Pacific Star has means to own 10% of Alaska gas line

Kristen Nelson

Petroleum News Editor-in-Chief

Resource industry wealth comes from equity ownership, says Ken Thompson, president and CEO of Anchorage, Alaska-based Pacific Star Energy. Alaska companies did not participate as equity owners in the trans-Alaska oil pipeline, he told the Alaska Support Industry Alliance Dec. 17 in Anchorage, but both equity owners and the state’s economy stand to benefit handsomely if Alaska companies participate in a natural gas pipeline and infrastructure.

Thompson, formerly an ARCO executive and president of ARCO Alaska, established Pacific Star Energy to give Alaskans a vehicle for equity investment in a natural gas pipeline, and recruited 12 of Alaska’s 13 Native corporations as investors. When paperwork is complete in January, Pacific Star Energy will be fully funded for 2004 and 2005, but, he said, the company is not just an Alaska Native consortium. Next year Thompson will be approaching several non-Native Alaska companies, such as union pension funds, as well as Native village corporations, about joining. And, while the goal right now is to keep this an Alaska company, Pacific Star has been approached by outside investors, he said.

The goal is to have an equity position in a natural gas pipeline from the North Slope.

With the companies on board now, Thompson said, Pacific Star has a financial capacity of $330 million in equity, which, with 70 percent debt, “leverages our ability to finance $1.1 billion,” which could be either 10 percent of the $11 billion cost of a pipeline to the AECO hub in Alberta, or 20 percent of a pipeline from the North Slope to the Canadian border.

Pacific Star started out interested in owning 10 percent of a gas pipeline to Alberta, Thompson said, but is now in partnership discussions with major pipeline companies in Canada and First Nations’ groups, so it is looking at the possibility of owning a portion of just the Alaska part of the gas pipeline.

Stretch goal: one-third of Alaska

If that $1.8 billion were invested in only the Alaska portion of the pipeline, it would be 33 percent. At that point, Thompson said, “if we just have two other parties, you’ve got a project.”

If the producers decide they aren’t interested in building a gas pipeline, then Pacific Star would like to step in as part of new consortium which “would involve very large Canadian gas pipeline companies.” It could also involve the Alaska Natural Gas Pipeline Authority, created to build a liquefied natural gas project from Alaska, although Pacific Star is not interested in LNG.

“I used to manage LNG marketing for ARCO for two years,” Thompson said, describing Pacific Rim LNG as a “tough market.” There are “companies and countries that can deliver LNG to the West Coast from Asia at much lower prices than you would imagine if they had to in any kind of marketing war.”

Benefits to Alaska

Over the expected 30-year life of a natural gas pipeline project, with Alaskan owners having at least 10 percent of the line from the slope to Alberta — or 20 percent from the slope to the Canadian border — Northern Economics found that with the multiplier effect the incremental impact would be more than 32,000 additional part-time and full-time jobs over the 30 years and the cumulative dollar value would be $1.8 billion. That’s over and above benefits from a gas line owned by outside companies.

And, he said, Pacific Star Energy — in the first year or two of pipeline operation — would become just about the largest asset firm in Alaska, and certainly the largest in the energy industry. But that isn’t the end of the company’s plans, Thompson said.

“The most wealth in the oil and gas business is in owning the resources.”

Once a gas pipeline was in operation, he said, Pacific Star would “backwards integrate and by 2016 to ’25 we would also become a natural gas reserves holder and a natural gas producer by redeploying our cash flow from the gas pipeline as well as the other (natural gas) infrastructure in the state.”