State clout helps in surviving financial storm

Gas development agency says ability to leverage tax-exempt financing, government backing will help to weather uncertain markets

Eric Lidji

Petroleum News

A state-sponsored push to supply local markets with North Slope natural gas might be well situated to weather ongoing uncertainty plaguing financial markets, according to the Alaska Natural Gas Development Authority.

The advantage comes from ANGDA’s ability, as a public corporation, to leverage the stability of the state government and access tax-exempt financing, Harold Heinze, president and CEO of ANGDA said at a board meeting in Kenai on Oct. 1.

“Nobody would describe these events as good, okay?” Heinze said about the trouble facing the financial markets. “But differentially, ANGDA may do better in this brave new world than some other people who had thought they were major players.”

ANGDA is working on a slate of projects designed to deliver North Slope natural gas products to consumers in Alaska. The keystone is a $1 billion spur connecting a large diameter natural gas pipeline to the population center around Southcentral Alaska.

Financing a project that large through traditional channels might not be feasible in the coming economic climate, according to Joe Griffith, an ANGDA contractor and former head of Chugach Electric Association.

With the declining value of assets and debt, and the rising cost of credit and debt insurance, Griffith said interest rates for loans should increase and financers most likely will place a greater value on credit and bond ratings as they consider investments.

“So that makes tax exempt financing, with some sort of state backing, much more promising for us,” Griffith said. “And that’s what we’re going to have to craft in the long run.”

The marketplace will still need capital, though, and Heinze expects energy projects to fair better than other capital ventures because of the continued high cost of commodities like oil and natural gas, and the positive cash flow enjoyed by most major energy companies.

“The fact that we’re dealing with basic energy infrastructure supported down to the household level, that’s important,” Heinze said about the spur line. “Because 100,000 households don’t go away.”

At a time when the economic future of the United States faces uncertainty, Griffith compared ANGDA to the Works Progress Administration and the Civilian Conservation Corps, job programs created by the federal government during the Great Depression.

“It looks terrible on the outside when you look at all the facts, but my goodness, what an opportunity it is because we do have a lot of capital, and we do have the need, and… the market is there. And the supply is there,” Griffith said. “That says to me, ‘Boy, this is a nice picture.’”

Near-term funding uncertain

“On the other hand, the next big step for us requires big money,” Heinze said.

Sometime after the start of the year, ANGDA wants to start contracting a preliminary engineering program expected to cost between $25 million to $50 million.

Heinze said the work is crucial for proving up cost estimates and finalizing other details needed to convince lending institutions to invest as much as $1.5 billion in the spur line.

“We believe we have to get that money authorized, one way or another, fairly early in the calendar year so that we can hit the ground running basically right at the start of the next fiscal year,” Heinze said, noting procurement regulations that require state agencies to secure funding for a project before soliciting bids.

ANGDA tried unsuccessfully to get that appropriation this past year, and without the financial support of Gov. Sarah Palin and the state Legislature, ANGDA might be forced to use its power as a bonding authority to fund the next step in the project, Heinze said.

“I’m not prepared to tell you which way I would go right now, but we are going to be prepared to go both ways,’ Heinze said.