As widely reported, two recently issued private letter rulings (PLRs) are allowing for the export of minimally processed condensate (superlight crude oil) from the Eagle Ford. Though currently limited in scope, the potential impact of a broader rollback of the export ban on crude oil could have wide ranging effects across industries. Although Fitch Ratings in its special report titled, “Scenario Analysis: Lifting the Crude Export Ban” believes the overall credit impact is likely to be limited.
E&P firms with significant onshore U.S. production should benefit from rising price realizations, with the biggest benefits accruing to issuers with exposure to the most bottlenecked oil-rich shale plays. Higher realizations may further accelerate the trend of onshoring among independents, while both reducing investments in international and offshore exploration and increasing capex budget allocations to higher value North American shale plays.
North American refiners are likely to see the most negative impact from a ban roll-back as the deep discounts that North American crudes have to world grades narrow. These discounts have been especially profitable for landlocked mid-continent refiners geared to process light sweet crude slates. While Gulf Coast refiners would also be negatively affected, they are generally levered to heavy sour-coking economics, and improving light-heavy crude differentials would help offset the loss of cheaper light sweet crude.
Gatherers and processors are likely to benefit from higher volumes as the economics of onshore shale plays improve, raising projected internal rate of returns for such plays, and resulting in higher natural gas liquids (NGL) production and increased need for associated processing infrastructure. The change in the export ban is likely to be a mixed story for other midstream sectors (pipelines, storage, crude logistics), with impacts determined on a case-by-case basis. For example, refined product pipelines could be negatively affected if refined product exports and U.S. refining utilization rates drop off as crude discounts narrow. But terminals and storage may benefit, driven by incremental needs to move crude to the coast. Similarly, lifting the ban might hurt select shipping names by encouraging exports (international crude shipments) at the expense of today’s domestic shipments, which require Jones Act shippers.
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