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The boom in U.S. shale oil was great for producers. That is, until supply started outstripping demand and oil prices started their downward spiral.
Oil prices remain at multi-year lows, with OPEC countries showing no signs of letting up on oil production. With that, the U.S. has taken new measures to find buyers for its oil.
This includes removing a ban on crude oil exports from the U.S. that’s been in place since the 1970s. The oil ban from the ’70s was put in place as a rebuttal to the OPEC oil embargo. However, things are different now. Today, the U.S. needs to protect itself from the different OPEC threat of oversupply.
The biggest winners of oil exports will be the U.S. shale oil producers. One key is that the Gulf Coast operations are the big winners for now, with Corpus Christi being the port that oil exports will leave from. This puts the domestic energy players in the spotlight, namely those drilling in the Eagle Ford and Permian shales. There’s been some serious build-out in terms of pipeline capacity and storage for moving oil from these shales to Corpus Christi.
In addition to being an easy way to work down the oil glut, oil exports will also help lift domestic West Texas Intermediate crude oil prices more in line with international Brent crude prices. Right now, U.S. oil producers are selling oil for cheaper than what players in the international market are getting.
We recently saw the first export in close to half a century, with ConocoPhillips (NYSE: COP) and NuStar Energy (NYSE: NS) loading up a tanker with oil from the Eagle Ford shale headed for a refinery in Switzerland.
With that in mind, here are the top plays for oil exports:
No. 1 Way to Play Oil Exports: ConocoPhillips (NYSE: COP)
ConocoPhillips is one of the best plays on upstream oil, given its position in the top Eagle Ford, Permian and Bakken shale regions. In fact, it’s the largest U.S.-based independent exploration and production company – more than twice the size of its largest peers based on production volume. Still, it remains an underrated oil play.
In terms of where ConocoPhillips is focusing its efforts these days, they lie within the three key shale plays outlined above: Eagle Ford, Permian and Bakken. This liquids-rich focus makes ConocoPhillips a great play on the long-term recovery of oil prices.
Let’s not forget that at 6.5% ConocoPhillips offers one of the best dividend yields in the oil industry. With a $55 billion market cap, it’s one of the largest pure-play oil explorers and producers. That, along with its strong balance sheet, large cash balance and flexibility in capital spending, will keep it dividend stable.
Even in the current environment, ConocoPhillips is still generating over $30 billion in revenues a year and only needs to spend as little as $8 billion to maintain production.
No. 2 Way to Play Oil Exports: Pioneer Natural Resources (NYSE: PXD)
Pioneer has one of the best under-levered balance sheets in the oil space. It also doesn’t have an undue pressure to drill – i.e., it doesn’t have to maintain production to pay debts. Shares are down 21% over the last year, but it’s one of the few names in the space still generating positive earnings.
The other beauty of Pioneer is that it has a decade of drilling inventory, all of which is considered low risk and high return. Its focus is on the Permian Basin, where it operates in the most active part – the Spraberry Field. This area accounts for some 50% of Pioneer’s production and the majority of its reserves. It’s been drilling in Spraberry since the 1980s.
To be clear, there are still some serious risks with these oil producers. However, if you’re a believer in the potential for oil exports, Pioneer Natural Resources and ConocoPhillips are worth a closer look.
Turning the screws on big oil
If you’re like me, you hate watching all the money you’re paying big oil when pumping gas. But just imagine if you knew you would get every single penny of this money back. Think about how thrilling pumping gas would be then. Amazingly, many Americans are doing just this—receiving gas rebate checks from big oil. Not only that, these checks are mandated by Uncle Sam. One man received more than $6,165 to offset the cost of filling his sports car. No joke. Find out how it’s done right here.