Surging production at various U.S. shale plays helped the
country shed its net oil importer status in 2011 for the first
time in decades, and increased North American petroleum
production is viewed as a game-changer by some analysts. U.S. oil
production has jumped to an average of nearly 6.1 million barrels
per day this year up from 4.4 million barrels per day in 2008,
according to the U.S. Energy Information Administration.
Most of the increased production is tied to shale formations
and S&P Capital IQ forecasts continued increases in shale
output.
"Using data from the EIA, we estimate that oil production from
shale plays will grow at a compound annual growth rate (
CAGR
) of 4.3% from 2010 to 2035," S&P Capital IQ said in a
research note. "Besides U.S. oil production, Canadian oil
production has also been growing. Using data from the Canadian
National Energy Board, we see its oil exports increasing at a
CAGR of 5.3% from 2011 from 2035. Furthermore, in June 2011, the
Interstate Natural Gas Association of America published a study
that concluded that the U.S. and Canada will require an annual
average midstream investment of $10 billion per year over the
next 25 years to accommodate growing oil and natural gas
supply/demand infrastructure needs. The increase in production is
necessitating the buildout of takeaway capacity. Takeaway
capacity includes building new pipelines, expanding existing
pipelines, railcars, trucks, and barges."
The EIA cites growing production at the Bakken Shale, the
Permian Basin in West Texas and the Eagle Ford Shale in South
Texas as the catalysts behind increased U.S. oil output. Due to
rising demand for midstream assets and services, S&P is
bullish on select midstream companies including high-yield master
limited partnerships such as Enterprise Products (NYSE:
EPD
) and Magellan Midstream (NYSE:
MMP
).
S&P rates Enterprise, the largest U.S. MLP, five starts.
Magellan received a four-star rating. Those units yield 4.7
percent and 4.3 percent, respectively. The firm also placed
four-star ratings on Plains All-American Pipeline (NYSE:
PAA
) and Sunoco Logistics Partners (NYSE: PXL). Those units yield
4.8 percent and 3.9 percent, respectively. S&P said
Enterprise Products should be viewed as a "core" portfolio
holding and the firm is quite bullish on Plains All-American,
too.
"We see PAA as one of the best positioned MLPs to benefit from
the surge of North American crude production and supply/demand
imbalances, according to the note. "We estimate that over 71% of
rigs drilling for crude oil are in areas where PAA has a
significant asset presence. We expect the partnership's extensive
and integrated asset base in the major oil producing basins such
as the Permian Basin, Bakken, and Eagle Ford to give it a
competitive advantage over its peers, enabling it to benefit from
increasing volumes and supply/demand imbalances. PAA has
identified over $5 billion of growth capital expenditures
projects, with $3.5 billion slated for crude oil projects. PAA
expects to spend $385 million in the Bakken, $340 million in the
Permian Basin and $725 million in South Texas/Eagle Ford shale
area on a variety of projects, including pipeline expansions,
railcars, storage and terminals."
The popular ALPS Alerian MLP ETF (NYSE:
AMLP
) was mentioned in the note, though it is not rated by S&P.
AMLP, which has almost $4.3 billion in assets under management,
devotes over 26 percent of its to the aforementioned four stocks.
AMLP yields six percent.
S&P Capital IQ placed a Marketweight rating on the
PowerShares Dynamic Energy Sector Portfolio (NYSE:
PXI
). The $118.5 million ETF is home to 58 stocks. PXI has perhaps
the highest exposure to
refining equities of any energy ETF
and the fund is heavily exposed to various shale producers
through holdings in names like EOG Resources (NYSE:
EOG
) and Hess (NYSE:
HES
).
PXI is up 9.8 percent year-to-date and the fund has offered
better than double the returns of larger rivals such as the
Energy Select Sector SPDR (NYSE:
XLE
) and the Vanguard Energy ETF (NYSE:
VDE
).
For more on ETFs with heavy shale exposure, click
here
.
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advice. All rights reserved.