be difficult."

As far as the other projects in the Enterprise backlog, they're not being affected by the recent developments in oil prices, Teague said. "We haven't seen any impact on what we're doing out in the Permian. We haven't seen any impact on what we're doing in the Eagle Ford."

And by Teague's estimation, the partnership isn't likely to suffer from a widespread drilling pullback. Drillers will work harder and smarter before giving up in the face of low prices, he said. "I can't predict oil prices or what OPEC will do or not do, $80 oil prices aren't killing the U.S. shale oil producer," Teague said. "Our analysis shows that most if not all of the core drilling areas in key oil plays such as the Eagle Ford, Permian and Bakken are profitable at numbers below where we are today and that U.S. drilling is certainly not grinding to a halt.

"The U.S. is in the middle of a production revolution because U.S. producers and the service companies that support them are pretty creative people. That's what brought us the shale revolution and it's what will drive this industry to work harder and a lot smarter to produce these resources at lower prices. You don't have to look any further than our recent experiences in shale gas as a gauge of the resourcefulness of U.S. producers. This is an industry that continues to prove that necessity is the mother of invention."

Enterprise net income for the third quarter increased 18% to $699 million compared to $593 million for the third quarter of 2013. On a per-unit basis, the increase was 16% to 37 cents/unit compared to 32 cents/unit during the year-ago period.

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