Alaska Eyes Foreign Capital to Jump-start Energy Projects

Alaska is pursuing foreign investors for its oil and gas industry, hoping to advance recent discoveries while struggling to compete with lower-cost shale projects and reverse a decades-long output decline.

Sovereign wealth funds, banks and state-owned energy companies have met with Alaskan officials, John Hendrix, chief energy adviser to Alaska Governor Bill Walker said in an interview. China Investment Corp (CIC) and state-owned Chinese energy company Sinopec held talks with state officials last month, he said.

Alaskan crude production has fallen by three-quarters since 1988, a decline that has contributed to budget deficits and jeopardized the operation of the Trans-Alaska Oil Pipeline, which runs from the North Slope to the southern port of Valdez. This year, a state budget shortfall led the state to withhold hundreds of millions of dollars owed to small oil explorers.

The nascent investment push is mostly focused on Asian firms, which Alaskan officials believe could take roles in a proposed natural gas pipeline and in individual energy projects, said Hendrix, a former energy executive.

"It's a wide, full-court press," he said.

But oil companies operating in Alaska say the state should fully fund its explorer-incentive payments that along with crude prices around $50 have put at risk projects on the North Slope and in the National Petroleum Reserve. Chinese capital for energy development also faces federal reviews that could block the state's effort.

"It's a challenging sell," Hendrix said, adding that the proximity to Asian markets will boost the projects' appeal to energy importers. "When you talk about (exporting) to the Far East, we're closer than California."

CIC and Sinopec expressed interest in an 800-mile proposed natural gas pipeline that would run from Prudhoe Bay to a southern port, as well as oil and gas production projects, he said.

Sinopec is talking with Alaska about a potential investment in the gas pipeline, said a source in China with knowledge of the discussions. Sinopec and CIC declined to comment.

Caelus, which disclosed a 6 billion-barrel North Slope oil discovery a year ago, delayed its drilling plans this summer, in part over the lack of incentive payments.

"It's hard to plan when you don't know the rules," Caelus spokesman Casey Sullivan said.

The state previously paid small companies for some costs of exploring and developing oil and gas projects, which are higher than in many other regions. This year, the state gave those companies only a portion, leaving hundreds of millions of dollars unpaid.

Alaska's fiscal uncertainty helps create more risk than in other U.S. regions and could discourage sovereign wealth funds from investing, said Wood Mackenzie analyst Alison Wolters.

The reason small companies are struggling to attract outside capital is the decline in state incentive payments, said Kara Moriarty, CEO of trade group Alaska Oil and Gas Association.

Foreign investment can be reviewed by the Committee on Foreign Investment in the United States to ensure that it does not pose national security risks.

CFIUS reviews have halted energy deals involving foreign investment and the Trump administration appears skeptical of Chinese investment, said two CFIUS experts who spoke on condition of anonymity to protect business relationships.

"I think it's going to be very difficult for Chinese to make significant investments in energy in the United States," one expert said.

Reporting by Rod Nickel in Houston; additional reporting by Diane Bartz in Washington D.C., Julie Zhu, Aizhu Chen and Matthew Miller in Beijing