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U.S. Oil Export Ban Is a Windfall for These Companies

Companies / Oil Companies Jul 07, 2014 - 01:25 PM GMT

By: Money_Morning

Companies

Dr. Kent Moors writes: After more than four decades, it looks like America is getting back into the oil export business again.

For the first time since the 1970s, Washington has opened the door to sending more U.S. crude abroad.

Of course, the United States has been exporting oil products for some time now.


In fact, America is now the largest exporter of products like gasoline, low-sulfur heating oil, and diesel fuel in the world.

But until now, companies were hamstrung when it came to the raw material itself.

Of course, there have been a few exceptions. Very heavy California crude, which has to be sold at a deep discount and for which there is not a ready domestic market, has received some permissions to export. In addition, a few tolling programs - where the raw material is exported out and finished products are imported back in - have been allowed.

But for the lion's share of what is pumped out of the ground at American fields, the domestic market has long been the only option.

This change in policy promises to open up new opportunities for investors...

U.S. Oil Exports: A Major Reversal in Policy

Late Tuesday evening, the U.S. Department of Commerce announced that it would allow exports of ultralight oil (essentially condensate after very minimal processing) by two companies -Pioneer Natural Resources Co. (NYSE: PXD) and Enterprise Products Partners L.P. (NYSE: EPD).

Both requested the exports from production at tight/shale oil plays in the Eagle Ford basin of South Texas.

As volumes go, this is a very small step. But it is a major change in policy (despite what the Commerce Department was trying to tell everybody yesterday). And that means other companies are certain to follow suit.

Earlier this year, Continental Resources Inc. (NYSE: CLR) Chief Executive Officer Harold Hamm said he expected an opening for across-the-board crude oil exports. And CLR just happens to be the largest producer in the Bakken.

After yesterday's announcement, we've now learned export permissions will certainly be granted on an ad hoc basis. These changes are now set to begin in August, marking the end to a restriction that was initiated for national security reasons during the Arab Oil Embargo of 1973.

Of course, some U.S. companies have already found a way to get around this restriction. It involves boiling the oil to take out some of the more easily separated gases in order to "stabilize" the crude.

As such, the oil has been initially "processed" without actually being refined. But the result is enough to qualify as an "oil product," which puts it in a category that is regularly exported.

The American Oil Boom Rolls On

Even so, this decision means we are rapidly moving into a new period in which straight crude oil exports will become more common. Companies will have to stipulate that sufficient volume remains available for domestic refining and to meet homegrown demand.

Yet, the largess of unconventional oil production in tight oil and shale basins nationwide means these potential issues will hardly become a problem.

In fact, I actually expect initial permissions for crude exports to come largely from shale operations. It is a rather direct way of addressing the increasing amount of quality crude coming from unconventional drilling.

And make no mistake: This is one boom that's just getting started. Even what were once considered low potential horizons are now producing oil.

The success of our first well in Money Map Project #1 is a good case in point. Our initial gusher came from a well drilled into the Buda Lime of south Texas.

The Buda Lime abuts the Eagle Ford and is located below the Austin Chalk, known to be a solid producer for decades. But until recently, the Buda Lime was never more than an afterthought.

Not any more...

And the Buda Lime is hardly the exception. Discoveries of new horizons with much greater potential than previously thought are underway in several major U.S. oil basins.

In short, there will be much greater oil production beyond what has been estimated. That would seem to put greater pressure on D.C. to allow oil exports.

How to Get the Biggest Bang for Your Buck

Certainly this decision will mean some additional upward pressure on American refined oil products, particularly gasoline and low-sulfur-content heating oil. However, given that these products are already being exported, that pressure has been building up anyway.

The real change will be among the domestic producers likely to benefit most. That just happens to focus upon a group of companies I have been highlighting for the past two years in both Energy Advantage and Energy Inner Circle.

In fact, here are the critical elements that will improve the bottom lines of a select few companies once the export cycle begins to roll out in earnest.

First, these companies will likely already be operating in tight/shale basins, located near fully developed infrastructure networks with easy access to main trunk pipeline systems.

Second, the primary beneficiaries will be smaller, leaner, more efficient and well-managed companies working specific areas they know well. The "big boys" will participate in the exports, but it will be the smaller guys that get the biggest pop in profits.

Finally, I expect one of the early roll-outs to be new Master Limited Partnerships (MLPs) and other structures that are designed specifically around export routes. In each case, the assets selected for inclusion will have a direct connection to the production, throughput, storage, processing, and transport of crude.

As we get closer to the actual exports, I will have much more to say about how to make money from America's return to providing oil to the international market. So stay tuned.

Source : http://moneymorning.com/2014/07/07/the-u-s-oil-export-ban-is-a-windfall-for-these-companies/

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