It’s hard for Alaskans not to feel like we’re “under siege”. Every day, there’s more news about low oil prices in Alaska, which is adversely affecting the State budget, oilfield-related jobs, and the ripple effect of state contracts not awarded.
Many of us wonder if Alaska’s opportunities will be limited in the future – will a high percentage of us need to leave the State to find jobs?
The Venture North Group is an Anchorage-based company that seeks to place companies with new buyers and to find capital on behalf of project sponsors. In the course of performing our jobs, we see a good cross-section of companies for sale and new projects on the horizon. We also have the opportunity to see industry trends in many of Alaska’s business sectors, and have access to the reasons that owners are divesting their firms, why buyers are buying, and why project sponsors are trying to find capital now, versus later.
What we’ve learned is that most of Alaska’s industries are faring well, if not booming. Tourism in Alaska is at or near record levels, which has benefitted other support industries indirectly. Alaska’s telecommunication industry has benefitted from large infrastructure projects such as the Quintillion project, aiming to connect Europe and Asia. Other substantial infrastructure projects are also underway as telecoms upgrade their facilities and seek new markets. Railbelt electric utilities have, or are in the process of replacing aging power generation facilities and are investing millions in addressing the best strategies to upgrade 50-year-old transmission lines. These power plants are generally seeking to utilize Cook Inlet gas as a fuel, which encourages continued investment in keeping gas production robust in Alaska to support local needs. Local companies are investing millions in exploration to find more gas to help Fairbanks lower its costs of power. In addition, local companies tasked with constructing and upgrading these facilities are having their best years.
Fairbanks, with the receipt of two squadrons of F-35s beginning in the fall, is likely to add 2,300 or so military and related civilian workers to support this new deployment of assets. To construct the new infrastructure required to house this capability, as many as 2,700 construction workers will be needed for a good five years. New housing will be needed and existing hospitality facilities should have many good upcoming years to house the influx of 5,000 new folks. In addition, the military bases in Fairbanks are adding Apache Helicopters, which requires additional employment. Drone technology is also being brought here over the next three years.
Should the Donlin Creek gold mine proceed with its plans, it would build a gas pipeline to its mine and construct a power generation facility. This would create more incentive to explore for gas in Cook Inlet and along this corridor. The project would employ thousands during its planning and construction phases, in addition to employment at the mine.
Longer-term projects are in the works, as the Northwest Passage begins to open up. Northwest areas in Alaska are likely to expand Ports, Coast Guard facilities, ice-breaker infrastructure and private investment to service this developing market.
According to the June Alaska Trends, published by Alaska’s Department of Labor, Alaska’s overall employment is down by 1.3 percent versus this time last year. This is unfortunate, but is a far cry from fears of a much larger market downside here in the state. Some of this reduction in employment is due to large exploration projects coming to completion, giving way to increased production.
According to Alaska Trends, crude oil production in Alaska has increased by 16.2 percent since this time last year. Also, the world’s price of a barrel of oil has recovered substantially from its recent lows. Prices today are lower than we’d like to see, but are representative of the historical prices we experienced through 2005.
In regard to the State’s fiscal uncertainty, as opposed to many states, Alaska has substantial wealth and future prospects for continued wealth. The general consensus is that Alaska’s state government needs to diversify its revenue base across more revenue-producing sources. Relying upon oil as its primary source of income is risky and lends itself to moments like what we’re experiencing. We look forward to our government leaders resolving this diversification problem, which would reduce the volatility we’re experiencing in state funding. This might be more of a legislative challenge than a wealth challenge.
In short, Alaska’s business community is holding up well – in fact, many business sectors are having record years. Employment is down, but only slightly. Many large projects are planned for the near and long term, none of which depend upon state funding.
I think the “doomsayers” were wrong.
This article first appeared in the July 2016 issue of STRIVE magazine.
About the Author
Paul Wiltse is a co-owner of The Venture North Group, servicing Alaska, the Pacific Northwest, and Northern Europe. The Anchorage-based firm helps place or find companies for sale on behalf of clients, and finds capital for sponsors of infrastructure and energy-related projects. Previously, Paul has served in executive roles at Lockheed Martin, L-3 Communications, as the Budget Director for Anchorage, and as CFO for an Alaska Native Corporation.