Opinion by Larry Persily Jan 27, 2021 in the Fairbanks Daily News Miner
The Alaska Industrial Development and Export Authority 20 years ago poured more than $50 million into a doomed-to-fail seafood processing plant in Anchorage. Next on AIDEA’s dream-it-and-hope-it-works list has been $70 million loaned and invested over the past eight years in the Mustang oil field on the North Slope. If it were a horse race, Mustang would have been scratched long ago as lame.
And because we never learn in Alaska, the state agency has signed up for what could be almost $50 million in bonus payments and 10 years of rent on 366,000 acres of federal oil and gas leases in the Arctic National Wildlife Refuge.
AIDEA’s theory is that the state can hold the leases until a shining knight on horseback — hopefully, not a Mustang — comes along to write hundreds of millions of dollars in checks for exploration work. Then, when the exploration hits oil, the state shares in the wealth.
But the reality is the state is unlikely to ever make any money on the leases. It’s politics, it’s the changing world, it’s economics.
President Joe Biden in his first day on the job followed through on his campaign pledge and said nothing will happen in ANWR. He placed a moratorium on any federal actions related to the leasing program, and said the Interior Department will review the leases and conduct a new environmental analysis.
That means nothing will happen for at least the next four years and likely much longer, considering the oil industry’s appetite for risky Arctic ventures.
The results of the Jan. 6 federal ANWR lease sale tells us a lot about that non-existent appetite: Other than the state agency, the only other bidders were an Anchorage-based real estate development firm and a U.S. subsidiary of an Australian company whose stock trades at around a penny a share.
If any oil company with a lot of money to risk on a high-cost, highly controversial Arctic project had wanted to explore in ANWR, it would have submitted its own bids. But no one did. The state made its costly move to preserve hypothetical options, so that Alaska is ready just in case someone wants to pay to drill. But it’s a dream that the deficit-riddled, fiscally fraught state cannot afford.
The state does not have the money to develop ANWR on its own, and it’s not likely that any oil company will write the checks either. The industry is turning away from expensive, risky, controversial projects that can take a decade or longer to produce cash. The world is turning its attention away from oil, especially high-profile, headline-grabbing Arctic development.
Rather than paying rent for a decade and fighting litigation, political drama and industry economics, which I expect Alaska would lose, maybe AIDEA can get its bonus payments back: Ask the federal government to buy back the leases — at a small profit to the state, of course. This may be one of those rare moments when an investor can make money on a bad idea.
AIDEA is into this for $13.26 million in the first year. Make a deal before next year’s $3.66 million rent is due. Offer the leases back for $25 million and the state pockets a quick $12 million profit. Pick a different number if you want — $25 million is an arbitrary number that is far less expensive for all parties than the legal fees they will run up over the years ahead.
Just don’t ask for too much. It will not cost the federal government anything to collect the next nine years of rent from AIDEA and wait it out. Alaska has to balance its budget, and we need the money for better uses.
Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal service in oil and gas and taxes, including deputy commissioner at the Alaska Department of Revenue (1999-2003) and time on the AIDEA board of directors.