Terry Brady, Alaska Fiscal Crisis, Photo by Dave HarbourFor Alaska Legislators: see this relevant note today from a long-time Alaska friend and colleague, Terry Brady (NGP Photo).


From Akheadlamp.com. Alaska House suspended action on all bills not related to the State budget. 

Credit Worthiness Downgrades Affect Public & Private Sectors

 

by

 

Dave Harbour

 

We have covered Alaska's deteriorating credit worthiness as judged by rating agency analysts.  

New York, February 11, 2016 — Moody's Investors Service (Moody's) concluded rating reviews on 11 Ba-rated US exploration and production (E&P) companies. Moody's confirmed three companies' ratings, and downgraded three companies' ratings two notches, two companies' ratings three notches, two companies' ratings four notches and one company's ratings five notches.

A list of each company's rating actions is included …. here.

From our anonymous Mid Atlantic energy analyst friend, today, comes this perspective on industry credit worthy status.  

Now, imagine an oil & gas exploration and production company doing or wishing to do business in Alaska…which must consider the negative effect Alaska's rating must eventually have on its own.  

How does Alaska's fiscal crisis and negative credit outlook affect its investors?  We don't pretend to divine all the ways.  But we can be sure that the raters and E&P investors both know that since Alaska's fiscal condition is unsustainable, political solutions create an undertow against investor stability; for, at any time, the aggrieved political animal can lash out and increase private sector tax burdens to preserve itself from painful cuts.

While all experienced policy makers know that is the sort of process leading to an economic death spiral for a family, company, utility, state government or federal government, political logic says, "Heck with the future, what is in my own best interest today?"  

Alaskans in particular and all Americans and Canadians in general have said, "yes" to irresponsible spending for so many years, that it has become routine, normal.

Thus, the thought of saying, "No," to constituents, "we can't afford it," has become too painful and completely, politically incorrect.

Liberal advocates seldom compromise.  

Conservative advocates almost always compromise

The trend is the friend of liberal advocates.

Trends end.

This trend's end has led us all to the current, unsustainable result.

-dh

Liberal constituencies are likely to continue demanding that public spending and tax policies remain robust.

Conservative constituencies are likely to demand the required, responsible spending and/or tax cuts … but, in the end, show their 'reasonableness' by agreeing to cosmetic decreases in bureaucratic and entitlement expenses along with real "revenue" increases, "because — for heaven's sake — we can't be inflexible!"

E & P companies, their support industries and credit analysts know from history and hard-won experience the unpredictable effects of political decision making on the security of energy investments. 

So, we have a question for Alaskans expecting a new wave of North Slope investment to fill a 3/4 empty Trans Alaska Pipeline System (TAPS), expected to fund 85% of state operations when oil prices over the last two years have dived by 3/4.

And we have a similar question for our Canadian readers expecting a new wave of Alberta, B.C. and Saskatchewan energy investments to revive struggling economies.

That question is: Do you expect to achieve prosperity again by sustaining the old, destructive tax and spend policies; or, do you have the political and cultural discipline to cut taxes and spending to economically sustainable levels?

"Compromising" between what must be done to become sustainable and a "no change" position must logically exacerbate the economic death spiral, delay the inevitable and produce more pain in the end than if responsible action had been earlier taken.

Finally, we pray that elected leaders are extraordinarily endowed and determined to create long term economic stability and a sustainable economy when their key constituencies disagree on which path to take.

 

A credit perspective from our Mid Atlantic energy analyst friend:

We thought we might move from writing about the Energy credit situation, but one of our readers sent this along today. It is timely and instructive as how the credit deterioration is infecting many E&Ps, and by extension their counter-parties, suppliers, and banks.

Today Moody’s released the results of its credit ratings reviews for eleven E&Ps, part of its recent placing the ratings of 69 US exploration and production (E&P) and oilfield services companies on review for possible downgrade. Given the results of eleven of the reviews (below), it is highly probable many more oilfield players will get downgraded this quarter. In a number of cases, these downgrades may significant, as it was with Whiting Petroleum (below).

Collectively, this is sure to affect how the banks deal with their appropriate loan situations, and how those overseeing the banks grade the banks’ actions. Moody’s stresses in its explanation that it sees the current situation as being a long-term situation.  We will have more on this situation over this quarter, but for now the readers may find the analysis of the issues that led to Moody’s evaluations in each case to be instructive.


 

Terry Brady, Alaska Fiscal Crisis, Photo by Dave HarbourA relevant note today from a long-time Alaska friend, Terry Brady (NGP Photo).

Dave,

The Legislative Information Office (LIO) started in the Early 1970s, in the basement of the Old Loussac Library (downtown). It was only open during the session. It consisted of two part time contractors, 2 desks and chairs, a teletype machine and a phone line.

Individual Legislators at the time took care of their own correspondence (at home or in Juneau) and only had State offices in Juneau.

The Legislative Council did have access to an Anchorage office.

"Does Government Grow at a rate outstripping the growth in population?"

Terry Brady (NGP Photo)