Analysts divided on shale decision

Murphy stands to gain, some say

A recent ruling to allow the export of a type of oil found in the Eagle Ford Shale in Texas has energy analysts divided on the implications for Murphy Oil Corp.

The El Dorado-based company, which drills in the shale play, could see an expanded market for its crude if the ruling leads to broader oil exports as some in the industry suspect, analysts said. U.S. oil producers have been blocked from exporting crude since 1975.

Others said the ruling by the Commerce Department to allow two companies to export an ultralight oil called condensate will have a minimal effect on the energy industry.

The Wall Street Journal first reported earlier this week that Enterprise Products Partners LP and Pioneer Natural Resources Co. received permission to export a minimally processed condensate from the Eagle Ford.

Condensate is a lighter but volatile and explosive material being pumped from shale plays in the United States. The licenses allowing export are for a condensate that has been stabilized or processed so that it is stripped of gases and is easier to handle, analysts said.

Normally, oil from the U.S. must be refined into finished petroleum products such as gasoline and diesel before it may be exported.

"U.S. exports of high quality and highly volatile shale oil are showing that shale oil is redefining what crude oil is and making the line blur as to what is crude oil and what really falls under the 1970's U.S. Crude oil export ban," Phil Flynn, a senior analyst for the PRICE Futures Group, said Thursday in a report.

Fadel Gheit,an analyst with Oppenheimer and Co., said none of the energy companies he covers, which include Murphy Oil, have showed any interest in applying for a similar license to export condensate.

"Even if we lift the ban tomorrow, not all producers in the U.S. will be able to export oil," he said in an interview. "The market is already looking ahead to something that is not 100 percent true."

Leo Mariani, an analyst with RBC Capital Markets, said Murphy Oil could "potentially" benefit from the licensing of condensate exports as it produces "some condensate in the Eagle Ford."

The Eagle Ford is Murphy Oil's main focal area for onshore drilling in the United States. During its 2014 first quarter, the company produced about 40,755 barrels per day of oil from the formation. Its products from the shale are marketed to companies in Texas.

"Among the positive beneficiaries of this ruling are liquids producers in the Eagle Ford Shale, because this is one of the areas seeing significant growth in condensate output," analyst Pavel Molchanov, said in an email. "As an operator (with 200,000 acres) in the Eagle Ford Shale, Murphy stands to benefit."

Murphy Oil does not produce a refined or processed condensate. It mainly produces oil and liquid natural gases in the Eagle Ford, and any condensate found is blended with other types of crude, Murphy Oil spokesman Barry Jeffery said.

"We're not a condensate player in the Eagle Ford," he said, adding that from a broader export perspective, "As an oil producer, any access to markets just gives you more opportunities and alternatives."

Some analysts believe the loosening of the ban on oil exports could open the door to even more overseas shipments of crude, as it has altered the definition of a refined product.

But with the condensate, refiners just need to stabilize it "and technically it has been 'refined' and now can be exported out of the country," Flynn said in a report.

"It's coming out of the ground almost as pure as gasoline," he said during a phone interview. "It's such a light crude oil."

Jim Hock, spokesman for the Department of Commerce, said there had been no change to its policy on oil exports.

"Consistent with the regulatory definition, crude oil that has been processed through a distillation tower which results in the crude becoming a petroleum product is no longer defined as crude oil," he said.

Gheit said refiners' stocks were "massacred" this week because investors are speculating that refining companies would be hurt by a move to ship more oil abroad.

"We're going to see more and more pressure in this area because there is a lot of misunderstanding in the industry and by investors," he said. "We're putting the cart before the horse."

A benefit of allowing the exportation of condensate is that it could lower gasoline prices, because it would put more product in the global market, Flynn said.

"It will bring more of the condensate to Europe, which will turn it to gasoline and send it back to the U.S.," he said.

Europe can refine condensate more efficiently than the U.S. because refineries here are designed to handle heavy crude from Saudi Arabia or Venezuela, Flynn said.

"This isn't our father's oil market anymore," he said. "We are going to be a major energy hub."

Business on 06/27/2014

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