Official: Alaska looking at equity stake in pipeline to protect its interests, advance project

JUNEAU, Alaska – An Alaska official said Monday the state is looking at taking a multibillion-dollar equity stake in a major natural gas pipeline project as a way to protect its interests and help make the long-hoped-for project a reality.

Natural Resources Commissioner Joe Balash said Gov. Sean Parnell’s administration views a potential equity stake of 20 per cent to 30 per centfavourably. But he said any level of participation would depend on legislative buy-in and the terms the companies pursuing the project are willing to accept.

Assuming the project costs $45 billion — a figure at the lower end of the range previously announced by the companies — the state would be looking at $9 billion to $13.5 billion for such a stake.

Balash said he’s hoping that range narrows significantly over time as the idea gets more scrutiny.

The option stems from a report commissioned by the state to see how Alaska could protect its royalty interest and ensure it receives the maximum value possible for its natural gas.

The North Slope’s three major players — Exxon Mobil Corp., BP and ConocoPhillips — are working with TransCanada Corp. to advance a liquefied natural gas project that would be capable of overseas exports.

The proposed line would run 800 miles from the slope to south-central Alaska and could cost from $45 billion to more than $65 billion, according to company estimates. The companies haven’t committed to building it and have repeatedly said they needed competitive, predictable and durable terms on oil and gas taxes and royalties.

Alaskans have long dreamed of a gas line as a way to create jobs, provide energy for residents and shore up revenues as oil production declines. While there have been fits and starts over the years, state officials believe the current project has momentum, and Balash said it’s reaching the point where the state needs to start making decisions about its terms.

Black & Veatch Corp., in its report for the state, found that changes to Alaska’s royalty and tax structure and to the project’s cost structure could improve the economics of the project and make it more competitive. Balash said the project economics seem “fairly good overall,” though he said levels of government take might be a little high and company returns a bit short of what they might expect in other places.

“While we may have some work to do on the details, like I said before, we don’t think we need to go down the road of big concessions,” he said, adding that “big concessions” might be a relative term.

The state has already committed up to $500 million to TransCanada for reimbursable costs associated with advancing a project, and Parnell has said the state is willing to make commensurate, proportional steps with the companies to keep the project on track.

The Legislature at some point will have to revisit the issue of gas production taxes, which was left unresolved during the recent rewrite of the state’s oil tax law. Balash said it’s premature to say whether there will be gas tax legislation during the next session, which starts in January, but he said some legislators and others are expecting to have that discussion then.

He said he considers a royalty reduction “one of the worst things we can possibly do,” since it’s through the royalty that the state gains benefit to the treasury or in terms of energy for Alaskans. He said the other alternative might be reducing taxes, but he said a reduction now might not be considered a reasonable level of taxation later, when the project gets underway.

The study found an equity stake could be more beneficial to the state than a mere reduction in fiscal take and could create more transparency in the project, greater alignment of economic interests among the companies and the state, and allow the state to have influence in granting outside parties access to the line. It would not necessarily guarantee a vote in the decision-making process, though, the study said.

Larry Persily, the federal co-ordinator for Alaska natural gas pipeline projects, said having the state as an equity owner could lessen the risk to the other partners and make a difference. But he said that alternative is not without its own risk to the state, such as in the case of possible construction delays or cost overruns.

He said the markets and ability to deliver gas at a competitive price also will be important for the project’s fortunes.

BP Alaska spokeswoman Dawn Patience, who had not yet seen the report, said the company sees an equity stake by the state as an important consideration.

“Certainly, it’s going to take everybody working together, including the state of Alaska, to make the project feasible,” she said.

Natalie Lowman, a spokeswoman for ConocoPhillips Alaska, said company officials had not yet reviewed the study and couldn’t comment on specifics. But she noted that historically, the company has been supportive of the state taking an equity position.

The prospect of the equity stake comes at a time when the state is looking at budget cuts to account for declining oil production and the oil tax cut — aimed at spurring new production — that was passed earlier this year. The gas line is one of several big-ticket items the state is pursuing, along with a major dam project in south-central Alaska and an in-state gas pipeline to provide gas to Alaskans.

Balash said any big decisions about a possible state stake in the pipeline would likely need to be made in 2017 or 2018, when he expects the companies to make their final decisions about whether to move forward.



Alaska North Slope Royalty Study: