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ANGDA having trouble getting funding Senate refuses to add $5 million request to supplemental; CEO Heinze says grubstake bonds, selling partial interest are options By Kristen Nelson Petroleum News
The Alaska Natural Gas Development Authority is having trouble getting $5 million it needs to move ahead with its Alaska Gas Market System from the Alaska Legislature. The Alaska Senate refused March 14 to add the money to the governor’s oil and gas supplemental bill.
The authority was established by voter initiative in 2002 to create an Alaska-based project to connect North Slope gas to market and received $2.2 million in initial funding.
The Alaska Gas Market System, rolled out in January, is a proposal to take 1.25 billion cubic feet a day of ANS natural gas to Alaska markets in the Interior and Southcentral and to Valdez for use in a liquefied natural gas facility.
In January ANGDA Chief Executive Officer Harold Heinze described the proposal to the authority’s board as “a starting point” that would be refined through a joint-study effort. The funding request is for ANGDA’s contribution to the joint-study effort which is expected to be largely driven by in-kind contributions of study participants.
Heinze told the board that in pleading ANGDA’s case for the $5 million he told legislators it provides a backup position in the event a large pipeline project is stalled; that the “vast majority” of the work planned would be usable for any in-state gas system; and that ANGDA is the only group with an open invitation to work with other people “in a non-exclusive, voluntary sort of way.”
The $5 million, he said, is necessary to attract people to the joint-study project.
Without traction in Legislature funding difficult Heinze said “if we’re not getting the traction as part of the broad gas issue, it’s going to be very difficult politically.”
Trying to get ANGDA into the capital budget, he said, puts the request “up against widows, orphans, school improvements in the Bush and all of those things. And you just get lost in the trading.”
Board member Dan Sullivan suggested other funding. ANGDA does “have the ability to raise other funds as part of our charter,” he said.
Heinze said the broadest and most obvious options the authority has would be bonds or selling an interest.
“We do have the authority to bond without the pledge of anything other than our existence behind them,” he said. Grubstake or junk bonds could be sold on the basis of a return over a five-year period: “If we’re not here, you’ve got nothing.”
The other broad option “is look at selling an interest in ANGDA … you give me the working capital and in return you own 49 percent.” Heinze said he believes that would be “a permissible transaction for us, as a business. We are empowered to buy and sell.”
He said those were the options he could think of to raise something like $5 million, but said he didn’t like either because they dilute ownership. “My corporate experience says you don’t like to dilute just to raise some working capital.”
Moving ahead with AGMS Heinze said moving ahead with AGMS will include visiting the headquarters of potential participants in the joint study, to make the pitch directly, including Kinder Morgan and MidAmerican.
He said he also plans to sit down with the authority’s consultants and high-grade the list of some 80 work items that have been identified and decide what can be done internally and what items need consultants.
With $500,000 remaining from the initial $2.2 million appropriation, Heinze said he is allocating $100,000 to existing contracts, including the authority’s newest contractor, Tony Izzo, formerly head of Enstar Natural Gas Co.
Hiring outside counsel will take another $100,000. The remaining $300,000 would be used for work which requires outside contractors.
Heinze said he has at least two legal issues that he believes it is inappropriate for the Attorney General to be ANGDA’s counsel on, “because I believe the Attorney General would have to take a position on the other side of the issues.”
Since the AGMS proposes a 1.25 bcf-a-day line, Heinze said he needs outside counsel to advise ANGDA on how to achieve the goal of commitment of gas from less than all of the Prudhoe Bay unit owners.
Certification from AOGCC The other issue will require a combination of legal and technical expertise, Heinze said: “It is my intention to file an application with the Alaska Oil and Gas Conservation Commission asking them to certify that an off-the-North-Slope offtake of 1.5 billion cubic feet a day is permissible under the existing pool rules for Prudhoe Bay.”
Heinze said he didn’t think either was “a legal piece of cake,” but said he thought both are doable.
Izzo said he thinks other entities such as utilities are talking about possible bullet lines and a certification from the commission “would by default gel all interests toward a common goal.”
Heinze said it is clear the producers are comfortable they have the gas. “What has not become clear is what level of offtake will be supported by the commission.” He said that “question became horribly more open and unknown” when former Commissioner of Natural Resources Mike Menge declared the Point Thomson unit in default.
The hope has been, Heinze said, that “Point Thomson would sustain a very high daily offtake rate, depleting the reservoir very quickly” and that jolt of gas from Point Thomson would make a big pipe work.
Prudhoe Bay has a larger volume of gas, but that gas is reinjected for reservoir pressure maintenance to support oil production.
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