|Alaska Contract Staffing|
Alaska Journal of Commerce
Gov. Bill Walker is considering ending the state’s relationship with TransCanada Corp. in the big Alaska LNG Project and taking over a full 25 percent share of the project.
In an interview June 7 in Fairbanks, Walker said that he is weighing the takeover option along with keeping TransCanada in the consortium under the current structure. Under that arrangement TransCanada would ship state-owned gas though its share of pipeline capacity.
A third option Walker is weighing is the state taking a 40 percent share of TransCanada’s interest in the project under the current contract with the state.
The state now has a contract with TransCanada that has the pipeline company owning and operating 25 percent of the large North Slope gas treatment plant and the 42-inch, 800-mile pipeline, and with the state itself owning 25 percent of the large liquefied natural gas plant planned for Nikiski.
North Slope producers BP, ConocoPhillips and ExxonMobil Corp. would own 75 percent of the overall project. The percentages will be roughly in line with the gas ownership of each participant, except that under the current arrangement the state would have TransCanada as a partner in its share.
“TransCanada is a very fine company and I have no problems with their capabilities,” Walker said.
However, the state assuming a larger share of ownership of the project may be in its long-term best interests, the governor said.
Walker made the comments at a conference on state fiscal issues in Fairbanks.
In a related development, Walker has shuffled the state’s management team on gas pipeline negotiations. He named Audie Setters, a 35-year industry veteran manager, as the state’s top manager for gas issues. Marty Rutherford, who formerly filled that role, will remain as deputy commissioner of Natural Resources, the governor said.
There was no announcement of the change but in an interview Walker described it as a “transition” that would bring more strength into the state’s negotiating team, while retaining Rutherford’s experience and allowing her to devote more time to Department of Natural Resources matters.
Rutherford would presumably remain engaged in key gas issues as they relate to the DNR, such as a pending decision to take royalty gas in-kind and a separate gas-balancing agreement.
Walker may face some embarrassing questions about naming Setters to the role, however, because he is a resident of Houston, Texas, although he has been working with the state on gas issues for about a year.
Early this year Walker fired a board member of the Alaska Gasline Development Corp. because he lived out of state, also in Houston.
On TransCanada, the governor has asked the state Legislature for $108 million to compensate the pipeline company for its expenses to date on the project. Legislators have asked for more details of the governor’s plans, however.
Walker did express concern over the added burden of financing a larger state share of the project in view of Alaska’s diminished finances, which are currently stressed by low oil prices and a sharp drop in state revenues.
The Heads of Agreement signed by the project participants with former Gov. Sean Parnell set the framework for the preliminary work on the pipeline and LNG plant. The state signed a separate agreement with TransCanada to allow the pipeline company to own a stake in the project. The contract expires in December, although the assumption has been that it would be extended.
Walker may opt not to extend the contract, however, leaving the state in full ownership of 25 percent of the pipeline and Slope gas plant along with its share of the LNG project.
The project is currently in the pre-Front End Engineering and Design, or pre-FEED, stage, with this phase of work to be wrapped up by early next year. The pre-FEED will include a revised cost estimate, which is currently pegged at $45 billion to $65 billion.
The next key decision for the overall project will be moving into full Front-End Engineering and Design, which could occur in mid-2016 and will involve an approximate $2 billion commitment by the parties.
Later this year, however, the state must decide on whether to extend its deal with TransCanada, and also finalize a fiscal agreement with North Slope producers covering gas production tax and royalty terms. Negotiations on the fiscal agreement and other pending issues such as a Payment-in-Lieu-of-Taxes, or PILT, on municipal and state property taxes, are currently under way.
In an email sent to state legislators May 29 but made available June 9, Walker said, “The agreement with TransCanada allows the state to remove the company as its agent at the end of the pre-FEED. The administration could choose to remove TransCanada at that time, and as late as July 2016. Alaska could then take a direct role in the project at the FEED stage.”
TransCanada’s role in the overall project has been somewhat controversial in Alaska. Parnell agreed to bring the pipeline company in as a partner to gain access to the pipeline company’s expertise in large project management and in dealing with the producer partners in capacity management and expansion issues.
Another consideration is that the arrangement would have TransCanada finance its share of equity in the project, which would amount to several billion dollars, with its own resources. That would relieve the state from the burden of having the raise the money, if it were to assume the full 25 percent share.
On the other hand, under that arrangement the state would not make as much profit from the project.
However, the TransCanada deal was also done partly to resolve potential legal issues related to terminating a previous contract the state had with the pipeline company under the Alaska Gasline Inducement Act, or AGIA. Many state legislators, and Walker as a candidate for governor, criticized Parnell’s move, arguing it gave up too much ownership and share of future revenues to the pipeline company.
There has also been an assumption that TransCanada, as a part owner, would also play a major role in managing the actual construction of the pipeline, an area where it is widely experienced. However, an industry source close to the project, asking not to be identified, said decisions on which entities would be involved in construction management have not been made.
In a response to Walker’s request for funds, state legislative leaders wrote, “Many in the Legislature support the termination of the state’s contract with TransCanada once sufficient financial review and a thorough evaluation of the benefits and risks is undertaken.”
The response was in a letter sent June 4 but not released to the public until June 9. It was signed by House Speaker Mike Chenault and Rep. Mike Hawker, R-Anchorage, chair of the Legislative Budget and Audit Committee, and the co-chairs of the House Resources Committee, Reps. Ben Nageak, D-Barrow and Dave Talerico, R-Healy.
Lawmakers also asked for details as to how the state can fund a larger commitment to the project: “Our partners, before progressing to FEED, will need to know the state has the ability to fund its FEED commitment, which will be significantly higher if TransCanada is no longer a partner in the venture.”
Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/June-Issue-2-2015/Walker-pitches-TransCanada-buyout/