Special Report: Rover's July In-Service Date Further at Risk

Events continue to unfold for Energy Transfer's Rover Pipeline, with yesterday's tariff filing and a soon to be launched Federal Energy Regulatory Commission (FERC) investigation offering a lens into increasing hurdles for the expected Phase 1 in service date. This week Rover made a required regulatory tariff filing, which disclosed actual commitments for the two shippers on the limited Phase 1 service between Cadiz and Defiance. And late yesterday, FERC notified Rover that it will conduct an investigation into whether Rover violated a condition of its certificate by using an unauthorized drilling fluid. Immediately following this letter, the Commissioners issued an unprecedented letter of support for FERC staff, which seems to create a risk that authorization for even this limited Phase 1 service may be withheld by Staff pending the outcome of its investigation.

FERC Investigates Rover Drilling Fluid

As we have reported in the past , the Rover project experienced a frac-out on its HDD under the Tuscarawas River. While frac-outs are not uncommon when conducting an HDD, what appeared to be uncommon in this situation, and what appears to have led the FERC staff to halt all additional HDDs on the Rover project, was the extent of the release and the fact that it appears that FERC staff believes that Rover knew or should have known that the release was occurring for almost three weeks before it was found.  

Yesterday, the FERC's concerns over inconsistent statements from between Rover and the FERC were further exacerbated. The FERC staff issued a letter to Rover which publicly reported that on "May 26, 2017, the Ohio Environmental Protection Agency ... notified FERC staff and Rover of the presence of petroleum hydrocarbon constituents, commonly found in diesel fuel, in samples of drilling fluid from various locations near the HDD of the Tuscarawas River." Based on the "confirmed presence of petroleum hydrocarbons in the samples taken by Ohio EPA," FERC stated that its Office of Enforcement would "immediately initiate an investigation to determine the underlying facts that led to the presence of petroleum hydrocarbons in the drilling fluid."

If true, the presence of petroleum hydrocarbons would not be consistent with Rover's statements made immediately following the discovery of the release, including one in its weekly construction report filed on April 27 that stated that the drilling fluid was a "non-toxic, naturally occurring bentonite clay water slurry that is safe for the environment."

The issuance of the letter by FERC staff, while extraordinary in itself, was followed by an unprecedented Joint Statement of Acting Chairman Cheryl A. LaFleur and Commissioner Colette D. Honorable, which was issued to "express support for recent actions taken by Commission staff." After recounting the history of the Tuscarawas HDD, the joint statement concluded with the following statement: "Finally, we recognize that Rover will need a number of additional authorizations as the Rover Pipeline Project moves forward. With the assistance of OEP and OE staff, we will continue to closely monitor its progress to ensure that Rover follows the terms of its certificate."

One key approval that will be sought in the near term by Rover is the authority to place into service the segment of Phase 1 between Cadiz and Defiance. In a May 31 filing, Rover indicated that it expects this segment to be ready for service on or about July 1. Under Environmental Condition 10 to Rover's Certificate Order, Rover "must receive written authorization from the Director of OEP" before placing its project into service, and such authorization "will only be granted following a determination that rehabilitation and restoration of areas affected by the project are proceeding satisfactorily."

The final statement in the Joint Statement certainly seems to create a substantial risk that such authorization from the Director of OEP may be withheld. It is also entirely possible that Rover responds to FERC's allegations by noting that the diesel occurred as a result of cross contamination.

Ascent and Gulfport Tariff Terms Disclosed

As Rover nears its projected Phase 1 in-service date of July 1, the full provisions of the contracts for the capacity it is creating are coming into focus. Under the Certificate Order, Rover is required to file all non-conforming and negotiated rate service agreements at least 30 days, but not more than 60 days, before beginning service. Therefore, presuming that it intends to begin some service on July 1, Rover would need to file any related agreements by the close of business yesterday. 

Rover has filed only two agreements, one with Ascent Resources - Utica (Ascent), and one with Gulfport Energy Corporation (Gulfport). In its filing for these two agreements, Rover noted that the remaining agreements will be filed "not less than 30 days and not more than 60 days prior to the in-service date for the facilities associated with [those] service agreements." This suggests that Rover will not be able to provide the service required under the remaining agreements with the portions of Phase 1 that it intends to put into service on or about July 1. Some of these other agreements may be included in the part of Phase 1 that Rover is now planning to place into service toward the end of July. Alternately, Rover may include these other agreements when Phase 2 is placed into service, in which case those agreements will not be filed until October, assuming a November 1 Phase 2 in-service date. 

Our Rover Project Profile page reflects this new information, and we will continue to make updates as the other contracts are filed. You can also keep up to date on these filings by signing up for LawIQ's alerting service, to allow you to receive prompt notice when the remaining contracts are filed with FERC. 

The actual commitments made by Gulfport and Ascent is subject to substantial ramping up over time and conditioned upon what facilities are actually in-service. The bottom line is that when the Cadiz to Defiance portion of the line is placed into service, the total contracted throughput will be less than 250,000 dth/day with a reservation rate of approximately $.50/dth/day, or approximately $3.3 million in revenue for the first month of operations.

Contract Commercial Terms

Contract Financial Terms