Follow the Energy Exports for Profits

As U.S. energy production climbs, so do exports of various energy products. Here are three companies with export operations worthy of consideration.

Jun 11, 2014 at 12:17PM

The United States is becoming a net exporter of energy, a situation that was nothing more than a fantasy just a few years ago. As illustrated below, propane and propylene exports climbed significantly in the past three years. This is all well and good, but how do you make a buck off of this export activity? Below are three companies that are engaged in the export of various energy products that are worth a look.

Us Propane Exports

Source: EIA

First, some definitions
Natural gas liquids (NGLs) are hydrocarbons like propane or butane that are found mixed in with natural gas. NGLs are actually more valuable than natural gas in today's market. Liquefied petroleum gas (LPG) refers to many of these same gases like propane and butane, but in liquefied form. NGLs in their liquid form facilitates exports. Refined petroleum products typically refers to gasoline or diesel fuel made from crude oil, but propane and other NGLs can also be made from refining crude.

Refiners with midstream operations
In some respects, Phillips 66 (NYSE:PSX) and Valero Energy (NYSE:VLO) work on the same plantation. That is, both are refiners with significant midstream assets. Both companies leverage the relatively low price of North American-produced energy to make money from exports of LPG and refined products. Both companies plan on expanding their export activities. To optimize profitability, both companies are aggressively expanding their midstream operations (pipelines and rail car facilities, for example) in order to bring more inexpensive North American crude to their refineries.

Two recent earnings announcements from Phillips illustrate the importance of exports to its business. Phillips' export operations are part of its midstream operations. This business segment reported quarterly earnings growth from $122 million in the fourth quarter of 2013 to $188 million in the first quarter of 2014. During this time, the company reported record exports. It's little wonder that Phillips decided to expand its LPG terminal in Texas.

Valero exports of gasoline and diesel slowly increased over the past three years. Recognizing a business opportunity in diesel exports to Europe and gasoline exports to Latin America, Valero plans on more than doubling its export capacity of these refined products. One interesting opportunity for Valero is the conversion of methane into methanol. According to its latest investor presentation, there is significant demand worldwide for methanol. With the low price of U.S. natural gas, Valero could profitably convert the methane component into methanol and sell it domestically or overseas. A final decision on this project should come by the end of 2014.

Midstream MLP with export plans
As one of the biggest independent midstream master limited partnerships, Enterprise Products Partners (NYSE:EPD) is frequently exemplified as a great investment. Lately, the company took some heat for its slowing distribution growth and high level of retained earnings. Enterprise's management responded by pointing out that it is holding onto cash, in part to fund expansion projects internally and avoid interest expenses. With interest rates at historical lows and with only one direction to go, this sounds like a prudent strategy to me.

What expansion projects are in the winds? Exports of refined products and LPG. Earlier this year, Enterprise began exporting refined products from its Beaumont, TX, facility, with plans to increase not only its export capacity but its diversity of products as well. Ethane exports should also commence in the third quarter of 2016. Additionally, Enterprise makes the octane enhancer MBTE for export.

Any recent negative press didn't do squat to the company's stock price. Enterprise's stock climbed 27% over the past year, with distributions growing each quarter. Admittedly, the $0.01 per share distribution increase each quarter wasn't stunning, but if Enterprise's export activities grow then the distribution should grow faster. The distribution coverage ratio is at a high 1.36, but it means that Enterprise has cash on hand to build its business.

Final Foolish thoughts
All three of these companies exploit one common fact: energy prices in the U.S. are low enough to make exports profitable, so export they do. In some ways, the refiners must. U.S. gasoline consumption has been slowly declining over the years, and with all that domestic crude oil production there is downward pressure on gasoline prices and profit margins. Overseas markets for gasoline and other products pay better, so exports help keep the profits rising.

Of these three companies, I'm partial to Phillips 66. It has a diverse business with plans to grow not only its exports but its high-margin petrochemical products as well. The company's dividend has grown nicely, as has its stock. I think that Phillips has the most combined income and capital gains growth potential.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Robert Zimmerman owns shares of Phillips 66. Robert owns the following options: Short Dec 2014 $77.5 puts on EPD and short July 2014 $87.5 calls on PSX. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers