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Sources: U.S. condensate oil export requests put on hold for now

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The Dickinson Press
Sources: U.S. condensate oil export requests put on hold for now
Dickinson North Dakota 1815 1st Street West 58602

WASHINGTON - The U.S. Commerce Department has put on hold at least two companies' requests for permission to sell lightly processed crude abroad, effectively stalling an industry push to export an expanding glut of oil amid the U.S. shale revolution, sources said.

The companies seeking clarification on exporting ultra-light oil, known as condensate, have been told that their requests are being "held without action," a person familiar with the matter said last week, describing an indefinite pause in the review process that allows officials to seek additional information on a decision.

This may also give the agency more time to put together some form of comprehensive public guidance about what kind of oil can or cannot be exported, answering industry's growing cry for clarity. It is unclear when such a document may be finalized, but several sources said they think it could occur within weeks.

Seven other sources said they were also aware or had been told of an apparent pause in processing so-called "commodity classification" or CCAT requests, which are done on a case-by case basis and normally take about two weeks for the Commerce Department's Bureau of Industry and Security (BIS) to handle.

It is unclear when the BIS first began placing a "hold" on such applications, how many have been affected or how long it may last. The identity of the two companies whose requests were put on hold was not immediately clear.

Asked about the holds last week, a Commerce Department spokesperson declined to comment. Commerce and BIS officials did not reply to further requests for comment on Monday.

Sources said the BIS may be more cautious as it answers such requests following last month's revelation that Pioneer Natural Resources Ltd and Enterprise Product Partners LP had been told in March that putting condensate through an advanced stabilizer -- a relatively simple type of oilfield equipment used to strip light gasses out of oil -- was sufficient processing to export it without a license.

The news created a storm of confusion and questions from Washington to Houston, even after BIS officials said the ruling was merely a technical interpretation, not an official effort by the Obama administration to ease a decades-old export policy.

U.S. crude oil exports have been essentially banned by law since the Arab oil embargo of the 1970s, unless they are sold to Canada or have somehow been processed, but pressure to find ways around the rules has intensified this year.

Since 2008, the use of fracking has led to a dramatic increase in oil and gas production from shale formations. U.S. light tight oil, mostly from North Dakota and Texas, as well as Canadian bitumen, represent well over half of 2014 nonOPEC supply growth, the International Energy Agency said this month.

Now, an unknown number of additional requests for official guidance from the BIS are in limbo as the department reviews the wider implications and issues related to oil exports, which have abruptly emerged this year as a major energy policy issue.

Nine of the 20 largest producers in the Texas Eagle Ford shale, which is rich in condensate, told Reuters they were not yet seeking rulings on exports. Another six did not respond to messages and five declined to comment.

Apache Corp, EOG Resources Inc, BHP Billiton Ltd and Marathon Oil Corp are all major producers of condensate in Eagle Ford.

GETTING THE WHOLE PICTURE

Until last month's disclosure by Pioneer and Enterprise, few analysts were certain whether running condensate through a stabilizer was the same as running it through a "distillation tower," as stated in BIS regulations.

The furor that followed it "basically led BIS officials to believe that they do not have the whole picture," said a source familiar with the process.

The Commerce Department is also facing greater scrutiny by lawmakers. Earlier this month, Democratic Senators Robert Menendez and Edward Markey wrote a letter to Commerce Secretary Penny Pritzker, questioning whether the agency had legal authority to let the companies export the lightly processed.

"If the Commerce Department is suggesting that U.S. law should be eroded, then they need to give a full explanation of why they need to do that and we expect them to answer the questions that Senator Markey and Senator Menendez asked," Eben Burnham-Snyder, a spokesman for Markey, told Reuters. "What we want instead of frequently asked questions is answers."

The agency missed a deadline last Monday to respond to the senators but the senators expect a response in the coming days, Burnham-Snyder said.

The BIS has been considering a so-called Frequently Asked Questions on exports for several months, analysts say, as companies have approached its officials with more questions about what is required to sell crude abroad.

LEVELING THE FIELD

As many as a dozen or more energy companies may be seeking clarification on whether they can export condensates, putting the BIS in the hotseat on a hot-button, big-money topic. But because its decisions are confidential, one company cannot use another company's clarification as a precedent unless the exact wording is disclosed, lawyers say.

"There is political pressure surrounding this and I think any slowdown would be related to making sure BIS is providing consistent advice," said Christian Davis, a lawyer specializing in export controls at Akin Gump Strauss Hauer & Feld LLP, which is working with several energy companies on export applications.

Meanwhile, demand for U.S. condensate is growing. Just one week after BIS confirmed its approval to ship lightly processed oil abroad, Enterprise sold its first cargo to a Japanese trading house and was seeking more buyers in Latin America, according to trading sources.

Jacob Dweck, a partner at the law firm Sutherland Absill & Brennan, who has represented Enterprise in connection with its ruling, says that a number of companies, which he declined to name, are interested in obtaining a ruling similar to Pioneer's and Enterprise's.

"Some of our clients already have filed their ruling requests, while others plan to file very shortly," he said, adding that he anticipates 10-15 "look-alike ruling requests" to the Pioneer and Enterprise rulings.

"These types of look-alike requests are not intended to expand the scope of the rulings, but in effect to discover and ensure that the permissible scope is known to the applicant."

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