MLPs And Investors -- Important Update -- RBN Energy -- July 24, 2018 - Quick! What's The CPC?

Pending today: API crude oil inventory data this afternoon.

• consensus: a drawdown of 3.0 million bbls
• actual: a drawdown of 3.16 million bbls
• WTI pretty much unchanged throughout the day; just above $68

Short stack:

• Score tied: Israelis, 1; Syrians, 1. 
• Saudi IPO: Saudi Aramco CEO: deal for Sabic would affect IPO timeline. Saudi Aramco signaled another potential delay for the world’s largest initial public offering after it started talks this week to buy a stake in a local petrochemical company. Anyone really think this IPO will ever happen? Rhetorical, don't reply.
• Yawn: war of tweets between Trump and Iran had zero impact on price of oil yesterday. Just between you and me, I find that ... amazing ...
• Record: US refiners boost purchases of CPC blend to record as prices drop. This was going to go on the "short stack, " but it's such an incredible story, it became a stand-alone post.
• Oh-oh; HAL shares fell yesterday despite a great earnings report; guidance was terrible based on bottlenecks in the Permian -- some of the smaller, newer players in the Permian could be in trouble -- buying Permian acreage at $40,000/acre; the word Reuters used to describe HAL's share action yesterday: plunge. Not a good word to see in the same sentence as share price ... unless one has shorted the stock. Now, waiting for the other oil services' shoe to drop: SLB.
• Trumped: folks who doubted Trump and Kim need to look again. The WSJ is reporting that NOKO is dismantling a rocket launch site. 
• Predictions: which reminds me -- the mainstream media has been reporting for the past year (?) that Trump's chief of staff John Kelly would resign ... and resign ... and resign ... of course, he will step down at some point, but so far ...
• Heidi's calendar: does not include a visit with Mr Kavanaugh. Or so I'm told.
• Worst list ever: do not visit the MoneyWise site listing the worst 25 states to retire in; it's nothing but click bait. Nothing new. Texas was ranked #24 because of ... poor physician-patient ratio ... hellooooo -- it's called west Texas, but in Houston, DFW, San Antonio, Austin, more than adequate and best health care in the states; most of New England were on the list (high taxes) and most of Deep South were on the list. Not making the list: ND, SD, MN, IA, MT, KS, NE, WY, ID, etc.

Disclaimer: this is not an investment site.

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Back to the Bakken

Wells coming off the confidential list later this morning:

• 31955, 1,118, Hess, EN-Vachal-155-93-0532H-8, Alger, t6/18; cum --
• 24518, SI/NC, Slawson, Gabriel 6-36-25TFH, North Tobacco Garden, no production data, (#32617, #21250, #24521)

Active rigs:

$68.33↑	7/24/2018	07/24/2017	07/24/2016	07/24/2015	07/24/2014
Active Rigs	66	59	32	73	193

RBN Energy: FERC actions on gas and liquids pipeline taxes bring some summer joy.

Back on March 15, the Federal Energy Regulatory Commission shook up master limited partnerships (MLPs) and their investors by deciding that income taxes would no longer be factored into the cost-of-service-based tariff rates of MLP-owned pipelines. We said then that there was no need to panic. In part, this was based on the view the FERC policy wouldn’t affect as much of the industry as some worried it would. But more importantly, our soothing message was tied to the fact it would take a long time for this to play out. It looks like we were right to have some confidence. Today, we explain why the commission’s July 18 vote on a topic as nerdy as “accumulated deferred income taxes” can warm the hearts of MLP investors.

Twice in the past four months we ventured into the strange and sometimes frightening world of FERC rate-setting, dealing with a decision that sent shock waves through the industry. In its March 15 decision, FERC told natural gas and liquids pipelines owned by master limited partnerships (MLPs) that they could no longer have an allowance for income taxes in the rates they would be allowed to charge shippers. The rationale was that MLPs didn’t pay income taxes at the partnership level — only their partnership-unit owners did, in the same way that stockholders in a corporation pay taxes on dividends (which also aren’t allowed in rates). Regardless of the reasoning, the impact had the potential to kick out as much as 10% or 15% of the total rate levels of the MLP-owned pipelines that use “cost of service” to set their rates. That made unit prices (the MLP version of a stock price) go down a lot and there was a hint of panic in the air. It calmed pretty quickly as we and others explained why the policy didn’t necessarily affect everyone, why it would take a while, etc.

Then in May, by which time not much had happened, we wrote to explain the intricacies of the three things FERC had said March 15, how they related to each other and what they did, and we explained the concept of “FERC Time” — a pace considerably more stately than what we’re used to in a market-driven world. A few days ago (on July 18), FERC (its commissioners pictured below) took a couple of actions that make the situation a lot better for the industry, a rare piece of really good news for pipeline owners. It got everyone’s attention and made unit prices for a bunch of MLPs jump, some by double-digit percentages.

Now, the update and good news:

But then came July 18. In an order on rehearing of the Statement of Policy, FERC decided unanimously that MLPs eliminating their income-tax allowance could just erase their whole ADIT balance — pretend it was never there. So suddenly, most of the MLPs with cost-based rates got a bunch of net investment back, on which they could earn their rate of return — in other words, the income hit they faced because of the elimination of the tax allowance was offset by an income bump from this newly earning investment. In some cases, it’s a complete wash, in some not quite, and in other cases, a pipeline’s rates might go up. Heard on the street: “Say hallelujah one time.”

FERC also issued the final version of the NOPR, telling everyone how the Form 501-G and potential rate-review process would work. Without going into detail, for the most part, it came out a lot better for the reporting entities, especially the MLPs that now would be less likely to show a big over-recovery that could trigger a rate reduction. The fact that FERC acted on this whole mess of complicated issues just four months after starting the process is a testament to how seriously they took the impact on financial markets that resulted from all the uncertainty. In FERC Time terms, they acted at light speed.

Much more at the link.