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Lots of Bakken Crude 'Looking For Way Out,' Tesoro Exec Says

Substantial amounts of crude oil in North Dakota's Bakken Shale are looking for ways to get to market, even with today's depressed oil prices, Tesoro Logistics LP (TLLP) President Phil Anderson said last Friday during a quarterly earnings conference call.

TLLP held an open season recently that drew strong producer interest in Tesoro's proposed gathering and processing projects for the Bakken, Anderson told analysts while reporting increased 1Q2015 earnings ($74 million, or 63 cents/unit, compared to $42 million, or 64 cents/unit, for 1Q2014).

"There is a substantial amount of crude in that area that needs a more efficient way out [to market]," said Anderson, adding that TLLP nevertheless sensed a reluctance on the part of producers to commit to additional gathering/processing projects in the current low-price environment.

"There are some gathering systems in the process of being completed, and there is plenty of crude oil in the area needing a better way out, so we're focusing on the pockets where we see very low risk for more modest expansions, preserving the larger parts of the expansions to be done when everybody gets more confidence around their outlook up there."

Anderson reiterated that the larger projects will develop in the long run, and in the meantime TLLP will build smaller pieces leading up to the full expansions.

Anderson said from the company's McKenzie County open season and development of the Connolly gathering system in the "core areas" where Tesoro is involved there is continued drilling activity. "Those are the areas where the strongest producers continue to pursue their drilling programs," he said.

"For now, we are going to continue to focus on those areas and our growth plans for this year, and moving into next year those plans remain largely on track," Anderson said. "We're looking for new opportunities in those key areas to move forward with involving a couple of key producers."

In the area of potential natural gas gathering and processing facilities, Anderson said TLLP's focus is on expanding or improving the operations of existing midstream assets.

CFO Steve Sterin cited ongoing progress on three organic growth projects within TLLP: expansion of the Connolly crude oil gathering system to 60,000 b/d by the end of this year; the next phase of the buildout of the Bakken storage hub, moving from a capacity of 780,000 bbl to a capacity of 1 million bbl by the end of this year; and adding and expanding pipelines around Tesoro Corp.'s Los Angeles-area refineries.

"We are pursuing several new opportunities in both the Bakken and Rockies that we expect will allow us to increase utilization [of existing assets] and expand our crude oil and natural gas gathering businesses," Sterin said.

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