Rail transport of oil is in for a long-term ride in moving burgeoning U.S. crude supplies and other liquids, according to Rick Bott, president of Oklahoma-based Continental Resources Corp., the largest producer in the Bakken Shale, where railroad shipments in recent months have accounted for more than 70% of the oil moved to market (see Shale Daily,July 11).

Speaking on a 2Q2013 earnings conference call Thursday, Bott said there has been no reduction in the cost of rail shipments and that will not come until additional pipeline takeaway infrastructure under development is in place.

But Bott made it clear in responding to an analyst's question on the subject that Continental, as the largest Bakken producer, sees railroad shipments as a long-term part of the oil sector. Continental's continued marketing "flexibility" depends on having the rail option, he said.

"We have not seen any reduced rail costs this year; however, we anticipate the current price differentials will be volatile, and they will probably move considerably when the additional pipelines that have already been planned and published come out," Bott said. "You will probably see those [price differentials] move quite quickly when those [pipe infrastructure projects] come on stream and the market readjusts."

Continental uses what Bott called the "portfolio approach" to lessen the impact of the transportation price volatility.

"In the future, we anticipate that the whole package of rail costs will come down; we think rail has a long-term home in the distribution of crude in North America because of the difference in optionality that it provides shippers," said Bott, adding that it will still have to be cost-competitive with the pipelines once they come online.

For the most recent quarter, Continental continued to "balance" its use of pipelines and rail to move its robust production, Bott said. "In August, rail is expected to account for 75% of our Bakken shipments," he said. "We continue to cultivate new rail customers on the East, West and Gulf Coasts to capture the best price as [refiners'] appetites increase for the premium Bakken barrel."

Bott said volatility most likely will continue to be a factor in oil markets, and Continental will continue to adapt to it.

 For 2Q2013, Continental increased production by 42%, hitting a record daily production level of 135,700 boe/d, CEO Harold Hamm reported, noting that net income for the quarter was $323 million ($1.75/share) compared with net income for the same period last year of $405 million ($2.25/share).