Providing coverage of Alaska and northern Canada's oil and gas industry
August 2019

Vol. 24, No.31 Week of August 04, 2019

AGDC downsizing function based, Joe Dubler tells House Resources

Kristen Nelson

Petroleum News

The Alaska Gasline Development Corp. announced a restructuring and downsizing July 10. On July 19, Joe Dubler, AGDCís interim president, provided a required update to the House Resources Committee. He said changes at AGDC were a ďright sizingĒ of the corporation to meet directions of its board of directors for work over the next year.

As AGDC said when the restructuring was announced, it is now focused on completing work on its Federal Energy Regulatory Commission permit to construct the Alaska LNG Project. FERC issued a draft environmental impact statement for the project June 28; public comments close Oct. 3. FERC has set a schedule of public meetings on the DEIS for September (see separate item in this issue); a final EIS is due in March and a final federal authorization next June.

JDA not renewed

Dubler said AGDC would not be renewing the joint development agreements it signed with Bank of China, Chinese Investment Corp. and Sinopec. The JDA refers to a project that doesnít exist anymore - a lot of provisions donít apply to what weíre going to do, he said. Dubler said AGDC held a video conference with those China parties earlier in July and told them the corporation would work with them and with the producers to see what their role would be moving forward. The China parties were concerned, he said, as they had viewed this as a going concern. AGDC told them it still is a going concern, but AGDC is moving into the backseat and looking for someone else to take over the driverís seat and drive the project.

The November 2017 JDA, signed in Beijing, was an agreement by the parties to work together to advance an Alaska LNG project which would provide the opportunity to deliver 75% of the LNG produced to China ďat a cost-based and stable price utilizing the benefits of strategic financing and investment,Ē strategic financing opportunities and a transparent investment model.

Keith Meyer, former president of AGDC, described the JDA concept to the Resource Development Council in November 2017. He said AGDC and the state made a proposal to top LNG consuming Asian governments that included an in-country bank providing debt for 75% of the capital cost, with AGDC providing 75% of capacity on the Alaska LNG project for the life of the loan to an in-country buyer as repayment of the debt, with the in-country buyer making debt service payments directly to the in-country bank, thus eliminating risks from credit and foreign exchange rates.

FERC focus

AGDCís vision hasnít changed, Dubler said, itís still to commercialize Alaskaís North Slope gas; whatís changed, he said, is how that gets done. The state is not going to do it by itself. The state has been the lead but is now soliciting third parties to come in and do it for the state.

The stateís role is that of a sovereign, Dubler said, and sovereigns donít typically build projects. What they do is work to get impediments out of the way for a project like this to move forward.

Whatís different, Dubler said, is that a year ago AGDC was doing a lot of commercial work - selling gas - but, he said, it didnít know if the project was economic or competitive and couldnít answer basic questions from buyers: When will gas be available? How much gas will be available? What will that gas cost?

Focus on FERC approval is important, Dubler said, because regulatory approval is typically a big problem. The FERC permit to construct removes one of the biggest roadblocks which projects in North America have faced.

Nobody has stepped up so far, Dubler said, and part of that is the regulatory risk. Mitigating part of the regulatory risk by obtaining the FERC permit will help attract investors, he said, because projects like this live and die on risk.

Once that approval is received, it will open the door to other investors who donít want to take the regulatory risk.

AGDC will still be involved in the project for at least the next year to see where it goes from here.

AGDC will hire engineers to address mitigation issues for FERC, but it looks as though further fieldwork will not be required, he said.

Project cost

On costs, Dubler said AGDC and the producers have looked at some potential costs and it looks lower than the $44 billion previously estimated. In fact, he said, with some areas of significant cost reduction identified in workshops this spring with BP and ExxonMobil, thereís a possibility the project is competitive.

Thatís why itís important to continue and complete the FERC process, he said, because that eliminates risk and may open the project up to additional investors that want to participate.

As for what those current cost estimates are, Dubler said itís kind of a poker match between gas customers and project builders, so AGDC is hesitant to put all that information out in the public. But there is a market for LNG and companies that track that, so you can look at what buyers are signing up for in other areas, he told legislators.

Departments, not individuals

AGDC has had 19 positions filled, Dubler said, and will downsize to eight or nine. He said the AGDC board decided the corporation didnít need as much infrastructure as it had to do what itís focusing on in the next year, which is FERC.

Departments are being reduced, not individuals. AGDC has had two individuals in its legal department, he said, and they were writing a lot of agreements. AGDC is not going to be doing that this year, he said, and legal support doesnít require two fulltime bodies, so the Department of Law will supply AGDC with an attorney as needed.

The accounting department has had four people and once a current audit is completed only one will be needed.

The external affairs and government relations department has had three people working on press releases and social media, but with the FERC process a lot of public relations wonít be needed, so that entire department is being downsized, Dubler said.

And the entire commercial team will also be downsized. There may be some commercial work next year, but Dubler said his prior role with the corporation was in commercial, so he would be taking over that role for the very limited amount of commercial work which might be needed.


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