A Look at Enterprise Products Partners’ Big Day

Photo credit: Flickr/Ray Bodden

Yesterday was a big day for Enterprise Products Partners (NYSE: EPD  ) . First, the company announced plans to build a first-of-its-kind Bakken-to-Cushing oil pipeline. In addition to that the company along with Pioneer Natural Resources (NYSE: PXD  ) has been apparently been given permission by the Commerce Department to export an ultralight oil known as condensate. Both moves could make the company and its investors a lot of money as it's a first mover in both spaces.

Easing of the ban
According to The Wall Street Journal the Commerce Department has given Enterprise Products Partners and Pioneer Natural Resources the go ahead to ship condensate to foreign buyers. In so doing the government is redefining ultralight oil like condensate from being classified as oil to a refined product after it has been minimally processed. Because refined products like diesel and gasoline are approved for exports the redefinition of condensates as a refined product then makes it eligible for export as well.

The companies could begin exporting condensates as early as this August, though initial volumes are expected to be minimal. But as much as 3 million barrels per day could eventually be exported as American refiners aren't equipped to refine this light oil as most are better equipped to refine heavier grades. As the following slide notes America's shale boom has created an incredible surge in the production of both condensate and light oil.

Source: Pioneer Natural Resources Investor Presentation (Link opens a PDF)

Exporting light oil could be a real boom for companies like Pioneer Natural Resources and Continental Resources (NYSE: CLR  ) . Both companies have been pushing for the export ban to be lifted as lighter oil trades at a discount because of the lack of refining capacity.

Pushing Bakken oil to Cushing
In Enterprise Products Partners' other big news item of note the company announced plans to build a 1,200 mile oil pipeline. The 340,000 barrels of oil per day pipeline would go from Stanley, North Dakota, to the oil storage hub in Cushing, Oklahoma. The project could be completed as early as 2016.

This is an interesting move for Enterprise Products Partners as it marks the company's first real foray into the Bakken. The company will likely be up against some stiff competition from the likes of the Keystone XL as well as those opposed to that project. Not only that but many Bakken operators like Continental Resources have instead turned to shipping oil by way of rail instead of waiting for pipelines.

  

Photo credit: Flickr/Ray Bodden 

Further, this isn't the first attempt at building a Bakken-to-Cushing oil pipeline. ONEOK Partners (NYSE: OKS  ) proposed the Bakken Crude Express Pipeline in 2012, but canceled it after it didn't receive enough firm transportation commitments during that project's open season. The ONEOK Partners project would have been a 1,300 mile line that would transport 200,000 barrels of crude oil per day.

All that being said there are two things Enterprise Products Partners has in its favor that ONEOK Partners did not that could make it easier for its project to actually see the light of day. First, shipping oil-by-rail has proven to be a lot riskier than anyone imagined as a rash of explosive train derailments caught everyone by surprise. This development could make it easier for the Enterprise Products Partners pipeline to win favor. In addition to that it's now apparently one of just two companies that can actually export oil, and that first mover advantage could make it the logistics partner of choice for Bakken producers.

Investor takeaway
Enterprise Products Partners looks like it's securing two major competitive advantages over its rivals. With the possibility of building a key oil pipeline from the Bakken to Cushing as well as approval to export some forms of oil, Enterprise Products Partners will likely become the midstream partner of choice for America's oil boom. It's an advantage that could really reward its investors over the long term.

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