Here Are the 2 Winners (and a Likely Loser) From the U.S. Loosening Its Oil Export Ban

The U.S. Department of Commerce will allow Pioneer Natural Resources and Enterprise Products Partners to sell U.S. condensate to foreign buyers. These two will obviously benefit, but not all energy companies will benefit.

Jun 30, 2014 at 10:14AM

You may have heard that the U.S. is in the middle of an oil boom. Indeed, the Energy Information Administration reports that American oil production has hit levels not seen in decades. Oil production is rising thanks to continued success in onshore developments like the Permian Basin, Eagle Ford, and Bakken fields.

While all this is happening, demand for fossil fuels has leveled off in the United States as a result of fairly high gas prices and more fuel-efficient cars. The end result is that many energy companies are hoping for new places to send all this oil and gas.

Fortunately for two of them, they're about to get their wish. The Obama Administration has loosened the four-decades-old ban on oil exports by allowing Enterprise Products Partners (NYSE:EPD) and Pioneer Natural Resources (NYSE:PXD) to sell oil to foreign buyers.

While this is obviously good news for these two specific companies and a positive sign more broadly for those hoping oil exports are once again allowed, not all energy companies will benefit. Here are the winners -- and an industry that will likely lose -- from this decision.

The obvious winners...
Enterprise Products Partners and Pioneer Natural Resources are the clear beneficiaries of the Commerce Department's decision to allow condensate, a form of ultralight oil, to foreign buyers. These buyers can then turn the condensate into a variety of uses, including gasoline and diesel.

It's important to note that the agreement pertains only to these two companies. Enterprise Products and Pioneer petitioned the government to allow shipping condensate because they are seeing an abundance of it from the Eagle Ford shale in Texas.

Pioneer Natural Resources expects to generate approximately $2.3 billion in operating cash flow this year due to the fact that it's doubling down in the Eagle Ford. Pioneer divested a significant amount of assets in other parts of the U.S. last year to reinvest in Eagle Ford production. Pioneer sold $350 million worth of assets in Alaska and expects to generate an additional $100 million from other asset divestitures going forward.

In turn, Pioneer plans to allocate the proceeds from these sales to expand its footprint in the Eagle Ford. Pioneer's oil production at Eagle Ford soared 35% last year. Going forward, the trend will continue. Pioneer has 45 new Upper Eagle Ford shale wells planned for 2014.

Enterprise Products is a midstream operator. It processes and transports oil through its vast network of pipelines and treatment facilities. It's seeing great results from the Eagle Ford shale as well. The Eagle Ford was a major contributor to the company's liquids volumes increasing 14% last quarter.

That being said, there are some energy companies that would actually be hurt by the U.S. loosening its ban on oil exports.

The potential losers are...
Unfortunately, not all energy companies would benefit if the oil export ban were to be loosened further. Refiners like Valero Energy (NYSE:VLO) would be negatively affected. Should the U.S. continue to export oil, it's reasonable to expect the spread between West Texas Intermediate and Brent crude, the international equivalent, to narrow. This would compress refining margins for Valero and others in the business since refiners profit from widening spreads.

This explains why shares of Valero fell 10% on the news.

The Foolish bottom line
The Commerce Department allowing Pioneer Natural Resources and Enterprise Products Partners to export condensate represents a tiny step forward. Nevertheless, it could be the start of a more meaningful effort to lift the ban on U.S. oil exports.

As oil production rises to levels not seen in decades, energy companies involved in exploration, production, and transportation are clamoring for the ability to sell to new customers. However, not all companies stand to benefit from this. Refiners would be hurt, since opening up U.S. oil to exports would likely narrow the spread between domestic oil prices and the international equivalent.

Therefore, if you're an energy investor, this situation is something you should pay close attention to going forward.

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Bob Ciura has no position in any stocks mentioned. 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.

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