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Vol. 14, No. 3 Week of January 18, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Enstar has investor

Gas utility says owners offer financial support for pipeline to Southcentral

Eric Lidji

Petroleum News

Enstar Natural Gas believes it has an interested investor for its proposed bullet line.

The Southcentral natural gas utility got a sizable financial commitment from Lindsay Goldberg, the private equity firm that owns Enstar’s parent company, Semco Energy, through investments in the utility holding company Continental Energy Systems.

“They’re willing, at this point, to put up to a billion dollars for this project,” Enstar spokesman Curtis Thayer told the Resource Development Council on Jan. 15. “Obviously, in today’s economy, a 10 or 12 percent rate of return is looking a lot better than what they’re seeing in the market. They want to invest. They’re in an acquisition mode.”

Lindsay Goldberg acquired Semco and Enstar in November 2007, Thayer said.

If the financing comes through, it would go a long way toward easing concerns about how the small, regulated utility could finance the major project it proposed last March.

Enstar is considering a 20- to 24-inch pipeline that would move no more than 500 million cubic feet of gas per day roughly 700 miles from the Gubik gas field in the foothills of the Brooks Range, through Fairbanks, to the existing Anchorage distribution grid.

Enstar now expects the bullet line to cost “close to $3.8 billion,” up from the $3.3 billion figure offered throughout 2008. Enstar plans to update that cost estimate in late March.

Thayer said Enstar spent $5 million studying the route last summer. The utility plans to ramp up efforts this year, spending $15 million on early environmental documents and permitting, in addition to a full summer field season stretching from May to September.

Enstar plans to spend $60 million in 2010 before deciding whether to build the pipeline.

If the utility does sanction the project, it would issue a request for proposals in 2011, finish construction by 2014 and have gas flowing as early as 2015, “in a perfect world.”

Several questions remain

There are several major unknowns Enstar needs to resolve before it can start building.

The first involves the gas supply. Although Anadarko drilled exploration wells at Gubik this past winter, and plans to drill more exploration wells there in the coming months, the Texas-based oil company has not publically issued any assessment of the size of the field.

“They’re cautiously optimistic,” Thayer said after the speech, saying a confidentiality agreement between Enstar and Anadarko precluded him from offering any further details.

Since drilling a pair of frontier wells in the early 1950s, the U.S. Geological Survey has estimated the total gas reserves of the Gubik field at around 600 billion cubic feet.

But Anadarko is expanding the scope of its natural gas search far beyond the Gubik field.

Second, Enstar says it needs an industrial anchor to keep rates reasonable on the pipeline.

Enstar still holds out hope that the bullet line could revive the Agrium fertilizer plant in Nikiski, mothballed in 2007 because of the shortage of natural gas supplies in Cook Inlet.

But Enstar is also looking at other industrial options, like an expansion of the liquefied natural gas export facility in Kenai, the Alaska refineries or the major military bases.

Even with recent rate increases, the Anchorage area currently pays the lowest price for gas in the country. With a gas supply from northern Alaska, Thayer said prices would probably increase to meet prevalent market values, but should still remain “reasonable.”

Some, led by the Alaska Natural Gas Development Authority, argue that the best way to ensure low gas prices is to piggyback as far as possible on a larger pipeline headed south.

But efforts to build that pipeline remain uncertain, and wouldn’t deliver gas until 2020.

Partnership remains fragile

Enstar moves forward on its bullet line as ANGDA continues pushing for a spur line that would divert a small stream of gas from either of two proposed large-diameter pipelines.

Gov. Sarah Palin announced a public-private partnership between Enstar and ANGDA this summer, presented as a way to consolidate efforts to address the growing shortage of Cook Inlet supplies, but the collaboration failed to take off in the months that followed.

Asked about any interaction between the parties, Thayer said, “Enstar is working with the State of Alaska, and ANGDA is a state corporation. And we’ve been working with (the Department of Natural Resources) very closely with that. And so we feel we are working with ANGDA as we work with the state, but maybe not directly with ANGDA.”

Enstar still prefers a route following the Parks Highway, but remains open to following an alternate route down the Richardson Highway preferred by the state and ANGDA.

ANGDA is looking into partnering with an unnamed, publicly traded pipeline company.

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