Bakken oil pipeline project slammed shut

Tomco oil workers sands facility sign, oil field, oil pipeline
Justin Solomon | CNBC

Enterprise Products Partners is shelving a proposed pipeline that would have transported crude from North Dakota to Oklahoma, the company announced on Friday.

The news came in the midst of a brutal slide in global oil prices that have raised concerns about whether U.S. companies will continue to build on the expansion of oil production. Middle East oil producers have yet to announce a cut in production to offset the drop in crude, in what some analysts say is a slow-bleed strategy designed to make pumping crude as uneconomic as possible for the world's fastest growing non-OPEC oil producer.

Enterprise Products—a publicly traded partnership designed to provide financing on oil and gas infrastructure projects — said in a terse statement that investors had "decided not to move forward with development of its proposed Bakken to Cushing crude oil pipeline."

Commitments from potential partners "were not sufficient to support the project," Enterprise Products added. The company did not immediately respond to an inquiry from CNBC on whether the project's closure was related to the drop in oil prices and other factors.

"Enterprise Products Partners management has been consistent in communicating this was a low probability project," said Adam Karpf, a portfolio manager for Atlantic Trust's master limited partnership strategies.

Karpf said that the firm appeared to lose a competitive battle with a different partnership, Energy Transfer Partners, which was also bidding for contracts on a Bakken pipeline. Those commitments left Enterprise the odd man out, he added. Atlantic Trust owns shares of Enterprise in its investment portfolio.

However, oversupply of crude has led to fears that oil's sharp decline could claim U.S. shale production as a victim, as smaller operators may be forced to scale back expansion plans. In recent weeks, oil prices have been in free fall, with U.S. crude settling at its lowest level since May 2009 under $58 per barrel.

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North Dakota's Bakken region and Oklahoma's Cushing are two of the most prolific oil hubs in the U.S. energy revolution. Pipeline construction projects have taken on increasing prominence as the crude boom picks up speed, sending domestic oil production skyrocketing to more than 9 million barrels per day.

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Infrastructure partnerships such as Enterprise Products' have raised billions in private capital, in expectation that the U.S.' growing energy independence would create more opportunities to transport domestically produced oil and gas. With Enterprise's actions, that assumption appears in some doubt.

"It's a clear indication that the lowering of oil prices and the dialing down of crude demand for 2015 is taking its toll," said Vincent DeVito, partner at the law firm of Bowditch & Dewey.