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How Will The U.S. React to These Unapproved Oil Exports?

One of the most important items to emerge in the petroleum space for some time--the first real test of U.S. export regulations around crude oil.

The Wall Street Journal broke the story this week that major E&P outfit BHP Billiton plans to push the export rules. By shipping oil out of the country without explicit permission from the government.

BHP has apparently already contracted to sell a 650,000-barrel cargo to Swiss trading house Vitol. No details have been given on the timing or destination of the shipment.

Related: BHP To Sell US Shale Assets, Expects $5 Billion Gains By 2017

Here's why this is a critical move.

The rules against oil exports from the U.S. (to anywhere other than Canada) still stand. Right now, it is technically illegal to ship crude overseas.

However, in March, the U.S. Commerce Department gave permission to two companies--Pioneer Natural Resources and Enterprise Products Partners--to export volumes of very light oil, or condensate. The ruling being that this petroleum product is actually "processed" because it passes through fractionation towers in the field. Thus qualifying for export, the same way other processed petroleum products like gasoline do.

Operating with explicit permission from the government, Pioneer and Enterprise have since been exporting condensate. But BHP has received no formal ruling stating that its petroleum products meet the definition of processed and thus are legal for export.

Instead, the company is forging ahead based solely on its own assessment that the condensate it wants to export is similar to that being sold by Pioneer and Enterprise.

The move is especially interesting given that, since March, the Commerce Department has reportedly declined to process dozens of other applications for export approvals. Including an application from BHP itself.

Related: BHP Needs A Breakthrough To Expand Olympic Dam

Importantly, BHP says that some of the condensate being exported under approval by Enterprise actually comes from BHP-operated wells. Suggesting that the company may have up-close insight into the approval process.

The outcome here could be critical from a financial perspective. Given that overseas condensate prices are running considerably higher than domestic rates.

If BHP is successful in exporting its products, it could thus enhance profits significantly. Watch for any rulings by the U.S. government on the proposed action--and attempts by other producers to take the same path.

Here's to going it alone,
Dave Forest

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  • Jeff on November 21 2014 said:
    If the president can make laws at will why can't we export build a pipeline you no make money and creat jobs and taxs they can spend at will when is it the American people's time we as investors make money to instead of just printing what you need to go depeer in debt come USA were not stupid. Russia won't wait to lose there chunk in oil

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