Competition for Capital: The Challenge of Financing Oil & Gas Development
Accessing capital to finance Alaska’s oil and gas projects is more difficult than it has been in the past, says Alaska Oil & Gas Association President and CEO Kara Moriarty.
Big Banks Bow Out
“I think the competition for capital has never been greater,” Moriarty told the Resource Development Council’s breakfast meeting on February 17. “The bottom line is the capital is becoming harder to get.”
This struggle to get capital for the mammoth projects that characterize the sector in Alaska comes in several forms, from changes in financial institutions’ attitudes toward oil and gas to internal competition within a company’s portfolio.
“We have many financial institutions that have said they’re no longer going to invest in the Arctic,” Moriarty said.
Backing up her point, Moriarty pulled a quote from energy consulting firm Gaffney Cline’s 2021 report titled “Assessment of Recent Trends in Upstream Oil & Gas and the State of Alaska’s Competitive Position.”
“Over 80 global financial institutions are restricting lending and over 100 have announced their divestment from fossil fuels, including coal, oil, LNG, gas, oil sands, and Arctic drilling,” the report states.
This lack of support exists despite efforts by industry and government leaders to explain that Alaska projects meet the standards outlined by the organizations, such as having some of the lowest emissions in the United States, Moriarty says.
With less support from financial institutions, Alaska’s oil and gas sector is seeing increased competition for company capital already tagged for project development.
As an example, Moriarty points to ConocoPhillips. At one time about 40 percent of the company’s portfolio was in Alaska, but expansion beyond the North Slope, including major assets in the West Permian basin of Texas, means that Alaska is now only about 12 percent of ConocoPhillips’ portfolio. This means ConocoPhillips’ Alaska team has more projects to compete with for the company’s limited capital outlays.
Moriarty is quick to point out that all these hurdles and more exist despite projections of increased demand for petroleum products. The US Energy Information Administration expects to see demand for petroleum and natural gas increase over the next thirty years.
“So that’s the good news,” Moriarty said, before highlighting OPEC’s annual report from 2021. “They said that demand will actually increase by 8 percent over the next two decades, and more astonishing is that there’s trillions, literally trillions of dollars of investment needed globally to meet that increasing demand.”
A Transition, Not a Switch
Kara Moriarty, President & CEO, Alaska Oil & Gas Association
Alaska is currently the fourth largest producer of oil in the United States, behind Texas, New Mexico, and North Dakota.
“Right now, our production makes up about 4 percent of the total US production,” Moriarty said. “Texas by far is still the largest oil and gas producer, and this is on-shore, so this does not include the Gulf of Mexico.”
To raise awareness of the ubiquity of petroleum products, AOGA launched its “Think Again Thursday” campaign, which highlights everyday products that require petroleum, from boots to some types of yarn.
“We hear this narrative that we are in an energy transition, and that’s true. No one’s denying it. But I think the important word is transition. This is not a light switch,” Moriarty said.
She says she supports decisions that help keep Alaska competitive for oil and gas investments, including Alaskans voting down the North Slope Oil Production Tax Increase Initiative in 2020.
“The challenges are always there. The potential is always there,” Moriarty says. “And we just have to make sure we’re doing everything we can to make sure Alaska remains a competitive place to invest.”
The next Resource Development Council breakfast meeting is scheduled for March 3.
This year the Alaska Railroad is celebrating 100 years of transportation people and cargo around Alaska. While the railroad is one of the states oldest transporters, it certainly isn’t the only one, and in this issue of Alaska Business we also check in on the Marine Highway, Span Alaska, and the White Pass & Yukon Route. For those interested in Southeast, our focus on that region provides updates on Kensington Mine, Tongass FCU, the troll fishery, and Juneau’s growing landfill.