The optimum design problem of a proposed oil pipeline network has been formulated as a zero-one programming model to determine the optimum sizes of pipe and pump which minimize the sum of material costs and operating costs during the 20 years of life span. Applying to a real situation, the problem constitutes an assignment type zero-one programming with 372 zero-one variables and 13 constraints. A heuristic algorithm has been developed based on the modified Petersen algorithm utilizing the special form of the activity matrix. The results showed impressive cost savings of 37 percent of the total cost from the original proposal.