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AIDEA program fund out of House Finance Bill would set up Oil and Gas Infrastructure Development Program Fund; bill hasn’t moved in Senate; not expected to be capitalized KRISTEN NELSON Petroleum News
House Bill 246, which would establish a new fund at the Alaska Industrial Development and Export Authority for oil and gas infrastructure, moved out of the House Finance Committee June 15.
The bill had not been scheduled for the House Floor when this issue of Petroleum News went to press June 16.
The Senate version of the bill has not moved in that body after a hearing before Senate Resources in early April.
This is an administration bill. The governor’s transmittal letter says the goal is to create a new tool for AIDEA to use in assisting small or medium-sized oil and gas producers with infrastructure development. Such companies can have a significant impact on the state’s economy, the letter says, but do not always have access to the capital they need.
And to ensure that the state does not bear too much of the development burden, companies accepting AIDEA assistance would not be able to “take, apply for, or accept a gas exploration and development credit or a production tax credit from the State.”
The bill has been amended to specify that participants in the financing “will not take, apply for, or accept a tax credit for expenditures on the oil and gas fields” after the date of AIDEA’s financing commitment. They would be eligible to accept tax credits earned prior to the AIDEA financing.
The bill was also amended to specify that AIDEA “will not be responsible for costs incurred in connection with dismantlement, removal, or remediation of the oil and gas infrastructure development.”
Infrastructure AIDEA has three funds: a revolving fund; the Sustainable Energy Transmission and Supply Development Program, SETS (its energy infrastructure fund); and the Arctic Infrastructure Fund. It also has special appropriations for the Interior Energy Project and the Ambler Mining District Industrial Access Project.
Existing projects and loans are weighted to mining (20 percent), retail (11 percent), maritime (10 percent), fuel distribution (8 percent), tourism (8 percent), oil and gas (8 percent) and oil and gas support (6 percent).
Presentations on the bill by officials of AIDEA and the Alaska Department of Commerce and Economic Development emphasized that AIDEA would not be using the proposed fund to invest in the risky downhole exploration portions of projects, but only in the roads, pads, camps, processing facilities, gathering systems or other on-site improvements or equipment needed for production. The bill also provides that projects must support fields with proven reserves.
AIDEA would base interest rates on project risk, borrower creditworthiness, owner and financing partner commitments and benefits to the state, and those interest rates, because of inherent industry risk, may be higher for oil and gas infrastructure projects.
The bill also modifies financing limits of existing funds to match the proposed oil and gas infrastructure fund, proposing that the three funds be able to loan up to 50 percent of an eligible project or offer a loan guarantee of up to $25 million. Existing limits are up to a third of the project and up to $20 million.
The bill was amended in House Finance to require that AIDEA obtain legislative approval for a loan of more than 50 percent of the capital cost of a qualified energy development or $100 million.
AIDEA finances at market-based rates reflecting project risk; loans are repaid with interest; AIDEA earns revenue, some of which is paid to the state as a dividend and some of which funds future projects.
Officials emphasized to legislators that AIDEA essentially comes in at the construction phase, basing its investment on operating experience, capital contribution, final design plans and specifications, complete permits, signed purchase agreements and signed sales agreements.
What’s required Minor modifications of AIDEA’s regulations would be required, but those would be accomplished in-house and would not require an appropriation. Program implementation and management costs would be absorbed.
Officials said they did not expect the fund to be capitalized under the state’s present fiscal situation, but said the fund would provide AIDEA with a tool it could use.
The fund would consist of monies appropriated by the Legislature and “unrestricted loan repayments, interest, or other income earned on loans, investments, or assets of the fund.”
Legislators had expressed concern about the ability of the AIDEA board to transfer monies into the fund, but the authority said the language in the bill was similar to that for other funds and asked that the oil and gas infrastructure program be treated similarly.
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