Utilities buy share of Beluga gas field

City-owned Anchorage Municipal Light and Power and Chugach Electric Association agreed to purchase ConocoPhillips one-third interest in the Beluga River Unit gas field for a total of $152 million. Under the agreement ML&P will own 70 percent of the unit share and Chugach will take the remaining 30 percent.

ML&P purchased a one-third share of the Beluga field in 1996, which has already saved its ratepayers more than $239 million when the utility’s cost to produce the gas is stacked against historical market prices, according to ML&P General Manager Mark Johnston.

Hilcorp Energy owns the remaining third of the West Cook Inlet field and is the expected operator on behalf of the utilities, Johnston said in a press briefing.

“Because we have the city’s business core and commercial and industrial core (in ML&P’s service area) we think it’s very important that we have a stable fuel supply that helps us to have stable fuel prices for the business community that they can rely on,” Johnston said.

The latest deal should supply ML&P with all of its natural gas needs and Chugach with about 10 percent to 15 percent of its gas demand for about the next seven years before production begins to significantly taper. Beluga is expected to produce for the utilities through 2033.

Johnston said two reservoir analyses concluded there is between 70 billion and 80 billion cubic feet of gas remaining in the Beluga River Unit.

Chugach CEO Brad Evans said his ratepayers would likely see overall savings up to 15 percent on the fuel portion of their electric bills, equating to an overall yearly savings of between $2 million and $3 million per year.

Johnston said ML&P’s larger share in the field should translate into savings in the $4 million to $6 million per year.

“My wife and I did a back of the envelope calculation and we figure it could be worth a couple hundred bucks a year,” in savings to ML&P ratepayers, Anchorage Mayor Ethan Berkowitz said.

ML&P’s gas production cost this year is $4.35 per thousand cubic feet, or mcf, from its original share in Beluga, according to the utility; compared to the regulated wholesale market price of $7.42 per mcf for Cook Inlet natural gas.

While still a savings, the production cost has nearly doubled since 2013, a consequence of drilling new wells and doing well workovers to maximize production, Johnston said.

The cost of production has fluctuated over the 20 years ML&P has held an interest in Beluga, he said in an interview, and the utility could invest about $30 million to $40 million more in the field over the next five years.

ML&P expects to be able to pay for its portion of the acquisition with about $80 million from its Deferred Regulatory Liability from Gas Sales Fund along with a $13.5 million underlift and nearly $25 million in available cash. If the Regulatory Commission of Alaska limits the fund draw,  Johnston said the utility would turn to revenue bonds tied to production from the field.

Evans said Chugach will likely use its low-interest commercial paper program for short-term financing with longer-term debt covering any remaining balance.

The utilities first partnered to build the $369 million Southcentral Power Project, a 183-megawatt natural gas-fired plant completed in early 2013. Ownership shares in the power plant are reversed from Beluga deal, with Chugach owning 70 percent and ML&P holding 30 percent.

ML&P also is finishing work on the new wholly owned 120-megawatt George M. Sullivan Power Plant 2 natural gas-fired plant in Northeast Anchorage. Combining the new, more efficient generation with owned gas reserves enables the utility to provide power at the lowest possible cost, Johnston and Berkowitz said.

Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.