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State explores North Slope gas pipeline financing options

The state of Alaska held preliminary talks with investment banking firms in New York City May 25 to explore options should the state decide to help finance a North Slope natural gas pipeline.

Deputy State Commissioner of Revenue Steve Porter said the meetings were part of an ongoing analysis of the level of risk the state might assume in helping bring a gas pipeline project to fruition.

Some potential developers of a pipeline, such as TransCanada Corp., have suggested that the state become financially involved in the project and assume part of the risk, Porter said.

State Revenue Commissioner Bill Corbus, Porter and other state officials met with several financial institutions including Merrill Lynch, Goldman Sachs, UBS Financial Services, JP Morgan, CitiGroup and First Southwest.

The New York City meetings were facilitated by Government Finance Associates, the long-term financial advisor to the state. Porter said there was substantial interest on the part of the financial institutions, and follow-up meetings have been scheduled. Talks with other investment banking firms will take place throughout the summer, he said.

"We are basically looking for their ideas. We presented a range of possible pipeline projects to them - including a pipeline built by the producers in which the state would have no role other than the traditional royalty and tax role, to other projects such as one built by a pipeline company, or one financed totally or partly by state tax-free bonds," Porter said.

If the producers decide to do the entire project themselves the discussion of a state financing role would be academic, he said. The risk assessment project is expected to be completed this fall, Porter said.

Gov. Frank H. Murkowski said, "It is important to examine all options available to the state, and begin to define risks, as we look to what commitments must eventually be made in bringing Alaska's gas to market.

"The state has a long position in petroleum resources, including natural gas, and much of the U.S. is very short. How we capitalize the transportation systems will impact Alaskans and the U.S. energy future for the next 50 years," the governor said.

Porter said the size and complexity of the project may require multiple firms to participate in any financing package. Possible nominal issuers, feasibility determination, interest rate sensitivity and other financial scoping considerations, were discussed, he said. Any eventual financing could include fixed and variable rates, and taxable and tax-exempt series.

Typically, a financing of this size would have a lead senior managing underwriter, one or more co-senior managers, a number of co-managing underwriters, along with a broader list of syndicate participants.

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