Occidental emerges as heavy hitter in U.S. oil export boom

Oxy makes offer for Anadarko

NEW YORK/HOUSTON (Reuters) – Occidental Petroleum Corp has emerged as one of the biggest exporters of U.S. shale oil, rivaling large trading firms and oil majors, in a market now worth more than $150 million every day.

It is showing no signs of slowing down, with plans to double crude exports by 2020. In 2017, Occidental was the largest exporter from the U.S. Gulf Coast of crude produced in the Permian oilfield of Texas and New Mexico, the largest U.S. oil field.

In 2018, it was among the top three exporters of U.S. crude, according to customs data analyzed by Reuters and interviews with company executives and employees.

U.S. crude exports have emerged as a major profit center for oil companies, as shipments have skyrocketed after Washington lifted a decades-long ban of exports in late 2015. They have expanded faster than many expected, to a record at about 3.6 million bpd last month.

The U.S. production boom has upended global supply and overwhelmed efforts by OPEC to restrict output. U.S. exports have doubled from the end of 2017, a lucrative opportunity for companies with access to supply and export terminals.

Occidental plans to double crude exports to 600,000 barrels per day by 2020, Cynthia Walker, senior vice president midstream and marketing, said in an interview.

“As we move into the end of this year and early in 2020 … we’ll probably see a doubling of exports over that period of time,” she said.

Company-level data on exports is kept secret, and the U.S. Census Bureau does not provide data, citing a law which protects confidentiality.

Occidental exports about 300,000 bpd of oil, roughly 10 percent of U.S. crude exports, a standout among the myriad trading houses, oil producers and shippers with operations in the Permian.

According to limited U.S. Customs data available on Refinitiv Eikon, other top shippers included Koch Supply and Trading, BP Plc’s trading arm and Trafigura AG.

Occidental produces significant volumes of oil in the Permian, and its marketing arm buys barrels from other Permian shale producers. It also has contracts for long-term shipments on pipelines and access to storage and export terminals.

“We touch anywhere between 20 and 25 percent of every barrel that’s produced in the Permian basin,” Walker said.

FILE PHOTO: Equipment used to process carbon dioxide, crude oil and water is seen at an Occidental Petroleum Corp enhanced oil recovery project in Hobbs, New Mexico, U.S. on May 3, 2017. REUTERS/Ernest Scheyder/File Photo


U.S. oil production has risen by more than 2 million bpd in the last 12 months, also to an all-time high of over 12 million bpd, according to U.S. Energy Department data. Given the country consumes several million barrels more than that daily, many analysts had expected slower growth.

Companies are scrambling to build Gulf Coast ports to handle more than 3 million bpd in new supplies expected over the next five years.

Profits at Occidental’s midstream and marketing segment, which includes exports, surged more than 17-fold to $1.9 billion in 2018, excluding items, mostly thanks to moving crude from the Permian to the refining and export hub in the Gulf Coast.

Still, as oil retreated to around $50 a barrel last year, Occidental shares tracked that weakness and ended 2018 down more than 15 percent.

Occidental’s rivals last year ran into bottlenecks trying to get barrels from Permian to the Gulf Coast for export due to scant pipeline access. Regional prices slumped, even as the price of U.S. oil futures rose to more than $75 a barrel at one point. The bottleneck has since eased as companies expanded pipelines.

Occidental’s marketing arm has a 10-year service agreement with BridgeTex pipeline, a key conduit to move crude from the Permian.

The company secured a deal for 200,000 bpd of space in 2012 and has helped finance the line’s construction. Chief Executive Officer Vicki Hollub said during an earnings call last year that Occidental needed to partner with Magellan Midstream to build the line, and it has had access ever since.

Last year, Oxy not only sent its own barrels, but bought those of others, using its marketing arm. Occidental Energy Marketing accounted for 17 percent of rival Permian producer Pioneer Natural Resources Co’s oil and gas revenues in 2018, according to regulatory filings. Occidental also represented 34 percent of sales from barrels Pioneer buys from other companies.

The company also had the advantage of owning and operating a terminal in Ingleside, Corpus Christi, which it bought in 2012. Oxy began testing supertanker export capabilities in 2017. It later sold the terminal to Moda Midstream but retained a 10-year contract for 450,000 bpd of exports there.

The company has the ability to send about 470,000 bpd out of the Permian via pipelines and expects to add more capacity in 2019, Hollub said at an industry conference last year.

In December, the port partially loaded its first supertanker: Nasiriyah chartered by Occidental for Europe. This helped slash costs for ship-to-ship transfers, a costly endeavor that has limited U.S. exports because most Gulf terminals are not deep enough to handle the supertankers, known as Very Large Crude Carrier (VLCC) which can transport 2 million barrels of oil.

“We don’t worry at all about access,” Walker said, adding that the company has a 75-cent per barrel advantage on loading costs due to the loading efficiencies at the Ingleside terminal.

To boost its export capability, Moda is expanding its storage and considering building a second berth for VLCCs.

“We’re trying to get as much to the Gulf and get it out of there,” a source at Occidental said.

He added: “We have the place that is easily accessible – at Ingleside – that really is what they’re using to market to these foreign players in Asia.”


Reporting by Devika Krishna Kumar in New York and Florence Tan in Houston; Editing by David Gaffen, Lisa Shumaker and David Gregorio

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