As AGDC makes deals, details remain confidential
Those leading the state’s effort to commercialize its North Slope natural gas resources have touted recent agreements with key potential players in the $43 billion Alaska LNG Project as proof the project is viable and ever closer to coming to fruition, but what is in those agreements and how it impacts the state remains largely unknown.
Gov. Bill Walker and Alaska Gasline Development Corp. President Keith Meyer signed the Nov. 9 joint development agreement, or JDA, with the government-owned Chinese mega corporations of Sinopec, an oil and gas company, the Bank of China and China Investment Corp.
While a nonbinding agreement meant to set the framework for further negotiations, Walker and Meyer have characterized it as a watershed agreement because — in addition to being signed in front of the leaders of both countries — it brought entities into the fold that could finance a majority of the project in exchange for purchasing most of its end product, liquefied natural gas.
Specifically, the JDA outlines the prospect of Sinopec signing up for up to 75 percent of the project’s liquefaction capacity with the Bank of China and China Investment Corp., the country’s sovereign wealth fund, providing a corresponding level of debt and equity financing to fund it.
It also sets a soft May 31 deadline for the parties to have better defined the roles of each before finalizing those roles with binding deals later this year, as it notes Sinopec could also potentially participate in engineering, constructing or managing the project. It expires Dec. 31.
As envisioned, the Alaska LNG Project would produce 20 million tons of LNG per year at full production, but Meyer has said the project could be built in phases if the market, financing or gas supply prevents full up-front development.
Other, similar nonbinding agreements with potential Asian LNG buyers Korea Gas Corp., or Kogas, PetroVietnam Gas Corp. and Tokyo Gas have been announced ahead of and after the China JDA, but the details of those deals remain sealed.
Walker said at the time that he insisted the JDA be made public despite objections from Chinese officials.
On March 27, AGDC announced it had secured two of the world’s largest banks, again, the Bank of China, and Goldman Sachs, to assist the state-owned corporation in raising multiple rounds of debt and equity investment for the project.
AGDC officials denied records requests for the memorandums with the other potential LNG purchasers and the contracts with the Bank of China and Goldman Sachs, citing the commercially sensitive information the documents contain.
Spokeswoman Rosetta Alcantra wrote in a prepared statement that “Both Goldman Sachs and Bank of China will serve as AGDC’s financing arrangers, underwriters and placement agents for Alaska LNG. Bank of China will focus on raising funds from Chinese sources and Goldman Sachs will focus on U.S. and other international investors.”
Additionally, Alcantra wrote, “The two companies will be paid a reasonable fee for services provided. Additionally, they will receive a success fee upon procuring necessary financing for Alaska LNG.”.
The Legislature provided the public corporation exceptionally broad authority to withhold documents and information for commercial reasons in Senate Bill 138, the legislation that established an operational path for AGDC to participate in the prior, producer-led iteration of the project, and passed with broad bipartisan support in 2014.
However, AGDC has released other contracts it has signed to media outlets, including agreements with Washington, D.C.-based consultants providing services as liaisons between Congress and the Trump administration.
In an interview following the Bank of China-Goldman Sachs announcement, Meyer said the corporation works hard to be as transparent as possible through its board of directors meetings and legislative hearings in which AGDC officials testify and update the Legislature on Alaska LNG progress.
“We’re dealing with public money and the money is to get a project done and we’re operating in a very, very competitive arena and we’ve got to recognize that. We’ve got to recognize that we’re somewhat handicapped because of this need to be so public,” Meyer said.
“We’ve got people who can take pot shots at us in the public arena — having all of our commercial agreements out there posted on the internet by the press. We’ve got to recognize there’s some justification for that, no doubt, but at the same time it hinders us in this very, very competitive landscape and it’s getting increasingly competitive.”
Working as a public entity in the closed-door oil and gas realm where success is measured in billions of dollars, Meyer said he welcomes the critiques and comments from Alaskans in positions of power or the public at-large and wants to be responsive whenever possible.
“It pains me to get a request for information and not be able to comply. In spite of what you may have been led to believe we’re trying to be as transparent as we can at every turn,” he said.
AGDC leaders have been willing to conduct interviews when their schedules allow.
Additionally, Meyer noted he instituted a strict policy of following best business practices when he took the helm at the corporation in June 2016.
“To me, and I’ve told the folks here, we’ve got to make decisions based on business fundamentals and they’ve got to be scrutinized on that basis. We don’t do a single thing here that has a political motive or has some appearance of something like that. It is strictly focused on execution. We’re trying to build America’s largest energy export project; that’s what we’re focused on; that’s what we’re doing and we’re fighting lots of people bigger than ourselves,” he said.
The bank contracts have been withheld at the request of the banks, which didn’t even want their deals with AGDC shared between the two, according to Meyer.
He further stressed that when it comes time to spend significant amounts of state money — during a time when the state is running budget deficits — the commitments the corporation makes will be “quite open.”
“In terms of the banker deals, those guys get paid when they bring in third party money, not Alaska money; they don’t get paid for Alaska money,” said Meyer, who added they won’t get paid with State of Alaska money, either. “They get paid with a slice of the third party funds they bring in. If they don’t bring in funds there’s no slice that they get.”
Most recently, AGDC announced May 7 it had inked a binding agreement with BP on the primary terms of a gas sales contract including price and volume to supply the Alaska LNG Project.
As expected and generally understood, the key terms of that deal are confidential given — beyond BP’s desire that they remain classified permanently — AGDC would not want to compromise the similar negotiations it is still in with ConocoPhillips and ExxonMobil.
Meyer and Walker said in separate interviews that the gas supply terms, which presumably commit AGDC to buy BP’s produced gas just before it enters the project’s North Slope gas treatment plant, are likely to be made public eventually, but neither could say exactly when.
Legislators who have followed AGDC’s progress closely said they are most concerned about the project’s netback to the state treasury and how that might be impacted by the gas supply agreements.
Anchorage Democrat and House Resources co-chair Rep. Andy Josephson said he expects AGDC will be required to disclose the terms of the major commitments it makes closer to when the corporation is ready to make its final investment decision, but he wouldn’t want those disclosures to run afoul of any agreements to the contrary.
AGDC has pegged its final investment decision for early 2020 to coincide with when the Federal Energy Regulatory Commission has said it will rule on the Alaska LNG environmental impact statement.
Meyer has said the state should expect at least $250 million per year in revenue from the project based on high-level financial modeling, while some legislators are wondering what happened to consultant reports that pegged the state’s annual income from Alaska LNG in the billions of dollars when the producer companies were directly involved in the project prior to 2017.
A major change in the revenue estimate is largely to due global natural gas and LNG spot market prices that were twice as high in 2014 as they are currently, with delivered LNG prices to Asia now in the $7 per thousand cubic feet range, according to FERC.
Senate Resources chair Sen. Cathy Giessel, R-Anchorage, said she appreciates why the gas sale terms are kept close to the vest, but said she wants to know how those terms relate to oil and gas taxes in addition to also having questions about state revenue from Alaska LNG.
“What if the state of Alaska during this (project) raises production taxes? Will those added tax liabilities by passed on to AGDC or the LNG buyer?” she questioned.
Giessel is the only legislator to have signed a confidentiality agreement with AGDC to review sensitive documents, but she did so prior to the state entity taking control of the project in early 2017 and said it’s her understanding that agreement is not valid for the current iteration of Alaska LNG and the documents produced to support it.
She also noted the state taking over the project is not what the Legislature agreed to when it passed SB 138 and may not have given AGDC such broad authority to withhold information.
“I believe had we ever envisioned it becoming a state-led project like this we would have structured it differently,” Giessel said. “In (Meyer’s) hands is the sole authority to commit the state and its resources for decades.”
Elwood Brehmer can be reached at [email protected].