RBN Energy Takes A Look At FERC Ruling On MLPs -- March 19, 2018

Existential: they must be reading the blog. I've been referring to the Saudi fight against US shale oil as an existential issue for years. I'm sure others have said the same thing, but I don't recall linking a story with a headline using that phrase. Well, here it is. In the Financial Times,

"Saudi Arabia's existential crisis returns as US shale booms anew. Kingdom seeks higher prices that risks greater North American production."

The good news:

Saudi Arabia is mostly relying on stronger global economic growth, rising oil consumption and natural decline rates at existing fields to drive demand for the kingdom’s crude, according to two people briefed by Saudi officials. Prince Mohammed himself believes prices will be “significantly” higher next year because of these factors alone, one person says.

Unfortunately the tea leaves suggest Russia my flex its muscles. [One hour later: wow, was I wrong -- it's being reported that Russia's energy minister says Russia will stick with the cuts, and even extend them into 2019, if necessary. This suggests to me that "everyone" sees WTI floor at $60 / Brent floor at $65 and OPEC/Russia see huge risk of increasing production.]

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US Appeals Court Approves ETP's Bayou Bridge Pipeline Construction

Link here.

The disputed 162-mile (261-km) pipeline is an extension to an existing line, which transports crude from Nederland, Texas, to Lake Charles, Louisiana. The new segment would extend the system to St. James, Louisiana, and have capacity to transport up to 480,000 barrels per day of oil.

The project is 60 percent owned by ETP with the remainder controlled by refiner Phillips 66.

Energy Transfer Partners on Friday said it was pleased with the court ruling and would begin mobilizing for construction activities as soon as possible.

One of the three judges that heard the appeal filed a dissent, agreeing with the District Court's ruling that the U.S. Army Corps of Engineers had violated the law when issuing permits for the pipeline.

HAL announces a new sand transload facility in El Reno, OK. The property was purchased back in 2015 for $3 million. The terminal now has 10 sand silos with 5 unloading bays. Each silo probably stores 3,000 tons of frack sand. The double-loop track has 16,267 feet of rail; handles 2 - 3 unit trains of frack sand.
 

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Back to the Bakken

Active rigs:

$62.31↑	3/19/2018	03/19/2017	03/19/2016	03/19/2015	03/19/2014
Active Rigs	58	47	32	107	195

RBN Energy: FERC's move on MLPs and cost-of-service rates puts Wall Street in a tizzy.

The aftershocks are still being felt from last Thursday’s decision by the Federal Energy Regulatory Commission (FERC) that interstate gas and liquids pipelines’ cost-based tariff rates can’t include anything for income taxes if the pipelines are owned by master limited partnerships (MLPs) — and most are. Many investors did freak out — no other phrase sums it up better — when they heard that news. Share prices for midstream companies plummeted in midday trading, and we imagine that many angry calls were made by investors to their financial advisers. “Why didn’t we know about this?!” In fact, FERC’s action was harsher than expected by most experts. But the impact of the change is likely to be less far-reaching than the Wall Street frenzy would have you believe, at least for most MLPs. And, by the way, the issue at hand — whether and how to factor in taxes in calculating MLPs’ cost-of-service-based rates for interstate pipelines –– has been around for decades. Today, we discuss FERC’s new policy statement on the treatment of income taxes and what it means for natural gas, crude oil, natural gas liquid (NGL) and refined product pipeline rates; and for investors in MLPs that own and operate the systems.

It’s worth noting that Thursday was what the ancient Romans called the ides of March. That was a real bad day for Julius Caesar (“Beware the ides of March … You too, Brutus?”) For some pipelines and their investors, FERC’s abrupt chopping out of a big chunk of pipeline cost of service probably felt pretty similar to Caesar’s surgery. FERC had been working for a year and a half to respond to a July 2016 federal appellate court ruling saying that collecting income taxes in pipeline tariff rates — on top of how the return on equity investment is calculated for an MLP’s pipeline rates — amounts to a double recovery of cost. So FERC took a lot of comments, struggled with it, and ultimately on Thursday said, “Yep, it sure is.”