A state-backed agency eased the repayment schedule somewhat on a $30 million loan to BlueCrest Energy, another glimpse into the complicated political and financial hole Alaska has dug with its efforts to subsidize oil development.
A year-and-a-half ago, the Alaska Industrial Development and Export Authority agreed to loan the money for a drilling rig near Anchor Point with two main conditions — that BlueCrest start paying it back this fall and the company establish a $15 million reserve account in an Alaska bank, just in case of default.
The deal called for monthly payments of $612,666.01 until mid-2022 and the creation of the $15 million reserve account by the end of this year, "regardless of the amount of tax credits received and the status of the project."
But now, citing delays in the completion of the drilling rig — postponing new oil from the Cosmopolitan project until next April — and delays in the payment of state cash incentives because of a veto by Gov. Bill Walker, the company sought and received a minor modification on the repayment terms.
The managers and directors of AIDEA, a state-backed corporation that promotes development projects, agreed Thursday that a minimum $5 million reserve account will suffice for BlueCrest and monthly payments to repay the principal can be delayed until next December.
This is not a major difference from the original plan, as the size of the reserve could have been cut to $5 million after a shakeout period anyway. Interest payments will start Jan. 1 and the parties will stick to a payoff deadline of mid-2022.
The delay in the payment of millions in state tax-credits is leading to many financial recalculations on oil projects in Alaska. It just so happens that a state-backed agency has made a loan on this one, so some of the details are public.
BlueCrest has put the cost of its project at $525 million, out of which the state would pay about $145 million in cash subsidies. That doesn't include the $30 million loan.
An updated analysis in July publicized by the owners said with a projected oil price of $58 per barrel, there are proven, undeveloped and possible reserves worth billions in the Cosmopolitan prospect.
Chairman of the BlueCrest board is Robert Israel, a key official in One Stone Holdings, LP, a New York entity that is the largest and controlling shareholder in the venture. The investment company Hallwood, based in Monaco and Dallas, owns 17 percent.
This project is one of many impacted to some degree by Walker's veto of $430 million in cash payments to oil companies. He said the state could not afford to pay out more than the $30 million required by law, citing the failure by the Legislature to enact a fiscal plan.
With the postponement of the payments, the state tax-credit debt to a wide range of companies will grow — it is now about $450 million and could rise to $650 million by next summer. The bill could rise to $1 billion by the middle of 2018.
One of the largest challenges for the state over the next few years will be how to deal with oil company subsidies—those that have already been earned under existing law, and those that have yet to be earned, some in the form of cash incentives and some in the form of reduced taxes.
The state response will help determine whether new companies will be able to establish a strong presence on the North Slope in competition with ConocoPhillips, BP and Exxon.
Two major oil discoveries announced this year on the Slope by smaller companies — if they proceed — could cost a total of $20 billion to develop. Under existing laws, those projects could be eligible for state cash incentives of about $7 billion before any new oil production takes place.
Nothing about that forecast is sustainable.
Public discussion about revising the subsidy plans could benefit by easing state laws that cloak most of these dealings in secrecy. Plus, instead of just paying out money on every project, there needs to be a way to set priorities for subsidies.
The industry has opposed efforts to end secrecy, though the state took a small step in the right direction this year — calling for an annual publication of a report that identifies companies and how much they collect in incentives.
Greater disclosure is a must. The oil companies on the receiving end of state cash payments universally proclaim the incentives are a great deal, citing selected statistics for jobs and royalty oil production as evidence that the state has made a wise choice.
What's missing in every instance is the full financial picture. If the state subsidies are to continue in any form, the public needs information of the type that any competent investor requires.
Columnist Dermot Cole can be reached at dermot@alaskadispatch.com.
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