Eagle Ford producers were feeling fine after licenses for export of ultralight crude, called lease condensate, were made public.

The rest of the industry was jittery as refiners saw values drop.

Reports of two licenses approved for condensate exports raised hopes, anxieties and questions after Pioneer Natural Resources Co. (NYSE: PXD) and Enterprise Product

Partners LP (NYSE: EPD) were issued private letter rulings by the Commerce Department to export minimally refined condensate.

Sending condensate overseas likely will benefit producers. But despite the startle reflex in the market, it leaves refiners largely unaffected and gives a moderate boost to midstream companies, analysts said.

Export licenses played especially well for public Eagle Ford producers, which often see large amounts of condensate-rich production. Companies including Pioneer, SM Energy Co. (NYSE: SM) and Swift Energy Co. (NYSE: SFY) gained 5% to 6% on June 25.

The same day, large-cap refiners tumbled. Tesoro Corp. (NYSE: TSO), Phillips 66 (NYSE: PSX), Marathon Petroleum Corp. (NYSE: MPC), and Valero Energy Corp. (NYSE: VLO) were 4.2% to 8.3% weaker after the session, according to Baird Energy.

While much is muddied on the export licenses, the spirit of the law remains intact: Hydrocarbon liquids produced in the U.S. must still be processed in the U.S., said Sam Margolin, an analyst with Cowen and Co.

“Permits for condensate exports do not constitute precedent for crude oil in our view,” Margolin said.

However, other facets of the export approval are not yet fully understood.

“One thing remains clear: What changed is not the actual export law, but rather the Commerce Department's interpretation,” said Pavel Molchanov, energy analyst for Raymond James.

Two key points in need of clarification are whether “minimal processing” of lease condensate implies a proprietary distillation or a more simple stabilization.

Another question Molchanov wants answered: Is there a specific definition as to what qualifies as condensate for purposes of the export ruling?

In The Field

For producers with a glut of lease condensate, other regions and other players are likely to follow into the export business, said Sunil Sibal, an analyst with Global Hunter Securities LLC. Condensate production out of the Permian and Bakken will likely add to the pool of condensate exports.

Eagle Ford condensate production at the end of last year was close to 475,000 barrels per day (bbl/d) and is expected to grow by another 275 Mbbl/d over the next five years, Sibal said.

However, the U.S. is already the world’s largest exporter of refined petroleum products. As foreign crude entering the domestic market has dropped dramatically in the past several years, the drop in net imports of crude and petroleum products was the major reason the U.S. reached its lowest net trade deficit since 2009.

Distilling The News

Refiners may be unnecessarily weathering a loss in value from the market.

Lease condensate is considered too light to be crude but is nevertheless prevented by law from export overseas. However, lease condensate is not optimal as a feedstock for refined products, so potential impacts on gasoline and diesel prices would likely be minimal.

Condensate has also been problematic for refineries. The production of increasing volumes of condensate from U.S. shale plays, in particular from the Eagle Ford in South Texas, has overwhelmed the capability of U.S. refiners to deal with that type of light hydrocarbon.

Most refineries were not designed to process in large volumes, Sandy Fielden, director of energy analytics for RBN Energy, wrote on his blog.

And while opponents to the overall crude export ban, including U.S. senators, industry organizations and producers, have said bans negatively affect U.S. production, lifting the ban wholesale appears a ways off.

“Reports of the demise of U.S. refiners have been greatly exaggerated, in our view, and approval of condensate export applications does not derail our long-term positive industry view,” Margolin said.

“The buying opportunity, however, is somewhat tempered by current crude fundamentals, which position near-term refinery earnings somewhat lower than expectations,” he said. “We maintain our near-term cautious, long-term bullish industry stance.”

U.S. refiners see more of a risk based on their near-term earnings than on PXD's and EPD's recently granted permits for condensate exports.

“We do not see a step change in the current regulatory framework that bans blanket crude oil exports, since stabilized condensate is more akin to a refined product than an ‘unrefined oil,’ as characterized by media reports,” Margolin said.

In The Middle

For midstream company infrastructure, condensate exports are likely to spur growth through condensate stabilization units, Sibal said.

However, the need for condensate splitters, which separate condensate into liquid products such as naphtha, gasoline, kerosene and diesel, is likely to be questioned, Sibal said. Kinder Morgan Inc. (NYSE: KMI) is already building a condensate splitter facility in the Eagle Ford that is expected to start up in the second half of 2014. The facilities are backed by take-or-pay commitments.

RBN said its research shows that seven companies have announced plans to build standalone condensate splitters in addition to the already-operating 75 Mbbl/d Total/BASF unit at Port Arthur, Texas.

Enterprise Product Partners is among midstream players such as Plains All American Pipeline (NYSE: PAA) and Plains GP Holdings LP (NYSE: PAGP) that are likely to benefit.

PAA is one of the largest crude logistics players in the Eagle Ford and Permian regions and currently operates a 80 Mbbl/d condensate stabilizer in the Eagle Ford, which is planned to be expanded to 120 Mbbl/d next year.

But the long-term need for export-focused condensate splitter units along the Gulf Coast, recently announced by other companies, is likely to come under question.