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Oil exports could bolster Eagle Ford – eventually

The first oil exports from the United States left the Port of Corpus Christi on Thursday afternoon aboard the “Theo T” tanker heading for Europe just weeks after Congress repealed the nearly 40-year-old export ban.

The exports — using Eagle Ford oil pumped by ConocoPhillips and transported by NuStar Energy — mark a momentous change in the midst of one of the worst price crunches in the history of the industry. As of Thursday, the American benchmark West Texas Intermediate was hovering around $37.50 a barrel — down $15 from a year ago and more than $60 from Dec. 31, 2013.

But the lifting of the ban could spell some relief for Eagle Ford producers as their oil is closer to export points than American-produced crude in North Dakota’s Bakken shale, said Omar Garcia, president and CEO of the South Texas Energy and Economic Roundtable.

“The job impact and revamping and rigs starting to drill again, it’s going to be a gradual process,” Garcia said. “It’s not going to be something that’s going to happen overnight. But it will impact the shale in the long term and allow us to continue to drill and add jobs in the Eagle Ford.”

As for the first exports leaving Corpus Christi, NuStar Energy communications assistant Molly Haerer said in an email that “NuStar has invested heavily in the Port of Corpus Christi and the Eagle Ford to be in a position to load large cargoes of crude for export. We like the Port of Corpus Christi because it is largely less congested than the port in Houston.”

Garcia echoed that message, saying that midstream pipeline companies have pumped billions of dollars into projects in order to take advantage of export possibilities. The region is still seeing an inflow of money as well.

Related: Market won’t respond immediately to lifting of export ban.

“You’re still seeing investment, you’re still seeing lots of activity,” Garcia said. “Certainly not at the level of 2012 and 2013, but you’re still seeing a lot of activity down in the Eagle Ford Shale.”

The repeal of the ban has also assisted West Texas intermediate crude in competing with the international benchmark Brent crude by narrowing or eliminating the price differential between the two, said Tom Tunstall, of the University of Texas at San Antonio. Of the last few years, WTI prices have lagged behind Brent.

“At this point every dollar a barrel helps because for a lot of these producers the price that oil is selling for is awfully close to their break even point,” said Tunstall, who is the senior research director at the University of Texas at San Antonio Institute for Economic Development. “Clearly for a lot of producers it’s below the break even point, but some of the producers have indicated that at $40 a barrel they can still be profitable.”

The idea of a break even point has been floated ever since oil prices began collapsing in November 2014. Many energy experts and analysts speculated that the U.S. shale industry could only drill profitably at $50 a barrel; over a year into the drop U.S. production has slowly dropped by 350,000 barrels a day since March, according to the U.S. Energy Information Administration.

The EIA estimates that the Eagle Ford Shale play has accounted for most of that production drop. With weak prices forecasted for the rest of 2016, Tunstall predicted there is more pain in store for the industry.

“We’re probably going to see a fair amount of industry shake out next year because of the low prices,” he said Thursday. “The companies that had hedged their production, those hedges are expiring and banks are becoming more reluctant to extend credit, so we’re going to see some additional bankruptcies, some sales of assets and that sort of thing next year.”

This article was written by Rye Druzin from Victoria Advocate, Texas and was legally licensed through the NewsCred publisher network.