How to Capitalize on the Bakken Oil Boom

Stocks in the refining industry never really attracted us in the past. They were usually highly leveraged, barely earning a return on capital, and there were no tailwinds for their earnings — consumption of gasoline in the U.S. has been on the decline for years (our cars are now more efficient, and we drive less). Refiners’ earnings power was a mystery to us, swinging from feast to famine on a dime.

但是在过去的几年里，我们的结构发生了重大变化，我们改变了主意。通过水平钻井和压裂，司钻基本上学会了如何将油（气）挤出岩石。他们在那些几乎没有容易获得的石油，因此现有炼油能力很小的地方发现了许多这些富油岩石：在北达科他州。北达科他州巴肯页岩地区的石油产量从2011年的40万桶/日飙升至2013年的每天100万桶。北达科他州现在的石油产量比阿拉斯加多，仅次于强大的德克萨斯州，那里的石油产量增长了两倍，达到每天210万桶。(Read more: "美国的能源独立性。")

由于原油对我们和我们的汽车都是无用的——必须精炼，而且它也不能神奇地传送到炼油厂——因此，必须了解我们现有的炼油基础设施，因为我们的炼油基础设施是长期发展的，它是基于生产和消费模式发展的。历史上，约三分之一的进口来自加拿大和墨西哥，40%来自欧佩克国家，尽管大多数美国供应商都在波斯湾以外（委内瑞拉、尼日利亚、阿尔及利亚和安哥拉）。美国进口的一半来自海湾沿岸地区，这也占美国炼油总产能的一半。

The East Coast has imported mainly refined petroleum from Canada, Russia and Europe, because of a lack of cheap refining capacity (and high-cost, unionized refineries). Midcontinent North America has the least amount of refining infrastructure, but that is where a big chunk of new oil is coming from.

还有一些石油行业的限制。U、 美国法律禁止出口未经罚款的石油。因此，这种新的石油不能运到海岸，不能装上油轮，并被运往海外；它的流动需要适应我们现有的运输，更重要的是，炼油基础设施。这就是炼油厂重要性增长如此之大的原因。建造一个新的炼油厂比增加现有炼油厂的额外产能高出5倍。我们可能不会看到很多新的炼油厂建造，但是-没有人想要在他们的后院。

我们正在研究如何利用巴肯石油繁荣。铁路的好处已经计入了他们的股票。铁路汽车和驳船的制造商看起来很有趣，但从长远来看，这些管道将在2014年及以后上线，这将是一个威胁。炼油厂是最大的受益者。有很多人可以选择，但我们把钱放在我们的口中，并购买了北线能源（NTI）。这是这群人中最不知名的，而且有最好的风险回报。

NTI used to be owned by Marathon Oil but was sold to ACON Investments and TPG, a private equity firm, a few years back. TPG took it public late last year as a variable-payout master limited partnership (MLP).

What makes NTI unique is its location in St. Paul, Minnesota, making it one of the refineries closest to the Bakken Shale. There is not enough refining capacity in the region, and therefore about a fifth of refined products consumed in the region have to be imported into St. Paul from the Gulf Coast refineries. Texas or Louisiana refineries, however, will not send gasoline to St. Paul if prices there are below their total cost (of oil production, refining and shipping). This point is very important, because the price of gasoline in St. Paul is a function of what coastal refineries pay for the oil they refine. These dynamics get more complicated, because coastal refineries may be buying either Brent Crude — oil imported from other countries — or West Texas Intermediate (WTI). To keep things simple, I’ll focus on WTI (Brent usually trades at a premium to WTI, so I will err on the conservative side).

Since oil from the Bakken is shipped by rail or pipeline to the Gulf Coast, the price differential between Bakken and Gulf Coast is the transportation cost. NTI buys Bakken oil at a discount to WTI (a reduction of $9 per bbl if shipped by pipeline and $15 if shipped by railroad), refines it and sells it at a premium over the cost of the WTI that Gulf Coast refiners have to pay to ship gasoline to St. Paul (it costs them about $2 per bbl).

This unique dynamic allows NTI to earn outsize profits that should be sustainable in the long run. It is able to capture an additional $11 to $17 in gross margin profit, versus the coastal refineries selling gasoline in St. Paul, and thus should earn about $3 to $5 per share. NTI’s earnings will likely be volatile going forward, but we can accept this volatility considering that we are paying six times its worst-case earnings. Unlike traditional MLPs, NTI pays out all its earnings in distributions, giving this refinery a dividend yield somewhere between 15 percent and 26 percent.

NTI is misunderstood for many reasons. First, it just completed a planned five-year turnaround (every five years the refinery is shut down and fixed up). Thus output was down, and the company cut its dividend, which scared a lot of retail investors who owned blindly on dividend. TPG, the largest shareholder, just had a secondary offering of its shares, and that might have put additional pressure on the stock. It may be down in sympathy with the MLP sector, which took a dive when interest rates spiked. But NTI pays a much higher dividend than almost any other MLP, and it is significantly underleveraged.

In the market that is hitting all-time highs, most of your errors will come from forced-buy decisions. Constantly rising stock prices create an enormous pressure to be fully invested. They force you to compromise on your valuation standards. You start defaulting to relative (instead of absolute) valuation to justify your buying decisions: that is, for example, this stock is trading at 18 times earnings but its competitors are at 22, so it is cheap. Bull markets don’t last forever, nor do the premium valuations that they bring. The value in NTI is not a mirage that will dissolve with this bull market. It should do well in any market environment, as it is dirt cheap in both a relative and, more important, an absolute sense.

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