Bloomberg

Colonial Pipeline has been a lucrative cash cow for many years

(Bloomberg) – The US company that just paid a $ 5 million ransom to Eastern European hackers tacitly made hundreds of millions of dollars a year, providing an essential service with little competition and a security record that A cause for concern In Alpharetta, a suburb of Atlanta, Georgia operates the largest fuel pipeline in the country, transporting more than 100 million gallons from Houston to New York City every day, half the needs of the major oil companies region – the US Secretary of Commerce was with in 1962 Groundbreaking Present – Owned primarily by part of Koch Industries and several Wall Street investors today, and operated as a financial asset as an important piece of infrastructure for the past decade, Colonial has had almost all profits, sometimes more, in shape distributed by dividends. In 2018, for example, the company paid nearly $ 670 million to its owners, even more than its net income of $ 467 million. Last year, it returned over 90% of its $ 421.6 million profit to investors. This approach has made a lot of money for its owners. Last year’s net income of $ 421 million was nearly 32 cents for every dollar of sales. Investors achieve an annual return of around 10%. The aging pipelines have now suffered a number of accidents. Last August, part of a line was cut for nearly a week after more than 28,000 barrels of gasoline spilled for days in a North Carolina wildlife sanctuary discovered by two teenagers driving all-terrain vehicles. This was caused by a failure in a sleeve repair installed 16 years ago. In March, a federal regulator announced that similar threats exist across the system and that continued operation without corrective action would “pose a risk to the pipeline’s integrity, public safety, property or the environment.” Since 2015, three more cracked spills have been reported. In September 2016, a line was closed for 12 days to reduce supplies to millions of customers. Two months later, a fatal explosion nearby caused another disruption: “Colonial’s inability to effectively detect and respond to such releases may have exacerbated the impact of numerous releases on the operational history of Colonial’s entire pipeline system,” the said Pipeline and Hazardous Materials Safety Administration In a notice of the proposed safety order sent to Colonial Chief Executive Officer Joseph Blount. Colonial Pipeline disagrees with these statements, is working with regulators to better address any concerns, and began learning lessons from the incident almost immediately after a company occurred, Spokesman said in an email in response to questions. “While a gallon released to our right of way is one too many, our safety culture is focused on zero operational incidents,” the company said. Some, like much of the rest of the industry, have also accused Colonial of not paying enough attention to cybersecurity. Matias Katz, founder of cybersecurity company Byos, estimates that less than 25% of the U.S. oil and gas industry has adequate cybersecurity. When asked, Colonial replied that total information technology spending has increased 50% since 2017 when a new chief information officer was appointed. Colonial uses more than 20 different and overlapping cybersecurity tools to monitor and defend the company’s networks, and its outside investigator “recognized many of the best practices we put in place prior to the incident,” a statement said in a statement to The Capacity has increased slightly since the early 2000s, but reliance on it has increased significantly as east coast refineries closed due to competition from shale sources in Texas and North Dakota. Read more: How hackers put a key US pipeline out of action: QuickTakeFuel manufacturers in New Jersey and Pennsylvania rely on more expensive oil from Europe and West Africa, or on domestic crude oil shipped on US flagged trains or tankers will – both expensive offers. In 2019, Philadelphia Energy Solutions Inc., the largest refinery complex on the east coast, closed after a gasoline production facility was nearly destroyed in an explosion and fire. “The pipeline is 60 years old, but it didn’t start gaining in importance until Mid – Atlantic refining capacity decreased and historic refineries in Virginia, Pennsylvania and New Jersey closed,” said James Lucier of Capital Alpha Partners LLC, an in Washington-Based Advisor Alan Gelder, vice president of refining and oil markets at Wood Mackenzie, a consulting firm, says it’s costly and complex for companies to pursue large pipeline projects. In January, President Joe Biden blocked the $ 9 billion Keystone XL project. Even during the Trump administration, energy companies like Williams Cos. And Dominion Energy Inc. forced to cancel large pipeline projects. “Building pipelines is complicated,” says Gelder. “Shareholders would be very cautious about capital investments.” If in the 1960s pipelines made clear economic sense in 2021 in a country that was rapidly expanding its industrial economy, and demand gradually flattened and gasoline-burning cars gradually replaced with electric ones, if so it is much more difficult to advocate massive investment in fossil fuel infrastructure. “Colonial continues to actively evaluate growth opportunities that are confidential,” the company said. “Consumption of refined products in the US has remained relatively constant, but our trade affairs team is constantly reviewing expansion opportunities to meet demand from shippers and markets.” Confidence in the Colonial Pipeline is also a result of regulations like the Jones Act of the 1920s, a state law that requires goods shipped between U.S. ports to be transported on ships built, owned, and operated by U.S. citizens or permanent residents. The limited number of ships that meet the criteria makes it extremely expensive for refineries to source oil supplies from the Gulf of Mexico by sea. “Is that how it should be? I would say ‘no’, ”said Gelder. “I don’t think the US energy infrastructure ever had a specific plan.” It didn’t start like that. In 1961, nine energy giants, including Texaco, Phillips Petroleum, Continental Oil and Mobil, joined the construction of what was then the largest privately financed construction project of all time. The pipeline, which costs $ 370 million (about $ 3.3 billion today), would allow them to move gasoline and other fuels from Houston to the port of New York and points in between. Colonial was fully functional until 1964. After massive investments in the 1970s and 1980s that more than doubled the capacity of the system, the oil companies that owned and operated the pipeline eventually sold their shares as oil prices forced them through to the end of the century’s ownership profile Pipeline then began to change completely. Today, a unit of Royal Dutch Shell PLC is the only oil major among the five companies that shared control of the pipeline. A unit of the industrial conglomerate of billionaires Charles and David Koch became the largest shareholder in Oil Corp.’s Colonial Interests after the takeover of BP Plc’s and Marathon. from 2002. A joint venture between the private equity company Kohlberg, Kravis Roberts & Co. and the state-owned South Korean National Pension Service acquired the stake in Chevron Corp. in 2010. A year later, Caisse de Dépôt et Placement du Québec, a Canadian fund manager, took over. bought out ConocoPhillips. IFM Investors, an investment firm owned by Australian pension funds, has been involved since 2007. Private equity firms and pension funds are drawn to pipelines because they are natural monopolies and tend to provide stable streams of income even during the economic downturn. Investors led by EIG Global Energy Partners LLC last month paid $ 12.4 billion for a stake in Saudi Aramco’s pipeline earnings. Although known simply as the Colonial Pipeline, it is actually a network of multiple pipelines that run in parallel and extend into branches on the southeast and east coast. If all the parallel lines and branches are measured, it will reach 5,500 miles. The two main pipelines, known as Line 1 and Line 2, run from Houston to Greensboro, North Carolina. From there, two smaller pipelines, known as Line 3 and Line 4, extend to Linden, New Jersey. The pipeline has a capacity of around 2.5 million barrels per day – more than Germany’s total oil consumption. Tom Garrubba, chief information security officer at Shared Assessments, said the oil industry is “just not sexy” enough for hackers historically. But the rise of ransomware as a billion dollar business has made it more attractive to pursue other vulnerable industries like energy. “That’s a very big black eye,” said Garrubba. “It will begin to invite other threat actors as copycats. That is my concern. “You can find more articles like this at bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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