Freak Out! - 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, although this proceeding had been simmering for a while, 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.

Show Me the Money! - Midstream Pay-to-Play in the Permian's Delaware Basin

First came the “aha moment,” the realization that the Permian’s unusually complex geology — with multiple layers packed with hydrocarbons — is a solvable puzzle, and that the financial rewards for exploration and production companies could be very attractive. Then came the highly competitive scramble to acquire acreage in the most promising parts of the Permian’s Delaware and Midland basins. Now, with many producer’s acreage largely de-risked, competition to provide needed gathering systems and processing plants is white-hot, with some midstreamers in the prolific Delaware offering to write big checks to producers up front for commitments to infrastructure that in some cases is still on the drawing boards. These pay-to-play deals are ricocheting through the Permian business development community — at least in the Delaware. Today, we discuss recent developments in producer/midstreamer relations in the nation’s most active hydrocarbon play.

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