Back in March the U.S. Commerce Department gave permission to two oil companies, Enterprise Products Partners L.P. (NYSE:EPD) and Pioneer Natural Resources (NYSE:PXD), to export a very light type of oil called condensate. However, while both companies are working together to export this condensate, there is one clear winner for investors looking to profit from this and future moves to export oil. That winner is Enterprise Products Partners, but the reason why it wins might not be obvious.
A primer on oil exports
Oil companies have been unable to export domestically produced crude oil since the 1970s. It was during that time that a ban was put in place to protect our national interests in response to the Arab oil embargo, which came at a time when oil production in America was declining. However, there are some exceptions to that rule as Alaska, for example, can export oil and just recently ConocoPhillips (NYSE:COP) shipped some Alaskan oil to South Korea. Another exception is that refined petroleum products like gasoline and diesel are permissible to export.
Refined petroleum products typically undergo a pretty intense refining process, which upgrades crude oil into more valuable products. However, the definition of what qualifies as a refined product was broadened by the Commerce Department to include an ultra-light oil that passes through a distillation unit, which stabilizes it. We can see what this unit looks like on the following slide from a recent Pioneer Natural Resources investor presentation.
That slide highlights Pioneer Natural Resources' condensate exports, noting that the company is seeing some improved pricing for these condensate volumes as compared to domestic sales. That's what's driving the company to export condensates in the first place. However, there are two other very important items worth noting from that slide. First, it points out that Enterprise Products Partners is handling these condensate exports. Second, while a bulk of the condensate cargos came from Pioneer Natural Resources, it wasn't the only company to supply condensate for Enterprise Products Partners to export.
A better way to make a buck
These are two key pieces of information because they highlight the difference between the way these two companies make money on the process. As an oil producer, Pioneer Natural Resources is using exports to obtain a higher price for the commodity it produces. On the other hand, Enterprise Products Partners, which is handling the export process, stands to earn a different income stream in the process as its revenue is derived from the services it provides. That's a key difference as Enterprise Products Partners will earn fee-based revenue as opposed to commodity price-based revenue. These fees tend to be steadier and can be earned across a range of services that includes providing pipeline and storage capacity as well as for capacity at its docks. Not only is Enterprise Products Partners' revenue from the process steadier, but it can earn more revenue by serving multiple customers.
Overall, Enterprise Products Partners is well positioned to make a lot of money exporting petroleum-based products as it has the infrastructure in place to capture the opportunity. It's also building more export capacity along the Gulf Coast to serve more customers. We can see this on the following slide, which notes that the company has several dock and berth terminals both in service and under construction that position it to capture future export opportunities.
On top of that, the company is in the process of acquiring Oiltanking Partners L.P. (UNKNOWN:OILT.DL). It's a move that will put Enterprise in an even better position to profit from oil exports as Oiltanking has the storage space and the dock space that can be used to enhance Enterprise's export options. These assets put the company in a leading position to generate a lot of steady, fee-based revenue from exports.
Right now, we have two oil companies that are focusing on exporting an ultra-light oil out of the U.S. Gulf Coast, but with one clear winner. That winner is Enterprise Products Partners. Exports are opening up a new revenue source for the company and allowing it to make even better use of its infrastructure assets. While Pioneer Natural Resources will benefit from exports, Enterprise Products Partners offers the bigger, better opportunity.