State wins option to buy 25% of Alaska LNG after investors commit

Alaska Gasline Development Corporation has secured the right for the state to buy into the Alaska LNG project after private investors commit their capital. Alaska gets six months to decide whether to invest up to $1.16 billion.

AGDC President Frank Richards told the Alaska Senate Finance Committee on Thursday that the state can take up to 25% of each equity raise in the project's subcomponents after final investment decision, when all debt and equity financing is lined up. The option covers equity in the gas treatment plant, pipeline, and liquefaction facility.

"What AGDC has reserved for the state and Alaskans is the opportunity after FID to take up to 25% of the equity stake," Richards said. "In this particular example we used the range of 5%, or about $230 million, up to 25%, or about $1.16 billion."

The structure requires other institutional investors to commit first and wait up to six months while Alaska decides whether to exercise its option. AGDC Commercial Director Matt Kissinger said that creates a disadvantage for those investors.

"They fill out the whole book of how much equity needs to be raised, and then they have to wait," Kissinger said. "They have to wait up to six months while we make a decision of whether we're going to back in and push them out of 25% of their investment, which is a real disadvantage to those investors. They have to tie up that capital with a slight bit of uncertainty."

The dollar figures are based on a $15.5 billion pipeline with a capital stack of roughly 70% debt and 30% equity. In that example, the state could back into 25% of the equity raise, which Kissinger said would translate to 16.25% direct ownership of the total project. The state would also retain its separate 25% carried interest in Eight Star Alaska, adding another 8.75% for a combined 25% total ownership stake.

Kissinger said the negotiated structure includes a 5% minimum participation threshold "because this is a meaningful transaction to push people out of their committed investment."

The state's equity would be on the same terms as other investors, with no premium or discount. Richards said the equity participation is an option, not an obligation, and the project will proceed without state investment if Alaska chooses not to participate. He added that the state could also attempt to invest at the same time as other investors at final investment decision, though AGDC views the 180-day back-in right as more advantageous.

AGDC also retains a separate 25% carried interest in Eight Star Alaska, the entity that holds the Alaska LNG project assets. That carried interest gives Alaska 25% of developer economics regardless of whether the state exercises its direct equity option.