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US refiner shares tumble after shale-export ruling

06.26.2014  | 

Investors reacted swiftly after Pioneer Natural Resources and Enterprise Products said the US gave them approval to export ultra-light crude processed at gathering facilities in the fields of south Texas. The ruling is seen as loosening a four-decade old prohibition against crude shipments abroad.

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By DAN MURTAUGH and JOE CARROLL
Bloomberg

US oil refiners dropped while producers and midstream companies advanced on speculation that easing restrictions on crude exports will raise prices for some of the crude fueled by the shale boom.

Investors reacted swiftly after Pioneer Natural Resources and Enterprise Products said the US Commerce Department gave them approval to export ultra-light crude processed at gathering facilities in the fields of south Texas. The ruling is seen as loosening a four-decade old prohibition against most crude shipments abroad.

“Yesterday, the market said there’s zero percent chance we’ll export crude oil,” said David Pursell, an analyst at Tudor Pickering Holt & Co. in Houston. “Today we woke up and there’s a finite chance.”

Refiners were hit hardest. Increased exports of crude may reduce the price advantage US plants have enjoyed in recent years as growing domestic production caused supply gluts within the country’s borders. US benchmark West Texas Intermediate strengthened by 93 cents/bbl versus European Brent oil today.

Phillips 66, the largest US refiner by market value, tumbled 4.2%, the biggest drop in a year. Valero Energy fell 8.3% and Marathon Petroleum lost 6.3%, both the largest declines since November 2011.

Stabilized Condensate

Pioneer jumped 5.2%. The company said it produces about 43,000 bpd of oil-equivalent from South Texas’s Eagle Ford shale, and most of that is ultra-light condensate that must be stabilized in the field before being transported.

The company petitioned the Commerce Department that the stabilization method, which involves heating the condensate in a distillation tower to remove the most volatile hydrocarbons, should meet the legal definition of refining crude, which would make it eligible for export. The government confirmed that interpretation, Pioneer said in a statement.

The US produces more than 1 million bpd of ultra-light condensate, most of which comes from the Eagle Ford, said Amrita Sen, chief oil economist at Energy Aspects in London.

Most of that condensate goes through some sort of stabilization process, she said. What isn’t known is whether all forms of stabilization will meet Commerce’s approval, according to Sen.

Chesapeake, Anadarko

Other producers active in the Eagle Ford benefited from the idea that they could get global prices for barrels with a minimal amount of processing. EOG Resources gained 2.7%, the most since May 6. Chesapeake Energy rose 2.5% and Anadarko Petroleum climbed 2%.

Enterprise, the largest midstream company by market capitalization, advanced 1.4% after receiving the same ruling from the government.

The company will be able to use its pipelines, storage terminals and docks on the Gulf Coast to keep processed condensate segregated from non-exportable crude while transporting it from oil fields to tankers, said Houston-based spokesman Rick Rainey.

Once exported, the condensate could be used as feedstock for oil refining or petrochemical plants, as diluent to be mixed with heavy crude, or for power generation, Rainey said.

Midstream Companies

Other midstream companies with assets in south Texas benefited from the ruling. Magellan Midstream Partners gained 0.6%, while Kinder Morgan Energy Partners rose 0.4% to the highest level since Jan. 28.

“To the extent that additional condensate is produced in response to the private rulings, we may see additional shipments on the Double Eagle Pipeline system which transports condensate from the Eagle Ford to our terminal in Corpus Christi,” said Bruce Heine, a Tulsa, Oklahoma-based spokesman for Magellan. “With the terminal’s multiple existing ship berths that can accommodate large vessels, we are positioned to serve the export market if it develops.”

Magellan and Kinder are among companies building condensate splitters along the Texas Gulf Coast. Splitters are simple refineries, designed to separate condensate into products like naphtha, kerosene and gasoil that can be exported or processed further in the US.

Corpus Christi

Magellan’s Corpus Christi splitter is fully supported by a long-term contract with commodity trader Trafigura Beheer, and won’t be affected by the Commerce rulings, Heine said. Kinder, which declined to comment, has a contract with BP to purchase the feedstock and sell the products from its Houston Ship Channel plant, which will start operating in November.

Companies that are evaluating splitters but don’t have contracts will likely be deterred by the ruling, and expansions of the already-planned plants are probably now off the table, Michael Blum, a New York-based senior analyst for Wells Fargo Securities, said in a research note.

“There is a risk you could have some stranded assets,” said Michael Wojciechowski, head of Americas downstream research for Wood Mackenzie. “It does call into question the viability of and the need for these condensate splitters.”



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