A state-owned corporation on Thursday advanced the proposed Alaska gas line project by approving a $60 million development budget for 2016, just as Gov. Bill Walker said he received pledges from two of three oil company partners that they would still make gas available if they abandoned the project.
The unanimous vote and announcement from Walker amount to a significant step forward for the $55 billion project, which has been marked by tension in recent months among the governor, the Legislature, and the oil companies involved — stoking fears the partnership might be derailed.
Walker said last month he didn't want his appointees to the Alaska Gasline Development Corp.'s board to approve the state's share of next year's $230 million pipeline budget without the promises of gas. Six of the board's seven members were appointed by Walker.
The board delayed its 9 a.m. meeting Thursday to allow negotiations between the state and the oil producers to continue. But at 1 p.m., it returned, and after little discussion voted to approve the spending plan, paving the way for another year of work on the project.
Shortly afterwards, Walker announced in a prepared statement that BP and ConocoPhillips had committed to sign "gas availability agreements" — though he made no mention of the third and largest equity partner in the project, ExxonMobil.
The agreements represent commitments by the two companies to negotiate, "in good faith, for commercially reasonable terms" to sell gas back to the project if one of them chooses to exit the pipeline partnership, said a spokeswoman for Walker, Katie Marquette. The agreements will be made public as soon as they're finished, she said.
The "commercially reasonable terms" language of the agreements has legal implications that, when combined with provisions of the companies' North Slope oil and gas leases, would effectively force BP and ConocoPhillips to sell their gas if there's an expectation of a "reasonable economic return," said Corri Feige, the state's oil and gas director.
Walker's statement called the agreements a "historic milestone."
"BP and ConocoPhillips have given us the assurances we need to move forward," the statement quoted him as saying.
But the agreements include several qualifiers, and an assumption that the pipeline project that's ultimately put together would, in fact, be a commercially viable operation for the companies, said Larry Persily, the former federal pipeline coordinator who now is an oil and gas adviser to the Kenai Peninsula Borough mayor. The project faces challenges that include low oil prices and the vast distance the pipeline must travel before the gas can be liquefied and shipped.
"I don't think any of us know enough to know how solid it is," Persily said, referring to the agreements. "But obviously it's solid enough for the governor to go ahead, and that's good."
Marquette wouldn't answer questions about the status of negotiations with ExxonMobil.
That company owns almost one-third of the North Slope gas that would feed the pipeline. Walker, in justifying his push for the gas sales agreements, has repeatedly referred to ExxonMobil's other potential investments around the world that compete internally for the same money that would go to Alaska's project.
In a prepared statement Thursday, an ExxonMobil spokeswoman said the company "has been negotiating with the state on (project) withdrawal," as Walker requested.
"ExxonMobil has been working diligently to find mutually acceptable terms to progress the Alaska LNG project and remains committed to doing so," said the spokeswoman, Kim Jordan. "We and many others have communicated to the state that these agreements take time to negotiate and complete."
Walker himself was unavailable for comment Thursday. He was traveling back from a visit to Washington, D.C., but was scheduled to discuss the project at a Friday morning news conference.
Approval of the project's 2016 budget seemed assured earlier this year, but then, last month, AGDC's president, Dan Fauske, resigned, which was announced the same day the AGDC board decided to delay its vote on the $60 million spending plan.
At a subsequent news conference Walker said he didn't want his board members to agree to spend the money before he had promises of gas — sparking a flurry of concerned statements from Republican lawmakers like Anchorage Rep. Charisse Millett, who worried the pipeline was "dangerously veering" from the proposed framework the Legislature set up with former Gov. Sean Parnell.
On Thursday, those same lawmakers expressed their relief, with House Speaker Mike Chenault, R-Nikiski, calling the AGDC vote "welcome news."
"I, too, shared in the uncertainty and worry voiced by many over the direction of the new board and its leadership team, but that's been tempered with today's vote," Chenault said in a prepared statement.
By late Thursday, officials announced all three oil companies had also approved the budget in a meeting with the state. That meeting was closed to the public, but a spokesman for AGDC, Miles Baker, sent a text message following the decision.
"Unanimous vote from all the partners," he said. "$230-plus million for 2016," he added, referring to the project's full budget from the state and the three producers.
Thursday's decisions allow the project to progress through another year of preliminary engineering and design work, which will cost an estimated $700 million by the time it's done. A decision to begin final engineering and design — a much more expensive step that will cost billions of dollars — is expected in 2017.
If the pipeline is ultimately built, gas is not expected to flow until 2024.