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Natural gas distribution system to be expanded tenfold Texas firm buying Fairbanks Natural Gas from Northern Eclipse, plans 115 miles of new distribution lines, expansion to 5,800 customers by 2013 Kristen Nelson Petroleum News Editor-in-Chief
Many more Fairbanks businesses and residents will have access to natural gas within a decade, if a proposed purchase of Fairbanks Natural Gas is approved by the Regulatory Commission of Alaska.
Pentex Alaska, a newly formed, closely held, Texas corporation, has filed with the commission to acquire the 100 percent controlling interest in Fairbanks Natural Gas now held by Northern Eclipse LLC, and has told the commission that its plans include expanding service to some 5,800 customers by 2013, at an estimated cost of more than $35 million in new facilities. Pentex told the commission in its application that its proposed acquisition of Northern Eclipse “will allow substantially greater investment in natural gas utility plant in Fairbanks” and benefit existing and new customers, in the long term, “because increased investment in natural gas facilities will result in lower average costs for both current and future natural gas customers.”
The commission said June 30 that Fairbanks Natural Gas is the holder of certificate of public convenience and necessity No. 514, and provides natural gas distribution service to some 580 customers in Fairbanks. Fairbanks Natural Gas liquefies Cook Inlet natural gas and trucks it to Fairbanks as liquefied natural gas, where it re-gasifies it and distributes it to customers.
The Pentex application, dated June 10, also requests expedited consideration, allowing Fairbanks Natural Gas “to step up its expansion efforts in the latter part of this summer construction season, and also to effectively plan now for a more substantial expansion next summer.” Britton would continue as president and CEO The major shareholders of Pentex Alaska are also the major shareholders of Pentex Natural Gas Co. and other energy ventures. Pentex Natural gas has operations in Pennsylvania, where it provides natural gas transportation services. Mark Casaday of Phoenixville, Pa., a petroleum engineer, is president and chief executive officer of Pentex Alaska Natural Gas Co. Thomas Muse, a Texas resident, a chemical engineer, is vice president of Pentex Alaska, and was a member of the management board of Northern Eclipse from 1996 until early 2004.
Pentex said Dan Britton, president and chief operating officer of Fairbanks Natural Gas, will continue to handle the company’s operation after the acquisition.
Funds for the acquisition will be raised through private placement of approximately $20 million in senior lien revenue notes to institutional investors, with approximately one-half of the notes to be taken by Northern Eclipse, Pentex said. Approximately $15 million will be either paid to Northern Eclipse at the time of closing or allocated to repayment of obligations to Northern Eclipse. Almost $1 million will be set aside for working capital and miscellaneous reserves and expenses.
Pentex said $2 million is budgeted for capital expenditures during 2004 and 2005, and the company intends to make future similar private placements fund continued growth: $8 million in 2005, $11 million in 2006 and $8 million in 2007. $35.3 million in expansions These monies, along with cash from operations, will fund $8 million in investments for additional LNG plant capacity, $8.4 million for additional LNG storage facility and $18.9 million for an additional 115 miles of main and service lines.
Pentex said its goal is to have main extensions completed in 2008, and increase in LNG manufacturing capacity and storage capacity will be timed to keep pace with additional customers.
Once the sale is complete, Fairbanks Natural Gas will continue to purchase LNG, store and vaporize the gas and distribute it to customers. The only change, Pentex said, is that Fairbanks Natural Gas will purchase the LNG from Pentex Alaska, rather than from Northern Eclipse.
Pentex said it will initially employ all current employees of both Fairbanks Natural Gas and Northern Eclipse and has no plans to eliminate any current position. Since it intends to invest heavily in expansion, additional employees will be required, especially during the summer construction season, the company said. Fairbanks Natural Gas certified in 1997 Fairbanks Natural Gas was certificated to provide natural gas service in Fairbanks in 1997, and has made a considerable investment in a distribution system, Pentex told the commission. It said that because of the significant cost of building the distribution system, and because most potential customers already have an energy supply, “revenues were expected to significantly follow the associated investment,” and the company “is just now at a point where revenues have caught up enough to support operational costs.”
Pentex said long-term prospects for Fairbanks Natural Gas “are very favorable, but in the short term substantial additional investment is needed” to keep the company growing.
Because of significant current construction in Fairbanks, there are a number of customers who want natural gas this year, including Lowes, Lithia Motors, Fred Meyer, the Fairbanks School District and new residential complexes, Pentex said. Fairbanks Natural Gas has received inquiries for gas service from 175 new customers which “will require substantial ongoing investment of funds” which Fairbanks Natural gas does not have.
Pentex said its acquisition will ensure that Fairbanks Natural Gas “has the financing to provide new and ongoing service to all potential customers who want service in 2004.”
In the mid-term, Pentex said, Fairbanks Natural Gas has discussed providing natural gas to the University of Alaska Fairbanks, but “without an influx of new capital” the company will not be able to expand its service areas to the university.
And while Fairbanks Natural Gas currently serves 580 customers, “its long-term plan forecasts serving approximately 6,000 customers,” requiring substantial investment. Pentex said 115 miles of additional distribution infrastructure will be required, with an investment in main and services lines alone projected at more than $18 million, an aggressive expansion plan which would result in Fairbanks Natural Gas having a customer count of some 5,800 by 2013.
Once the acquisition is complete, Pentex said, Fairbanks Natural gas “will target the addition of approximately 30 miles of distribution main per year, along with the service lines required to achieve the desired customer growth.”
The Regulatory Commission of Alaska is accepting comments through July 30.
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