CHEYENNE, Wyo. — As it turns out, purchasing 5 million acres is not as easy as simply signing a check.
This past week, the Wyoming House and Senate advanced a wide-ranging plan to pursue the purchase of a checkerboard of land and mineral rights from Occidental Petroleum later this year, an important first step in a deal that could potentially be worth hundreds of millions — if not billions — in public dollars.
The plan — in the form of two bills — outlines everything from the funding sources needed to finance the deal to an outline for determining what to do with the wide swaths of land in the southern part of the state. With the Office of State Lands and Investments already at work evaluating the deal, the bills mark a crucial first step to facilitating what has been called the largest publicly funded land purchase since the acquisition of Alaska, or what Gov. Mark Gordon has declared to be “a once-in-a-lifetime opportunity to bring lands in Wyoming into Wyoming hands.”
But what does such a plan look like?
A deal involving 1 million acres of surface rights and another 4 million of mineral rights requires serious amounts of capital from a variety of different sources, each with their own sets of strings attached. Then there is understanding the land itself as well as its potential to generate a return worth the sizable investment, which includes a significant share of the state’s savings.
Little is actually known about the property right now, a mix of old Anadarko and Union Pacific land comprising swaths of land both wild and developed, leaving both sides in a high-stakes standoff over the value of the land and the state’s willingness to pay for it.
“We really just need to know what land is there,” Robert Godby, a professor at the University of Wyoming College of Business, said in an interview with the Star-Tribune. “What resources are there, what’s under lease already.
“The problem is probably nobody knows any better than Anadarko and now Oxy what that land was worth,” he added. “And so that’s really what this comes down to.”
Devising a dollar figure
How much money is that? So far, specifics on the potential costs of the deal have been elusive, with most ballpark estimates in the range of $1 billion or more. Where that money will come from is up for debate as well, with the state considering dipping into the hundreds of millions of dollars in reserves stashed away in its Permanent Mineral Trust Fund and its Common School Account to make the deal happen. (The Legislative Stabilization Reserve Account — colloquially known as the state’s “rainy day” fund — was only recently taken off the table in the House version of the bill, while the Senate has left it in.)
The potential deal has been pitched as its own “investment” to the state, sold by Gordon in a recent Star-Tribune op-ed as “an amazing investment, inflation hedge, chance to better secure our state’s future.” At a time when the stock market has proven more volatile than ever — and Wyoming seeks to diversify its investment portfolio ahead of a potential recession — investing in the land seems like a safe bet, particularly when land has proven to be a consistent money-maker in Wyoming for decades.
“Soda ash wasn’t affected by the stock market yesterday,” Senate President Drew Perkins, R-Casper, said in an interview Friday morning. “Soda ash royalties are pulled out of the mine, you ship ‘em off, and that’s a check every month. It doesn’t matter what the stock market does. Like with an apartment building, your tenants come to you with a check every month. It doesn’t matter if the stock market is up or if it’s down — people pay their rent. That’s why people like real estate.”
However, that investment could come with quite a bit of heartburn, purchased with money that for years has provided steady and reliable investment income to the state. Over the years, the Permanent Mineral Trust Fund and Common School Account generated millions of dollars in revenue for Wyoming at a time when revenues from oil, gas and coal have been in decline — yields that will only be reduced if money is stripped from it.
“Our savings are what give us the potential to actually have time to make decisions about the really serious fiscal challenges that we have,” Godby said. “We don’t have to panic and do something without a lot of thought immediately. That is the benefit as the governor said, and you know in his State of the State address, that gives us time. And if suddenly that money was changed into land, land is a far less liquid asset. You can’t pay the bills with land, you have to find a buyer for it. And that’s quite speculative.”
And what about the returns from such a deal? While House Appropriations Chairman Bob Nicholas, R-Cheyenne, threw out a hypothetical range of $130 million to $150 million per year in a Monday night hearing, Rep. Lloyd Larsen, R-Lander, clarified to the Star-Tribune following that meeting that all numbers to this point have been purely hypothetical.
That said, legislative leadership is confident that the land will continue to produce significant amounts of revenue that could quickly allow the land to pay for itself. The land in question is already well-known as a major source of trona in the western part of the basin, while in the east, the oil and gas potential is likely already mapped out. Add the value of the region’s known assets to the potential for other stable resources like soda ash, and you suddenly have a deal that could be too good to refuse.
“It’s incredible that almost all the income comes from the subsurface part of this purchase, and the benefits to the people almost completely come from the surface,” Perkins said. “It’s a fascinating prospect, one I think has the potential to change the course of Wyoming.”
Paying for it
Among the biggest challenges for lawmakers right now is finding the money to pay for the deal.
While Wyoming has billions of dollars in cash in various accounts saved up over the years, that money is hardly passive, compounding capital gains that, year after year, help the state make ends meet. Once spent, those funds won’t be easy to replace.
Long off-limits, those funds have now become fair game for the state’s appropriators. In both bills pushed by the House and Senate, possible sources of funding include the Common School Account and the Permanent Mineral Trust Fund. Members of the House of Representatives have even weighed the potential of pursuing a bonding option to purchase the land, according to the bill text. But that is a rarely used option in a state known for its aversion to taking on debt.
However, the interest on those bonds could potentially be paid for with the revenue from the land if the price is right, particularly as the bond market is expected to see depressed rates for months due to coronavirus fears currently wreaking havoc on the stock market.
Of course, that’s assuming the land can consistently maintain that level of output, especially as the purchase of the land would likely require the state to cover the lost revenues those counties rely on from current payment in lieu of tax agreements, commonly known as PILT payments.
“The long-term assumption then has to be that the returns on this land will be enough to fund ongoing payments like that,” Godby said. “If they are not enough, then that just adds an additional drain to our budget because right now that was a form of private funding that we no longer have.”
That said, Occidental — which already has a number of entities interested in purchasing the deal alongside Wyoming — has plenty of reason to sell, Godby said, particularly at a time when the company is looking to raise significant amounts of cash to reduce its debt.
“Wyoming is probably a very attractive buyer because we’re willing to take the entire thing off their hands in one transaction,” Godby said. “We’re good and done.”
Assuming the state can act quickly enough to close the deal.
“While the state has clearly communicated a lot of interest in this asset, it is a competitive process and there are a large number of qualified participants in that,” Cedric Burgher, Occidental’s senior vice president and chief financial officer, said in an earnings call with investors this week. “And the winner of that asset will be one of the largest land and mineral owners in the United States.”
A rushed process, and transparency fears
The expediency to pursue the deal has put a lot of pressure on lawmakers in a short period of time.
The entire deal, said Sen. Jeff Wasserburger, R-Gillette, carries with it the weight of historic land purchases like the acquisition of Alaska and the Louisiana Purchase, two somewhat secretive deals in their time that proceeded to pay dividends and help solidify the destiny of the United States.
“The only land I ever regretted,” Wasserburger — in a rousing speech on the Senate floor — recalled a rancher once telling him, “was the land I didn’t buy.”
Comparisons to the Louisiana Purchase and the buying of Alaska, it seems, were spot on. The process in crafting the plan — which, lawmakers said at the announcement earlier this month, has been “months” in the making — appeared somewhat rushed.
Having passed an introductory vote in both chambers three days before lawmakers knew what it was for, the legislation underwent an intensive amount of polishing in the days leading up to the Friday deadline in committee of the whole. Early Monday afternoon, the House Appropriations Committee released a substitute bill authored by House Speaker Steve Harshman mere moments before its final meeting ahead of the committee deadline, announcing plans to work the legislation later that evening.
Meanwhile the Senate — working its own version of the plan — rushed legislation out of the Appropriations Committee by unanimous vote on Jan. 21.
The process outlined in the original legislation is designed to allow the state to work fast. If approved by the Legislature, both bills would essentially create a mechanism allowing for a select group of six lawmakers and the State Land and Investment Board to pursue the purchase of the land — a small group designed to operate nimbly and efficiently to close the deal in prudent fashion.
“The more voices you add to a negotiation ... can sometimes make things more difficult to reach a deal,” Rep. Pat Sweeney, R-Casper, said in floor debate against the amendment Friday. “There’s got to be a level of trust, which I have and I hope you have. It’s easy to take potshots all the time, but sometimes you need to be willing to take a risk and a willingness to look at things. And that’s what I think leadership and the five elected officials are looking at for the future of the state.”
While the legislation — which essentially authorizes an investigation of the land prior to a potential purchase — skated through the Senate, the House of Representatives appeared much more skeptical about the deal as it headed toward a final vote, labeled by Casper Republican Chuck Gray as a “Don Quixote quest” and a “blank check.” Others in the House and Senate were skeptical of the leeway it provided to the executive branch in executing the deal, voting down a provision allowing the State Land and Investment Board to hold certain, non-voting meetings in secret while adding provisions subjecting any purchase to a vote of the Legislature and increased public involvement in the process.
Even as the Legislature is moving toward authorizing its leaders to merely take a look at the deal, many in Cheyenne are anxious over the level of trust being afforded to the state’s chief executive by the legislative branch.
“I’m very cautious, I guess. And I should be,” Harshman said. “I think Albert Sommers said it best: ‘This is a scary deal, but the scariest part of the deal is to not even look at it.’ I think we owe it to everyone to look at it, and if it doesn’t look right to move on. But you don’t want to look back a year from now with regret.
“That said, I don’t think everyone has land rush fever right now,” he added. “I think there’s some very cautious people who are very well-intentioned. I think folks can be well-assured by that.”
Star-Tribune staff writer Camille Erickson contributed to this report.
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