Anchorage to buy ConocoPhillips gas field for $152M

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The city of Anchorage is buying up part of a natural gas field in Cook Inlet for $152 million. With approval from the Assembly, the Mayor’s administration and two utility companies announced their intention to purchase a parcel from oil company ConocoPhillips, which they say will benefit energy customers across the city.

Though it’s uncommon for a municipal utility to own a natural gas source, it isn’t without precedent.

During a quick press conference at City Hall, Anchorage Mayor Ethan Berkowitz broke the news that after months of closed door meetings, the city has worked out a deal to buy the third of the Beluga Gas Field owned by ConocoPhillips since the 80s.

“We’re excited about the prospect, we think it heralds a new time in terms of Anchorage’s energy future,” Berkowitz said. “It’s about making sure we have a stable, secure price of energy. An affordability and availability of energy.”

This isn’t new for Anchorage. It’s actually just another big chunk beside the parcel they acquired in 1996 at the same site. Since then, the city’s electrical utility, Municipal Light and Power, says it’s saved ratepayers $239 million by owning the gas instead of buying it from someone else.

This latest purchase means the Municipality now owns two thirds of the lease, with the last portion held by Hillcorp. But unlike the deal two decades ago, this one involves Chugach Electric Association, and is designed to save money for ratepayers beyond the Anchorage bowl, spread further across Southcentral.

The joint purchase gives 70 percent of the new lease area acquired to ML&P, with the remaining 30 percent going to Chugach.

“It’s also about signaling that Chugach and ML&P are going to work together closely to make sure we can deliver the best for all of our ratepayers,” Berkowitz said. He added that after a back of the envelope calculation he’d done on his own electric bill the projected savings are “a couple hundred dollars a year.”

The utilities believe the customer savings could be substantial. Chugach thinks it’s new stake will save the company two to three million dollars a year. ML&P general manager Mark Johnston estimates their cost reduction will be four to six million dollars a year. Johnston said after the press conference that a change in the tax credit structure for gas producers would not substantially change the utility’s projections.

The lease is one of two ConocoPhillips holdings in Cook Inlet that the company is shedding as it places more emphasis on its North Slope holdings.

“The Beluga River Unit is a historical asset, and been historically an important part of the ConocoPhillips portfolio,” said ConocoPhillips spokesperson Amy Burnette “But it is a mature asset and it really no longer fits into our portfolio. And the sale of the asset actually allows us to focus on higher-growth areas.”

Translation: They aren’t making much money off it. Which, if you’re a private company means one thing, but a municipal utility doesn’t need as wide a profit margin.

“It makes financial sense for ML&P and Chugach,” said Larry Persily, oil and gas advisor for the Kenai Peninsula Borough. While there are some financial risks in the deal, Persily sees the acquisition as basically scaling up a program that by all measures has worked well for the utility and its ratepayers the last twenty years.

“I guess I trust that they’ve looked at the numbers pretty closely, and they’re not going to pay more for a larger share of Beluga (River) Gas field than they would pay if they had to buy it from producers somewhere else,” Persily said.

As for whether it’s normal for a city like Anchorage to vertically integrate a gas-field, Persily said it’s “not unusual, but it’s not that common.” In 2005, for example, the Los Angeles Department of Water and Power bought a $300 million share of a gas field in Sublette County, Wyoming.

The financial structure of the BLU acquisition will be a mix of cash and bonds, and requires final approval from the assembly.