With the resource play renaissance in the U.S., we see dramatic oil production growth from multiple basins onshore. This has huge implications on the midstream and the downstream, as producers continue to find creative ways of selling products into the better markets.
We visited a number of pure plays in Houston, focusing on marketing challenges: Oasis Petroleum (ticker: OAS) for the Williston Basin Bakken, Rosetta Resources (ROSE) for the Eagle Ford, Magnum Hunter Resources (MHR) for the Utica and Marcellus, and Energy XXI (EXXI) for the offshore Gulf Coast.
We also saw Kirby (KEX) and Oiltanking Partners (OILT); in our view, both have much to gain from this massive transformation of our crude oil transportation complex in the U.S.
Here are the highlights:
We started the day at Oiltanking Partners' facility. The company has strategic waterfront assets and dock capacity, a crude-by-rail terminal, and is connected with 18 refineries, storage, and production facilities -- all movers and shakers in this space. The company is expanding its footprint and will have 25 million barrels of storage capacity by year-end 2014.
Kirby primarily transports petrochemicals, black oil products, and refined petroleum products. Kirby benefits from inland and coastal transportation demand, moving Canadian and Bakken crude from the Midwest and the Gulf Coast as well as moving Eagle Ford products along the Gulf Coast.
Currently, more than 60% of Williston basin oil is transported by rail while only 33% is transported by pipeline. For Oasis in particular, about 80% of its operated volumes are transported by rail to take advantage of the pricing. Currently, the majority of Oasis' operated volumes go to the Gulf Coast and the East Coast. The company's strong price realization combined with disciplined well cost reduction has led to stronger and stronger margins