The municipality of Anchorage will expand its stake in a Cook Inlet gas field in a $152 million deal with ConocoPhillips that also involves Chugach Electric Association, officials announced Monday.
Anchorage Municipal Light and Power, owned by the municipality, will join forces with Chugach Electric to buy ConocoPhillips' stake in the Beluga River Unit about 35 miles west of Anchorage.
ML&P is offering $106 million to ConocoPhillips to boost its overall ownership in the field to 57 percent. Chugach Electric will pay ConocoPhillips $46 million, and own 10 percent of the field. Both utilities use natural gas in their turbines to produce electricity.
Hilcorp Alaska will continue to own the remaining one-third of the field.
Officials with the two electric utilities said the acquisition will lower the overall cost of natural gas and quickly lead to rate-savings. The deal must be approved by the Regulatory Commission of Alaska.
Anchorage Mayor Ethan Berkowitz said the deal will provide affordable and reliable natural gas for Anchorage ratepayers for years to come.
"It is a strong signal that those of us here behind this podium right now are incredibly bullish on Anchorage's future," Berkowitz said. "We think if we make the right investments at the right time we'll have the resilience that is necessary to withstand whatever comes our way and be able to take advantage of the opportunities that happen."
Municipal Light and Power has owned one-third of the Beluga River Unit since 1996, after paying $120 million at that time. ML&P borrowed $108 million as part of that deal and still owes about $18 million. It will be paid off in late 2018, said Myer Hutchinson, municipal communications director.
This latest deal became possible in July when ConocoPhillips, hit by the headwinds of low oil prices, announced it would put its portion of the field on the market, sparking interest from the utilities.
A ConocoPhillips spokeswoman said the field was discovered in 1962. Selling it will allow ConocoPhillips to focus on "higher growth" areas.
"While historically significant to our company's investment in Alaska, these are mature assets that no longer fit in our portfolio," said Amy Burnett, a spokeswoman for ConocoPhillips.
"We are pleased to be handing this legacy asset off to the local utilities," she said in an emailed statement.
Municipal ownership in the Beluga River field has saved ratepayers $239 million over two decades, Anchorage officials said. They said the figure was based on the market price of gas during that period compared to the municipality's cost of production at Beluga.
Other ownership benefits, including savings from gas sales to other entities, means the utility could have as much as $120 million available for the purchase if the RCA approves the acquisition.
If enough cash is not available, a portion of the purchase could also be financed through bonds, officials said.
The municipality used two independent consultants to analyze the life of the reservoir, said Mark Johnston, ML&P general manager. The field is expected to have economically recoverable gas through 2033, he said.
Johnston said the deal is expected to save ML&P's 30,000 residential and commercial customers about $4 million to $6 million a year.
Berkowitz said he expected that to translate into an average savings of $200 a year for each ratepayer, assuming traditionally cold winters return to Alaska.
Johnston said ML&P invited Chugach into the process early on. He said the deal will also provide stable power costs for businesses at a time of economic uncertainty caused by low oil prices.
The Beluga Field already provides close to half of the municipality's gas, Johnston said. With the larger stake, the field could potentially provide up to 100 percent of ML&P's gas needs through 2023, at which point the percentage will begin to decline as the field matures, he said.
Brad Evans, chief executive of Chugach Electric, said the deal is expected to save its 68,000 ratepayers about $2 million to $3 million a year. The savings would begin shortly after a favorable decision by the RCA.
"We'd like to have expedited approval to get that savings in place right away," he said, instead of the usual wait of roughly six months.
Evans said the utility plans to borrow money to finance its share of the purchase.
Anchorage officials said they're communicating with Hilcorp Alaska about taking over the field's operation. It's currently operated by ConocoPhillips.
Lori Nelson, manager of external affairs at Hilcorp Alaska, said the company is considering that request.