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Aug 18, 2022 Luke Ashton

Deep Dive into the Oil Cost of Service Analysis

Midstream Oil companies operate in a narrow subset of the oil industry. However, their job is key to ensuring a constant and reliable supply of oil for the country and the world. It’s important to understand these companies’ financial health on a regular basis. Some key metrics the industry uses to assess financial health for midstream oil are found in the Oil Cost of Service Analysis within the FERC Form 6. For those of you in the industry, you may know it as “Page 700.”

What is the Oil Cost of Service Analysis?

Cost of Service simply understood is in its name; the amount of money and effort spent to ensure services are rendered. The number is important not just because it shows how much is needed to maintain the company, it ultimately determines how much money the company may earn in profit.

Midstream Oil Companies are regulated by the Federal Energy Regulatory Commission who negotiate the rate in which a provider may charge for delivering oil on their pipes. That rate is determined by a formula that uses metrics from the Cost of Service as its basis to ensure the company is not charging too much; not too dissimilar to how electric rates are determined

These metrics include rate base, return on rate base, operation and maintenance expenses, and the most important number, the cost of service (sometimes also known as the revenue requirement). Page 700 is where it all comes together.

The OId Page 700

In terms of FERC Forms, this is a very concise schedule. Everything you need to know about the company is on this one page. There are a couple issues, though. First, the data is narrow in time. Column B shows the current year and column C shows the previous year, but going back even further in time is impossible without downloading more Form 6’s. 

For example, let’s say you want to look at the Rate of Return between 2021 and 2011. That would require downloading eleven PDFs to find and map that one number across ten years for a single company. The second issue is there is little context to the industry in that one page. Comparing that number across 5 companies would mean searching for and downloading 55 PDFs. You haven’t even started getting these numbers into an excel file to then visualize and put into a report! That’s a huge waste of time. 

The New Page 700

HData has taken that grueling work out of the picture. A simple company search and a click of a button replaces all the work of managing and reporting from 55 PDFs. This frees you up to do the actual analysis of the data rather than being a data-wrangler. 

HData’s Oil Cost of Service Analysis Driver is a quick way to visualize the data you are looking for, providing important context on whether a spike in a particular year is a one-off fluke or an industry-wide phenomenon. A common use case we’ve seen with our own customers at HData is using the driver to see data come in as oil companies file with the FERC before they submit their own filing. Taking trends in how the industry reports certain metrics, our customers can view these quickly before the deadline hits and stay on top of the regulated midstream oil industry.

Want to see it in action for yourself? Schedule a demo with me and I’d be happy to show you!

Published by Luke Ashton August 18, 2022
Luke Ashton