“If energy is going to be used as a weapon, we need to have the largest arsenal.”
Former Texas Governor Rick Perry said this at a 2015 conference in Houston.
This was in reference to the clout that Organization of the Petroleum Exporting Countries (OPEC) has within the global oil trade and the fact that the U.S. was beholden to the whims of the group.
The U.S. was caught in an OPEC choke hold and there wasn’t light at the end of the tunnel.
Two years ago, we wrote about the (tiny) hope that the U.S. would lift the ban on crude oil exports.
Many thought it was a fool’s hope.
But in December of 2015, the ban was lifted.
And U.S. shale producers jumped in feetfirst.
Since then, oil has been on a roller coaster, experiencing ups and downs.
In mid-summer, crude prices reached a seven-month low, sitting at just above $43. For months, we’ve seen oil trading around $50 per barrel, and it was desperately trying to find some support.
And you have to ask: Who can afford to operate under such low margins?
Well, certainly not OPEC.
Oil prices haven’t been this low since OPEC’s production cut deal. So, you would think that producers would be cutting rigs to lower output.
Well, that’s true for OPEC countries but not for the U.S.
The U.S. actually increased rig counts last week to 941 active oil and gas rigs, which upped production to 9.33 million barrels of oil per day (bopd).
The cost to build and operate wells in oil-rich U.S. shale basins has decreased by millions of dollars over the past few years.
We’ve said it time and again: Certain U.S. shale producers can still make a profit when crude prices are trading between $40–$50 per barrel.
Just look at this chart:
The U.S. is beating all other countries in oil production and has nearly doubled oil production in the past nine years. And now, the U.S. is selling it overseas.
From 2010 to 2016, U.S. exports more than doubled, with production in 2016 at 5.2 million bopd.
Since late last year, China, now the world's 2nd largest but incrementally the most critical oil consumer, has ramped up imports from the U.S… Mexico is now taking about 60% of U.S. gasoline. Mexico's crude output has dropped about 33% since 2004.
Oil is necessary.
The U.S. can produce it and make money from low prices.
That’s why the future of U.S. oil exports looks so bright.
With that in mind, smart investors who are interested in making money off U.S. oil exports should gear their portfolios toward midstream companies.
The following are two such companies that I'm particularly fond of...
Shell Midstream Partners, L.P. (NYSE: SHLX)
Shell Midstream Partners owns, operates, and buys midstream assets within the U.S. The company has interests in four different pipelines within the U.S. and is a subsidiary of Shell Pipeline Company, L.P.
Shell Midstream's market cap is $4.93 billion, and it recently increased its dividend from $0.277 to $0.291.
The company's first-quarter report shows that it's up by $1 million from its fourth quarter, sitting at $70.8 million. And its cash average for distribution is up by 9% from the previous quarter.
Nordic American Tankers Limited (NYSE: NAT)
Nordic American Tankers Limited is a company that acquires and charters tankers for oil transportation.
Nordic is a vital part of exporting oil because without the company, we wouldn’t be able to transport it.
It has a market cap of $625.13 million, with a cash dividend of $0.020.
According to its first-quarter report, the company's adjusted net operating earnings are up to $30.5 million, and its Suezmax fleet of tankers is up to 466.