Clean Energy Clashes Between States and NetZero is feasible at an unbelievable cost.
Tomorrow's news today - Our stories on the Daily Energy Stand Up for July 8th, 2024
Michael and I talk about some great stories on the podcast tomorrow. The Devon acquisition, problems between South Dakota and Minnesota, Alaska drilling ban, and the UK Laborurs 20230 Net Zero targets. Net Zero is unobtainable, and if the governments commit to the plan, it will only result in inflation, higher energy prices, and de-industrialization.
1: South Dakota clashes with Minnesota on clean energy, coal plant closures
SIOUX FALLS, S.D. – A political border war between South Dakota and Minnesota on how to handle tax policies, abortion and the pandemic response could spill over into renewable energy and the future of coal plants.
At issue is the pace with which gas and electric companies can transition away from fossil fuels without compromising reliability and affordability for customers, and what role government plays in those calculations.
That reliability was tested several times over the past few years, including during a winter storm in January that nearly caused rolling blackouts, one South Dakota official said.
The Democratic-controlled Minnesota Legislature passed a law in 2023 requiring all electric utilities in the state to produce only carbon-free energy by 2040 using sources like solar, wind, hydroelectric and nuclear power.
Xcel Energy, whose 3.7 million electrical customers include about 100,000 South Dakotans, is based in Minneapolis, so that law applies to the utility.
The South Dakota Public Utilities Commission, consisting of three elected Republicans, sent a letter to Xcel in January asking the company to reverse plans to close several coal-fired power plants ahead of schedule as part of its transition.
Check out the article on Energy News Beat for the entire PUC Letter.
“Evidence is mounting that the premature closures … will elevate the risk of electricity outages particularly in tight load hours, including hours of extreme cold and extreme heat, as well as those hours when wind generation is low,” the letter stated. “These events are likely to pose a threat to life and property.”
The company stuck to its timetable, which includes replacing the coal plants with solar projects in the next few years, a plan approved by the Minnesota Public Utilities Commission.
Minnesota PUC commissioner: ‘Massively frustrating conversation’
More recently, members of Minnesota’s PUC clashed with utility company Otter Tail Power over its decision to amend its long-range plan to push back closures of coal plants – including Big Stone near Milbank, in northeast South Dakota – until at least 2040.
The Minnesota PUC approved Otter Tail’s Integrated Resource Plan on May 30 after concessions that included the company no longer using its North Dakota-based Coyote Station plant for Minnesota customers beyond 2031.
Otter Tail’s most recent modeling projects a retirement date of 2046 for South Dakota-based Big Stone, which started operation in 1975 and burns coal from Wyoming’s Powder River Basin.
“I just find this to be a massively frustrating conversation,” Minnesota PUC Commissioner Joe Sullivan said at the May 30 meeting . “I sympathize with Otter Tail because you have two different jurisdictions that look at the world differently. But if (Coyote Station) were in Minnesota, we’d say, ‘Otter Tail, it’s time to pull out.’”
Otter Tail, which serves about 130,000 electricity customers in Minnesota, North Dakota and South Dakota, addressed the delicate balance of transitioning to renewable energy when submitting its 2022-36 plan to state PUCs.
“Shifting the generation fleet’s focus to dispatchable gas resources and away from coal will help to improve operational flexibility while hedging market risk,” the report said. “That said, it is also necessary to ensure fuel-secure generation is available for those times when self-generation is necessary to maintain reliability of the system.”
South Dakota opposes new EPA rules
Disputes about the urgency of ditching fossil fuels for clean energy start at the federal level, where the Environmental Protection Agency (EPA) follows protocols in line with the party that controls the White House.
The EPA released new rules April 25 that elevate pollution controls for the coal industry, impacting wastewater discharge, the handling of coal ash and carbon emission limits. EPA Administrator Michael Regan, appointed by Democratic President Joe Biden, called it a “defining moment” for the agency.
South Dakota joined 22 other states in asking a federal court to review the new standards, which North Dakota Attorney General Drew Wrigley said were intentionally set “to destroy the coal industry.”
In a statement to News Watch, South Dakota Attorney General Marty Jackley referenced a recent Supreme Court decision that reversed the landmark 1984 Chevron ruling, eroding much of the power of federal agencies such as the EPA to interpret laws they administer, leaving that to the courts.
“The EPA’s directive and attack on fossil fuels is another example of a federal agency creating undue burdens on states and private businesses without proper authority while Congress does not act,” Jackley wrote. “The Supreme Court ruling in the Chevron case is aimed at addressing this type of action by the federal bureaucracy.”
Check out the rest of the article.
2: ConocoPhillips sues over Biden’s oil and gas drilling ban in Alaska
For our listeners to the Energy News Beat podcast, you know that I love Alaska and the wilderness. This article is important because it is yet another example of a lawsuit filed as a direct result of the Chevron Deference Supreme Court case. As I talk on the podcast, I would rather have California buy oil from Alaska, where I know they follow environmentally sound drilling practices, rather than import oil from China and Iran like they currently do.
(Bloomberg) – ConocoPhillips sued to block a Biden administration ban on drilling across nearly half the National Petroleum Reserve in Alaska, claiming the measure violates a federal law that compels oil development there.
The lawsuit filed Friday takes aim at an Interior Department rule that explicitly bars oil leasing on 10.6 million acres (4.3 million hectares) of the 23-million-acre reserve, while restricting future oil development in 13 million acres designated as “special areas.”
The case will test one of President Joe Biden’s biggest moves to limit oil development on federal land, amid appeals by climate activists who claim it’s incompatible with a warming world.
Oil industry advocates that hold leases in the reserve say the Bureau of Land Management regulation unlawfully strangles development in territory set aside as a source of energy for the Navy a century ago.
The regulation will apply to existing leases within the area, though it won’t alter the terms of those contracts or directly affect currently authorized activities, such as ConocoPhillips’ 600 MMbbl Willow project.
Nonetheless, the rule could have wide effects for companies with leases in the reserve. ConocoPhillips’ Alaska unit holds 1.8 million acres of state and federal leases in the state, including 1 million net undeveloped acres as of year-end 2023, the company said in its filing.
In establishing the reserve, Congress said it should be used for “expeditious production of oil to meet the nation’s energy needs,” ConocoPhillips said in its lawsuit, filed in a federal court in Alaska. The reserve contains an estimated 8.7 billion barrels of recoverable oil, according to a 2017 assessment by the US Geological Survey.
Congress “plainly did not authorize BLM to promulgate sweeping regulations that thwart and prevent the production of petroleum throughout the NPR-A,” ConocoPhillips said. Yet, the rule contains “numerous new provisions that elevate resource preservation over energy production and effectively turn the petroleum reserve into a de facto wilderness area in which development is outright prohibited.”
The case joins earlier challenges filed by the Voice of the Arctic Iñupiat that represents North Alaska communities, the state of Alaska and oil companies North Slope Exploration LLC and North Slope Energy LLC, which together hold leases spanning more than 552,000 acres in the reserve.
The case is ConocoPhillips v. Department of Interior, 24-cv-00142, US District Court, District of Alaska.
3: “Labour’s 2030 net zero grid target is feasible” – Really?, and at what cost
Chris Skidmore, the former UK Cabinet Minister for Energy and Chair of the Net Zero Review, has stated that achieving the 2030 net zero targets is feasible, but only with absolute commitment from the new Labour government.
Mr Skidmore stressed that this commitment must prioritise net zero goals at the centre of government policy.
Chris Skidmore pointed out that the UK already has more than enough electricity waiting in grid queues but is not taking adequate steps to reduce these queues or expedite the deployment of projects.
Mr Skidmore highlighted the issue of planning permissions being refused and the delays caused by referring every wind farm to the planning inspectorate.
He emphasised that pushing forward with renewable projects will be a significant political challenge requiring strong leadership at the highest level.
Mr Skidmore warned that any decision to retreat from these commitments would undermine private investment and support for the energy transition.
Chris Skidmore stressed that political leadership is essential to ensure consistent progress towards the 2030 net zero goals and to maintain investor confidence in the UK’s commitment to this transition.
Click the video to watch the full interview.
The post “Labour’s 2030 net zero grid target is feasible” appeared first on Energy Live News.
4: Eni makes oil and gas discovery off Mexico coast
July 8 (Reuters) – Italian energy group Eni (ENI.MI), opens new tab has made a significant oil and gas discovery in the Sureste Basin, about 63 kilometres off the coast of Mexico, it said on Monday.
The discovery, in an exploration well called Block 9, has a preliminary estimate of 300-400 million barrels equivalent (Mboe) of oil and associated gas in place, the company said in a statement.
Eni and Spanish peer Repsol (REP.MC), opens new tab each hold a 50% stake in the Block 9 joint venture.
The find comes on top of other discoveries already made in other Eni-operated blocks in the area in the Gulf of Mexico.
“The overall estimate of resources in place currently exceeds 1.3 billion barrels of oil equivalent (Bboe) which allows Eni to advance with the studies towards a potential future hub development,” Eni said.
Source: Reuters.com
5: U.S. Fuel Prices Set for Volatile Summer
Many potentially named storms are already coming through the Gulf of Mexico, which is shaping up to be a busy hurricane season. With the Biden administration totally decimating the strategic gasoline reserve to lower prices for the election, the volatility may be buffered in the short run until the reserve is closed permanently.
U.S. gasoline and diesel prices are set for a more volatile summer this year as an expected busier-than-usual hurricane season and extremely high temperatures could weigh on refinery production, analysts have told Reuters.
A higher number of named storms could lead to more refinery shutdowns on the U.S. Gulf Coast, which hosts more than 47% of total U.S. petroleum refining capacity, as well as 51% of total U.S. natural gas processing plant capacity.
In addition, excessively hot summer temperatures along the Gulf Coast could also disrupt refinery operations as most processing facilities are designed to operate optimally at temperatures below 95 degrees Fahrenheit.
Potential refinery disruptions, either due to extreme heat or strong hurricanes, could send U.S. gasoline and diesel prices spiking during the summer driving season, according to analysts, who see the hurricane season as the biggest wild card for American fuel prices this summer.
Early on Monday, Beryl, which at one point was the earliest Category 5 hurricane on record, made landfall in Texas, bringing heavy rains and warnings of potential storm surge, flooding, and tornadoes. At the time of the landfall, Beryl was a Category 1 hurricane.
Earlier this year, the Energy Information Administration predicted up to 25 named storms this hurricane season, noting that “The potential for a stronger hurricane season suggests heightened risk for weather-related production outages in the U.S. oil and natural gas industry.”
Last year, the Atlantic hurricane season saw one out of 20 named storms hit land in the U.S.—none causing any severe disruption or damage to oil and gas industry installations.
This year, things may be different during the season, which starts on June 1 and runs until the end of November.
Adding to this could be extreme heat that could reduce Gulf Coast fuel production by 500,000 barrels per day (bpd), according to a note by JPMorgan analysts carried by Reuters.
Despite Beryl making landfall in Texas, oil prices were down early on Monday morning ET.
Source: Oilprice.com
Michael covers the high points and even more information in his deal spotlight.
OKLAHOMA CITY, July 08, 2024 (GLOBE NEWSWIRE) — Devon Energy (NYSE: DVN) announced today it has entered into a definitive purchase agreement to acquire the Williston Basin business of Grayson Mill Energy in a transaction valued at $5 billion, consisting of $3.25 billion of cash and $1.75 billion of stock to the sellers. The transaction is subject to customary terms and conditions, including various purchase price adjustments, and is expected to close by the end of the third quarter of 2024, with an effective date of June 1, 2024.
“The acquisition of Grayson Mill is an excellent strategic fit for Devon that allows us to efficiently expand our oil production and operating scale while capturing a meaningful runway of highly economic drilling inventory,” stated Rick Muncrief, Devon’s president and CEO. “This transaction also creates immediate value within our financial framework by delivering sustainable accretion to earnings and free cash flow that will result in higher distributions to shareholders over time.”
TRANSACTION HIGHLIGHTS
Immediately accretive to financial metrics – The transaction is immediately accretive to Devon’s key per-share financial measures, including earnings, cash flow, free cash flow and net asset value. The assets were acquired at less than 4-times EBITDAX, with an estimated free cash flow yield of 15 percent at an $80 WTI oil price.
Enhances scale and scope of operations – The acquisition adds a high-margin production mix that further positions Devon as one of the largest oil producers in the U.S. Pro forma for the transaction, the company estimates its oil production to average 375,000 barrels per day, with total production reaching an average of 765,000 oil-equivalent barrels (Boe) per day across its diversified portfolio of assets.(1)
Transforms Williston Basin business – The transaction significantly expands the company’s position in the Williston Basin with the addition of 307,000 net acres (70 percent working interest). Production from the acquired properties is expected to be maintained at approximately 100,000 Boe per day (55 percent oil) in 2025. With enhanced scale in the basin, Devon expects to realize up to $50 million in average annual cash flow savings from operating efficiencies and marketing synergies. The acquisition also adds 500 gross locations and 300 high-quality refrac candidates that effectively compete for capital in the company’s portfolio. On a pro forma basis, Devon will possess an inventory life of up to 10 years in the Williston Basin at a constant development pace of three operated rigs.
Midstream ownership enhances margin – The acquired business generates peer-leading operating margins in the Williston Basin that benefit from midstream infrastructure ownership in 950 miles of gathering systems, an extensive network of disposal wells and crude storage terminals. This midstream ownership creates a margin uplift of more than $125 million of EBITDAX annually and provides marketing optionality to capture higher pricing through access points to multiple end use markets.
Improves outlook for return of capital to shareholders – Due to the accretive nature of this transaction to free cash flow, Devon’s board of directors has expanded its share-repurchase authorization by 67 percent to $5 billion through mid-year 2026. The company also expects this acquisition to be accretive to the company’s dividend payout in 2025 and beyond.
Maintains strong financial position – The transaction structure supports Devon retaining its strong investment-grade credit ratings with a projected net debt-to-EBITDAX ratio of approximately 1.0 times upon closing. The company plans to improve its financial strength by allocating up to 30 percent of its annual free cash flow towards reducing $2.5 billion of debt over the next two years.
(1) Pro forma production is a combination of Devon’s 2024 guidance and Grayson Mill’s 2025e volumes of ~100 MBOED (~55% oil).
FINANCING DETAILS
Devon will fund the $5 billion acquisition with $3.25 billion of cash and issue 37 million shares of common stock valued at $1.75 billion. The company plans to finance the cash portion of the purchase price through a combination of cash on hand and debt.
2024 OUTLOOK
Devon will provide updated forward-looking guidance for 2024 upon closing of the transaction.
ADVISORS
Citi is serving as financial advisor and Kirkland & Ellis LLP is serving as legal advisor to Devon.
CONFERENCE CALL WEBCAST AND ADDITIONAL MATERIALS
Devon will host a conference call and webcast today at 7:30 a.m. Central Time (8:30 a.m. Eastern Time) to discuss this announcement. The webcast and related presentation materials may be accessed from Devon’s homepage at www.devonenergy.com.
ABOUT DEVON ENERGY
Devon Energy is a leading oil and gas producer in the U.S. with a premier multi-basin portfolio headlined by a world-class acreage position in the Delaware Basin. Devon’s disciplined cash-return business model is designed to achieve strong returns, generate free cash flow and return capital to shareholders, while focusing on safe and sustainable operations.
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