Fuel for Thought: Alaska officials hit the road to make the case for oil, gas investment

Alaska worries that climate activists, major banks and possibly the federal government are rushing to make funeral arrangements for the state's major industry, oil and gas.

State officials last year brought the issue directly to investors, holding meetings in New York and Houston to press the case that investing in Alaska oil and gas exploration does not necessarily contradict an emphasis on environmental, social and governance criteria, or ESG.

Fossil fuels are under political pressure worldwide and small companies, traditionally aggressive explorers in Alaska, are having problems.

"They're having a very tough time raising money," said state Commissioner of Natural Resources Corri Feige.

Major banks and investors groups are newly sensitive to climate concerns, and anti-fossil fuel campaigns by activist groups, particularly for the Arctic, are having an impact.

It isn't just small independents, either. Investors say they won't put any money into drilling in the Arctic National Wildlife Refuge or the Arctic offshore.

Even conventional onshore North Slope projects led by larger companies are getting tough questions about environmental performance and interaction with indigenous groups, people familiar with the industry say.

This year, Alaska will see one of its slowest winter drilling seasons in years despite higher oil prices. Only two test wells are planned, down from the six or seven that has been the norm recently.

In the state's Oct. 2 annual "areawide" North Slope lease sale only two companies submitted bids and for six leases.

Even the larger companies who operate producing fields on the North Slope are slow to resume in-field work after big cuts when the pandemic hit and oil demand and prices crashed.

Alaska has been meeting and exceeding ESG principles for more than 40 years, and we're taking a hard look at the reasoning behind some of the more restrictive anti-Arctic investing policies out there
– Alaska Commissioner of Natural Resources Corri Feige

Alaska's petroleum industry workforce has dropped to 6,300, less than half the number employed in 2015. Oil jobs are the highest paying in the state, so the industry's shrinkage worries the state's business community.

Alaska officials say banks and equity investors are only getting part of the story and the state has mounted a campaign to tell the rest of it.

Feige and Lucinda Mahoney, the state's revenue commissioner, have launched an effort with banks and investment groups to counter the anti-Alaska messaging.

The message she and Mahoney are giving the banks is that Alaska has robust potential for new finds and ample capacity available in the Trans Alaska Pipeline System.

Emphasis on ESG

Also, the state's environmental regulatory framework and North Slope operators' practices meet investment guidelines of the World Bank and major investment groups.

"Alaska has been meeting and exceeding ESG principles for more than 40 years, and we're taking a hard look at the reasoning behind some of the more restrictive anti-Arctic investing policies out there," the commissioner said.

"Without exception, the financial institutions were unaware of how Alaska does business and how the core principles behind ESG, social responsibility, consideration for and protection of indigenous cultures, and public involvement is behind the decision making around development," she said.

These are in the state's constitution, its statute and regulations and are demonstrated in years of best practices by field operators, Feige said.

Mahoney, the state revenue commissioner, is said to have list of banks and investors who have said no to Alaska projects.

The two commissioners have clout, too.

Alaska's sovereign wealth fund, its Permanent Fund, is now worth about $83 billion. Almost every major US investment group has or wants a piece of that.

Feige and Mahoney are both trustees for the Permanent Fund. That means phone calls from the two commissioners get returned.

"Virtually every financial institution we met with explained how ‘fluid and evolving' the ESG space is and that they are trying to develop policies that reflect the wishes of their shareholders, while still generating returns on their investments," Feige told S&P Global Platts. "Only a very few are divesting their traditional energy portfolios. Most are just expanding them to include renewables."

"Lucinda and I kept the discussion focused on the value proposition of every dollar they invest in oil and gas development returning more of the kinds of ESG benefits they and their shareholders are looking for when that dollar is invested in developments in Alaska," Feige said. "I see a lot of shifting sands around this topic, and given that energy transition is going to require a cohesive and well-executed plan to deliver it without doing more harm than good, I believe repeated discussions with these institutions is going to be essential in order to keep Alaska on their radar."

COVID-19, supply chain problems

Alaska's industry faces other problems. COVID-19 infection rates are high and that makes companies working in remote locations like the North Slope very cautious, Feige said.

Activity is slowly resuming, but companies are finding it hard to lure back skilled workers.

Operators are also experiencing supply chain problems exacerbated by the North Slope's remoteness and higher costs. However, prospects for large discoveries are still there. Feige said.

Companies drilling in the recently discovered Nanushuck trend are seeing a 96% success rate in finding new oil, she said. Two billion-barrel finds have been made in recent years in the Nanushuck, Feige said.

The commissioner is optimistic: "We're told by companies that activity levels will be higher next year when the virus and supply chain problems are hopefully under better control," Feige said.

The Alaska woes can't all blamed on messaging by activist groups, however. Alaska has suffered some other bad breaks.

ConocoPhillip's $6 billion Willow project in the National Petroleum Reserve-Alaska is stalled by environmental lawsuits. Also, the Biden administration is unwinding President Donald Trump's leasing in the Arctic National Wildlife Refuge coastal plain.

The Department of the Interior has suspended actions on leases issued by the Trump administration earlier this year in the refuge.

Rene Santos of S&P Global Platts Analytics said he isn't surprised at the overall lack enthusiasm for Alaska.

Exploring is expensive, Santos said, the lead times to production are long, and if ANWR and the offshore are off the table, prospects for discoveries aren't big enough to interest large companies despite the new Nanushuck finds, which have yet to produce and confirm their productivity. In contrast, companies in the reemerging shale oil plays of the US Lower 48 are having fewer problems getting financing.

"They're finding it easier, cheaper and the scrutiny over environmental and social performance isn't as intense," Santos said.