New Report Spotlights Strong Midstream Sector Growth in Shale Oil and Gas Development

In a recently released analysis, Deloitte provides an upbeat summary of the high growth occurring in infrastructure projects needed to support the hydraulic fracturing and horizontal drilling – or “fracking” – boom across the country.  A sector once considered mature and slow-growth has instead seen new demand for expansion in pipeline, processing, storage, and transport capacity.  Deloitte predicts that new investment on the order of $200 billion will be needed by 2035, and that investors will be well-rewarded, given that average profit margins are three times greater than interest expense, partly due to use of Master Limited Partnerships.  Noting the strong growth potential in a market with these opportunities,  the report nonetheless cautions that small and medium-sized companies will face challenges compared to larger enterprises in terms of access to financing, ability to cover the breadth of the value chain, and competitiveness in new and emerging shale plays.  These realities will favor midstream majors for the most significant gains, but will still leave room for niche opportunities for innovative, nimble smaller companies. 

Jane Luxton, Esq.

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First Bond Offering Backed by Solar Power a Breakthrough for Renewables

In a watershed moment, Standard & Poor’s recently gave a BBB+ rating to bonds backed by solar power contracts that are expected to raise $54.4 million for SolarCity, an installer of residential and commercial solar panels.  The yield rate is expected to be 4.8%, a relatively high rate in the current market, commensurate with the untested nature of the security. 

Although the rating is a low investment grade designation, it is strong enough to validate this important new source of financing for renewables, which comes at a key time as federal tax credits, which have largely sustained renewable energy expansion, are tapering off or ending.  According to the New York Times, SolarCity overcame potential investment risk concerns by shortening the time frame for the bonds, including extra collateral, and creating a special reserve account to cover equipment failures.  S.&P. analysts predict brisk growth for this asset class.

Jane C. Luxton, Esq.

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New “Social Cost of Carbon” Value Sets Off a Heated Debate

In an unheralded move earlier this year, an interagency group of technical experts coordinated by the Office of Management and Budget and the Council of Economic Advisors finalized a revised estimate of an important numerical value used in federal regulatory cost/benefit analyses to represent the cost to society of carbon-based greenhouse gas emissions.  The new value increased the “social cost of carbon” from the previous level (established in 2010) of $23.80 to $38 per metric ton of carbon dioxide (CO2) emissions, in some cases doubling the estimated benefit of carbon reduction initiatives.  The new factor appeared in the cost-benefit justification for a DOE energy efficiency rulemaking in May 2013 and immediately sparked controversy.  Critics charged the new value had been adopted without the benefit of peer review or public comment and that it was too high, which would make it easier for the Administration to justify costly new climate change regulations.  Opponents in Congress convened hearings and proposed legislation to compel a review.

After months of furor, the newly confirmed Administrator of the OMB Office of Information and Regulatory Affairs, Howard Shelanski, announced November 1 that the new value would be adjusted slightly downward to $37, due to technical corrections, and also solicited comments on the estimate.  A Federal Register notice with a comment deadline is expected imminently.  Technical information on the derivation of the new Social Cost of Carbon is available here.

Jane C. Luxton, Esq.

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Climate Change Regulatory Initiatives Keep on Coming

Regulatory efforts designed to implement the President’s Climate Action Plan, previously discussed in this blog, continue to emerge.  Earlier this month, the President issued an executive order directing federal agencies to support investments and other actions by states, local communities, and tribes that increase the nation’s resilience to climate-change related impacts.  The order highlights promotion of “the dual goals of greater climate resilience and carbon sequestration, or other reductions to the sources of climate change” in its call to action.  Some observers are already seeing the potential for increased federal regulatory activism, for example on siting and construction requirements, based on climate change factors.   

Under the order, the Departments of Defense, Interior, and Agriculture, EPA, NOAA, FEMA, and the Army Corps of Engineers must report to OMB within nine months on an inventory and assessment of proposed and completed changes to their policies, programs, and regulations needed to enhance national resiliency, including a timeline for implementing these changes.  The order also requires all federal agencies to create climate adaptation plans to ensure their ability to carry out their missions despite potential climate change events.  In addition, the order creates a 30+ agency Council on Climate Preparedness and Resilience to work with state, local, and tribal governments to coordinate efforts on climate change resilience and preparedness.

In a release the same day as the executive order, EPA published 17 Adaptation Implementation Plans, one from each EPA regional and program office.  Each of the plans is far-ranging and detailed, and those affected by EPA regulations should take a close look.  Comments are due by January 4, 2014.

Jane C. Luxton, Esq.

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New Monthly DOE EIA Publication Reports U.S. Shale Drilling Productivity

In late October 2013, the Department of Energy’s Energy Information Administration (EIA) announced that it would begin the monthly publication of a Drilling Productivity Report on U.S. shale oil and gas production.  The new DPR will provide information initially for the six major shale oil and gas fields:  the Marcellus, Haynesville, Eagle Ford, Permian, Nobrara, and Bakken basins.  According to the EIA, “these six regions accounted for nearly 90% of domestic oil production growth and virtually all domestic natural gas production growth during 2011-12.” 

Reported data will include rig efficiency, new well productivity, decline rates at previously existing wells, and overall production trends.  A copy of the full report is available here.  The next report will be issued November 12.

Jane C. Luxton

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