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State entity considers investing $50 million toward Cook Inlet gas production

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published January 15, 2015

A Cook Inlet hydrocarbon explorer wants a state corporation to invest $50 million in a project that could soon help ease Southcentral Alaska's natural gas dilemma.

An official with Furie Operating Alaska said the state's investment would help improve the economics of the roughly $300 million project that will tap gas from the Kitchen Lights Unit northeast of the Kenai Peninsula community of Nikiski.

On Wednesday, the seven-member board of the Alaska Industrial Development and Export Authority unanimously agreed to enter into a contract with the Texas-based company to study details of the project and develop a finance plan to help determine if the state should become an equity partner.

Furie must reimburse the authority up to $100,000 for the cost of the review, whether AIDEA decides to invest or not.

Furie discovered producible quantities of gas in 2013. Gas is scheduled to flow starting in January for a multiyear contract with a utility that Bruce Webb, senior vice president of Furie in Alaska, said he could not name.

If the gas flows as expected, it could begin to mark a sharp reversal for a region that, not long ago, was so close to running out of gas that it had considered imports and emergency plans calling on Southcentral Alaska homeowners to turn down thermostats during winter cold snaps. But state tax incentives ramped up activity in the aging Cook Inlet gas fields, helping boost sagging production. Still, the increase was limited, and utilities were able to count on only about five years of gas supply.

Webb said that at this point, gas will flow from Furie's unit for more than a decade at a rate of about 85 million cubic feet per day. But the flow could increase and continue for much longer, in part because only a small part of the reservoir will be tapped in the beginning. Additional drilling will prove up more reserves, he said.

Gas from the unit was initially expected to begin flowing in November. Delays related to construction and a pipe-laying barge played a role in the company's decision not to rush the project, Webb said.

Furie has invested about $220 million in the effort, with a portion of the funding coming from Energy Capital Partners, a private equity firm in New Jersey.

AIDEA, tasked with promoting economic development in Alaska, seeks to profit from its investments. It recently approved an $18 million dividend to the state treasury for the next fiscal year.

The money for the production project, if approved, would not be a loan. Instead, it is described as financing plus a state ownership stake in facilities, similar to the authority's investment in the Endeavour jack-up drilling rig that brought the state about a $5 million return, said Karsten Rodvik, external affairs officer for AIDEA.

"We're bullish on Cook Inlet," Rodvik said. "There's a lot of resources out there, and if we can help develop these gas resources it can provide significant benefit to Southcentral."

The review could take a couple of months, officials said. It would look at expected gas production and the size of the gas reserves, and verify ongoing work and cost estimates, as well as help determine the benefits an equity stake would provide. One benefit may be that AIDEA would receive a portion of the proceeds from the gas sales, said Webb.

Ted Leonard, executive director of AIDEA, said current discussions with Furie have included a repayment schedule to the state of five to eight years, with an annual dividend that must be negotiated.

According to a memo from Leonard:

• The gas production platform for the project is waiting to be moved north from Seattle and installed this spring.
• A 15-mile subsea pipeline sending gas, water and other fluids to an onshore production facility awaits installation in spring, with the pipe purchased and waiting at Point MacKenzie.
• The onshore production facility to treat the natural gas is halfway built north of the former Agrium fertilizer facility in Nikiski.

"It should be a good deal for the state and AIDEA," Webb said.

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