Under the Radar: The U.S. is a Net Exporter of Fuel

By Maxwell Kirchhoff - January 12, 2012 | Tickers: ERF, PXP | 0 Comments

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Commentators, politicians, and pundits frequently utilize America's "foreign dependency on oil" as a talking point to reach political and ideological ends.  The frequently spoken sentiment can illicit notions of fear, patriotism, or environmental fervor depending on the speaker and the audience.  

In spite of its frequent usage however, the oil dependency statement is partially untrue.  As reported by David Zeiler at The Energy Report, the US has recently become a net exporter of fuel for the first time in more than 60 years.  For the first 10 months of 2011 we exported a whopping 98 million barrels of fuel.  New discoveries of crude oil in North Dakota, the Rockies, and Texas are cited as key reasons for America's change in status, as well as ever increasing demand from emerging markets such as Brazil.  Speaking of which, Mr. Zeiler notes that "Brazil ... exported fuel to the United States as recently as 2006, [but] now imports U.S.-made fuel at the rate of 106,000 barrels a day."

Overall, the fact that we ship more fuel than we receive has been the subject of little attention, but investors looking to capitalize on this phenomenon should focus on major integrated companies with substantial U.S. based refining capacities such as ExxonMobil and Royal Dutch Shell; and those willing to risk more for handsome rewards should direct their attention to U.S. based exploration and production companies such as Plains Exploration & Production (NYSE: PXP) and Enerplus Corp. (NYSE: ERF).  In terms of the latter companies, we simply do not know how much oil is under our feet.  This uncertainty results in incredible reward potential as well as substantial risk.  The following will provide a brief fundamental analysis for PXP and ERF.

Plains Exploration & Production and Enerplus Corporation: The Fundamentals

Presented below is a comparison of fundamental indicators for PXP and ERF

Value-oriented P/E traders should heavily favor ERF to PXP in light of their respective valuations.  

Next, the balance sheets for these companies are quite underwhelming.  However, the EPS growth per share for PXP for 2011 (est.) from 2010 should see an increase of about 69% ($1.79 to $1.06), according to Zacks analyst predictions.  These same analysts are predicting 2012 earnings of $3.30 for an 84% increase YoY.

Finally, the price to book ratios for both companies demonstrates that these companies have plentiful assets.  More precisely, both of these companies have ample fuel reserves, and their respective areas of exploitation look to offer generous extraction for the coming 3 to 5 years.  

In total, PXP currently has estimated proved reserves of 416.1 million barrels of oil equivalent sourced from their areas of focus.  These regions are California, the Gulf Coast, and the Rockies.  

For ERF, its total estimated proved plus probable reserves were 306,237 thousand barrels of oil equivalent consisting of 149,853 thousand barrels of crude oil, 11,576 thousand barrels of natural gas liquids, and 752,187 million cubic feet of natural gas and 116,662 million cubic feet of shale gas.  Also, ERF operates a land base that includes 230,000 acres of the Bakken.  

Everything considered, both PXP and ERF look to continue to harness North American reserves, and apparently, upon their bounty's refining, have it exported.  Below is the performance of the two companies relative to the S&P 500 over the past year.

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