AIDEA sale of Pentex to IGU closes; major step in IEP plans
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The Alaska Industrial Development and Export Authority has announced the completion of its sale of Pentex Natural Gas Co. to the Interior Gas Utility. As reported in the June 17 issue of Petroleum News, on June 12 the IGU board approved completion of the sale, which then closed on June 14. The IGU board had previously approved the sale completion, subject to a letter of agreement with AIDEA making some changes to the terms of the sale. The AIDEA board then approved the sale completion on May 31 but had made its approval contingent on modifications to the letter of agreement. During its June 12 board meeting IGU agreed to the modifications.
The sale results in the consolidation of Fairbanks Natural Gas and IGU to form a single gas utility serving the Fairbanks area. FNG is a subsidiary of Pentex, which also owns the Titan liquefied natural gas plant near Point Mackenzie and a trucking operation for shipping LNG to Fairbanks.
Interior Energy ProjectThe sale comes as part of the Interior Energy Project, an AIDEA project intended to expand the supply of natural gas for Fairbanks consumers to address the cost of energy in the city and to alleviate air quality problems that primarily result from the use of wood burning stoves in the winter.
“It has taken time and much hard work by a group of very dedicated people to bring us to this milestone day, when we can now proudly say that AIDEA has fulfilled its assignment to advance the Interior Energy Project for the benefit of Interior Alaska residents,” said AIDEA board chairman Dana Pruhs. “The sale of Pentex to IGU represents the culmination of nearly a year and a half of in depth due diligence and negotiations, and now a unified, locally controlled gas utility for the Interior is a reality.”
$54 million purchaseAIDEA purchased Pentex in 2015 for $54 million with the aim of eventual Fairbanks utility consolidation. To buy Pentex, IGU is paying AIDEA that original purchase price plus an agreed rate of return that reflects the fact that AIDEA paid for the purchase using money from its revolving fund. IGU’s payment for Pentex comes from Sustainable Energy Transmission and Supply, or SETS, loans, authorized for use by the IEP. The loan terms include zero percent interest and no payments required for the first 15 years, followed by interest and principal payments over the next 35 years, with an interest rate of 0.25 percent. If demand for gas in the Interior falls short of expectations, the repayment of principal can be deferred for a further five years. The state Legislature has also authorized the issue of up to $150 million in bonds.
LNG storageAlso under the IEP, the construction of a new LNG storage facility is in progress in Fairbanks. In 2015, through the use of IEP SETS funding, FNG and IGU expanded the gas distribution network in Fairbanks in anticipation of an increased gas supply. By warehousing summer produced LNG for use in the winter, the new storage facility will enable the consolidated gas utility to start making use of the expanded network. The eventual objective, however, is to further develop the customer base in Fairbanks by using IEP loans to further expand the distribution network and increase the LNG production capacity. Increased LNG production could come from expansion of the Titan plant, although an alternative involving the construction of a new plant is also a possibility.
“We made it to the one-yard line last year, and now we have finally brought it into the end zone,” said AIDEA board member and Fairbanks resident Gary Wilken in response to the sale of Pentex. “I am profoundly honored to have been part of this years-long effort that is now poised to bring such tremendous benefit not only to this generation, but for generations to come.”
- ALAN BAILEY