Beneficiaries of US oil exports
This question deserves some attention. In the 1970s, the US Congress imposed new laws following the 1970 oil supply squeeze, saying that US crude-oil products couldn’t be exported but refined products could be sold abroad. The law also says that only in limited circumstances exports of crude would be possible and that any kind of deal would require a license. So far, such licenses have only been granted in exceptional cases for exports to Canada. So, the US oil export business wasn’t a strategy which US companies pursued.
The unprecedented boom in drilling on US soil, especially in areas such as Texas, North Dakota, Utah and elsewhere, has now created an oversupply of ultra-light oil. Given its abundance, spot prices for ultra-light were declining and since a number fields can produce more than 800,000 barrels of ultra-light oil per day, the question under which conditions ultra-light could be sold to markets outside the US where higher price ranges apply was studied.
A number of determined energy companies started a fact finding mission regarding this question. Today they argue that while US crude oil cannot be exported, any kind of oil condensate can be. The status of oil condensate is reached as soon as any kind of processing removes the more volatile elements, such as methane, propane, and butane. In the US, this initial process of cleaning crude oil is normally done at the oil field and the involved equipment costs a fraction of a fully fledged refinery.
At present, US oil production is about 1/10 below the top production level at the beginning of the 1970s. As more and more new exploration techniques are implemented, tapping oil from the transformation of shale should last, and therefore exports of US ultra-light could become a lucrative investment opportunity for a number of operators.
| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| Pioneer Natural Resources | PXD | Exploration & Production | 53 % | 4.51 |
|
Investment case: Pioneer is a Irving, Texas based oil and gas company. Its explorations mainly take place in South Texas. It holds valuable development rights in the liquid-rich acreages of the Permian Basin and the Eagle Ford Shale region. The development of these low cost basins is expected to last for more than a decade. The company was one of the key drivers behind the recent decision allowing the export of unrefined ultra-light. |
||||
| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| Enterprise Products | EPD | Pipelines | 18 % | 6.32 |
|
Investment case: Enterprise, based in Houston and organized as a partnership, is an oil and gas logistics company that operates pipelines and storage terminals, as well as processing equipment for natural gas, condensate and refined fuels. It is one of the largest midstream operators offering a full value chain and a wide asset network. The company is well positioned to benefit from the recent shift towards opportunities in the field of condensate production. |
||||
| Company | Ticker | Sector | Upside Potential | Sharpe (FY01) |
| Continental Resources Inc | CLR | Exploration & Production | 66 % | 4.08 |
|
Investment case: CLR is a Houston-based independent crude oil and natural gas exploration and production company. It’s deployed across the US, but with particular interests in the North, South and East regions. It also operates as an oil and gas logistics company, managing pipelines and storage terminals, as well as processing equipment for natural gas, condensate and refined fuels. Given the size of the company, it could become a key beneficiary of the new export related ruling. From an investment point of view, CLR has an attractive risk-reward portfolio with one of the best upside potential. |
||||