Daily Archives: May 13, 2017

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May 12, 2017Updated 5/13/2017 6:09 AM

The area along the coast of New England is considered the Saudi Arabia of offshore wind. However, the federal tax subsidy designed to jump-start production of ocean wind energy will soon be drying up.

On Thursday, Massachusetts U.S. Sen. Ed Markey introduced a bill to extend the credits for an additional six years.But that effort faces stiff headwinds.

Building offshore wind farms is expensive.Even among industry execs there's a joke that power is produced not by wind, but by government subsidies and tax credits. For example, in northern Europe, where the modern offshore wind industry was pioneered decades ago, it was only this week that plans for the first zero-government-subsidy projects were announced.

Here in the U.S., investors in offshore wind currently get a 30 percent tax credit. That's supposed to help the industry in Massachusetts, where the state is mandating production of 1,600 megawatts of offshore electricity over the next decade-- power for more than a million homes.

Lars Pedersen is head of Copenhagen Offshore Partners. The Danish company wants to build wind farms off the coast of Massachusetts, as it's done for decades in Europe.He says federal tax incentives are important to get the industry started here.

"It's a competition here in Massachusetts between threecompanies," he said. "We will have equal opportunities to tap into tax credits, so certainty about how it's going to phaseout or how it's going to remain, that'sa key component of how we develop our business."

But none of the wind farms now being planned off the New England coast will be built in time to take advantage of the federal tax credit subsidy, which ends in 2019.

Thomas Brostrm is general manager of DONG Energy North America, another Danish company interested in building wind farms off Massachusetts' coast. And while the wind blows strong and steady here, he says subsidies are needed help create the industry supply chain infrastructure-- factories to build blades and turbines.

"That is the missing piece right now," he said, "because you've got great wind speed, shallow water depth, you can deploy the same technology, but the supply chain in many ways sits in Europe, but you can already feel the interest."

Massachusetts invested $113 million and built a marine terminal in New Bedford anticipating the development of the offshore wind industry.The port was to be used to deliver parts and workers to construction sites at sea. Thethree companies competing for wind projects off the coast have all agreed to use the facility, including the twofrom Denmark, where wind farms have lead to a windfall-- billions in investments and thousands of jobs.

"That isn't going to happen overnight in Massachusetts or New England, but part of our goal is to become the Denmark of the North American offshore wind industry," saidStephen Pike, CEO of the Massachusetts Clean Energy Center.

When-- and if the offshore wind industry takes off in Massachusetts depends on lowering the cost of producing and planting turbines in the ocean, and that's where the federal tax credits come in, helping to generate clean energy and jobs at sea and on land.

"You need a lot of local folks with that kind of capabilities, so former fisherman or ex-military people, they are great in workingin offshore environments," Pedersen said. "And these kind of skills you can find here, made in America."

The United States is already the world's leading producer of wind energy on land. Texas is the largest generator among states, but the Trump administration is unlikely to back Markey's call for extending the offshore wind tax credits.

Former Texas Gov. Rick Perry, now the head of the U.S. Department of Energy, has ordered a study of offshore wind, questioning its effect on the reliability of the electric grid, suggesting the intermittent nature of offshore wind could pose a risk to national security.

This segment aired on May 12, 2017.

Bruce Gellerman Reporter Bruce Gellerman is an award-winning journalist and senior correspondent, frequently covering science, business, technology and the environment.

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Markey Seeks To Extend Tax Credits For Offshore Wind04:02 - WBUR

Joseph Baucum , jbaucum@pnj.com Published 8:49 p.m. CT May 11, 2017 | Updated 12 hours ago

The Pensacola City Council has amended the port's lease with Offshore Inland. The amendment sets a provisional deadline to pay more than $269,000 of debt.(Photo: News Journal file photo)

A provisional deadline has been set for a prime tenant of the Port of Pensacola to settle its nearly $270,000 debtwith the city.

The Pensacola City Council on Thursday unanimously approved amending the Warehouse 1 lease agreement between the port and Offshore Inland Marine & Oilfield Services. The amendment mandates the company pay its entire outstanding balance of $269,247 on dockage and wharfage fees to the city by Sept. 30.

If Offshore Inland fails to pay the balance by the due date, the City Council could terminate the lease or renegotiate a new deadline. If the lease is terminated, the company would have to vacate the port and surrender all equipment and personal property to the city within 30 days.

More:Port of Pensacola welcomes visit from tanker, Eagle Sydney

Offshore Inland's original lease for Warehouse 1 dates back to summer 2010. It has usedthe warehouse as an offshore and subsea service center. As part of the process to site new wells and platforms, major oil companies hire specialized ships for services such as surveying and dive support. To conduct the projects, the vessels require a massive amount of equipment.

Those materials are delivered to Offshore Inland'scenter at the port, where the ships can retrieve the items and deposit them after the work has finished. The center also acts as a maintenance and repair facility, where vessels'machinery can be tested, certified and recalibrated.

The company has paid its lease on the warehouse, but its debt stems from outstandingcharges from the ships docking at the port and the cargo moving through the facility.

Amy Miller, port director, said the company's operations accounted for 65 percent of the port's revenue before the collapse of the oil market. Returns on oil typically hovered from $90 to $100 a barrel before the late 2014 crash.

She said a healthy market for the company's work at the port would necessitate a barrel price of at least $70. On Thursday, Brent Crude, the international standard, opened at $50.28 per barrel.

The lease amendment also addresses an additional $363,000 in unpaid dockage and wharfage fees potentially owed by Offshore Inland. The city could forgive aportion of that if the company completes improvements to Warehouse 1.

More:Elebash: Port of Pensacola not a sacred cow

The company funded out-of-pocket upgrades to the site after the city received a $2 million grant in 2013 through the state's Economic Development Transportation Fund. City Administrator Eric Olson said the city stopped the companybecause the upgrades were not conducted in accordance with the city's procedures for bidding out work. The improvements also possibly failed to comply with the terms of the grant.

The city is still in the process of accepting bids from contractors to finish the project. Because it is unclear if the company's work satisfies the stipulations of the grant, it remains to be seen how much of it couldbe reimbursed. Until then, the$363,000 debt will be held in abeyance. The lease amendment states that after the improvements are completed, the city will determine how much of Offshore Inland's expenses will be reimbursed.

"Grants are closely regulated," Olson said. "You have to spend the money in a certain way. So we had to back it up and put the project out to bid. Improvements that have been made will be accounted for, and we'll settle up when it's all completed."

In a separate resolution on Thursday, the City Council also unanimously authorized terminating the Warehouse 9 lease agreement between Offshore Inland and the port.

The company previously partnered with Houston-based pipeline manufacturer DeepFlex to establisha manufacturing site at the warehouse. Mayor Ashton Hayward announced in 2014 that the partnership would generate 200 jobs and $50 million in capital investment.

But the oil market collapse stalled construction on the site. In December 2015, Offshore Inlandsued DeepFlex for breach of contract.The First Judicial Circuit of Florida later granted Offshore Inland to right to reclaim the facility, but ithad to occupy the building by the end of May 2016.

The company was later granted an extension to occupy the building by the end of this month. Olson said the company attempted to find a new partner for the warehouse but was unsuccessful.

Under the terms of the lease termination, the city assumes possession of the warehouse's capital improvements. Offshore Inland retains its equipment and personal property on the premises, but must clear the materials from the site within 15 days of the lease termination. The company must also pay all fees from rent and taxes due under the lease prior to its termination.

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Deadline set for Offshore Inland's $269K debt - Pensacola News Journal

What happened

April was another bad month for offshore drilling stocks. Transocean Ltd. (NYSE:RIG), ENSCO Plc. (NYSE:ESV), Diamond Offshore Drilling Inc. (NYSE:DO), Atwood Oceanic Inc.(NYSE:ATW), and Noble Corporation (NYSE:NE) all held up relatively well through the first third of the month, but then start to fall around April 10.

Those declines never really reversed track, with Transocean, ENSCO, and Diamond Offshore shares each ending the month down nearly 12%, Atwood shares off 15%, and Noble Corp down 21%.

Image source: Getty Images.

It was also another month of oil news moving this part of the market, rather than much of anything material relating to offshore drillers. As the chart below shows, the big declines started near mid-April, and were largely based on rumblings that crude production gains in North America were offsetting the declines in oil reserves:

RIG data by YCharts

If that sounds familiar, it's because it is. Offshore drilling stocks saw big declines in March as well, and largely for the same reason -- concerns that a sharp uptick in North American onshore oil production would continue to weigh on oil prices and further extend an offshore downturn that's already the longest and most severe in the industry's history.

Most offshore drillers reported first-quarter results in early May, with the same sorts of big revenue declines and often losses that have been the norm for nearly two years.

Transocean reported that its revenue fell 20%, and turned in a profit of $0.23 per share -- but only $4 millionwhen adjusted for non-recurring gains. Atwood Oceanics said it lost $29 million on $168 million in revenue, a whopping 43% revenue drop year-over-year. Diamond Offshore saw its profits fall 73% to $0.17 per share. ENSCO reported a net loss of $0.09 per share, compared to a Q1 profit of $0.74 per share a year ago.

And for the most part, the next few quarters are expected to be similarly bad across the offshore drilling industry.

But there's a lot of evidence that the market is starting to improve. For the first time in years, executives are saying that they are starting to get calls from oil and gas producers that are ready to start talks about contracting drilling vessels, and bid activity is ramping up. A number of new drilling contracts were entered into in the first quarter or early in the second quarter.

This has acted as a rising tide, lifting nearly all of these offshore drilling stocks since the start of May:

RIG data by YCharts

But if you're considering investing in any of these offshore drillers, it's important to note that the majority of the new contract awards were either extensions of current agreements, or for deals that will not begin until 2018 at the earliest. In other words, there won't be any financial benefit to those contracts for some time to come, and for the most part, they aren't putting idle vessels back to work.

Add it all up, and the offshore drilling industry is still in for a tough year, and before things get better, the global fleet will need to get smaller.

So before you buy, be sure you're prepared to ride out more volatile days and months for your investments ahead, and with the knowledge that conditions still could get worse before they get better, with minimal new work for idle vessels expected to come up for bidding for the rest of the year.

Jason Hall owns shares of Atwood Oceanics, Diamond Offshore Drilling, Ensco, Noble, and Transocean. The Motley Fool owns shares of and recommends Atwood Oceanics. The Motley Fool has a disclosure policy.

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These 5 Offshore Drilling Stocks Sank 11% or More Last Month: Here's Why (and What You Should Do) - Motley Fool

In a letter sent to Department of the Interior Secretary Ryan Zinke Thursday, Rep. Alan Lowenthal (D-47), along with more than 100 members of Congress, urged the secretary to keep the Pacific and Atlantic oceans off limits to new offshore drilling operations.

The letter comes as a response to President Donald Trumps April 28 executive order which directs the secretary to review the United States offshore drilling and oil leases, in an effort to create an America-first offshore drilling strategy.

The executive order on offshore drilling basically said: drill baby drill, and while youre at it, make the drilling less safe. Lowenthal, whose district includes Long Beach, said in a statement. However, we have over a hundred members of Congress, from both parties and from across the country, saying that is not the direction we want to go. It is crucial to make an early and strong statement that President Trump and Secretary Zinke should keep the Atlantic and Pacific coasts protected, not go backwards.

Trumps order instructs the secretary to potentially restart the oil and gas lease sale process, which was previously halted until 2022 by former President Obama under the direction of the 1953 Outer Continental Shelf Lands Act.

In the letter, Lowenthal and his colleagues note that fishing and tourism are a $63 billion industry supporting 1.3 million jobs on the east coast and a $26 billion industry supporting 536,000 jobs on the west coast. These industries would be directly threatened by any offshore drilling accidents, the letter argues, citing the 1969 Santa Barbara oil blowout which killed thousands of birds and marine mammals and left much of the Southern California coastline blackened from oil.

We do not believe that new oil and gas exploration or production activity in the Atlantic and Pacific Outer Continental Shelf is compatible with the sustainable coastal economies on which so many of our constituents and communities depend, the letter reads.

However, Trumps executive order argues that drilling off the U.S. coast will reduce reliance on foreign energy and strengthen national security.

Lowenthals letter is a bipartisan effort led by Representatives Niki Tsongas (D-MA), Don Beyer (D-VA), Anthony Brown (D-MD), Frank LoBiondo (R-NJ), Dave Reichert (R-WA) and Mark Sanford (R-SC). Other notable signatories include Representative John Lewis (D-GA), Joseph Kennedy III (D-MA), Maxine Waters (D-43) and Doris Matsui (D-6).

Lowenthal is also part of the House Committee on Natural Resources, which oversees legislation related to fisheries and wildlife, as well as the subcommittees on Coast Guard and Maritime Transportation, Energy and Mineral Resources and Water Resources and Environment, among others.

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Letter to Department of the Interior Shows Bipartisan Congressional Support Against Offshore Drilling - Long Beach Post

So, as Maryland makes a play for the offshore wind crown, Virginia thanks to dirty Dominion Global Warming Starts Here! Power does essentially nothing to take advantage of this massive potential. How massive? Check out this fact sheet from Oceana, which finds:

Virginias coastline would modestly allow for the development of 16 gigawatts of offshore wind power in economically recoverable areas. This offshore wind power could generate at least 83 percent of Virginias current electricity generation.

Unfortunately, Dominion Power is doing essentially nothing to develop this potential. See this recent article, for instance, which notes that [t]he relatively shallow waters off the Virginia coast offer some of the best wind power sites in the country, and thatBureau of Ocean Energy Management (BOEM) auction in 2013 for nearly 113,000 acres off the Virginia coast for wind energy projects alone is expected to generate enough electricity to power 700,000 homes. But again, Dominion Power which won the lease is proposing, over the next decade, to develop less than one percent of whats possible on that swath of ocean.

Needless to say, that is completely unacceptable, and our top elected officials and candidates for those jobs need to call out Dominion Power for its deplorable behavior. Refusing any contributions from this rogue, climate-killing, corrupt company would be a good start.

By the way, in addition to losing out to Maryland on the race for the U.S. offshore wind crown, Virginia is also losing out in terms of jobs. As former Virginia Sierra Club head Glen Besa puts it below, Because of Tom Farrell, Bob Blue and #DomVAPower, Virginia is losing thousands of clean energy jobs. And for what? So Dominion can keep throwing billions at more fossil fuel boondoggles like its idiotic, close-to-zero-jobs-created, soon-to-be-stranded assets, proposed fracked gas pipelines? Why do we allow Dominion Power to get away with this crap? Anyone?

P.S. Also according to Glen Besa, aclimate shareholder resolution(which stated thatDominion does not have a GHG reduction goal, and does not provide information on its long-term strategy or plan to decarbonize in ways that are consistent with the Paris Climate Agreement and that, As investors, we are concerned thatDominion is not properly accounting for the risk of its current high investment in carbon-intensive generation) received 48% of the vote very close to a majority atDominions annual shareholder meetings this week in Richmond. In other words, the writing is on the wall for Dominion Power; they either change willingly or they will be forced by their shareholders, the citizens of Virginia, etc. to change.

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Home Dominion Power Maryland Races for Offshore Wind Crown; Thanks to Dirty Dominion Power, Virginia... - Blue Virginia (press release) (blog)