On Friday, May 5th, New Jersey Resources held their 2Q 2017 earnings conference. This is one of the regularly quarterly conferences the company holds to announce to financial analysts how they did for the quarter, and to take any questions the analysts may have.
The presentation is available below:
Click here for NJR 2Q 2017 Earnings Presentation
And the transcript of the earning call with analysts is available here:
Click here for NJR 2Q Earnings Call Transcript
Traditionally, PennEast has been a big part of these quarterly presentations. They have been regularly featured in each one with dedicated slides touting how awesome the project will be for the company, and in some cases with slides showing optimistic timelines for the pipeline permitting.
But not in this one.
In this most recent quarterly report, NJR has removed the PennEast specific slides, and only mentions it in passing. Specifically they say:
“Southern Reliability Link and PennEast Pipeline projects reach significant milestones”.
An analyst noticed the discrepancy, and in the Q&A portion asked NJR about it. Here’s the exchange:
Brian Russo (of the firm Ladenburg Thalmann)
Yes, okay. Great, and then, I didn’t see any slide on PennEast. I was wondering if you could provide an update on that.
Pat Migliaccio (CFO, New Jersey Resources)
Sure, PennEast, as Larry has said during his narrative that they’ve receive their final environmental impact statement on April 7 and then next step in that process is to receive our final FERC certificate which is supposed to come in 90 days. We are certainly waiting for a quorum to be established at FERC in order to receive that certificate. So that’s the next step in the process. So we are moving forward and hopefully that project will reach another milestone here in the next few months.
Here the CFO mentions the positive Final EIS which was issued on April 7th. But they do not mention that they applied to NJDEP on April 6th, nor do they mention that NJDEP put them on notice that their application was deficient and was about to be rejected. And they didn’t mention that U.S. Army Corps of Engineers told PennEast that their application to them was also deficient.
What’s going on here?
So this is all of a pretty big deal. NJR used to have big slides touting how awesome PennEast would be, and the CEO or the head of Midstream would field questions about it. Now PennEast has been reduced to a footnote in their presentation, with no dedicated slides, and now the CFO (and not the CEO or head of midstream) is fielding questions about the project, and omitting vital information about it like “Oh, hey and gee two agencies said our application was insufficient, one is going to put us into regulatory limbo and the other is about to deny it.”.
This, to me, signals that NJR has suddenly had a severe loss of confidence in the chances of PennEast ever seeing the light of day. To show what I’m thinking here, let me show you NJR’s discussion of PennEast in its financial presentations over the years.
The NJR Presentation Progression
Let’s look at the progression of what NJR has shown about PennEast in their presentations over time.
2014 Q4
At the end of 2014, PennEast had been announced, had their “open season” bidding for contracts, and had just gone into pre-filing with FERC. NJR was giddy in anticipation of what was come, and had a fancy schmancy slide reserved for it in its year end presentation. They’d blast this thing through regulatory and be in-service by late 2017! PennEast! PennEast! Huzzah! Huzzah!
2015 Q2
By Q2 2015, NJR was so optimistic it started putting in timelines for its various projects. PennEast had slipped a bit, but it was all good. They showed a steady progression of PennEast going from permitting into construction and finally in-service. Smooth sailing for PennEast!
2015 Q4
Fast forward a couple of quarters, and the force of opposition and repeated setbacks with FERC and other agencies has forced NJR to go from making firm projections to conveying limp platitudes. “Fiscal 2018 PennEast Pipeline in service” has morphed into “2018 PennEast Continued Progress”. In fact all of the PennEast milestones had be relabelled “PennEast Continued Progress”!
Translation: Someone in NJR is getting nervous.
2016 Q4
2016 Fiscal Year End Strategic Outlook
By the end of 2016, PennEast opposition as fierce and the PennEast owners were digging in for a hard battle. NJR ditched their timeline slide entirely, but continued to feature PennEast in a dedicated slide that said “we are awesome, we are awesome, those doo-doo heads in opposition are…well, they’re do-do heads. We’re awesome!”.
In other words, this was not a slide of a confident company. This was a slide of desperation, trying to spin PennEast in a positive manner to investors when most insiders knew it was in deep trouble.
On the downside for NJR and PennEast, the PJM slide they showed showing NJ getting no benefit and the gas flowing right out of our state to points North and South.
2017 Q1 Presentation
The following quarter showed a similar slide, with an emphasis on the “Project Importance”. They put greater emphasis on the PJM slide (which still shows all the PennEast gas flowing right out of the state).
But NJR also noted “a 6-week extension” for the Final EIS. But, hey, despite yet another delay it’s still all good, right?
Right?
2017 Q2 Presentation
Click here for NJR 2Q 2017 Earnings Presentation
[ No PennEast Slide At all! ]
To Sum it All Up
Fast forward to now. Between Q1 and Q2, here’s what’s happened:
- PSEG pulled out of the project
- NJR and SJI (both PennEast owners) enter merger talks
- PennEast applies to NJDEP for Clean Water Act permits
- FERC issues favorable Final EIS
- US Army Corps of Engineers dumps all over PennEast’s application, says it’s crap and will be put into the same storage unit they stashed the Ark of the Covenant from the Indiana Jones Movie.
- NJDEP tells PennEast it’s application is crap. Goes further than USACE and says the application is invalid and will be rejected because PennEast has no authority to apply for it in the first place.
- NJR takes nearly all PennEast references out of its quarterly report, fails to mention USACE and NJDEP debacles to financial analysts
That is quite a progression. NJR has gone from trumpeting PennEast, to pulling back on its projections, to surging back with desperate justification of just how important the project is, to entering merging talks with a competitor and wiping PennEast references from most of its materials.
You can draw your own conclusions on all this stuff. To me, I see both NJR and SJI have been desperate to give a growth story for some time. For the past couple of years, PennEast was supposed to be that story, but it’s pretty clear they think the chances of it actually coming to fruition are fizzling. So now they’re moving on to the next big thing for them, a merger so both sides can crow “growth!” to their investors.
PSEG walking away from PennEast was our first firm indication of trouble in PennEast paradise. This move by NJR is the next domino to fall. I can’t wait to see the upcoming SJI quarterly report….
The Cost of the Pipeline 
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